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Singapore risk: Infrastructure risk
[February 02, 2006]

Singapore risk: Infrastructure risk


(RiskWire Via Thomson Dialog NewsEdge)COUNTRY BRIEFING

FROM THE ECONOMIST INTELLIGENCE UNIT

RISK RATINGSCurrentCurrentPreviousPreviousRatingScoreRatingScoreOverall assessmentA11A12Infrastructure riskA3 A3 Note: E=most risky; 100=most risky.SUMMARY

The Port of Singapore Authority (PSA) is highly sophisticated and efficient, although Singapore has lost business in the last few years to Tanjung Pelepas in Malaysia, which is offering lower rates; the PSA has responded by offering a rebate on shipping costs and other incentives. Singapore has pushed for the improvement of international maritime security, but the port remains a possible high-profile terrorist target. Changi airport is highly regarded internationally, and work on a new third terminal was completed in January this year. Roads and rail services are very good: electronic road pricing has proved quite effective at avoiding jams, and further rail lines are planned. Electricity supply is excellent, and although deregulation of this sector could lead to minor problems (regarding pricing) these are likely to be quickly resolved. Singapore already has in place a first-rate e-infrastructure, and this will to be developed further.

SCENARIOS

Port development slows owing to increasing competition from Malaysia (Moderate Risk)


Malaysia has long envied the success of Singapore's port. In recent years it has tried to develop alternative ports in Johor and elsewhere to divert some of Singapore's lucrative business. In 2000 Denmark's Maersk Sealand International moved its trans-shipment business to Tanjung Pelepas in Malaysia, and Taiwan's Evergreen Marine Corporation followed suit in April 2002. This trend appears already to have delayed the privatisation of the Port of Singapore Authority (PSA) and could prejudice future port development. The PSA responded to the Malaysian threat in July of that year by offering rebates on charges, and suggesting that shipping firms could in future have their own dedicated terminals (which they want, although it may not be so efficient). In September 2002 Evergreen Marine of Taiwan confirmed that it would keep some of its operations in Singapore. The PSA has also been seeking to buy port operators overseas in order to diversify its revenue stream. In addition, the government has been proposing to relax the criteria for shipping firms to qualify for tax exemptions, and to remove the obligation to pay tax on income from marine insurance business. But there could be gains for business too, even if such incentives prove ineffective: if traffic through Singapore declines--possibly owing to the insurance risk premium currently faced by shipping companies--foreign firms should use the opportunity to push for yet lower freight rates and other benefits.

Airport development is delayed (Low Risk)

The construction of a third terminal at the prestigious Changi airport was completed in early 2006. The two existing terminals had been upgraded and refurbished in the interim. Foreign businesses should be prepared for a slower growth in demand for aviation-related services, although it is difficult to see any other South-east Asian airport supplanting Changi's regional role (at least in the short-run), despite recent initiatives by neighbouring countries to set-up their own airports designed to cater to low-cost airlines currently gaining in popularity in the region. Furthermore, Changi is also in the process of developing space at an existing terminal, in order to cater to low-cost airlines.

Singapore's ports stop functioning following a terrorist attack (Low Risk)

A significant part of the world's oil and trade flows through the Malacca Straits, whose waters are shared by Singapore, Malaysia and Indonesia. Singapore is a close diplomatic ally of the US and has been supportive of its "war on terror". This, together with the large number of foreigners living in the island state, makes it a target for Islamist terrorist groups operating in the region. As a result, Singapore's government remains concerned that these groups could hi-jack a ship, place conventional or nuclear explosives on it, and then detonate them. Should this occur in one of Singapore's ports the world economy could suffer as trade routes would no doubt be effected, particularly as Singapore's ports are among the busiest transshipment hubs in the world. However, Singapore has stepped up its surveillance activities with regards to ships entering its coastal waters. Measures include electronic tagging of vessels. Furthermore, it has started operating co-ordinated naval patrols with Malaysia and Indonesia. These measures should provide sufficient security to prevent the ports being effected. Nevertheless, a successful attack cannot be ruled out. Indeed, ships travelling through the Straits have been facing a war risk insurance premium since mid-2005. Companies are advised to ask their own government's to put pressure on the three countries to step-up security further (Malaysia and Indonesia, for example, remain opposed to greater involvement by the US navy in the region, despite the small size of their own sea forces).

BACKGROUND

(Background material is updated twice yearly. Last update: May 26th, 2004)

Natural Resources and the Environment

Primary industries have never been important in Singapore. However, attention has long been given to the one natural resource that Singapore is capable of promotinga relatively clean and pleasant environment. In 1991 a broad-brush National Green Plan was published, committing the government to limiting carbon dioxide emissions, phasing out controlled chlorofluorocarbons (CFCs) and improving procedures for the storage, handling and transportation of hazardous products.

