With democratic elections on the horizon and a supposed end to direct military rule in sight, are foreign investors prepared to commit more capital to Thailand?

Coup-installed Prime Minister Prayuth Chan-ocha, despite various schemes to promote foreign-invested manufacturing and technology businesses, has largely failed to attract significant new foreign direct investments (FDI), one of the key drivers of Thailand’s export-oriented economy for the past three decades.

According to United Nations Conference on Trade and Development (UNCTAD) figures, Thailand attracted a mere US$1.5 billion in FDI in 2016, well below the levels received by most of its Southeast Asian neighbors. Last year, Vietnam attracted US$12.6 billion, Malaysia’s US$9.9 billion, Philippines US$7.9 billion, Myanmar US$2.1 billion and Cambodia US$1.9 billion.

The Bank of Thailand’s FDI figures for 2016 were twice as high at US$3.1 billion, but still a far cry from the US$15.9 billion the country received in 2013, the last full year of of former Prime Minister Yingluck Shinawatra’s elected government, which was overthrown the following year in a coup.

Yingluck’s FDI performance benefitted, perversely, from the cataclysmic floods of 2011 that required heavy reinvestments in 2012 and 2013 by domestic and foreign firms to dig out from under the devastation, including to the country’s industrial heartland.

An employee works at an assembly line at the new Ford Thailand manufacturing plant located in Rayong province, East of Bangkok May 3, 2012. Ford Motor Corp is eyeing Indonesia as a production centre to help meet strong demand for cars in Southeast Asia but supply problems mean Thailand will remain its regional hub for the foreseeable future, company executives said. REUTERS/Chaiwat Subprasom (THAILAND - Tags: TRANSPORT BUSINESS) - RTR31JKS
A worker at US automaker Ford’s manufacturing plant in Rayong province, East of Bangkok Photo: Reuters/Chaiwat Subprasom 

If Prayuth has failed to attract similarly strong FDI inflows, it has not been for lack of trying. His military regime has worked systematically to improve its national ranking in business barometers like the World Bank’s annual “Ease of Doing Business” index.

Prayuth’s government has introduced a series of new laws and regulations aimed at facilitating FDI that succeeded in boosting Thailand to the 26th slot in the index earlier this month, up from 48th rank in 2016, the highest country leap in the index’s 15-year history.

The regime has also introduced a series of longer-term schemes designed to attract FDI. Shortly after the coup, Prayuth announced a policy to set up ten Special Economic Zones (SEZs) along Thailand’s often volatile borders aimed at boosting exports to its faster growing neighbors – Cambodia, Laos, Myanmar and Malaysia – while using cheap foreign labor to power the industrial zones.

But Thailand’s border areas lack the infrastructure needed for successful SEZs, so there were few takers.  The era of Thailand’s low cost labor intensive industries is arguably over, given the kingdom’s demographics of a rapidly aging population and a fast shrinking working-age labor force combined with growing international pressure to stop exploiting migrant labor.

The regime’s second scheme was to promote ten, high-tech “cluster” industries with special tax incentives as part of the so-called ‘Thailand 4.0’ vision, a policy that aims to lift the country from low-tech, labor-intensive sectors to value-added, innovation-drive areas.

The 4.0 scheme also failed to attract much FDI, perhaps because the concept was a bit abstract for the average investor and no clear indication Thailand has the tech-savvy manpower to drive such businesses.

Prayuth’s government has now settled on the Eastern Economic Corridor (EEC) policy, officially launched in June last year.

Thai Prime Minister General Prayut Chan-o-cha (center) observing a construction project in Bangkok in a 2015 file photo. Photo: Reuters/Athit Perawongmetha
Thai Prime Minister General Prayut Chan-o-cha (center) observing a construction project in Bangkok in a 2015 file photo. Photo: Reuters/Athit Perawongmetha

It aims to promote the same ten high-tech cluster industries but limited to a 4,800-hectare area in Thailand’s three eastern coastal provinces – Chachoengsao, Chon Buri and Rayong. The area is the site of Thailand’s Eastern Seaboard, a 1980s-era megaproject sparked by the discovery of natural gas in the Gulf of Thailand.

“Finally, the government has come to the right concept with the EEC,” opined Somkiat Tangkitvanich, president of the Thailand Development Research Institute, a private think tank.

