INURD WP#SS-2 J-\ , . URBAN DEVELOPMENT DIVIS POLICY, PLANNING AND RESEARC ---:---,·-. ST'A'f:,'F i (:(', C4 '-' ' ' .. , P ::M J' . \ J(. l ____ . L---------------· ..... ----- I I I . ., ____ .,_.j __ INFRASTRUCTURE CONSTRAINTS .... - .. - ··'·-·' 1 ON INDUSTRIAL GROWTH IN ' .. TH-:AfLAND I by Kyu Sik Lee september l988 Working Paper •:) The INURD Working Papers present prelimtnary research findings and are intended for internal review and discussion. The views and interpretations in these Working Papers are those of the author(s) and should not be attributed to the World Bank, to its affiliated organizations, or to any individual acting on their behalf. I Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
Transcript
INURD WP#SS-2
··~-r-c.._ -"~. "~~ J-\ , . ·~· URBAN DEVELOPMENT DIVIS
The INURD Working Papers present prelimtnary research findings and are intended for internal review and discussion. The views and interpretations in these Working Papers are those of the author(s) and should not be attributed to the World Bank, to its affiliated organizations, or to any individual acting on their behalf.
I
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
WB456286
Typewritten Text
82687
WB456286
Typewritten Text
WB456286
Typewritten Text
'\ I
Kyu Sik Lee is a Senior Economist, Infrastructure and Urban Development Department, The World Bank, Washington, D.C. He would like to thank Kenichi Ohashi, Sudhir Shetti, Per Ljung, Gregory Ingram, and ~ichael Garn for their comments and suggestions on the earlier draft.
This p~p~r w~~ prP~~red a~ ~n inp11t ~o the Thailand Country Ec0nomic ~emorandum based on the findings during the CEM mission led by Kenichi Ohashi in April 1988. The author is grateful for the support given b~ Khun Suchart Thada-Thamrongvoch, Khun K. Angkana Ratchtorn and other staff members of the World Bank Regional ~ission in Bangkok.
lio
B.
INFRASTRUCTURE CONSTRAINTS ON INDUSTRIAL GROWTH IN THAILAND
Table of Contents
Page No.
The Primacy of BangkoK and Government Policies
Decentralization Trends- of Manufacturing Activity................ 2 Alternatives to Spatial P~licies ••••••••..••.•••••••••••••.•••... 5
Infrastructure Conscraints on the Growth of Industries ······~ ....
Concentration of Small firms in Bangkok .....•.•..•......•.......• Infrastructure Needs of Small firms ............•.....••...•.•.... Site Constraints for ~edium Size 2irms .. : ...•..........•.... : .... Costs of.Infrastruciure Deficienciis .•.............•.••.......... Upgrading Existing :~dustrial Areas . .•..... ~ ... ~ ••....... : .• : .... Overall Location Patterns of Industrial Growth ......••...........
6
6 7
~:j 1 1 • .l.
C. Inefficiencies in Managing the Growth of Bangkok ..•..••..•.•. ·.... 16
Extent of Undeveloped Land ....................................... Inappropriate Infrastructure Planning ••••••••••••.•.•••.•••.•...• Decentralization of Population and Employment within Bangkok
and Implications for Infrastructure Planning ..•......•.........
16 17
l9
D. Constraints on the Industrial Growth in Regional Cities .•••••.••• 21
E. Conclusions and Policy Recommendations ••••••••••••••••.•••.•.•••• 23
The fact that as many as 35,000 cars are added to the city each year
accentuates such a perception. The traffic congestion in Bangkok 1s now so
extreme that the high travel density and low average traffic speed remain
almost unchanged 1n a wide area of the city throughout the day. Out of
700,000 water ~onnections tn Bangkok, only 150 are for manufacturing ·firms.
All other firms use ground water, which contribuces to the subsidence
problem.. Although electric power supply is available, outages and voltage
drops oc:cur. These strains on the basic infrastructure facilities 1n Bangkok
affect business operations, imply additional costs to firms there and reduce
the overall efficiency of the urban area.
As in other developing countries such as Indonesia, Korea, Nigeria,
India, and Mexico, the Government of Thaildnd is concerned with the inc~easing
concentration of economic activity in the primate city. 'riith the objectives
of reducing congestion in Bangkok and mitigating regional disparities in
industrial development, the Government has pursued explicit spatial policies
intended to decentralize industries from Bangkok to outlying areas and
regional cities. In the past, t~is effort concentrated on improving the basic
transport and communication infrastructure. Moree recently, 1n addition to
- L -
vartous tax incentive schemes offered to firms locating tn designated areas
outside 0 ~ngkok, the Government has attempted to induce industries to Locate
in regional cities by establishing industrial estates there, for exampl.e, the
Northern Region Industrial Estate near Chiang Hai. Despite such policies,
congestion in Bangkok has been ~orsening.
