BANGKOK — For much of the past century, the Thai border town of Mae Sot stood on one of Asia’s wilder frontiers.
On the opposite bank of the swirling, mud-brown Moei River in neighbouring Myanmar, Karen insurgents waged a seemingly endless independence war. Smugglers trafficked guns, opium, timber and gemstones. Then there was the two-way human cargo during the past three decades: 120,000 battle-scarred refugees seeking sanctuary in Thailand, battle-hardened mercenaries heading in the opposite direction.
In this unlikely outpost — and others like it along Thailand’s 5,673km of borders — Mr Prayuth Chan-o-cha, the general who runs Bangkok’s ruling military junta, is making a big bet: That he can turn former war zones into some of South-east Asia’s most prosperous marketplaces.
He is doing it by creating 10 special economic zones that offer tax breaks and other incentives to investors venturing into now-peaceful border areas close to fast-growing Myanmar (formerly known as Burma), Vietnam, Cambodia and Laos.
Low taxes are only part of the allure. Relying on a mix of government revenue, bond sales and other funding, Mr Prayuth plans to spend US$83 billion (S$118 billion) over seven years on new railways, roads and customs posts to establish cross-border trade routes. The idea is to link some 2.4 billion consumers in China and India with Asia’s newest economic grouping, the ASEAN Economic Community (AEC), of which Thailand is a member. The 10-nation South-east Asian common market, which opens for business next year, boasts a combined economy of US$2.3 trillion and a population of 625 million.
As well as sitting at the heart of the AEC, Thailand is less than 200km from China at its closest point. Across the river from Mae Sot, a city of 100,000, Myanmar provides a potential land bridge to India. Mr Prayuth is determined that his country of 68 million people, despite a torrid recent political history of coups and chaos, will become the region’s investor-friendly communications, trade and logistics hub.
“We have cleaned up our home to accommodate investors,” said Ms Atchaka Sibunruang, a longtime civil servant whom Mr Prayuth appointed Industry Minister in August in a major government reshuffle aimed at reinvigorating growth.
Investors are taking note. Japanese and Chinese companies are competing to bid for some of the most strategic rail projects. Japanese firms are even eager to construct a line that would partly replicate the route of the World War II Thailand-Burma Death Railway immortalised on film in The Bridge on the River Kwai.
Thailand, South-east Asia’s second-biggest economy, is highly dependent on exports. It is one of the world’s major suppliers of products as diverse as hard disk drives, automobiles, rice and canned tuna. But since Mr Prayuth seized power in May 2014, total exports have declined as global growth slowed and commodities prices plunged. According to government projections, shipments this year will slide 5 per cent, while gross domestic product growth will be 2.8 per cent, one of the slowest rates in South-east Asia.
Consumer confidence fell for the first nine months of this year before edging up in October, household debt is rising, the workforce is ageing, and an El Nino-triggered drought has hit one-third of Thailand’s 76 provinces, potentially damaging as much as 30 per cent of the rice crop. A bomb that exploded in central Bangkok in August, killing 20 people, cast a pall over Thailand’s booming tourism industry, which accounts for 10 per cent of GDP.
Then there is political gridlock. When Mr Prayuth overthrew the elected government following months of turmoil, he promised a swift return to civilian rule. More than 18 months later, no election date has been fixed. An impending royal succession has further clouded the country’s future. The revered King Bhumibol Adulyadej, who turns 88 on Dec 5, is the world’s longest-reigning monarch, having ascended to the throne in 1946. Now, he is ailing and seldom seen in public. His heir is Crown Prince Maha Vajiralongkorn, 63.
Against this backdrop, Thai border trade looks promising. It is surging as less developed neighbouring countries’ economies expand at more than double, even triple, Thailand’s pace. In the first eight months of 2015, Thai sales to Myanmar, Vietnam, Cambodia and Laos jumped 8.1 per cent to US$14.5 billion. That accounted for 10 per cent of Thailand’s total exports. Mae Sot is setting the pace, with cross-border trade in 2014 close to US$2 billion, a 250 per cent increase over three years earlier.
WARMING TIES BETWEEN FORMER ENEMIES
Special economic zones in Asia are nothing new. In the 1980s, China’s reformist leader Deng Xiaoping set up five of them, including the border boomtown of Shenzhen adjacent to Hong Kong, to help kick-start what is now the world’s second-largest economy. While Mae Sot is no Shenzhen, it stands just 100m across the Moei from Myanmar, a once-isolated country of 54 million that is undergoing a helter-skelter political and economic transformation.
Once one of the world’s poorest countries, Myanmar will grow at 8.5 per cent this year, according to the World Bank. That is faster than even China or India. Equally significant, Mae Sot is almost precisely midway between Bangkok and Myanmar’s largest city, Yangon. It also straddles a planned east-west rail and road corridor linking the Vietnamese port of Danang with the Indian subcontinent via Laos, Thailand and Myanmar. “Today, Mae Sot is just a district, but it will become a great city,” said Mr Chaiya Yimwilai, a United States-educated Vice-Minister in Mr Prayuth’s office.
Nascent signs of that are already apparent. On the outskirts, a four-lane bridge to Myanmar is under construction to complement the two-lane structure that can handle only a fraction of the present trade. On a street once lined by simple so-called shop houses, a supermarket owned by the Thai unit of British retail giant Tesco sprawls over a downtown block. Property prices have soared 500 per cent in 10 years. Recent developments include upmarket apartments such as the unsubtly named Rich Condo.
The seriously rich Mr Dhanin Chearavanont, billionaire chairman of Bangkok-based Charoen Pokphand Group, is building an industrial estate down the road. Another publicly listed company, Bangkok-based Saha Pathana Inter-Holding, has already opened one. Its modern, air-conditioned factories are a far cry from the Asian sweatshops of yesteryear. Young immigrant women from Myanmar, immaculately dressed in traditional sarong-like longyis, turn out Guy Laroche handbags, Arrow shirts, Polo socks and the like.
Barges used today may be replaced by land transport tomorrow as President Xi Jinping of China and Prime Minister Narendra Modi of India plan new roads and railways that will meet up with the networks Thailand is building. “Being at the centre of the region, Thailand has advantages other countries don’t have,” said Ms Chompoopen Sirithorn, who helps manage US$36 billion for the Social Security Office, Thailand’s biggest pension fund. “The border trade is its one bright spot and will attract overseas investors.”
Former Glencore International chairman Simon Murray said he will be watching Thailand’s new border economic zones closely but cautiously. Hong Kong-based Mr Murray has investments in Myanmar ranging from an oil services company to a distillery. He hopes to export spirits overland via Thailand but notes border trade depends on continuing warming political relations between former enemies. Thais have never forgotten that Myanmar invaders sacked the then Thai capital, Ayutthaya, in 1767.
And more recent conflicts, between the Myanmar central government and a dozen ethnic rebel groups, including the Karen across the border from Mae Sot, have been papered over by tenuous peace treaties. During the Vietnam War, which ended in 1975, Thailand sided with the United States, letting it bomb Vietnam, Cambodia and Laos from Thai bases. “There’s a lot of potential but also a lot of history,” said Mr Murray, whose firm, Simon Murray & Co, is backed by Asia’s richest man, Li Ka-shing.
That said, the lure of Mae Sot seems likely to win over Taiwanese businessman Chia-tse Lee, president of Taipei-based Danee Silk International. Mr Lee owns one silk factory in China’s Zhejiang province. Now, he said, Mae Sot could be the site of his next expansion. “There is more energy here,” he said during an interview in Mae Sot.