Apr 22, 2005

Cloning an impossible dream

The latest issue of Newsweek covers an interesting article called The Singapore Clones, about our neighbors Malaysia, Indonesia and even Taiwan wanting to emulate the "success" of that Goliath of a State Investment Vehicle (hence abbreviated as SIV for convenience) - Temasek Holdings.

One wonders were these countries have given the idea serious thought. Taiwan in particular, where the private sector has always been fiercely independent and competitive, might not see much or any success with such an experiment. Unlike Singapore, the Taiwanese generally view their government and its officials as incompetent, scandal-ridden and/or too busy looking after their self-interests to bother with the well-being of the country, its citizens and local companies.

The upside of this scenario is that this forces companies (especially the SMEs) to rely on themselves, rather than the government, to ensure their businesses succeed. That, I feel, is the way entrepreneurship is born. Not something that can be taught in a classroom or shouted out in meaningless national slogans, like our mandarins sitting in air-conditioned rooms see it.

If my government cannot help me, I'll help myself. That's the Taiwan way.
If my government cannot help me, how? Sure die one lah!!! Singapore way.

The article in full below:

The Singapore Clones

Temasek started as a novel experiment in state-run investing, but now its success is inspiring copycats.

By Sonia Kolesnikov-Jessop
Newsweek International

March 21 issue - If copying is the most sincere form of flattery, Singapore should be red in the face. Its Temasek Holdings was once a novel experiment: a state investment fund that molded renowned brands, like Singapore Airlines and SingTel. In recent years, as Temasek began to invest abroad, it was at first greeted by neighbors like Malaysia and Indonesia as an unwelcome foreign intrusion. But now several Asian states, including these detractors, are more or less openly trying to copy the Temasek model.

At a time when much of the world is questioning the free-market ideal, the appeal of a quasi-public investment vehicle is clear. It gives Asian political leaders a proven mechanism for directing investment and shaping national industrial champions. Taiwan has plans to consolidate some $31 billion in state shares into a holding company modeled on Temasek. Indonesia is considering a similar idea to reorganize and improve the efficiency of some of its state giants, like the oil and gas company Pertamina. And while Malaysia would never admit to following the lead of its neighbor and rival, economists say the recently reorganized Khazanah, the national investment agency, looks like a carbon copy of Temasek in its early days.

Singapore created Temasek in 1974 with the idea of nurturing strategic industries and channeling investments to support economic and social goals. Temasek has since grown into a giant with $56 billion in assets, controlling roughly a third of the Singapore stock market. But after returns began to slow at home, from an annual average of 18 percent down to just 3 percent in the last decade, Temasek began to diversify regionwide. Its move into the Indonesia bank sector provoked attacks from the political opposition, and the ambitions of SingTel (64 percent owned by Temasek) in Malaysia were once quashed because of security concerns. Still this has not slowed the advance of Temasek. In 2002 a new executive director, Ho Ching (the wife of the current prime minister), vowed to refocus on profits over social goals. That has meant further investments in Asia, including more than $1 billion last year in India alone.

Each copycat is following Temasek in its own way. For Taiwan the priority appears to be on exerting some influence on national champions, like Mega Financial, Taiwan's second largest financial company, as they begin to seek out higher profits abroad. Jakarta's aims hark back to the Temasek of 30 years ago, hoping to raise the returns of state firms in order to create a larger pool of capital for social projects at home. But matching Temasek's successes won't be easy. "The Temasek model cannot be transported everywhere, but the fact that many governments are moving toward big public companies shows they believe you cannot leave it all to the market," says Dominique Dwor-Frecaut, an economist at Barclays Capital.

While the Singaporeans nurtured blue-chip companies over decades, Indonesia and Malaysia are hoping to adapt the model to clean up operations. Khazanah has already taken more than $61 billion worth of national assets, including car manufacturer Proton and conglomerate Sime Darby. The problem: while the government is diluting its ownership, it appears to be retaining management control, partly defeating the purpose of creating a strong private sector.

It is hard for any big nation to match the focus of a small city-state like Singapore. Temasek can restructure (read: cut jobs) easily in a quiet political culture. Indonesia and Malaysia are much more populous and unruly. "In that context they have to figure out what it means to set up an equivalent of Temasek and which sectors they will want to support and how they will carry out the intervention," says Dwor-Frecaut. "I don't think Temasek [in its current form] can be translated 100 percent in places like Malaysia and Indonesia." In Taiwan, the private sector is already strong, but it's not clear the new agency can achieve its goal—speeding further privatization—given that strong unions still rule the state sector. "Singapore has been very good in redirecting its economy through Temasek," says Chris Hunt, Macquarie Securities' head of research in Taiwan. "But I just don't see it happening here to anywhere near the same extent."

Temasek also has a complicated legacy in Singapore. Last year the combined profits of its companies more than doubled, but some say it has held back the emergence of a truly private sector. Consider that Temasek created Singapore Airlines, which has set up its own discount airline, Tiger, which has inspired new startups like JetAir Asia—in which Temasek also has taken a stake. It's hard to tell where Temasek ends and the "private sector" begins. Perhaps so long as it works, it doesn't matter.

© 2005 Newsweek, Inc.


aGent X said...

where are you bro? been busy....:)

ahmad said...

me busy too lah...just finished long weekend too, will post something soon