Even before I went there, I had the chance to speak to one of Asia's most well-connected and thoughtful businessman-statesman, who opined that Singapore is making a faustian bargain by opening its mega-integrated resorts a.k.a. casinos. From his observation, the Singapore economy is hitting the jackpot from the flood of money coming in - mainly from the less savory parts of the region. But there will be a hidden cost in terms of the future of the Singapore society.
According to him, the irony with Singapore is that it promises a clean, safe and law-abiding society within its borders, but readily turns a blind-eye to whatever happens outside of it. So if you have a lot of money with you Singapore is a safe place to spend A LOT of them without attracting attention and keep whatever you can get out of the casinos. According to him, among those in the know, the typical percentage of the capital one tends to lose in casinos is "competitive" with the going rate -whatever that is - for money laundering. The deal, though, is anyone can bring in as much cash as they wish, no questions asked, but you must declare it upon entry. If you try to sneak in a suitcase stuffed with $10m of bank notes, you will be arrested for failing to declare at customs. But if you declare it, a policeman would count the money in front of you (no risk of the policeman ever demanding a cut) and return the money to you and no one else - except the Singapore Government - knowing about it. That is exactly what has been happening since the IRs opened. Lots of money flooding in and as the government hoped, some of the money being spent in a big way in Singapore.
The problem is that too much money of dubious origins swishing around the system is not all good news. The gambling industry tend to be accompanied by sub-industries of other vices both private and public. The effects of conspicuous consumption and people spending all the money without seeming having to work hard can be very corrosive on the Singapore society. For a long time, although Singapore has its playgrounds for the rich (Malaysian royalties and Indonesian tycoons comes to mind), Singapore's own elites have been founded solidly on meritocracy and having to earn their wealth. At the least, this latest influx of wealth might cause resentment within the Singapore heartland (the HDB population). At worse it might set all the wrong examples of easy money and short-cuts to wealth that will undermine Singapore's precious work ethic and desire for relentless self-improvement.
I agree with that analysis - to a point, but I see that as a little too single dimentional. Besides, I also believe there is more to Singapore's latest boom. After my visit, I was more optimistic than ever that Singapore has moved - no transformed itself - pretty successfully to a new economic level. Fundamentally, after a decade long restructuring driven by the Asian Financial Crisis, the growth of China, India and the Gulf States (which provided dynamism and competition in equal measures) - not to mention external shocks from SARS, 9-11 and the Global Financial Crisis - I believe Singapore has found a formidable way to benefit.
I call it selling the "Singapore Quality".
In my view, Singapore has differentiated itself from Hong Kong in an important way. Mind you, both of them will continue to do very well. But while Hong Kong is becoming the service capital for Greater China, Singapore is becoming the service capital for the rest of Asia (beginning from the Persian Gulf area, partially for Indian sub-continent and dominantly for Southeast Asia). Increasingly, not only MNCs are using Singapore as a springboard not only to reach markets and consumers in the region; but regional corporations are using Singapore as a springboard for talents, services and infrastructure both to serve their home market but also to expand internationally.
For a long time, Singapore's professed niche has been to be a first-world island in a third world region so that it can be a conducive location for MNCs to locate their expatriates and regional HQ. Less trumpeted was its attraction for business people from less developed or secure areas in the region (Indonesia, Malaysia, Myanmar and as far as Nepal plus to a lesser extent, China) to host a second home, educate their children and even run their business remotely in the peace and comfort of the Lion City. These days, I was reading, Singapore is now acting as the secondary HQ or main international outpost for many Indian conglomerates and business families. In fact, a major newspaper has quoted that among the Indian business classes, Singapore is jokingly referred to as "the cleanest city in India". If this continues, that is clearly an important development as the Indian economy outgrows its capacity for its own corporations to service itself.
What Singapore is really selling the "Singapore Quality" of its social stability, security, comfort reliability and efficiency.
Corporate Singapore has also moved outwards with great sophistication to export the "Singapore Quality". It was may be 20 years ago, after visiting Europe and talking to Swiss business executives, that Lee Kuan Yew had an epiphany that Singapore has to somehow transcend the limited size of its economy. He spoke admiringly of Swiss companies like Nestle or Credit Suisse or Sandoz that make their money globally because they export certain skills or knowledge or quality-image that others could not replicate. I was a teenager then, but I remember he said Singapore will need to grow its "second wing."
That is what Corporate Singapore - particularly the GLCs - have been doing with increasing success after almost 20 years. This tend to take place in three different ways: The first involve acquisition or investment in foreign corporations and assets - such as stake in telecommunication operators in India, Indonesia and (ill-fatedly) Thailand, ports and in the banking sector. The major shipyards in Singapore are also developing enormous additional capacity in Indonesian islands as part of their outward move. Real estate players like Capitaland and Keppel Land are also major investors in real estate projects in China usually through JVs with local players. All these brings a direct exposure to growth opportunity and introduce business opportunity for their Singaporean sub-contractors and partners.