There has been progress towards some of these targets, with the import of CFCs, for example, banned in January 1996. The Green Plan has also been complemented by more specific schemes in areas such as water conservation and recycling. Leaded petrol was phased out in 1998 and diesel has a low sulphur content. New pollution regulations came into force in January 2001, and existing industries have been given up to three years to comply with these. However, Singapore remains vulnerable to environmental degradation from elsewhere--most obviously, smog from forest fires in Indonesia.

The next Green Plan, to 2012, was officially released in August 2002. Three key thrusts have been identified:

quality living environment--setting new air pollution policies, promoting the use of natural gas, maintaining the quality of coastal and inland water, reducing the need for landfill through recycling; and keeping down ambient noise levels;

working in partnership with the community--developing a community-centred approach and ensuring public feedback; and

doing our part for the global environment--working to enhance international and regional environmental governance.

These rather broad, if laudable, objectives are complemented by a few specific targets. By 2012, natural gas is to account for 60% of electricity generation; 25% of water supply will come from non-traditional sources (for example, desalination); and 50% of solid waste will be recycled.

Transport and Communications

Singapore has considered deeply the problems of car usage. The government has taken various measures to limit this, including implementing a variety of taxes and introducing certificates of entitlement (COEs). A number of these documents are released each month through auction; those wanting to put a motor vehicle on the road must bid for them. The 2002/03 budget reduced car taxes and promised a slight increase in the number of COEs (in return for higher usage charges); the budget for 2003/04 cut vehicle taxes by a further 3-5%; and the budget for 2004/05 saw the Additional Registration Fee (ARF)--paid when a car is first registered--lowered from 130% to 110% of its Open Market Value (OMV). Even so, the cost of running a car remains high compared with most other developed countries.

Charges have long been levied on cars entering the central area. This pay by use approach was extended on April 1st 1998, when electronic road pricing (ERP), which uses a smart-card system to charge cars as soon as they enter restricted areas, was introduced on the East Coast Expressway. ERP was imposed on other highways later in the year and, despite some initial problems, has proved a success for the authorities.

Public transport is famously effective. A complex bus network benefits from the continuing programme of road upgrading. The Mass Rapid Transport (MRT) system is a much-envied under- and overground commuter railway system; existing lines are being extended and new lines built. Light Rail Train (LRT) lines are also being run into some areas of the country not served by the MRT.

Changi airport is regarded by many as the worlds best. It currently has two terminals, and in December 1996 the government announced approval for a third. This was originally scheduled to open in 2004, but has now been pushed back to 2006; in the interim the existing terminals will be upgraded.

The airports development is closely linked to the fortunes of the national carrier, Singapore Airlines (SIA). SIA is now one of the worlds leading medium-sized airlines, and has sought alliances to extend its international reach. Its most notable acquisition so far has been a 49% share in the British carrier Virgin Atlantic. SIA has also tried to develop links with Australasian airlines, but got its fingers burnt by the New Zealand governments effective re-nationalisation of Air New Zealand, in which it had a substantial stake.

Telecommunications Infrastructure

Typical e-commerce transactions in Singapore include everything from business-to-business (B2B) order processing, invoicing and payment to business-to-consumer (B2C) online shopping and Internet banking and trading. International Data Corp (IDC), an information-technology research consultancy, estimates that close to 80% of all e-commerce in Singapore will be B2B rather than B2C in the coming years. The Economic Survey of Singapore 2002 stated that consumer spending in e-commerce grew 11%, to S$2.1bn, in the first three quarters of 2002 compared with S$1.9bn in the corresponding period of 2001. The value of B2B e-commerce transactions was S$81.2m for the first three quarters of 2002, down marginally from the same period in 2001.

Given its sound financial sector and reputation as a safe haven, Singapore is set to become a regional hub for e-commerce. The government drew up a ten-year master plan, Information and Communication Technology 21 (ICT21), in August 2000 to position Singapore in the new electronic world as a global capital of information and communication technology by 2010. ICT21 will build on the achievements of IT 2000, the existing information-technology (IT) blueprint, and Singapore ONE (the city-states extensive broadband network that provides connectivity coverage for 99% of the island). In 2002, Singapores submarine cable capacity increased to over 21 terabits per second--up from 53.36 gigabits per second in 2001--offering direct Internet connectivity to over 30 countries.

