BANGKOK: Thailand decided to add the northern province Nong Khai to the five already-approved special economic zones (SEZs) in the first phase of a major infrastructure build-up. The province, bordering Laos, was added because of its significance as a link in the planned railroad network that will stretch south to the port of Map Ta Phut. As Thailand’s economy struggles with slow growth and uncertainty following the military coup in May 2014, the ruling National Council for Peace and Order (NCPO) seeks to boost investment and exports through infrastructure projects and pro-business policies.
Exports account for around 65% of the Thai economy, but rivals like Vietnam, Malaysia, and the Philippines have seen their exports and FDI grow while Thailand’s obsolete technology and infrastructure makes it necessary for structural changes to right the course. In the lucrative electronics export sector, Thailand lost competitiveness in the past few years as its R&D lagged behind that of its rivals, and it continued specializing in hard drives while consumers increasingly demanded smartphones over PCs.
The SEZs offer many generous incentives for companies to invest and establish branches, according to the Thailand Board of Investment. Businesses will be exempt from corporate income tax for eight years, accounting for 100% of investment excluding land costs and working capital, with a 50% reduction of net-profit tax in the following five years. Firms will receive double deductions for the costs of transport, electricity, and water supply for 30 years, and a 25% deduction for the cost of installation or construction of facilities. Machinery can be imported duty-free, and there is a five year exemption for import duties on raw materials for use in production or export depreciation costs. Lastly, firms can employ unskilled foreign workers at promoted projects, which is usually politically unacceptable due to populist pressures of safeguarding domestic jobs.
Currently ten SEZs are set for development during 2015-16. The SEZ committee chaired by the Prime Minister, General Prayut Chan-o-cha, agreed to consider on a case-by-case basis companies’ proposals of additional SEZs, if they procure their own land. The committee also approved 124 other infrastructure projects for 2015-16, mostly involving roads, at a cost of around $322 million.
Prominent members of Thailand’s business community, in an urgent meeting with the NCPO last Monday, voiced the need for the government to accelerate its public spending and budget disbursement in all areas. They felt the government’s twin goals of 4% GDP growth and 4% export growth for 2015 were unrealistic, especially due to volatile exchange rates. And even though the SEZs will help boost trade, the immediate impact for this year will be modest as companies will have to build facilities and ramp up operations.
The NCPO is preparing Thailand for the long run, however, and is taking lessons from the successful authoritarian-directed economic development of the other Asian Tigers (South Korea, Taiwan, Hong Kong, and Singapore). Such changes are much easier without the need for popular support — martial law remains in effect, but has not depressed the crucial tourism industry. Even with an eventual return to democracy (elections have already been pushed back once to early 2016), successful results from the SEZs and other policies provide a strong justification for maintaining them.
