BUSINESS IN SINGAPORE
Described as Asian Switzerland with a large port, Singapore is an important center for trade, financial services, wealth management and commodities trading. Its economy is dominated by multinational corporations, some of them Singaporean, others based in other countries. In the past it has relied in part on business from Malaysian and Indonesian traders and banks for economic activity not is betting on prosperity on investments in China’s growth. The Singapore central bank has traditionally managed monetary policy by targeting the currency rather interest rates.
The Monetary Authority of Singapore is responsible for regulating the country’s banking and investment sector. In May 2006, Singapore had about 500 local and foreign financial services companies, including 108 commercial banks and 154 insurance companies. Singapore’s stock exchange, the Singapore Exchange (SGX), has separate divisions for the trading of securities and derivatives. [Source: Library of Congress, 2006]
Jeremy Grant and Javier Blas wrote in the Financial Times, “When Sir Stamford Raffles founded Singapore in 1819, a flourishing trade hub quickly followed in commodities such as rubber, tin, gold and opium from India. The southeast Asian city-state later fell under the shadow of fast-growing Hong Kong as a financial centre. But the rapid growth of Asia's economies, coupled with the generous tax breaks it offers, means Singapore is challenging its regional rival for supremacy. [Source: Jeremy Grant and Javier Blas, Financial Times, May 22, 2012 +-+]
“Commodities traders are also attracted by what Singapore officials openly describe as a “lighter touch” regulatory regime. Yet traders warn that the city will have to balance its laisser faire approach with a need to show it is aligned with western markets in adhering to tough G20 rules enacted in the wake of the 2008 financial crisis. The US and Europe are adjusting to those rules, such as the Dodd-Frank act in the US, which clamps down on opaque “over-the-counter derivatives” trading, in part by requiring the use of clearing houses to help safeguard trades. “If Singapore doesn’t follow the [global] regulations in certain dimensions they run the risk of being branded the ‘wild east’,” says a senior trader. “I think they will maintain a stance of being trader-friendly, but they will fall in line with internationally accepted standards of regulations.” +-+
Despite its much ballyhooed competitive rating Singapore is a hard place to start up a company. Economic growth has traditionally been based on corporate culture and government planning not creativity. Many companies lack creative people. Business is often conducted on the gold course and at karaoke bars.
Singapore, like Hong Kong, is a regional financial center. One Singapore-based bank, DBS, has traditionally been Southeast Asia's largest lender. Financial institutions in Singapore are required by Monetary Authority of Singapore to have assets exceeding their liabilities by "an appropriate margin" and must meet other stringent regulations.
See Rich under Singapore Society Under People
Seah Chiang Nee wrote in The Star: “The relentless pursuit of economic success has created the perception that the Singaporean personality somehow stands apart from the rest of the region. Many years ago when I was more actively covering South-East Asia, I often heard remarks that our people comprised very shrewd businessmen who should not be trusted in any business negotiations. Those were the early days in our gingerly approach efforts to cement ties with the people around us. [Source: Seah Chiang Nee, The Star, December 8, 2012]
During official conferences, when others often began by exchanging social pleasantries and jokes, the Singaporeans – I was told – would prefer not to waste time with small talk but to instead move straight to the agenda.Often, we stood out like a sore thumb. We had a business-like, emotionless approach to making friends or making deals, while our neighbours were easy-going and joke-cracking.
Those were the early days. Today, we have come a long way towards fitting in and now, we see even Asean leaders joining in to sing songs before a summit. But I was told that most Singaporean representatives, including top scholars, often felt awkward on such merry-making, social-bonding occasions. They’d rather make a project presentation than crack a joke. As an editor, I once sat next to a Singaporean minister at an official lunch and found myself engaged in a largely one-sided conversation. He spent much time sitting in emotionless silence or simply answering questions with one-or-two-line sentences.
Singapore Named Most Business-Friendly Place for 7th Straight Year
In 2012, Singapore was named the business-friendly place in a ranking of the 185 countries of. for the seventh straight year. Malminderjit Singh wrote in The Business Times, “But the Doing Business report by the World Bank and the International Finance Corporation (IFC) noted that the improvements made to Singapore's regulatory environment have been minimal each year, and that the next few economies in the rankings have been closing the gap. Singapore improved by only one percent from last year; the score for second-placed Hong Kong, on the other hand, went up 5 percent, said Maya Choueiri, operations analyst at the World Bank and a co-author of the report.Although she acknowledged that it would be difficult for Singapore to make significant improvements, she suggested that it could explore enhancements in the area of property registration. [Source: Malminderjit Singh, The Business Times, October 26, 2012 <>]
“The Doing Business report assessed the economies in 11 areas of business regulation, among them, the ease of starting a business, getting construction permits, electricity and credit, paying taxes, enforcing contracts and employing workers. It focused particularly on regulations relevant to the life cycle of a small to medium-sized domestic business in the most populous city in each country. <>
“Karim Belayachi, the report's co-author and private- sector development specialist at the World Bank, said that the more than 2,000 regulatory reforms made in 180 out of the 185 countries since 2005 have enabled other countries to come within nipping distance of Singapore's heels. He said, however, that many of these countries still look to Singapore as a benchmark and inspiration for their own progress. Referring to this "convergence of regulatory practices", he noted, for example, that in 2005, there were only 40 countries - mostly high-income OECD economies - where one could register a business in under 20 days; today, more than 100 countries have made it possible to do so. <>
“Mr Belayachi said that even though this means Singapore cannot be complacent about being at the top, the positive thing is that people are still looking up to it as an economy that has managed to stay on top for seven years. He noted that other countries are regularly sending their representatives to Singapore to learn its system; at least six countries have done so in the last year alone.
