Thailand seeks new momentum with ambitious Eastern Corridor programme

Only a group of Chinese tourists and a couple of backpackers wait in the main terminal at U-Tapao airport, less than 200 kilometres south of Thailand’s capital city, Bangkok. A former US military base during the Vietnam war, the airport has been a back-up facility for tourists heading to Pattaya managed by the Thai navy for decades, and bears no sign of a forthcoming upgrade aiming to turn it into a busy international hub.

Nor is there any sign of activity at an adjacent railway that is expected to become a high-speed train line from U-Tapao airport all the way to the capital’s international airports of Suvarbabhumi and Don Mueang.

Yet both projects feature at the heart of the Eastern Economic Corridor (EEC) strategy much touted by the Thai military junta, which has been ruling the country since May 2014, aiming to take the country’s economic development to the next stage. Preparatory works are in the making, and private investors, such as Chinese e-commerce giant Alibaba, have already jumped on board, giving the EEC some much-needed momentum.

EEC vision

“We are planning to have all the EEC’s major infrastructure in place by 2023,” says Kanit Sangsubhan, secretary-general of the EEC office.

After a few years of subdued investment and economic growth, and facing the spectrum of the ‘middle-income trap’, the Thai government framed the EEC vision in a specific law approved in February. This aims to build on the ageing success of the Eastern Seaboard initiative developed in the 1980s and 1990s, which laid the foundation for some of the country’s main industrial clusters, such as automotive, electronics and petrochemical, by attracting investment into 10 high-end targeted sectors with a hi-tech and innovation component such as new-generation automotive and electronics, digital industry, robotics and aviation.  

“A World Bank report made it clear: to become a developed economy, a country needs its own technology to drive up living standards, and that’s what Thailand is going for, although at the moment we lag behind in terms of innovation and capacity of new technologies,” says Mr Sangsubhan.

“With the EEC alone, if we generate a Bt300bn [$9.4bn] of incremental investment per year, we can grow by 5% per annum and with that we can reach the border of the middle-income trap level faster.”

Infrastructural importance

Infrastructure development is the key pillar to unleash the industrial and tourism potential that the government believes the region’s provinces have. Total investment in infrastructure alone is expected to reach about $20bn through several major public-private partnership (PPP) schemes tailored to develop major projects such as the U-Tapao airport city and the attached high-speed train running to Bangkok. The tendering process for the railway was launched in June, and the other infrastructure is slated to open for bids by the end of 2018.

By doing so, the Thai government hopes to create enough momentum to make the area an appealing destination for investors in the 10 targeted industries. These industries will also be offered specific incentives under the area’s free-trade zone regime, engineered to promote “productivity enhancement” for existing investors, according to Duangjai Asawachintachit, secretary-general of the country’s Board of Investment, the national investment agency.

“We have a package [of incentives] that allows companies to come back to us for some tax incentives if they move towards automation and digitalisation. We believe that if they can improve their efficiency, of course they would continue to expand in Thailand,” she says.

Alibaba’s boost

The EEC initiative has received a boost from Alibaba, which closed a partnership with the government in April to develop e-commerce, digital logistics, tourism and training in the area and eventually make it a logistics hub for the sourcing of goods bound for the Chinese market.  

“China is on its way to becoming the world's largest consumer, driven by rising income and a growing middle class of 300 million,” Jack Ma, Alibaba’s co-founder and executive chairman, said in a note after meeting with Thailand's deputy prime minister, Somkid Jatusripitak, in April.

“There is no better time than now for trade-oriented countries to seize this opportunity to export to China as the country continues to open its doors wider for global trade. Quality Thai agricultural products, such as fragrant rice, durian and other tropical fruits in particular, are sought after by the Chinese consumer. Given Thailand’s unique strengths in people and culture, we are confident of its future and growth potential under the government’s Thailand 4.0 policy. We are committed to being a long-term partner of Thailand to help enable its digital transformation,” he added.

New skills for new era

Among other things, Alibaba will also help with the development of the digitalisation of local SMEs, as part of the government’s broader effort to upgrade the skills of the local workforce and make them fit for Industry 4.0.

“Reskilling is key for the transformation, and a lot more effort is now being placed on linking the private and education sectors, with an additional budget for new types of vocational and university programmes to produce graduates with the skills the private sector wants,” says Ms Asawachintachit.

“For certain areas such as automation, robotics and aviation, things won’t happen overnight – but if we start now, that will help because it will increase the pool of people we need as part of the broader national effort to increase competitiveness of the country.”

As the first tenders for the EEC infrastructure hit the market, investors will have to make a judgement call not only over the quality of the offered PPPs, but also on the country’s long-term outlook itself. The military junta has called long-awaited general elections for February 2019.

On the other hand, no date has been set yet for the official coronation of new king Maha Vajiralongkorn. For those who are willing to stomach the current political risk, the EEC vision may prove the right fit for their strategy of high-end manufacturing in a region otherwise mostly known for labour-intensive production.