Thailand - Current economic position and prospects (Vol. 4 of 6) : Annexes 5-8 : Tourism, education, provincial water supply, and urban development

PUr,'^l e,! T I CXIRCULATIN'G COPY RESTRICTED RE:P V R;? - E ~ vIII5JULI1vK Report No. EAP-28 R VJTHN 1 BE RETURNED TO REPORTS DESK ONE WEK This report is for official use only by the Bank Group and specificaLy authorized organizations or persons. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responibility for the accuracy or completeness of the report. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION CURRENT ECONOMIC POSITION AND PROSPECTS OF THAILAND (in six volumes) VC)LUME IV Annex 5. Tourism Annex 6. Education Annex 7. P'rovincial Water Supply Annex 8. UJrban Development January 11, 1972 East Asia and Pacific Department  Currency Unit - Baht U.S. $ 100 = A 20.80 'Z 1000 = uISO $ o.o48 $ 100 mnillion = U.S0 $ 46,07o7  Foreword This report is based on findings of an economic mission, which visited Thailand f'rom early July to mid-August, 1971. Its members were: Mr. David Kochav Chief of Mission Mr. Christian Merat Deputy Chief of Mission Mr. Peter Streng Chief Economist Mr. Jayme Garcia dos Santos Econometrician Mr. Madhusudan Joshi Fiscal Economist Mr. Toshikazu Nasu Economist Mr. George Perazich Industrial Economist Mr. Carl Goderez Industrial Engineer Mr. Klaus Bahr Education Economist Mr. Raif Savas Rural Educator Mr. Kenneth A.. Bohr Urban Economist Mr. James Bogle Town Planner Mr. Kunio KikuLchi Urban Economist Mr. Charles D., Spangler Water Supply Engineer Mr. Eric Greenwood Water Supply Financial Analyst The report also incorporates major conclusions of the following missions headed by: Mr. Nathan Kolffsky Agricultural Sector Review Mission Mr. Heinz Vergin Northeast Regional Review Mission Mr. Andrew Hayman Tourism Sector Review Mission Mr. Sei-Young Park Transportation Sector Review Mission Secretarial assistance for the mission was provided by: Aurora G. Arceo Pontipa Vachanasvasti Vichitra Tanphiphat Sununta lWipuchanin   Annex 5 TOURISM TABLE OF CONTENTS Page No. I. MAJOR TOURIST AREAS ................... 1 II. THE GROITH AND CHARACTERISTICS OF VISITOR TRAFFIC .......... 2 III. TOURIST FACILITIES ..... ... ....... 0*..*. .. .... 3 Accommodation Facilities ....................... . ....... . 3 Hotel Construction Costs ..... . . ............................... 4 Sources of Finance . ............. **..............***e** .... 4 Hotel Profitability .. ...... 09A .......A*** .. .......... 5 Other Tourist Facilities . ... . ..................... .see 5 IV. INFRASTRUCTURE .......................... . 6 Air Transportation ... ............. .... ................. 6 Internal Transportation Services ..................... 7 V. ORGANIZATION OF THE SECIOR *..***........................ 8 The Role of the Public. and Private Sector ................ 8 Personnel Training ...........*.. ............ ............ 9 The Climate for Investment 9 .......... ........... 9 VI. SOME ECONOMIC IMPLICATIONS OF TOURISM 9 ..... ......... 9 VII. FUTURE TOURISM DEVELOPMENT .......... .. ....... ........ . 10 Statistical Tables Table No. VISITORS TO THAILAND BY NATIONALITt i1965-1970 1 CHARACTERISTICS OF VISITORS TO THAILAND, 1969 AND 1970 ...... 2 VISITORS' AVERAGE LENGTH OF ST'AY, 19681970 3 AMERICAN TROOPS ON REST-AND-RECREATION LEAVE IN THAILAND, 1966-1970 .. ...............* ..*... 4***. *** * ** * ** * REGIONAL DISTRIBUTION OF HOTEl1 ROOMS IN THAILAND, 1971 .......... 5 FOREIGN EXCHANGE RECEIPTS FROM TOURISM, 1965-1970 ............... 6   Annex 5. TOURISM 1. Thailand's main tourist assets are its exotic image and the reputation of its people for friendliness and hospitality; its historical and cultural sites; its beaches and its favorable climate for beach holidays during the European, North American and Japanese winter months; its accessibility due to its position on world air routes, and its position as a staging point for other countries in the region. 