Singapore Vies to Become Commodities Hub
Jeremy Grant and Javier Blas wrote in the Financial Times, “Already an important trading centre for oil, Singapore wants to position itself as Asia’s leading commodities hub – before Shanghai and Hong Kong get there first. “They’ve had a vision for making Singapore a commodities hub for some time and it’s recently really started to pay off,” says Jennifer Ilkiw, Singapore-based head of Asia-Pacific at IntercontinentalExchange, a US commodity exchange. [Source: Jeremy Grant and Javier Blas, Financial Times, May 22, 2012 +-+]
“Sunny Verghese, chief executive of Olam, the Singapore-listed agricultural trading house that relocated from London to the city several years ago, sees a “five to seven years” window before China-based rivals start to catch up with Singapore. Lured by the shift of global commodities demand from Asia, traders are resettling in Singapore’s central business district. But, in large part, traders say the city is also benefiting from tax and regulatory arbitrage. It is a powerful draw for companies looking for “light touch” oversight. The number of traders employed in the physical commodities sector increased last year by 17 percent to 12,000, according to the government. +-+
“Three large agricultural houses – Olam, Noble Group and Wilmar – are already listed in Singapore. Other commodities houses and natural resources companies are either moving their incorporation into the city, such as Trafigura, or locating regional hubs there – Xstrata, BHP Billiton or Anglo American. Moreover, the commodities traders that arrived more than a decade ago, including Glencore and Vitol, are trying to book as much business as they can through the city. The growth of the sector has created a cluster that is attracting even more business. Ms Ilkiw says it pays for traders to be near each other, even their rivals. +-+
“The presence of physical commodity traders has in turn drawn the world’s largest commodity derivatives exchanges to Singapore, keen to sell such contracts which are typically used by the traders to hedge their exposures. ICE and rival CME Group are competing to convince Asian customers to trade oil, coal and soft commodity derivatives offered on their platforms in London, New York and Chicago. SGX, the Singapore exchange, offers trading in coffee, rubber and metal futures but the business is still relatively modest. Industry executives said Singapore must further develop its futures and options markets, in particular by attracting market makers to encourage liquidity. They acknowledged, however, that other hubs, such as Geneva, lack local commodities exchanges. “We are seeing the Japanese move their trading desks to Singapore. Partly it is the need to be close to other traders, so they are coming here rather than anywhere,” she says, adding that the networking is crucial. “If I have a party in Hong Kong, 10 people will come. If I have one in Singapore, 250 will come.” +-+
“Industry executives estimate Singapore handles about 15 percent of the world’s physical crude oil trading, ranking fourth after Geneva, London and a combined New York and Houston. In agriculture, it sees about 20 percent of global trade, ranking second after Geneva. In metals and minerals, Singapore is battling London for the number two slot, with the Swiss hubs of Geneva, Zug, Lucerne and Lugano at the top. +-+
“A scheme called the “global traders programme”, or GTP, in place since June 2001, offers a corporate tax rate of 10 percent to traders. Companies can qualify for a 5 percent rate if they commit to meeting certain staff hiring levels, make significant use of Singapore’s banking and financial services, and other criteria. “The programme encourages global trading companies to use Singapore as their regional or global base,” International Enterprise Singapore, the government agency promoting the city, says in a brochure. Yet industry executives say the draw of the city is not just the tax breaks. If taxation was the only reason, Dubai, which offers traders a zero tax rate, should be ahead. Executives say they are lured by an English legal system, an abundance of financial and other services, and lower costs than in Switzerland, which is suffering from the strong appreciation of the Swiss franc. This combination is what Kathy Lai, assistant chief executive of IE Singapore, calls “a strong ecosystem of trade services” such as finance, insurance, arbitration, logistics, freight and manpower. +-+
On-the- Job Business School in Singapore
In addition to attracting multinational corporations and investment money Singapore is also trying to attract talented business students to boost its economy. Akihito Sugii wrote in the Asahi Shimbun, “Generous government incentives and a populace eager to earn MBAs have turned the country into a magnet that is attracting some of the world's best business schools. The government is also pouring millions of dollars into building institutions to sharpen Singapore's edge in international business. Signifying the drive to nurture homegrown talent is Singapore Management University (SMU), a state-of-the-art 4.5-hectare campus of glass-paneled buildings, which opened in 2001 at a cost of S$450 million ($340 million). Some 4,700 undergraduate and graduate students now crowd its glass-walled buildings. [Source: Akihito Sugii, Asahi Shimbun, January 31, 2007 <=>]
