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Issue No. 55

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MYANMAR BECKONS

Singapore’s Best Selling Business Magazine

Where are the opportunities for Singaporean investors?

WHY

is Tiong Bahru booming?

S-Reits losing lustre

’s

Hotels no longer

apore

Sing

25 top STATE LE REA ENcies AG

hotproperty SE Asia roadmap to 2020 -

MICA(P) 244/07/2011 KDM No: PPS1645/3/2008

Whatyou needto know richard branson: Howto pitch a business idea

2 SINGAPORE BUSINESS REVIEW | SEPTEMBER 2013

FROM THE EDITOR There may only be a handful of people who

Publisher & EDITOR-IN-CHIEF Tim Charlton

have been to Myanmar and some may hardly

ASSOCIATE PUBLISHER Laarni Salazar-Navida Assistant Editor Jason Oliver

even know what or where it is in the first place

Art Director Jonn Martin Herman Editorial Assistant Queenie Chan

but the country is experiencing a tsunami of

Editorial Assistant Alex Wong

cash and expertise in what seems to be the greatest investment boom South East Asia has

ADVERTISING CONTACTS Laarni Salazar-Navida

seen in a generation. The roads to Mandalay

lanie@charltonmediamail.com

are not smooth and basic infrastructure is yet to be built, but opportunities abound for the savvy businessman. Given the increasing attractiveness of Myanmar to big companies, including our country’s very own SingTel, we bring you a comprehensive report on everything you need to know about investing in ADMINISTRATION Lovelyn Labrador

Myanmar.

accounts@charltonmediamail.com Advertising advertising@charltonmediamail.com Editorial editorial@charltonmediamail.com

We also went all the way to Leipzig, Germany to give you exclusive coverage of the Annual Summit Funding Transport organised by the International Transport Forum at the OECD. While airports and railway stations are part of our daily lives, drone ports and evacuated tube transport

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could become the future of transport. Can you imagine unmanned aerial drones delivering your packages to and from Singapore?

Unbelievable opportunities and innovations unfold right before our eyes.

This issue of Singapore Business Review lets you look into the future of transport, business, and economy so start flipping the pages.

Enjoy the issue!

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SINGAPORE BUSINESS REVIEW | SEPTEMBER 2013 3

CONTENTS

Why SingTel’s Myanmar bid 18 FIRST loss is not so devastating

30

40 FEATURE Trains, planes,

Country Report Myanmar is ready for some serious business

FIRST 12 Where there’s building,

ANALYSIS hotel properties wanes

Pessimism lingers as commercial and hotel investment sales drop 50% in 1H of 2013 to $3.7 billion year-on-year.

12 Tiong Bahru basks in a property boom harm Singapore?

14 Offices flock to Singapore’s outskirts

OPINION

20 Appetite for commercial and

there’s brass

13 How much will the next haze

automobiles and drones

24 Southeast Asia’s economic roadmap to 2020

16 Why SingTel’s Myanmar bid loss is not so devastating

DBS Economist Eugene Leow predicts the combined size of the Thai, Indonesian and Philippine economies to reach USD 2.4trn by 2020.

22 This is how you should pitch a business idea

REGULAR 28 Legal Briefing 46 Dining 48 Life & Style 50 Numbers

36 Mid-range brands storm

Hong Kong’s fashion scene

Published Bi-monthly on the Second week of the Month by Charlton Media Group #06-09 E, Maxwell House 20 Maxwell Road 4 SINGAPORE BUSINESS REVIEW | SEPTEMBER 2013

Mid-range fashion retailers are expanding at a faster rate than luxury retailers.

For the latest business news from Singapore visit the website

www.sbr.com.sg

News from sbr.com.sg Daily news from Singapore most read

HR & EDUCATION

Singapore ranked 5th costliest city in the world for expats: survey Although more European cities dominate the list of world’s costliest locations for expatriates, several cities in Asia are among the top 10 while Luanda holds the number one position, reveals Mercer’s 2013 Cost of Living Survey.

