Yes, it is time the government stopped competing with the
private sector:
Singapore Urged To Loosen Econ Grip
By Saeed Azhar
A Dow Jones Newswires Column
SINGAPORE (Dow Jones)--An inevitable second term for Singapore
Prime Minister Lee Hsien Loong may provide a test of whether the
son of modern Singapore's founding father, Lee Kuan Yew, can loosen
the state's grip on the island's economy.
Singapore's brand of state-led capitalism has had its notable
successes. Within the space of a generation average incomes have
risen to first world levels and some majority state-owned
companies, such as Singapore Airlines Ltd. and Singapore
Telecommunications Ltd., have become leaders in global and regional
markets.
But as the S$193-billion economy matures, some analysts say that
the reliance on state-owned companies and a government-directed
strategy of attracting foreign multinationals, rather then
homegrown entrepreneurship, will hamper Singapore's longer-term
development.
"For Prime Minister Lee, his second term will need to reconcile
state economic control with increasing expectations within the
international business community of deregulation," said Garry
Rodan, director of the Asia Research Centre at the Murdoch
University in Australia.
Analysts say the problem with encouraging state-owned companies is
it crowds out the private sector, which in other economies is the
source of innovation and creativity. It also means there isn't as
much diversity as there is in other economies where
government-owned firms either don't exist or play a more minor
role.
"This is not a great situation for the future - risk management for
a small highly vulnerable economy requires having diversity - in
the types of businesses, in the types of products and services
produced, in the kind of export markets one relies," said Manu
Bhasakaran, chief executive officer of consulting group and U.S.
economic think tank, Centennial Asia Advisors.
"Not having sufficient diversity in the corporate sector is
therefore a risk," he said.
A U.S. Embassy report in the late 1990s estimated that
government-linked companies controlled 60% of the city-state's
economy, though Singapore disputed this estimate, saying the real
figure was 13%.
Testing Challenge
Prime Minister Lee emphasized in his budget speech last month that
the government will support entrepreneurship, help local
enterprises grow into global players and ease regulatory
restrictions so as to promote enterprise.
But Singapore's existing economic model has generated generous
rewards for the country and there are plenty of reasons why it may
not want to diminish the role of government-linked companies.
Encouraged by the economic turnaround following the 2001 recession,
Lee's budget for the fiscal year starting April 1 tapped healthy
government finances to fund S$2.6 billion of cash handouts, largely
aimed at low income Singaporeans, who bore the brunt of economic
restructuring.
This largesse, combined with a fragmented and weak opposition,
leaves little doubt the PAP, which has been in power for four
decades, will win elections that could be called for as soon as
this month or April.
Political analysts say the government's strong influence over the
economy and the domestic corporate sector gives it greater
political and social influence.
"What is at stake here is not just control of economic assets, but
also the related capacity this control affords the government for
domestic social and political influence," said Rodan. "This
capacity won't be surrendered lightly".
Song Seng Wun, an economist at CIMB-GK, said it won't be easy for
the government to reduce its ownership of the economy since the
main goal of state-owned investment company Temasek Holdings Pte
Ltd. (TEMAH.YY) is to maximize sustainable value for its
shareholders.
This will especially be the case if state-owned companies continue
to improve their profits, he said.
Temasek has majority stakes in Singapore's largest listed companies
and complete ownership of many large unlisted companies such as
ports operator PSA International.
Lee has said that Temasek aims to diversify its portfolio and
reduce its exposure to Singapore by one-third to half over the
long-term. But reducing the proportion of local assets in a growing
asset base doesn't necessarily translate into lower government
ownership of the economy.
Government Premium
Aside from profits the government earns from government-linked
companies, the firms themselves enjoy other benefits that encourage
rather than discourage continued government ownership.
An International Monetary Fund paper in 2004 found that Singapore
government-linked companies are rewarded in financial markets with
a market value premium of more than 20%.
Still, the IMF said then that this shouldn't be viewed as a reason
to create new GLCs or expand existing ones.
`If the GLC premium is largely due to the market's perception of
the benefits of being linked to the government, further
proliferation of GLCs, which will tend to stretch the resources of
the government, will only dilute these perceived benefits and,
thereby, the premium," it said.
It isn't that Singapore's private sector hasn't grown. Contract
chip manufacturer Venture Corp. (V03.SG) and water treatment
company Hyflux Ltd. (600.SG) are among successful corporate names,
but they remain relatively small.
On top of this, family owned businesses have a strong foothold in
the property and banking sectors, with Oversea-Chinese Banking
Corp. and United Overseas Bank Ltd., two of Southeast Asia's
largest bank, being notable examples.
Lee said in his budget speech that entrepreneurship increased in
2005 but remained "modest" overall.
Sani Hamid, a sovereign analyst with Standard & Poor's Ratings,
said Singapore's growth in recent years and its ability to recover
from external shocks suggest that the economy remains nimble and
that the present extent of government control hasn't been a
drag.
"Overall, the government has and will continue to allow the private
sector to take over the reigns of being the primary source of
growth - but private entrepreneurship has only been actively
promoted in recent years and will take time to become entrenched,"
the analyst said.