The urgency of the Government concerns on these issues is reflected
1n the.Board of Investment (BOI) policy changes introduced in September 1987
spec1Ii~ally a1m1ng at dispers1ng manufacturing industr:es :~om :he 3acgka~
Metropolitan Region (3MR)l/ to other regions. Under the new scheme (~Jtnex),
the BOI promoted projects locatin~ in Bangkok or Samut Prakan Province,
adjacent to the south of Bangkok, ~ill be excluded from various tax exemptions
and also from tax reductions allowed for both installation and operating costs
of ip.£rast.ructure facilities such as transport, water, and .electricity., ,.,, ~nose
projects locating in one of the four other provinces surrounding Bangkok ~ill
receive reduced benefits. All provinces other than Bangkok (BMA) and the five
surrounding provinces are designated as an Investment Promotion Zone.
However, BOI makes exceptions for export-oriented large scale firms with at
least 200 or more employees even if they Locate in Bangkok or Samut Prakan,
and for those Locating in industrial estates. (This point 1s further analyzed
below.)
Decentralization Trends of Manufacturing ActivitY
According to the Ministry of Industry factory registracion data,
during the pase two years, a period of rapid growth with rising exports,
1 I .. , The Bangkok ~etropolitan Region (BMR) includes the city of Bangkok, officially called Bangkok ~etropolitan Administration (BMA), and five surrouna1ng provinces, Samut Prakan, Samut Sakhon, Pathum Thani, Nonthaburi, and Nakhon Pathom. (See che attached map of BMR.)
- 3 -
Bangkok has been losing its share of manufacturing establishments relative to
other regions of the country (Table 1). The Central Region excluding BMR,
and all other regions had a net gain of establishments with a growth rate
higher than the national average of 3.6 %, while Bangkok experienced a nee
loss. BMR excluding Bangkok (SMA), and the Northern and the North Eastern
Regions attracted manufacturing establishments at a race twice the national
average. This general trend of countrywide decentralization of manufacturing
industries, however, was already occurring with little influe~ce of :~e 30I
policies. During the first three months of 1988, for instance, only ll of c~e
271 BOI approved projects located 1n the Northern and the Northeastern
Regions. Actually, these t~o regions' share of approved projects declined
from 8% in 1987 to 4% in 1988 (Table 3).
Although the BMR was gaining manufacturing ~stablishments at an
annual rate of only 1.7% (Table 2), less than half of the national average,
manufacturing activity 1n non-B~~ part of BMR, i.e., the five provinces
surrounding Bangkok, had the highest annual growth rate 1n the country at 9.7%
(Table 1). This trend of manufacturing employment decentralization from the
central city to surrounding regions is similar to what has occurred in large
cities in other countries such as Seoul, Sao Paulo, Bombay, and Bogota.
Within the BMR, the growth of manufacturing establishments was highest in
Samut Prakan and Pathum Thani provinces (see the map). As discussed further
below, these trends are the aggregate outcome of location decisions of
individual firms in response to operations of the land and other markets
-rather than.to the explicit spatial policies such as the BOI incentive
schemes. Given these existing decentralization trends in the location of
manufacturing activity 1n Thailand, excess1ve spatial policies would induce
- L&. -
low density development patterns and would ra1se the costs of providing
infrastructure services.
Table 1:
Region
3)-(..A ( 3ang~ok) 3MR excluding
BMA Ia -Central exc!..uding BMR
Eastern Northern Northeastern Southern
Total
CHANGES IN REGIONAL DISTRIBUTION OF MANUFACTURING ESTABLISHMENTS IN THAILAND
Spatial policies intended to reduce negative externalities such as
congestion and pollution in a large city by reducing the size of population
- s -
and employment have been found to be ineffective and costly in other coun-
tries. For a city the size of Bang~o~, even a substantial rPduction of its
population will have negligible impact on the present level of congestion.~/
What is needed is better internal management of city growth with more appro-
priate infrastructure investment strategy and programs. The current traffic
congestion problem, for example, mainly stems from the poor in-city road
networ~ that lac~s sufficient access roads, inefficient public transit and
traffi~ control syscems, and c~e lack of efficient outlets to main hig~ways.
Changing location patterns of cesidential housing and workplaces and
subsequent changes in commuting patterns should be reflected in transport and
other infrastructure investment programs. However, oang~ok's physical.
infrastructure programs in the past have not been sufficiently sensitive co
the.location dynamics of servi~e demand.
