Speech By Mrs Lim Hwee Hua, Minister Of State For Finance And Transport At The 3rd Malaysia-Singapore Business Forum, Kuala Lumpur, 29 June 2006 (Thursday)29 Jun 2006
"IMPROVING BUSINESS ENVIRONMENT, ATTRACTING INVESTMENTS, STRENGTHENING GOVERNANCE STANDARDS"
Dato Dr Ng Yen Yen, Deputy Minister of Finance,
Dato Dr Michael Yeoh, Chief Executive Officer and Director,Asian Strategy & Leadership Institute (ASLI),
Ladies and Gentlemen,
I would like to thank Michael for so kindly inviting me to speak at the 3rd Malaysia-Singapore Business Forum. It is my privilege to join you today to discuss the vast business opportunities awaiting Malaysian and Singaporean companies. I find the theme "Improving Business Environment, Attracting Investments and Strengthening Governance Standards" timely in this age of globalisation where there are emerging stronger players and where we bear witness to a changing economic order.
THE NEW GLOBAL ECONOMIC ORDER - RISE OF CHINA AND INDIA
2. The centre of gravity of the world economy is shifting towards Asia because of the rapid rise of China and India. Together China and India have a combined population accounting for more than one-third of the world's population. This sheer number of hardworking and high-saving Chinese and Indians entering the global marketplace, while fuelling a huge wave of economic growth momentum in Asia, has at the same time eroded the price competitiveness of ASEAN countries. Our companies that used to compete on price would now find it tough to compete against the lower costs offered by their Chinese and Indian counterparts.
3. But despite all these, ASEAN countries have been enjoying growth in recent years. ASEAN's overall trade performance grew significantly in 2004. Between 2003 and 2004, total exports of all the 10 ASEAN countries increased by around 20% to US$551 billion, while total imports increased by 27% to US$493 billion. Last year both Malaysia and Singapore recorded relatively healthy GDP growth rates of around 5-6%. This year, each country is on course to achieve 5-7% growth. You would agree with me that our growth is not by chance, but the fruits of strategies we each have pro-actively undertaken to re-create our own new niches in this era of globalisation.
4. Here, I would like to point out 3 key strategies ASEAN countries, in particular Malaysia and Singapore, have undertaken, namely:
(i) pursue and enhance regional economic integration;
(ii) restructure our economies to become more knowledge-based; and
(iii) strengthen our governance and regulatory standards.
INCREASING REGIONAL ECONOMIC INTEGRATION
5. First, on pursuing and enhancing regional economic integration.
6. With India rising in the west, and China in the east, ASEAN leaders now realise we have to integrate our economies even more tightly to cope with the economic challenges being posed. This is one of the reasons underpinning the need for an ASEAN Charter announced at the Summit here last year. This development marks the beginning of a new ASEAN, determined to uphold its relevance as the 2 giants grow.
7. The key driving force of deeper ASEAN integration remains the commercial logic of the market that sees in diversity potentially profitable synergies. ASEAN wants to achieve an ASEAN Economic Community by 2020. 11 priority industries have been identified for accelerated integration, and these are the new niches ASEAN seek to carve for itself in this new economic order.
8. ASEAN integration must also not only reach inwards, but outwards, too. The flip-side of 2 billion hardworking and high-saving Chinese and Indians is a burgeoning economy of 2 billion consumers who will demand our exports. China is already one of ASEAN's largest trading partners. In time to come, India will be too, as evident from the six-fold increase in trade between ASEAN and India between 1990 and 2004. ASEAN and China have long been engaging each other, having begun the negotiations on the ASEAN-China FTA to create one of the largest free trade zones in the world. Bilaterally, Singapore has recently concluded the Singapore Comprehensive Economic Cooperation Agreement with India.
9. All these integration efforts may never have happened in the first place, if not for the myriad international fora and dialogues facilitating engagement among the government and business leaders. It was at the inaugural East Asia Summit held by Malaysia here last year that Indian Prime Minister Manmohan Singh announced the vision of a Pan-Asian FTA.
10. Come September 2006, Singapore will host the IMF/WB Annual Meetings. With more than 16,000 government and business leaders converging in Singapore, we are presented with a great opportunity for all 10 ASEAN countries not only to connect to the rest of the world, but also to showcase the investment and business opportunities in ASEAN for the rest of the world to re-discover.
TOWARDS A KNOWLEDGE-BASED ECONOMY
11. However, regional economic integration can only go as far as creating a single production platform and a large income market throughout Southeast Asia. In this extremely competitive and fast-moving global marketplace, investors can pick and choose their markets according to the costs of labour, capital and productivity. The onus thus falls squarely on each ASEAN country to boldly change its way of doing things and put in place the right market reforms to revitalise its competitive edge, failing which, our companies will not be able to realise the economies of scale created through our combined integration efforts. Increasingly, our companies can no longer just focus on lowering the costs of their factor inputs, but they also have to compete on creating value.
12. This brings me to my second point on restructuring our economies to become more knowledge-based.
13. To this end, Malaysia has recently rolled out its 9th Malaysia Plan, whose broad thrust lies in moving the economy up the value chain through the enhancement of human capital. I have seen several market research reports commending the Malaysian Government's move to shift emphasis on productivity-driven and private sector-led economy to meet the rising competition. Investment in human capital is allocated a sizable 22.6% of the entire 9th Malaysia Plan's development expenditure. This re-affirms Malaysia's focus on holistic human capital development to generate productivity-driven growth.
14. Human capital is also a key resource in Singapore, especially given the lack of any other natural resources. Our consistently strong emphasis on education and training in the past has led to a marked improvement in the educational profile and the adaptiveness of our workforce today. Our skilled knowledge workers have been able to adapt themselves to retain their jobs, as well as upgrade themselves to fill the new jobs created in the higher parts of the value chain, as our economy sheds the lower-value jobs to other low-cost areas.
