Talking connectivity with our advantages in the AEC in mind

In the modern world economy, you can change the road you travel, the boat you board, or even the goods and services you produce, but you cannot (easily) change the national borders you have, or your neighbouring countries. And hence the often-cited reason for “connectivity”.
But to harness the benefits of the Asean Economic Community (AEC) fully, having more efficient roads, railways, ships and air travel to connect the economic dots across geopolitical boundaries in Asean is merely a minimum requirement.
Virtually all Asean countries now have mega-plans for spending on transport infrastructure. Malaysia and Indonesia are planning new and more expansive ports to handle more cargo and larger ships. Vietnam is building highways across the country, linking border, rural and urban areas. Singapore is moving forward its plan to expand Changi Airport, while working with Malaysia on a high-speed rail line. Myanmar is focusing on ports and highways, while Laos wants to transform its economy from landlocked to land-linked. Cambodia and Brunei are also in the game for rail and airport developments.
These are just examples of alertness in Asean regarding transport projects, the backbone to facilitate trade and businesses in the region.
The important question is, once connected, what will we do with it? Surely, no one wants the Thai economy to be full of truck dust from cargo roaming from Vietnam to Myanmar or from Malaysia to Laos, passing by Thailand just because we are in the way.
That is why we need to redefine what we mean by “connectivity” and stop focusing purely on physical connectivity via roads, rail, air and ships, but embrace a wider concept that includes integrated supply chains and regional sourcing.
In previous columns, I have argued the need for Thai businesses to increase innovation, efficiency and eco-mindedness for the AEC. Some readers may wonder what all these have to do with the coming of the AEC. They very much do, and here is why.
The AEC allows Thai businesses to use the same business model – relatively inexpensive labour, resources and land, while exporting under the Generalised System of Preferences – with a larger scope. With neighbouring less developed countries now opening up for foreign goods and investment, Thai businesses will benefit from moving more labour-intensive tasks to these labour-abundant economies.
This would have been less possible had the AEC not provided an impetus for Asean governments to try to connect their economies. This opens up an opportunity for Thai businesses to reduce costs and achieve higher efficiency without have to overhaul their business models.
Once we “export” more labour-intensive tasks to our neighbours, we can focus on the higher-valued in each industry’s value chain, moving our specialisation up the ladder. This is where innovation becomes the key to success, whether it is hard, soft, or process innovation (see last month’s column).
We could do this for virtually all types of industries, from agriculture, which can move to higher-yielding industrialised farming and agri-industries, to services, in which we can move from low-value to higher-value ones.
Richer countries are moving more and more towards green economies and eco-friendly products. This should give us the bearing of the direction of innovation we should march towards. Again, achieving this without the AEC would have been more difficult, as we still need the labour-intensive tasks be done. Now we can have it all.
Notice though that I only focus on “tasks”, not on industry, and this distinction should be on the road map for Thai businesses to tackle the AEC. Every industry has high value addition and low value addition, and we must pick and choose our fruits. Don’t hang on to the resource-heavy and labour-intensive tasks; export those to our neighbours.
Hence, at the end, we should have strong domestic clusters in every industry, connecting regional supply chains with Thailand as the business hub of Asean.
That to me is a more meaningful definition of connectivity and the one we should really focus on.

Dr Benjarong Suwankiri, author of this article, is head of TMB Analytics, the economic analysis unit at TMB Bank. He can be reached at [email protected]. Views expressed in this article are those of the author and not of TMB Bank or its executives.