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Speech by Mrs Lim Hwee Hua, Minister Of State, Ministry Of Finance & Ministry Of Transport, for The Malaysia Singapore Forum 2004 at Grand Hyatt, Singapore, Monday 13 December 2004

15 Dec 2004


Dato Dr Ng Yen Yen, Deputy Minister of Finance, Malaysia

Dato Dr Michael Yeoh, Chief Executive Officer and Director, Asian Strategy & Leadership Institute

Friends from Malaysia

Distinguished Guests, Ladies and Gentlemen,

I am extremely pleased to join you here at the Malaysia Singapore Forum 2004 this evening, and even more pleased to be able to share my thoughts on the relationship between business and government, having spent some time on the 'other side'.

Implications of Globalization on Role of Government

2 We live in a rapidly globalising world. Globalisation has accelerated information flow and resource allocation, and brought people, countries and organizations even closer together. However, globalisation has also intensified competition. Businesses no longer compete locally, or even regionally, but globally.

3. Achieving socio-economic progress is contingent on a well-functioning private sector, with businesses which are profitable and forward-looking and management teams which are capable and responsible. Therefore, how to create a business environment that is conducive to such growth and vibrancy presents a real challenge to every government.

Role of Government in Facilitating Business Growth

4. It goes without saying that government and business should work to support each other. A strong and healthy private sector benefits from an effective and progressive government. And governments are better able to fulfill their role to advance the well-being of the people when there is a successful and innovative private sector.

5. So what exactly is the role of Government? What do businesses expect Government to provide and to do? Based on my experience on both sides, allow me to narrow it down to four factors, namely:

1) a stable and secure environment;
2) lower cost of doing business;
3) less regulation, less red-tape; and finally
4) greater flexibility.

I. A Stable and Secure Environment

6. First and foremost, businesses require a stable and secure environment to compete successfully, and on a sustained basis. This means not only political and economic stability, but increasingly, physical security amidst the threat of terrorism.

7. Singapore always seeks to provide the benefit of continuity and moderation in government policies. We favour policies that are pragmatic and beneficial to the nation as a whole over populist policies and ideological extremes. Over the years, many have regarded Singapore as a brand name synonymous with prudence and reliability. Here, businesses can be assured of a stable environment in which to operate.

8. In addition to political stability, businesses in Singapore can also benefit from economic stability. We seek to achieve this through the pursuit of sound fiscal and macroeconomic policies. Businesses can count on stable exchange rates and a low inflation environment.

9. Furthermore, Singapore has dedicated resources to managing the greatest uncertainty of the present time, namely, the threat of terrorism. We have invested heavily in both internal and external security. At home, we maintain strict vigilance and have enhanced the security of Singapore's critical infrastructure. On the international front, we will continue to share intelligence and cooperate with other nations in the common fight against global terrorism.

II. Lower Cost of Doing Business

10. Amidst intensifying competition, businesses naturally want lower costs. As such, they expect Governments to lighten their tax burden and lower other statutory costs as much as possible. In Singapore, direct taxes have been lowered so that businesses can keep a larger share of the returns from their investments. For instance, we have reduced the corporate tax rate from 22% to 20% with effect from the year of assessment 2005. Apart from a lower corporate tax rate, there are concessionary rates for specific activities, which are either pioneer in nature or which anchor regional or global services in Singapore.

11. In addition, to promote entrepreneurship in Singapore, start-up companies are allowed full tax exemption on their first $100,000 of normal chargeable income (excluding Singapore dividends) for three years of assessment that fall within the period of YA 2005 to YA 2009.

12. Besides making our tax regime more competitive, we have also reduced the statutory costs associated with incorporating a company or starting a business. For example, we have lowered the incorporation fee for companies from as high as $1,200 to a flat rate of $300. We have also lowered the registration fee for business firms from $100 to $50. The annual renewal fee for businesses has also been lowered from $25 to $20 since August 2003.