“The university is Singapore's third after the National University of Singapore (NUS) and Nanyang Technological University (NTU). While SMU is a private institution, the government was deeply involved in its establishment and now subsidizes half of its running costs. What puts SMU heads above the rest is its unique Master of Science in Wealth Management program. Dr. Francis Koh, 54, director of the course, explains the rationale behind the innovative program: "As Asia grows, there will be more money to be managed. But there are too few talented people (who can manage assets). So we hope to provide that know-how for this growth industry." <=>
“The Master of Science in Wealth Management course differs from a typical MBA program as top financial institutions--such as Citibank, Goldman Sachs, Merrill Lynch & Co. and Germany's Deutsche Bank--offer students valuable on-the-job training. Powerful program backers include the Government of Singapore Investment Corp. (GIC) and Temasek Holdings, the country's state-run holding company. <=>
“The cost of the program is Singapore $48,000 (3.6 million yen), an amount Koh terms "appropriate" compared to business schools in the United States that typically charge well over 5 million yen tuition for an MBA. The 55 students in the Master of Science in Wealth Management course hail from a dozen, mostly Asian, countries. Of that number, 10 were dispatched by central banks or other government-run financial organizations in China, South Korea, Thailand, Vietnam, Malaysia and Indonesia. Another 20 come from GIC, Temasek and private financial institutions and the remaining 20 or so are self-enrolled foreign nationals. The students study in the classroom and take internships at companies for a total of 10 months. The system is perfect for financial institutions keen on hiring newly-minted MBAs. <=>
“Grant Cheng, 25, of the Philippines, is studying for his MBA thanks to a scholarship from Citibank in exchange for a two-year stint with the company after he graduates. "I have no doubt the credentials and education I will earn from SMU will play a pivotal role in terms of opportunities opening up in the future," enthused Cheng. <=>
Singapore Attracts Top Foreign Business Schools
In 1998, the Singapore government announced the goal of making Singapore a "global schoolhouse" for business by attract students from around the world with a wide range of programs and becoming a center of business education and research in Asia. Akihito Sugii wrote in the Asahi Shimbun, “The response to the initiative has been great as some of the world's top schools--such as the University of Chicago's School of Business, France's INSEAD, Massachusetts Institute of Technology and the Technical University of Munich--have set up branches in Singapore. The country has not only met its ambitious goal ahead of schedule to bring in 10 top universities by 2008, it has also exceeded that number as 16 foreign universities now call the island home. [Source: Akihito Sugii, Asahi Shimbun, January 31, 2007 <=>]
“INSEAD, considered Europe's leading business school with its main campus in France, opened its Asia branch near NUS in January 2000. In its hunt for the ideal location, the school scoured 11 cities in Asia, including Tokyo and Hong Kong. But Singapore won out. It was simply too hard to pass up its cosmopolitanism, easy access and the government's generous incentives such as land at bargain prices and Singapore $10 million (750 million yen) in research subsidies. <=>
“The tropical setting has been a hit with INSEAD students as many are choosing to study in balmy Singapore during France's cold winter months. Hideki Watanabe, 33, who is enrolled at INSEAD on assignment from his employer Sony Corp., commented: "I had always wondered why Singapore, a nation with few natural resources and a small population, can be so prosperous. Now that I'm here, I can feel a dynamism that is quite different from that in Japan." <=>
“One official of Singapore's Economic Development Board (EDB) remarked: "We have about 70,000 foreign students in our country. And the rate of their contribution to our gross domestic product is 3.6 percent. We want to increase the number of foreign students to 150,000 and push the rate to 5 percent by 2015." <=>
Efficient Financial Management: One Key to Singapore’s Success as Business Center
Singapore’s rapid development was closely linked to the government's efficient financial management. Conservative fiscal and monetary policies generated high savings, which, along with high levels of foreign investment, allowed growth without the accumulation of external debt. In 1988 Singapore had foreign reserves worth about S$33 billion, which, per capita, put it ahead of Switzerland, Saudi Arabia, and Taiwan. That same year, the domestic savings rate rose to one of the highest in the world (42 percent), as gross national savings, comprising public and private savings, totaled S$20.9 billion, 19 percent higher than in 1987. By the mid-1980s, however, domestic demand had been so stunted that it became increasingly difficult to find productive areas for investment. In the recession year of 1986, for the first time, gross national savings exceeded gross capital formation. This was in spite of a 15 percent cut in the employers' contribution to the Central Provident Fund. As a result, already depressed domestic demand was depressed even further, falling by 1 percent in 1986 after a decline of 3 percent the previous year. [Source: Library of Congress, 1989 *]