15. Change being the only constant, our workers cannot feel contented with just being fortunate enough to fill today's higher-value jobs. To meet tomorrow's challenges, Singapore must aim high and longer term, by becoming tomorrow's knowledge-based economy.
16. To develop the new capabilities needed for tomorrow's knowledge-based economy, Singapore Government has committed a total of S$7.5 billion over the next 5 years to sustain innovation-driven growth through economic-oriented research & development (R&D). Through our R&D investment, we aim not only to increase our national spending in R&D to 3% of GDP by 2010, putting us on par with the European Union (EU) economies, but also to double the jobs from the present 40,000 to 80,000 as well as triple the value-added (VA) from the present S$8.9 billion to S$27 billion by 2015 in 3 strategic areas, namely:
(i) biomedical sciences
(ii) environmental and water technologies; and
(iii) interactive and digital media.
All 3 areas are poised for rapid growth in Asia and their potential will be significantly enhanced through R&D.
17. But investing in R&D to support our twin engines of growth, manufacturing and services, will not be enough. We also need to raise our productivity and build a strong service culture based on quality and trust. Several initiatives have since been launched to enhance our services infrastructure, systems and workforce training. These include the development of service competency standards and assessment tools, a national quality scheme to accredit organisations that provide good service, as well as certification and training programmes.
18. Diversifying our economy, creating new growth areas in the process, will be just as crucial. To this end, we have introduced policies to grow our education services, healthcare services, and the creative industries.
19. Ultimately, whether we will achieve our vision of a knowledge-based economy boils down to our ability to grow our own talents as well as to attract and retain global talents.
20. Today, we see our schools strive not only to develop critical thinking skills and creativity in our students, but also to allow greater diversity by opening up more curriculum options. To attract and retain highly mobile creative talents, Singapore has become more cosmopolitan. Going forward, we are investing even more in our cultural capital. The Singapore Arts Museum and the revamped National Museum of Singapore will be unveiled later this year, adding to our existing cultural capital such as the Esplanade, Asian Civilisations Museum and our new National Library building. We will also kick off the inaugural Singapore Biennale in September this year, marking a milestone as the first visual arts biennale ever held in Singapore. Our city aims to be more culturally vibrant than ever.
STRENGTHENING OUR GOVERNANCE STANDARDS
21. Third, strengthening our governance and regulatory standards.
22. In today's globalised world, strong reputation is another critical factor in attracting foreign direct investment. A bad reputation is a serious handicap to competitiveness. Like global brands, countries take time to build emotional resonance with global investors; in other words, trust. But this trust can be lost overnight if we ignore corporate governance, and allow corporate shenanigans and fraud to creep into the economy.
23. Trust is an intangible but valuable competitive advantage. A recent survey revealed more than 80% of institutional investors in Singapore see corporate governance as an incentive for investment.
24. Following the spate of corporate scandals sweeping the globe, regulators around the world have put in place new governance reforms to regain the trust of investors. I understand that Malaysia too has been pro-active in promoting corporate governance, by for instance introducing mandatory training for all directors and establishing caps on the number of directorships any one person can hold.
25. In Singapore, we have adopted a disclosure-based regime where the emphasis is on the listed companies' compliance with principles instead of rules. In this regard, the Government has taken the approach of setting fundamental mandatory standards and encouraging the voluntary adoption of best practices.
26. To ensure that corporate governance regime in Singapore is up-to-date and on par with the best practices in other leading jurisdictions, we conduct regular reviews. Last year, we revised the Code of Corporate Governance, among other changes, to expand the role of the Audit Committee to ensure the integrity of the company's financial statements and adequacy of the company's internal controls. The Revised Code also empowers the Audit Committee to ensure that adequate arrangements are in place to facilitate whistle-blowing that is done in good faith. More recently, the Singapore Stock Exchange also announced changes to its listing rules to strengthen the corporate governance of listed companies in Singapore.
27. All these enhancements are not without costs to companies, which is why we constantly have to grapple with the need to balance higher compliance costs and regulatory burden with our pursuit to raise corporate governance standards and promote good regulatory practices.
28. But good corporate governance does pay. Studies by McKinsey Associates and several academics have shown that companies with good corporate governance do command a premium in their valuation. In fact, several institutional investors in emerging market companies are willing to pay as much as 30% more for shares in companies with good governance. Other studies have shown that managers of large-cap mutual funds tend to overweight companies with above-average corporate governance profiles.
29. In the international arena, a country's strong reputation as a trustworthy jurisdiction is a key competitive advantage in attracting trade and investment. We have found this to be advantageous in positioning Singapore as a premier business hub. When companies based in Singapore are associated with the values of integrity and credibility, they receive the recognition from global investors who are willing to pay a premium for their strong branding as trusted entities. This is one of the reasons why many companies, both local and foreign, choose to use trusted hubs, such as Singapore, as their home base to raise capital, to site HQ functions, and to engage in high-value R&D and marketing functions.
30. To conclude, both Malaysia and Singapore, as well as ASEAN on the whole, have got the big things right by:
(i) pursuing and enhancing regional economic integration;
(ii) restructuring our economies to become more knowledge-based; and
(iii) strengthening our governance and regulatory standards.
And if we press on, the future for ASEAN will certainly be filled with hope.
31. I wish everyone an enjoyable meal. Thank you.
(1)(i) CIMB Investment Research Report dated 3 April 2006, Issue: 70; and (ii) RHB Research Report dated 31 March 2006, Issue: 7767/9/2006
(2) Done in January 2004 by global research firm Lipper and corporate-governance ratings agency GovernanceMetrics International