| UDON THANI, Thailand, June 16
UDON THANI, Thailand, June 16 Steel girders jut
from the low skyline of the Thai city of Udon Thani near the
Laos border as workers lay cement for a new shopping mall, one
of many illustrating a boom in the Thai economy beyond the
bright lights of Bangkok.
The malls, factories and construction sites in Thailand's
northeast are emerging alongside its farms as a potent economic
fuel in one of Asia's top emerging markets. Growth in Thailand,
Southeast Asia's second-biggest economy, has begun to slow, but
the economy of the northeast is in the grip of a boom.
The economic renaissance of "Isaan", Thailand's poorest and
most populous region, has coincided with expansionary policies -
from wage increases to farm subsidies - that are enriching an
area at the heart of a "red shirt" protest movement that backed
Prime Minister Yingluck Shinawatra in a 2011 election.
As a new middle class emerges, investors and companies are
taking note. CLSA emerging markets guru Chris Wood cites the
region in explaining long-term bets on Thailand.
"There is a macroeconomic ramping up of the northeast," he
The potential may never be realised if a crucial 2.2
trillion baht ($71 billion) infrastructure programme becomes a
casualty of the feuding between Yingluck's ruling Puea Thai
Party and its opponents.
But if the plan went ahead, as is generally expected, it
would change the entire economic structure of the northeast,
said Rahul Bajoria, an economist at Barclays Capital.
"It's the next entry point for investors and consumers - if
they link it up to China, it becomes the entry point to
Thailand, not Bangkok," he said.
"But it's been difficult for the bureaucracy to execute
programmes because they don't know who will be in power in a
year or two."
Economic growth in the region reached 40 percent from 2007
to 2011, against 23 percent for the country and just 17 percent
for greater Bangkok.
Monthly household income rose 40 percent between 2007 and
2011, the biggest jump of any Thai region. Interviews with
businessmen and investment data suggest the trend is continuing.
The number of private investment projects in the northeast
rose 49 percent in 2012 from the previous year, with the total
amount invested more than doubling to $2.3 billion, according to
the Bank of Thailand. Much of it is concentrated in property -
from high-rise condominiums to town houses and shopping plazas.
"The northeast has a large population, a dense population,
so the income is big," said Naris Cheyklin, chief financial
officer of Central Pattana Pcl, referring to the
one-third of Thailand's 68 million people who live there.
In April, Central Pattana opened a 2.75 billion baht ($88.7
million) mall in Ubon Ratchathani, near the southern tip of
Laos, their third in the region.
POLITICALLY DRIVEN BOOM
Politics explains part of what is going on.
Yingluck's government brought in a nationwide minimum wage
of 300 baht ($10) a day in January. In some Isaan provinces,
that was an increase of 35 percent, among the biggest gains in
the country, on top of a nationwide 40 percent rise in April
Many workers, such as those building the 168 Platinum Mall
in Udon Thani, are happy to return to the northeast for wages
that are now on a par with Bangkok's.
Isaan's "red shirts" are among the staunchest supporters of
Yingluck's brother, former prime minister Thaksin Shinawatra,
who was ousted in a 2006 coup but influences policy from
self-imposed exile in Dubai.
While in power from 2001, his populist policies - from
virtually free healthcare to low-interest loans to the rural
poor - made him a hero in Isaan.
The red shirts formed the core of a movement that paralysed
Bangkok in April-May 2010 in protest at the government of then
Prime Minister Abhisit Vejjajiva and the forces that ousted
Thaksin - the traditional Bangkok elite including top generals,
royal advisers, business leaders and old-money families.
Those protests were put down with force, but the red shirts
got their revenge in the 2011 election and now see the rewards.
"A lot of the boom is upcountry, and that is politically
driven, partly, because that's where Thaksin's supporters are,"
said Wood at CLSA.
The poverty rate in Thailand fell to 13 percent of the
population in 2011 from 58 percent in 1990, according to the
World Bank, but per capita gross domestic product in Isaan in
2011 was still less than an eighth of that of Bangkok at $1,600
a year, according to the state planning agency, the NESDB.
That is changing. Government policies have pushed up
purchasing power by subsidising agricultural products such as
rice, tapioca and rubber. Under Yingluck's government, farmers
have been paid 15,000 baht per tonne of unmilled rice, a 50
percent premium over market prices, according to exporters.
"During the Thaksin and Yingluck era, a lot has been given
to Isaan, and the amount of money being poured into the region
is significantly more than previous governments spent," said
Ittiphol Treewatanasuwan, mayor of Udon Thani, once a U.S. Air
Force base for anti-communist operations in Southeast Asia.
Lives are being transformed. Panjaporn Phatanapitoon,
general manager of the 168 Platinum Mall, said people in the
northeast were now better educated, attitudes were evolving fast
and urbanisation would come much more quickly than in Bangkok.
The 2006 coup that toppled Thaksin caused years of unrest,
but political calm has returned since Yingluck's election win.
"When we change the politicians, they change the policy. If
there are more changes to these policies, it will damage the
economy," said Uthai Uthaisangsuk, a senior vice president at
property developer Sansiri Pcl.
Sansiri is developing two $127 million condominium projects
in Khon Kaen, 240 miles (380 km) northeast of Bangkok, in 2013
and plans a third for $35 million in 2014.
"At least five years and then we'll get something done,"
Uthai said, highlighting the need for a high-speed train and
Now such plans are in hand, given impetus by floods that
devastated the industrial central region, near Bangkok, in late
"Logistics providers and consumer products are moving
upcountry because of the floods," said Patan Somburanasin,
general manager of TPARK, a logistics company and subsidiary of
TICON Industrial Connection Pcl, which is investing
up to 2 billion baht in a 79-acre logistics park in the
northeastern city of Khon Kaen.
Isaan should also profit as factories and distribution
centres move in ahead of an EU-style ASEAN Economic Community
(AEC) planned by the Association of Southeast Asian Nations
(ASEAN) from late 2015 or 2016.
The AEC's East-West corridor, a motorway and infrastructure
route for trade, will stretch from Vietnam's Danang port through
Laos, Thailand and Myanmar to the Andaman Sea, cutting through
the centre of the northeast and its commercial hub of Khon Kaen.
That will support Thailand's ambitions to position itself as
a gateway to China via road and rail links through Laos, itself
seeing dramatic economic change.
The infrastructure programme and the urbanisation it will
foster, if the plan goes ahead, will support Thai growth into
the future, Credit Suisse said in a report, raising its estimate
of trend GDP growth in 2014 to 2018 to between 4.5 and 5.0
percent from 4.2 percent.
No wonder, then, that Thai manufacturers such as CP All Pcl
, Thai Beverage Pcl and Siam Cement
, plus foreign firms with Thai plants such as Panasonic
Corp, Kraft Foods Group Inc and Fraser and
Neave Ltd are gravitating towards the northeast.
"If you look at all the corporates, every single large cap
out there, they don't talk about Bangkok any more. They talk
about provincials," said Patrick Chang, head of ASEAN equity for
BNP Paribas Investment Partners. "The sexy stuff is the
provincial urbanisation and the way it impacts consumption."
($1 = 31 baht)
(Additional reporting by Pisit Changplayngam and Apornrath
Phoonphongphiphat in Bangkok; Editing by Alan Raybould, Jason
Szep and Nick Macfie)