Singapore's foreign reserves were, in fact, the country's domestic savings held overseas. Since the source of the domestic savings was in large measure the compulsory savings held by the Central Provident Fund, Singapore had a huge domestic liability. The fund claims, standing in 1988 at S$32 billion, almost equalled Singapore's foreign reserves. But since they were fully funded and denominated in Singapore dollars, the country was relieved of the problems of showing either a budget deficit or an external debt. *
Indeed, for many years, the government had pointed out that its foreign reserves, managed by the Government of Singapore Investment Corporation, were larger than that of wealthier, more populous countries. The reserves issue became politicized after 1987 when Lee Kuan Yew proposed a change in the country's government to an executive presidency in which the president (presumably Lee himself) would have veto power over Parliament's use of the reserves. In 1986 the government-sponsored Report of the Economic Committee admitted that "over saving" was a problem. Not until 1988, however, were some tentative steps taken to invest the surpluses directly in productive resources. This process included a one-time transfer to government revenue of S$1.5 billion from the accumulated reserves of four statutory boards. *
The country's public sector financial system was structurally complex and difficult to follow owing to different accounting practices. Funds essentially were derived from three sources: tax revenue (directly on income, property, and inheritance; indirectly as excise duties, motor vehicle taxes; stamp duties, and other taxes), nontax revenue (regulatory charges, sales of goods and services, and interest and dividends); and public sector borrowing. The statutory boards had separate budgets, although they played a major role in infrastructure creation. Government companies also were not included in public finance reporting. *
After 1975 the government consistently had substantial current as well as overall surpluses. From 1983 to 1985, total government expenditure averaged 59.8 percent of current revenue. In fact, the overall surplus exceeded even the net contributions to the Central Provident Fund. The seven major statutory boards also had consistent current surpluses. Economic theoretician and member of Parliament Augustine Tan suggested that Singapore's public spending and public savings were much too large. According to Tan, the government tended to err on the side of financial surplus, despite frequent forecasts of deficit, because the government consistently underestimated tax revenues and overestimated expenditures. These surpluses then put upward pressure on the exchange rate and eroded manufacturers' competitiveness.
Currency, Trade and Investment Regulation in Singapore
Singapore had an exceptionally open economy. Fundamentally strong, the currency reflected a sound balance of payments position, large reserves, and the authorities' conservative attitude. From 1967 until June 1973, the Singapore dollar was tied to the United States dollar, and thereafter the currency was allowed to float. [Source: Library of Congress, 1989 *]
The Monetary Authority of Singapore, the country's quasicentral bank, pursued a policy of intervention both domestically and in foreign exchange markets to maintain a strong currency. This multifaceted strategy was designed to promote Singapore's development as a financial center by attracting funds, while inducing low inflation by preventing the erosion of the large Central Provident Fund balances. Furthermore, the strong currency complemented the high wage industrial strategy, forcing long-term quality rather than short-term prices to be the basis for export competition. *
Given Singapore's dependency on imports, however, setting an exchange rate always generated controversy. The 1986 Report of the Economic Committee did not clarify official thinking. It recommended that the exchange rate should "continue to be set by market forces, but its impact on [Singapore's] export competitiveness and tourist costs should be taken into account. The [Singapore] dollar should, as far as possible, be allowed to find its own appropriate level, reflecting fundamental economic trends." *
After 1978, when the government abolished all currency exchange controls, Singaporean residents (individuals and corporations) were free to move funds, import capital, or repatriate profits without restriction. Likewise, trade regulations were minimal. Import duties applied only to a few items (automobiles, alcohol, petroleum, and tobacco), and licenses were required only for imports originating from a few Eastern bloc countries. There were no export duties. As the government played an active part in promoting exports, there was an extensive system of supports including an export insurance plan. *
The Singapore government developed a scheme to give dividend-yielding shares to all Singaporeans to boost the economy and help the poor. The government has promoted investment vigorously through a whole range of tax and investment allowances and soft loans aimed at attracting new investment or at helping existing businesses upgrade or expand. There was no capital gains tax. Special incentives existed for foreigners, including concessionary tax arrangements for some nonresidents, relief from double taxation, and permission to buy commercial and certain residential property. In 1985 extensive tax reductions were introduced to reduce business costs.
