Transforming Thailand into an advanced economy

By: | Issue #669 | at 10:00 AM | Channel(s): International Trade  

Government programs emphasize transportation and logistics. Eastern Economic Corridor (EEC) mega-projects to address infrastructure issues.

Thailand’s government sees its country as a victim of a “middle-income trap,” in which the robust growth it enjoyed a few years ago during an era of rapid industrialization has since slowed. In fact, Thailand’s gross domestic product growth has trailed its regional neighbors in recent years, hitting a three- to four-percent stride since 2015. Malaysia and Indonesia are growing at around five percent, the Philippines, at six percent, and Vietnam, at close to seven percent.

A Buddhist shrine in Bangkok, Thailand
A Buddhist shrine in Bangkok, Thailand

The military junta which has ruled Thailand since it overthrew the civilian government in 2014, has embarked on an ambitious program of economic development that includes a couple of related programs. The Thailand 4.0 program is designed to bring the country to the forefront of the global digital economy. It envisions a new economic model to follow previous periods of agricultural, light industrial, and more sophisticated industrial build outs. Development of the Eastern Economic Corridor (EEC), a geographic area adjacent to the eastern side of the Gulf of Thailand, involves investments in megaprojects, many of them based on digital and other high technologies, and including major improvements to the regional logistics infrastructure.

Logistic Investments

Logistics investments in the EEC have the aim to create seamless transportation systems linking roads, rails, sea routes, and air transportation within the EEC and to peripheral areas, including neighboring countries like Cambodia and Myanmar. EEC projects coming under the umbrella of Thailand 4.0 include constructing the Bangkok-Rayong high-speed train system linking three airports; expanding U-Tapao International Airport, developing it into a regional aviation MRO hub, and building out its cargo capacity; and the further development of the Laem Chabang and Mab Ta Phut sea ports.

Development of Phase 3 of the Laem Chabang Deep Sea Port aims to expand its capacity to handle three million auto exports and 18 million TEU per year. “We want Laem Chabang to rank among the world’s top ten ports,” Pailin Chuchottaworn, Thailand’s Deputy Minister of Transport, told a seminar attended by investors and reporters in Bangkok in March 2018.

Related to developments at Laem Chabang, Motorway No. 61 will be developed to stretch 180 miles between Laem Chabang and Nakhon Ratchasima. “The purpose is to support related industries between Laem Chabang, Map Ta Phut, and U -Tapao International Airport,” said Chuchottaworn.

Map Ta Phut port is projected to be the beneficiary of over $1 billion in public and private investments over the next five years to development of an infrastructure for handling petrochemicals. In addition to Motorway No. 61, Motorway No. 7 will be developed to link Bangkok, Thailand’s capital and largest city, and Map Ta Phut.

Development of double track rail lines is part and parcel of the port expansion plans, according to Kanit Sangsubhan, secretary general of the Eastern Economic Corridor Office. “The double-track track rail lines will connect industrial zones nationwide to the three main ports,” he said. “This will increase the capacity to handle more liquid materials and natural gas.” It will also be instrumental in the planned of the ports’ overall capacities, Sangsubhan added.

Investments in port improvements will total $24.2 billion for Laem Chabang, said Sangsubhan. The dual-track railway will cost about $1.8 billion and motorway improvements will run around $1 billion.

On the aviation front, the Thai government in February 2017 approved a 15-year Aviation Industry Development Plan to expand U-Tapao International Airport, a facility that opened a little more than a year ago. Currently accommodating one-million passengers per year, the airport seeks to handle over three million and is also building out an air cargo capacity that will be ready in about two years.

“Thailand’s Ministry of Transport is offering incentives to grow aircraft maintenance facilities and expand the aircraft parts manufacturing industry,” noted Chuchottaworn.

Thailand is competing in the aircraft maintenance, repair, and overhaul (MRO) field in Southeast Asia with Singapore. “Thailand’s Ministry hopes to achieve an ambitious target of establishing an Aeropolis to handle the maintenance of regional aircraft and upgrade the country aviation’s industry as well as improve human resource skills in the sector,” said Chuchottaworn. “Incentives could create a $300 million industry and jobs for 7,500, in addition to reducing the cost of annual maintenance for local airlines.”

The canal in Bangkok, Thailand
The canal in Bangkok, Thailand

The plan also includes growing Thailand aircraft spare parts manufacturing industry from 28 factories to 40 by 2020. “Aviation is one of the targeted industries the government wants to improve,” noted Chuchottaworn. Total investments in U-Tapao are expected to reach $5.7 billion.

The incentives being offered by the government include allowing the private sector to invest in airports via public-private partnerships (PPP), while foreign companies will be eligible to handle airport management and hold a share of more than 51% in the MRO centers. The PPPs will be allowed for airports in 10 cities, in addition to U-Tapao. Airbus Group is considering investing in an aircraft maintenance center in Thailand at U-Tapao under a memorandum of understanding signed with Thai International Airways earlier this year. The MOU covers conducting a feasibility study with Thai on opening a regional MRO hub at the airport.

EEC Targets

The government’s plan for the EEC includes targeting 116 industries in total, including so-called s-curve industries—existing sectors whose growth can be accelerated by the application of digital technologies—activities supporting science and technology, and basic infrastructure. Targeted industries qualify for exemptions to corporate income tax for two years longer than others—for a total of up to eight years—as well as a 50-percent tax reduction for an additional five years, according to Duangjai Asawachintachit, secretary general of the Thailand Board of Investment. Other industries located in the EEC get an additional three years of 50% corporate income tax reduction.

Targeted industries include developing the “automobile for the future,” smart electronics, biotechnology, food production, robotics and automation, aviation and logistics, bio-energy and chemicals, medical and health, and digital technologies.

These measures are all about “strengthening Thailand’s position in the global market,” Thai Deputy Prime Minister Somkid Jatusripitak told the investment seminar, and “transforming Thailand into an advanced economy.”

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Peter Buxbaum has been writing about international trade and transportation, as well as security, defense, technology, and foreign policy, for over 20 years. Besides contributing to the AJOT, Buxbaum's work has appeared in such leading publications as [em]Fortune, Forbes, Chief Executive, Computerworld, and Jane's Defence Weekly[/em]. He was educated at Columbia University.