The road not taken

The road not taken

Launched nearly two decades ago, the East-West Economic Corridor has never really lived up to its potential and may be overtaken by new regional connectivity schemes.

A visitor takes photographs from a viewpoint above Danang, the Vietnamese coastal city that marks the eastern terminus of the East-West Economic Corridor. Photo: Pongpet Mekloy
A visitor takes photographs from a viewpoint above Danang, the Vietnamese coastal city that marks the eastern terminus of the East-West Economic Corridor. Photo: Pongpet Mekloy

Long before "connectivity" emerged as the all-purpose buzzword to describe the goal of regional integration, an ambitious plan was hatched for a land route from the Andaman to the South China Sea via Myanmar, Thailand, Laos and Vietnam. As good roads took shape, industries and economic development would follow. At least, that was the idea.

Nearly two decades later, the East-West Economic Corridor (EWEC), as the project backed by the Asian Development Bank (ADB) is known, is in danger of becoming a question for history tests. It's partly a reflection of the shift in the regional economic and strategic balance that the China-backed One Belt, One Road (OBOR) programme is the hottest new game in town.

Investors are now studying the details of OBOR, supported by the Asian Infrastructure Investment Bank (AIIB), to guide their decisions about where to commit funds in the region. Thailand, the country that sits at the heart of it all, is also focusing on its own Eastern Economic Corridor and on breathing new life into the Dawei megaproject in Myanmar.

"The dream that the ADB has been trying to sell is not happening," said Pongkwan Sawasdipakdi, a lecturer in International Relations at Thammasat University, who travelled the route last year.

"Mawlamyine (the western terminus of the route in Myanmar) is still underdeveloped when it was supposed to be one of the most important cities on Route R9," she told Asia Focus.

THE VISION

The EWEC was launched in 1998 as one of the flagship initiatives of the Greater Mekong Subregion (GMS). It extends 1,320 kilometres from the seaport of Mawlamyine in southeastern Myanmar to the popular tourist destination of Danang in Vietnam.

The ADB saw the development of the corridor as a cost-effective way to create an efficient transport system for moving goods and people, while simultaneously developing telecommunications and energy infrastructure and tourism. At the same time, participating countries would develop policies and regulations to encourage the private sector to invest.

Routes R8, R9 and R12 connecting Myanmar, Thailand, Laos and Vietnam are the main arteries of the EWEC. They are supposed to be teeming with investments from domestic and foreign entities, especially from Japan, but they are not.

Japan has the largest shareholding in the ADB at 16%. The Japan International Cooperation Agency (JICA) and the Japan Bank for International Cooperation (JBIC) have helped to fund the infrastructure laid alongside the EWEC routes. The Japanese government is also showing a lot of interest in the Dawei Special Economic Zone (SEZ), which is six hours by road south of Mawlamyine.

The Myanmar government has been negotiating with the ADB to help fund a 230-kilovolt power transmission line that will run from Mawlamyine to Dawei, passing through Ye in southern Mon state.

On the Danang side in Vietnam, the city and ADB have started a pre-feasibility study to relocate the railway station and redevelop the site at a cost of US$683.2 million. The new station would be a key stop on the North-South rail line. Construction is also continuing on the Danang-Quang Ngai Expressway, upgrading of National Highway No 1, and the new Lien Chieu deep-sea cargo port. The upgraded port would be able to accommodate ships of up to 100,000 deadweight tons, twice the size of the largest ships that now call there.

THE REALITY

While there are some signs of development at both ends of the corridor, investment interest from Japanese companies in the EWEC is still far lower than expected.

"Mawlamyine is no longer the main seaport that it used to be while Danang is still one of the top three seaports in Vietnam but that was not helped by the EWEC, since Danang is already a popular tourist destination," said Ms Pongkwan.

"The corridor is being crossed over by many other routes, so goods that are expected to be transported via R9 to Danang and out via ships to Japan and Hong Kong or onward to the Americas are actually being diverted to Laem Chabang [in Thailand]. There have been no proper studies showing how goods are being transported along the corridor."

