Mr S Iswaran at the Asian Stars Conference 2010, 19 May 2010

SPEECH BY MR S ISWARAN, SENIOR MINISTER OF STATE FOR TRADE & INDUSTRY AND EDUCATION,AT THE ASIAN STARS CONFERENCE 2010 ON WEDNESDAY, 19 MAY 2010, 0835 HRS AT THE RITZ-CARLTON MILLENIA HOTEL, SINGAPORE, GRAND BALLROOM 

Mr Brian Brille, President of Asia Pacific, Bank of America Merrill Lynch

Mr Joseph Yam, Former Chief Executive of the Hong Kong Monetary Authority

Distinguished Guests

Ladies and Gentlemen

Introduction

Good morning.I am pleased to be here today at the Asian STARS Conference 2010.

In the past year or so, we have witnessed tremendous changes in the global financial and economic landscape.Much of it was brought on by the global economic downturn.We now meet in a more optimistic environment.The general view among commentators is that 2009 marked a turning point in the downturn and that a global economic recovery is under way

Recovery led by Asia

This recovery is led by the Asian economies which have proven to be resilient.The GDP of Asia, excluding Japan, is already surpassing the pre-crisis level by nearly 8 per cent.And for 2010, the region is expected to grow by 8 per cent over 2009. The Singapore economy has also rebounded strongly and is expected to grow by 7 to 9 per cent this year.

The resilience shown by the Asian economies during this economic downturn highlights the progress that Asia has made since the last Asian financial crisis in 1997.Since then, central banks in Asia have built up significant reserves. Governments and regulators also sought to keep the economic and financial fundamentals strong.When the global financial crisis struck, Asian banks had little exposure to the United States sub-prime debt, corporate and consumer debt was relatively low, and government finances were generally healthy.

Consequently, Asian governments were able to react assertively and swiftly with big stimulus programmes.For example, Singapore, Malaysia, Vietnam, and Thailand introduced large downturn-mitigation budgets or counter-cyclical spending programmes.Asian countries also strengthened cooperation to maintain confidence in the region.This cooperation was further enhanced in March this year when the ASEAN Plus 3 countries embarked on the Chiang Mai Initiative Multilateralisation Agreement which increased pooled resources by more than 50 per cent to $120 billion.

The downturn in Asia has therefore not been as severe as elsewhere in the world.Large emerging markets like India, China, and Indonesia were able to maintain positive growth in 2008 and 2009. Other Asian countries like Singapore, Malaysia and Vietnam had a fall in output but rebounded swiftly.

While the Asian economies appear to have thus far navigated the global financial storm well, there are three potential risk areas looming on the horizon.First, there are concerns about the impact of the recent European debt crisis on global financial markets and the economic recovery. The export-orientation of many Asian economies, means that what happens in Europe will inevitably affect Asia and the rest of the world.Second, the potential emergence of asset-price bubbles and inflation may be an issue, given the relative easing of monetary policies and return of capital flows to the region.Third, the withdrawal of governmental support for the economy would need to be calibrated carefully, in order to ensure continued economic growth.

Investment opportunities in Asia

Notwithstanding these risk factors, the outlook for Asia’s growth remains generally positive.There has been a rise of a sizeable middle class in Asia as a result of significant economic growth.Economist Surjit Bhalla, Chairman of Oxus Investments, estimates in his forthcoming publication “The Middle Class Kingdoms of India and China”, that the number of people in the middle class in Asia in 2006 has exceeded the number in the West for the first time since the year 1700.This burgeoning middle class has helped Asia weather the downturn by sustaining domestic demand, especially in large markets like China, India and Indonesia. The middle classes also tend to be the drivers of a country’s growth for they also invest in education, healthcare, new products and technologies, which are vital to economic development.

Growth in the Tourism Sector

Asia’s strong economic recovery and positive growth outlook is also giving rise to numerous investment opportunities in Asia.One such sector with strong growth prospects is tourism.The Pacific Asia Travel Association (PATA) estimates that tourism revenues in the Asia-pacific region will increase to US$4.6 trillion and that visitor arrivals will reach close to 500 million by the end of 2010.PATA expects international visitors to South Asia and South East Asia to grow at an average rate of around 5 per cent per annum between 2010 and 2012. In particular, international arrivals to South East Asia are forecast to reach nearly 77 million by 2011 (compared to 62.2 million in 2007).For Singapore, PATA forecasts that we will be India’s top outbound destination in the next two years and among the top four destinations to be visited by Chinese travellers, excluding Hong Kong and Macau.

Manufacturing – Positive Outlook

The manufacturing sector is another area projected to grow across most Asian economies. This is due to a pick up in global demand and growth in domestic demand.In India, for example, industrial output was up by 14 per cent year on year in March.In particular, private consumption has grown.Output of consumer durables rose by 32 per cent year on year in March, confirming that the downturn has not dampened consumption by India’s middle class.In Singapore, industrial output improved significantly, increasing by 43 per cent year on year in March.Similar growths in industrial output are expected for other Asian economies, such as China, Indonesia, and Vietnam.

