Missing links in Thai hub plan
Thailand has long aimed to establish itself as a regional trade and investment hub, leveraging into the country’s central Southeast Asian geography and East meets West openness. While a political push and expanding regional trade has given new life to those ambitions, its not clear to most analysts Thailand will any time soon supplant Singapore as the region’s reigning hub.
Thai caretaker Prime Minister Abhisit Vejjajiva has played up Thailand’s role in rising regional “connectivity” during his recent speeches to foreign audiences. During a March 21 presentation to the Foreign Correspondents Club of Thailand, Abhisit emphasized that Thailand was engaged in a number of infrastructure investments, including high-speed trains and road upgrades, aimed at establishing Thailand as mainland Southeast Asia’s hub.
In a speech to the American Chamber of Commerce that same month, he emphasized plans to upgrade the existing rail network and negotiations with China to develop within four to five years a high-speed rail network that connects southern China to the Thai-Malaysian border. Significantly, the multi-billion dollar plans are designed to stop at the Malaysian border and not extend to Singapore.
To be sure, it’s not the first time Thailand has advanced ambitious hub designs. The idea of cutting a transportation-promoting canal, similar to the Suez or Panama canals, was first broached in the 1700s for the country’s narrow Kra Isthmus in the south. The scheme, which would necessarily undercut Singapore’s port position as a shipping and transshipment hub, has been revisited in different forms by several Thai governments but never come to fruition because of high costs and technical difficulties.
Establishing Thailand as a regional rail and road hub, one that leverages into the recently implemented China-Association of Southeast Asian Nations (ASEAN) free-trade agreement, is more feasible but likewise faces several high hurdles. Top among them now is the country’s fractured politics, which in 2008 saw one protest group close down Bangkok’s international airports and another occupy and block access to the capital’s main shopping and hotel district for nearly two months.
The political uncertainty, including whether upcoming elections will achieve stability or devolve into more chaos, has apparently has given pause to Chinese investors, whose financing will be crucial to Thailand’s ambitions. According to the Nation newspaper, China did not respond to an official invitation to further talks on a memorandum of understanding (MOU) for the high-speed rail project because of the government’s plans for early Thai elections, which are now set for July 3.
The draft MOU calls for the establishment of a new state enterprise, a 51%-49 Thai-China joint venture, which will develop land along the proposed route and manage the project under a 30-year concession from the State Railway of Thailand. The draft agreement states that the original concession may be extended by 20 years. However, because of the country’s fraught politics, much of the complicated, international-oriented legislation in parliament has been postponed.
Significantly, the delay in the high-speed rail project comes at a time China is helping Thailand’s neighbors ramp up of their own infrastructure plans. One of the assumptions behind Thailand’s new hub ambition is that it will serve as the geographical and logistical center of the new China-ASEAN free-trade area. Neighboring and less-developed Cambodia and Myanmar are expected to provide access-opening infrastructure that relies on Thailand’s central position and superior road and railways to facilitate more trade, including with China.
In some respects, Thai premise is being tested with the development of what could be viewed as competing rather than complementary infrastructure in neighboring countries.
For example, Cambodia’s ports are fast expanding with work recently commencing on a new container terminal at the capital’s Phnom Penh Autonomous Port, which will be the country’s second largest according to media reports. The terminal will take two and a half years to complete and is being built by the Shanghai Construction (Group) General Company, according to one specialist port publication.
Also under construction and on course to be finished are new Cambodian railways being financed by China. The first line to be completed will link Phnom Penh with the ocean port of Sihanoukville. The view is that income from the line will first come from passengers and commodities and later move into container traffic. Analysts say the point is not what will be conveyed insomuch as China is building a web of parallel transport infrastructure that could make certain of Thailand’s plans redundant.
At the same time, Thailand is steaming ahead with its own plans to challenge Singapore’s port supremacy. Thai construction company Ital-Thai Development has pledged to build a US$8 billion mega-port at Dawei in southern Myanmar, which if built to proposed scale will put the facility on the global shipping map. One revealing detail of the deepwater port, which will be dug to a depth of 18 meters, is that it is being built not for the present generation of large ships but the next bigger generation.
Ital-Thai is also putting in place the infrastructure for a special economic zone attached to the port which will include a 35-square kilometer petrochemical complex, a power plant and factories where cell phones, steel and fertilizers, among other products, will be manufactured. All of these facilities are scheduled to be connected to both Thailand and China by road and rail.
Yet Thailand is arguably falling behind in developing the logistical infrastructure needed for hub success. Despite Thailand’s strong reputation in certain service industries, logistics giant DHL recently opened a value-adding Fashion and Apparel Center of Excellence in Phnom Penh rather than Bangkok, which has made pretensions of establishing itself as a fashion capital.
DHL has established several similar value-adding centers in Bangladesh, Hong Kong, India, Pakistan, Sri Lanka and Vietnam – ie anywhere where labor-intensive industries require fast logistical servicing. That Thailand is not home to one of these DHL centers, some analysts say, is revealing to its still unrealized hub ambitions.
So, they say, is Thailand’s lack of modern airfreight services. Air cargo handling is generally acknowledged to be a success in Thailand, but a new obstacle looms large: e-freight. Thailand was one of four countries urged earlier this year by International Air Transport Association director general Giovanni Bisignani to work on legislation to legally recognize electronic documentation. The other three laggards were Russia, Indonesia and Vietnam.
Thailand’s response to that goad has so far been muted. “I would assume that it would still be quite a while for Thailand to have the systems ready to support e-freight,” said one official with the national airport operator Airports of Thailand.
A number of factors feed into reluctance. Vested interests like the Customs Department, long viewed as one of the country’s most corruption-prone agencies, is one. Thailand’s booming exports, which were up 28% in the first quarter of this year, has damped down any urgency on the need for reform. There is also a reluctance to define rules when officials earn, as one source within a logistics company diplomatically put it, extra by “thinking on their feet”.
Singapore cleaned up corruption in its customs department long ago. While Singapore’s airport is a model of efficiency, Thailand’s new Suvarnabhumi Airport, which was partially designed to challenge Singapore’s position, lacks the same efficiency due to its mass scale and lack of internal transport. It’s also significant that many foreign investors in Thailand have clauses in their contracts that allow for third party intermediation in Singapore rather than Thai courts to settle disputes.
“We have not yet developed ourselves to be a trading nation, although we are situated right in a terrific location in the center of Southeast Asia and being a country with two sea-fronts,” said Pridiyathorn Devakula, a former Thai deputy prime minister and central bank governor, in a recent speech. “We are, quite the opposite, trading only on products produced or used by ourselves.”
Michael Mackey is a Bangkok-based journalist.