NIKKEI ASIAN REVIEW: Thai government promises to spend $54 billion on infrastructure projects
WILLIAM MELLOR, Contributing Writer
U-TAPAO, Thailand — Worapol Tongpricha, a naval rear admiral dressed in a smart business suit, stands in the center of a sprawling former U.S. military base and marvels at its unlikely rehabilitation.
U-Tapao, which lies 140 km southeast of Bangkok, not only serves as home for a Royal Thai Navy air wing, but also has been used in recent years to handle small-scale civil aviation traffic.
“Our role has changed from supporting war to triggering the wealth of our country,” says Worapol, a former military pilot who now heads the U-Tapao Airport Authority.
The important role that U-Tapao could play was highlighted in mid-February when Prime Minister Prayuth Chan-ocha, who led the country’s 2014 coup, strode into a vast conference hall in Bangkok to update 3,000 investors, businessmen and bankers on the government’s economic strategy.
The government had already outlined an ambitious investment program that includes plans for new roads and train lines, free trade zones and deep sea ports to connect Thailand with 3.3 billion consumers – half the world’s population – who live in Southeast Asia, China and the Indian subcontinent.
But what many have not yet realized is that 80% of the government’s planned spending, amounting to $42.8 billion under the latest estimates, will be concentrated over the next five years on a narrow coastal strip stretching some 200 km south and east from the outskirts of Bangkok to U-Tapao and beyond.
Known as the Eastern Seaboard and now rebranded as the Eastern Economic Corridor, the 13,000-square km region is already home to large auto plants and electronics factories. The region has become critical to global supply chains in its production of cars and electronic components.
For example, Auto Alliance, a Japan-U.S. joint venture, turns out Mazda cars and Ford trucks at the rate of one every two minutes and exports them to 130 countries. The areas is also home to Thailand’s largest sea port, Laem Chabang, which last year shipped 1.2 million Thai-made vehicles overseas – an almost 50% increase in four years. Under Prayuth’s expansion plans, that number would rise to 3 million units.
Up the value chain
Prayuth now wants to create and nurture advanced industries such as robotics and aerospace. Already Thailand’s aerospace industry has attracted 26 aircraft component makers and maintenance specialists including U.S.-based TurbineAero, which describes itself as the world’s largest independent maintenance company specializing in auxiliary power units (APUs) for aircraft.
During a visit to the TurbineAero factory on an industrial estate near U-Tapao, U.S.-trained Thai technicians were repairing an APU for a Boeing 747 operated by Taiwan’s EVA Air. Elsewhere in a shared facility, Thai employees of another U.S. company, Triumph Group, were repairing wing parts of a China Eastern Airlines plane.
The government is hoping that U-Tapao will become the regional hub for maintenance, repair and overhaul services to all carriers serving Asia, the world’s fastest-growing aviation market. “Thailand has done a fantastic job attracting companies like ours,” noted TurbineAero Chief Executive Rob Higby.
The prime minister’s ambitions do not stop there. He wants to build four new environmentally friendly cities to house the people working in the corridor. Also planned is a high-speed rail line to connect Bangkok’s two existing and heavily used airports, Suvarnabhumi and Don Muang, to U-Tapao within one hour. “With that rail connection, the three airports will effectively be one,” said Warapol. A double-track freight rail link would also connect Bangkok with three deep water ports, one of which, the Sattahip naval base, adjoins U-Tapao.
In his latest push to attract investors, Prayuth is offering to expand already generous tax incentives. For high tech companies willing to set up research and development facilities in Thailand, corporate income tax exemption will be increased from eight to as much as 15 years. Foreign companies for the first time will be able to buy land for the factory sites. “Thailand is ready to be the hub and center of the region,” said Prayuth.
The prime minister said the government would address Thailand’s education shortcomings, including teaching young Thais to become fluent in English and other foreign languages. He vowed to combat corruption by increasing the transparency of decision-making. Under the military government, Thailand last year slipped 25 places in Transparency International’s corruption perception index to 101st out of 176 nations. “Corruption will have no place in Thailand,” Prayuth told investors. “If you have any problems, let me know.”