2. The development of tourism in Thailand has, however, been hampered by its distance from the main tourist-generating countries and the relatively high per-mile air fares; by increasing competition from other destinations; and by its proximity to the war-torn areas of Southeast Asia. In addition, the Government of Thailand has been slow in taking measures to solve some problems which have hin- dered the development of tourism, such as the liberalization of immigration and customs procedures and the improvement of tourist services. I. Major Tourist Areas 3. The areas of major actual and potential tourist interest in Thailand are: Bangkok and its surroundings, Pattaya, Chiengmai, Songkhla Province, and the island of Pukhet, 4. Bangkok was established as the capital of Thailand shortly after the conquest and almost total destruction of Ayutthaya by the Burmese in 1767. With a population of over two million inhabitants, it is now a thriving metropolis and constitutes the main political, economic and cultural center of the country. Bangkok's attractions include many beautiful temples, the Grand Palace, the National Museum, and the world-famous floating and weekend markets. 5. Various day trips are possible from Bangkok, Among these might be mentioned the following: Nakhon Pathom, Thailand's oldest city and site of the largest and oldest pagoda in the country; Ayutthaya, capital of Thailand from 1350 to 1767, with its interesting archaeological ruins, and Lopburi which abounds in remains from many historical periods. 6. Pattaya is located on the Gulf of Thailand about 160 kms south of Bangkok and i-sthe most popular seaside resort for foreigners. Pattaya and the nearby islands offer possibilities for year round water sports, fishing and coral hunting.  Annex 5 Pa ge 2 7. Chiengmai is 800 kms north of Bangkok and, because it is located on a plain about 1,000 feet above sea level, enjoys a somewhat cooler and less humid climate. Chiengmai's major attractions are the numerous handicraft vil- lages located in it or nearby, the many local festivals held there, its exqui- site Budhist temples, and the distinct cultural traits of its people. 8. Songkhla is a summer resort in southern Thailand with beautiful beaches. The town is known for its great variety of fruits and excellent seafood. About 26 kms south of Songkhla is Haadyai, one of Thailand's wealthiest cities and the main commercial center of the South. Because of their proximity to the Malaysian border and their accessibility by road, Songkhla, and particlllarly Haadyai, are very popular with visitors from Malaysia and Singapore. 9. The island of Pukhet is located some 920 kms south of Bangkok and offers lovely beaches, as well as boating, fishing and skin-diving possibilities. The waters off Pukhet are crystal clear and contain some of the most beautiful coral in the area. II. The Growth and Characteristics of Visitor Traffic 10. Statistics on visitor traffic to Thailand are collected by the Tourist Organization of Thailand (TOT) and are based on information provided by visitors on the disembarkation and embarkation cards which they are required to complete upon entry into and departure from the country. A "visitor" is defined as any foreigner coming to Thailand for a stay of more than one night and less than thirty nights whose purpose of visit is leisure or business. 11. These statistics indicate that the total number of visitors to Thailand grew from 225,000 in 1965 to almost 630,000 in 1970, implying an average annual compound rate of growth of approximately 23 percent. This growth rate compares favorably with that experienced by neighboring countries. 12. A detailed breakdown of visitors to Thailand by nationality for the past six years is given in Table 1. The major sources of visitors in 1970 were the U.S.A. (25.3 percent), Malaysia (16.7 percent), Japan (7.5 percent), the United Kingdom (5.9 percent), Australia (4.5 percent) and Germany (4.4 percent). Visitors from the U.S.A. have consistently accounted for the largest share of the total, but their growth rate has been slower than that of visitors from most of the countries as shown in Table 1. 13. The re are some noticeable seasonal variations in visitor arrivals. Visitors arrivals are lowest in the months of January, February, June, September and November. These variations are only partially explained by weather conditions in Thailand. Vacation patterns in the countries of origin of visitors also help account for the fluctuations, as is apparent from an examination of monthly arrival figures for individual national groups. In addition, since Thailand is usually only one of several countries visited, local conditions in one of the other countries can also help determine the timing of visits to Thailand.  Annex 5 Page 3 14. Late in 1968, the TOT began to publish periodic summaries of visitor profiles which not only indicate their distribution by nationality but provide information on their age, sex, occupation, type of accommodation used, purpose of visit,etc. These are shown in Table 2 for thoseyears for which they are available. 