Staying Ahead - Pulses

KEEPING THE COMPETITION AT BAY Singapore leverages on its strengths to remain a global hub for trade and logistics

TEXT _ VINCENT WEE

BEING IN THE RIGHT PLACE at the right time with the right product - this is the mantra traders live by, but when it comes to being a global trading hub, it takes a lot more than that. Singapore's position as a global trading hub should remain strong due to some immutable factors such as its key location at the focal point of global trade. While this gives it a strong inher-' ent advantage, the republic has built on that by developing good infrastructure and providing strong government sup­ port for the sector it continues to work 12 _ PULSES _ JULY 2009

hard on, setting itself apart from upcom­ ing competitors. Dominant port operator PSA, for ex­ ample, is investing in new berths despite the current downturn. Its Pasir Panjang tenninal will have 26 berths under the first two phases scheduled to be com­ pleted by this year, bringing annual con­ tainer handling capacity across PSA's four Singapore terminals to 35 million twenty-foot equivalent units (TEUs). Dedicated car carrier terminals to serve the needs of NYK and K-Line also started operations this year. And Phases

TIlree and Four will see around $2 bil­ lion being invested over the next 10 years to build another 16 berths in Pasir Panjang with annual handling capacity of 14 million TEUs. There have also been myriad in­ centives for companies to set up here over the years. Tax concessions, for in· stance, are offered under the Traders Programme and Approved and Shipping and Logistics scheme. This has combined with the top-class Singapore standards of efficiency and governance to gain it wide recognition.

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Among its accolades is being ranked the world's top logistics hub by theWorld Bank in 2007. Further boosting that sta­ tus is the fact that 21 of the world's top 25 third-party logistics service providers (3PLs) have significant operations in Sin­ gapore, offering high-value, integrated supply chain services. These include key players such as Agility, DHL, Expeditors, FedEx, Kuehne & Nagel, Menlo World­ wide, Nippon Express, Toll Logistics, TNT and UPS. "Singapore provides Maersk Logis­ tics with opportunities to offer a broad range of logistics services to clients, with its good geography, security, trade processes, and efficient shipping and air­ freight capabilities," said Maersk Logis­ tics Asia-Pacific regional manager Tony Hotine. Singapore has become the preferred logistics and supply chain management hub for leading players across industries such as aerospace maintenance, repair and overhaul (MRO), biomedical scienc­ es, electronics, telecoms, fine foods and luxury goods. As Singapore becomes a global manufacturing and trading site for these industries, top 3PLs have invested in specialised facilities and solutions here. These include Vopak's oil terminals on Jurong Island, TNT's largest regional life sciences hub, and CWT's logistics hubs that offer specialised handling and ware­ housing services for chemical and oil products. Leading industry players that have set up supply chain towers and regional distribution centres in Singapore in­ clude Avaya, BASF, Diageo, Du Pont, Embraer, Hewlett Packard, LVMH, Nu­ monyx, Roche Diagnostics and Scher­ ing-Plough. pres­ The ence of these mw­ tination­ als adds

to the business environment for logistics providers. "There are many business transactions due to the presence of the financial hub in Singapore. Most of our customers have their regional headquar­ ters, as well as their supply-chain deci­ sion makers, based here. This attracts logistics providers like Maersk Logistics, who want to be close to their customers, to Singapore," said Mr Hotine. "Maersk Logistics has been provid­ ing logistics services in Singapore for more than 30 years; and we have found that this unique combination of proac­ tive trade policies, supportive govern­ ment policies, transparent procedures, developed infrastructure, and ease and efficiency of handling the entire impor­ tation and exportation process, makes the country a vibrant trading and logis­ tics hub," he added. Noted Michael Gildea, Agility Asia­ Pacific senior vice-president: "Logistics is designated a strategic industry by the Singapore government, and while it con­ tinues to invest and develop the industry it will continue to attract international companies. While it faces many chal­ lenges, Singapore remains alert and con­ tinues to develop strategies in response to these challenges." In April, Agility was one of the lat­ est logistics players to open a regional distribution centre and establish its Asia­ Pacific headquarters in Singapore. "The Singapore government has been proac­ tive in developing the city into a leading logistics hub in the Asia-Pacific," said Mr Gildea. "From Agility's point of view the logistics infrastructure is very advanced in Singapore. There is an excellent tal­ ent pool, supported by first-rate training and world-class university courses. The general infrastructure is good and it is an attnlctive place to base people and tal­ ent." Agility has a significant number of regional management functions in Sin­ gapore such as logistics, IT, chemicals,

CONTAINER VOLUMES lMonlhly TEUs rOOOj

2007 2008

I

YTD TEUs ('OOO)

