14 June 2017
Thailand Looks to Play Catch-up with Accelerated SEZ Programme
First approved in 2014, Thailand now see Special Economic Zones as pivotal to its structural renaissance.
In terms of developing Special Economic Zones (SEZs), Thailand was something of a late starter. Although it only approved its first five pilot locations in 2014, it has since made a considerable effort to catch up with its ASEAN neighbours.
Speaking in April this year, General Prayut Chan-o-cha, the Thai Prime Minister, maintained that the SEZ programme was now an integral part of Thailand 4.0, a countrywide initiative aimed at manoeuvring the economy out of the "middle-income trap". This is a situation that has seen the local labour force too well paid to compete with unskilled workers elsewhere, but lacking the skills and technical resources to contribute higher up the value chain. The Thailand 4.0 initiative is seen as a forerunner of the wider economic and social reform programme set to be adopted in August as part of the country's widely anticipated 20-year National Strategy (2017-2036).
In line with this, Thailand 4.0 has been designed to transform an economy reliant on heavy industry and production for the export markets into one more focussed on smart electronics, biofuels and biochemicals, robotics, aviation and logistics and advanced medical products and services. Already this year, this has led to the ratification of two legislative items intended to boost investment in the country's SEZs.
In January, the revised Investment Promotion Act was enacted. Under its terms, R&D, advanced technology and innovation businesses can enjoy 13-year tax incentives as well as tax deductions of up to 300% on R&D-related expenses. Certain businesses may also be entitled to a substantial investment tax allowance.
This was followed in February by the Competitiveness Enhancement Act, which granted eligible businesses an exemption from corporate income tax for up to 15 years. More importantly, it established a US$300 million fund designed to match private-sector investments in R&D, technology and innovation, and human-resource development across 10 targetted industries. It also outlined the availability of specific investments in the biotech, nanotech, advanced materials and digital-business sectors.
As an integral part of its expansive economic master plan, Thailand has identified 10 locations for new SEZs. Significantly, all of these proposed SEZs are to be developed close to the borders of neighbouring ASEAN countries – Chiang Rai, Nong Khai, Nakhom and Mukdahan (in the north and north east, bordering Laos); Sa Keow and Trat (in the east, bordering Cambodia); Song Khla and Narathiat (in the south, bordering Malaysia); and Kanchanburi and Tak (in the west, bordering Myanmar).
The new SEZs have also been strategically sited in order to take advantage of Thailand's geographical location at the heart of Southeast Asia. By utilising its existing supply chain expertise and developing new transport and communications infrastructure, the country clearly hopes that these SEZs will boost cross-border trade and employment, while directly connecting Thai-based businesses with ASEAN's emerging markets along convenient air, land and sea routes.
The SEZ programme also advocates the establishment of a number of super clusters, sites that offer a premium package of incentives to investors in a particular sector, with food and beverages, digital, medical, eco-friendly chemicals and petrochemicals, automotive and electronics, appliances and the telecommunications equipment sectors among those being prioritised. A secondary tier of clusters has also been proposed, with an accordingly lower level of incentives. At present, this will apply to the agro-processing, textiles and garment sectors.
The centrepiece of Thailand's current development programme, however, remains the Eastern Economic Corridor (EEC). Last month, the Thai cabinet approved draft legislation paving the way for the EEC, a vast SEZ spanning the three eastern provinces of Chachoeongsao, Chonburi and Rayong.
With this one-time industrial heartland having been designated as the country's new engine of growth, 10 industries have been earmarked for a premium package of incentives. These will include exemption from corporate income tax for up to 15 years and grants from the Thailand Competitiveness Fund, which will match any private-sector investment in these nominated sectors.
A budget of US$43 billion has been allocated to support the expansion of the EEC over the next five years. This will include funding for a number of its benchmark projects, including the development of the U-Tapao International Airport, an upgrade of the Chuk Samet Deep Sea Port and a high-speed rail link between Bangkok and Rayong. The proposed motorway network connecting Bangkok, Chonburi, Pattaya, Laem Cha Bang and Laem Cha Bang-Nakorn Ratchasima will also receive funding as part of the overall EEC initiative.
Another project considered crucial to the success of the EEC – the development of the proposed third phase of the Laem Cha Bang Port – is also in line for substantial investment. Ultimately, this will see the port established as a regional maritime transportation hub, servicing connections to Myanmar's Dawei Deep-water Port, Cambodia's Sihanoukville Port and Vietnam's Vung Tau Port.
There are also plans to establish an 'innovation city' within the EEC, complete with a number of integrated R&D facilities, including fabrication laboratories, test-bed sandboxes and certification centres. This follows the establishment of food, technical and science innovation centres in the central Thai province of Pathum Thani.
Geoff de Freitas, Special Correspondent, Bangkok