B. Infrastructure Constraints on the Growth of Industries
Concentration of Small Firms in Bang~ok
Manufacturing firms tend to locate wh~re th~y can easily meet their
needs tor infrastructure and other factors of production. The particular
infrastructure requirements of individual firms will depend on the types of
product and the s1ze of their operations. More chan 40% of the country's
40,000 manufacturing establisb.ments (excluding rice miLls) are Located 1.n
Bangkok (Table 1). Three quarters of them had less than 10 employees, 95%
had less t~an 50 employees, and there were only 368 establishments with 100 or ~
2/ A study conducted by George Tolley, Urban Growth Policy in A Market Economy, Academic Press, 1979, showed that halving Chicago s population would reduce negative externalities such as congestion and pollution by Less than 5%.
- 7 -
more employees in Bangkok according to the Ministry of Industry's 1984
industrial census results. The size distribution of manufacturing
establishments is thus skewed toward small firms. Well established old
industrial areas with large factories that exist in large cities tn other
countries are absent in Bangkok. It is not surprising then that manufacturing
activities are rather unnoticeable inside Bangkok.
Infrastructure Needs of Small firms
Small firms ~hich account for 95% of all firms in Bangkok operate ~-'
the high density areas in the central city where, despite the higher rencs,
they benefit from readily available externalities such as the availability ot
skilled labor, easy access to various infrastructure, business and government
servtces and markets, and shared repair and deli-very services. The efficient:
land market without much land use control enables small entrepreneurs to
locate thetr factories almost anywhere in the city, often in the same dwelling
units where they live. Since there are plenty of residential or commercial
structures that can be easily converted to factory use, these small firms do
not suffer from the lack of adequate infrastructure services such as electric
power, road access, and telecommunications. As is the case with large cities
in other countries, these central areas of Bangkok serve a special function in
promoting the birth of small new firms that is so vital to the economy and not
easily transferable to outlying areas. Evidence from large cities in both
developed and developing countries such as Seoul, 3ogota, and large U.S.
- 8 -
cities shows that from 60 to 80% of new jobs are created by newly established
small firms that tend to locate in the central city.l/
As these small firms grow and expand, space and infrastructure
constraints become more sign{ficant for them, and they tend to move outward Ln
the city where more space LS available. This pattern in Bangkok Ls clearly
shown in Table 5. The proportion of the smallest category of firms decLines
from 82% in Ring 1 (Old Business Area) to 46% in Ring 4 (Outer Area) while the
proportion uf the Larger size fir~s (50-199 persons) r1ses from 6% co 19% as
che distance from the center tncreases (see ~age 19 for definition of
Rings). Evidence from other countries shows that small firms do not move Long
distances. When they move, they tend to avoid 1ncreases 1n their delivery and
. 4/ employees' commuting distances and set.up costs at the new Locat ton.-
J/ K.S. Lee, "Intra-urban Location of Manufacturing Employment in CoLombia," Journal of Urban Economics 9, 1981; "An Evaluation of Decentralization
• Policies in Light of Changing Location Patterns of 2mployment in the Seoul ~egion," Ur~an Development Discussion ·Paper UDD-60, T~e World Bank, 1985; D.L. 3i:cch, "The Job Generac.ion Process," :-tiT Program on ~eighborhood and Regional Change. Prepared for U.S. Department of Commerce, Economic Development Administration, 1979.
4/ See Lee, op. cit., 1981, 1985.
- 9 -
Table 4: DISTRIBUTION OF NEWLY REGISTERED MANUFACTURING ESTABLISa~ENTS BY PROVINCE AND EMPLOYMENT SIZE IN BMR, 1987
"~nee
(Bangkok)
ut Prak..an
ut Sakhon
hum Thani
thaburi
hon Fathom
Total
1-19
69.35 ( 871)
43.79 ( 134)
43.86 (50)
61.54 (48)
79.b3 (43)
56.72 (38)
63.15 (1,184)
Emoloyment Size in Percent 20-49 50-199 200-299 300 or more
20.06 (252)
22.88 (70)
21.93 (25)
14.10 (ll)
7.41 (4)
16.42 (11)
19.89 ("373)
8.52 (107)
25.82 (79)
26.J2 (30)
17.9 5 (14)
. 7. 41 (4)
22.39 (.15)
13.28 (249)
0.96 (12)
4.25 (13)
6.14 (7)
L 23· (l)
l. 85 (l)
l. 49 (l)
l. 87 -m)
1.11 (14)
3.27 ( 10)
l. 75 ( 2)
5.13 . (4)
3.70 (2)
2.99 ( 2)
1.81 (34)
Total
100.00
100.00
100.00
100.00
100.00
100". 00
100.00
Total Number of Establishments
(1,256)
(306)
/ ., , I, ') \ .... -~.I
(78)
(54)
( 67)
(1,875)
e: The values tn parentheses represent the number of establishments tn individual categories •
.rce: Factory Registration Files, Ministry of Industry.