Japanese businesses as well as those from many other countries were expected to enjoy the logistical advantages offered by a smooth flow of goods from the Andaman to the South China Sea and vice versa, but the infrastructure just isn't there yet.

Other related countries can also enjoy the roads and the business opportunities that come along with the infrastructure but the reality are, however, differ.

"The paved roads on the Myanmar side in Myawaddy are only situated near the Thai border while the rest of the route on the Myanmar side is still dirt roads all the way down to Dawei," said Ms Pongkwan. "There are some Japanese companies that have invested in the border area between Myawaddy and Mae Sot in Thailand but it is lower than expected.

"The EWEC routes are largely being used by Myanmar workers who cross over to work in Thailand more than for the flow of goods as intended by the ADB, while most of the benefits go to SMEs in the area and cross-border trade more than to large corporations from Japan."

Ms Pongkwan said large Japanese companies were now far more interested in the Thilawa SEZ, which received heavy financial support from Tokyo and is located just 29 kilometres south of Yangon, Myanmar's largest city.

"Japanese investors are going up north to their own SEZ in Thilawa which is equipped with its own port instead of investing along R9 as planned," she explained.

"As for Dawei, it takes two hours by road just to get from Dawei city to the Dawei SEZ because of the poor road conditions and once you get there, there is nothing there. It's quite shocking really because after all the news about the project there is still no real development."

Some Japanese companies, she said, might have won bids called by the previous government for sites in the first phase of the Dawei SEZ, but they are still awaiting permission from the new government to start building while it reviews the long-delayed project.

"The Myanmar government is also waiting for the Singaporeans to get in on the deal so nothing is happening at the moment," she said.

If it is ever completed, Dawei would be Southeast Asia's most ambitious industrial zone, covering 250 square kilometres and featuring a deep-sea port, a petrochemical and heavy industry hub.

The first phase, worth around $1.7 billion, includes a 27-square-kilometre industrial estate with a township for workers, a liquefied-natural-gas terminal, landline telecom services, a power plant, a small port and a water reservoir.

It also calls for the construction of a 138km two-lane road from Dawei to the Phanom Rung checkpoint in Kanchanaburi province, around 119km northwest of Bangkok. All of this is still in limbo.

"Currently the road from the Dawei SEZ to Phanom Rung is still poor and very hard to navigate because of various tight turns," Ms Pongkwan observed.

In Laos, R9 has brought prosperity to Savannakhet and the Savan Seno Special Economic Zone, but the growth is being supported mainly by South Korean companies more than Japanese ones.

"South Korea is more interested in investing in Laos and Vietnam because they are relatively untouched by Japanese funds," she said.

According to the Lao Investment Promotion Department, South Korea is now the fourth largest foreign investor in the country after China, Thailand and Vietnam. Chinese FDI to Laos, covering 830 projects from 1989 to 2014, totalled $5.4 billion compared with $4.5 billion from Thailand, $3.4 billion from Vietnam and $750 million from South Korea in the same period.

BORDER BARRIERS

"The East-West Economic Corridor was betting on the flow of logistics and products along the corridor where vehicles can travel across borders between Myanmar, Thailand, Laos and Vietnam but this is not happening," said Suwit Ratanachinda, director of the Thai International Freight Forwarders Association.

All countries in the GMS, including China, signed a cross-border trade agreement 15 years ago to give each country a quota of 500 vehicles under a transnational transport plan but it has yet to be ratified in individual nations.

Mr Suwit said different customs requirements in each country remain the main roadblock.

"The process of putting down bank guarantees to insure freight is not being accepted by the Lao authorities, while other liability issues such as insurance for drivers are also not being met from all sides," he said.

"These regulations and insurance issues mean that Japanese funds are not being invested along the corridor which has led to a smaller than expected volume of goods passing through the corridor from Mukdahan to Danang or to Hanoi."

