Thailand Development Policy for Neighboring Countries : Dawei Development Project Case Study. Mahesuan Kruewan

Transcription

1 Thailand Development Policy for Neighboring Countries : Dawei Development Project Case Study Mahesuan Kruewan Visiting Scholar, Policy Research Institute (PRI) Ministry of Finance, Japan & Fiscal Policy Office Ministry of Finance, Thailand

2 Abstract Over the past two decades, Thailand has been recognized as one of the fastest growing economies vis-a-vis its developing peers. Since 2000s, Thailand has achieved a remarkably high rate of robust economic growth accompanied by a nation wide explosion in export oriented and manufacturing industry which contributed to a drastic decline in poverty threshold rate from about 50 percent in 1988 to only 8 percent in This resulted in the escalation of the living standard for the majority Thais. By and large, export is the propeller of Thai economy; the average contribution of exports of goods and services, particularly goods manufactured from the Eastern Seaboard area, between 1990 and 2010 is respectable 60% of GDP. The Eastern Seaboard (ESB) is conveniently located km southeast of the Bangkok Metropolitan area and contributed greatly to economic growth since 1990s. It has been known as a home to exporters and manufacturers. The East Seaboard Development Plan (ESDP) is the national strategic economic infrastructure development project of Thailand initiated in late 1970s, which has encompassed various construction projects including petrochemical complex, deep sea ports and large scale industrial estate later erected in 1980s. This research paper is one of the first endeavours to understand the planning of Thailand s largest infrastructure development project as commonly known as the Eastern Seaboard (ESB). The ESB under the auspice of Japanese government during the post Plaza Accord era has helped sustained the country s economic growth. This study is based on the historical impact of the Eastern Seaboard on Thailand s economic and social development (e.g. correlations between GDP growth and wealth per capita as a result from Japanese investment in the Eastern Seaboard). The goal of this research paper is to focus mainly on the international economic cooperation and development policy through an Official Development Assistance (ODA) from the Japanese governmentas well as the technical assistance and ODA from the Thai Government to the neighbouring countries especially Dawei Special Economic Zone Project in Myanmar.

3 1. Introduction Economists have hitherto attempted to come up with a myriad of solutions to eradicate poverty, yet all were to no avail. A multitude of growth theories from past to present were followed by governments of developing economies; be that as it may, only a handful were successful in attaining the status of high income. In the wake of World War II, developing countries such as those in Latin America, Africa, and South Asia, in pursuit of economic betterment were emulating and implementing sweeping reforms based on the models of developed economies; however far from bridging the GDP gap, the bulk of those countries ended up poorer. For instance, a paper by Antonio Fatas and Ilian Mihov of INSEAD business school says 30 years ago Venezuela had per capita income of $7100. Despite its proximity to the largest market in the world, despite its oil resources, investment rates fluctuated between 15 and 19% and Venezuela stagnated. In the more recent years the economy has even declined and its current income is less than $6000 per person. People of Venezuela are poorer today than in A group of modern economists led by Justin Yifu Lin, former chief economist at the World Bank, has proposed a New Structural Economics alternative that draws on the premises of preceding development ideas and growth theories. The argument goes. In order to achieve a sustainable and robust economic convergence, economic development must undergo piecemeal reforms. The market should be a key agent in transition process and the government should focus mainly on facilitating a healthy shift to a more capital intensive economy (building more tangible and intangible infrastructure) and coordinating all stakeholders to ensure a sound course of market development. The question is not about becoming capital intensive, but to adopt a sensible strategy that aligns with the country s current comparative advantage. Ultimately as the country becomes more productive and advances closer to a technology frontier, price factors would rise accordingly. Rising wages relative to real production would induce firms to incline towards capital equipment, as a result transforming both the country s comparative advantage and optimal industrial structure. More importantly, efficient market allocation is critical to optimal transformation process in which firms are required to revise their factors of production ratio (capital to labor) to accommodate the dynamic comparative advantage. Under this condition, firms will be highly efficient at producing outputs in both domestic and global markets.

4 Therefore, in order to create such an environment, a competitive and undistorted market must be promoted. Should a low income country neglect its factor endowment structure and deliberately channel its limited means to highly capital intensive industries, it is likely that the attempt would go to waste because the economy will not produce outputs at its comparative advantage, therefore less efficient and competitive vis a vis its foreign competitors. A country adhering to its comparative advantage will also gain from what Lin calls the advantage of backwardness by borrowing technologies and industries from advanced countries. This backwardness will allow firms to converge with rich countries faster as they need not spend as much money for innovation cost as did first mover countries. Once the economy has escalated to a certain level of sophistication, factor endowment and industrial structures will deviate from the older optimal structures and new structure upgrades must be introduced. In other words every level of development requires a specific structure to accompany it; there is no one size fits all strategy for sustainable growth. As for Thailand, It is necessary for policy makers to promote economic development that is in tune with its national comparative advantage. Thailand is abundant in its primary resources. It is a leading producer of rice and commodities. Majority of its populations still works in agricultural industry, while its main GDP contribution is extracted from manufacturing and heavy industries. Thailand has been hitting the middle income trap wall for prolonged periods. The government should keep in mind that an economic structure is not a choice but a natural course of economic transition from an agriculture based economy to a higher income industrialized economy. Bypassing the course without strong foundations, the country may risk a short lived growth. Therefore it is time to rethink our industrial strategy and structure so that national growth will continue apace and more sustainably. Truly this is an elusive quest, yet the payoff will be highly rewarding for Thailand. From late 1970s to early 1980s, sporadic global recessions like the oil shock crisis, global inflation, the US trade imbalance and unhealthy debt levels in developing countries had taken a toll on Thailand s frail economy. Naturally, such global financial crises have forced Thailand into transformation from being an agrarian economy of the old days to an industrialized economy of labour intensiveness. Not only economic, but also social issue was of great concern to Thai policy makers. Thai government had set its goal to narrow the gap between Bangkok urbanites

5 and the rural poor. These are the most important considerations for the Thai government to bring about a grand reform in both economic and social fronts. The development of the Eastern Seaboard of Thailand has proven to be the country s most farreaching structural shift towards systematized industrialization of its economy and the modernization of the social progress. Japanese investors contributed greatly, corresponding to Thailand s development policy at that time. The country is now shifting again to become a proactive investor in the region. To gasps of surprises, the positive developments in economics and politics in Myanmar have been welcoming news to the international community. After four decades of almost complete economic isolation, Myanmar has opened its door to international trade and investment. It is anticipated to be leaning towards a market-oriented economy. This, together with the forthcoming and highly anticipated integration of the ASEAN Economic Community (AEC), will undoubtedly give rise to a great opportunity for both domestic and foreign investors. In preparation for the full integration, the members of the AEC, including Myanmar, have been drafting and revising laws and regulations to facilitate trade and attract investment. Thailand is elatedly keen to share its development expertise and reach out to other countries to ward off poverty and spur growth across the region. Although Thailand s Development Policy for Neighboring Countries has been clear, a large-scale commitment and inter-governmental collaboration are much larger and far more complex than any of its preceding endeavours. Thailand will have to reassess its strategy and the implementation of development policy in order to become a key player in the region. This would guarantee the country s strategic goals and balancing geopolitical powers from within and without. Thailand, as Myanmar s long-term trade and strategic partner, has been bestowed with an ideal geopolitical position. And this in turn has enabled Thailand in facilitating Myanmar s economic transition. One of Thailand s well intent efforts to obtain that goal is the construction of the Dawei Project, a large scale industrial and commercial enclave situated along the Myanmar coastline. As a middle-income country with impressive records of strong growth, Thailand is determined to level up its current status and join the league of the industrialised nations. This means being able to sustain growth and maintain prosperity. With this respect, the Thai Government has been resolute in expanding its economy domestically and throughout the region.

6 The roadmap includes the following. First is to become a development partner with its neighbours, as opposed to being a recipient of international aid. Second is Thailand's desire to become a donor country itself, assisting in the development of poorer countries, both within and outside the immediate region through its "Forward Engagement" foreign policy. This outwardlooking policy relies on the principle of partnership, the leverage of regional diversity, the improvement of regional stability and competitiveness through regional and sub-regional cooperation frameworks. All of these have been crystalized into the Dawei Project.

