(CONTINUED 1):Motion on Temasek Charter and EISC'S Recommendations on Government in Business By Deputy Prime Minister and Minister for Finance Mr Lee Hsien Loong - Speaking Points for DPM'S Round-up Speech at The Parliament, 28 Aug 200229 Aug 2002
Problem especially with companies which have been spun off or set up by statutory boards, and which still do business with the parent. e.g. Ascendas with JTC. In such cases, the perception is harder to dispel, and we must make a special effort to be transparent and above board in dealings. e.g. any assets transferred must be properly priced, and if the company competes for business with the parent, then it should be through open bidding or tender.
Sometimes we will need to corporatise a government department or statutory board with a moratorium, e.g. CPG Corp, or Jurong Consultants. The moratorium helps the corporatised entity make the transition into a private sector player and, where the corporatised entity had been the sole supplier to the government, gives ministries time to adjust. I agree that moratoriums are not desirable, and should be avoided wherever possible. But a moratorium is no worse than the company remaining a government agency. To help make the transition, sometimes it cannot be helped. A cold turkey cut over may be neither practical nor wise, for ensuring the retention of expertise and continuance of service to government in the transition.
-Since the corporatisation of PWD in April 1999, CPG Corp has been awarded only about $250m worth of new government projects. In contrast, private sector consultants received 118 government projects worth $1.3b during the same period. Had PWD not been corporatised, these 118 projects would have been undertaken in-house by the government.
Leong Horn Kee says the GLCs enjoy cheap funding because of their perceived links to the government. The government does not provide any guarantees to the GLCs. The banks and the markets have to make their own assessment of the credit worthiness of the companies they lend to. The bigger and stronger companies would generally enjoy better credit ratings. However, it is not automatic that GLCs will enjoy loans at lower rates. The lenders and analysts rate the companies, and their credit ratings vary from company to company and from time to time. For example, Moody's put a negative outlook on SingTel in June 2002, fairly or unfairly. I do not know why the bankers in Leong Horn Kee's project in China preferred to lend to the GLCs and not to the non-GLC, but that the bankers were favouring GLCs is not the only possible explanation.
Inderjit Singh claims GLCs succeeded because of the huge investments government made in them and because they made use of their links to the government to get ample cheap funding. This is untrue. The GLCs were started with only seed capital. The rest was self generated over the years through the GLCs' own efforts.
Inderjit Singh cited Singa-pore Technologies as an example of a company with murky beginnings. He does not know the history of ST. ST is an excellent example of how GLCs have grown, and how we have pragmatically evolved our own solutions. We are not like the US where the defence industries are largely private sector firms. We also did not have the scale, especially at the beginning. Yet we needed to build up our defence industries, for strategic reasons to support the SAF. We did not do this by throwing money at the problem, or by using our muscles instead of our brains. MINDEF set up the defence industries as companies instead of government arsenals, so that they would be subject to market discipline and would operate efficiently. The defenceindustries did not get a free ride. They had to tender for MINDEF projects against foreign competitors, and match their prices. Over time they built up their capabilities and scale. They made profits which they reinvested in the business. They grew using internally generated funds, not cheap government funding. They diversified into non-MINDEF business, much of it abroad. Today many of them are listed, including ST Engineering and Chartered Semiconductor. Could ST companies and managers have done this, if they had not used their brains, or had been lacking in entrepreneurship? Could the private sector really have filled this role?
In some industries, the advantage of size is unfortunately a fact of life. e.g. in banking and telecom, size is critical. Larger companies have more resources, more capacity for risk, more staying power. For Singa-pore companies in these industries to be competitive, they must build up the size to enjoy the economies of scale, to build up the depth of management expertise, to attract talent to grow the company. Small companies will have a much tougher time competing against the large players. We cannot tilt the playing field in favour of small players. In fact sometimes we will need to encourage small players to merge and become bigger and stronger.