To the west, most of the trade consists of consumer goods at border markets in Thailand and Myanmar. The flow to the east from Myanmar across Thailand to Laos and Vietnam is still non-existent, Mr Suwit said.

"The flow of goods from Myanmar, Thailand and Laos to Danang is still too small so the logistics services and ships at Danang are still small, which means that people still prefer to use the Laem Chabang port because of cost efficiency, service quality and better road conditions to the port onward via ships to Japan, Hong Kong and to the Americas," he added.

LOOKING AHEAD

Mr Suwit said the Thai government needs to anticipate what types of industries will emerge in the future and where they could be located before making any decision to promote more development corridors. But he believes the country should not completely neglect the EWEC because of the economic potential of Vietnam and Laos in the future.

"The industrial zones in Vietnam are expected to continue to grow while the industrial zones in Laos such as in Savan-Seno are also expected to expand, so we should still keep an eye on these developments," he said.

"The expansion of Laem Chabang is definitely something that should be done and there is also the potential to connect it to the Dawei project. I believe that the government currently looking into this possibility."

Mr Suwit said that for the potential of the EWEC to be realised, trailers that transport goods should be able to traverse the corridor with ease to provide a better flow of goods. If that cannot be done, then there should be a system to allow trailers to be unhooked at the borders before transferring their cargo on the other side without having to cross over.

"This might sound like a dream but it might be as close as we can get to it," he said.

Meanwhile, the One Belt One Road initiative is "very interesting and has high potential", he said. The Lao and Chinese governments have already agreed to build a freight railway from Kunming to Vientiane. It will be part of a Kunming-Singapore route passing through Laos, Thailand and Malaysia.

"The construction of the China-Laos Railway is already beginning while the Thai government is still negotiating with the Chinese government so there is nothing official yet, but what I see is that this is the straightest and closest line to connect Thailand to China's One Belt One Road," Mr Suwit said.

"China wants to go to Europe and it has already launched a [rail] freight service to London. Thailand should join this line in order to boost trade between Europe and Central Asia."

He sees a big lift for trade between Southeast and Central Asia if OBOR rail links can reduce the time for goods to travel from Thailand to Central Asia by 10-15 days when compared to sea transport.

Looking at Dawei, Mr Suwit said he believed the Thai government was still committed to the project but is seeking clarity from the new Myanmar government. Deputy Prime Minister Somkid Jatusripitak visited the country last month and an update on progress could be expected soon.

"Thailand is already building motorways in preparation for the connection with Dawei," he said, referring to the Bang Yai-Kanchanaburi motorway which will cost 55.6 billion baht and be completed in 2019.

Kriengkrai Thiennukul, vice-chairman in charge of investment promotion at the Federation of Thai Industries, told Asia Focus that the best strategy for the Thai government would be to press ahead with a new industrial hub in its own eastern provinces with extra privileges to attract high-tech investment to the Eastern Economic Corridor (EEC). At the same time, it should expand Laem Chabang port and upgrade U-tapao airport in Chon Buri.

"The increase in the maximum tax privileges by the Board of Investment from 13 to 15 years, the investment in infrastructure projects worth 1.5 trillion baht in the next five years, and the expansion of air, sea and road transport to attract high-tech investment from Europe and the US to the EEC is something that will definitely lift Thailand out of the current middle-income trap if it is fully implemented," he said.

"The railway connection between the three major airports -- Suvarnabhumi, Don Mueang and U-tapao -- is going vastly improve connectivity and possibility transform the area into one of the biggest aviation hubs in the region."

Mr Kriengkrai said the EEC could easily be connected to the EWEC and OBOR routes and once that happens, the improved connectivity should definitely help improve Thailand's competitiveness.

"Currently there is no construction in Dawei so that will take time as Italian-Thai Development has already won the concession but cannot build because of a lack of funding," he said.

"However, if and when we can connect with Dawei then the time needed to ship goods from Thailand to India, Central Asia and Europe will be shorter and this is something that we should pursue, especially when there is already a competition from the Thilawa SEZ just 29 kilometres from Yangon."

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