7 2. Eastern Seaboard Development Infrastructure investment is of importance for long-term impacts on economic growth; it is not only to sustain an economic prosperity but also to ensure social and human well-being. Infrastructure development can contribute to growth and development through several channels i.e. reducing transaction costs, increasing the durability of capital goods, fostering higher trade and investment, expanding demand and supply diversification and achieving economies of scale and scope. Transportation Infrastructure is essential public investment that helps maintain the harmony between the people and economic activities. Infrastructure moreover promises active mobility of economic agents, in other words it is vital to the production and distribution of goods and services. Infrastructure investments by and large involve several complex actions including elaborate planning, vigorous coordination, and resource mobilization. Large-scale infrastructure development is inherently characterized by: capital intensive investment disbursed over extended periods of time, economies of scale, network effects, and linkage effects on business activities, the involvement of a variety of stakeholders, and the need for advanced technical expertise, among other things. Demanding great efforts and sweats, large scale infrastructure development is a patchwork of many components sewed together in an intricate way. Such work encompasses extensive periods of capital intensive investment, economies of scale, network effects, linkage effects on business activities, the involvement of a variety of stakeholders, and the need for advanced technical expertise, to name a few. The Eastern Seaboard Development Plan as a showcase for Thailand s economic success is often referred to by the Thai academics as a case study to illustrate how institutionalism and analogous determinants play a leading role in making a large scale project come about. Those determinants were the roles of the government, political leadership, technocrats and central economic agencies. Thailand was determined to kindle economic growth and to transform its economy in a more industrialized fashion. In such pursuit, the country needed a springboard project and hence along came a mega infrastructure plan, the ESDP. The ESDP is based on two aspirations. The first

8 being to strengthen international competitiveness by building industrial ground for accelerating industrialization and second to systematically extend economic activities to suburban areas and the country side. This would generate employment outside of Bangkok and mitigate concentration levels and other strains of urbanization in Bangkok. 2.1 Eastern Seaboard Development Plan A tipping point for Thailand to overhaul its economic structure was the vulnerability of its economy, which was highly evident in the early 1980s. Globalization and its undesired effects such as the oil crisis, trade imbalance and debt problems have taken a toll on Thailand. Being the producer of primary commodities no longer served Thailand s economic agenda. Change was inevitable. The Eastern Seaboard Development Plan (ESDP) is one of the largest infrastructure development projects in Thailand which was initiated by Prime Minister Prem Tinsulanonda, a strong and visionary leader. The plan was drawn after natural gas was discovered in the Gulf of Siam in Against this background, Thailand began a process of industrialization based on energy self-sufficiency and Thai government made the ESDP was the top priority issues in the Fifth National Economic and Social Development Plan ( ), and actively promoted the foundation of the Eastern Seaboard Development Committee with the Prime Minister serving as chairman. The ESDP is aimed to construct new industrial based infrastructures to create a new economic order built on a gigantic industrial zone to upgrade Thailand's competitiveness in the Eastern Seaboard Area, covered three provinces, Chachoengsao, Chonburi and Rayong, located approximately km from Bangkok. The ESDP is designed comprehensively which was included 5 major projects, (1) Map Ta Phut Port Project, Industrial/Urban Complex Project (2) Laem Chabang Port Project (3) Water Resource Development/ Water Pipeline Project (4) Railway Project and (5) Road Project, mainly funded by Japanese government Official Development Assistant (ODA). Figure 1. Eastern Seaboard Area

9 Source: National Economic and Social Development Board (NESDB) The ESDP was implemented during the 1980s to early 1990s, particularly in two major areas: (1) Map Ta Phut area located in the costal part of Rayong province the nearest zone from the natural gas was discovered, which is a core district of heavy chemical industry base which utilizes natural gas from the Gulf of Thailand; and (2) Laem Chabang area located in the western coast district of Chonburi province which is only 80 km from the Bangkok metropolitan area, an export oriented light industry base which is simultaneously a location for a new international commercial port. In the beginning of the ESDP development in the early 1980s, the Japanese government played a leading role in term of major donor of this project. From 1982 Japan provided wide-ranging assistance funding 16 infrastructure projects via 27 loan agreements, amounting to a total loan commitment of 179 billion Japanese yen. 1 The Japanese ODA or the soft loan contacts of the ESDP with the government of Japan were 1 The Japanese implementing agency was the Overseas Economic Cooperation Fund of Japan (OECF), presently the Japan International Cooperation Agency (JICA).

10 approved for each project since 1982 to 1993 and the loan continued until At that time OECF was financed 27 ODA loans through the following projects, which account for around 10% of its total cumulative loan commitments to Thailand (1,630,096 million Japanese yen) 2 Table 1. : Projects under the ESDP Major Infrastructure Project Sub-Project 1. Development of Map Ta Phut area (1) Map Ta Phut Industrial Complex Project (2) Map Ta Phut Industrial Port Project (3) Gas Separation Plant Project 2. Laem Chabang area Development (4) Laem Chabang Commercial Port Project (5) Laem Chabang Industrial Estate Project 3. Water Resource Development and (6) Nong Pla Lai Reservoir Project Water Pipeline Project (7) Eastern Seaboard (Dok Krai - Map Ta Phut) Water Pipeline Project (8) Map Ta Phut - Sattahip Water Pipeline Project (9) Nong Kho - Laem Chabang Water Pipeline Project (10) Nong Pla Lai - Nong Kho Water Pipeline Project 4. Railway Projects (11) Si Racha - Laem Chabang Railway, (12) Sattahip - Map Ta Phut Railway (13) Klong Sip Kao - Kaeng Khoi Railway 5. Road Projects (14) ChonBuri - Pattaya New Highway, (15) Bangkok - Chonburi Highway, and (16) Outer Bangkok Ring Road (East Portion) Source: Ariga and Ejima (2002) Figure 2. Map indicating the sites of ODA loaned projects in ESDP 2 Eastern Seaboard Development Plan Impact Evaluation, JICA 1999

11 Source: Eastern Seaboard Development Plan Impact Evaluation, JICA (former JBIC, 1999) Development of Map Ta Phut area

12 Heavy industry, ie chemical plants, was promoted and established in the 70s in the Map Ta Phut following the discovery of natural gas reservoir in the Gulf of Siam or Ao Thai, a shallow arm of South East Asia. The exploration of natural gas in the gulf area was successful in Thailand found gas reserves feasible for commercial purpose. Subsequently along a 425 kilometer submarine pipeline, natural gas related and by product industrial plants has mushroomed. Map Ta Phut is located in the western district area of Rayong city, about 185 km from Bangkok on the Gulf of Thailand s coast between Sattahip district of Chonburi province and Rayong province. There are three major infrastructure projects in this are: Figure 3. Map Ta Phut refinery-petrochemicals complex Source: Pattaya News (1) Map Ta Phut Industrial Complex Project is a 176,000 acres industrial zone located in the western coastal of Rayong on the Gulf of Thailand. Originally a sleepy fishing and agricultural community, its bay made it attractive for docking deep-sea vessels used in the transport of natural gas. In the 70's, Map Ta Phut was designated by the government as a future home for

13 Thailand's petrochemical and heavy industries. Today, there are around 104 factories in the area. The Industrial Estate Authority of Thailand (IEAT) is the project executing agency.; (2) Map Ta Phut Industrial Port Project is an industrial harbor, located on the east coast of the Gulf of Thailand, between Sattahip and Rayong, approximately 220 km. from Bangkok, also owned and operated by the Industrial Estate Authority of Thailand (IEAT). The port consists of two types of berths, (1) Publics Berths are opened to provide services to every customers (2) Specific Berths are only used by the investor groups. ; and (3) Gas Separation Plant Project 3 is a huge construction project which comprises of three plants (No. 1, 2 and 3) for the separation of natural gas landed on Map Ta Phut area into ethane, propane, LNG, and etc., and its auxiliary equipment such as inland pipeline. It was jointly financed by the OECF and World Bank (The International Bank for Reconstruction and Development: IBRD). The processing capacities are 350, 250 and 350 million cubic feet per day respectively. After the completion of separating plant No. 1, the separation plant No. 2 and No. 3 were constructed adjacently, all these plants supplying energy required in Thailand and raw materials for the petrochemical industry Laem Chabang area Development 4 Shipping companies and logistic operators prefer large container ships because of cost effectiveness. For oversized ships, passing through Mae Nam Chao Phrya, a Bangkok river, to Bangkok port is impractical as the river is narrow and shallow. It is common for containers and goods embarking from Europe or the United States to make transshipment in Hong Kong or Singapore ports prior to being distributed to other regional ports. As global logistics has become more reliant on container cargo transport, Thailand found it necessary to construct a new deep sea port to accommodate such trend. Hence the Laem Chabang plan was unveiled. Laem Chabang Coastal Area has been designated as a strategic area not only for industrial development but also for regional development of the Eastern Seaboard and further to release physically overloaded capacity of Bangkok and its neighboring area. 3 Eastern Seaboard Development Plan Impact Evaluation, JICA (former JBIC, 1999) 4 The study on the Development Project of Laem Chabang Coastal Area, JICA, 1985

14 Laem Chabang is located in Chonburi province in the upper Gulf of Thailand, 130 kilometres Southeast of Bangkok. There are two major infrastructure projects in this Laem Chabang area: Figure 3. Laem Chabang Port Transportation Network Source: PSA: The World s Port of Call (1) Laem Chabang Commercial Port Project is a commercial port in the Eastern Seaboard area for supplementing or substituting Bangkok Port, a river harbor, in which the entry of large container vessels is merely impossible. The Port Authority of Thailand (PAT) is a project executing agency who drew up the master plan for the project. The master plan consists of three phases that will respond to the demand of container cargo handling up to year Laem Chabang Port is now the key point of entry for Thailand's container traffic by the Phase I and Phase II have container handling capacity per year 4 million and 6.8 million TEU 5 respectively and currently PAT is constructing the Phase III project. ; and 5 Twenty-feet equivalent units