- :o -Table 5: DISTRIBUTION OF NEWLY REGISTERED MANUFACTURING ESTABLISHMENTS
BY CONCENTRIC RING AND EMPLOYMENT SIZE IN BMA, 1987
----Emolovment Size tn Percent Total Number o
Ring 1-19 20-49 50-199 200-299 300 or more Total E:stablisb.ment
Old business 81.82 9.09 6.06 0.00 3.03 100.00 area ( 27) (3) (2) {0) (1) (33)
New business 68.13 22.50 7.50 0.83 1.04 100.00 area (327) (108) (36) (4) (5) (480)
Table 7: DECENTRALIZATION OF MANUFACTU?;NG ESTABLISHMENTS BY CONCENTRIC RING IN B&~GKOK (B~~), 1984- 1987
Ring
Old business area
New business area
Rapidly growing suburbs
Outer area
Total
All Establishments /a 1984
Number Percent ( 1)
1,710 8.24
9,522 45.90
9,033 43.53
487 2.33
20.752 100.00
New Establishments /b Birth Rate '198 7 (2)/(l)
Number Percent Percent ( 2 ),
33 2.63 l. 93
480 38.22 5.04
691 55.02 7.65
52 4.14 10.68
1,256 100.00 6.05
/c
/a rhe numbers at the amphoe (district) level for 1984 were ~abulated by the City Planning Division of BMA.
/b The number of new establishments at the amphoe level r..;ere ta"bulate(i by ::he. world Bank Resident Mission.
/c 1984 as base year.
Source: Factory Registration Files, Ministry of Industry.
Overall Location Patterns of Industrial Growth
The development of the Eastern Seaboard 1s intended to establish an
industrial area around Laem Chabang and Map Ta Phut, which are located 130 and
200 kilometers away from Bangkok respectively. Since there 1s a high demand
for plant sites by foreign firms, it is plausible to expect that industrial
enclave type development could occur mainly for export process1ng Led by
foreign investment. However, exper1ences of other countries such as Korea,
India, and Ghana, indicate that developing a new industrial tor,.;n in
undeveloped areas tends to be extremely costly and the probability of success
is low. A distance of 100 to 200 kilometers from the main urban center is too
far for small and medium s1ze firms.
- 15 -
There are a number of newly established large scale operations along
the eastern highway toward Chonburi. This development represents a more
natural pattern of industrial expansion and would be encouraged. If this
trend continues, a major industrial corridor would eventually emerge connect-
ing Bangkok and Chonburi, and possibly leading to the Eastern Seaboard.
However, Government planners seem to favor a very different pattern of
industrial development in the region. They envision a totally separate
industrial area emerging in the Eastern Seaboard with the area between Bangkok
and Eastern Seaboard remaining undeveloped. The Bangkok General :; /
?lan .:::.. under
the auspices of the Ministry of Interior seems to be designed to arrest the
industrial expansion to the east by establishing a "greenbelt" cutting across
this growth corridor in Samut_Prakan. The main elements of the industrial
location strategy 1n the Pl~n include, (a)" not allbwing manufacturing
establishments to locate outside industrial estates; (b) establishing a
"buffer zone" between a residential area and an industrial area to rn1n1m1ze
the effects of industrial pollution; and (c) not allowing industries to locate
along major roads to prevent traffic congestion. As the Eastern Seaboard
development proceeds, the industrial concentration in Samut Prakan Province
would increase and extend toward Chonburi. A policy attempt to thwart such
development would be costly and unnecessary. Such a policy may also adversely
affect the formation of backward linkages in production, since small firms (as
they grow) tend to follow their "parent" industries so as to benefit ::-om
agglomeration economies for particular types of production activities. The
5/ An attempt at establishing an integrated urban plan for Bangkok is not new. The past attempts, however, have not had much success because of strong community oppositions on various proposed plans and regulations.
- 16 -
Government should instead be encouraging the growth of such development
because market forces are signaling the desirability of this area for
industrial growth. At the same time, the Government should nurture the!