13. Statutory fees and charges levied on businesses are regularly scrutinised and increases have to be adequately justified before they can be implemented.

III. Less Regulation and Less Red Tape

14. However, taxes and fees are not the only costs to businesses. There are also the intangible costs such as compliance with regulations and red tape. Quite rightly, businesses expect Governments to constantly review and update their regulations so as to remain relevant in the face of changing economic conditions and business demands.

15. Towards this end, we have set up the Pro-Enterprise Panel to solicit feedback on any Government rule which may have become outmoded, cumbersome, or no longer needed. Feedback is also welcome on rules which could help facilitate business development, encourage competitive services and raise efficiency all round. For example, a recent suggestion from the public has led our Housing and Development Board to liberalise its rules on the use of HDB flats by technopreneurs to operate from there. This has helped lower the barrier to entry for aspiring technopreneurs.

IV. More Flexibility

16. When regulation and red tape cannot be removed, businesses want the next best thing, which is more flexibility. Businesses expect governments to have a good understanding of the nature and environment of the private sector, and give them as much latitude as possible to carry out their activities.

17. In line with giving businesses more flexibility, we are introducing the Limited Liability Partnership structure next year to widen the options available for businesses and investments. A limited liability partnership or LLP is a structure that offers all its members limited liability while allowing them to retain the flexibility of operating as a traditional partnership. After it is introduced, we expect it to be popular with professional law and accounting firms as well as new start-ups.

18. By the same token, we have to ensure that our corporate regulatory framework is up-to-date and allows sufficient flexibility.The Company Legislation and Regulatory Framework Committee or CLRFC which was set up to conduct a comprehensive review of our company law and regulatory framework completed its review in October 2002 and made 77 recommendations. In the last two years, we have been implementing these recommendations and amending the Companies Act in stages. For the coming round of amendments to the Companies Act, we will be streamlining our current capital maintenance regime, aligning it with practices in other international jurisdictions. For instance, the Companies Act will be amended to allow repurchased and redeemed shares to be held in treasury. This is a departure from the current share buy-back regime whereby shares which are the subject of buyback must be cancelled. The new arrangement will provide companies with greater flexibili ty to use share buy-backs as a form of capital management.

19. The Government is committed to providing an environment where businesses can thrive and prosper. However, a vital ingredient for success is an entrepreneurial spirit, and this is something that businesses must provide for themselves. Ultimately, it is up to businesses to constantly innovate, seek out new opportunities and grow their activities.

Involvement of Government in Business

20. After speaking at length on what businesses expect the Government to do, perhaps I should touch on one area that businesses would like Government not to do, which is to go into business itself. However, the view that Government should only facilitate business, and not get involved in business itself may be overly simplistic and unrealistic. Let me elaborate in the context of Singapore's economic history.

21. The Singapore Government has good reasons for its involvement in business. When Singapore first became independent, the private sector was still in its infancy and the Government had no choice but to play an active role as entrepreneur, starting businesses and providing services critical to the growth of the economy. Government Linked Companies or GLCs in areas such as air and sea port management, banking, transport, telecommunications and power helped to create the much needed jobs and critical infrastructure to support growth in the early years of Singapore's development.

22. Today, four decades later, the Singapore economy and the private sector have evolved. In an innovation and knowledge-driven economy, private enterprises must play a bigger role as they are closer and more in tune with the rapidly changing market trends. However this does not mean that Governments should leave everything to the private sector. Governments still have a role to play in ensuring a level playing field, providing opportunities for all enterprises to have a fair chance to succeed, thereby enabling their economies to be more competitive. As for participation in business, our focus is on two areas.

23. Firstly, where activities are strategic and crucial to Singapore such as aviation, the Government will continue to retain majority or significant stakes. Where businesses have global or regional potential, Government will also help these businesses grow and realise such potential. This does not preclude the Government from diluting its stake if this will help spur growth of these companies.