15 Figure 4. Laem Chabang Port Phase I Source: PAT Figure 5. Laem Chabang Port Phase II Source: PAT

16 (2) Laem Chabang Industrial Estate Project is a vast area of industrial estate adjacent to Laem Chabang Commercial Port. The total area of Laem Chabang industrial estate is 1,422.4 acres which is including export processing industry zone or free zone is acres, general industrial zone is 1,824 acres and related basic infrastructure is acres. The area of Laem Chabang Industrial Estate was almost entirely occupied by light industries; typical industries operating there include assembly and parts manufacturing of the automotive sector, and assembly and parts manufacturing of the electric and electronic sector. This industrial land has been expanded to become a new pivot in the Eastern Seaboard region Water Resource Development and Water Pipeline Project This project is the development of water resource to supply to the main industries in Map Ta Phut and Laem Chabang area. The project is aim to construct the main water resource infrastructure which is including dam (Nong Pla Lai Reservoir Project) and water pipeline (Dok Krai Map Ta Phut, Map Ta Phut Sattahip, Nong Kho Laem Chabang and Nong Pla Lai Nong Kho Water Pipeline Project) to cope with the water demand resulting from the large-scale industrial development of Eastern Seaboard Area and to avoid water shortage which may impedes normal economic activities and social life Railway Projects The railway projects included 3 major railways supporting the logistics and transportation of cargo to Eastern Seaboard area, Si Racha Laem Chabang Railway, Sattahip Map Ta Phut Railway, and Klong Sipo Kao Kaeng Khoi Railway. These railways were constructed, essentially aiming at meeting the demand for long distance, massive transport, which were part of the new demands for transport arising from implementation of the Eastern Seaboard Development Plan. First, the trunk railway (Chachoengsao Sattahip Railway) in the Eastern Seaboard Area was constructed by Thai government general budget. The next branch lines, namely Si Racha Laem Chabang Railway and Sattahip Map Ta Phut Railway, were constructed under ODA-loan. In additional, the Klong Sip Kao Kaeng Khoi Railway was laid under ODA-loan for satisfying the transport demand between the Eastern Seaboard Area and Northern or North-eastern regions of Thailand; this rail bypasses Bangkok which experiences heavy traffic congestion. All these railway networks are used for long distance, massive

17 transportation of container cargoes handled in Laem Chabang Commercial Port and energy such as LPG produced in Map Ta Phut Industrial Complex Road Projects The new road and rail networks were constructed to meet demands for land transportation generated as a result of the development of the Eastern Seaboard Area. The ordinary national road links were first extended with funding supported by Thai government under the general budget expense and partially under the IBRD of World Bank. Then the Motorway, Chonburi Pattaya New Highway, Bangkok Chonburi Highway and Outer Bangkok Rong Road (Eastern side), linking Bangkok with the Eastern Seaboard Area was constructed under ODA-loan. These motorways are contributing to general land transportation of passengers and cargoes of the Eastern Seaboard Area. 2.2 Economic Impact of Eastern Seaboard Development Plan As mentioned in the introduction part, the ESDP's main objective was to create a "new economic order built on a gigantic industrial zone" to upgrade Thailand's competitiveness and launch the country into a new era of industrial take-off in the 80s and 90s. It opened up new gateways to connect land, air and sea transport with international export markets by means of new industrial bases at Laem Chabang and Map Ta Phut. The emphasis was on light and heavy export industries, especially in engineering and petrochemicals, with US$10 billion [Bt340 billion] worth of public investment basic logistics and infrastructure. 2.2 Economic Impact of Eastern Seaboard Development Plan As mentioned in the introduction part, the initiative of ESDP was to create a new economic order built on a gigantuan industrial zone in order to upgrade Thailand's competitiveness and launch the country into a new era of industrial take-off in the 80s and 90s. The two main purposes of ESDP are (1) to strengthen international competitiveness by building an industrial base suitable for accelerating industrialization, and (2) to systematically expand economic activities out towards regional areas while generating employment outside of Bangkok so as to mitigate concentration levels, and other strains of urbanization, in Bangkok. Eastern Seaboard is the new gateway to connect land, air and sea transport with international export markets by means of new

18 industrial bases at Laem Chabang and Map Ta Phut. The emphasis was on light and heavy export industries, especially in engineering and petrochemicals, with US$10 billion (340 billion baht) worth of public investment basic logistics and infrastructure. The public investment took the major role in Eastern Seaboard infrastructure construction. From 1987 to 2011, Thai government had invested in the basic trunk infrastructure such as deep sea port, road link, railway, water reservoirs and pipeline and industrial estate area, through its own general budget and ODA-loan. The total of public investment amount was calculated approximately US$ 8,352 million (0.25 trillion baht). For the total private investment in Eastern Seaboard area from the same period (1987 to 2011) was US$ 62,378 million (1.87 trillion baht) that the resulted from Thai government was providing the internationally competitive infrastructure, investment incentives, and government commitment to create economic growth atmosphere. Increase in private investments, especially in manufacturing factories and plants, from domestic and international investors brought about the industrialization of Eastern Seaboard area. Most of the private investments were in downstream industry, particularly, petrochemical, chemical, rubber and plastics, oil refineries, electronics, automobiles and spare parts, private industrial estates etc. At present the Eastern Seaboard is the major base of Thailand for petrochemical, chemical, oil refinery, power plant, electronics, automobile and spare parts industries, etc. Eastern Seaboard has advantages in terms of logistics, and is also considered to have the highest availability of infrastructures in Thailand. In addition, the area is in a close distance to Suvarnabhumi Airport. In 2010 Eastern Seaboard s Gross Regional Product was US$ 54,351 million (1.63 trillion baht) or 16% of Thailand GDP. Regarding the Industrial GDP, the Eastern Seaboard contributed about US$ 34,935 million (1.05 trillion baht) or approximately one quarter of Thailand s industrial sector. The GPP Growth of Eastern Seaboard provinces (Chachoengsao, Chonburi and Rayong) from 1991 to 2010 are total of 437.7% with GPP Growth Rate at the average of 23% per year. Such growth has been contributed mainly by manufacturing sector which grew 630.5% at the average rate of 33% per year. 6 6 NESDB

19 For the macroeconomic aspect, Eastern Seaboard has contributed extensively to Thailand s economic growth. Thailand s GDP has been rising consecutively since the Eastern Seaboard development program started its operation in The growth trajectory is outstandingly significant. Figure 6. ESDP: Impacts on Thai Economic Structural Change Source: NESDB Thailand s GDP in 2011 is four times of that at the beginning of ESDP. At the same time, the percentage of population below poverty line has been decreasing from almost 45% in 1988 to 8%. ESDP has not only provided tremendous growth to Thai economy but also changed Thai economic structure from agricultural-based economy to manufacturing-based economy. ESDP has transformed Thailand s economic development from an agricultural-based to a labour insentive industrialized economy. The proportion of GDP generated by the industrial sector has become more prominent while the agriculture sector has subsided accordingly. The GDP ratio of the industrial sector has increased form 16% in 1961, to 30% in 1991, and to 41% in Whereas, the ratio of agricultural sector has decreased from 31% of GDP in 1961, to 14% in 1991, and 9% in 2011.

20 Figure 7. Thai GDP contribution ratio Source: NESDB The new industrial bases included food processing and textiles, chemicals, petroleum, basic metal products, electrical machinery and supplies, auto and auto parts, which together generated more than US$ 45 billion of new investment in the area. By 2005 this had created more than 564,000 jobs at 8,850 new factories. The automobile industry on the Eastern Seaboard became known as the Detroit of the East, with 1,188,044 vehicles produced in 2006 and 682,161 exported. Thai market leader Toyota made 469,395 vehicles and exported 289,108 in 2006 as well. Total export earnings for automobile and auto-parts makers reached $10 billion in 2006, and Thailand is the third-biggest auto exporter in Asia. The ESDP not only changed Thailand's economic landscape and its structural economic transform, during the first and second phases ( ) the country shifted from a traditional reliance on agriculture to dependence on the modern industrial and service sectors." but also created the export oriented-based manufacturing in Thailand. In 2011, the manufacturing export account to 81% of the total Thailand export and valued US$ 186,268 million (5.59 trillion baht). The most exported products in 2011 are Computer Products and Parts, Auto Parts and Accessories, and Jewelry and Related Articles, while agriculture account to 13% of the total export.

21 2.3 Key success factors for ESDP In the early 1980s, when the ESDP was initiated, Thailand was suffering from an economic recession, primarily caused by hard-hitting changes in the global environment, such as the oil crisis, trade imbalance and debt problems. In addition to global factors as described above, there were also two key domestic factors that led to the initiation of the ESDP: (1) the 1973 discovery of natural gas reserves in the Gulf of Thailand, and (2) the desire to alleviate strains caused by excessive urban concentration in the Bangkok Metropolitan area. With respect to the discovery of natural gas reserves, the government was eager to create an industrial base, especially within the petrochemical industries, to make the most of its future potential. And in regard to problems in the Bangkok metropolitan area, the government had to effectively handle social and structural issues raised by regional disparity, traffic jams, and air and water pollution, among other things, in its congested urban areas. In order to achieve ESDP during the difficult environment and global economy uncertainty at that time, Thailand can succeed the largest infrastructure development by the 2 major key factors; (1) the success of cooperation between Japan and Thailand, and (2) strong leadership and institutional setting The success story of JP-TH Cooperation At the outset of the ESB development, Thailand requested assistance from the World Bank in drafting the master plan. Nevertheless, Thailand under the auspice of Japan has tailored and amended the plan to its satisfactions. The Thai-Japanese version has departed from the World Bank version in several regards. One of the stark differences is that Japan and Thailand have wished to construct naval ports in Laem Chabang and Map Tha Put, while the World Bank wanted Thailand to approach the project more economically and thereby build on its existing Sattahip Port to limit the nation s financial exposure. Ultimately, Thailand went along with Japan-proposed plan. Amid highly volatile global economic weather, recessions and booms, Thailand has been firm in its conviction to see through the project. With its relatively stable politics under the office of Prime Minister Prem Tinsulanonda ( ), the ESB was eventually implemented and came to fruition.