The second route involves replicating the "Singapore Quality" elsewhere in the region. Corporate Singapore in collaboration with the Singapore Government and its soverign wealth funds have been building townships and industrial parks with the Singapore Quality as its main selling point. In Vietnam, 4 major townships are being developed to provide "Singapore Quality" living, working, logistics and recreation infrastructure for foreign investors and locals alike. In these townships, Sembcorp is developing the power, water, waste water and roads system to underpin a reliable infrastructure for investors. Sembcorp is leveraging on its expertise in from operating Singapore's multi-billion dollar Jurong Petrochemical Island project and selling itself as a world-class industrial park water-purification, power, steam and O&M (operations and maintenance capable of the highest reliability, safety and performance. Projects in Oman and Abu Dhabi are a start. The potential is enormous given the gap between demand and capability in Indian sub-continent, Gulf States and Southeast Asia.
The third route involves outsourcing. For example, as airlines in India, the Gulf States and China grows and add new planes, companies such as SIA Engineering and ST Engineering benefit from their need for world-class maintenance and certification to keep them airworthy. Keppel Corp and Sembawang Marine are among the top builders in the world for the most advanced oil rigs and specialised support vessels. Specialised Singaporean engineering companies are among the most competitive fabricators of industrial plants and equipment for oil and gas projects. I even hear of companies who specialise in the design, fabrication and on-site installation of bathroom and wardrobes for five-star hotels all over the world (even in Europe, Middle East and Americas).
Given these examples of the Singapore Quality at work, I have come to appreciate how the Singapore's finicky high-expectations, efficiency-obsessed, value-demanding and Kiasuism with global rankings and benchmarking has turned into a tremendous competitive advantage. These have resulted in soft-skills - planning, design, manufacturing, execution, management, efficiency - that cannot be replicated over-night and which money alone cannot buy. Dubai can spend billions on the physical infrastructure but money alone cannot buy the soft skills that are needed to manage, operate and maintain a world class facility. For whatever India or China cannot supply - and where Europe or America are either unsuitable, incapable, uncompetitively-priced or uninterested - that is the niche Singapore is stepping in.
And Singapore is ready for this transformation in more than one way. While the sight of the Marina Sands Resort was riveting enough, what also caught my eye was that Singapore's CBD is currently in the process of doubling in size. An expansion that is more akin to Pudong or Dubai is taking place along the Marina Bay area in Singapore. To Cheung Kong and Hongkong Land which are part owners of the Marina Bay Financial Center, it would not be lost on them that Singapore has a 55% cost advantage over Hong Kong in Class A office space. And with all those empty acrage on the reclaimed Marina Bay area, Singapore can sustain this pricing advantage.
In terms of population, the population of Singapore has grown tremendously - around 20% in the past decade - with influx from China, India and from around Southeast Asia. This has inevitably been causing social angst and unease. But they have also been restocking the skills base, keep the working population up, and the avarage age of the population and labour costs down. I find that the costs of living, especially in the Singapore heartland still pretty managable.
In terms of public infrastructure, Singapore has been building on its strengths by moving ahead with new projects during the downturn and promising even more to come. For example: the MRT system is now easily more than double what it was when it began and due to double again within the next decade. Private construction is happening all over the place with speed and ambition; and the attention to quality and design is very high.
All in all, this means that quite apart from the Second Wing, Singapore's domestic economy is doing well. The price of real estate has gone up in recent years and the Government is clamping down to stop a bubble forming. Before my trip, I wondered if Singapore's recent upswing is real or is it a bubble? And even if its real, has it peaked? After this trip, I do believe its real and there is much much more to come.
A friend of mine wisely provided the observation that one can tell if times are really well by observing how hard/easy it is to get a taxi. Based on this experiment, he believes although times are good it has not peaked yet. He told me that while we were in a taxi, and the taxi driver quickly agreed.
2 comments:
the best piece out of the three, so thorough and thoughtful.
it deserves to be published in times, newsweek and even the economist.
HK better watch out! of course this is not completely zero sum game, but everything is relative as well.
Thank you for your encouragement. This is the one I have given the most thought, not least because we have some investments in Singapore stocks. But also, when one considers the effort Singapore has put in to developing and nurturing its competitive edge both as a nation-state as well as on the corporate level, they certainly leaves much of the rest of Asia in the dust. I struggle to think of genuinely competitive Malaysian corporations: Air Asia, Top Glove, Genting, Astro (?), Petronas (?).
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