"incubator" function of the central city for providing a good "hatching"
ground for young industries. The new BOI policies are biased against small
and medium size firms which locate in BMA and Samut Prakan. But these areas
are precisely where these small firms would be trying to locate, while large
firms move to outer areas where land 1s available at lower prlces.
Extent of Undevelooed Land
The lack qf industrial sites 1n Bangkok is not due to the shortage
of land itself. to the contrary~ according to the National Hodsing
Authority's Bangk6k Land Management Scudv (1987), the ring between 6 and 10
kilometers from the city center still rema1ns hal£ vacant with 39 square
kilometers of undeveloped land and two thirds of the ring between 11 and 20
kilometers undeveloped. The study further indicates that if a policy of
"infill" Land development were adopted, developing infi 11 plots alone 1·70uld
accomodate Bangkok' housing needs until the year 2000 without the need to
convert outlying agricultural land. This abundance of available land in the
city again implies that what. is needed for reducing the existing congestion of
infrastructure faciiicies Ln Bangkok is not a spatial policy intended to
decentralize economic activity but instead the more efficient internal
management of city growth.
- 17 -
Weakness in Infrastructure Planning
It has been accepted within the NESDB that Bangkok will continue to
grow and that a more appropriate urban development strategy is to manage the
growth efficiently rather than attempt to slow the growth.~/ Nevertheless,
the government infrastructure investment programs have not fully reflected the
urban growth patterns that result from the operations of land and other
markets, partly due to the lack of inter-agency coordination. This in turn
has resulted in mismatches between infrastructure investment and the
increasing ser·;ice demand in the rapidly growing areas. As a result, traffic
aqd other congestion has worsened 1n the city, inducing inefficiency 1n
resource use.
Public agenc1es providing infrastructure serv1ces rely on the basic
data supplied by the Town and Country Planning Department of the Ministry of
Interior in making location specific demand projections and physical invest
ment pLanning. The Town and Country Planning Department is however respon
sible for the general land use plan of all 130 municipalities in the country
and it lacks resources to make detailed plans and monitor them on a short term
basis. Also, its physical planning does not seem to take market signals into
account. For instance, the Metropolitan Waterworks Authority (MWA) is an
efficient and well managed agency. Nevertheless, its plan for water
distribution network is based on an outdated general land use plan provided by
the Town and Country Planning Department. Because of this, ~A will have to
undertake a major modification of the capital investment plan for the water •
distribution network in order to serve the new ~esidential areas to the west
6/ See NESDB, Bangkok Metropolitan Regional Development Proposals, 1986.
- ~8 -
of the central city. In these areas that are still designated as "greEm
areas" 1n che land use plan, new resident:ial development 1s taking plac:e
rapidly. The ToWn and Country Planning Department should develop new
approaches to be able to adjust its physical planning to the location dynamics
of service demand and to 1ncrease its coordination with the SMA and
specialized agencies that provide var1ous infrast:ructure serv1ces.
The difficulty of inter-agency coordination also constrains t:he
efficient management of the growth of 3angkok. cor the transpurt sector
alone, there are almost: a dozen agencies and committees involved in
infrastructure investment planning and implementation - Bangkok Mass Transit
Authority (BHTA), E~pressway and Rapid Transit Authority (ETA), Department of
Highways, Deoartment of .PubLic Works, Department of Land T~ansport, State
Railway of Thailand, Traffic Engineering Division of SMA, Department of Town
and Country FLanning, Office of che Committee for :he ::1anagement: cf Rod.a
Traffic, among others. Under the auspices of the Bangkok Metropolis a:nd its
Environs Development Committee, investment plans have been prepared for
implementing the above mentioned Bangkok Metropolitan Regional Development
Proposals for the Sixth Plan period in three key areas: traffic an~
transportation, flood controL and waterworks, and housing and land
development. Although the individual plan ducuments have identified a long
list of specific projects with financial analyses, the lack of close inter
agency coordination ra1ses questions about (a) the efficiency with which =hese
projects can be implemented, and (b) the extent to which these projects will
collectively be consistent: with the rapid changes in spatial development
patterns and the corresponding demand for var1ous infrastructure serv1ces.
- 19 -
Decentralization of Pooulation and Emoloyment within Bangkok and Imolications
for LL[rastructure Planning
Preparing and implementing more appropriate infrastructure
investment programs requires information on where growth is taking place and
on the overall trend 1n location patterns of population and employment. ~· .~..ne
growth of Bangkok's population as a whole declined from 4.3% per year 1n the
1970s to 3% in the 1980s (Table 9). The analysis of the population data for
Bangkok shows chat its population has been decentralizing as in most other
large cities worldwide.
