Thailand, the biggest economy on the Indochina Peninsula, is also the primary driver of economic development in the Southern Economic Corridor. While Thailand is stable under the military regime, its economy lacks strong resilience. Given labor shortage in and around Bangkok, Thai and foreign companies operating in the country are relocating operations to neighboring nations or areas in Thailand near national borders with surrounding countries. The move away from Bangkok prompts industrial accumulation in places along the southern corridor as well as the East-West and North-South corridors.
Recovery under the junta
I entered Aranyaprathet, Thailand from Poipet, Cambodia. Aranyaprathet was home to camps for Cambodian refugees during that country's civil war. What I first saw in the town was a poster of Thailand's interim Prime Minister Prayuth Chan-ocha, who was also the army chief. Below the photo were flowery words such as "intelligent, knowledgeable, modern and visionary." Next to the prime minister's poster were those of military officials in uniform, perhaps the heads of the three military branches.
Aranyaprathet is about 250km from Bangkok. In Thailand, as in Japan, cars drive on the left side of the road, but in Cambodia, they drive on the right side. Roads in Thailand are in much better condition than in Cambodia, and two-lane highways near Aranyaprathet broadened to three and four lanes as we approached Bangkok. If you do not get stuck in traffic, you can drive at 100kph or more and arrive at the capital in about three hours.
I arrived in Bangkok on Dec. 5, which was a holiday to mark the king's birthday. King Bhumibol Adulyadej, who turned 88, was hospitalized and did not appear in public. On Dec. 11, Bike for Dad, a bicycle rally event, was held in Bangkok to celebrate the king's birthday. Crown Prince Maha Vajiralongkorn, the heir apparent to the Thai throne, led a group of cyclists in the rally, riding a bicycle himself. Photos of his father with him were everywhere in the city, showing the Thai authorities' intention to publicize the presence of the crown prince.
Thailand at one time was divided into two factions -- one supporting former Prime Minister Thaksin Shinawatra and the other against him. Ever since the military seized power in May 2014 in a coup d'etat, however, the country has been relatively stable. Its gross domestic product fell 0.9% in real terms in 2014, but Thailand's National Economic and Social Development Board said GDP grew 2.9% last year.
But wait ...
Yet, Thailand's economic situation warrants little optimism. Siam Commercial Bank of Thailand plans to lower its economic growth forecast for 2016 to 2.5% from 3.0%, as swelling private-sector debt will likely dampen consumption. While car and related plants have been increasingly clustered in Thailand, the sales volume of automobiles in the country has been on the decline since peaking in March 2013. The development can be blamed on a tax break introduced by the government of former Prime Minister Yingluck Shinawatra in 2011. The step encouraged many consumers to buy cars, but it cut into future demand for cars. Automobile-related manufacturers, laden with excess capacity, are in no mood to make new investments, and those that can afford new investments in facilities, do so in neighboring countries, in line with the so-called "Thailand-Plus-One" strategy.
Denso, a major Japanese auto parts maker, is aggressively pushing ahead with the strategy, with Denso International Asia, its Bangkok-based subsidiary, overseeing the company's Asian operations and taking the initiative in realigning its production plants in member countries of the Association of Southeast Asian Nations (ASEAN). As part of the drive, Denso set up a subsidiary in Cambodia in April 2013 to produce switches for magnets used in motorcycle generators at a rental plant in the Phnom Penh Special Economic Zone. The Japanese company recently procured a 100,000-sq. meter site in the zone, planning to build its own plant there and start production in 2016. It also intends to begin producing magnets for motorcycle generators at the plant. Denso's workforce in Cambodia is expected to quadruple from the current 100 workers to 400 by 2018-2020.
As four less-developed ASEAN countries lowered tariffs to zero and the ASEAN Economic Community (AEC) was established in 2015, Denso is finding a much smoother path as it commences full-scale investment in Cambodia and Myanmar. The company also set up a subsidiary in Myanmar at the same time it formed the Cambodian unit, shifting production of washer hoses from Indonesia to a rented plant in Yangon, the commercial capital of Myanmar. Washer hoses made in Yangon are shipped back to Indonesia by sea.
The Southern Economic Corridor, which goes through Bangkok, is to be extended to Dawei, a fishing village in Myanmar that faces the Indian Ocean. "Once Thailand and Myanmar are connected by a land route, we will consider supplying our products made in Myanmar directly to customers in Thailand. We may also consider dealing with Indian suppliers," said Masao Suematsu, chief operating officer and executive vice president of Denso International Asia.
Sawmills in Mae Sot
The most popular route from Yangon to Bangkok combines the south-north and east-west corridors. It runs north on the south-north corridor from Bangkok to Tak, then goes to Myawaddy in Myanmar via Mae Sot, a border town in Thailand, and from Myawaddy it runs along the east-west corridor to Mawlamyaing, then heads toward Yangon. Comfortable driving at over 100kph for 500km from Bangkok took me to Mae Sot in about six hours. I was able to reach Myawaddy in a Thai rental car but was unable to go any further. Road infrastructure in Myanmar is improving rapidly -- a 60km bypass from Myawaddy to Kawkareik, which allows bi-directional traffic, was opened in June 2015. Before then, the route was only a one-lane mountain road, whose traffic direction changed day by day.
Thailand's major conglomerate Saha Group develops and manages an industrial park in Mae Sot. The industrial park, the group's fourth, began service in 2009, with six rental plants on the 200,000 sq. meter site. From Japan, a firm affiliated with Wacoal Holdings produces brassieres, and a subsidiary of Tokyo Socks makes socks at plants in the park. With makers of bags, polo shirts, stuffed animals and the like operating in the park, sewing businesses are concentrated there. A plastic-related manufacturer is expected to start production in the park shortly, however. A total of 1,050 people of Myanmar work at plants in the park.
Saha Group, which has created joint ventures with many Japanese companies, including Lion, Wacoal and Gunze, produces mainly consumer goods such as household supplies, clothing and food in Thailand. Since the company developed its first industrial park in Si Racha, 100km southeast of Bangkok, in 1974, it has invited many joint plants to operate in its industrial parks. Before Myanmar liberalized its economy, many Myanmarese crossed the border into Thailand seeking jobs. This and the shortage of Thai workers around Bangkok prompted Boosithi Chokwatana, the chairman of Saha Group, decided to build in Mae Sot sawmills, which need a large number of workers, and develop an industrial park in the town on a trial basis.
The minimum wage in Thailand is 300 baht ($8.26) a day, but "in Si Racha, even 500-600 baht a day no longer attracts workers, so in the sawing industry, new investments no longer yield sufficient returns. But in Mae Sot, 300 baht is enough to lure a sufficient number of workers," said Yukikazu Omoto, overseas sales and marketing manager at Saha Pathana Inter-Holding, a Bangkok-based company running Saha Group's industrial parks, referring to the advantage of Mae Sot. Saha Group plans to construct another industrial park on an 800,000 sq. meter site in the Mahawan area about 20km south of central Mae Sot. It is also exploring the possibility of expanding into Myanmar.
The AEC advocates the free movements of skilled workers within the region under mutual recognition arrangements for eight professions, including doctors and accountants. But it does not mention unskilled workers, because the movements of such workers significantly affects employment in each member country, and is therefore a delicate issue.
Will the industrial accumulation in Mae Sot in Thailand spill over into Myanmar in the years to come? The answer depends on the development of infrastructure like the southern corridor, as well as the political management by Aung San Suu Kyi, the leader of the National League for Democracy, which scored a resounding victory in the general election last year.