Avoiding the grip of Singapore Inc

The island state’s government-owned corporations need us more than we need them, writes Eric Ellis. Yet we all know national interest goes both ways.

”A MISSED opportunity for both sides,” or so claimed the Singapore government’s quasi-official mouthpiece, The Straits Times, yesterday after the shock of Treasurer Wayne Swan’s knockback of Singapore Inc’s $8 billion takeover of Australian Securities Exchange filtered through this urgent little island.

And, if The Straits Times is true to form, that’s about as generous as it will get on its upcoming coverage of Australia. Singapore Inc is not a good loser and so absolute is its control that Singapore’s grumpiness with Australia will also become patently clear in coming weeks.

After the many years of the Lee regime, Singaporeans know its elite never make mistakes. But this play by Singapore Inc to walk off with a crucial pillar of Australia’s financial architecture is precisely that: a hubristic reach too far with the government-linked ownership structure that Magnus Bocker and his Singapore Exchange brought to the table.

”Crucially, [the SGX bid] would also have helped both bourses stay relevant in an increasingly tough competitive landscape. In Australia, specifically, the move would have helped ASX tap into the massive growth potential in the capital markets of Asia,” wrote The Straits Times.

”From a broader perspective,” the paper sniffed, ”the merger might have also helped Sydney, which is losing its allure as a leading financial hub in this part of the world, to rival centres like Hong Kong, Shanghai and Singapore.”

But Singapore hardly compares with Hong Kong or Shanghai as the fulcrum of thrusting Asian commerce. True, the region’s tycoons like discreetly to park their billions there but, if you want a piece of Asia’s real growth, you go directly to India, China, Japan or perhaps Indonesia. Or to Hong Kong, a far more attractive proposition given Australia’s trade and foreign investment profile than tiny Singapore. The Lees need Australian heft for the city-state more than Australia needs it.

Australia isn’t the first country to discover that an investment by Singapore Inc entities like Temasek Holdings carries heavy state baggage; a de facto nationalisation by a foreign government, as the Thai finance minister once described it when railing against Temasek’s $4 billion purchase of former prime minister Thaksin Shinawatra’s telecom and media empire. Malaysia and Indonesia have also tut-tutted at Singapore Inc intruding on sensitive turf.

Singapore Inc treads warily across the Asian region, where economic nationalism is in far healthier bloom than it is in Australia, one of the world’s more open investment regimes. Singaporean investment is welcome in Asia, but only to a point and rarely to control, lest it bump up against the same cosy politico-corporate networks as in, well, Singapore, where an Australian proposal to buy SGX, Singapore Airlines or The Straits Times would never happen, in fact would probably be met by high dudgeon and joculality.

It will be fashionable in coming weeks to condemn Australia’s decision as narrow, nationalistic, parochial and local, as Australia is often portrayed in Asia. Indeed, as the curmudgeon Straits Times pointed out yesterday, ”analysts have noted that the deal has fallen victim, not to rational arguments and economic sense, but to intense, often vitriolic, political opposition from some Australian politicians. It was the same nationalistic chest-thumping from Australian politicians that had tried to prevent Singapore Airlines from buying Air New Zealand in 2001.” It seems that spurned suitors have long memories.

What the Singapore media won’t write is that Canberra’s rejection of the SGX bid comes at an embarrassing time for the long-ruling Lee regime, unhindered by the trifles of democracy since 1959, a grip on absolute power challenged only by China, North Korea and Cuba. It is the election season in Singapore, and the Lees are keen to avoid any jasmine-like suggestion that might flower from elsewhere. But this mistake will be noticed.

That’s not Canberra’s concern but Swan’s spurning of the SGX bid throws another harsh spotlight on a more pressing Singaporean problem. Its power elite’s reluctance to devolve corporate and political power – to give up the perks and the fat salaries – has allowed its government-owned corporations to become huge entities that have outgrown Singapore’s relatively small economy. They must do deals to grow, to deliver the returns the government must produce to justify to its increasingly sceptical people its continued grip on power. And yet, when they reach for control of flashy assets like ASX, they frequently bump up against the very ”national interest” argument that has denied this deal.

Official Singapore insists that Temasek and its sister government entities are not government at all; that they operate entirely independently and the market should judge them as it would a Microsoft or a GE. Yet when anyone notes the 100 per cent state ownership, the common directors, the crossover links between state and business, it is the prickly government that bites back, not the ”independent” Temasek company. Criticising Microsoft doesn’t hazard a reprimand from the White House.

Singaporeans aren’t about to crowd Orchard Road as Egyptians did Tahrir Square but there is palpable disquiet about these cosy networks, the lack of transparency, the spin. They don’t much like that the Prime Minister’s wife controls their nest eggs at Temasek, which is almost impossible to compete against. It doesn’t take a particularly vigorous trawl through Singapore’s (anonymous) social media to see that they’d like change in the institutions they fund.

Wayne Swan may have just done Singapore Inc a favour, if it cares to listen.