Singapore Growth into a Major Financial Center
As a result of its strategic location and well-developed infrastructure, Singapore traditionally had been the trade and financial services center for the region. In the 1970s, the government identified financial services as a key source of growth and provided incentives for its development. By the 1980s, the focus was on further diversification, upgrading, and automation of financial services. Emphasis was placed on the development of investment portfolio management, securities trading, capital market activities, foreign exchange and futures trading, and promotion of more sophisticated and specialized fee-based activities. [Source: Library of Congress, 1989 *]
Consequently, by the mid-1980s, Singapore was the third most important financial center in Asia after Tokyo and Hong Kong. The financial services sector, having sustained double digit growth over the previous decade, accounted for some 23 percent of GDP and employed approximately 9 percent of the labor force. In 1985, however, growth in the sector slowed to just 2.6 percent, and in December of that year the Stock Exchange of Singapore suffered a major crisis, which forced it to close for three days. In view of the troubled domestic economy, observers worried that Singapore's future as a financial center looked somewhat problematic. Furthermore, international financial market deregulation threatened to create an environment in which it would be more difficult for Singapore to thrive, especially given its high cost structure and somewhat heavy-handed regulatory environment. The government took steps to correct some of the problems, and by 1989 Singapore's financial service sector could again be described as "booming." *
The Singapore Foreign Exchange Market had grown remarkably since the 1985 recession. As an international financial center, the country had benefited from the worldwide increase in business as well as from the related expansion in the financially liberated Japanese market. Major currencies--the United States dollar, the Japanese yen, the West German deutsche mark, and the British pound sterling--were actively traded. Volumes in such other currencies as the Australian dollar had risen as well. Average daily turnover was US$45 billion in 1988 compared with US$12.5 billion in 1985. *
Singapore established the Asian dollar market as the Asian equivalent of the Eurodollar market in 1968 when the local branch of the United States-based Bank of America secured government approval to borrow deposits of nonresidents, mainly in foreign currencies, and use them to finance corporate activities in Asia. At the time, expanding economic development in Southeast Asia was rapidly increasing the demand for foreign investment funds, and the desirability of a regional center able to carry out the necessary middleman function was apparent. Singapore offered the ideal location. The Asian dollar market was essentially an international money and capital market for foreign currencies, and its assets grew from US$30 million in 1968 to US$273 billion in November 1988. To operate in the market, financial institutions were required to obtain approval from the Monetary Authority of Singapore and to set up separate bookkeeping entities called Asian currency units for transactions in the market. Funds were obtained mainly from external or nonresident sources--central banks, foreigners seeking a stable location such as Singapore to deposit cash, multinational corporations, and commercial banks outside Singapore. *
Singapore also expanded other international financial markets in the late 1980s. Trading in gold futures originally was undertaken in the Gold Exchange of Singapore, which was established in 1978 and reorganized in 1983. The scope of its activities was widened to include financial futures trading, and it was renamed the Singapore International Monetary Exchange (SIMEX). Starting in 1984, the financial futures market featured a mutual offset arrangement between SIMEX and the Chicago Mercantile Exchange, which allowed contracts executed on one exchange to be offset on the other without additional transactional cost for market participants. The linkage was the first of its kind in the world and greatly facilitated round-the-clock trading in futures contracts. In 1988 six forms of futures contracts were traded: international gold futures; the Eurodollar time deposit interest rate; the Nikkei Average Stock Index; and three currency exchange rates--US dollar/West German deutsche mark, US dollar/Japanese yen, and US dollar/British pound sterling. Trading volume on the SIMEX had grown steadily. *
The restructured Government Securities Market was launched in May 1987, auctioning at market rates taxable Singapore government securities ranging in maturity from three months to five years. Previously, long-term government stock was sold to a captive market of banks, insurance companies, and a few individuals and nonprofit organizations.
Singaporean Stock Market
Financial services make up more than one-tenth of Singapore's economy. Market value of publicly traded shares: $709.4 billion (31 December 2012), country comparison to the world: 21; $569.4 billion (31 December 2011); $620.5 billion (31 December 2010). Stock of narrow money: $112.6 billion (31 December 2012 est.), country comparison to the world: 33; $102.7 billion (31 December 2011 est.). Stock of broad money: $400.8 billion (31 December 2012 est.), country comparison to the world: 26; $340.9 billion (31 December 2011 est.). Stock of domestic credit: $314.4 billion (31 December 2012 est.), country comparison to the world: 35; $298.9 billion (31 December 2011 est.). [Source: CIA World Factbook]
Inaugurated in 1973, the Stock Exchange of Singapore was governed by a committee comprising four elected stockbroker members and five appointed nonbroker members. In late 1988, the 327 companies listed on the main board of the exchange were classified into six groups: industrial and commercial, finance, hotel, property, plantation (farming), and mining. The market underwent a major, prolonged reorganization following the December 1985 collapse of a Singaporean company, Pan Electric, which revealed a massive web of forward share dealings based on borrowed money. The collapse resulted in a tighter regulation of the financial futures market and the securities industry. In 1986 the Securities Industry Council was established to advise the minister for finance on all matters relating to the securities industry. [Source: Library of Congress, 1989 *]
In 1987 the government introduced tax incentives to encourage the trading of international securities in Singapore. The National Association of Securities Dealers (NASDAQ) in the United States and the Stock Exchange of Singapore established a link to facilitate the trading of NASDAQ stocks in Singapore by providing for the exchange of price and trading information on a selected list of NASDAQ stocks between the two exchanges. A move by the Singapore exchange to a new, spacious location in 1988 brought a transformation in trading methodology, including partial automation of the trading system, which until then had adhered to the traditional outcry auction system. *
By 1987 Singapore's stock market, fuelled by bullish sentiments sent indices soaring to new highs--a recovery from the December 1985 crisis. All gains, however, were wiped out by the crash of world stock markets in October 1987, a crash from which the Singapore exchange had made substantial recovery by mid-1989. *
Before Hong Kong was handed over to China in 1997 many companies that were members of the Hong Kong stock market moved their listings to the Singapore stock market. In 2011, the Singapore stock exchange made a $8.3 billion bid to buy the Australian stock exchange by the bid was blocked by the Australian government because, it said, the was is contrary to national interest. The merger would have created one of Asia's leading stock markets.