Speaking to a recent seminar, Somkiat noted that the EEC is the culmination of the military government’s three less successful FDI promotion schemes. “This is essentially a Special Economic Zone, similar to the border SEZs, and also it promotes the ten industries, and also in terms of achieving Thailand 4.0,” he said.

One key factor going for the EEC is the Eastern Seaboard, already home to the lion’s share of Thailand’s manufacturing base in petrochemicals, automobiles, electronics and electrical appliances.

The scheme will draw on established infrastructure built over the last three decades, including deep-sea ports at Laem Chabang (Chon Buri) and Mab Ta Phut (Rayong) highways, railways and well-developed power, water and waste water systems.

The EEC will also leverage U-Tapao International Airport, situated in eastern Rayong province, originally a military air base built for the US military in the 1960s for launching bombing raids on Indochina.

A Thai Airways Boeing 777-300ER plane takes off from Bangkok's Suvarnabhumi Airport February 23, 2015. REUTERS/Chaiwat Subprasom/File Photo              GLOBAL BUSINESS WEEK AHEAD PACKAGE - SEARCH 'BUSINESS WEEK AHEAD NOV 7'  FOR ALL IMAGES - RTX2S8EC
A Thai Airways Boeing 777-300ER plane takes off from Bangkok’s Suvarnabhumi Airport February 23, 2015. Photo: Reuters/Chaiwat Subprasom 

Altogether Prayuth’s government and the private sector are expected to spend 1.9 trillion baht (US$57.4 billion) to upgrade existing infrastructure at the EEC, with port, rail, highway expansions and transformation of U-Tapao into Thailand’s third largest commercial airport.

“U-Tapao International Airport is the cornerstone of the EEC, so it will happen,” said Saowaruj Rattanakhamfu, senior researcher at TDRI. “U-Tapao will stimulate tourism, aviation and logistics for air cargo in the EEC.”

The expansion of U-Tapao from an existing capacity of 1 million to 15 million passengers per year will cost about 50 billion baht (US$1.5 billion) well below the estimated 180 billion baht (US$5.4 billion) needed to develop a new airport.

Airbus SAS and Thai Airways International are expected to finalize soon a joint venture to set up a maintenance, repair and overhaul (MRO) hub at U-Tapao, and US aviation giant Boeing Company is reportedly keen to invest in a regional training center at the facility.

One of the first projects to receive Board of Investment special tax incentives at the EEC was for Bridgestone Corp to invest 6.2 billion baht (US$187.4 million) to produce aircraft tires at its factory in Rayong.

The BOI now offers special tax incentives, including corporate tax waivers for up to 13 years and personal income tax at a low 17% for foreign experts, in pioneer projects in the ten cluster industries if they are based in the EEC area.

The ten clusters include next generation automotive, smart electronics, environmental technology, agricultural farm technology, futuristic food, robotics, aviation and logistics, bio-pharmaceuticals and chemicals, digital and integrated health care.

People shop for vegetarian food at a market in Chinatown Bangkok, Thailand, October 19, 2017. Picture taken October 19, 2017. REUTERS/Athit Perawongmetha
People shop for vegetarian food at a market in Chinatown Bangkok, Thailand, October 19, 2017. Photo: Reuters/Athit Perawongmetha

While some of these will build on existing strengths, such as Thailand’s well-established automotive and processed foods industries, others such as robotics and digital seem like long-shots.

Still, economists generally endorse the idea of concentrating infrastructure and policy incentives in one designated area.

“The concept of promoting economic development in the Eastern Economic Corridor is actually good policy,” said Ulrich Zachau, World Bank director for Thailand. “There is very strong evidence globally that the geographic concentration of economic development around well-functioning clusters with good physical infrastructure is a good way toward economic development.”

Even some coup-sidelined Thai politicians agree the EEC isn’t a bad concept, although with caveats.

“It sounds like a vaguely good idea,” said Korn Chatikavanij, deputy leader of Democrat Party and a former finance minister. “But we are giving away a lot of tax revenue, and what will the Thai people get out of it other than a dollar amount of investment that they are hoping will come in?”

Thailand last year lost an estimated US$6.5 billion in foregone tax revenue due to the BOI’s generous tax incentives schemes and other giveaways to foreign investors, TDRI says. Another big question concerns whether local opposition to the project will bubble up after the next general election, now scheduled for November next year.

“They have not listened to the opinion of the people or allowed the public to participate in the EEC process,” said Srisuwan Janya, a well-known environmental activist. “During the military government, nobody dares to come out and protest but after the elections it will be different.”