Rounding out the top five most expensive cities for expatriate living, which also have pricey rental accommodations, are Tokyo, the Chad city Ndjamena, and Singapore.

RESIDENTIAL PROPERTY

TRANSPORT & LOGISTICS

Guess who’ll be badly hit by Singapore’s property loan rules Savills notes that the existing LTV rules are refined to reflect the true borrowers of the loan as well as to apply a new income-weighted average age of joint borrowers when calculating the loan tenure.

This will adversely affect those buyers hoping to benefit from longer loan tenures by obtaining the loan jointly with a younger applicant and multiple-property buyers.

LTA splurges $285m in Caldecott station construction The Land Transport Authority said in a statement that it has awarded Contract T213 for the construction of Caldecott Station and associated tunnels to Samsung C&T Corporation for a contract sum of approximately $285 million.

Scheduled to complete in year 2020, Caldecott station will become an interchange station connecting the future Thomson Line with the Circle Line.

Are extroverts or introverts more productive in Singapore offices?

BY MICHAEL BRISBANE The debate about collaborative office space versus private office space is all the rage in workplace design Singapore circles.

Is it better to have people sharing and collaborating on ideas or is it better to have silos so that people can focus on tasks?

3 awesome tips for Singapore job seekers to get hired now!

BY RONALD LEE Attention job seeker! If you want to snag that dream job, it would be wise to work on your employability skills.

Your qualifications and credentials are crucial for your prospective employer to determine whether you have the right technical skillset for the job at hand.

FROM THE BLOG Are Singaporeans still socially mobile?

BY SEE WEE HENG Life is never fair. People who are born with a silver spoon in their mouth enjoy unfair advantages over their peers. But fortunately in Singapore, all is not lost for the poor kids. I personally came from a lowincome family and understand how it feels to be at the bottom rungs of society.

6 SINGAPORE BUSINESS REVIEW | SEPTEMBER 2013

Agenda PEOPLE | PLACES | EVENTS | OPPORTUNITIES

EVENTS

CLOUD EXPO ASIA EASB ACCOLADES The founding vision of East Asia Institute of Management is to be a world-class educational institution. EASB has been awarded the Singapore Quality Class Certification in 2003, 2007 and 2012.

It also received a full 4-year EduTrust Singapore Certification in 2010 and was ranked to have the 3rd most preferred PEI postgraduate degree programmes according to Job Central Survey in 2012.

HOLCIM Growing demand and complexity in construction industry require better solutions to provide better foundation for society’s future.

Holcim specializes in innovative building materials with 100 years of accumulated expertise in construction industry.

The new Centre of Excellence in Singapore aims to further develop application-based innovation and propel the industry towards a more sustainable construction through resource- and energy-efficient solutions.

Visit their website on www.holcim. com.sg or call them at 6265 1933 to explore opportunities for collaboration.

8 SINGAPORE BUSINESS REVIEW | SEPTEMBER 2013

ACQUISITION SOUGHT

OPPORTUNITIES

PROCESS ENGINEERING SPECIALISTS Process Engineering Specialists is a multi-discipline consultancy serving the nutritional and pharmaceutical industries.

PES is seeking to expand and diversify our services by acquiring a small engineering or construction company in Singapore. We expect that our ambition may match that of an owner seeking to retire or a larger company seeking to divest a subsidiary.

Contact: Fintan Cassidy fcassidy@pes-international.com

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Agenda PEOPLE | PLACES | EVENTS | OPPORTUNITIES

SERVICES

IFS

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IFS is a leading global enterprise software vendor to industries where asset management is a priority. More than 2,100 companies in over 60 countries rely on IFS Applications™, a componentbased suite for product & asset lifecycle management that can be configured for Enterprise Resource Planning (ERP), Enterprise Asset Management, projectbased ERP, field service management, or a combination of all four. IFS Applications has been evolving to meet changing customer needs since 1983 and is configured for agility, usability, and low total cost of ownership.

