# _Public Investment Drive_

The government, reelected in February for a second term, has changed the infrastructure planning process to address some of these weaknesses. The Prime Minister’s office lays out the development priorities, while the planning agencies are charged with fleshing out design details.<sup>11</sup> The government’s plans to support investments of up to 1.7 trillion Baht (US$43 billion), raising public investment by an average of 70 percent over the next five years (Figure 14.A and Figure 14.B). In real terms, public investment would exceed the 1997 peak from 2007 onwards. First, the government has identified high level business, professional and hospitality services as new growth areas, including fashion, advertising, health care, tourism, and conventions. Such services are primarily located in Bangkok and require dense, high transaction business environments with easy accessibility. The first priority implies a focus on urban mass transit infrastructure and communication, accounting for close to half of the planned spending. Second, the government views the industrial base in peri-urban areas centering on a few dominant clusters such as automotives and furniture. Improvements in the logistics system are to boost competitiveness and reduce the wedge between prices paid by consumers and received by producers.<sup>12</sup> The third priority is to improve energy efficiency. Thailand spends a large share of GDP on power, and energy imports amount for around 5 percent of GDP. Indeed, one in four Thai firms consider electricity costs as among the three most urgent investment climate concerns. Indeed, in the 2004/5 Thailand Investment Climate Survey, one in four firms view energy costs as a serious business constraint (World Bank 2005a).

A related issue concerns decentralization, and specifically local administrative capacity. Yet, there is a mismatch between capacity and needs at the local level. Local administrations have limited influence in Thailand’s public sector. The central government appoints the chief local officials, determines local salaries, and approves local budgets. Even local utilization of the restricted funding is to a large part centrally mandated. Staffing levels and staff appointments of local governments are now centrally controlled. Local authorities are required to hire personnel and pay salaries, wages, and benefits in accordance with central regulations that often result in overstaffing and overspending. “It is not unusual for a peri-urban Tambon Administration Organization (sub-district), staffed by personnel in their twenties, with generalist educations, to be the site of an industrial park housing some of the world’s leading Fortune 500 companies demanding world class infrastructure services.” (Webster and Theeratham 2004). In addition, the 6,754 TAOs are too small to ensure effective coordination either vertically (center and local) or horizontally (among local). In response to these problems, the government has shifted from a decentralization to a deconcentration process aimed at strengthening coordination at the province and province-cluster level.

> 11 For example, a short-cut route for public project approvals bypasses the appraisal by NESDB, speeding up the process. It was used for the 2004 approval of the Laem Pak Bia Causeway across the Gulf of Thailand.

> 12 Logistics costs (ports, air freight facilities, container depots, connections of road and rail networks etc.) are estimated to be 15 percent of GDP, compared to less than 9 percent in the USA.

35