E'or more detailed analysis, Bangkok (BMA) has been divided into four
concentric rings by aggregating amphoes (districts) as shown on the map. Ring
1 is the old business area in the center; Ring 2 includes recently develoDed
business areas; Ring 3 has rapidly growing suburbs; and Ring 4 is the outer
area. Table 9 ~ shows that during the 15 year period, bach Ring l and Ring 2
lost their share of population while Ring 3 gained its share substantially.
More recently, the level of population 1n the old business area (Ring 1) has
actually declined while that of Ring 3 increased rapidly, indicating a strong
decentralization trend of population. The analysis of the factory
registration data noted before shows that manufacturing activity in Bangkok
has also been decentralizing. Ring 3 is attracting more new firms than both
Ring 1 and Ring 2 and its share of new firms 1s larger than its share of all
firms 1n 1984 (Table 7). The "birth rate" of manufacturing establishments
r1ses rapidly as the distance from the center increase~; it was five times
higher 1n the outer area than in the old business area. The birth rate or 6%
for Bangkok as a whole is comparable to that of cities such as Seoul and
Bogota.
- 20 -
These findings indicate that in Bangkok both residential housing and
workplaces have ~--~n decentralizing rapidly from the city center to suburban
areas. The National Housing Authority confirms that most residential
development is now taking place away from the city center. This pattern
should be an important factor for planning future transport and other
infrastructure investment. In the case of the transit system, since travel
directed to the city center 1s expected to decline as a share of total travel,
the existing radially oriented system will become Less important and a more
circumferential nec.;ork (such as the Middle Ring Road which is yet co oe
completed) will be needed. Therefore, there is a need for oew approaches co
urban development that accomodate the rapidly changing location patterns of
economic activity in Bangkok.
-Table 8: CH.A..'iGES IN DISTRIBUTION C~ POPULATION BY PROVINCE I~ BANGKOK METROPOLIT~'i REGION (BMR), 1970- 1985
( 1, 000 Persons)-
1970 1980 Province Persons Percent Persons Percent
1985~ Persons Percent
Annual Averag Growth Rate ( 1970-80 1980-
SMA (Bangkok) 3,185 67.94 4,852 70.62 5,626 70.59 L.,JO 3~00
75 square kilomet:ers of land area (but: located outside BMA) as industrial
areas out of the total BMR land area of 7,639 square kilometers. But that
study stopped short of presenting appropriate strategies and programs for
relieving the shortage of industrial sites faced by new and expanding
industries in Thailand today. There is a view that the infrastructure
services required by new and expanding manufacturing establishments will be
the most crucial constraint on the future growth of Thai industries. ~t 1s
clear that: there LS an increasing demand for industrial sites and
complementary services. Nava ~akorn, the private ·industrial estate, has a
waiting List of applicants and is planning to expand its development.
Toshiba's development of 1,000 rai area in Samut Sakhon was quickly soLd out
to about 20 establishments. A Large number of Korean firms 1s now negotiating
- 25 -
with the Government for ~errnission to develop a large industrial estate in the
Bangkok area. During the first three months of 1988 there were about 30
Japanese firms applying each month for factory permits.
The Government can play an important role in generating positive
externalities for industrial growth with a relatively small capital investment
in key ~treas and by taking more aggressive measures to provide incentives for
the private sector to engage 1n land development and irtfrastructure provision
fo~ industrial use. This could include s new approach to acqu1r1ng ~ccess t~
"landlocked" areas and regulatory reforms to allow private enterprises to
invest 1n the production and delivery of certain types of infrastructure
serv1ces .•
For more efficient management of Bangkok's growth, better inter-
agency coordination is crucial. Moreover, there is a need to ~onitor the
rapidl.y chacging p-.ltterns ·of ur!nn. devel.opment in the B~.R on a continuous
basis and use chis information to review infrastructure investment programs at
regular intervals of six months or a year. In fact, the Government is
concerned about these problems. The Investment Plan for the transport
subsectori/ sets out guidelines for urban development, which include the need
for (a) "better coordination of town planning measures and road net" . .mrks under
the maste~ town plan," (b) "correspondence (of transport projects) with the
investment plans for other public serv1vce networks,'' such as flood control
plan, and (c) "correspondence (of transport projects) '..tith land utilization
plan in the master town plan." These functions of interagency coordination
and monitoring can best be carried out at the lo~al level. Therefore, it
7/ ~ESDB, Investment Plan to Solve the Traffic and Transportation Problems in the Bangkok Metrooolis and its Environs during the Sixth National Economic and Social Develooment Plan Period (1987-1991), August !987.