The SCCP Group is a global innovator in secure m-Commerce technologies that has developed Swiff, its flagship product suite. Swiff mPOS and mWallet are white label solutions that embed patented Multi-Factor Authentication (MFA) to ensure banklevel of security to safeguard customer data. Using the company’s unique and proprietary technologies in payment processing and authentication, acquiring banks and merchants, from enterprise to SMEs can seamlessly deploy one integrated payment solution. SCCP delivers tailored m-Commerce solutions for its customers in Asia Pacific, Africa, the Middle-East, Russia, Europe and North America.

PRODUCTS

BOEHRINGER Boehringer Ingelheim was founded in 1885 by German entrepreneur Albert Boehringer.

The Boehringer Ingelheim group of companies´ objectives and beliefs can be summed up in a single phrase: Value through Innovation, the central concept of our corporate vision. Together with our corporate culture concept “Lead & Learn”, this vision is the driver of our corporate culture. Today, the company remains one of the most successful family-owned pharmaceutical companies globally.

PLACES

SWISSOTEL MERCHANT COURT SINGAPORE Swissôtel Merchant Court, Singapore is a smoke-free hotel centrally located near the iconic Singapore River, next to the Clarke Quay Mass Rapid Transit (MRT) station. The 476-room property is also within walking distance to the financial hubs (Raffles Place, Shenton Way and Marina Bay). For enquiries and reservations, please call the Reservations team at 6337 9993 or email reservations.merchantcourt@ swissotel.com or visit www.swissotel. com/singapore-merchantcourt 10 SINGAPORE BUSINESS REVIEW | SEPTEMBER 2013

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Singapore and the Netherlands now gain better access to each other’s markets Find out how the new EU-Singapore Free Trade Agreement can strengthen the two countries’ trade relationship.

S

Suzanne Sweerman Executive Director Southeast Asia, NFIA

“Under the Agreement, the EU will eliminate tariffs on all imports from Singapore over a period of five years.”

ingapore’s strong economy and lucrative business environment were partly driven by the city state opening up to foreign investment. In 2012, the Netherlands was Singapore’s third largest trading partner in the EU with total bilateral trade standing at S$18.68 billion. As such, an operational unit of the Dutch Ministry of Economic Affairs is present in Singapore - the Netherlands Foreign Investment Agency or NFIA. The NFIA helps and advises foreign companies on the establishment, rolling out and/or expansion of their international activities in the Netherlands.

For 35 years, it has supported more than 3,300 companies from nearly 60 countries in the establishment or expansion of their international activities in the Netherlands.

What the EUSFTA is all about The Netherlands and Singapore can now enjoy better trade relationships and access each other’s markets with the Singapore and the European Union concluding the EUSingapore Free Trade Agreement (EUSFTA) in December 2012 after three years of negotiation. The EUSFTA is the first bilateral Free Trade Agreement concluded by the EU with an ASEAN country.

It is a comprehensive and broad-based agreement covering tariff-free access for goods, improved market access for services (including specific commitments on sectoral markets for financial, professional, legal, telecommunications and postal services), intellectual property protection, competition policy, technical barriers to trade, government procurement and sustainable development.

Under the Agreement, the EU will eliminate tariffs on all imports from Singapore over a period of five years and 80%

of the tariff lines will be covered upon entry into force of the agreement. The removal of the EU’s tariffs under the EUSFTA will benefit Singapore exporters of electronics, pharmaceuticals, chemicals and processed food products. Singapore will grant immediate duty-free access for all imports from the EU. Last year, the EU was Singapore’s second largest trading partner with an 11% share of Singapore’s total trade, while Singapore was the EU’s 13th largest trading partner in 2011.

Singapore companies recognize that although the European market is not showing much growth, it is a mature and very large market with 500 million affluent consumers, where high quality products and service are in demand. A recent seminar NFIA held together with the Singapore Business Federation (SBF) showed a healthy interest in the EUSFTA and its effects.

They are also much more used to the benefits and opportunities that are created by opening up to foreign investment, whereas many other countries still view these as threats, and thus tend to focus on shielding their economy more from outside ‘competition’.

