Thai­land’s Eastern Seaboard has long been a man­u­fac­tur­ing hub. The Thai Gov­ern­ment is look­ing ahead.

Thai­land’s Eastern Seaboard has long been a man­u­fac­tur­ing hub with nu­mer­ous in­ter­na­tional firms op­er­at­ing in the re­gion.

Norway-Asia Business Review - - Contents - CHEYENNE HOL­LIS

In an at­tempt to stim­u­late fur­ther growth and broaden the area’s ap­peal, the Thai gov­ern­ment branded this strate­gi­cally lo­cated des­ti­na­tion as the Eastern Eco­nomic Cor­ri­dor and an­nounced two ma­jor poli­cies de­signed to trans­form the area.

When the in­au­gu­ral Pat­taya Arts Fes­ti­val was held in early Fe­bru­ary along the city’s famed Beach Road, it of­fered a glimpse of what the present looks like and what the fu­ture may hold.

Tourists and lo­cals min­gled with in­ter­na­tional artists and browsed booths stocked with goods from cre­ative Thai com­pa­nies. On the other side of Beach Road re­mained the beer bars and sell­ers ped­dling cheap prod­ucts that Pat­taya has de­vel­oped a rep­u­ta­tion for.

The con­trast was stark and could be a sign of things to come for the Eastern Seaboard. The gov­ern­ment ap­proved the Eastern Eco­nomic Cor­ri­dor (EEC) devel­op­ment project last year and is heav­ily pro­mot­ing its Thai­land 4.0 pol­icy at the mo­ment. The EEC project is de­signed to draw in for­eign in­vest­ment and im­prove the re­gion’s in­fras­truc­ture while Thai­land 4.0 is a gov­ern­ment ini­tia­tive fo­cus­ing on ed­u­ca­tion and other projects de­signed to cre­ate a value-add econ­omy. The end goal is to no longer be solely re­liant on low-value man­u­fac­tur­ing in­vest­ment.

“At the mo­ment, Thai­land is at the bot­tom of value chain ac­tiv­ity. The coun­try mostly draws in orig­i­nal equip­ment man­u­fac­tur­ers (OEMs) from abroad at this time be­cause labour is cheap here,” Dr Pavida Pananond, As­so­ciate Pro­fes­sor of In­ter­na­tional Busi­ness at Tham­masat Busi­ness School, states. “While what this brings is im­por­tant to the coun­try’s econ­omy, it also means there is a ceil­ing and Thai­land has hit that ceil­ing.”

The EEC prov­inces of Chon Buri, Ray­ong, and Cha­cho­engsao cur­rently ac­count for nearly 20 per­cent of the coun­try’s to­tal GDP, ac­cord­ing to gov­ern­ment statis­tics, but there is a be­lief the ma­jor in­dus­trial area may have reached its peak un­less some­thing changes.

“Thai­land can’t solely rely on OEMs be­cause it is only so valu­able to both the coun­try and the in­ter­na­tional

com­pa­nies in­vest­ing and op­er­at­ing here,” Dr Pavida ex­plains. “Don’t get rid of man­u­fac­tur­ing, but in­stead find ways to add value to it and make sure you’re pro­vid­ing for­eign com­pa­nies with value in other places, whether it be tech­nol­ogy, skilled labour, re­search and devel­op­ment or through on­line plat­forms.”

Thai­land Prime Min­is­ter Prayut Chan-o-cha is spear­head­ing the Thai­land 4.0 pol­icy go­ing as far as to speak at sem­i­nars at­tended by for­eign in­vestors to ex­plain the gov­ern­ment’s hopes for the project. De­spite this ini­tial com­mit­ment, ex­perts note the plan will re­quire decades of proac­tive sup­port from the Thai gov­ern­ment.

“These plans will re­quire the Thai gov­ern­ment to look at the long term pic­ture in­stead of be­ing re­ac­tive,” Dr Pavida says. “The gov­ern­ment should see what it will take for these plans to be suc­cess­ful and then com­mit to get­ting it done. While there has been a lot a talk about Thai­land 4.0, it will be im­por­tant to see how com­mit­ted the gov­ern­ment is when it comes to im­ple­ment­ing it.”

Tax breaks & bet­ter trans­port

The fruits of the EEC devel­op­ment project won’t take nearly as long to bear, as the gov­ern­ment wants to re­duce lo­gis­ti­cal costs for com­pa­nies based in the EEC and make it more at­trac­tive to do busi­ness here. The re­gion is vi­tal to global sup­ply chains since it can of­fer ac­cess to China and In­dia as well as South­east Asia. How­ever, it lacked an in­ter­na­tional air­port, rail links and port ca­pac­ity prior to the plan’s ap­proval.

Some of the EEC’s in­fras­truc­ture im­prove­ments are al­ready un­der con­struc­tion and sched­uled to be com­pleted this year. One project, the U-Ta­pao In­ter­na­tional Air­port, opened the ren­o­vated in­ter­na­tional ter­mi­nal in 2016 and the num­ber of pas­sen­gers and flights us­ing the fa­cil­ity is ex­pected to in­crease this year. Con­struc­tion con­tin­ues on the air­port, which could han­dle up to three mil­lion pas­sen­gers an­nu­ally once com­pleted.

Plans also call for con­struc­tion of a deep-sea port at Map Ta Phut and mod­erni­sa­tion of the port at Laem Cha­bang. Once com­pleted, the EEC will link the Dawei deep-sea port in Myan­mar to the Si­hanoukville port in Cam­bo­dia and Vung Tau port in Viet­nam.