Asia’s strong growth has not gone unnoticed by international investors.The recent Global Private Equity report by Bain and Co. highlighted that Asia has emerged as a major destination for private equity capital, due to the smaller impact of the global crisis on Asia and better growth prospects.The Asia-Pacific region’s share of investment almost tripled from about 8 per cent to 23 per cent between 2007 and 2009.

Investment opportunities in Singapore

Within Asia, Singapore presents its own investment opportunities.Emerging from the global downturn, the Singapore Government has unveiled five key growth strategies, in line with the broad directions set by the Economic Strategies Committee for our economy.

Briefly, the Singapore Government will seek to (1) help existing industries deepen and expand their capabilities; (2) capture new growth areas at the convergence of manufacturing and services; (3) build a more vibrant corporate landscape by attracting new players; (4) deepen integration with our ASEAN neighbours, and (5) leverage on our trade agreements.Collectively, these strategies aim to broaden the scope and capabilities of companies in Singapore by building on their current competencies, and expanding their market space. The government will also facilitate the development of both existing and new industries thus offering investors more investment opportunities.These strategies are complemented by Singapore’s favourable business environment, strong corporate governance, talented workforce and robust legal framework. Some of the key sectors that Singapore will focus on include tourism, manufacturing and financial services.

Singapore’s Tourism Outlook

In the area of tourism, Singapore is in a good position to capitalise on the economic recovery and tap on growth in the Asian markets. In recent years, we have focused our efforts on introducing new products and updating our tourism landscape.The two Integrated Resorts (IRs), for example, will significantly enhance Singapore’s value proposition as a tourism destination with an internationally acclaimed complement of shows and events, world-class hotels, celebrity chef restaurants, museums and Southeast Asia’s largest theme park. It will enable us to achieve longer stays and higher yields from visitors.The IRs will also offer new venues to host business events and enhance our competitiveness on the BTMICE landscape.

Event offerings in Singapore are also being continually updated.Among others, we hosted the first-ever F1 night race in 2008, and also staged the inaugural F1 Rocks concert in conjunction with the race in 2009.This August, Singapore will play host to the inaugural Youth Olympic Games. We are also developing new signature events, such as the Asia Fashion Exchange. Our tourism precincts are also being refreshed in order to maintain their appeal to visitors.Last year, amidst the financial crisis, three new retail malls were opened along Singapore’s main shopping belt at Orchard Road. Together they add more than 100,000 square metres of commercial space that will revitalise the shopping experience for visitors

The Singapore Tourism Board is projecting record visitor arrivals and tourism receipts this year.In terms of visitorship, we expect around 11.5 to 12.5 million arrivals in 2010.At the higher end, this means an increase of almost 30 per cent from the 9.7 million arrivals last year.The forecast for tourism receipts in 2010 are around $17.5 to $18.5 billion, up from $12.8 billion last year. Tourism is certainly a promising area of growth in Singapore.

Manufacturing is another sector promising high growth.In Singapore, the sector rebounded strongly in the first quarter of 2010 and we are optimistic about its continued growth given the general outlook for demand. For instance, the expansion in electronics production in Singapore was underpinned by the strong recovery in global semiconductor chip sales, related to global demand.

Singapore has adopted a cluster approach in developing our manufacturing industries.This means that we are able to leverage on our strong base in the traditional sectors to move into new inter-disciplinary niche areas which are of even higher value than the traditional manufacturing sectors. The increasing confluence of manufacturing and services activities also means that our strong manufacturing base will spur related services such as R&D, design and intellectual property management.

Financial Sector Services as an area of growth

Yet another key area of growth is the financial services sector. Singapore is a centre for trade finance and commodities trading. We are Asia’s leading over-the-counter commodity derivatives trading hub, accounting for more than 50 per cent of Asian volumes. Given the strong presence of MNCs in Singapore, corporate treasury activities have also grown. The demand for financial instruments by these corporates has fuelled the growth of the financial markets in Singapore. We are now the largest foreign exchange market in Asia, excluding Japan. We have also sought to attract and grow the buy-side community, including our asset management, hedge funds, private banking and corporate treasury industries.

In asset management, the average growth rate of AUM (assets-under-management) was 16 per cent per annum from 2003 to 2008.In the first half of 2009, the AUM of the 20 largest asset managers in Singapore grew by over 20% reflecting the attractiveness of our markets to buy-side participants.

Our position as an international business and financial hub is further strengthened by a sound and stable regulatory framework, a conducive business environment and established market infrastructure. Last December, The Banker magazine ranked Singapore as the leading International Financial Centre in Asia, and the second most business-friendly financial centre in the world.

Conclusion

Ladies and Gentlemen, I have sought to elaborate on how we intend to enhance Singapore’s value proposition as a destination for investments and a gateway to Asia.Clearly, the investment opportunities in Singapore, and Asia, are by no means limited to the sectors I have chosen to highlight.I am confident that this conference will provide valuable insights on the myriad of exciting investment opportunities that this region holds. I wish all of you a productive conference. Thank you.