This, according to Sweerman, might be one of the reasons why Singapore became the first country in Southeast Asia to clinch an FTA with the EU. She even reckons Singapore can expect extra profit from being the ‘early adopter’ for probably a few years to come.

Strengthening trade ties NFIA Executive Director Suzanne Sweerman believes the EUSFTA will further strengthen the ties and mutual investments between the Netherlands and Singapore.

She notes that the Netherlands’ logistics infrastructure is second in the world only to Singapore and is Europe’s best, also in overall price quality ratio. This

is extremely beneficial for companies who are already distributing their products into Europe.

“The Netherlands’ investment climate has already proven its attractiveness in the past years, and we believe that this agreement will give another, small but important argument to companies that plan to use or set up their base in the Netherlands and Europe,” says Sweerman, adding that Singapore and the Netherlands share a similar outlook on collaborations. Thus, in terms of tax treaty agreements, the Singapore and the Netherlands have very favorable treaties in place.

What to expect from NFIA Following the EUSFTA, Singapore companies can expect that NFIA will intensify its efforts towards especially the four sectors that will profit directly by the agreement. NFIA will also focus on the industries that have shown excellent fit with the Netherlands already such as the maritime and offshore sectors and IT-oriented sectors.

The agency will also make Singapore companies consider the Netherlands when they are looking at Europe by drawing the comparison with Singapore’s hub function that the Netherlands does better than any other country.

“We will also stress the extra advantage that the EU has, that is, you are able to do business in one currency thus reducing risk exposure and making the step from operating in one country to adding in new countries in which to offer your products easily. This is even more the case because once you have tackled the regulations in one country, the next one will require much less effort because the vast majority of regulations is now harmonized EU-wide, unlike the situation in Asia,” notes Sweerman.

SINGAPORE BUSINESS REVIEW | SEPTEMBER 2013 11

FIRST for 5-room flats surge to S$925,000, turning them into some of the most expensive resale flats in Singapore, according to Fok. Developers have also been scrambling to establish projects in Tiong Bahru, which has most recently resulted in record bids for a residential site in Kim Tian Road.

Where there’s building, there’s brass

If you bump into some rich businessman in Singapore, it is highly probable that he has US$156,000 worth of ‘built’ asset wealth. At least that’s what EC Harris’ latest study identifying the wealthiest nations according to their physical or ‘built’ assets tells us.

Built assets include buildings, airports, roads, infrastructure, machinery and equipment.

Through a new approach, the Global Built Asset Wealth Index quantifies the accumulated wealth of 30 countries’ built assets – encompassing all infrastructure investment and built environment. Conducted in conjunction with the UK’s Centre for Economic and Business Research , the research reveals that Asia’s top 11 economies today hold a total of US$84 trillion in built asset stock, projected to increase to $137.4 trillion by 2022.

Wealthy Singaporeans The study revealed that three of the world’s top five wealthiest countries are in Asia (China, India and Japan) and four are in the top 10 (S. Korea is ranked #8).

When considering built asset wealth per person, Singapore emerges as the wealthiest nation globally, with an estimated US$156,000 per person. Japan and Hong Kong rank second and fifth, respectively, in built asset wealth per person. India and China have less than US$40,000 in built assets per person, while developed and primarily Western economies have structurally higher levels of built asset wealth, averaging US$125,000 per person.

12 SINGAPORE BUSINESS REVIEW | SEPTEMBER 2013

Tiong Bahru basks in a property boom

T

iong Bahru has become one of the hippest property locations in Singapore, with developers offering eye-popping bids for lots in the location and buyers snapping up its super-expensive flats.

A decade ago, Tiong Bahru seemed destined to tread the same path as Bukit Brown after dozens of its shop-houses and blocks of prewar flats were selected to go under the conservation scheme. But the neighbourhood – one of the oldest housing estates in Singapore built in the 1930s by the British colonial authority – has instead flourished into a highly attractive residential hotspot.