S'POIll

Shanghai

S'POte

Sl\angltal

­

-

27,935

26,150

­

-

29,918

27,984

Jan '09 1,974

1,901

1,974

1,901

Feb '09 1,851

1,528

3,825

3,429

Mar '09 2,193

2,180

6,018

5,609

Apr '09 2,085

1,950

8.103

7,559

operations, and will continue to use Sin­ gapore as a base, Mr Gildea said. The Port of Singapore, meanwhile, is linked to 600 other ports in 123 coun­ tries via over 200 shipping lines. It maintained its position as the world's top transshipment port last year, moving almost 30 million TEUs. But the competition is getting tough­ er, especially in Asia where eight of the top 10 container ports last year were located. Singapore port's closest com­ petitor, Shanghai, was two million TEUs behind in terms of container throughput last year and was growing at the same pace. And as traditional powerhouse Hong Kong slipped into third position, other southern Chinese ports such as Guangzhou and Shenzhen are all loom­ ing, driven by booming export-driven production in the region. Guangzhou, for example, saw 19 per cent growth last year, which leapfrogged it to seventh place from 12th previously. This will have both positive and neg­ ative effects on Singapore. The most dramatic development that industry watchers see in the next few years is a sharp rise in intra-Asian trade. This should benefit Singapore, due to its strong feeder network. However, cost competition will naturally arise as ports fight for a bigger share of the pie. In the past year, especially, as most ports

UWe have found that this unique combination of

proactive trade policies, supportive government

policies, transparent procedures, developed

infrastructure, and ease and efficiency of handling the

entire importation and exportation process, makes

the country a vibrant trading and logistics hub."

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- Maersk Logistics' Mr Hotine

JULY 2009 _ PULSES _ 13

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have seen an average of 20 per cent fall in container traffic, the temptation to cut prices is high as the pie gets smaller. "So far everyone has been taking the heat and none of the terminals has started a price war, but if the hard times drag on another year, nobody is sure what will happen," said a prominent industry player. "More Asian conntries are develop­ ing into transportation hu bs, joining the likes of Singapore, Hong Kong and China in developing proactive trade pol­ icies and developed infrastructure. Over the years, we also see a shift in sourc­ ing and manufacturing destinations to Asia which increases regional cargo demand. The pro-business environment and abundance of opportunities attract more shippers and logistics operators to the region," said Mr Hahne. In a cost-conscious environment, Singapore may be at a disadvantage compared to other ports. "Emerging transportation hubs in Asia are emulat­ ing Singapore's success. The same ad­ vantages Singapore now enjoys may no longer be c.ompetitive in the near

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14 _ PULSES _ JULY 2009

future. This means thal Singapore has to consistently review its strategies to re­ main competitive and stay ahead of the game," said Mr Hotine. Singapore should look into ways to cut operating costs here, he added. "Al­ though some countries may not be able to match Singapore's stable and pro­ business environment, lower operation costs in other parts of Asia may attract global companies to set up base there." But Mr Gildea pointed out: "Cost is of course an important factor, but in our business it is not the only issue to consider. From Agility's point of view we are always looking to add value and to provide our customers with im­ proved services at a competitive price. Singapore makes great efforts to listen to the business community and continues to provide a good platform for logistics companies to develop their businesses." Shifts in trade patterns and geopo­ litical conditions may also threaten Sin­ gapore's position. Ii trade between India and the Middle East expands rapidly, for example, Sri Lanka's Colombo port ­ long ignored because of the threat posed

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by the now-defeated Tamil Tigers - could become a more natural transshipment hub than Singapore. Similarly increased volumes be­ tween China and the US could see more mainline services going directly on the Transpacific trade, reducing transship­ ment traffic through Singapore. While these exports have fallen in the first half of the year due to the global economic slowdown, it is a matter of time before the export boom resumes. The danger with rising intra-Asia trade also is that volumes may rise so much that the container lines may choose to serve ports with mainline services go­ ing directly from point to point in Asia, instead of through feeders as they do now. This would reduce the role of hub ports such as Singapore somewhat. For now, Singapore appears well able to hold its own. "From a container shipping perspec­ tive, Singapore is one of the world's bus­ iest container ports and has the natural advantage of being located at the centre of major international sea trades," Mr Hotine noted. "Regionally, Singapore is

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strategically located as a logistics hu b in Asia and expands options for business­ es with intra-Asian shipments. Being a tTansshipment hub also means that the country is very well-connected for glob­ al trade." Added Mr Gildea: "Singapore is stra­ tegically located as a transshipment hub for South-east Asia and also South Asia. It continues to invest in its infrastructure and is business friendly with a good fi­ nancial hub, optimal IT connectivity and infrastructure and multilingual work­ force, political stability. This is attractive to foreign companies who want to invest and develop their businesses in the re­ gion (while) air and ocean connectivity is a major factor." However, there is a need to keep im­ proving and leveraging on its strengths to stay ahead of the competition. This is especially important since Singapore does not have a large domestic market, unlike Shanghai which for the past few years has been nipping at its heels for the position of top container port. According to latest figures as at May, Shanghai is still about 500,000TEUs be­ hind Singapore in year-to-date volumes and it looks unlikely that it will over­ take the republic this year with China's exports plunging. However, Shanghai's weakness in its dependence on its hin­ terland for business may tum to strength when the Chinese economy and the global export market that it feeds come roaring back to lile. Mr Gildea said Singapore should "keep listening to the business commu­ rrity and provide them with the environ­ ment to continue to grow, (as) this will ultimately support Singapore's contin­ ued role as the leading logistics hub in South-east Asia". Maersk Logis­ tics' Mr Ho­ tine, mean­ while, said that in or­

