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World Bank Document INURD WP#SS-2 URBAN DEVELOPMENT DIVIS ----~ --·-:-:----~-- ---:---,·-. -~l\: ··~-r-c.._ -"~. "~~ J-\ , . ·~· POLICY, PLANNING AND RESEARC ST'A'f:,'F i (:(', C4 '-' ' ' .. , Public Disclosure Authorized J'. P ::M\ ~J "~J(. ~:~:,,~~ ~\!E'.J~i DELt~~ l ____ . L---------------· ..... ----- I I I . ., ____ .,_.j __ INFRASTRUCTURE CONSTRAINTS .... - .. - ··'·-·' 1 ON INDUSTRIAL GROWTH IN ' .. TH-:AfLAND I I Public Disclosure Authorized by Kyu Sik Lee Public Disclosure Authorized september l988 Working Paper •:) The INURD Working Papers present prelimtnary research findings and are Public Disclosure Authorized 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 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. INFRASTRUCTURE CONSTRAINTS ON INDUSTRIAL GROWTH IN THAILAND Table of Contents Page No. lio The Primacy of BangkoK and Government Policies Decentralization Trends- of Manufacturing Activity................ 2 Alternatives to Spatial P~licies ••••••••..••.•••••••••••••.•••... 5 B. Infrastructure Conscraints on the Growth of Industries ······~ .... 6 Concentration of Small firms in Bangkok .....•.•..•......•.......• 6 Infrastructure Needs of Small firms ............•.....••...•.•.... 7 Site Constraints for ~edium Size 2irms .. : ...•..........•.... : .... ~:j 1 1 Costs of.Infrastruciure Deficienciis .•.............•.••.......... • .l. Upgrading Existing :~dustrial Areas . .•..... ~ ... ~ ••....... : .• : .... Overall Location Patterns of Industrial Growth ......••........... C. Inefficiencies in Managing the Growth of Bangkok ..•..••..•.•. ·.... 16 Extent of Undeveloped Land ....................................... 16 Inappropriate Infrastructure Planning ••••••••••••.•.•••.•••.•...• 17 Decentralization of Population and Employment within Bangkok and Implications for Infrastructure Planning ..•......•......... l9 D. Constraints on the Industrial Growth in Regional Cities .•••••.••• 21 E. Conclusions and Policy Recommendations ••••••••••••••••.•••.•.•••• 23 ANNEX ....................... " ................................... 28 INFRASTRUCTURE CONSTRAINTS ON INDUSTRIAL GROWTH IN THAILAND A. The Primacy of Bangkok and Government ?olicies ~ith almost s1x million people, Bangkok 1s almost thirty times larger than the second Largest city, Chiang Mai. The secondary cities in Thailand have stayed small and have not shared proportionately in industrial growth. There is a strong perception within and outside the Government that 5evere con~estion ~roblems becau~e L~e ctty -" gec::.ng " CJO bl.g. " • 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: CHANGES IN REGIONAL DISTRIBUTION OF MANUFACTURING ESTABLISHMENTS IN THAILAND 1985 1987 Annual Average Region Number Percent Number Percent Growt:h R.ate (%) I ~ ,.. t"\ 3)-(..A ( 3ang~ok) l7.G22 ~5.02 ~6 ,no .-_..L.O';I _,..)' ~ _;~ 3MR excluding BMA Ia 4' 136 10.94 4,974 L2.26 9. 7 Central- exc!..uding BMR 3' 728 9.86 4,033 9.94 4.0 Eastern 2,438 6.45 2,625 6.47 3.3 Northern 3,280 8.68 3,795 9.JS 7.6 Northeastern 4,48L. 11.86 5,230 12.89 8.0 Southern 2,722 7.20 3,007 7.41 5 .1 Total 37,810 100.00 40.5 84 100.00 3.6 Ia The Bangkok Metropolir.an Region (BMR) incl.udes Bangkok (BMA) and the five surrounding prov1nces. Source: Factory Registration Files, Ministry of Industry. - 5 - Table 2: CH&~GES IN DISTRIBUTION OF MANUFACTURING ESTABLISHMENTS BY PROVINCE IN BANGKOK METROPOLITAN REGION (BMR), 1985 1987 Annual Average Province Number Percent Number Percent Growth Rate un BMA (Bangkok) 17,022 80.45 16,920 77.28 -0.3 Samut Prakan 2,086 9.86 2,526 11.54 10.0 Samut Sakhon 658 3.11 767 3.50 3.0 Pathum Thani 358 l.69 462 2.11 l3. 6 Nonthaburi 518 2.45 609 2.78 8.4 Nakhon Pathom
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