15. The average length of stay of visitors is approximately five days and does not vary widely by nat:Lonal group, as is evident from Table 3. Data on visitor itineraries within Thailand are not available, but on the basis of discussions with travel agents, tour operators and hotel managers, the mission estimates that overseas visitors spend at least two to three days in Bangkok and the balance, if any, in other tourist centers, such as Pattaya and Chiengmai. Vi- sitors fraom Malaysia and Singapore usually confine their stay to Haadyai and Songkhla. 16. A number of surveys on average daily expenditures of visitors have been conducted by the TOT in collaboration with the National Statistical Office. The latest survey revealed that visitors spend an average of about US/30 per day. Of this total, about one half is spent on accommodation and food, 1 percent on sightseeing tours. and 28 percent on shopping. 17. American troops on rest-and-recreation leave have also come to Thailalnd in substantial numbers beginning in 1966. However, with the withdrawal of American troops from Southeast Asia, their number has declined and can be expected to continue to do so. In 1970, the number of American troops who came t;o Thailand on rest-and-recreation leave was 44,000, representing a decrease of about 40 percent over the previous year. Table 4 shows the evolution of their numbers since 1966. III. Tourist Facilities Accommodation 'Facilities 18. The hotel industry has been one of the fastest growing in Thailand in recent years. In 1970, there were approximately 80 hotels with about 10,000 rooms in all of Thailand,which might be considered suitable for foreign visitors, as compared with some 15 hotels with a total of less than 1,000 rooms in 1960. Most of the growth in capacity took place between 1964 and 1968, in response to the growth in visitor traffic and to the incentives provided by the Government to encourage private investment in hotel construction. 19. Of total accommodation facilities, more than four-fifth are located in Bangkok. I'able 5 provides a regional breakdown of existing capacity. No hotel classification system exists in Thailand. However, of all the rooms available in Bangkok, about 3,000 can probably meet the standards usually required of high class hotels in other countries. The rest are not as well-appointed, but most can be considered adequate for foreign visitor demand. Elsewhere in the country, the quality of accommodation facilities is more modest.  Annex 5 Page b 20. The Government of Thailand owns the 15-year-old 200 room Erawan Hotel, two smaller hotels at Bansaen and Khao Yais and a golf course. The Erawan is operated by Syndicate of Thai Hotels and Tourist Enterprises, while the operation of the other facilities is entrusted to TOTo However, hotels in Thailand are predominantly owned and operated by the private sector. 21. Many hotels are managed by expatriates. Some of the leading hotels in Bangkok are operated by American hotel chains (Intercontinental Hotel Corp., Hilton International Hotel Co., Western International Hotels Inc., and Sheraton International Inc.). Management is on the whole good, and well qualified Thais are to be found at all levels. 22. Rates charged by hotels are quite high, but they are difficult to ascertain with any precision because of the growing practice of rate-cutting used by some managers to attract more guests. Published rates may not necessarily correspond to actual rates charged, but they are at least indicative of the maxi- mum cost of accommodation. A single room in a first-class hotel in Bangkok may cost anywhere from US$15 to US$20. In second-class hotels, the cost ranges from US$10 to US$15. Elsewhere in the country, a single costs from uJS$5 to US$11, depending on the type of accommodation. 