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Urbanization really matters. Cities facilitate development and domestic demand. Urban residents in Thailand have about twice as much income as non-urban residents on average, and they spend significantly more than their rural counterparts who earn the same income.
Who are the urban consumers? We define the urban consumer class as those residing in municipal (tessaban) areas and with more than 15,000 baht per month in income. There are fewer than 4 million out there. Most
are in their 30s and 40s, well-educated, and tend to be employees rather than self-employed.
Where are they? Increasingly outside Bangkok. 45% of our urban consumers are located outside of Bangkok and the vicinity. Between 2002 and 2009, 75% of the increase in the number of urban consumers occurred outside Bangkok and the vicinities, and this pattern is likely to continue going forward. But they are spread out very, very widely. While spending patterns of urban consumers differ significantly from their non-urban counterparts, they do not vary substantially across different regions.
Thailand's urbanization rate is low and has stalled. Thailand's urbanization rate (urban population as a percentage of the total population) is 31%, significantly below peers such as Indonesia (53%) and Malaysia (71%). More worrisome is that urbanization has stalled, increasing by only 0.8 percentage points between 2002 and 2009, compared to increases of over 7 and 8 percentage points in Malaysia and Indonesia, respectively.
Why? Bangkok really dominates the urban landscape, but appears to have stopped growing. The overall urban population in Bangkok and its vicinities (cities like Nonthaburi, Pathum Thani, Samut Prakarn, Samut Sakhon, and Nakhon Pathom) grew much more slowly during the past decade and-based on the latest available data-appears to have actually stopped growing since 2007.
The momentum of urbanization is shifting towards cities outside Bangkok. The above is in contrast with urban areas in the top 10 provinces outside Bangkok and its vicinity which have continued to grow. Provinces which have seen particularly rapid growth in their urban populations include Songkhla; Nakhon Si Thammarat; Surat Thani; Ubon Ratchatani; Chonburi; and Nakhon Ratchasima.
The above has substantial implications for policy... We need to get urbanization going again for sustained growth in domestic demand. Getting urbanization going will require both "fixing" Bangkok and developing a portfolio of places. The 2009 World Development Report (WDR) notes that "an urban system tends to be made up of a few large diversified cities and many smaller, more specialized, cities." Cities outside Bangkok should focus on function (or specialization) rather than size.
...and businesses. Businesses will need to adapt to a more difficult environment. Slowing urbanization in Bangkok would seem to suggest a strategy of focusing increasingly outside Bangkok. But this is not as straightforward as it sounds. While the bulk of the increase in urban consumers is occurring outside Bangkok, they are spread out all over the place. The average number of urban consumers even among the top 10 provinces outside of Bangkok and its vicinities is only 67,000. This is not much of a critical mass, and suggests a clear need for a particularly tailored approach when going outside Bangkok. There is much that businesses themselves can do to help cities beyond Bangkok to develop. Cities do not have to be that large to benefit from industry clusters, and it may not take that many firms working together to form such clusters, especially in partnership with local universities and governments.
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