In these industries, unhappiness with GLCs really is unhappiness at having to compete against larger, stronger players. But that is the way the industries are evolving. On an international comparison, even our big players are quite small. We cannot solve this problem by shrinking the GLCs, or divesting them.
Of course this is not the case in every industry, and SMEs form an important part of the economy. In many businesses small companies enjoy a nimbleness and entrepreneurial drive which helps them to develop new products and markets, and exploit changing conditions much faster than large companies. e.g. Microsoft started up from scratch when IBM was already a giant, and swiftly overtook IBM. I thus agree with Wee Siew Kim that SMEs can act asgovernment contracts. It means fiercer competition for government business, which will make suppliers more efficient, and save taxpayers money.
Public sector agencies are already allowed to contract start-up companies with no company track record, for IT and technology projects of up to S$5m. In addition, existing procurement guidelines allow ministries to decide, based on their assessment of the potential market and the attendant risk, to lower the tender evaluation criteria in terms of the financial status of tenderers. Then SMEs can participate in larger government tenders. We will continue to make it easier for SMEs to participate in govern-ment contracts. But we should not give SMEs an explicit advantage over bigger firms in government business, or handicap large firms to give the SMEs business. Some countries do this, e.g. Germany and Japan, but the result is inefficiency and higher costs for taxpayers.
SMEs must be competitive to survive and prosper, just as GLCs and MNCs must be competitive. As Olivia Lum said, they want opportunities, not handouts. There are many successful SMEs. Examples include:
Qianhu - started in 1985 from the conversion of a pig farm into a fish farm, is now a major exporter of ornamental fish in Singapore, with customers in more than 45 countries. Turnover of $41m and net profits of $3.4m in 2001.
FoodEmpire (Coffee) - Listed on the main board of the Singapore Exchange, Food Empire manufactures and market more than 90 instant beverage products, frozen finger food and confectionery under the brands of MacCoffee, Klassno, and MacCandy amongst others. They are in Russia, Eastern Europe, Central Asia, China, Australia, US and UK.
Old Chang Kee - The Old Chang Kee franchise, owned by Singapore firm Ten & Han Trading, has outlets in 8 countries including Malaysia, India, South Africa and China. From 300 curry puffs sold daily in 1956, Ten & Han is now selling 18,000 per day just in Singapore alone. It is now looking to export the Singapore-made puffs to labour-expensive markets like the US and Britain.
Leong Horn Kee suggests that the government and Temasek publish an annual report of the GLCs for greater transparency and to foster trust of the GL Cs. Not clear why he should distrust GLCs? GLCs do not operate under a cloak of secrecy. Most of the major companies held directly by Temasek are already listed, so their annual reports are readily available. ST Engineering, which holds many of our defence industries, is listed and thus subject to market demand for transparency. As for the unlisted companies held directly by Temasek such as PSA Corp, Singapore Power and MediaCorp, there are plans to eventually privatise them. In fact, PSA Corp and Singapore Power already publish their annual reports. Accounts for the smaller Statutory Board companies are also available from the RCB. There is no need for a consolidated report by government.
Statutory Board Companies
Much of the public unhappiness has not been over the major GLCs, but the small ones, mostly the SB companies. Preventing SBs from starting companies is not practical. They may simply provide the service in-house, which is not better. Identifying out-of-bound areas is difficult as each SB's situation is different, and the circumstances themselves change with time.
However, the government will review and cull the list of SB companies regularly. We willparticularly consider the need to separate the SB companies from their stat board parent, where the parent is the regulator, while the SB companies are regulatees or are somehow related to the stat board business, thus giving perceptions that the SB companies have an unfair advantage.
MPs will be happy to know that MOF will be issuing a set of guidelines to Ministries and SBs on the factors they should take into account when thinking of setting up SB companies. SBs should only form companies that serve a strategic role integral to the mission of the SB or that do not breach theopportunities, and move them up as rapidly as they deserve. Unfortunately this is far harder to do, and when it is not done the scholars leave, and the organisations stagnate. So it is not a simple matter of giving fewer scholarships.
This speech is continued here.