“With the help of expatriates and young Singaporeans who have rediscovered the charms of Tiong Bahru, this has propped up the stature of the sleepy estate, and prompted demand for both residential and retail divisions,” says Alison Fok, analyst at Maybank Kim Eng. Skyrocketing HDB flats resale prices With the resurgence of interest flooding into the Tiong Bahru estate, the resale prices for Housing and Development Board or HDB flats have skyrocketed.

The Jalan Membina estate, for example, has seen its resale prices

With the help of expatriates and young Singaporeans who have rediscovered the charms of Tiong Bahru, this has propped up the stature of the sleepy estate.

Record bids for Kim Tian Road In April 2013, Keppel Land offered the highest ever price per square foot ever for a Government Land Sales site in Singapore at what Fok calls a “staggering sum” of S$550.3m or S$1,162.9 psf ppr. The site is expected to house around 500 units ranging from 500 sq ft to 1,350 sq ft.

Fok says that “tight supply and close proximity to city centre” has helped fuel the intensive bidding.

Maybank Kim Eng analyst projects pricing for the Keppel Land project will be more than S$2,000 psf based on the 15-20% premium seen in surrounding projects such as UOL’s Regency Suites and Twin Regency.

Looking at the wider District 3 or Central South Singapore district, successful projects are thriving not only in Tiong Bahru but also in Alexandra Road.

Fok singles out the City Development-led consortium’s newly launched Echelon on Alexandra Road this January.

“The 99-year leasehold site was purchased via GLS for S$754.4psf ppr, a whopping 54.4% discount to Keppel’s site. The developer launched 508 units ranging from 452 sq ft and 4,080 sq ft for ASP between S$1,346 and S$2,474 psf, and achieved a successful take-up rate of 97.8% as of June 2013.”

Resale transactions (SGD paf)

Source: Google Map

FIRST SMRT and ComfortDelGro would suffer a weekly earnings impact of S$2m and S$1.4m.

Sigh of relief But there’s no need for investors to worry as Heng notes that historically, there is no impact on stocks as long as the haze lasts less than a month.

“We observed no material adverse reaction during the more severe hazy days of Sep 1997 and Oct 2006, which generally lasted about a month. We remain sanguine about the situation as long as the haze does not last for more than a month this time round too.”

How much will the next haze harm Singapore?

S

ingapore was struck by the worst-polluted air it has ever had, due to the haze from Indonesia’s forest fire that shrouded the whole city state and disrupted the various business sectors. Though the hazardous haze subsided in about a week, fears arose that even worse could happen as a result of bush fires in Indonesia, which occur due to farmers’ aggressive land clearing operations. One of the most affected sectors would be transportation.

Clearly, the haze’s impact this year has been much more serious than in 1997 and 2006, but what if the situation again takes a turn for the

worse again?

Most exposed transport companies Derrick Heng, analyst with Maybank Kim Eng, estimates that SMRT and ComfortDelGro would suffer a weekly earnings impact of S$2m and S$1.4m, or 2% and 0.5% of annual profit respectively, for every 15% reduction in fare revenue. “We believe that SMRT and SBS Transit could be negatively impacted, as they derive a majority of their revenue from farebased business in Singapore.”

While historical data show that there was no significant decline in rail and bus traffic when air pollution

levels last peaked in 2006, he says a substantial decline in ridership is still possible should the crisis worsen.

Singapore Airlines and SIA Engineering would also be exposed as Singapore is their main operating base. While outbound traffic could receive a boost as a means to escape the haze, Heng warns that any worsening of the haze situation would affect inbound tourism traffic as visitors delay or cancel their trips to Singapore.

Rebased to 1 June 2013 (Haze: On-going)

Source: Bloomberg, Maybank KE

The Chartist: grade b office rents to dip 10% in 2014 While Grade A rents are predicted to be flat in 2013, it will eventually dip 5%, according to Maybank Kim Eng. Grade B rents will drop 5% this year and 10% in 2014.

Analysts attribute this to new with the completion of high-quality Grade A office space in decentralized locations, non-FI companies may move into them.