23. The number of people directly employed in existing hotel establishments in Thailand is not known exactly. On the basis of average employee-to-room ratios obtained for certain hotels, the mission estimates that some 209000 people are employed in hotels. Employee-to-room ratios, which range from 1.6:1 to 3.2:1, are high by international standards, but the resulting service is often excellent. Staff turnover is not very significant in the better hotels, as they generally pay more and provide more fringe benefits, but in lower-standard hotels, managers try to bid trained personnel away from one another, and the turnover there is high. Hotel Construction Costs 24. Hotel construction costs in Thailand are generally low. In the case of first-class hotels, the costs of construction range from the equivalent of US$12,000 to US$20,000 per room, depending on the time of construction, the lo- cation, the size and the type of the establishment. In lower-class hotels, the cost per room is anywhere from US$7,500 to US$11,000, These costs are exclusive of land acquisition which is very expensive and may add from 20 to 30 percent. In some cases, the land is only leased and not bought outright. Sources of Finance 25. Thailand's hotel industry is largely in private hands and its develop- ment has relied mainly on private initiative and capital. The Government has, however, provided some significant incentives to encourage hotel construction (see paras below). Hotel investors have financed their ventures primarily with  Annex 5 Page 5 equity capital and loans from the local banks. A few investors have sought and obtained assistance from foreign sources which have often provided financing on softer and longer terms than local banks. 26. Local commercial banks usually provide loans on a short-term basis (6-12 months with the possibility of roll-over) carrying interest rates ranging from 7 to 14 percent per annum (7-11 percent for "call money", 12 percent for loans to industrial enterprises against collateral of immovables and movables, and 14 percent for other types of loans). The Industrial Finance Corporation of Thailand (IFCT) provides loan funds for longer periods with slightly lower interest rates (9.5 percent per annum for foreign currency loans and 10.5 percent per annum for local currency loans), but although IFCT has lent money for hotel construction in the past, hotels are now on the list of industries temporarily excluded from IFCT financing because of sufficient capacity. Hotel Profitability 27. 'While reliable data on occupancy rates are not available, it is appa- rent from discussions with hotel managers and others involved in the tourist industry that the existing capacity is in excess of demand, and this is parti- cularly true of Bangkok and Chiengmai. This impression is corroborated by the following : first the temporary suspension in June 1970 of the promotional privileges accorded to hotel investors by Thailand's Board of Investment, second- ly by the various measures resorted to by some hotel managers to attract more guests (e.g., rate-cutting and/or payment of commissions to taxi drivers who bring in guests). The mission has also made tentative calculations of possible occupancy rates in all hote:Ls in Bangkok based on the proportion of visitors who stayed in hotels in 1970 (85 percent), an average length of stay of about three nights per visitor, and a double occupancy factor of 1.7. These calculations suggest an average rate of occupancy of approximately 35 percent for all Bangkok hotels. The problem of excess capacity is exacerbated by the decline in the numbers of U.S. troops coming to Thailand on rest-and-recreation leave, which forced those hotels which catered primarily or exclusively to them to enter the general tourist market. Other Tourist Facilities 28. For variety and quality the food in Thailand is hard to match in South- east Asia. Restaurants serving all types of food abound in Bangkok and other large cities. The choice is somewhat more limited, but still quite impressive, elsewhere in the country. 29. Thai handicrafts'include jewelry, silk, silver and bronze ware, anti- ques, lacquerware and carved wood and are cheap. Their quality is generally good, and shopping facilities are quite well-developed. A 1967 survey of visitors to the Pacific revealed a noticeably favourable reaction to Thailand's shopping opportunities.  Annex 5 Page 6 30. Guide service in Thailand is poor. The TOT in cooperation with Chulalongkorn University,offers a guide course, but the main emphasis of the course is historical. In addition, the language proficiency of the trained guides is usually inadequate. Books and the few existing signs describing tourist attractions are generally available in only one foreign language, English. Road signs are in Thai only, but good maps can be purchased at most large gasoline stations. IV. Infrastructure Air Transportation 31. At present, the only operational international airport in Thailand is Don Muang International Airport, some twenty miles from the center of Bangkok, used by thirty international lines. Its facilities are presently being expanded and improved in order to cope with increasing traffic, and this work shouild be completed some time next year. The airport is the property of the Royal Air Force, and one of the two existing runways is used for their aircraft. 