22 The ESB plan has demanded heavily the use of external finance. The major contribution of funding came from Japan following the ratification of the plaza accord in As a result the yen appreciated against the US dollar, from 249 at the end of Jun 1985 to 154 at the end of September Accordingly Japanese industries took the advantage of the situation and were in quest of new manufacturing sites outside of its motherland. Providing the proximity and its relatively cheap pool of labor, Southeast Asia, Thailand in particular, has transformed into a manufacturing hub for Japanese automotive and other industries. In the first half of 1986 the figures by the Board of Investment of Thailand demonstrated that Japanese foreign direct investment increased by about 50 percent The strong leadership and intuitional setting The achievement of the project was a combination of myriad factors. But the foremost element lies in Thailand s leadership in execution of the ESB. Prime Minister Prem approached the project by creating a centralized administrative framework for running the ESB. The major bottleneck in executing most projects is a coordinating issue. The centralized framework has stressed a special coordination mechanism for decision making and implementation, in which PM Prem was leading presiding over. Figure 8. Policy & Implementing Mechanism for ESB Development Program

23 In addition there were the establishment of the Eastern Seaboard Development Committee (ESDC), a cabinet-level national committee chaired by Prime Minister Prem himself, for decision-making, and the Office of the Eastern Seaboard Development Committee (OESD), created within the NESDB, as the ESDC Secretariat in charge of overall coordination. Its legal basis was the Prime Minister s own Executive Order, namely, the Regulations of the Office of the Prime Minister Governing the Eastern Seaboard Development B.E (1985). This executive order actually replaced one previous regulation titled the Order of the Office of the Prime Minister on Improvement of the Eastern Seaboard Development Committee B.E.2526 (1983). Generally in Thailand, coordination among central economic agencies and sectoral agencies is known for being weak. Prime Minister Prem has taken the role of supreme supervisor and helped steer the project to its culmination. The planning and execution have involved many parties from foreign agencies, the World Bank and Japanese agencies, to the Thai public. Given the sheer size of the ESB and complexity that followed, Prime Minister Prem skillfully heeded to a number of opinions from the concerned ministries and reviewed advice from donors. As mentioned earlier, Prime Minister Prem had introduced special mechanisms for operational coordination and decision-making exclusively for the ESDP. However, in the case of the ESDP, the pertinent agencies maintained relatively good coordination in terms of investment planning, budgeting and implementation. The ESDC and the OESD both played a significant role in enhancing the effectiveness of coordination mechanisms. As indicated at the top of Figure 8, the Cabinet gave the final approval. The ESDC submitted proposals to the Cabinet to have a final decision passed on any issues that could not be settled or agreed upon by relevant parties internally. The ESDC was a cabinet-level national committee chaired by Prime Minister Prem himself. Thus, the ESDC functioned to engineer interagency coordination for decision-making at the highest level, in a very real sense. The secretary general of the NESDB was appointed as the secretary to the ESDC. In fact, the ESDC was the only national committee in Thailand s history to have been given the cabinet-level authority with the Prime Minister as the chair. The mechanism was highly centralized, the important policy issues were decided by and directed through a top-down approach, meaning that government agencies each only had to follow directives passed along by those from the top. On the other hand, a bottom-up approach was introduced mainly in the instance of dealing with technical issues. Specific matters related to

24 procuring contractors, for example, were brought up in consultations by the agencies and state enterprises directly in charge of operations on the ground. Wherever necessary, these agencies would come forth with issues for discussion consciously utilizing sub-committees as a platform for ironing out internal differences of opinions. Coordination with private-sector stakeholders was also guided through seminars, sub-committees and national committees, which included the Joint Public-Private Consultative Committee (JPPCC). Regarding to aforesaid 2 success factors, ESDP was leaded to the right direction with excellent leaders and competent technocrats at the time of the transformation of economic structure is in needed in Thailand. Not only the internal competency, the good partner and its coordination is also important.

25 3. Dawei Special Economic Zone Project Development The development of the Eastern Seaboard of Thailand has proven to be the country s most monumental shift towards systematic industrialisation of its economy and the modernisation of the social progress. Japanese investors contributed greatly, corresponding to the then Thailand s development policy. The country is now on its shift again to become a proactive investor in neighbouring countries. The western part of Thailand still lacks of infrastructure and public investment for transportation and logistics aspect. This is the result from the geographical disadvantage not appropriate for construct a mega infrastructure such as deep sea port. However, the western still have a valuable potential location for linking development key infrastructure with the neighbouring country like Myanmar which is can complete an economic development mechanism through Thai economy. 3.1 Myanmar Overview Myanmar is the largest country in mainland Southeast Asia, and located in the far western of ASEAN countries. The total area of Myanmar is 676,578 square kilometres 7, as the 40 th largest country comparison to the world and the second largest in ASEAN. Myanmar has shared border with 5 neighbouring countries which are Bangladesh 193 kilometres in the West, India 1,463 kilometres in the Northwest, China 2,185 kilometres in the Northeast, Loas 235 kilometres in the East and Thailand 1,800 kilometres in the Southeast. The total of Myanmar population as July 2014 is 55,746,253 people as the 25 th compared to the world and the third largest in ASEAN countries member. Myanmar has one of the lowest population densities in the region, with fertile lands, significant untapped agricultural potential and a rich endowment of natural resources. Its geographic location at the intersection of China and India, two of the world s most dynamic economies, makes it well positioned to resume its traditional role as a regional trading hub and a key supplier of minerals, natural gas and agricultural produce. When Myanmar joined the Association of Southeast Asian Nations (ASEAN) in 1997, it was supposed to be a clear sign that the country was about to put an end to its international isolation. Moreover, since 2000 the generals of Myanmar s military government have sought to diminish international condemnation of their antidemocratic regime by relaxing their repression of the 7 CIA World Fact Book 2013

26 National League for Democracy (NLD), Myanmar s largest opposition party. In May 2002 this thawing even led to the absolute release of the opposition leader and Nobel Peace Prize recipient Aung San Suu Kyi, who had lived under house arrest, with some interruptions, for several years. At the same time, the government freed more than 300 political prisoners and permitted the NLD to reopen its offices throughout the country. But membership in ASEAN and the policy of domestic détente did not automatically lead to political and economic stability, as the ruling generals had hoped. The country s admission to ASEAN in 1997 coincided with the onset of the Asian economic crisis, which dashed many economic aspirations throughout East Asia. In the five years since Myanmar joined ASEAN, direct foreign investments in the country have continued to fall dramatically. The military junta had expected that, by releasing Aung San Suu Kyi, they would secure an end to international sanctions against their country, particularly on the part of the European Union and the United States. The West did acknowledge Myanmar s domestic progress, but politicians in Washington and Brussels deemed that progress insufficient to warrant lifting sanctions against the Southeast Asian country. 8 In 2008, Myanmar has a huge challenge leapfrog transformed from an isolated country to a more open society seeking an engagement with the international community especially on economic paradigm. More than five decades, Myanmar was absence from the developed world, she was trying to reach regional and global integration, strengthening institutions of democratic governance, and increasing her economic stability. The recent changes in economic and political climates in Myanmar have been welcoming news to the international community. After four decades of isolation, Myanmar has opened its door to international trade and investment, and market-oriented economy. This, together with the direction towards the full integration of the ASEAN Economic Community (AEC), will undoubtedly give rise to a significant business opportunity for investors from within the country and from abroad alike. Members of the AEC, including Myanmar, have, in preparation for the full integration, been developing laws and regulations to facilitate trade and attract investment. Thailand is keen to share its development expertise and reach out to other countries to advance poverty reduction. Although Thailand s Development Policy for Neighboring Countries has been clear, such large-scale commitment and inter-governmental collaboration are much larger and far 8 Bertelsmann Transformation Index 2003

27 Figure 9. Myanmar Location Source: CIA World Fact Book, 2013 more complex than its previous projects. It may have to reassess its path of policy development and the execution in order to define as its leading contributor; justify the country s strategic agendas; and balance international interest on the controversial Myanmar. Economic growth in Myanmar accelerated in 2012, with recent growth supported by higher levels of investment propelled by improved business confidence, commodity exports, buoyant tourism, and credit growth. The economy is expected to post even higher growth in the year ahead. The GDP of Myanmar in 2011 to 2013 are 5.9%, 6.4% and 6.8% respectively, and its

28 composition by sector are concentrated in service and agriculture service sector as 41.7% and 38% respectively and the rest 20.3% is in industrial sector. The main employment occupation by sector is agriculture 70% followed by service sector 23% and industrial sector only 7%. The main drivers of growth were increased gas production, services, construction, foreign direct investment, and strong commodity exports. The economy is projected to grow at 7.5 percent in 2013/14 and rising to 7.8 percent in the medium term owing to continued increase in gas production, increased trade and stronger performance in agriculture. Despite this recent positive economic performance, Myanmar faces a number of challenges. It is one of the poorest countries in East Asia and the Pacific, with an estimated GDP per capita of $868 in 2012/13 and a poverty headcount of 26 percent, according to a 2010 national household survey. The country s GDP is estimated to have been $55 billion in 2012/13. 9 Stronger investment contributed to faster growth in gross domestic product (GDP) last year and is expected to drive further expansion this year and next. The government maintained momentum on policy reform. Sustaining this reform agenda depends on strengthening institutions and capacity development at all levels of government. It also requires concerted efforts to reform and develop electricity supply. The Myanmar economy has to maintain high growth rate same as the former economic stimulus in past few years. The momentum of economic growth was keep maintaining by rising investment propelled by improved business confidence, commodity exports, buoyant tourism, and credit growth, complemented by the government s ambitious structural reform program. Higher imports of capital goods reflected the stronger investment. The economy is forecast to post higher growth of 7.8% in both FY2014 and FY2015, benefiting from rising investment and improved business confidence since the government started to rejuvenate and open the economy 3 years ago. A number of developments last year contributed to raising Myanmar s international profile as an investment destination, including the award of telecommunications licenses to Norway s Telenor and Qatar s Ooredoo, hosting of the World Economic Forum on East Asia and of the Southeast Asia Games, and selection of investors from the Republic of Korea, Singapore, and Japan as preferred bidders for developing airports. Myanmar has abundant energy resources, notably hydropower and natural gas. However, its power sector is one of the least developed in Southeast Asia. Only just over half the total installed capacity of 3,593 megawatts is firm, or highly reliable, because weatherdependent hydropower accounts for 75% of total electricity 9