The flip side, according to Colliers International, is that average capital value of Premium Grade and Grade A office space in the Raffles Place/New Downtown micro-market continued to stay flat at S$2,640 per sq ft and S$2,390 per sq ft, respectively, due to the absence of any vivid signs of a global economic recovery.

Average capital values for premium grade and grade A office space in Raffles Place/New Downtown

Trajectory of Singapore office rents

Sources: Colliers International

Sources: JLL, Maybank KE

SINGAPORE BUSINESS REVIEW | SEPTEMBER 2013 13

FIRST

Offices flock to Singapore’s outskirts

G

one are the days when people flood into the central business district to look for office jobs now that the government has increased the supply of office space in decentralised areas to locate jobs near population centres in the outskirts.

About 10.4msf of office space is expected to materialise from 2012-16, averaging 1.9msf over 2013-15, in line with the 20-year average and the average annual supply from 2008-11.

CLSA analyst Yew Kiang Wong reckons the pressure point will come from 2.6msf of space in 2013 contributed mainly by Hobee’s decentralised office, The Metropolis, at 1.18msf and MGPA’s Asia Square Tower 2.

Together, these projects account for 77% of 2013’s supply. “With the bulk of future supply coming from decentralised new buildings, we believe rental pressure in fringe, Grade-B and decentralised offices will be more pronounced than in Grade-A offices in 2013,” says Wong.

Developing the fringe The sub-regional centres that are seeing increased attention from the government are the Jurong Lake RETAIL WATCH:

Singaporeans want $5-7K wage District, One-North, Paya Lebar Central, North Coast Innovation Corridor, Southern Waterfront City, and Changi Business Park.

Vikrant Pandey, an analyst with UOB Kay Hian believes the impact of decentralisation will fall on older offices. Although higher islandwide office supply will curb rental upside, Pandey believes that the impact of the new supply will fall more on Grade-B and older offices as tenants shift to take advantage of more efficient floor plates and newer office amenities.

For example, Shell and Procter and Gamble, which both signed new leases at The Metropolis in 1Q13, have occupied their current offices on the periphery of the CBD for over 10 years.

About 10.4msf of office space is expected to materialise from 2012-16, averaging 1.9msf over 2013-2015.

Modern meets classic in Roche Bobois Singaporeans are never behind the pack when it comes to design as evidenced by its fine architecture -and clever use of space. To complement this rising design industry is the recently opened showroom of French luxury furniture brand Roche Bobois.

Present in 45 countries, Roche Bobois features two collections: Les Contemporains and Nouveaux Classiques. Each will offer a range of designs that span modern and classic.

They will be showcased on a surface area of approximately 7,500 sq ft where guests can revel in a slew of collaborations from such design greats as Jean Paul Gaultier, Sonia Rykiel, Missoni and Ungaro.

14 SINGAPORE BUSINESS REVIEW | SEPTEMBER 2013

Workers in Singapore are becoming more ambitious and are seeking out new, higherpaying job roles, even in their later years.

Four out of ten workers are seeking positions with salaries between S$1,500 to S$3,499, compared to 38% of Hong Kong workers who demand a higher salary between S$2,449 to S$4,899, according to a survey

by JobsDB. The study also showed a significant increase in respondents from Singapore searching for roles in the S$5,000 to S$7,499 salary range, up 7% from last October.

69% of neighbouring Malaysian job seekers, however, sought a salary between S$400 and S$2,000.

From October 2012 to present, now Singapore saw a small 3% decrease in job seekers aged 20 - 24; age bracket, however there has been a 4% increase in the 45 - 49 This trend also affected Hong Kong where there was a smaller 2% rise.

JobsDB said that this increase seen by both Singapore and HK suggests that people are seeking out higher-paying job roles as they approach retirement.

SINGAPORE BUSINESS REVIEW | SEPTEMBER 2013 15

FIRST Rising bond yieldsbond yields will limit cap rate compression and push up borrowing cost, making SREITs quite unattractive for investors.