32. The airport can accommodate aircraft of the Boeing-7h7 type, and some of the foreign carriers operating there were envisaging the introduction of B-747's to Bangkok by November 1971. One European tour operator was contemplating using B-747's for his chartered flights to Bangkok. 33. The Civil Aviation Department is giving serious consideration to the construction of a second international airport near Bangkok, and has already acquired land for this purpose at Nang Ngoo Hao, some fifteen miles south of Bangkok. Assistance is being sought for a study of the desirability and feasi- bility of such an airport. 34. Chiengmai has an airport capable of receiving aircraft of the B-727 and DC-9 types, and has already been declared an international airport. However, no foreign airlines has so far applied for permission to land there. An airport is presently under construction in Haadyai. This airport is scheduled to begin operation by the beginning of 1972 and will be equipped to handle every kind of aircraft up to B-747's. Aside from these three airports, Thailand has a number of small airports which can accommodate DC-4's or Avros. 35. There are three airlines in Thailand: Thai Airways Company (TAC) which provides internal services, and operates and maintains a number of airports in the country; Thai International Airways (THAI) which links Bangkok with a number of points in Asia; Air Siam which in March 1971 started flying to Los Angeles from Bangkok and is presently seeking permission to fly to London. TAC is state-owned  Annex 5 Page 7 and operates five routes from Bangkok (Chiengmai, Songkhla, Pukhet, Penang, and Vientiane). TAC has 7 Avros (with a oapacity of 44 passengers per plane) and 5 DC-3's (with a capacity of 28 passengers each). THAI is a joint venture of TAC and the Scandinavian Airlines System (SAS), which own 70 percent and 30 per- cent respectively of the share capital. THAI has been in operation for 12 years and operates a number of services to major cities in Asia. It leases its air- craft from SAS, which also provides it with technical assistance, and until recently had wide executive power in running the airline. Air Siam is privately owned and has only recently been established, wet-leasing aircraft from Overseas National Airways. 36. A number of present practices or intentions appear to be unpalatable to foreign airlines flying into and out of Bangkok, and could have an adverse effect on the development of tourism, examples are: (i) the fifth-freedom restrictions imposed on foreign airlines, which may lead to a diversion of traffic away from Thailand; (ii) the practice of charging airlines which land or take-off during off-hours a certain fee for every passenger to cover the overtime of immigration personnel. Internal Transportation Servicee 37. Internal transportation services in Thailand are generally adequate. The improvement of Thailand's highway system in the past decade has increased the opportunities for private car and bus tourism, both domestic and foreign, in the country. Good highways link Bangkok with major cities and towns in Thailand. Bus services are cheap, frequent, punctual and of fairly good standard. A number of car rental agencies also exist. There are good railway connections between most points of tourist interest in Thailand, and trains are comfortable,and punc- tual ,but slow. 38. The increasing traffic congestion of Bangkok is becoming an acute problem. Getting around in Bangkok is thus very time-consuming. Buses are oheap, but not very comfortable. Taxis are required to have meters but few taxi drivers choose to use them. Transport from the airport to the center of Bangkok is in the hands of TAC which in turn sub-oontracts it to a local transport company, National Travel Services; the fee charged is quite low (US$1.00 equivalent). Taxis are theoreti- cally though not practically barred from pioking up disembarking passengers, and often try to charge outrageQus prices.  