29 generation. Consequently, the supply of electricity is limited and unreliable. With a population estimated at 60 million, Myanmar s per capita electricity consumption was only 160 kilowatthours in 2011, the lowest in Southeast Asia. This is the result of a low electrification rate estimated that year at 28% of the population, weak industrial development, and a lack of investment. Electrification is concentrated in cities. On the cost side, electricity tariffs are heavily subsidized and among the lowest in Southeast Asia. However, in March 2014 the government announced reforms to electricity pricing that will largely eliminate existing unsustainable subsidies while maintaining lower tariffs for low-income users. A study by development partners estimated that investment of around $18 billion would be required through 2030 to fuel annual average economic growth of 7.5%. Efforts by the government and development partners to address the needs of the energy sector include the preparation of plans, regulatory tools, and legal instruments to guide investments aimed at improving power distribution and reducing energy losses, supporting renewable power sources, rehabilitating existing energy infrastructure, and stimulating new generation and transmission capacity. The required investments are far beyond the combined means of the government and its development partners, so steps are being taken to promote public private partnership, especially in power generation, by developing power purchase agreements that meet international standards, building the capacity of government agencies to handle open and transparent bidding and tendering processes, and catalysing private sector investments. Given large gaps between cities and rural areas, attention is being paid to developing off-grid energy sources such as mini hydropower, biomass, wind, and solar energy. Meeting the energy challenge will play a major role in poverty reduction and stimulating regional development. In addition, improved power supply to all ethnic groups will contribute to the peace dividend. 10 Among her ASEAN peers, Myanmar may be the least well-off, yet her potential cannot be treated with disdain. Albeit lagging behind other countries in many respects, Myanmar is not at disadvantage. That the country is by and large devoid of institutional and public infrastructures is in fact an opportunity. To put simply Myanmar has been given a chance to start with a clean slate, be rid of red tapes and deep-seated conundrums. What are the conditions indispensable for Myanmar to keep economic disruptions at bay and growth robust? Several things are to be 10 Asian Development Bank, Asian Development Outlook 2014, Fiscal Policy for Inclusive Growth

30 pursued. In theory, growth is dependent on productivity as it leads to rising income of the nation. Productivity is defined as a quantity of output produced by a unit of input, be it a worker or machinery. So, the likely way for Myanmar to thrive in global dynamism is to raise its productivity level steadily. To do as such, it is of necessity for Myanmar to fulfill the followings: To begin with, having functioning institutions is the cornerstone of robust development. Douglass C. North, a Nobel laureate in economics, defines institutions as humanly devised constraints that structure political, economic and social interactions. These constraints, from rule of law to social norms, would shape the course of Myanmar s development. Good or bad, that depends on how those constraints are designed and implemented. If the development of these institutions is done piecemeal and ill-structured, this can backfire and become a hindrance. Take for example a fiasco in 1987, in which the junta government unexpectedly declared the demonetization of money, that is the old currency is no longer tender and cannot be converted into a new currency, have discouraged market activities as holding such a currency is a risk itself. The top echelon of policymakers should heed the importance of effective institutions. Optimistically, the 2008 constitution, which now forbids demonetization, and the newly enacted liberal foreign investment law are commendable steps towards the first goal. Secondly, an open market economy constitutes a major drive in growth. At this point, with minuscule income per capita and scarce domestic demand, Myanmar cannot afford to grow in solitude. Isolation proved economically disastrous; after the isolationist policy had been carried out through 1960s, according to the Economist income per person fell from $670 a year in 1960 to $200 in So it is of importance for Myanmar to understand the necessity of both internal and external demands. Myanmar would seek to kindle its growth by treading from an agriculture society towards a manufacturing and export oriented economy. With open economy, a sizeable reservoir of natural and human resources is Myanmar s current comparative advantage. Jobs will be created. An increase in capitals and knowledge transfer imply increase in productivity, resulting in a surge in income. Exports of natural resources should in principle bring along wealth. Yet, Myanmar law makers must be aware of a resource curse, or sometimes called the paradox of plenty. Historically, a good number of nascent economies have performed poorly despite their

31 resource abundance. The temptation of resource wealth can create a despot out of a decent leader. Money from extractions is more often than not allocated to a corrupt leader and his cabal instead of reinvesting in proper infrastructure. As a result, a majority of society remains in dire poverty. Additionally and interestingly, Joseph E. Stiglitz has listed 3 caveats of the curse that could hinder growth: most resource endowed countries have strong currencies, thereby weakening exports of other industries; resource extractions stir little job creation leading to unemployment; price volatility of commodities induces unstable growth. To triumph over these predicaments, Myanmar has to make sure the profits from extractions are reinvested both domestically and abroad suitably and resources are used in a sustainable fashion. Thirdly, while market economy is at work, in the long run Myanmar will lose its edge in manufacturing and export as a result of rising prices of inputs like those of wages and commodities. A blunder is to, heaven forbid, respond to the circumstance by resorting to price manipulation such as wage and price controls. Wage manipulation is a distorting way to enrich a few individuals at everyone s costs. After all, the whole point of pursuing growth is for every person, not a privileged few, to be better off. In any case, to continue apace, according to Michael Spence, economics professor at New York University, the private sector has to focus on innovation which is defined as the gamut of processes from value adding to cost saving - part of a long-run transformation towards creative and service oriented economy. In the mean time, the government can help streamline the processes by investing in public investments. In addition, despite being the engine of innovation, market mechanism heavily hinges on the government s deeds, from spending on hardware like ports and roads to software like education and academic facilities. Innovation is far more elusive to obtain under decrepit settings because transaction costs are sky high. Costly rents due to limited property, expensive transportation costs due to poor logistics, and incessant power outages have undermined return on business investment and national competitiveness in Myanmar. These impediments stymie market activities and thus economic development. Moreover, in respect of human capital, subpar education and a lack of academic facilities could prevent Myanmar s ability to build on knowledge and hence capacity to grow in the future. In this sense, there is the need for the government to step in. No single firm is willing to invest in public infrastructure as monetary benefit is too marginal for them. Even though as a whole, overall economic benefit would

32 outweigh the investment. Moreover, the government must allocate budget to improve information technology and human capital as well as to set up an effective financial system. Information technology reduces a great deal of transaction costs and helps distribute knowledge and technology across the board. This process constitutes the catalyst of innovation and creativity. It is difficult to conduct research and development when basic facilities are not present. Without access to the internet, gathering data and research- for example on how to increase agricultural yields for farmers- would be a long haul whereas it would take less time and money to easily find a slew of information on Google. Myanmar government s hands are understandably tied by financial constraints and might not be able to provide education in various disciplines countrywide. Nevertheless, people can learn and apply knowledge and ideas suitable to their interests from the internet. Fourthly In order to fully make use of information technology, education policy must be well implemented. In this context, the gist of good education is not about earning high GPAs at graduation but enabling people to further enhance themselves on available ideas and knowledge. This in turn leads to higher productivity of economy as a whole. However, on the internet, most available resources are in English. So to capture most of it, Myanmar s education has to stress the ability to use English. Beyond that scope, linguistic skills help reduce the inequality gap within the society. Workers with English proficiency are preferred by employers. Seemingly, English speaking employees usually come from affluent backgrounds hence exacerbating job inequality even further. Lastly, in the implementation of those policies, money is so vital. Private companies too need cash to expand. Sadly, more often than not, both government and firms are financially deprived. A sound financial system, from banking to stock exchange, can resolve the issue. Idle cash can be efficiently channelled to entrepreneurs and investors who are the linchpin of economic growth. In usual case, banking system has more impact on emerging economies than capital markets do. It is high time Myanmar government promoted effective banking institutions and introduced an independent central bank. Setting up efficient domestic banking institutions is imperative because, for business, domestic lending is preferable to foreign loans due to exchange rate volatility. Thailand s financial crisis in 1997, where abrupt depreciation in exchange rate has trampled a raft of Thai business, is a prime example of mishandling external finance.