- 26 -
seems desirable for the BMA to play a much greater role in planning and
implementing major infrastructure investments in all subsectors.
The following specific policy measures are recommended:
(a) Allow the private sector to develop industrial areas for smaLl and
medium s·cale industries within SMA (beyond s1x kilometers) either on
its own or jointly with the Industrial Estate Authority of Thailand
(IEAT). In these areas, ?Clluting industries should n~t b~ :!llo~~d
and water intensive industries should be discouraged. 3y increasi2g
private sector involvement in industrial site development, the
Government can expect.that the selection cf the l~nd area and
provision of infrastr~cture and other services for development ~ill
be more responsive to the demand for such industrial sites and
consist~r.t ·,.;ith the operations of the land ::::Jarket :.n 3angl~oK.. ~· . ............. .,)
would lead to a natural deconcentration of economic activity within
BMA, relieve the congestion 1n the center by changing commuting
patterns, induce more efficient land use, and most importantly
reduce the costs of expansion for small and medium size firms.
(b) Upgrade traditional industrial areas, such as Phra Pradaeng in Samut
Prakan Province, which have been developed by individual fir~s that
have located there. ~ith a small amount of additional invest~ent,
such areas could accomodate a large number of medium s1ze firms that
move out of Bangkok.
(c) Reduce regulatory, bureaucratic, and institutio~al constraints on
private sector invol,ement 1n developing industrial sites and
- 27 -
providing complementary infrastructure services such as electricity,
water supply, access roads, and waste collection. While the
Industrial Estate Authority of Thailand enjoys the full support of
the Government 1n the acquisition of land, development of
infrastructure facilities, and in dealing with regulatory and
bureaucratic procedures, private developers have to operate on their
own. The Government should provide much greater support to the
private sector 1n these areas.
(d) Give BMA more reponsibility to carry out the inter-agency
coordination function and to play a more Qctive role in planr.ing and
implementating major infrastrucure investments in all sectors.
(e) In the regional cities, identify basic infrast=ucture and serv1ce
constraints that currently raise the costs of existing firms and
newly established small firms and upgrade conditions 1n regional
urban centers so as to enhance their "incubator" function. Increa!::e
the financial and administrative autonomy of municipal governments
so that they can respond to the demand for local services by small
entrepreneurs, and collaborate with local bus1ness organizations and
universities in carrying out business promotion activities and
extension services.~/
8/ Regional community develonment schemes are already under way in the Northern Region led by Chiang Mai University in collaboration with foreign agencies.
- 28 - ""l-.... ~~ ...... ~~-, .. ,.:._(.
BOARD OF ervEST~E)TT POLICY CH.ANGES - 1983 to 1937
Tvne of Incentive
(i) Corporate Income Tax· Exemption
1983 Privele~es and Criteria
3 to 5 years depending on investment scale or number of employees; exemption period increases for larger projects; extension of exemption pcssibl~ (~pta
a maximum of 8 vears) if project satisfies one of the following: net annual
. foreign exchange savings from it exceeds $500,000 in first 3 ye3rs cf operation; it uses indigenous agricultural produce, processed agricultural products or other domestic raw ma t e r i a l s : i t is l o c a t e d in an industrial estate or outside Bangkok, Samuc Prakarn and the 4 neighbouring provinces; it has special importance;
1987 Priveleges a~d Criteria
Exemption period depends on location as fo::o~s:
~o exemption for pro~ec:s in Bangkok and Samut Prakarn, except if located on an i~dustrial osta~e. or unlc:..s.s :.t-J.e project satisfies : of
(in ~hich case exespcion for 3 ~lear s ) : ::.. :: ? rod 1,_;. \2 e s primarily for exports. that by the third year 80% of output is expor::ed; it sa·;es or
foreign exchange annually; emplovs ~
least 200 ~~rsons full time; For projects ·- the ~
other provinc·es neighboring Bangkok (Nakhon Pathom. ~onca
Buri, Pathum Thani a:1C. Samut Sakhon) or in indus~rial es~a~es 1n
Bangkok and Samuc ?rakarn, exemption years which can be extended to 5 vaars if the project meets one of the follo•,.;ing: i:: sa•:es
~ . . or earns :ore~gn excnan;e of at leas:: s:.~ . . ' annually: it ~s an agro-based acti~_, .. i.:::·: i: ·_;_ses agric~lt:ural ?rod~c:s a~
ra .. ..J ma:er·ia~s or C:or:-,-t:s :-·:.: supplies for a: _eas: :. · of :he value of 1:s ra~ :r.ateria.l: least 200 full-:i~e persons; it is located · ~
. , ... an lnaust~lal es:c:2:
- 29 -
For projects in the other 67 provinces, exemption period depends on whether they are engaged in target activities I (export-oriented,! engineering or agro-based products). For targ;et activities, exemption for 4 years, renewable upto a maximum of 8 years if the project meets one of the following: it saves/earns foreign exchange of at least $1m. annually·; i. ~ is an agro-based activity; it uses agricultural products as raw materials or domestic supplies for .at least 6G~ of the value of its =aw material; it employs at least 200 full-time person~; it i~ loca~ed i~
an industrial estate: For general (non-target) activities, the basic exemption period is the same except that it is renewable only upto 7 years if the project satisfies one of the five criteria noted above.
