Thailand’s new economy: poised for take-off but is the runway ready?

Thailand’s new economy: poised for take-off but is the runway ready?

Greg Earl

Greg Earl Ex-foreign correspondent and Asia editor

Published

The sign at the entrance to Thailand’s U-Tapao airport declares grandly (and perhaps even more hopefully): One Airport, Two Missions.

It’s a hopeful aim because this obscure bit of transport infrastructure near the popular Pattaya beach tourist resort arguably failed in its first mission.

PHOTO: U-Tapao airport entrance sign

It was carved out of jungle a discreet 130 kilometres southeast of Bangkok 51 years ago in just six months by the US Air Force to pave the way for the massive B52 bombing campaigns across the neighbouring countries, a distinctive feature of the Vietnam war.

The long and reputedly extremely solid 3.5 km runway facing straight out into the Gulf of Thailand fell back into the Thai navy’s hands when the B52s failed to stop the communist takeover of Indochina in the mid-1970s and then largely faded from sight.

But in an illustration of how economic forces can sometimes achieve what military power fails to do, U-Tapao is now the frontline of Thailand’s latest bid to assert itself as the heart of South East Asia’s integrated economic development, in effect picking up the pieces of the 1970s struggles.

The airport is part of a Thai plan to spend $US43 billion over the next five years creating a new metropolitan area outside Bangkok with three new cities, new tourist resorts including regular car ferries across the Gulf, a high-speed train between three airports and new high tech industries including robotics and aircraft maintenance.

It’s a symbol of Thailand’s renewed push for development despite continued mourning after the passing of the much-loved King Bhumibol Adulyadej.

“The Eastern Economic Corridor (EEC) will stimulate megaprojects not seen in Thailand for 30 years,” Industry Minister Uttama Savanayana says. “It’s the best strategic location in the region.”

The Easter Economic Corridor (ECC). Source: Thailand Board of Investment.

New metropolis

Thailand’s plans for the new metropolis – modelled on the dual cities of Tokyo and Yokohama in Japan and backed up with new investment incentives – comes with endless maps emphasising how Utapao is four hours flying time to half the world’s population and one third of its economic output.

But this is a big challenge for a military government which took the country over in a coup two years ago to end almost a decade of political tensions between the traditional Bangkok ruling elite and a new coalition which has emerged from the northern provinces and the modern economy. 

Some may also point out it is not entirely innovative, really just reflecting a reality on the ground.  The Eastern Seaboard is already a major port/industrial/petrochemical pathway, a plastics hub for SE Asia and you also have Pattaya smack in the middle of this.

The airport conversion itself is also not unique - the region has a lot of ‘new’ regional airports (also mainly former military on both sides of the war).

Tourism, via Pattaya, is also still central to the project. The region is overflowing with grand plans for new transport infrastructure with China's One Belt One Road initiative now jostling with long established Asian Development Bank ideas. Thailand seems to be refocusing on the more established eastern seaboard area rather than other peripheral parts of the country.

But with a new King now in place in a strongly monarchical society and the military’s promise of an election in a year, the race is now on to produce some economic growth after years of political divisions which requires demonstrating to foreign investors the country is getting back to basics.

Deputy Prime Minister and top economic policymaker Somkid Jatusripitak frankly admits his country has lost a decade of growth potential and now faces the additional challenge of global economic

Photo Credit: Greg Earl. TurbineAero technician at work.

uncertainty caused by the election of US President Donald Trump and the Brexit.

As a result Thailand –long known for its consistent and transparent policies on foreign investment – is now embarking on more interventionist co-investment incentives from a one trillion baht government fund to woo so-called digital industries such as medical technology, future food and aviation maintenance to its new metropolis.

Several Australian manufacturers are already well established in the older industrial estates east of Bangkok under the 12-year-old trade agreement between the two countries. The deal gives Australian business access to lower cost labour, easy movement of components between Australia and Thailand and a foothold inside Asian trade agreements.

They include the leading car components maker Futuris, the Melbourne manufacturer of tool grinding equipment ANCA and Brisbane packaging equipment company Fibre King.

Thailand has proved its ability to make itself an economic hub in the past by becoming one of the world’s top 12 car makers – at a time when Australia is exiting this industry – with plants like Auto Alliance Thailand (AAT) – a joint venture between Ford and Mazda which makes pick-up trucks for global markets.