der for Singapore to keep its first mover advantage, it must maintain its strengths in providing an attractive business envi­ ronment for companies to locate their regional offices here. "Maersk Logistics is regionaHy headquartered here because we enjoy the stability, safety and secu­ rity, and friendly government here," he added. Singapore must also make sure it continues to leverage global talent effec­ tively and ensure that it has a sufficient pool of people with the required skills and capacity to continue supporting businesses here, Mr Hotine said. In addition, Singapore must build on its strengths of security and stability. "Most of Maersk Logistics' customers are based here because Singapore offers business opportunities, security and a politically stable environment," said Mr Hotine. "Singapore needs to maintain its pro-business policies which provide cer­ tainty. They are critical in attracting com­ panies to set up their bases here and in turn drive demand. Stable costs, attrac­ tive taxation benefits, and a conducive environment in which to do business would help Singapore maintain its lead in attracting customers to set up shop here." In developing itself, Singapore needs to move up the value chain while also helping its regional neighbours to im­ prove themselves. This will help them boost volumes which in turn could feed into Singapore, benefiting the region as a whole. PSA in particular has taken the lead with investments in ports in Thailand and Vietnam, as well as India, China and Pakistan further west. Recapping the past year, PSA group CEO Eddie Teh said: "The group added a number of terminals to its global net­ work and we now operate the second largest container tenninal in Buenos Aires in Argentina. PSA also added Kol­ kata and Kandla in India to our family of tennmals, and we started operations

inTianjin and Dongguan in China." ]n the air logistics space, Changi In­ ternational Airport ranks among Asia's top five in air cargo volumes, wilh more than 4,000 flights connecting to 60 coun­ tries. It was noted as having the world's best air transport infrastructure in the 2006-2007 Global Competitiveness Re­ port. Singapore has the capabilities to offer niche solutions to meet specific handling needs of key industries. These would be, for example, cold chain management, customised procurement and postpone­ ment solutions. In terms of air logistics iufrastruc­ ture, there is the Airport Logistics Park of Singapore (ALPS) which is a free trade zone located just next to Changi Airport, catering for high-value goods that require rapid turnaround in regional distribu tion. The Changi International LogisPark is a 57-hectare logistics park located near the airport to facili tate logistics and freight forwarding activities. Meanwhile, the Air Cargo Express hub is currently being developed to increase Singapore's capabilities in handling express cargo. But there is no lack of competition on the air front eitber. Bangkok has made no secret of its ambitions to be a leading air logistics player. Likewise, Hong Kong and other southern China airports serve that role for the China market. Fedex re­ cently moved its hub from Subic in the Philippines to Guangzhou in southern China, while DHL has long had its Asian air hub in Hong Kong. Here, as in the ports business, the po­ tentia! of the giant Indochina and China markets must be balanced against the security, stability and better business en­ vironment that Singapore offers. There will be some winners and los­ ers amid the re-alignment as the global economy re-orientates itself after the global economic crisis. It will be inter­ esting to see where the chips fall. P

"The group added a number of terminals to its global

network and we now operate the second largest

container terminal in Buenos Aires in Argentina. PSA

also added Kolkata and Kandla in India to our family

of terminals, and we started operations in Tianjin

and Dongguan in China."

- PSA's Mr Teh

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UNFAZED BY FINANCIAL CRISIS

The republic could even emerge stronger as a major financial and wealth management centre in Asia TEXT _ CONRAD TAN

WITH FINANCIAL SERVICES in retreat worldwide, many foreign banks here nursing deep wounds at home, and growing international pressure on j uris­ dictions with strict banking secrecy laws, Singapore's future as a financial centre has been thrown into the spotlight. Some wonder whether the financial crisis could set back yean; of progress in its development as an important centre for all types of financial services in the region. But senior banken; and the heads of various asset management firms and insurers Pulses spoke to suggest that Singapore's position as a major financial and wealth management centre in Asia will survive the crisis well, and may even be strengthened further in some areas relative to its regional competiton;. Lito Camacho, Asia-Pacific vice­ chairman and Singapore CEO at Credit Suisse, says that the country's business­ friendly environment makes it very at­

tractive to financial institutions that plan to invest in Asia for the long tenn, not just when times are good. "Singapore is ranked very highly a.s a place to do busi­ ness, in almost any competitive ranking. It has wonderful inirastructure - wheth­ er it's telecommunications, the legal sys­ tem, or the regulatory environment," he says. Just as importantly, "it has a very pre­ dictable environment", he adds. "That's very important for any business - you need to know what rules will apply to your business as you make long-tenn in­ vestment decisions. Singapore rates very well as far as that's concerned." In fact, "Singapore possesses the po­ tential to overtake other financial centres in the region", says Susan Soh, manag­ ing director at Schroden; Singapore, the Asia-Pacific headquarten; of global asset management firm Schroders. "While the opportunities in the Sin­ gapore market are unlikely to match

those of many of the larger economies within the region, the advantages of us­ ing this country as our management and operational hub for expansion into Asia cannot be underestimated," she adds. Over the yean;, the government has been aggressively promoting Singapore as a centre for both asset and wealth management. Paul Leo, head of investment and advisory services for private banking at United Overseas Bank, points to vari­ ous official policies that have acceler­ ated Singapore's development in these areas. "The move to tighten banking se­ crecy laws in 2000, the abolishment of estate tax from February 2008 and the new trust laws have helped to strengthen the growth of private banking here," he says. After more than three decades of development, the financial services sec­ tor now contributes 13 per cent of Sin­ gapore's annual gross domestic product,