Singapore has an IT-literate and Internet-savvy population. According to the 2002 Broadband & Wireless Usage Survey of the Infocomm Development Authority (IDA), 64% of homes had a personal computer. As of March 2003, there were 2m dial-up subscribers and 1.24m broadband users (which translates to 2 out of 5 Internet users), a 30% increase from 2001. The main purpose of Internet usage for the majority of online citizens was for communication. The IDA survey found that 94% of broadband users used the Internet for email, 54% for information retrieval, and 44% for instant messaging. A smaller percentage used broadband for online shopping (34%) and online banking (26%).

Singapore proactively trains its citizens to develop computing skills. In 2002, over 10,000 people participated in The Great Singapore Surf, an IT training event that took place one weekend in September. By end-2002, the National IT Literacy Programme, launched in June 2001, had trained over 100,000 people in basic computing skills. The population does not shy away from technology2002 marked a record-breaking mobile phone penetration rate of 78%. This figure had risen to 79.6% as of March 2003. Singapore was ranked as the third most-IT savvy country (after Finland and the US), according to The Global Information Technology Report 2002-2003: Readiness for the Networked World, a report published in February 2003 by the World Economic Forum.

Singapores government offers nearly 90% of its services online, and it ranked second in studies of e-government maturity conducted by Accenture, a consultancy, in both 2001 and 2002 (Canada ranked first). The governments eCitizen portal saw its monthly hits rise from 240,000 in 2001 to 4.2m in 2002.

The Infocomm Development Authority also launched a S$200m programme, Wired with Wireless, in October 2000 to position Singapore as having the best-integrated infrastructure for the wired and the wireless industries. The programme focuses on three aspects--location-based services, mobile commerce and wireless competition--and seeks to develop mobile infrastructure, services and products, and to introduce wide-scale adoption of mobile communications. The Infocomm Development Authority plans to reinvest the S$200m derived from the auction proceeds from third-generation (3G) mobile services to drive the programme, which outlines seven strategic thrusts: thought leadership, market-access development, manpower development, technology development, infrastructure and service/product development, industry adoption and consumer adoption.

A specially constructed complex, called TeleTech Park, has been set up for telecommunications research and development (R&D). It is in Science Park II and comprises a single, two-wing building with 24,000 sq metres of rental space for both R&D and prototype manufacturing. The S$70m development opened in 1996.

Singapores IT industry and financial institutions have worked in partnership with the government to develop infrastructure services such as trust and security systems, directory services, online payment systems and other intermediary e-commerce services. The Singapore Telecom Internet Exchange (STIX) provides Internet access to more than 35 Internet service providers (ISPs) in more than 35 countries in the Asia-Pacific and Indian Ocean regions. Singapore now has more than 35 ISPs and more than 90 resellers.

The Infocomm Development Authority (IDA) released the 3G (third-generation) mobile services licensing framework and auction rules in March 2001. But the 3G auction, originally scheduled for April 2001, was cancelled. Hong Kongs Sunday Communications, the only foreign bidder, pulled out after it failed to secure a bankers guarantee. This left only three bidders--MobileOne, Singapore Telecoms mobile unit and StarHub Mobile--competing for four licences. The IDA thus awarded a provisional licence to each remaining bidder at a reserve price of S$100m. The IDA awarded provisional licenses for Second Generation Spectrum Rights to these same three mobile operators--the only three to submit initial offers--in August 2001. Each bidder will be awarded two lots at the reserve price of S$120,000 per lot.

Fixed line Short Messaging Services (SMS) and Multimedia Messaging Services (MMS) were both launched successfully in Singapore in 2002, in July and September, respectively. Singapore was one of the first countries to achieve inter-operable MMS.

Energy

Major changes are under way in power generation and distribution. Until early 2001 the Public Utilities Board (PUB) ran a monopoly. The system now has a new regulator, the Energy Market Authority. The generating sector is to be opened up to competition, with existing public-sector generators sold off. Electricity supplies to larger customers have already been opened up to competition, with competition allowed in the whole market during 2003.

Despite government efforts to discourage excessive use of electrical power, consumption has continued to rise. Total electricity sales were 31.1bn kwh in 2002, up by 1.1% on the 2001 level (or by rather less than the rise in real GDP last year). Gas sales fell slightly in 2002, after rising steadily in recent years. Domestic gas sales fell, but non-domestic use continued to increase.

National energy statistics19981999200020012002ElectricityElectricity generation (m kwh)28,28329,52031,66533,08934,665Total electricity sales (m kwh)26,07327,08329,17329,65331,089Manufacturing (% of total sales)42.843.041.239.939.8Domestic (% of total sales)20.419.719.620.220.4GasTotal gas sales (m kwh equivalent)1,2661,3071,3631,4031,389Non-domestic (% of total sales)63.362.862.661.358.9Domestic (% of total sales)36.737.237.438.741.1Sources: Public Utilities Board; Department of Statistics, Monthly Digest of Statistics.

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