The investment conference also heard Thailand’s richest man, self-made tycoon Dhanin Chearavanont, and Prayuth’s economic guru, Deputy Prime Minister Somkid Jatusripitak.
Somkid said Thailand’s economy would grow by as much as 4% this year – well above the 3.3% forecast by the International Monetary Fund. Once the planned major infrastructure projects become operational, the government said that figure will rise to 5%. He added that Thailand would coordinate its development plans with its poorer neighboring countries. “It won’t be just Thailand first,” he said in an apparent dig at U.S. President Donald Trump’s “America First” pledge.
Dhanin, who controls the CP Group conglomerate, expressed his hope that, “in 10 years, Thais will perhaps be wealthier than Singaporeans per head.” That would seem a tall order given that Thailand’s gross domestic product per capita is just $5,800 compared to Singapore’s $52,000. But the junta can claim that Thailand punches way above its weight both in terms of industrial clout and wealth of agricultural commodities.
Thailand is among the world’s biggest exporters of products as diverse as computer disk drives, rice, rubber, sugar and canned tuna. It is Southeast Asia’s leading auto manufacturer — ranked 12th in the world — and one of the top global tourist destinations. Thailand’s internationally certified hospitals have also made the country one of the world’s most popular destinations for medical care for foreigners seeking low-cost, high-quality treatments ranging from open heart surgery to breast enhancements and gender reassignment.
Among “softer” attractions, the country is a popular base for expatriate executives. “With all the golf courses around here, it is hardly a hardship posting,” says American David Nardone, vice chairman of WHA Corp, which operates nine industrial estates within the Eastern Economic Corridor and is planning to open three more.
Prayuth and his advisers are spending much time promoting the country to international investors. Just after leading the 2014 coup, the former general appointed himself chairman of the Thailand Board of Investment, which has 14 overseas offices. In the biggest media “familiarization” exercise it has staged, the BOI in mid-February flew more than 60 foreign journalists from around the world to Thailand at government expense to take them on a four-day promotional tour.
But Prayuth’s ambitions also face significant headwinds. More than a decade of political upheaval and devastating floods in 2011 and 2012 significantly affected growth momentum. Thailand also faces increased competition for foreign investment from neighboring countries, such as Vietnam, which offer lower labor costs.
Thailand’s heavy dependence on exports also means it is hostage to ongoing global economic uncertainty, including China’s slowing economy.
The extended mourning period following the death last October of King Bhumibol Adulyadej has caused further disruption. Thailand’s GDP increased by just 3.2% last year – barely half the 6% it averaged between 1971 and 2010.
Although Thailand is Southeast Asia’s second largest economy, it now has the second slowest growth rate in the region, way below the 6% to 7%-plus annual rates posted by Vietnam and Myanmar in the last few years.
Thailand is also facing the kind of demographic time bomb now threatening growth in Japan and China. A highly successful birth control program over the last 50 years has left Thailand with an aging population. Today, more than one in 10 Thais are aged 65 or older — double the 1995 figure. By 2040, the World Bank projects that more than a quarter of the population will have reached 65. Already the labor market is so tight that the official unemployment rate is a miniscule 1%.
Kan Trakulhoon, a director and former chief executive of Siam Cement, told the investment conference that Thai companies are spending too little of their profits on R&D. Kan cited recent figures indicating that less than 1% of Thailand’s GDP went into R&D compared to 4% in Japan, 3% in Germany and 2% in Singapore. “Personally, I think we are still far behind in our country,” Kan said. “There is some movement, some change, but this is just the start. If we invest more in R&D here, then we can see a real change.”
Some critics note that political tensions and uncertainties continue to cloud Thailand’s future. While Prayuth’s coup ended political turmoil, his promise to return the country to civilian rule has been delayed.
Even so, investors still seem inclined to seize the opportunities he is offering. “The financial incentives are very significant,” says Mick Sheehan, general manager and director of Forme Medical, an Australian manufacturer of medical examination couches and treatment tables that will soon open a factory at Laem Chabang port free trade zone. “Regardless of how they became the government, the level of investment and planning they are putting in place is pretty outstanding,” he noted.