Speech by Mr Teo Ming Kian, Permanent Secretary (Finance) at CPA Forum 2008 on Friday, 15 August 2008, 9.00am, Marriott Hotel Singapore15 Aug 2008
Mr Tan Boen Eng, President, Institute of Certified Public Accountants of Singapore (ICPAS)
Mr Alex Malley, President, CPA Australia
Mr Chaly Mah, President, Singapore Division, CPA Australia
Ladies and gentlemen,
1. Thank you for inviting me to join you in your forum today.
2. Amidst these interesting and challenging times, where we see financial institutions in difficulties and global financial markets in turmoil, the theme of this forum, "risk and return" is a very appropriate and relevant one.
3. No doubt, there would be great intellectual exchanges and sharing of insights and experiences on this very important topic. And in front of this august audience of professionals, I would not pretend that I could offer any advice on how to tackle the risks and thereby accrue exceptional returns from the risks. In fact, I am looking forward to picking up a tip or two on how to profit from this risky world.
4. To say that the world is becoming more risky is probably an understatement. What we are seeing in the financial market is a manifestation. This globalised world is becoming so intertwined, where previously; mistakes or indiscretions were localized and could be cauterized with minimum collateral damages. Similar problems today become amplified many folds far beyond the epicenter, at a speed that is accelerating with continuously advancing technology that we are witnessing. Greater volatility and uncertainty with greater frequency will therefore be here to stay.
5. Since the Asian financial crisis, we have been going through many ups and downs. The pulse rate in the last 10 years or so makes the preceding 30 or so appear like we were sound asleep. Last year this time, most people were getting ready for a long boom. At the Budget session in February this year, we were faulted for not being able to forecast with precision the budget surplus, contributed largely by the booming property market that picked up its pace just 6 to 8 months before. But the global financial markets had started to fall sharply in early June this year.
6. This sharp fall came with a sharp inflation, taking many by surprise after close to 15 years of low inflation.
7. The steep rise in food and energy prices contributed to the unexpected spike in global inflation. Annual CPI for the year ending June 2008 accelerated to 4%, 3.8% and 5% for the Eurozone, UK and US respectively.
8. And to make this a perfect storm, high energy prices, weakening US labour market and further deterioration in the US housing market are dampening consumer demand and weighing down on US growth prospects for the second half of this year. Rising inflation has also tempered growth expectations in other developed regions such as the Eurozone and UK, as well as emerging markets, which were previously deemed to be de-coupled from the US slowdown.
9. This is a development that gives rise to a period of potential `stagflation' going forward. If this pans out, it will be considerably challenging for investors and businesses. Policymakers and central banks around the world have their work cut out to find a way out of this quagmire.
10. How the US resolve the subprime lending and housing crisis will have a bearing on how quickly the global financial market will re-gain the necessary stability. As this crisis has been the catalyst that spun the world into a vicious cycle, it would be a major factor in unwinding this vicious cycle, even though the process had been complicated by other collateral factors.
11. Amidst these challenges are opportunities. Asia is still growing. China grew by more than 10% in the first half of this year; India more than 8% in the first quarter. Both China and India are facing record levels of high inflation. However, they have started to take steps to contain the inflationary pressures. We will have to expect that they too would be going through bumpy roads and we would be shaken as well in the process. But with a growing middle income group that had started from a low base, their fundamentals remain strong. Growth prospects into the longer term remain bright. Singapore can capitalise on the region's growth prospects.
12. Singapore is in a good position to take advantage of these opportunities. We have a strong reputation of being a trustworthy and reliable financial centre, built on political stability, strong legal system, and a sound regulatory and supervisory framework that raises disclosure standards, fosters market discipline, and provides for greater transparency.
13. Going forward, our overall economic strategy will continue to focus on diversifying and deepening our economy to take advantage of globalisation. We will sustain manufacturing by moving up the value chain, encouraging more investments in research and development (R&D), innovation and greater sophistication in our industries. We will strengthen the financial and business services sectors. They will mutually reinforce each other, fully leveraging on and integrating each of the intellectual, financial and entrepreneurial capital.
14. In particular, Singapore's professional business services sector has been growing in tandem with Singapore's economic growth. This sector has grown by 5.4% growth per annum from 1997 to 2007 and employs some 50,000 professionals.
15. Driving this growth has been our financial services sector which has grown in diversity, and expanded regionally and beyond, notwithstanding the global financial turmoil.
a. Due to its less-developed financial markets, regional economies are generally not impacted by problems in the US subprime and credit markets. In particular, Singapore banks have limited exposure and remain well capitalised.
b. More than 600 financial institutions have set up bases in Singapore. SGX is the preferred listing location for more than 200 global companies.
c. The asset management industry is managing close to S$1.2 trillion, and this is still growing, together with the number of investment professionals.
16. In the MTI release early this week, financial services and professional business services remained significant contributors to Singapore's overall GDP growth. We expect this to continue over the long-term given that the economy is moving into higher value-added and knowledge intensive activities.