JULY 2009 _ PULSES _ 17

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compared with just 5 per cent in the 1970s. There are now over 600 financial institutions in Singapore, including many of the world's biggest and best-known names, says the Monetary Authority of Singapore (MAS). But it was only relatively recently - after a period of stagnation from the 1997-98 Asian financial crisis through to the Sars pandemic in 2003 - that Singapore really came into its own as a regional financial powerhouse, says Ray Ferguson, regional chief executive for South-east Asia at Standard Chartered Bank. "The government has played a pivotal role in raising its status, through free trade agreements (FTAs) and its ef­ forts to promote Singapore as a financial hub." Since 2001, Singapore has signed 15 FTAs with 23 trading partners in

various regions from the Americas to the Middle East, which give it a diversi­ fied trade network to build on, he points out. "These initiatives are pro-business and are intended to liberaHse invest­ ment. They have enabled Singapore to gain a comparative advantage against its peers." Meanwhile, the decades-old com­ petition between Singapore and Hong Kong to attract businesses and talent has continued unabated throughout the cri­ sis. Even before the crisis broke, some commentators wondered whether both would eventually be eclipsed by China's meteoric growth and the rise of Shang­ hai as a new rival in Asia. "The main difference between Sin­ gapore and Hong Kong is that the hin­ terlands of the two markets are funda­ mentally different," says Kit Wei Zheng, a Citigroup economist based here. "Historically, Singapore has served as a

banking hub for the Asean region, while Hong Kong has been a fund-raising cen­ tre, most notably via the equity market. Whereas Hong Kong can rely on a re­ silient China as an anchor of growth, a large part of the fortunes of Singapore's financial centre is still tied to that of the immediate neighbourhood." Monica Wong, the Hong Kong-based chief executive of HSBC's private bank­ ing business in Asia, says that Singapore and Hong Kong each serve a range of dif­ ferent needs fOr wealth managers operat­ ing in the region. "Singapore's proximity to the rest of South-east Asia makes it a key hub for us to serve clients in these countries. Hong Kong remains an ex­ tremely important gateway to China." But "the high degree of confidenti­ ality that Singapore proVides, the trust and faith in the transparency of Singa­ pore's jurisdiction, a highly educated workforce, sound economic fundamen­

liThe high degree of confidentiality that Singapore

provides, the trust and faith in the transparency of

Singapore's jurisdiction, a highly educated workforce,

sound economic fundamentals and rigorous

supervision of the financial sector are all factors that

have served Singapore well and will continue to work

to Singapore's advantage."

- HSBC's Ms Wong

l TOP tals and rigorous supervision of the fi­ nancial sector are all factors that have served Singapore well and will continue to work to Singapore's advantage", she adds. To Kua Ka Hin, chief executive for Singapore and South-east Asia at Mu­ nich Re, "it makes little sense for Sin­ gapore or Hong Kong to worry about Shanghai possibly becoming tbe main financial centre in the region". "Shang­ hai's bid to develop into a financial centre will lead to more competition on some specific types of services. But the huge differences between the social and economic fundamentals of tbe cities will leave plenty of room for all three to prosper. More importantly, Singapore enjoys many unique advantages, includ­ ing its international connectivity, politi­ cal stability and rule of law." Stanchart's Mr Ferguson says that "with large economies such as China, India and Indonesia growing strongly, Asia's financial market will continue to grow and Singapore, with its multi-racial society, occupies an advantageous posi­ tion straddling these developing econo­ mies and will be able to capture business opportunities on all sides". "The government is also promoting Singapore in a more targeted fashion as a hub for a range of 'high-trust' services, such as high-end arbitration work in le­ gal services, wealth management and Islamic finance in financial services, as well as logistics, maritime and aviation activities" - all of which will strengthen the country's position as a financial cen­ tre, he adds. Many of its past efforts have borne fruit. Today, Singapore is the fifth-largest foreign exchange trading centre world­ wide, the second-largest trading centre in Asia for over-the-counter derivatives and a leading centre for trading in com· modity derivatives, the MAS says. It

is also the world's third-largest oil refin­ ing centre, top bunker port and the Asia· Pacific centre for the pricing and trading of oil and rubber. In addition, it has a rich mix of direct insurers, professional reinsurers and captive insurers. Over the last few years, new areas of growth bave emerged, inclUding com­ modities trading, structured finance and Islamic finance - reflecting an increasing sophistication among investors and com­ panies in Asia, and demand for a wider range of financial .services, the MAS says. Christine Ong, head of wealth man­ agement at UBS in Singapore, says that the growing sophistication among Asian investors also means that more money is being managed from within Singapore. "Many Asians no longer feel1he need to place the majority of their funds in the traditional offshore locations, given that Singapore has matured as an interna­ tional financial centre and continues to improve and expand the level and scope of its wealth management services." Nicholas Tan, head of global wealth management at OCBC Bank, says that "in the broad context of international finance such as foreign exchange, Singa­ pore's relative ranking against Tokyo and Hong Kong is largely unchanged" as a result of the crisis. But in wealth management, the regu­ latory responses to the outcry by inves­ tors who suffered losses on structured products linked to Lehman Brothers when the bank collapsed may give Sin· gapore a slight edge over Hong Kong. "The changes enacted by the Hong Kong Monetary Authority are far more strin­ gent compared to those that are being considered by the MAS," Mr Tan says. "From a compliance standpoint, doing business in Singapore will be easier than in Hong Kong." The biggest challenge ahead for Sin­ gapore's future development as a finan­ cial centre will be in making sure it has