SREITs losing their investment darling status

I

nvestors are dumping SREITs as worries over rising bond yields take hold. In 2012, investors swooned over the Singapore REIT, or SREIT, sector, snapping up stocks due to their high returns amid a permissive low interest rate environment. But now many are selling off and fleeing into what they perceive to be safer markets.

Sell-off gaining steam Concerns over US monetary policies, particularly the unwinding of the country’s qualitative easing program, have rattled investors in the SREIT market.

The FTSE Straits Times Real Estate Investment Trust Index (FSTREI) has corrected by 16.8% over the last one and a half months alone from its peak, according to Pang Ti Wee, analyst at OSK-DMG. The long-term yield curve has also climbed steeply.

Even though Pang sees bond yields stabilizing soon, investors are advised to remain prudent on the SREIT market due to the potential of rising debt costs and the compression in the spread between dividend and bond yields, following the increase in Singapore 10-year Treasury bond yields.

“Prior to the correction that began in the beginning of May, the yield spread between the SREITs and the 10-year Treasury bond yields stood at 381bps. Although the FSTREI has corrected by 16.8% since then, the 16 SINGAPORE BUSINESS REVIEW | SEPTEMBER 2013

spread between SREIT yields and bond yields stood at 356bps on 21 June, an indication the sector is not any more attractive than it was prior to the correction,” said Pang.

At a turning point Tan Siew Ling, analyst at CIMB, also shares the grim forecast for SREITs and believes that the market is at a turning point of being fairly valued.“We see few positive drivers for SREITs as tailwinds from interest rates and Singapore dollar have morphed into headwinds, impacting spreads, cap values and borrowing costs,” said Tan. Tan explained that rising bond yields will limit cap rate compression and push up borrowing cost, making SREITs quite unattractive for investors. She notes though that the near-term impact of higher borrowing cost should be manageable given the healthy asset leverage, high percentage of hedges and staggered debt maturity seen in the sector.

Meanwhile, as leveraged instruments, Tan notes that a spike in interest rates could result in a higher borrowing cost for REITs with lumpier refinancing, higher percentage of loans on floating rates and asset leverage. That said, she reckons SREITs are generally more prepared for any potential spike in borrowing costs and pullback in liquidity after the 2009 global financial crisis.

Taking into consideration asset leverage, percentage of loans on fixed rates and average length of debt maturity, office REITs such as Suntec, KREIT and CDREIT are more exposed. Suntec and KREIT both have higher asset leverage and exposure to floating-rate loans, which could result in higher borrowing costs when rates rise. On the other hand, Tan finds AREIT, FCT and CMT least exposed given their lower asset leverage and high exposure to fixed rate loans.

Are fears overblown?

Despite the generally negative outlook on the SREIT market, investors should not overlook the SREITs’ ability to grow distributions, says Derek Derek Tan, analyst at DBS Group Research, said. He also cautions investors against joining the bandwagon sell-off based on potentially unfounded, market fears.

Tan reckons that fears of the impact of rising bond yields on SREITs are an over-reaction at this point as QE is not expected to taper off anytime soon. Over the medium term, a rise in long bond yields is likely to be more gradual than abrupt and S-REITs’ continued ability to grow distributions (estimated at 4.0% YOY) is a compensating factor.

“Thus, we believe that the knee-jerk reaction seen in the SREITs’ share prices is unwarranted,” she added.

Tan notes that the magnitude of interest rate hikes that is being priced into the SREITs at present is far higher than even their most bearish market scenario. “If investors were to cherry-pick wisely, certain SREITs might even present them with considerable capital upside and attractive returns.”

Rise in SREITs’ yields in tandem with bond yields

Source: CIMB, Company reports

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2nd Annual Asia Pacific District Cooling Forum

Site Visit to Singapore Sport Hub

“Energy efficient innovation in cooling industry – Future trends”

Singapore District Cooling Ltd‘s facility

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FIRST The Analysts’ call

What’s next for SingTel after the failed Myanmar telco bid?

OCBC - Carey Wong

Why SingTel’s Myanmar bid loss is not so devastating

S

concerned about Bharti’s recovery prospects and losses from SingTel’s digital business.”