33 Myanmar is now at some distance behind its ASEAN neighbors. However given the right configuration, Myanmar can narrow that gap faster than it may think as those countries are also entangled in their own institutional dilemmas. Everyone knows that tying the knot is a much easier task than untying one. It is better to do it right at start. 3.2 DSEZ Early 2000s, The Government of Thailand and the Government of Myanmar have agreed to promote the ASEAN economic integration, regional connectivity, and economic growth through development of key determinants, logistics, transportation and utility infrastructure in the Dawei Special Economic Zone. In 2008, Thai government and Myanmar government entered into a Memorandum of Understanding 11 to cooperate on the implementation of a deep sea port and the direct road link, the promotion of trade relations, between the two countries, the transit trade with other countries, as well as related investment and tourism. After the aforesaid MoU was signed, in 2010, Thai government encouraged the Dawei development project by including it in the Master Plan on ASEAN Connectivity. In the early of 2010, the Myanmar government by Myanmar Port Authority (MPA) was called for bidding for DSEZ project development and June 2010, Italian-Thai Development Public Company Limited (ITD) was selected an awarded a concession for DSEZ project development and took initiatives to enter into a Framework Agreement 12 with the Myanma Port Authority, whereby MPA granted ITD a concession to implement a project to develop a deep sea port, transportation and utility infrastructure in the DSEZ project. Dawei Special Economic Zone (DSEZ) is part of Thailand s development policy to support and assist its immediate neighbours, like Myanmar, in transforming their nascent economies. DSEZ project development is a large-scale infrastructure project which is located in Tanintharyi Region in southern Myanmar, 132 kilometers from Thailand - Myanmar border. With a total estimated investment of 8.6 billion USD, the Dawei Project s area coverage spans almost over 200 square kilometers. Its full phase development will include 18,000 ha of industrial estates, 4-lane toll 11 Memorandum of Understanding between the Government of the Kingdom of Thailand and the Government of the Union of Myanmar on the development of the Dawei Deep SeaPort and Road Link to Bangkok, May 19, Framework Agreement between Myanma Port Authority (MPA) and Italian Thai Development Co. Ltd. (ITD) for Development of Dawei Deep Seaport, Industrial Estate and Road Link to Thailand dated 2 November 2010

34 road to the border, water supply system, power plants, and a state-of-the-art deep seaport. Collaboration between Myanmar and Thai governments on the project is a story of how Myanmar is evolving and improving itself to compete and survive in the world s dynamic economy. Myanmar government works closely with Thai government to open up a new industrial zone and construct mega infrastructures such as a deep seaport in the South West-end of Myanmar and to link the project with the Eastern Seaboard in Thailand. This linkage will establish a section of the Southern Economic Corridor of the Greater Mekong Sub-region (GMS) program continuously supported by the Asian Development Bank (ADB). The DSEZ project was a Special Economic Zone promulgated during the reign of the junta government. Under the 2008 Memorandum of Understanding between Thailand and Myanmar governments and the 2010 Framework Agreement, an exclusive right was granted to a consortium led by a Thai company, Italian-Thai Development Co. Ltd. (ITD) to construct this momentous project. Later, under the new administration by President Thein Sein, Myanmar also proposed another two special economic zones i.e. the Thilawa Special Economic Zone near Yangon and the Kyaukpyu Special Economic Zone in the North, to establish a long-term plan for economic progress as in supplementary to DSEZ project. To Myanmar, DSEZ project is viewed as Myanmar s new engine of growth in a similar way with the Eastern Seaboard has contributed to Thailand. To Thailand, DSEZ project will boost the competitiveness of Thailand s saturated industries embattled by limited resources and rising wages. Thailand is in hope that the project would help reinvigorate the Eastern Seaboard through extending its production chains westwards and through cheaper labour pool. To the region, DSEZ project will be a new gateway to the Western market and ASEAN s new investment destination with world-class deep seaport, topnotch industrial estates, new commercial district and urban city. DSEZ Project is the development and implementation of projects on the designated area of the Land approximately square kilometres which is located 370 kilometres west of Bangkok or 132 kilometers from Phu Nam Ron, Kanchanaburi, and the boarder of Thailand, is accessible by road. The DSEZ project may include a deep sea port, shipbuilding and maintenance services facility, industrial estate, petro-chemical complexes, oil refinery, steel mill, fertilizer plant, coalfired or gas power plant, other utilities service business, toll-road and rail way linking the land

35 from Dawei District to Thai borders together with oil and gas pipelines and connecting transmission lines along the road and rail link, township for residential and commercial development and tourism, resort and recreation activities for the benefits of the people of Myanmar, Thailand and for the region as a whole. The DSEZ Project may consist of five major components, namely 13 : Figure 10. Location of the Dawei Project Source: ITD (i) (ii) (iii) (iv) (v) a deep sea port: an industrial estate; a cross-border road, rail and pipeline link with concerning transmission lines from the Land in Dawei District to the Myanmar/Thailand border at Pu Nam Ron, Kanchanaburi province, Thailand; an electricity utility and water supply system; and township for residential and commercial development and tourism, resort and recreation complex. Dawei Special Economic Zone Project is one of the largest Special Economic Zone Project in 13 Initial proposal of ITD

36 South East Asia, which will ultimately benefit the region as a new gateway that will enhance ASEAN connectivity both inter-regional and intra-regional. The project will enhance logistical connectivity and benefit not only Thailand and Myanmar, but also surrounding countries around GMS Southern Economic Corridor of, such as Vietnam and Cambodia. To further extent, the project will link ASEAN to South Asia, Middle East, and Europe. Dawei Project will improve regional infrastructure and lower logistic cost of production chain, which will enhance efficiency and competitiveness of the region. Especially, in regional scale, the project could alter the Figure 11. Aerial Perspective of DSEZ Project Source: ITD freighting route to South Asia, Middle East, and Europe. For example, the freight from Bangkok to Chennei via Dawei could save up to 3 days through this route. Currently, Thailand has to import more than 10 Million Ton of steel, 300 Million barrels of oil, and 320 Million cubic feet of Natural Gas to fulfill the industrial demand. Moreover, the Eastern Seaboard is reaching its handling capacity and facing environmental constraints as well as the looming scarcity of energy. In this regard, the Dawei deep seaport is a Growth Node and gateway of the GMS Southern Economic Corridor, which will be the driving force of ASEAN carrying great potential for offshore Production Base, especially in Petrochemical and Steel that enhance energy security of the region.

37 Figure 12. New Gateway to the Western World Source: DHL Interview in The Nation March 5, 2012, **UNESCAP report (1) Dawei Deep Sea Port Three deep Seaports are planned with capacity of over 200 MT per annum: (i) (ii) (iii) Northern Seaport - servicing liquid containers, general cargo & containers, and agriculture located next to the oil, gas and petrochemical zone the port is conceptually designed with 11 terminals and offers flexibility up to 14 meters depth below the surface. Southern Seaport - servicing terminals for bulk containers the port is conceptually designed with 12 terminals and offers flexibility up to 19 meters depth below the surface, servicing raw materials and bulk commodities, including coal and iron ore. Middle Seaport - servicing general and container cargo terminal located between bulk port and liquid port for an optional expansion at later stage based on potential demand - the port is conceptually designed with 10 terminals and offers flexibility up to 15 meters depth below the surface.

38 The port will be equipped with roads and railways right up to the port terminal. Additionally, the port will be equipped with a shipbuilding facility, which is capable of providing repair services for large vessels. Figure 13: Dawei Deep Seaport Source: ITD To accommodate a large influx of raw materials and finished goods passing through Dawei seaport, experienced operators will be invited to co-invest in the facilities. The joint investments will provide industrial customers with full logistics and storage facilities services such as the warehousing, packaging, truck transporting, container handling and storage, and trucking, shipping, for instance. The three deep seaports in Dawei will be sufficient to handle up to a total of 30 vessels per day. They will not only service the industrial estate importing and exporting raw material and finished products, but will also service throughput of goods passing through the Dawei Seaport via the interconnecting road and railway within Myanmar, to and from Thailand and China and other

39 various markets in the region and worldwide. Dawei deep seaport has several competitive advantages. First, it will have basin with depth of approximately 15 meters 14. The water is deep enough to accommodate very large vessels and supertankers with loads of up to 300,000 DWT 15. Second, with a total of 33 berthing terminals, the deep seaport can accommodate for further increase in throughput capacity in preparation for future expansion in the amount of industries in the Dawei industrial estate. The two seaports, together, it will be able to handle more than 200 million metric tons of bulk, container, liquid, and general cargo per year. Third, a number of islands help form a barrier for the port. These are natural barriers and safe harbors for ships to anchor while awaiting for up- and down-loading their cargo year round. At present, more than 90% of Thailand s international seaborne cargoes are shipped via Bangkok and Laem Chabang Ports. Most cargos are shipped in form of containers. However, a substantial portion of containerized cargoes set for Bangkok destination has to be unloaded at Singapore port for transhipment. In other words, Thailand s container transport is linked to the world s main shipping lanes through the port of Singapore. Next to the port of Singapore is another major destination, Sri Lanka s Colombo port. The port is one of the major ports in the container network and is well linked with India and other South-West Asian countries. It is anticipated that 40% of the container traffic in Laem Chabang will revert to Dawei Deep Seaport 16. A combination of interconnected roads and deep seaports along the Coast of Andaman Sea will provide Thailand with exporting opportunity for industrial products to South West Asia, and the Middle East and Europe. In this respect, Dawei deep seaport will serve as an international commercial gateway for Indo-China region. In return, various commercial cargoes will be shipped via the new Dawei Seaport, and distributed in Myanmar for further transportation via the cross border road link with Thailand by passing Kanchanaburi into Bangkok area. (2) Dawei Industrial With concessional period of maximum 75 years, Dawei Industrial Estate will be divided into eight different sectors. According to DSEZ law, the sectors will comprise of, 17 : 14 ITD Engineering Plan 15 Dead Weight Tonnage is the total weight of a ship its cargo, crew and other supplies. 16 ITD estimates 17 Dawei Special Economic Zone Law, enacted January 2011