24. Where GLCs are no longer strategic to Singapore or do not have international or regional potential, the Government will gradually divest its stakes in these companies, taking intoconsideration market conditions.

25. In line with the philosophy of letting the private sector drive the economy, Government agencies are subject to the ?Yellow Pages? rule where they are refrained from setting up new companies, except in strategic areas, or where the private sector is not ready. The Government will also progressively stop providing services and involve the private sector in areas that the private sector can undertake. These efforts to rebalance Government's role in business will help create opportunities for enterprises to flourish in Singapore.

Role of Government in Promoting Corporate Governance

26. Let me now turn the tables around and touch on what Government would like businesses to do. I will highlight just three areas. First, businesses should exercise good corporate governance. Second, they should be subject to market discipline. Third, they should promote corporate social responsibility.

27. Before the Government can adopt a lighter touch to regulation so that businesses have more flexibility, it must ensure that stakeholders, especially investors, are safeguarded against unscrupulous business practices. Corporate governance is emerging as one of the major ways to complement regulation in achieving this objective.

Code of Corporate Governance

28. The Government's role in enhancing corporate governance is through the setting of fundamental mandatory standards and encouraging voluntary adoption of best practices. The Government has decided against adopting a prescriptive approach as what is considered good corporate governance is likely to vary across companies, industries and over time.

29. In Singapore, the Code of Corporate Governance (the "Code") is a non-mandatory code of best practices. All companies listed on the Singapore Exchange are required to give a complete description of their corporate governance practices vis-a-vis the guidelines in the Code, and to explain any deviations from these best practices. The objective of the Code is not to prescribe specific corporate behaviour but to secure sufficient disclosure so that stakeholders can assess a company's performance and governance practices and respond in an informed manner. This approach is in line with the practices in other international jurisdictions such as Australia, Canada and the UK.

30. To ensure that our corporate governance policies remain relevant, a private sector-led Council on Corporate Disclosure and Governance or the CCDG was set up in Aug 2002. Earlier this month, the CCDG issued a public consultation paper seeking feedback on the proposed revisions to the Code. The aim of the review is to further enhance the framework, while mitigating the effects of imposing additional compliance costs on businesses. Some of the key suggestions include providing a new section named "Commentaries" in the Code to provide more guidance to listed companies on how to implement best practices, and expanding the definition of independence.

31. This review is timely as the Code was introduced two years ago. It is an opportunity for the Government to gather feedback on the Code so as to ensure that our business environment remains competitive and conducive for businesses and investors. The public consultation will end on 15 February 2005.I will take this opportunity to encourage the Singapore interests amongst you to send your views and feedback to the CCDG. Your inputs will help create a more robust outcome from the review.

32. The Government's efforts would be useless if companies choose to follow only the letter of the Code and ignore the spirit behind these best practices. As some of the corporate scandals have demonstrated, there are many Boards that have met the technical requirements of independence, but nevertheless failed their shareholders miserably.

33. Here, I will like to touch a bit on the recent developments at China Aviation Oil or CAO. I will not go into the specifics of this case, given that the Commercial Affairs Department has commenced investigations and is working closely with the Exchange and the Monetary Authority of Singapore on the matter. Following the revelations, our local press has been inundated with letters from the public, clamouring for the law to impose greater controls over listed companies and for listed companies to be subject to greater disclosure requirements. The Government will continue to respond swiftly and decisively where it matters to ensure that the public interest is protected. However, I would caution against any knee-jerk reactions in terms of putting in place more statutory controls, until the case has been thoroughly investigated by the authorities, as more statutory controls may not necessarily be the answer.

34. Businesses must ultimately recognize that it is in their own self interest to practise good corporate governance. Good corporate governance is not an end unto itself. They must ensure that their boards of directors and senior management are people of quality and integrity, as the primary responsibility for the soundness and professional conduct of businesses lies with them. If they do not, they will lose the trust of their investors, and trust, once lost, is very difficult to earn back.