Continuing political confrontations and escalating violence in the southernmost provinces have dampened Thailand's investment climate and could jeopardise the government's attempts to revive the Thai economy, said the Australian-Thai Chamber of Commerce.
Foreign direct investment is critical for Thailand as the tourism and export sectors are battling the downturn, said chamber president Andrew Durieux.
Ongoing political problems and violence in the South make it more difficult for foreign investors to move here, set up or increase their investment in Thailand," he said.
Exports are vital for the Thai economy but will not recover without a global rebound, he said. Meanwhile, tourism faces the fresh blow of the H1N1 epidemic as well as militant attacks in the South.
"Thailand requires foreign investments to move the economy forward. (But) foreign investors are now being put off by political issues and the problems need to be fixed," he said.
Although Thailand has huge advantages in its geographical location and natural resources, Australian companies have started to shift their focus to neighbouring countries such as Cambodia and Vietnam and also to southern Africa.
"Neighbouring countries - even Cambodia - have become much more open for foreign investors. Among our top investment destinations are now Vietnam and Malaysia. And, of course, China continues to draw Australian dollars in the form of investment," he said.
Foreign investors need stability, the rule of law, consistent regulations and government assistance to make foreign investments operate smoothly, he said.
Customs and labour laws must be improved to increase Thailand's appeal to foreign investors, he said. Opening up the banking sector and loosening regulations would also pave the way for more investment.
"It is now difficult for foreigners to get loans from banks. They have sought funds locally to avoid the fluctuation of the Thai baht," he said.
Auscham has 450 corporate members in Thailand, many of them involved in mining, metals, education, services, tourism and hospitality.
Each year, about 5,000 Thai students graduate in Australia and return home while 20,000 Australians visit Thailand, including tourists, investors, long-term expatriates and retirees.
But the Board of Investment (BoI) reports that Australian companies made only three investment applications in the first seven months of this year with a total value of 88 million baht - a sharp decline from 11 projects with a value of 2.14 billion baht in the same period of last year.
In all 2008, direct investment from Australia to Thailand totalled 3.2 billion baht, said the BoI.