A total of 213 overseas companies are traded in Singapore in 2006, with a combined market capitalization of S$113.5 billion ($70.2 billion) or about a quarter of the value of shares traded on the city-state's exchange. Singapore Telecommunications, the country's biggest phone company, raised about S$4 billion in 1993 in the city-state's largest initial share sale, according to data compiled by Bloomberg. Singapore Power Ltd. raised A$1.4 billion ($1 billion) in an IPO of its Australian unit in Australia and Singapore in December. [Source: Netty Ismail and Linus Chua, Bloomberg , April 2, 2006]
Main stock market index: Straits Times
Entrepreneurs and the Small Enterprise Bureau of Singapore
Singapore has been accused of producing good loyal workers but not developing entrepreneurs. With a project called Technopreneurship 21, the government tried to encourage entrepreneurs by finding them tech companies to support their projects, allowing start ups to operate in their homes, decreasing taxes and offering other incentives. Entrepreneurs however claimed that they faced many obstacles, including regulations and piles of applications forms.
The Singaporean government has said that it wants to help launch new companies yet starting a business is still very difficult in Singapore. There is some red tape but the biggest problem is finding staff and investors. Most workers and investors don’t want to anything to do with a start-up.
The Small Enterprise Bureau was established in 1986, following the economic slump, when the government realized the importance of developing and upgrading local small- and medium-sized enterprises. The bureau worked closely with the Economic Development Board and managed a number of assistance programs, some of which predated the bureau. Emphasis was placed on helping local firms to improve and modernize their plants and technology, product design, management skills, and marketing capabilities. Launched in 1976, the Small Industry Finance Scheme provided low-cost financing to local small and medium-sized enterprises in manufacturing and related support services. In 1985 this program was extended to the non-manufacturing sector, and in 1987 some 1,125 loans amounting to S$297 million were approved by the Economic Development Board under the plan. The Small Industry Technical Assistance Scheme, introduced in 1982, provided grants to defray part of the cost of engaging short-term consultants and increasing or establishing in-service training for employees. [Source: Library of Congress, 1989]
Problems Suffered by Small and Medium Enterprises (SMES) in Singapore
In 2013, there were reports that many of Singapore’s 6,000 small and medium enterprises (SMEs) were suffering from labor shortages. Seah Chiang Nee wrote in The Star, “According to the reports, three in 10 SMEs (defined as having S$1-S$10mil turnover) were considering moving away from Singapore or closing down because of manpower shortage. The shortage was indeed a serious obstacle to SMEs but far from being the most threatening. [Source: Seah Chiang Nee, The Star, February 16, 2013 ^^]
Other factors include the following: 1) High property rents. These contracts are generally revised after two or three years and property prices in land-short Singapore had risen by 50 percent in the last four years; 2) Cars. Singapore is also one of the most expensive places in the world to buy a car or truck. A certificate of entitlement (COE) – costing up to S$100,000 (RM250,300) that lasts only 10 years – is necessary before buying a vehicle; a motorist is charged electronically-deducted road fees during peak hours. The employer is also hit with levies for workers whom he employs, not to mention indirect taxes for supplies like Goods and Services Tax (GST). ^^
“So indirectly, the biggest woes to the SME are inflicted not by worker shortage, but by government policies and Singapore’s rising affluence that has significantly raised the cost of doing business. In 2013, the Economist Intelligence Unit reported that Singapore is now the sixth most expensive city in the world. It climbed three places from a year ago, beating Zurich into seventh place. In Asia, the Republic ranks third – next to Tokyo and Osaka. ^^
“The high cost of living – and doing business – is one of the biggest sources of worry among Singaporeans. The fact is that many SMEs, including restaurants, retailers and small contract firms, are marginal operators. In the past decade many were forced out of business for reasons other than insufficient workers. In my neighbourhood centre, nearly half the coffee shops have shut down in the past few years, forced out by high rentals and replaced by shops selling higher value products. Two were re-rented out for higher rates to a bank and a mini-mart. ^^
“Increasingly some of Singaporeans’ favourite hawker foods have become extinct, including goreng pisang (fried bananas) and rojak. A vendor has to sell a large amount of both in order to pay for current rents. The “Mom-and-Pop” provision shop has long been driven out of existence by the arrival of large supermarkets which could afford today’s business costs. Their disappearance had nothing to do with shortage of workers since most were operated by family members. The main culprits were high rents and changing tastes. ^^
“The biggest spoiler is spiralling rents. A friend of mine who operates a cake shop in the centre of Singapore has to fight frequent battles against rising rentals of his premises. In 2010, a year after Singapore’s recession, his landlord served notice that rentals were to increase by 50 percent. After negotiations, the hike was reduced to one-third. The uncertainty of rents is the biggest worry of small businessmen not any shortage of workers, he said. ^^
