Structural challenges
Continuity of major infrastructure projects is a key concern in the post-election era, write Lamonphet Apisitniran, Pathom Sangwongwanich and Phusadee Arunmas
Investors seek investment continuity no matter what the poll outcome.
Thailand headed to the polls yesterday after lacking a general election for nearly eight years, with much speculation about the next chapter in Thai politics. As of press time, we only know that 87% of 2.6 million voters registered for early voting on March 17 cast their ballots. A further 49 million Thais have yet to vote. The number of voters in Sunday’s election could be historic after the public was repeatedly disappointed by promises of an election by the ruling junta.
Whether the pro-junta Palang Pracharath Party manages to form a coalition government and retain its grip in parliament, or the pro-Thaksin parties emerge victorious as witnessed during the last two elections, continuity of major infrastructure projects is among the top priorities businesses want to see to move the economy forward during the post- election era.
With protectionist trade measures denting the global outlook and elevated household debt keeping a lid on domestic consumption, Thailand will have to rely on public investment to jump-start its lacklustre economic growth and attract foreign direct investment flows and private investment incentives.
“The industries we have relied on for the past 30 years are beginning to sputter,” said Burin Adulwattana, chief economist at Bangkok Bank. “We need to escape the middle-income trap, but our labour force is not ready to support high- tech and valueadded industries just yet, so we need to kick-start infrastructure development, especially in the Eastern Economic Corridor (EEC).”
FLAGSHIP SCHEME
The EEC is the military-led government’s flagship investment scheme, spanning the eastern provinces of Chon Buri, Rayong and Chachoengsao.
The government hopes to complete the EEC by 2021 in a bid to turn these provinces into a hub of technological manufacturing and services connected to Asean neighbours by land, sea and air.
On Feb 8, 2018, the National Legislative Assembly passed the EEC Act as a law.
Despite years of press coverage for the EEC and government promotion, contracts have not been awarded to companies for most of the major EEC projects, including the U-tapao airport expansion, an aviation maintenance, repair and overhaul (MRO) centre and infrastructure development at Map Ta Phut and Laem Chabang ports.
A consortium led by Charoen Pokphand (CP) Group has been awarded the rights to build the Bangkok-Rayong high-speed train, but the consortium and the government have yet to reach a final agreement.
“Government investment so far has been really disappointing in the EEC,” Mr Burin said. “The government has kicked the can down the road ever y year, and for the past five years the average disbursement rate of investment was only 70% of planned investment, while last year was even more disappointing at 56%.”
Obboon Thirachit, director of Fitch Ratings, said the election may delay some EEC projects and the potential of political
instability is a key risk to economic growth and investment.
However, all major political parties have infrastructure development at the top of their agendas and will likely continue development of the previous government’s investment roadmap as the EEC Act keeps the new government on track, Mr Obboon said.
If Palang Pracharath comes to power by leading a coalition government, this would be a blessing for the EEC projects because the party would continue policies drawn up under the military government.
Meanwhile, the Future Forward Party plans to revamp an EEC scheme that it views as the wrong approach, arguing that new investment flows are concentrated in a group of provinces and the concession for a high-speed railway linking three airports near the capital has not been transparent.
Besides potential pollution problems, critics have said the EEC will force many farmers to lose their right to use state land, a right bestowed by the Agricultural Land Reform Act.
The EEC Act enables the state to reclaim such land from farmers and reallocate it to EEC investors, under concessions, for the development of projects.
But business leaders are hoping that the EEC scheme will be a game-changer for Thailand’s economic development.
Kriengkrai Thiennukul, vice-chairman of the Federation of Thai Industries, said the EEC is a good investment project for the country because it will boost Thailand’s economic expansion and help the country escape the middle-income trap in the future.
“Foreign and local investors have recognised Thailand’s EEC scheme and many companies have been preparing to invest and expand in the EEC, so it’s impossible that the next government will stop the EEC project,” said Viboon Kromadit, chief executive of Amata Corporation Plc.
Plans to cut logistics and transport costs and the continuity of the EEC project are needed to upgrade Thailand’s manufacturing industry to a high-value production chain and switch from low-cost production to tech products, said Visit Limlurcha, vice-chairman of the Thai National Shippers’ Council.
Total investment in the EEC is projected at 1.7 trillion baht, with private investment making up 1.4 trillion baht for infrastructure development and private investment in the 12 targeted S-curve industries.
REVIVING SMES
Small and medium-sized enterprises (SMEs) are among the pillars of Thailand’s economy, but sputtering economic fortunes and business hardships have derailed growth for these companies.
Essentially, there are 3 million SMEs making up 99.7% of Thai businesses.
SMEs employ 21 million people, representing 55% of Thailand’s workforce, according to Naris Sathapholdeja, head of TMB Analytics.
Despite improved GDP growth at the macroeconomic level, SMEs have not been able to reap positive benefits because 90% of exports are associated with large companies, Mr Naris said.
Moreover, rising bad loans are adding misery to already-ailing SMEs.
SMEs’ non-performing loans (NPLs) rose to 4.5% in 2018, up from 4.4% in 2017 and a sharp increase from 3.1% in 2014, according to Bank of Thailand data.
Manufacturing, commerce and construction are identified as SME segments with high NPLs, whereby the average NPL ratio stood at above 6% last year.
“The public sector has to be responsible for scaling up SME competitiveness, as it is important to revive [the growth of ] SMEs for sustainable growth [of the Thai economy],” Mr Naris said.
The tax incentives and investment privileges offered by the Board of Investment have not trickled down to SMEs because these benefits are reaped by large corporates, he said.
The new government has to reflect on how much benefit the EEC scheme offers SME competitiveness and productivity, he said, as the scheme does not seem to align with SME development.
“A plan to hike the daily minimum wage is another burden for SMEs,” Mr Naris said. “Wages across different sectors should not be the same in order to drive productivity. Anything that is a blanket measure does not work well.”
STIMULUS, RESTRUCTURING
Whoever comes to power after the election, the new administration is set to experience a daunting task steering the economy forward amid rising external headwinds and existing domestic structural problems.
The new government should stimulate the economy to offset impediments to economic growth, said independent academic Somjai Phagaphasvivat.
But such stimulus has to be implemented at an equilibrium threshold in order to uphold financial and monetary stability, Mr Somjai said.
The State Financial and Fiscal Disciplines Act of 2018, publicised in the Royal Gazette in April 2018, is meant to prevent future governments from getting carried away with populist policies.
According to the law, total public expenditure must not push public debt above 60% of GDP, the government’s debt ratio in an annual budget must not exceed 35%, and the proportion of public debt denominated in foreign currency must not be above 5% of income from exports of goods and services.
But some academics have argued that the law was drafted for optics, as there is no quantitative indicator of what can be done in various scenarios and to what extent the budget deficit and debt are allowed.
Restructuring of existing tax policies for greater social equality and implementing retraining programmes for the workforce are also crucial, as these initiatives will readjust Thailand’s economic structure for the future, Mr Somjai said.
“It is expected that Thai politics will not be stable going forward because of divisions among many political and social fractions, while a significant wealth gap between the rich and poor is another point that can reignite political conflicts,” he said.
The inequality gap in Thailand has become the worst in the world, according to the latest annual Global Wealth Databook by Credit Suisse.
The bank’s statistics showed that as of 2018 the top 1% controlled 66.9% of the national wealth. That 1% represented about 500,000 people, compared with the 50 million workingage Thais.
‘‘ Many firms have been preparing to invest in the EEC, so it is impossible that the next government will stop the project. VIBOON KROMADIT Chief executive of Amata Corporation