This is the biggest car plant in South East Asia with 7000 employees and a claimed capacity to be able to assemble a vehicle in two minutes.

But the heavy dependence on car production in the modern Thai economy is underlined by the fact 34 per cent of the factories in the sprawling Hemaraj Industrial Estate east of Bangkok are connected to the car industry.

“Companies are integrated more and more here with component plants alongside and they are also very tuned to exporting,” Hemaraj executive David Nardone says.

AAT vice president Sathienrayuth Sangsuwan underlines the constant pressure on Thai manufacturers from competitors in lower wage countries by noting his plant is constantly compared with a Ford plant in nearby Vietnam.

It is this competitive pressure from neighbours along with a sharp fall in the Thai fertility rate which is forcing the military government to stake its credibility on making the country more of a digital and services based economy, partly servicing surrounding countries.

Photo Credit: Greg Earl. Airport departure hall.

Standing in the empty departure hall of a business with ambitions to serve five million eventual passengers a year, U-Tapao Airport Authority director Worapol Tongpricha embodies all the questions about whether an authoritarian government may be victim to a ‘build-and-they-will-come’ mentality with plans to spending $US43 billion in the EEZ (although much of that is projected to come from fully commercial or private public partnership funding).

Worapol is a former admiral turned infrastructure manager with the task of running an airport - which will still be formally owned by the navy - as a commercial venture but still give the navy full access for responsibilities such as the massive Cobra Gold regional military exercise.

Thai officials offer different explanations for how an airport has been extracted from naval use to become the key piece of infrastructure needed to give credibility to the plans to build an entirely new foreigner friendly digital city, tourism resorts and a new regional aviation servicing hub in the area.

Some say it needed a military government to break an impasse and others say it was always on the long-term agenda.

But unlike other parts of the EEC planning for trains and cities which are still in the planning stage, Worapol has already advanced with military precision and moved 700,000 passengers using the facility last year got.

That appears to put him well on the way to his target of three million which will help justify the plans for a fast train link to Bangkok’s main Suvarnabhumi Airport and the original airport closer to central Bangkok.

“The three airports will become like one airport and getting on a plane at another airport will be easy,” he says, underlining how tourism remains a key part of Thailand’s future economic planning despite all the focus on high tech industries.

Worapol’s plans to create a regional aviation hub in the area gained a big boost in February when a newly created US-based aviation maintenance firm TurbineAero decided to make the U-Tapao area its main non-US operational base.

The company’s chief executive Robert Higby says Asia is the fastest growing aviation market in the world but doesn’t have the capacity to service all the aircraft on order so Thailand has a good prospect of establishing itself as a hub in this industry, partly because it is less expensive than Singapore which now dominates South East Asian maintenance.

“Thailand is going to do an incredible job to get aviation businesses,” he says, applauding how the EEC will bring together good shipping services and free trade zone-style conditions.

Higby says TurbineAero will be now pushing to bring more Australian aviation maintenance work to its Thai facility.

Not to worry

One of the biggest challenges to Thailand’s plans to create a modern digital economy in this area best known for tourism and old manufacturing is whether its education system can produce the qualified workers given it has been overtaken in international school (PISA) comparisons by neighbouring but less developed Vietnam.

Higby says this doesn’t worry him because his sort of business takes the top end technicians and then invests more in training.

Others concede how Thailand revamps its education system is critical to whether it can pull off its digital economy plan or fall into what economists call the middle-income trap of being dependent on basic manufacturing.

Prime ministerial adviser Kobsak Pootrakul says it is “one of the most important questions”.

“All the things we have been talking about could not be fulfilled (without educational improvements),” he says.

Thailand is particularly reliant of Japanese assistance to raise the quality of vocational education, Pootrakul says, because of the dominant role Japanese companies have in existing factories.

Senior Thai businessman Kan Trakulhoom, a director of Siam Cement Group, says Thailand’s spending on research and development is too low and Thai companies need to spend more in this area to underpin the government plans.

“It is very important to expand our knowledge (with R&D) and not just buy licences (to produce foreign-designed products in Thailand),” he says.

Greg Earl was The Australian Financial Review correspondent in South East Asia for five years and has also worked for the Singapore Business Times, the Financial Times and Asiaweek in the region. He travelled to Thailand as a guest of the Board of Investment.

All photos by Greg Earl

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
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