Annex 5 Page T Other Infrastructure 39. There is no sewerage system in Thailand. Most hotels have their own sewage disposal system and these are, on the whole, well-maintained, but great care has to be exercised to ensure that they continue to be so. Water supply is generally not a problem except for large users, but water purification is an additional cost which must be borne by the hotels. Electric power supplies are sufficient. V. Organization of the Sector The Role of the Public and Private Sectors 40. At the Government level, the responsibility for the development of the tourist sector rests primarily with the Tourist Organization of Thailand (TOT), which is a department within the Prime Ministergs Office. TOT has a staff of approximately 180 persons. TOT's activities in recent years has centered on : (i) the collection of statistics, (ii) overseas promotion, and (iii) management of three government-owned tourist enterprises (two hotels and a golf course). Whether TOT should be engaged in the management of tourist enterprises is debatable, but it is clear that TOT has discharged its first two functions relatively well, given the low budget put at its disposal. On a broader basis, while TOT can and does suggest corrective actions to deal with the problems of the sector, it lacks the power to ensure that such actions are taken by the various government departments concerned. 41. A Tourism Promotion Board under the chairmanship of the Minister of Foreign Affairs and composed of the heads of relevant government departments has been nominated to oversee developments in the sector and to coordinate govern- ment actions which have a bearing on tourism. The Board0s activities have been fairly limited so far. 42. In addition to these goverznmental organizations, a number of associ- ations exist at the national level. The most active among these are - the Association of Thai Travel Agents, which has more than forty members, and the Thai Hotel Association, which has over thirty members. A new organization is in the process of formation, namely the Thailand Tourist Industry Association, which will group hotels, restaurants, airlines, travel agencies, souvenir shops and banks. The purpose of this association will be to secure greater coordina- tion of activities of the private sector in the field of tourism. 43. Promotional activities are undertaken by TOT. The total budget allocated by TOT for promotion only was about 6.35 million baht (US$305,000) in 1971. Agreement has been reached on raising the TOTOs total budget for next year to 25 million baht (US$1.2 million) which will allow offices to be opened in Tokyo and Frankfurt. Thai International, with SAS, has built up a sophisti- cated marketing function, but this serves their route network as a whole, and not Thailand exclusively. In addition, private organizations undertake their own promotion, but the level of their expenditures is not known. No overall  Annex 5 Page 9 promotion strategy exists which could serve as a basis for coordinating the efforts of these organizations, and this has caused some duplication and waste. Personnel Training 4;4. , No facilities exist for the''training of hotel personnel, other than the in-house training programs of individdual hotels. A few schools do offer courses in hostelry and catering, but hotel managers generally regard the training acquired at these schools as inadequate and most of them prefer to train their staff them- selves. Senior management in most of the better hotels is largely foreign. The Climate for Investment 45. In the past few years, the Government has provided various incentives to private investors for building hotels of-a high standard. These inaentives have included exemption from import duties on construction materials and equip- ment and from taxes on income derived: from sales for five fiscal years after the start of operation /. In order to qualify for these privileges, a hotel must be first-class; its design and equipment must be approved by the Board of Investment; and its management and operation must be of the standard required of first-class hotels in other countries. The size Of the hotel must be not less than 400 rooms if it is located in Bangkok; 80 rooms if it is located in another municipality; and 60 rooms if it is located elsewhere. Thus far, 24 hotels in Bangkok and 36 hotels in the provinces have qualified for, and received these promotional privi- leges. In July 1970, the Board of Investment decided on a temporary suspension of these privileges for hotels in Bangkok due to overcapacity. VI, Some Economic Impl