After a slowdown in infrastructure development in recent years, Thailand’s construction industry now looks set to benefit from a major economic support programme aimed at boosting the country’s competitiveness.
The government initiative, which will see more than BT1.7trn ($47.7bn) worth of infrastructure projects implemented through to 2020, will put transport, logistics and ICT at the top of the agenda, with a focus on improving physical and digital connectivity.
In late September the government announced plans to fast-track five major infrastructure projects – three mass rapid transit lines planned in Bangkok and two waste-to-energy power plants to be built in the Nonthaburi and Nakhon Ratchasima provinces – signalling a potential jumpstart for Thailand’s construction industry in early 2016.
The projects, which have a combined budget of BT200.4bn ($5.6bn), will be structured as public-private partnerships, according to local media.
The new programme heralds a shift away from short-term stimulus packages, as Thailand’s leaders look to achieve sustainable growth and address economic headwinds through reform and investment.
Outlining the programme, the deputy prime minister, Somkid Jatusripitak, said that while Thailand was well placed to benefit from regional integration, infrastructure shortfalls prevent it from forging closer links with neighbours and taking full advantage of global supply chains.
“We can’t be a hub if we don’t have connectivity,” Somkid told business leaders at a media forum in mid-October, emphasising that both hard and soft infrastructure links would be needed.
Major hard infrastructure projects include an 867-km rail link connecting Bangkok to the Laos border, which will eventually be extended to China, the country’s leading trade partner. Thailand is also planning a high-speed railway connecting the capital with Chiang Mai in the north, with the two projects expected to cost a combined BT800bn ($22.5bn), according to local media reports.
Authorities have also pledged to expand Bangkok’s Suvarnabhumi Airport, boosting passenger-handling capacity from 45m to 60m per annum, according to government forecasts, in a bid to upgrade the country’s network of regional air hubs. Construction is expected to begin in late 2016 or early 2017.
Digital connectivity is another strategic policy priority. By fortifying Thailand’s digital infrastructure, the government plans to leverage ICT to boost GDP growth. According to estimates from the Bank of Thailand, a 10% rise in broadband penetration could boost GDP by as much as 1.35%.
The government is taking steps to build two prototype “smart cities” – one to be located in Chiang Mai and the other in Phuket – which will act as clusters for technology start-ups, and is also considering moving ahead with a national broadband policy.
Dovetailing plans to develop e-government and e-payment services, a wider fibre-optic network could pave the way for high-speed, secure data transfer, helping Thailand achieve its goal of becoming the digital hub of ASEAN.
The renewed focus on infrastructure is welcome news for Thailand’s construction industry, which has been impacted by the slowdown in planned projects in recent years, according to Khushroo Wadia, managing director of construction firm Christiani & Nielsen.
“While the Thai construction sector is cyclical in nature, we have experienced a real slowdown in mega infrastructure projects in the past few years. This has resulted in increased competition, which has driven prices down,” he told OBG.
In addition to providing impetus for growth in the construction industry, higher government spending on infrastructure is also likely to galvanise private investment, according to Kan Trakulhoon, the president and CEO of Siam Cement Group. This could spark a rise in construction activity across the tourism, retail and commercial segments as the economy gains momentum next year.
The anticipated acceleration in state spending on infrastructure is also likely to generate higher demand in the materials segment, Kan added, which could build on gains in 2015, after two years of negative growth.
Speaking on the domestic cement market, Kan told OBG earlier this year, “Despite the increase in government spending over the first nine months of 2015, the market remains soft, especially in the residential sector. However, the cement market will recover in 2016, driven largely by government budget disbursements for large-scale projects in particular.”
Steel consumption is also pegged to rise sharply next year and beyond on the back a stronger state project pipeline. According to a report by Tata Steel from May, annual steel consumption is forecast to increase from 17.3m tonnes in 2014 to more than 20m tonnes by 2018.
While growing demand for cement and other building materials could drive up prices, inflation will likely depend on the pace of the new infrastructure programme.
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