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Despite strengths as centre of Mekong region, Kingdom faces risks

Sep 26. 2012
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Thailand's growth and position among the countries of the Greater Mekong Subregion (GMS) pose risks and affect the country locally, geopolitically and environmentally.

Although China gets most of the attention, Thailand is one of the next-best choices as a location to outsource manufacturing. As evidence of its strength, Thailand’s consistent pro-business policies, tax incentives, and quality living conditions for expatriate executives are being adapted by neighbouring countries as part of the GMS framework.

The Federation of Thai Industries warns domestic companies, however, to move or expand overseas because the production base in the country is being threatened by competitive global trade, with neighbours Myanmar, Vietnam, Cambodia and Laos all posting lower average minimum wages. Even with regional unification, risks still arise from international competition.

As Thailand and other GMS countries develop, there will be increasing demand for energy. The aggregated power demand for the subregion is projected to increase by 6.9 per cent by 2020, which becomes a strong argument for Thailand and its neighbours to build hydropower dams.

China has extensively constructed hydropower infrastructure along the upper Mekong River, with 17-19 projects in operation, under construction, or under consideration. Cambodia, Laos and Thailand are planning to build up to 13 dams on the lower half of the Mekong River.

Such rapid development and industrialisation in the GMS area pave the way for threats to the environment, especially in the resource-rich Mekong River and its tributaries, where the majority of the population relies on the natural resources.

As a leading global exporter of rice, Thailand’s agriculture accounts for 12 per cent of its gross domestic product. The global rice market owes its thanks to the resource-rich Mekong River, and to Thailand’s agricultural economy.

Together with the Chao Phraya River in central Thailand, the Mekong supplies irrigation, supports wet-rice cultivation, and provides the waterways for transport of goods and people.

The Mekong River Commission (MRC), however, ruled that annual income gains between 4 and 18 per cent of the 2009 GDP for the countries in the GMS would pale in comparison with the risks to livelihoods and food security for those who rely on the forests, fisheries and farms. It concluded that food security is the greater danger and beyond the current capacities of regional governments to address.

There are also geopolitical challenges for the lower Mekong countries, since the river is a shared trans-boundary resource, with China controlling the source and upper half of the river.

According to research from the Project 2049 Institute, “The fact that most of the dam projects in the lower Mekong depend on China releasing the right amount of water upstream, and that several dams planned by Laos and Cambodia are to be financed by Chinese state-owned banks and companies … creates an inherent and unhealthy geostrategic advantage for Beijing as well as [leaving] downstream nations bearing the costs (such as riverbank erosion) while Beijing reaps the benefits.”

On a brighter note, if Thailand and the rest of the GMS execute honest cooperation with a shared goal of reaping sustainable development from the Mekong, devising sustainable plans to protect the biodiversity of the river should be a priority to avoid the environmental risks and reap economic rewards.

Having industrialised and closely cooperating neighbours can boost Thailand’s distinct advantages as the gateway for trade zones in the world, where cross-border investments and trade would be an easy corollary to its manufacturing expertise. Multi-country production can boost raw-material production and transport, improving the network resources of Thailand.

The GMS development is also beneficial to Thailand tourism as it combines with other countries to make tourism in the Mekong region a significant source of economic growth.

Thailand, with its unique position and steady economic growth, can join with the Mekong countries in moving towards prosperity and sustainable development. Given the risks that can be strategically countered, greater opportunities can arise from regional cooperation and unification. For Thailand, it can be more than just local success; it can be regional.

This is the second article of a two-part series. The articles are published on the occasion of the Thailand Investment Conference “Opportunities and Challenges for Thailand in the Evolution and Development of Greater Mekong Region” to be hosted by the CFA Institute in cooperation with the Thai Securities and Exchange Commission and CFA Society Thailand on October 5.

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