Real Estate in Singapore
Seah Chiang Nee wrote in The Star, In the 1970s Lee Kuan Yew “ noticed that although 87 percent of Singaporeans already owned public flats, many were still striving to buy a second property, if not here then overseas. This property craze is not easily understood by people living in countries where land is plentiful and cheap. His intention was to help citizens achieve their dream of living in one — and renting out another. Today — nearly 20 years later — the circumstances are very different. Some of the national goals have changed. The main problem: too many people, not enough affordable land. Lee’s concept of a two-property society is fast fading — the victim of a population expansion programme. Since early the 1990s, more than two million foreigners have flocked here. The post-Lee government has not only stopped talking about a second property for Singaporeans, but has, in fact, made it much harder to achieve. [Source: Seah Chiang Nee, The Star, November 27, 2010 |+|]
“In August 2010, it announced restrictions on people buying second homes as part of new measures to cool the residential property market. In a move to help first-time buyers, who often had to wait for years, it moved against the use of HDB public housing for profit. It was meant for working Singaporeans to live in, not to speculate with, the authorities said. Owners are not allowed to live in one while owning a second private residence for rentals, without residing there for five years. |+|
“Meanwhile, another housing trend is worrying Lee: More owners selling their HDB flats for quick profit and becoming tenants. It is a blow to his 100 percent home-ownership goal. Lee advised HDB flat-owners not to sell them because these were assets that would appreciate in value year after year. “I urge you not to listen to the estate agents to sell it and go and rent a flat because that’s a stupid thing to do,” he said in a constituency function. “You sell it, you may not get a rental flat for a long time. And you cannot gain from a rental flat. Please remember that.” Many youths found the advice baffling, especially those who were not convinced that property represented the best long-term investment on this tiny island. |+|
My foreign friends sometimes find this preoccupation with properties hard to understand. An American once told me he was surprised to discover the intensity. “When one of us buys a house, it’s usually for years until he is relocated to another city. Singaporeans seem to be doing it all the time.” He wasn’t too far off. In recent months whenever a group of people gathered, chances were the subject was real estate. And many — from housewives to young professionals — consider themselves a bit of an expert. “The danger comes when people risk their life savings front up,” said a housing agent. That was what MM Lee meant when he said “Don’t sell your HDB flat”. |+|
“Industry sources said while some owners were forced to sell because of financial hardship, others were actually treating their public flats as an investment tool. Convinced that properties in Singapore are over-priced, they cash out to live in rented flats, putting some stress to Lee’s home-ownership society. “They think they can buy it back a lot cheaper, and are flirting with trouble,” one developer said. “While MM Lee is advising us not to sell, I still cannot afford to buy one,” said Willie. |+|
See Separate Article HOMES IN SINGAPORE Under People
Government Effort to Reign in Singapore’s Property Market
In January 2013, Seah Chiang Nee wrote in The Star: “The government unveiled one of the strongest property cooling packages last week that made speculation on real estate here a much less attractive proposition for Malaysians, Chinese mainlanders and Indonesians. Despite its limited land, Singapore has long had one of the most open policies for foreign buyers here. This has caused prices to spiral and cut into its voter popularity in recent years. Last week, it considered it time to act to stem the rising bitterness of local youths who felt pushed out of the market. [Source: Seah Chiang Nee, The Star, January 26, 2013 /~\]
“Recently, a friend read with incredulity that a S$1.5mil (US$1 million) private condo in Singapore was described as medium-cost. “How on earth can a graduate start-up hope to afford one?” he asked. My answer was: “The majority can’t, even with today’s low-interest regime – without the help of his parents. The market has moved out if their ambition.” A neighbour recently told friends how he had to finance part of his daughter’s new two-bedroom apartment, which cost about S$700,000. This was actually a humble suburban home. Most others being slightly larger cost quite a bit more. He said he had to fork out S$300,000 without which his graduate daughter would not have been able to afford it. /~\
“Then there was a huge public growl when news came that a new executive penthouse, which was supposed to be public housing for the middle class, was sold for S$2.05mil. It sounded grand, a 4,349sq ft ‘presidential penthouse’ for another young person, but when the truth emerged, the story took another turn. The luxurious flat was mainly paid for by his businessman-father. “My son can’t afford it, he’s only a salaried employee,” he later told the press. So how much of Singapore’s real estate wealth is real, and how much of it is myth – generated by loans, gifts or expectations – a price to be paid for in future. /~\