40 (i) High-tech industries; (ii) Businesses which will further promote the economic development of the State; (iii) Businesses which will further promote trade and service; (iv) Businesses which will further promote the infrastructures; (v) Businesses which will create more employment opportunities for citizens; (vi) Businesses which include citizen s investment in foreign investment businesses; (vii) Businesses for conservation and protection of natural environment; (viii) Other businesses prescribed by the Central Body, from time to time, to carry out in priority. These sectors are grouped into three industrial zones -- Heavy Industry, Medium Industry and Light Industry in order to contain pollution emission and enable construction of appropriate transportation access. The figure on the following page illustrates the conceptual planning of each industry group. Figure 14: Dawei Industrial Zoning Master Plan Source: ITD

41 (3) Dawei Road, Rail and Pipeline Link With respect to the cross border logistics, the DSEZ project will be connected to a toll road, linking the town with Asia s extensive network of roads and highways. A 4-lane toll highway from Dawei to Phu Nam Ron, Kanchanaburi Province, Thailand, will be constructed and can be expanded plan up to 8 lanes, according to the traffic requirements. The road will later be jointed to Thailand s two new motorways a Bang Yai-Nakhon Pathom Muang Kanchanaburi route and another from Muang Kanchanaburi to Phu Nam Ron. The 132 kilometre rail link from Dawei to Phu Nam Ron, Kanchanaburi Province, Thailand will be linked with transmission line, oil and gas pipeline, along the toll highway will alternatively serve to transport raw material, cargo, and finished products arriving at the Dawei deep seaport to be quickly and efficiently transported to Thailand. Similarly, goods from Thailand could be exported via this strategic rail links, deepening trade between the two immediate neighbors and the region. Further, the rail link will play a vital role in serving as an important logistics medium for the major industries to be establish in the Dawei Industrial Estate with direct access to the Thai market including: steel, fertilizer, agricultural products, and other downstream industries. Dawei Industrial Estate will provide substantial base load traffic volumes for the rail linking Dawei to Thailand 18. ITD s railway system will enhance developed railway system and interconnect Southern Economic Corridor to railway network across Asia. The Chinese government has planned to upgrade railway system connecting Kunming to Southeast Asian nations. By the year 2014, once this route is in operation, it would convey seven million tons of cargo among Greater Mekong countries. The number will rise to 26 million tons by 2025 by ADB forecast 19. This will allow access to one of the world s fastest growing economy. 18 Study to formulate a Master Plan on Industrial Linkage between Thailand and Myanmar, Japan Overseas Development Corporation China Coming down the tracks. The Economist 20 January 2011

42 Figure 15: Dawei Road Link Source: ITD (4) Electricity and Water Utilities Dawei electricity utility is to be delivered locally from coal-fired, gas-fired and hydro-powered electricity generation plants. The 400 megawatt plant is planned based on on-demand basis to accommodate energy consumption in the area during construction phase for captive use. The 400 MW coal-fired power plant in addition is designed for imported bituminous coal from Indonesia. Coal will be carried by barge from Sumatra Indonesia (12,000 tonnes) and can be berthed at deep sea port; or directly berthed at a small jetty of coal yard. Power production will be divided into three units of 150MW CFB 20 boiler power plants so that the first unit will be able to supply electricity to the industrial estate without any disruption, whereas the following units will be completed 3 months later in a consecutive order. At later stage, there will be an option to set up a 3,600MW coal-fired power plant and export to Thailand. This is The stakeholders are in the process of drafting MOU on Tariff with the Electricity Generating Authority of Thailand. 20 circulating fluidized bed

43 In addition, for each utility service - fresh water supply, wastewater management, solid waste management, telecommunication, waste disposal, drainage, security- potential partners with interest in these businesses will be invited to jointly develop the utility services for the industrial estate. Oil and gas pipelines and transmission lines will also be readily available to facilitate trade between two countries. (5) Township & Tourism Township area will be allocated for residential and commercial development, namely workforce and the expatriate township. Workforce Township will need to be developed sufficiently for the on-site workers and their families employed within the industrial estate. It will include residential area, whole sale and fresh market, hotel, condominium and serviced apartment as well as schools, hospitals and religious places. In addition, apt areas will be developed for expatriates working in the industrial estates. Potential investment in this area will include residential villas, luxury yacht club and resorts, hotel, two golf courses, sport complex and marina, entertainment complex, fisherman s wharf, commercial area, etc. Dawei has a high potential to become a prime area for both business and leisure with convenient international accesses. With preferential tax arrangements, Dawei will attract funds and investors which could make Dawei a money and financial centre in the region. A modern city at the tip of the Dawei peninsular is a fitting location for a business and financial hub. According to ITD initial development plan, there were 3 stages of project construction. (i) The First Phase is expected to be completed in 5 years from the inception of the Project including the following items: o o Northern port construction and other seaport facilities Road corridor link to Thailand in the length of approximately 160 km (main road). Both sections in the industrial estate area and from Dawei River to Phu Nam Ron include the main and secondary bridges. Two-lanes of carriageway in both sections are proposed in this initial phase.

44 o o o o o o o o o Road improvement to Dawei Airport A coal-fired power plant with capacity of 400 megawatts for captive industrial complex use Water reservoir with water pipe and pump station Water treatment plant and water supply Solid waste facilities Industrial estate buildings Observation tower Other infrastructure: drainage, utilities, etc. Township (ii) The Second Phase is scheduled to be completed within five years time. Infrastructure in Phase 2 will result in the completion of the access road from a quarry to the Northern port. The expansion of water and waste water treatment plant and the expansion of the solid waste facility will meet the growing demand of the residents of the Industrial Estates, the township and the development growth of the overall project. Modular expansion approach of utilities will be adopted to better facilitate the needs of services in phasing. In addition, open channel improvement work for the Pandin-In Channel for inland water drainage control will be constructed and completed. The main road of 18 kilometres in industrial zone will be extended from a two-lane carriage way in the first phase to a four-lane carriage way during the second phase. Other significant developments will include rail link, pipeline and transmission line to Thailand as well as an additional power generation capacity of 3,600 megawatts for the Electricity Generating Authority of Thailand (EGAT). (iii) The Third Phase is scheduled over five years primarily including the rail link from Dawei to the Myanmar/China border at Muse, Myanmar. Significant developments will include secondary road and rail network, additional port facilities and expansion of wastewater system. Since the implementation of the DSEZ development plan by ITD from 2010 to 2012, there had been several problems in terms of the project feasibility and financial accessibility, repercussions from the lack of international exposure (example or implemented project) of the Myanmar government local administrative. More problems stemmed from the lack of official

45 interaction with local villagers with respect to relocation and compensation issues. And the most important bottlenect for the pace of the project development is Myanmar has very high country risk in term of financial accessibility so the Thai developer couldn t reach to the appropriate source of funding. The suitable source of fund that fit with the mega infrastructure project development in least developed country (LDC) such as Myanmar should come from a development bank or official development assistant (ODA) from developed country not commercial loan from commercial bank or profit oriented financial institution. DSEZ project was delayed from the plan and some minor projects had been stalled, so this is the reason why Thai government has to be involved in this multi-billion dollar project in Myanmar in term of facilitator and supporter. 3.3 Role of Thai Government Thai Government has been continuously supporting the project since 1996 to present, when the Memorandum of Understanding dated May was signed. In addition Thailand has been encouraging Myanmar to develop the Dawei Special Economic Zone, which would include the road link with Thailand logistic communication network. The merits of DSEZ Project is not only to create huge impact for both Myanmar and Thailand economic development but will also create a sub-regional transportation network in Greater Mekong Sub-region 21 (GMS) which spans over 6 countries, Cambodia, the People's Republic of China (PRC, specifically Yunnan Province and Guangxi Zhuang Autonomous Region), Lao People's Democratic Republic (Lao PDR), Myanmar, Thailand, and Viet Nam, especially in the southern corridor of GMS. In July 2012, Myanmar and Thai Ministers of Foreign Affairs signed the Memorandum of Understanding on the Comprehensive Development in the Dawei SEZ and its Related Project Areas and under the MoU both Myanmar and Thai leaders agreed on the establishment of collaborative mechanisms. The Thai government sees the significance of the DSEZ project to Thailand s competitiveness under the Second National Logistics Development Strategy ( ), which has been approved by the National Logistics Committee on June 27, Also, the strategy emphasizes 21 The Greater Mekong Sub-region (GMS) is a natural economic area bound together by the Mekong River, covering 2.6 million square kilometers and a combined population of around 326 million.