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enough people with the right skills to work not just in SinEapore, but the rest of the region too, he says. "This means that other skills that are required to op­ erate in a foreign country become criti­ cal." Financial institutions based here that do business elsewhere in the region of­ ten send Singaporeans to oversee their operations in other Asian countries, be says. "Knowledge of foreign cultures and languages is crucial as this deter­ mines how successful the transfer of financial teclmology will be. Managing across a wide geographical span also requires these Singaporean managers to have a good sense of command and con­ trol. These are important skills needed to ensure Singapore's position as a regional financial centre." Dan Sonlag, global wealth manage­ ment head at Merrill Lynch - now part of Bank of America - makes a similar point when he says that the financial cri­ sis has actually sharpened the bank's fo­ cus on established financial centres such as Singapor e. "I think it's because we serve the region, not just Singapore, out of Singa­ pore," he says. "Given the wealth cre­ ation that we expect in the region in the next five to 10 years, it's more sensible for me to add people to a place that I'm already in and good at; it's harder to open in a new area and build. It's much easier for me to add here and serve the broad area." Daniel Truchi, global CEO of SG Pri­ vate Banking, says that the longer-term trends that have made Singapore what it is today are still intact. "I'm based in Europe, and whenever clients in Europe ask me where they should diversify their wealth, the answer's very obvious." While any financial crisis will affect asset values, "that doesn'l hann the un­ derlying trend" of Singapore's growth, he says. "The crisis - I don't think that changes anything." P

"Knowledge of foreign cultures and languages is crucial as this determines how successful the transfer of financial technology will be. Managing across a wide geographical span also requires Singaporean managers to have a good sense of command and control. These are

important skills needed to ensure Singapore's position as a

regional financial centre."

- OCBC's Mr Tan

JULY 2009 _ PULSES _ 19

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SINGAPORE:

MONACO OF THE EAST?

What are the challenges that the city state faces in drawing the ultra-rich like Wall Street icon Jim Rogers to settle here? TEXT _ ARTHUR SIM

AS MUCH AS Jim Rogers loves living in Singapore vrith his family, he does have a couple of gripes. For starters, he cannot get credit from Singapore banks. His inter­ national cheques also take five weeks to clear here. These "anachronisms", as Mr Rogers calls them, are clearly more than a little exasperating and underscore the question of how far Singapore v.r:ill go to attract the wealthy. Mr Rogers, a legendary Wall Street icon, investor and co-founder (with George Soras) of the successful Quantum Fund, set off from NewYork in search of a new home inAsia about five years ago. Any city would have been glad to have him. Not only as it would have been an implicit endorsement of the city's global status, but also because Mr Rogers, 66, represents the strata of society known as the ultra-high net worth individu­ als (ultra-HNWIs) who bring with them not insignificant multiplier effects to the economy. They are the ones who keep the playgrounds of the rich and famous like Monaco, the Bahamas, Gstaad, bathed in a sunshine of gold and diamonds from Cartier and TIffany's. Forsaking Hong Kong, Shanghai and Beijing (and many other cities besides), Mr Rogers decided to settle in Singapore because it has evetything. It is clean, has good schools, great healthcare facilities and, of course, a favourable tax regime. So it was a bit of a rude awakening when he was told he could not get the credit limit on his Singapore credit card increased. What kind of global city does not give a bona fide ultra-HNVv'I carte blanche, especially to a man like Mr Rog­ ers, for whom moving large sums of mon­ ey on a daily basis is second nature? To hear one of the most astute inves­ tors in the world talk abou t credit card problems is a little surreal. "I have a 10­ eal credit card, but it's severely restricted on the amount you can charge on it - you can get a credit card vrith a higher limit 20 _ PULSES _ JULY 2009

but I have to put up the money upfront. If I have to put up 'X' dollars where I can charge 'X' dollars, that's not a credit card," he quips. "They say you can earn a billion dol­ lars outside Singapore but it doesn't count for your Singapore credit card. That's ab­ surd if you want to attract foreigners. So what I do is to have foreign credit cards where I don't have these restrictions," he adds. But the pros must outweigb the cons because Mr Rogers is still living here in his rented villa near the Botanic Gardens. In­ deed, throughout this interview, he reiter­ ates that he and his family are very happy here. But while this has much to do with being able to have his children schooled in Mandarin, a prerequisite for him, it may not be so important to most ultra-HNVv'Is. So v.r:ill Singapore do what it has to do to become a Monaco of the East? One challenge Singapore will certainly have to face is how it will address the mat­ ter of being on the Organisation for Eco­ nomic Cooperation and Development's (OECD) "grey list" of tax havens. The 38 jurisdictions on this list have committed to exchange iufonnation according to OEeD