In ad­di­tion to the in­fras­truc­ture projects that will even­tu­ally im­prove land, sea, rail and air links, the gov­ern­ment is hop­ing to at­tract in­ter­na­tional firms to the EEC by ex­pand­ing cur­rent tax in­cen­tives. For ex­am­ple, busi­nesses will­ing to set up a re­search and devel­op­ment fa­cil­ity in the EEC will re­ceive a cor­po­rate in­come tax ex­emp­tion for up to 15 years. EEC devel­op­ment plans also al­low for­eign com­pa­nies to buy land for fac­tory sites, some­thing not per­mis­si­ble in the past.

Dur­ing the un­veil­ing of the EEC devel­op­ment plan in June 2016, Mr Kanit Sang­suphan, Head of the Fi­nance Min­istry’s work­ing group to en­hance pri­vate in­vest­ment, said the gov­ern­ment ex­pected THB 1.5 tril­lion in pri­vate in­vest­ment to come into the EEC be­tween 2016 and 2021.

Find­ing the ben­e­fits Jo­tun, a Nor­we­gian paint man­u­fac­ture, has been op­er­at­ing in Thai­land for nearly 50 years and cur­rently bases some of its Asia-Pa­cific op­er­a­tions in Chonburi. The com­pany be­lieves both the EEC Devel­op­ment plan and Thai­land 4.0 will be ben­e­fi­cial in the short and long term.

“The gov­ern­ment has not been in touch with us in re­gards to the EEC or Thai­land 4.0, but we have been in­vited to a num­ber of con­fer­ences and events on both top­ics ex­plain­ing their ben­e­fits,” Mr An­dreas Stolt-Nielsen, Gen­eral Man­ager Dec­o­ra­tive at Jo­tun Thai­land Limited, says. “How­ever, we hav­ing been op­er­at­ing in Thai­land for such a long time and view our­selves as more of a lo­cal com­pany, The gov­ern­ment wants to at­tract new busi­nesses to the coun­try with these poli­cies.”

The com­pany ex­pects the new in­fras­truc­ture projects will be a boon to the re­gion and will suc­cess­fully bring in new for­eign in­vest­ment. That, in turn, will ben­e­fit its var­i­ous paint di­vi­sions.

“All seg­ments of Jo­tun will likely ben­e­fit from the poli­cies. New fac­to­ries and fa­cil­i­ties will be built which our seg­ments like pro­tec­tive, dec­o­ra­tive and pow­der will cover,” Mr Stolt-Nielsen ex­plains. “The in­fras­truc­ture projects will bring in more ships when ports are ready which also will ben­e­fit our marine coat­ings divi­sion. From our per­spec­tive, there are a lot of pos­i­tives the EEC projects will bring.”

It’s not just Jo­tun likely to ben­e­fit from the new poli­cies. Both Thai­land 4.0 and the EEC devel­op­ment plan could cre­ate new op­por­tu­ni­ties for Nor­we­gian firms, es­pe­cially those look­ing to in­crease their foot­print in Thai­land and the Asia Pa­cific re­gion. Com­pa­nies from Nor­way are al­ready very ac­tive in the fishing in­dus­try and “The Land of Smiles” could soon tempt oth­ers.

“Com­pa­nies from Nor­way may see these new poli­cies be­ing im­ple­mented by the gov­ern­ment and re­visit the idea of in­vest­ment or ex­pan­sion op­por­tu­ni­ties in Thai­land,” Mr Stolt-Nielsen said. “Those con­sid­er­ing it now should act early to take full ad­van­tage of the op­por­tu­nity.”

Will it work? And while Jo­tun is op­ti­mistic the in­fras­truc­ture projects will be com­pleted as promised, the com­pany isn’t sure when ev­ery­thing will be com­pleted due to the size and scope of the ECC devel­op­ment

plan.

“We are wait­ing to see more from the gov­ern­ment in re­gards to plan­ning and man­ag­ing these in­fras­truc­ture projects moving for­ward,” Mr StoltNielsen said. “I’m sure they will all be com­pleted, but the timetable is still un­clear.”

Mr Stolt-Nielsen is not alone in this un­cer­tainty. Many firms and an­a­lysts are cau­tiously op­ti­mistic as to what the re­sults of the EEC devel­op­ment plan and Thai­land 4.0 will bring. Ac­cord­ing to Dr Pavida, the gov­ern­ment will play a large role in the suc­cess or fail­ure of both and, de­spite gen­er­ous tax in­cen­tives and po­ten­tial op­por­tu­ni­ties, many firms will opt to wait on the side­lines un­til more progress is made.

Plan­ning for change is easy, but as those who vis­ited the Pat­taya Arts Fes­ti­val saw, it can look a bit awk­ward when lined up across from the past. Much like how Pat­taya is still de­pen­dent upon vis­i­tors who seek out its nightlife and en­ter­tain­ment venues de­spite at­tempts to broaden the city’s ap­peal, the econ­omy of the Eastern Seaboard will re­main tied to OEMs. The EEC Devel­op­ment plan and Thai­land 4.0 aren’t likely to change this en­tirely, but Dr Pavida notes the new poli­cies should re­tain and at­tract for­ward think­ing busi­nesses.

Left: Mit­subishi is one of many for­eign com­pa­nies with a man­u­fac­tur­ing pres­ence in Laem Cha­bang. New poli­cies from the Thai gov­ern­ment are de­signed to en­tice firms to ex­pand the scope of their op­er­a­tions in the re­gion.

PHOTO: MIT­SUBISHI

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