AS BORDERS OPEN, BARRIERS TO GROWTH REMAIN
Thailand is well placed to reap the benefits of the AEC, but only if the military government can seize the advantage by upgrading sagging infrastructure and expediting the creation of new special economic zones
All 10 countries in Southeast Asia will come together on Dec 31, which is the official date for the start of the Asean Economic Community. In theory, the AEC is intended to usher in a new era of seamless trade, investment and movement of skilled labour. In practice, most member countries have not yet created all the conditions needed for the AEC to realise its full potential.
Thailand has been preparing for the AEC in the past few years, but many policies still have not been updated to accommodate the goals of the new single market. Meanwhile, the country is facing increasing competition from its neighbours to attract foreign investment. The reasons are many, ranging from high labour costs to concerns about political risk.
The transport and logistics infrastructure in parts of Thailand is still not as good as it should be for a middle-income country with so many resources. Many projects have been stalled for years because of frequent changes in government. Consequently, the country is falling behind in terms of competitiveness with some of its Asean neighbours. The current military government is trying to improve competitiveness by making major investments in infrastructure developments, most of which were first proposed by its elected predecessors.
Thailand has the best location in Asean, in the middle of newly emerging economies including Myanmar, Laos, Cambodia and Vietnam. To the south lie the more developed Malaysia and Singapore. In addition, Thailand is not far from China, a global manufacturing base and the world’s biggest consumer market.
The main roads in Thailand are connected to those in the countries that surround it. But over the past two years, it has become clear that the existing roads and border checkpoints are no longer adequate to support increased border trade volume, thereby affecting logistics and causing inconvenience.
The total value of border trade between Thailand and its four neighbours last year was 988 billion baht, according to the Foreign Trade Department. Border trade with Malaysia accounted for 508 billion baht of the total, Myanmar 214 billion, Laos 151 billion and Cambodia 115 billion. Thailand enjoyed a surplus overall, with exports via its land borders worth 590 billion baht. Economists believe border trade could be worth much more in the future as the AEC begins to make it easier to do business on a regional scale, if the right conditions are in place.
The first priority should be to expand the existing roads in all main border provinces, as well as those that connect border provinces to other major provinces around Thailand, particular along the routes designated by Asean planners as economic corridors.
In addition to improved highway connections, the country needs a vastly improved rail system. It is hoped that new double-track rail lines, on which construction is scheduled to start in 2016, will become an important and lower-cost means of carrying cargo and reduce dependence on road transport.
The development of special economic zones in selected border provinces is seen as one of the best ways to tap the full potential of the AEC. The SEZ programme was first proposed by the previous government but the only noteworthy development during its term was heavy land speculation in areas thought to be under consideration. Land prices in some locations have risen by as much as 500% over the past three years, making land acquisition for large industrial sites a headache for the current government.
However, the government has finally found suitable plots to develop, and has announced that the first phase of the SEZ programme will take shape in 2016 in some areas of Tak, Sa Kaeo, Trat, Mukdahan, Songkhla and Nong Khai provinces.
The other factor that has impeded progress has been incentives for SEZ investors, which are still not as attractive as those in other countries around Thailand. However, many foreign and Thai investors have already developed projects in areas around the planned SEZs.
Many residential projects have been launched in Tak province since the start of last year in anticipation of demand from people who will be working in the SEZs. Some new retail projects opened in 2015, and more are expected to be completed in 2016-17. Sa Kaeo also saw many residential projects launched in 2015. Some retail and other projects are in the pipeline, including a water park.
Not much progress has been seen in Mukdahan recently, but the Savan Seno SEZ, across the Mekong River in Savannakhet province of Laos, has been very popular. Many foreign investors in Savan Seno cross the river each night to their residences in Mukdahan.
Chiang Khong and Chiang Saen in Chiang Rai are also becoming new destinations for Chinese investors in logistics centres or warehouse projects to serve businesses from China that want to enter markets in Thailand and other countries. Some residential development is being seen as well.
Although Chiang Rai is already in the second phase of SEZ development, Nong Khai is seen as the most promising location, as it is the spot where a rail line from China via Laos will link up with the planned Chinese-built line in Thailand, running all the way to the eastern seaboard.
Sadao in Songkhla is an area in the southern part of Thailand that will be developed into an SEZ. Many Malaysian investors are cooperating with Thai investors who are developing warehouses and logistics centres to support expanded export-import activity through the Sadao checkpoint.
The eastern province of Trat, meanwhile, has not seen much development by the private sector other than tourism. Only a few Thai investors have entered the area and developed warehouses or shophouses for support, but the government is already expanding the road to four lanes to the border with Cambodia. Most of the foreign investors in the areas around the SEZ are Chinese, followed by Japanese. Thai investors are still waiting for a clear incentive policy from the government and other supporting laws and regulations.
The government and the Industrial Estate Authority of Thailand (IEAT) are hoping the creation of SEZs will stimulate manufacturing and push the overall economy higher as Thailand tries to shake off the effects of a global trade slump amid political instability. The increase in the daily minimum wage in 2013 has also affected manufacturing, causing many businesses to relocate to neighbouring countries.
A combination of fully serviced SEZs and an improved incentive policy may attract foreign investors back to Thailand again. The special zones will feature industrial estates, as well as commercial and residential zones, so the government and the IEAT are hoping to see a knockon increase in demand in the residential and commercial markets in the future.