“Adding to the anger caused by rising prices is that more properties are being bought by foreigners and permanent residents (PRs) who arrive with bundles of money. The local disgruntlement has worsened in recent years as the doors opened wider, allowing rich foreigners to move in and buy up valuable real estate in land-squeezed Singapore, pushing up prices. /~\
“The inability of its young men to own property, private and public, without some parental help has inflicted increasing loss of votes for the ruling party. To defuse some of the local anger, the government last week announced measures to cool the housing market. Locals who buy the second or more properties are affected. However, the biggest blow will be felt by foreigners and PRs, who will now have to pay an additional buyer’s stamp duty (ABSD) of 15 percent of the purchase price, instead of 10 percent. /~\
“This is a major blow to foreign speculators who had been earning substantially for years by parking their excess money on Singapore properties and watching their values rise. Profits were almost guaranteed with the help of low interest rates. It is now a lot harder to do so. There are other ownership restrictions for PRs, who must now sell their flats within six months of buying private property. /~\
“Big developers are dangling big discounts to match the increased stamp duty up to 15 percent, effectively countering the government move. Within days, new condos of the 630-unit Q-bay Residences have seen prices cut from S$1050 per sq ft to $985 per sq ft. Analysts predict sales of new housing units will drop by up to 50 percent with prices falling as much as 7 percent. OSK Research wrote: “The latest measures are the most draconian to date and should effectively snuff out a large chunk of investment demand.“Foreign buyers will be deterred by the stamp duty increase,” it said. There are also warnings that danger lies ahead if prices dropped by more than 15 percent. One commentator said the small-time investors and first-time home buyers, including foreigners, could end up losing substantially, or even declare bankruptcy, if they had borrowed to buy at recent peaks.” /~\
CapitaLand is one of Asia’s largest real estate companies. Headquartered and listed in Singapore, the company's businesses in real estate and real estate fund management are focused on its core markets of Singapore and China. The company's diversified real estate portfolio primarily includes homes, offices, shopping malls, serviced residences and mixed developments. The company also has one of the largest real estate fund management businesses with assets located in Asia. CapitaLand leverages its significant asset base, real estate domain knowledge, product design and development capabilities, active capital management strategies and extensive market network to develop real estate products and services in its markets. [Source: CapitaLand website <<<]
CapitaLand was formed on November 2000, as a result of a merger of DBS Land and Pidemco Land. The geographic focus of the business is Singapore and the mainland of China, but the company is also engaged in Australia, Europe and the countries of the Gulf Cooperation Council. CapitaLand Limited is the parent company of The Ascott Limited. CapitaLand Limited's listed subsidiaries and associates include four real estate investment trusts (REITs), CapitaMall Trust, CapitaCommercial Trust, Ascott Residence Trust and CapitaRetail China Trust, as well as Australian property group Australand. [Source: Wikipedia +]
The listed entities of the CapitaLand Group include: 1) Australand - One of Australia's major diversified property groups; 2) CapitaMalls Asia - Asia's leading integrated shopping mall owner, developer and manager; 3) Ascott Residence Trust - World's first pan-Asian serviced residence real estate investment trust (REIT); 4) CapitaCommercial Trust - Singapore's first listed commercial REIT; 5) CapitaMall Trust - Singapore's first listed REIT; 7) CapitaMalls Malaysia Trust - Largest "pure-play" shopping mall REIT in Malaysia; 8) CapitaRetail China Trust - Singapore's first "pure-play" China retail REIT; 9) Quill Capita Trust - CapitaLand's first overseas REIT. <<<
Types of assets: 1) Homes: CapitaLand Residential Singapore, CapitaLand China, CapitaValue Homes, Australand (listed, 59.3 percent ownership); 2) Offices: CapitaLand Commercial; 3) Shopping Malls: CapitaMalls Asia; 4) Serviced Residences: The Ascott Limited; 5) REITs & Funds: CapitaMall Trust (listed, 29.7 percent ownership), CapitaCommercial Trust (listed, 31.3 percent ownership), Ascott Residence Trust (listed, 47.0 percent ownership), CapitaRetail China Trust (listed, 26.6 percent ownership), CapitaRetail Malaysia Trust, Quill Capita Trust (listed, 9.4 percent ownership) +
Key people: Ng Kee Choe (Chairman) , Lim Ming Yan (President & Group CEO): Revenue S$3.019 billion (2011); Operating income: S$2.08 billion (2011) , Net income: S$1.21 billion (2011); AUM: S$60.3 billion (2011). +
Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, Lonely Planet Guides, Library of Congress, Singapore Tourism Board, Compton’s Encyclopedia, The Guardian, National Geographic, Smithsonian magazine, The New Yorker, Time, Newsweek, Reuters, AP, AFP, Wall Street Journal, The Atlantic Monthly, The Economist, Foreign Policy, Wikipedia, BBC, CNN, and various books, websites and other publications.
© 2008 Jeffrey Hays
Last updated June 2015