Thailand has a crucial role to play in bridging the gaps that still remain, says central Bank Governor Veerathai Santiprabhob
Driven by international trade, foreign direct investment, and global and regional production networks, economic integration in the Greater Mekong subregion [GMS] has strengthened at a pace faster than expected. Over the past decade, the share of intra-regional trade within the GMS to total trade volumes has doubled to stand at around 8 per cent. This is why I truly believe that the GMS will continue to be an ideal choice for regional and global investors, and Thailand stands ready to connect businesses wishing to benefit from this vibrant subregion.
While trade and investment are definitely major aspects of regional connectivity, the integration that has shaped the GMS takes more diverse forms, which profoundly influence each other, including, physical infrastructure, people-to-people, and financial connectivity. To promote regional connectivity on a sustained basis, it is vital that we strive to strengthen all these key aspects by joining forces of both the government and the private sector. Let me now address each of them one by one.
The first and most fundamental is the physical infrastructure connectivity, for instance through transportation channels, power lines and digital channels.
The past two decades have seen the fruits of various projects to close “missing links” in road, rail, waterway, and energy networks in the GMS. Nineteen permanent border crossing points have been established to connect Thailand with Laos, Myanmar and Cambodia.
Energy connection within the subregion has been strengthened. Thailand, for example, bought US$314 million worth of electricity from Laos each year, increasing about eight times over the past 10 years. A frequency of flights within the GMS, especially by low-cost airlines, has also risen markedly.
Nevertheless, we still need to do a lot more to be better connected with each other. Many roads remain not fully operationalised or underutilised. Road transportation in the GMS is not seamless as it should be. In some routes, large trucks carrying containers still have to offload their goods to smaller vehicles to navigate the roads. Also, cross-border procedures remain obstacles to easy access of goods and people.
In addition, sufficient digital infrastructure would considerably strengthen other modes of connectivity. The Internet and mobile communication connectivity will radically change the ways in which businesses operate and people interact, as they drive productivity and efficiency of all sectors. It will also facilitate financial, transport and logistics services, as well as open door to knowledge sharing for people across the subregion. While digital technology is rapidly improving in some GMS countries, there remains large “digital divide” both within and between countries that should be narrowed.
Trade and investment
The second aspect is trade and investment connectivity.
Intra-regional trade and investment activities have continued to flourish, mainly thanks to complementarities among GMS economies. Many GMS countries have varied and abundant natural resources, young population and low labour costs, while the others can offer technological know-how and financing. With varying industry specialisations, the diversity among GMS members has contributed to stronger regional supply chain network, and in the future should magnify national strengths towards higher competitiveness of the whole subregion.
Amid thriving trade and investment, Thailand is well-positioned to serve the whole subregion, owing to our established legal framework, financing facility, infrastructure, logistics and IT capability. This can be seen by prospering business activities along the Thai border with other GMS countries. Last year, Thailand’s 25 border customs checkpoints with Myanmar, Laos and Cambodia registered impressive trade flows of more than Bt500 billion. This accounts for around 80 per cent of total trade volumes between Thailand and these three countries. In this respect, it is important that GMS governments harmonise rules and regulations for trade and investment transactions, both within each country and between countries, with a view to improving ease of doing business and lowering trade and investment transaction costs.
The third aspect is people-to-people connectivity.
In the future, people connectivity should not be confined only to labour movement and tourism, but should develop into strengthened knowledge-sharing networks. GMS economies need to move up and integrate our value chains, and it is the people with skills, knowledge and innovative spirit who can make this happen. Strengthening knowledge networks for tertiary education, knowledge creation and knowledge sharing among industries will be a bedrock for building the subregion’s capacity, and help to harmonise different rules and regulations.
For Thailand, I am glad to see that we have increasingly offered educational training to citizens of the GMS. Recently, Thai universities have offered international courses, aiming to attract students from GMS countries. Health is another important dimension of people connectivity. An increasing number of citizens from the GMS have chosen to receive medical services from Thai hospitals. I am certain that this trend will continue to rise in the future.
The fourth aspect of regional integration is financial connectivity. For today, let me highlight three key areas that Thailand will pursue in this endeavour.
The first one is to strengthen cross-border banking networks.
With regard to the banking sector, the Bank of Thailand aims to further liberalise banking activities by broadening cross-border banking networks. We encourage Thai commercial banks to further expand their regional presence to support businesses operating in the GMS. In addition, we fully support foreign banks to use Thailand as a springboard to expand their businesses into the subregion.
Moreover, the Bank of Thailand has been relaxing regulations to further accommodate investors in the GMS. We will allow them to take loans from Thai banks for direct investment in the GMS without a cap. We also lifted the cap on outflows of transporting baht in cash to GMS countries from half a million to Bt2 million per trip.
In this connection, we have now started to see the results of the increased flexibility, which helps multinational corporations to establish treasury centres and international headquarters in Thailand. As of now, there are 13 companies holding Treasury Centre licences, with one more awaiting Finance Ministry approval.
The second area is to foster the growth of regional capital markets.
Thailand is playing a proactive role to enhance our capital market capacity, aiming to link up GMS capital markets with global investors.
Firms from the GMS can raise funds through the Thai capital market to facilitate their businesses, while global investors can invest in products with GMS exposure. We have seen successful and fast-selling baht bonds, issued in Thailand by the Lao government and corporates. A few years ago, we allowed companies operating in the GMS to be listed on the Thai stock exchange using the holding company structure.
In addition, Thailand offers a more opened platform for GMS investors and global players looking for opportunities in the GMS. A new rule has allowed foreign firms, including those from the GMS, to launch IPOs in Thailand and become listed in the Thai stock exchange. This is aimed to provide global investors with wider choices of investment, and to provide an ideal financing destination for both GMS members and global players.
The last area of policy to promote GMS financial connectivity is better-connected payment networks.
Under the Bank of Thailand’s Payment Systems Roadmap, we will continue to work with regional regulators to advance payment systems connectivity to support trade, labour movements and tourism. At present, we are building new electronic payment infrastructure under the National e-Payment Plan. GMS countries can leverage on this infrastructure to improve system capability and connectivity.
The GMS is a subregion of opportunities. The Asean Economic Community is now in full swing, and CLMV members eliminated the last set of tariffs at the beginning of this year. Economic transitions following the liberalisation in GMS countries have unlocked opportunity for foreign investors. Higher purchasing power from growing and young middle-class translates into higher demand for goods, services and more sophisticated financial services to be met.
Enhanced regional connectivity is a key to shared prosperity of the GMS. The Bank of Thailand is committed to promoting financial system connectivity to facilitate closer economic integration, and is ready to move forward with our partners both in Thailand and the GMS.
Excerpts of the keynote address delivered by Bank of Thailand Governor Veerathai Santiprabhob at the “Euromoney Conferences: Greater Mekong Investment Forum” in Bangkok yesterday.