17. The prospect of professional business services sector is therefore bright. We should build on this prospect to position Singapore as a key hub for professional services that has complementary areas in "high-trust" services, such as complex arbitration work in legal services, accounting and other professional business services.
18. To better prepare ourselves to serve this function, centres of excellence for professional services, academies, think tanks and other strategic institutions could be set up. They will strengthen Singapore as the location of "R&D" in professional services, such as the development of systems, methodologies, applications, analytical and market intelligence. Risks of new financial applications could be properly evaluated in a test-bed before actual application. In this way, we could serve as a "knowledge concentration" of management consultants, legal minds, accountants, human resource experts and market researchers - all eminently plugged into the world and able to offer unique Asian perspectives.
19. For one, the legal service has already made clear its plans to reinforce and take advantage of this growth. It was just announced yesterday that the legal services sector will be liberalised through the introduction of a Qualifying Foreign Law Practice scheme. It will grow a full range of competitive cutting-edge legal services, which will support the aim to establish Singapore as a premier regio nal legal centre. Liberalisation will also help to attract and retain high quality legal talent.
20. The accounting sector too could be positioned to ride on the growth of the financial and business services sectors. We see that Singapore possesses the necessary qualities and capabilities to become the accountancy hub for this region. The Accounting and Corporate Regulatory Authority (ACRA) has been considering various strategies to better position our accountancy sector to take full advantage of the growth of the Singapore economy as well as the economies in this region. This is a new role that ACRA has taken upon itself, to extend from its regulator function to that of the industry developer. Three strategic thrusts are specifically being considered.
21. The first, is to build on the skills capacity of the accountancy profession. The success of each business and industry is determined to a large extent by the quality of its people. We must ensure that our workforce remains globally relevant and competitive. We need an accounting community that is equipped with the right skills set to deal with the increasingly complex business environment. For instance, with globalisation, markets are increasingly becoming integrated and companies are continually expanding their operations in multiple jurisdictions. Hence accountants, in order to fully appreciate the intricacies of the businesses, would need to be proficient with accounting and auditing standards that are not just internationally recognized, but would be applicable to specific jurisdictions. This, I believe is an advantage that Singapore currently enjoys given that we have modeled our own accounting and auditing standards after their international counterparts.
22. We would also need to continually expand the pool of professionals by attracting new talent and retaining these talents. Singapore, consistently ranked amongst the most liveable cities in Asia, is a good base for companies to attract and recruit globally mobile talent. It is equally critical that the industry takes proactive measures to grow and retain its talent pool.
23. Complementing this is the second strategic thrust to create a suite of Centres of Excellence for the different accounting disciplines. We could leverage on the foundations we have been laying to give us a head start. The trusted image of Singapore is invaluable. ACRA is gaining recognition internationally for its audit regulation work. Our three institutions of higher learning (Nanyang Technological University, Singapore Management University and National University of Singapore) are also building up their reputation in the areas of research and training in accounting and auditing quality, corporate governance and international financial reporting.
24. It would be natural for Singapore to develop into a knowledge and education hub for the local and foreign accounting professionals. This is very much in keeping with the overall strategic thrust of building Singapore into a global school house, where various strategic tie-ups with well-known universities and institutions around the world are set up to deliver their programs here. We could also become the global examination centre for accountancy education.
25. Finally, the development of the necessary skill sets as well as the growth of business opportunities has to be supported by the right infrastructural framework. ACRA has been working hard over the years to develop our regulatory regime that enhances audit quality and reinforces the value of quality audit. ACRA is now well recognized by its peers of international regulators. It is one of the two founding Asian members of the International Forum on Independent Audit Regulators (IFIAR). The other being Japan. ACRA was also nominated by its international peers to be part of the international task force to review the IFIAR's future directions. As recognition of Singapore's regulatory regime, the US Public Company Accounting Oversight Board has approached ACRA for the US to work together with Singapore on the oversight of the audit firms that fall within both the jurisdictions.
26. Besides emphasizing the importance of quality audit, the Government is also looking at putting in place the necessary framework to provide support to local accounting firms which may be thinking of expanding overseas. A good example is the ''I-Advisory'' electronic platform from International Enterprise (IE) Singapore, which showcases experts from various fields of specialisation, that Singapore-based companies can tap on as they do business in the region. I understand that currently there are six Singapore accounting firms on the ''I-Advisory Panel''. I hope to see more local Accounting firms being included. With the right quality skills set and people, the infrastructural support, and the trusted reference of Singapore, these firms are well poised to expand and take advantage of opportunities in the region.
27. In conclusion, the Government is well prepared to put in place the enabling elements to grow this sector further, so that our accounting professionals could better leverage their skills to take advantage of the growing opportunities. But it would have to be the private sector that can actually make it happen. The professional bodies can certainly play a big role here. I think the returns will be well-worth the risk, if any. On this note, I wish everyone a very fruitful discussion at the forum.
28. Thank you.