46 the DSEZ project as a win-win key action for Myanmar, Thailand and the region to enhance overall prosperity in a long run. Figure 15: Greater Mekong Sub-region Economic Corridor Source: ADB 3.4 International Development Policy Myanmar Thailand Joint Cooperation

47 Regarding the delay of DSEZ Project together and the priority request from Myanmar government, Thai government therefore responded by creating a joint mechanism under the Memorandum of Understanding (MOU) between the Government of the Republic of the Union of Myanmar and the Government of the Kingdom of Thailand on the Comprehensive Development in the Dawei Special Economic Zone (SEZ) and Its Related Project Areas signed on 23rd July The Governments have established the Joint Mechanism to implement the MOU and promote further progress of the Dawei SEZ and Its Related Project Areas, which comprise three levels of committees as follows: (1) Joint High-level Committee (JHC); (2) Joint Coordinating Committee (JCC); and (3) Sub-committees on six specific areas of cooperation, namely (i) Infrastructure and Construction, (ii) Focused Industries and Business Development, (iii) Power and Energy, (iv) Community Development, (v) Rules and Regulations, and (vi) Financing. According to the effectiveness of the collaboration between the governments, DSEZ project has been developed conveniently and consistently. After the joint mechanism was in effect, the cooperation of the two governments acknowledged all the eight core infrastructure projects that must be executed simultaneously during the 1st phase of the project development which are; (1) toll road connecting between Dawei and Thai-Myanmar border, (2) Dawei deep seaport, (3) industrial estate, (4) power plant, (5) water supply and waste water system, (6) telecommunication, (7) community development and relocation, and (8) railway development project. These eight core projects would be greatly essential to the project s achievement and adequately facilitate the early industries. In order to kick off the DSEZ project development in the stage of joint development policy, Thailand has to initiate the country strategy of

48 international development policy in order to strengthen its cooperation with the neighboring countries to achieve goal of the sub-regional development. Figure 16: Myanmar - Thailand Joint Mechanism Source: NESDB Thailand s Ministry of Finance is responsible for the areas of financing along with rules and regulations related to DSEZ project development, the author was participated in designing the investment structure of DSEZ project and to support the government of Myanmar to develop its pertinent rules and regulations to support DSEZ project. In 2013, the joint mechanism agreed to establish a new company between the relevant agencies of Thailand and Myanmar and/or other investors as a SPV (Special Purpose Vehicle), taking the role of the main developer with exclusive right of concession to be granted by the Dawei SEZ Management Committee. The SPV is initially to be incorporated in Thailand, which would go through dual listings in Thailand and Myanmar and other countries in the future. The investors of the SPV basically are to be comprised of the relevant agencies of Thailand and Myanmar on

49 equal share basis. In the case that other countries request to be involved in the SPV at a later stage, the percentages of investment contribution by the new parties have to be determined by the original parties of the SPV. Furthermore, the joint mechanism also agreed to replace the existing Framework Agreement that was concluded between the Myanmar Port Authority (MPA) and the Italian-Thai Development Public Co., Ltd. (ITD) that signed in 2010, with the new Concession Agreement that will be concluded between the Dawei SEZ Management Committee of Myanmar and the SPV. Moreover, There was a condition that an internationally recognized and independent consulting firm(s) shall be hired and paid by the SPV as soon as possible in order to conduct the due diligence assessment on past investment by the ITD. All the investments by the ITD shall, upon the result of the due diligence, be paid back to the ITD by the SPV or be considered as its equity contribution, that shall be contributed in the separate SPCs together with other equity holders under the supervision and coordination of the SPV, Additionally, the Myanmar Government ensured its continued support and facilitation for the successful development of the DSEZ project. On behalf of the government of Thailand, Neighboring Countries Economic Development Cooperation Agency (Public Organization) (NEDA) as the shareholder of SPV is an arm of Thai government to jointly develop DSEZ project in conjunction with the Foreign Economic Relation Department, a Myanmar agency. NEDA is Thailand s international development aid agency, established officially on May 27, 2005, as a public organization, under supervision by the Minister of Finance. There are four significant regional missions that make NEDA the efficient mechanism of the government to enhance Thailand s aid for economic development among neighbours as follows 1) to provide financial and academic supports to neighbouring countries 2) to cooperate with the neighbours in their economic development 3) to conduct research and studies, as well as proposing some policies and measures to strengthen economic cooperation with the neighbouring countries. 4) to coordinate with all concerned organizations of the public and private sectors, both at home and abroad, in order to integrate economic development cooperation with the neighbouring countries.

50 Figure 17: SPV Investment Structure Source: KTZmico, Financial advisor to the Ministry of Finance, Thailand The investment structure was technically supported under the auspice of Thai Finance Ministry. Moreover the new Myanmar Special Economic Zone Law was drafted from the Thai experience, the Eastern Seaboard Development, in early The new SEZ law has been improved from the existing laws in several dimensions, including: (1) Greater Coverage: The new SEZ law applies to both developers and investors, whereas the previous laws apply to investors only. (2) Better Tax incentives: (i) Corporate income tax: Developer and investor have rights to claim tax relief or

51 (ii) exemption (8-year tax holiday for developer, 7-year for investor; 50 percent tax relief for the second five years; and 50 percent tax relief for third five years on reinvested profits) Custom duty: Exemption of custom duty on construction materials and machineries. (3) Longer Initial Land Use Period: Developer and Investor can use land for up to 50 years, extendable up to 25 years (the current Dawei SEZ law allows for ) (4) Foreign Direct Investment is allowed maximum 100% (5) One stop center in each zone. (6) Guarantee on no expropriation within SEZ International Cooperation DSEZ projects have been earmarked for the completion of a strategic supply chain of the subregional in the ASEAN countries. Hence the heavy industry, particularly steel industry, should be established as soon as possible. Japan has been considered to be one of the main developers of DSEZ project as its business associations and public agencies have worked on the policy level through bilateral and multilateral channels particularly when Thai private company came across the difficulty in searching for business counterparts. There are maneuvers from foreign investors to ascertain the political commitment from both Thailand and Myanmar governments. The structure of development is also shaped by the opinions from civil society such as Dawei watch group and local newspapers. The government of Thailand and Myanmar acknowledged the importance of Japan and other countries effort to push forward the Dawei SEZ development and will surely invite those countries to participate in the project as partner countries or joint shareholder in SPV.

52 4. Conclusion The Development Policy is highly complex and will be the solution for the human being mainly concentrated on three major areas of development priorities. First is a sustainable economic development. Second is education development. And third is health development. The three major areas of development are the key criteria s of country strategy development goal. For Thailand Development Policy, the Ministry of Finance is focused on economic development in order to stimulating sustainable development by investing in economic. Economic development is fundamental to long term sustainable development and vice versa. Thailand neighbouring countries such as Myanmar, Laos PDR and Cambodia, faces a lack of infrastructure development and poor basic infrastructure that could provide good quality of people living standard. Neighboring Countries Economic Development Cooperation Agency (NEDA) is one of the key agencies of the Thai government to provide technical assistance and ODA-loan for the aforesaid neighbouring countries, mainly on infrastructure development. The role of NEDA is similar to the Japan International Cooperation Agency (JICA) which is an independent governmental agency that coordinates official development assistance (ODA) for the government of Japan, but NEDA is has no long term strategy to achieve the development goal for the region, mostly depend on the government mandate or political issue. Drawing from the ESDP experience and going to DSEZ, the role of government agency such as JICA and NEDA is very important as a policy driven player for the mega project development framework. However, from the policy practices in most developing countries, it must admit that there are two major concerns that impede the countries to attain its goal of increased competitiveness. One is how to derive a set of good public policies aiming to improve overall competitiveness for the country while the other one is how to make these policies happen where desired result on target beneficiaries is achieved. Although both policy steps are closely linked, the latter seems to stay behind regarding its performance. A drastic shift in policy context for the government as excerpted from Hass et al (2007), - the state is increasingly dependent on organizations in civil society and more constrained by international linkages as a result of the internationalization of industrial and financial transactions, the rise of regional blocks, and concerns over problems such as terrorism and the

53 environment is indicative to the future trend of public policy. Complexity of environments requires much more efforts from policy makers and public officials to respond to these changes than ever before, especially when the policy issue and real setting of development scope is beyond a boundary of own territory but other countries in the region. From above, well thought development policy is to combine mutual benefits between the donor country and the recipient country. Both ESDP and DSEZ projects are two good example of effective collaboration between Japan-Thailand and Thailand- Myanmar under the economic development policy through a similar type of large scale infrastructure project. DSEZ projects have made a long progress from policy inception to policy implementation. Over the course of DSEZ policy cycle, there have been lengthy scores of bottlenecks and obstacles. Accordingly, DSEZ projects require a high degree of coordination and demand serious efforts from all relevant parties be it Thailand or Myanmar. It is because DSEZ projects are considerably dynamic and ever changing. Moreover that DSEZ site is located beyond Thai territory and its jurisdiction has made the projects under co-ownership between Thailand and Myanmar. To put simply, DSEZ projects are implemented under a unique environment where a host of parties and counterparts public agencies and private sectors domestic and abroadclosely intermingle. The complexity in the Dawei development is the dynamic relationship among six categories such as: 1. Sovereignty: in this case means Myanmar as the host country, basic concerning issues for an investor such as the country risk and Myanmar investment climate; 2. Law and Regulation: Myanmar policy is the most important issue. The privileges or tax and non-tax incentive to foreign investor have to be more attractive than another countries in the same region due to high country risk; 3. Anchor Investor: this is key factor to kick off DSEZ project. The potential anchor investor could bring success to the project as a whole. For ESDP, the anchor investment is Petrochemical and Export Oriented industry. Not only anchor investor itself, but the investment structure and size of investment could also provide a good success to the project;

54 4. Financing: good financial source of fund can come from project viability, planning and visibility; 5. Infrastructure supports: the development of key infrastructure is the key success factor the need public investment. In this case Myanmar government should invest in fundamental part of key infrastructure like road link and deep sea port. 6. NGOs: the social development and environmental impact are the most concern for NGOs and local people. For DSEZ the relocation issue is the most important concerned by developed countries that could provide funding assistant and potential investor. Figure 18: SPV Investment Structure Source: PWC The developer, in this case, should well be the Thai and Maynmar government or the SPV could monitor policy, funding and construction simultaneously. The Thai government as the strategic investor took a very important step-in to bring credibility and experience in the development of the similar project in the Eastern Seaboard. The key success factors for mega projects like Dawei from learning experiences of ESDP are multidimensional and include: 1. Political will The Thai and Myanmar governments will need to stick to their vision and