standards but have not fully implemented them. For Mr Rogers, whether Singapore chooses to fully implement the OECD standards or not does not really matter. "I pay and declare all my income worldwide so it has no effect on me," be says. VVhile he believes that some people may be im­ pacted, "every country in the world has started complying so I don't think there is a comparative advantage or disadvantage anYIJlOre". More broadly, however, he says: "Some country, if they have any brains, is going to recognise that there is a desire and demand for bank secrecy and is going to meet that demand; so I suspect some country in the next few years is going to say, we don't care, and that country or ju­ risdiction will undoubtedly attract huge amounts of money because it will have a strong comparative advantage." Akbar Shah, managing director, region head (Singapore, Malaysia and Brunei), and head of mega wealth, Asia-Pacific, at Citj Private Bank, also doubts that there will be any serious faVout from the OECD's demands. "The impact on Singapore is likely to

r-op be minimal. Singapore's status is no differ­ ent from that of other major financial cen­ tres such as Hong Kong, Switzerland and Luxembourg, which the OECD has simi­ larly recognised as jurisdictions that helVe committed to implementing the OECD standard for infonnation exchange, but have yet to do so," he says. "The Singapore government has taken a pragmatic and well-considered approach on this matter. While it has stated that it is keen to cooperate with the OECD on taxation matters to ensure that it is re­ moved from the so-called 'grey list', it will continue to take into account the fact that the country's strict banking secrecy laws are in place to saieguard the confidential­ ity of banking clients - this is one of the key principles of a good wealth manage­ ment hub." And the need for private banking is growing. Citi Private Bank's top .five mar­ kets in the Asia Paci.fic region are Singa­ pore, Hong Kong, Indonesia, the Philip­ pines and Taiwan, and these markets have all experienced substantial double-digit percentage growth in terms of client num­ bers and assets under management in the last 10 years. Fong Wai Mun, associate professor, department of finance, at the National University of Singapore, notes that Singa­ pore has gained momentum as a place for offshore fund management houses too. "The tax regime encourages that on three fronts. First, assets invested by Singapore­ based funds are exempt from Singapore tax in respect of 'specified income from designated investments', which practical­ ly includes returns from most asset types - the exception being real estate situated in Singapore. "Second, Singapore has an extensive network of tax treaties with nearly 60 countries, while many traditional tax ha­ vens have none.1hird, income earned by 'qualified' fund managers based in Singa­ pore is subject to a concessionary tax rate of 10 per cent. As Singapore's corporate tax rate may fall even furtlJer in the fu­ ture, there is scope for a further decline in this concessionary tax rate." Olivier Denis, head of private bank, OCBC Bank, adds: "Many clients in Sin­ gapore and the region prefer a Singapore trust because Singapore is an internation­ ally recognised financial centre "'lith a ro­ bust customer acceptance framework and strong privacy rules." As a result, Mr Denis says, this has led to an influx of wealth planning out­

TORY J

"In my view, Switzerland is over the top. Don't get me wrong, Switzerland is not going to roll off the face of the earth tomorrow ... but now other places, especially Singapore, are taking their market share away and that will continue." - Mr Jim Rogers (above, with his family) fits including global insurance provid­ ers and trust companies setting up shop here. "Typically, these wealth planning outfits are anned v..ith a broader range of products and services that cater to HN­ Wls which were previously not as readily

available. The market has definitely be­ come more mature and developed com­ pared to a few years ago," he says. It seems that Singapore can ben­ efit even as things stand today. "Given the heightened uncertainty in financial JULY 2009 _ PULSES _ 21

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markets, individuals and investors who have concerns over the safety of their funds may be looking to move them to countries with greater financial stability and stronger regulatory supervision. We believe Singapore would benefit as a re­ sult, especially its local banks," adds Mr Denis. Indeed, there appears to be a growing cli<;aHection with traditional ultra-HNWI destinations. "In my view, Switzerland is over the top," says Mr Rogers. "Don't get me wrong, Switzerland is not going to roll off the face of the earth tomorrow but it is now very expensive, not very competent, a bit corroded, and a bit arrogant because they think they are the only place (for ultra-HNWls) - and they were the only place for several decades - but now other places, especially Singapore, are talting their market share away and that will continue." There are other ways to make Singa­ pore more attractive to foreigners, and the government has picked up on this. Under­ standing that foreigners like to invest in real estate, for instance, the government has made policy concessions. Sen tosa Cove was originally conceived along the lines of waterfront resorts in the French Riviera, Caribbean and the Medi­ terranean. When it was launched, there were many trade shows in the Middle East, London, Dubai and Asia including cities such as Guangzhou, Hong Kong, Bangkok and Kuala Lumpur to market the development. An important aspect of its appeal is that Sentosa Cove is the only district in Singapore where foreigners are allowed to buy landed property. Jason Yeo, general manager of Sentosa Cove Resort Manage­ ment, says; "The strategic purpose of Sen­ tosa Cove was to attract and anchor an international mix of influential, respected and high net worth individuals to set up home in Singapore for themselves and their families." The success of Sentosa Cove is re­ flected in its mix of homeowners. It has a live-in population of about 1,700 and 60 per cent of the homes are owned by foreigners. But as successful as Sentosa Cove is, Mr Yeo says there are no plans to develop any other residential communities on the island. And while there has been talk of de­ veloping the Southern Islands in the same