(ii) Exemption from/ reduction of import duty and business taxes on machinery
(iii) Exemption from/ ~eduction of import duty and business taxes on raw materials ·
- 30 -
If thc. project is located in Bangkok or Samut Prakarn, exemption of import duties and business taxes only if at least 80% of the 2 ; production is for exportor 50% tax reduction if the project is an expansion of an existing operation. For projects outside Bangkok and Samut Prakarn, tax exemption/ reduction granted on a case by case basis ~hen machinery is not locally produced or assembled and cannot be substituted with manual labor.
Consideration on a case by case basis using the fdllowing factors: ability to compete with imported products, tax and duty rates for the project's raw materials compared with those for its finished products. benefits to the national economy
If the project is located in Bangkok or Samut Prakarn but not on an industrial estate, no exemption or reduction unless it is exportoriented, in which case tax exemption mav je
granted; If located in one of t~e
4 other provinces neighboring Bangkok or on an industrial estate in Bangkok and Samuc· P~a~arn, 50% tax reduction except for export-oriented projects or those in indu~triai estates for which tax exemption may be grantee: For projects in the remaining 67 provinces, tax exemption:
~o reJ~ction/axem?tion
foi projects located in Bangkok, Samut Prakarn or the 4 neighboring provinces, including those on industrial estates; In the remaining 57 provinces, for target activities, exemption for 5 years on raw materia:s used in the manufacture
reduction for l year on materials used in producing for t~e
domestic market: no :ax reduction for non-target activities in these provinces;
(iv) Additional tax and duty reductions for projects in Investment Promotion Zones
- 31 -
Reductions in business tax on sales of products from project depending on its location: in Zones 3 and 4, 90% for the first 3 years and 75% for the next 2 years, beginning from when income is first earned; in Zones 1 and 2, the corresponding reductions are 75% and 50%; in industrial estates, the reductions are 50% for the first 3 years; Reduction in corporate income tax by 50% following any exemption period for a project located in Zones 1, 2, 3 or 4 or in a~ industrial estate outside Sangkok and the 5 neighbouring provinces if it satisfies one of the following conditions: investment size (excluding land and working capital) exceeds B 300m.; has at least 200 full-time employees; its net annual foreign exchange earnings exceed $1 m. in the first 3 years; it uses agricultural produce or processed agricultural products as raw materials and at least 50% of its output value is exported; it is of special importance; Double deduction of transportation costs from taxable profits for 8 years (10 years) for projects located in Zone l or 2 ( Zone 3 or 4); deduction from profits of 10% (20%) of installation and construction costs of infrastructural facilities for projects in Zone 1 or 2 (Zone 3 or ~)
All provinces other tnan Bangkok and its 5 neighboring provinces are Investment Promotion Zones; within these Zones all promoted activities can receive 90% reduction in business tax on sales for 5 years from when income is first earned; 50% reduction in corporate income tax for 5 years following any exemption ?eriod: ~nd, ~M
a case by case basis. double deduction of water, electricity and transportation costs from taxable in~ome for 10 years and deduction from profits of 25% of t~e installation and construction costs of infrastructure facilities;
- 32 ~
(v) Additional tax and duty reductions for export-oriented projects
Exemptions of import duty and business tax on raw materials for l year for projects exporting at least 30% of total output and only for that part of imports that is used in producing for expor~. This exemption can be extended by the Board on a case by case basis and additional exemptions on imported goods for reexport and from export duty and business tax on exports may also be granted. A deduction from taxable income of 5% of the increase in earnings over the preceding year may also be granted
Same as in 1983:
Notes: l/ An export oriented activity is one that exports at least 50% of the value of its output in the first 2 years after commencing production and at least 80% thereafter.
2/ This requirement was modified in 1985 when it was relaxed for projects located on industrial estates in Bangkok and Sa~ut Prakan.
