Higher external risks won't hurt Singapore business prospects

The Straits Times, February 28, 2007
By Fiona Chan



Analysts say Perc study has little impact on competitiveness, as overall risks stay low

SINGAPORE slipped on a few fronts in the latest risk perception report, but economists and companies say this will not have much impact on its competitiveness.

This is because the same study showed that the Republic still remains the least risky place in Asia to do business, they said.

The study was released on Monday by the Political and Economic Risk Consultancy (Perc) and covered 13 Asia-Pacific economies as well as the United States.

Singapore's overall risk score was 2.74, a slight dip from its 2002 score of 2.28. Zero marks the best situation while 10 is the worst.

In 2002, the US pipped Singapore to rank as the least risky economy of those surveyed. Singapore has since overtaken the US but now lags behind Australia.

Singapore came in tops in most risk categories but faltered in external political risks, which have risen significantly, said the study.

It added that these have been exacerbated by Singapore's biggest firms investing heavily in other Asian countries where the risks are higher and harder to manage.

But most economists are not overly concerned about Singapore's higher risk score.

'The overall score as it stands is still strong,' said Citigroup economist Chua Hak Bin.

He said higher external risks are 'part and parcel' of Singapore firms expanding. The risks seem to be limited to these firms and would not affect firms investing here.

However, Dr Chua noted that these risks may be more of an issue now as government-linked firms and banks are starting to pursue foreign acquisitions more aggressively.

CIMB-GK research head Song Seng Wun also warned that while such activities are 'great from an economic standpoint', they may also give rise to political issues, such as with Temasek Holdings' investment in Thailand's Shin Corp.

But Perc managing director Robert Broadfoot said these external risks may not be problematic if Singapore can manage them well.

'Singapore has continued to manage its overall risks better than virtually all the other countries we covered,' he said.

'But the absolute level of those risks, favourable as it is, is going up. If Singapore is going to be an aggressive investor in other countries, it's not really proven yet that it has any better skills at this type of strategy than any multinational.'

As far as multinationals are concerned, Singapore remains an attractive, low-risk environment.

Philips Electronics chief executive Paul Peeters was 'not surprised Singapore is rated least risky in Asia'. He said: 'The government has set up a pro-business support infrastructure that makes it very conducive for multinationals to operate here.'