22 _ PULSES _ JULY 2009

way, he says there are no "concrete plans" as yet. If owning the best a counby has to of­ fer is so important to foreigners, should another Sentosa Cove be made available to them? Why not give foreigners equal access to landed properties anywhere in Singapore? Property tends to be a big part of most ultra-HNWIs' investment portfolios, mak­ ing up about 30 per cent, and the attrac­ tive products here in recent years would

certainly have been a lure for them. Donald Han, managing director of Cushman and Wakefield, recalls: "The diHerence between previous property upturns, say, in 1996 and more recently in 2007 and 2008, is that in the previous peak, there were only a handful of luxury high-end projects in Singapore. Back in the late 1990s, there were The Claymore, Four Seasons Park and Ardmore Park. The property market then was a smaller and less exciting place for intemational inves­

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""ooked at it thoroughly and the only cities with the same tax structure (as Singapore) were Hong Kong and maybe Dubai, and England '" It was a choice between Hong Kong and Singapore. I wanted to start playing polo and Singapore has a polo club." - Mr Satinder Garcha

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tors and high net worth investors who were attracted to global cities like London, Paris and New York." TIlls changed when developers rea­ lised there was a huge appetite for luxury offerings and developments like St Regis Residences, Ritz Carlton Residences, The Marque at Paterson, Orchard Residences and Hamilton at Scotts started rising ev­ erywhere. Mr Han believes there could now be over two dozen ultra high-end luxury residential developments here. "In fact, the term 'ultra luxury developments' was coined to distinguish the 'super luxu­ ry' from the mere 'luxury' offerings," he adds. In 2007, he estimates, six out of 10 luxury apartments were sold to foreign­ ers. At the height of the recent property boom, a unit at Orchard Residences also had the distinction of transacting at the highest price ever - $5,500 per sq ft. But as exciting as the ultra-luxury property market is, what really got peo­ ple around the world talking was the go­ ahead to build two casinos and integrated resorts. "Suddenly, people began asking why tbe casino operators were prepared to pump in $5 billion each here." Together with the casinos, other at­ tention-grabbing news like winning the opportunity to host the Youth Olympic Games and Fonnula One, helped to keep the "buzz" going until the credit crunch de-railed this trajectory. Now with so much wealth destruction around the world and sobriety replacing the high living that characterises the life­ styles of the ultra-HNWI, much that has been done to remake Singapore in the last few years may have become undone. Jonathan Galaviz, a partner at Global­ ysis, a leisure sector strategy consultancy, believes Singapore may have to ramp up its efforts again. "Singapore is going to have to re­ invent itself such that public policy­ making on issues related to tourism is approached in a liberal and creative manner. Singapore to this day is seen by many potential tourists as a boring, squeaky clean city with not much to do other than have business meetings and

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visit the Night Safari zoo," he says. But Mr Galaviz also cautions against trying to model Singapore on cliches. "Mo­ naco does attract a good number of global celebrities and wealthy individuals, but it surely does not have the best example of a dynamic towism sector. In fact, the tour­ ism profile of super-luxury and famous individuals associated with Monaco is just as much an exercise in good public rela­ tions on the part of Monaco authorities," he adds. It is certainly true that Mr Rogers was not attracted by Singapore's glitz and glamour. "The integrated resorts had no effect on my decision to move here," he says. This is also true for the debonair Satinder Garcha, who moved here long before the casinos were even conceived. In many ways, the 37-year-old Garcha ­ who made his fortune when he sold his US-based tech company at the height of the tech boom and then dedicated his life to playing polo - is the face of ultra-HN­ WIs today. Mr Garcha (originally an Indian na­ tional with a US green card) decided to move to Singapore in 2001.At the time, it was quite common to think of Singapore as heing boring and sterile but that didn't stop him from moving here after consider­ ing other countries. "Not very many cities fit my criteria, to be honest. I looked at it thoroughly and the only cities with the same tax structure were Hong Kong and maybe Dubai, and England. England didn't interest me be­ cause I had already lived in the US. It was a choice between Hong Kong and Singa­ pore," reveals Mr Garcha. And the cllncher? "] wanted to start playing polo and Singapore has a polo club. There aren't any in Hong Kong. Secondly, coming from the US which is a big vast place, Singapore is still open and green while Hong Kong is too vertical." For Mr Garcha, playing polo was a way of going back to his roots too. "My father captained the India team for many years. ] always had the passion for it but never had the chance. Only when I got to Singapore

did] get the chance to do it again." Mr Garcha also wanted his children to be closer to their Asian roots and came to Singapore to start his family. "When we moved here we had no children. The plan was to have children. And if you have a family, you want to live in a place which is conducive to bringing up your family," he says. The familiar attributes - good schools, healthcare, security, con.nectivity and good govermllent - also apply, as does Mr Garcha's position on the tax regime here. "Underlining all of this is that Singapore has a very favourable tax environment." But Mr Garcha insists that it is the "whole package" that foreigners !il{e. "As we speak, there are at least three people I know in my circle of friends who are making the same move to S~apore from the US and Europe. And the reason is the same. FmanciaUy it makes a lot of sense if you are not a US citizen. The life­ style is great. There is safety, security, edu­ cation, connectivity." As part of the conditions of getting permanent residence, two of these friends have opted to invest in property wbile the third will invest in a bu siness. And Mr Garcha believes that even more people will want to move here in the future. "The way I look at it, as the world cracks down on people who may not be paying their fair share of tax in the coun­ try they live in, maybe it will be more of an incentive for higb net worth individu­ als to change their country of residence to where they are not in any violation. And today they have the flexibility to be based anywhere they choose and still run their businesses in a tax-efficient en­ vironment." And Singapore is "doing everything right", says Mr Garcha, who also believes the current turmoil in the global economy could benefit Singapore in the future. Noting that many national deficits are rising, these countries will simply have to raise income taxes, and many will be un­ happy. "A lot of those people are simply going to move. They can go to Hong Kong, Singapore, Geneva, wherever," he adds. P

JULY 2009 _ PULSES _ 23

t OP STORY J

-rHE ROAD AHEAD Some ideas for Singapore's next thrust in economic development TEXT _ TEH HOOI LING

WHILE THE FOUNDATIONS Singapore has built - its clean government, sound social security, efficient business environment and first-rate infrastructure - will likely en­ sure it has a role to play in the irreversible globalisation of the world economy, there is also a realisation that it needs to review its strategy going forward. That is why Prime Minister Lee Hsien Loong announced in May that the govern­ ment has set up an Economic Strategies Committee (ESC) to come up with new and creative ways to grow the economy for the long tenn. Mr Lee said that Singa­ pore's approach to economic development and growth "remains valid". It would re­ main open to international trade and competition, stay plugged into the global marketplace, build new capabilities and encourage self-reliance. "But we need to review our specific strategies to develop the diHerent sectors of our economy," he said. There are five broad strategies the ESC will study: ex­ ploring new growth areas; anchoring global companies here and nurturing homegrown enterprises; attracting talent; creating high­ value jobs for locals; and maximising re­ sources such as land and energy. Pulses polled some people on what ideas they have for Singapore's next eco­ nomic thrust. Gerry Ball, founder and honorary chainnan of Hong Kong Entre­ preneurs Club, said Singapore has a vital role to play in Asia's continued economic development, and is very well-placed cur­ rently with its strong governance and low tax environment. In the coming years, entrepreneurship is going to get bigger and bigger.To capture a significant piece of this growth and to stay ahead in the next 10-20 years, Singa­ pore needs a dual strategy: one, to funda­ mentally rethink its education system, and two, to design a system to attract overseas techno-entrepreneurs, he said. Instead of producing just maths and

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science majors, Singapore needs to start producing more creative thinkers who can solve problems easily, create products and services and start businesses, he said. "Alongside this educaticmaJ transforma­ tion, Singapore could attract overseas techno-entrepreneillS and substantially develop its venture capital business so that Singapore becomes the Silicon Valley of Asia (a place that is waiting to be filled)," said Mr Ball. And to put in place the capital to fund these new ventures, the government could use a model similar to how it built the mutual fund industry here in the 1990s, namely, providing seed capital to overseas venture capital managers to start busi­ nesses here by entrusting a portion of the Central Provident Fund money for them to manage. "By producing more homegrown en­ trepreneurs and creating a more signifi­ cant venture capital industry, Singapore could stay ahead of its neighbours for many yea.rs to come, and could playa part in shaping this important industry, rather than playing second fiddle to it," said Mr Ball, who at the "ripe old age" of 38 has founded or co-founded and sold three businesses in the last 15 years. He is still the majority shareholder of his fourth business - an online translation business which managed to grow in spite of the dif· ficult conditions las t year. However, dramatically changing the education system will not be easy, will take time, and there may not be the politi­ cal will to make the transfonuation, noted Mr Ball. If this is the case, Singapore needs to have a Plan B, ie, to attract techno-en­ trepreneurs from other countries to set up and raise capital here. "If Singapore can provide venture cap­ ital funding, low tax and low wage techni­ cal staff, then many of an entrepreneur's start-up problems are resolved. In today's wired world it often makes considerable

strategic sense for Western-based entre­ preneurs to have their entire operations in Asia and their sales forces as mobile satellite teams working from home in the markets in which they sell. The same well­ oiled machine that attracts multinationals to Singapore's shores could be used to at­ tract techno-entrepreneurs." Meanwhile, Jason Wee - retired top­ ranked Asian analyst with CLSA - in his recent article in Pulses, on Singapore's journey into uncharted waters, put forth a few suggestions. He believes that one of Singapore's least heralded miracles is the racial and religious harmony that has existed for the last two decades amid the turmoil expe­ rienced by other countries in this sphere. "Singapore is thus eminently qualified to foster an inter-religious and spiritual organisation that acts as a bridge to the country-level organisations in India, the Vatican, the US, etc. A successful imple­ mentation of this strategy will see Sin­ gapore become the world's pre-eminent centre for religious and spiritual pursuits, and a venue for continuing dialogue and discussions in areas of religion and spiri­ tuality," said MrWee. "This role might actually supersede its current role as a trade and financial intennediary. Best of all, this is one role that other countries like China will never be able to usurp for the foreseeable fu­ ture," he added. No doubt the ESC will be inviting feedback and suggestions from the pub­ lic. And the pros of each suggestion will be weighed against their cons before the committee finalises its review by next year. Given the fast-changing world, it would seem that such a strate­ gic rethink is neces­ sary if a country, or for that matter a company, aims to stay relevant. p

j'Alongside educational transformation, Singapore could attract ] overseas techno-entrepreneurs and substantially develop its venture capital business so that Singapore becomes the Silicon Valley of Asia."

24 _ PULSES _ JULY 2009

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- Mr Ball