While SingTel did initially suffer a minor pullback in its share price after the announcement of the results, OCBC analyst Carey Wong notes that it was probably due to the sharp run-up in share price just prior to the news.

But overall, she adds that not winning it may not be a bad thing, given the massive scale The Myanmar market is esti- involved in the infrastructure mated to be worth US$2.8bn or just roll-out, where some market watchers believe that the capital 5% of SingTel’s total EV. investment could run into the tens of billions of dollars. winners fail to meet the regulator’s Ooredoo will reportedly invest post-selection requirements.

US$15b over the 15-year period. “We Though DBS analyst Tan Ai Teng note that the regulatory environment did not expect these candidates to is still very uncertain there, and win, both have experience and own that could probably put a cap on telcos in Asia. Telenor has businesses subscription rates, which could result in India, Pakistan, Thailand, in operating losses for the first few Malaysia and Bangladesh, while years.”

Qatar Telecom–operating under the Not getting the licence also means SingTel’s cash will be freed up for Ooredoo brand–reportedly operates return to shareholders. CIMB in Indonesia, the Philippines, Laos, analyst Kelvin Goh estimates capex Singapore and Pakistan. of US$1bn-2bn for network rollout Tan notes that the Myanmar in Myanmar, 50-60% to be funded market is estimated to be worth by debt. “All is not lost as we think US$2.8bn or just 5% of SingTel’s total EV. This is not surprising as Myanmar’s government-owned telco the country probably has one of the and incumbent carrier, Myanmar lowest mobile penetration rates in the Posts and Telecommunications, may seek a strategic shareholder to help it world (just 10%). “Hence, a win may compete with the two new entrants,” still not have a significant impact on predicts Goh. SingTel’s earnings. Rather, we remain ingTel may have been snubbed in the Myanmar telco licence awarding recently, but don’t fret it’s not so devastating after all. SingTel, despite being widely touted as a front-runner, lost the highly-coveted 15-year telco licences to Qatar-based Ooredoo and Norway-based Telenor.

France’s Orange is the back-up candidate should either of these two

18 SINGAPORE BUSINESS REVIEW | SEPTEMBER 2013

We believe that there are still opportunities for SingTel to get involved at a later stage when the industry is more settled and the regulatory environment is more established. Market watchers estimate that the mobile market in Myanmar could be worth some US$2.6-3.0b in 2016.

Separately, we see the recent volatility in the regional currencies as the biggest risk factor, as SingTel is especially exposed to AUD/SGD movements because of Optus.

However, we do note that some value is starting to emerge around current levels, as SingTel has fallen back to below our SOTP fair value of S$3.83.

CIMB - Kelvin Goh

Cash that was originally planned for Myanmar will now be returned to SingTel’s shareholders.

We estimate capex of US$1bn-2bn for network rollout in Myanmar, 50-60% to be funded by debt, in our estimation.

SingTel’s net debt/EBITDA was 1.35x in FY3/13, below its target of 1.5-2x. We expect its dividend payouts to be at the upper end of its 60-75% band.

OSK DMG - Edison Chen

While SingTel and Yoma have lost the battle for Myanmar’s telco licences, NeraTel may score an indirect victory.

This is because our checks show that both of the Myanmar licence winners– Telenor and Ooredoo– are NeraTel’s existing customers.

NeraTel is currently providing services to them in Indonesia and Malaysia.

According to the terms in the contract, effective from September 2013, both Telenor and Ooredoo have nine months to commence operations, and need to cover 75% of Myanmar with voice services and 50% with data services within the next five years.

In order to maximise the 15-year licence benefits, Ooredoo has even outlined a more aggressive plan, spending US$15bn to reach 90% of Myanmar’s population within two years.

THOUGHT LEADERSHIP SERIES 2: TRAINING & DEVELOPMENT

Check out what role EASB plays in shaping Singapore’s healthcare landscape See how EASB’s comprehensive postgraduate programmes help healthcare professional succeed.

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ast Asia Institute of Management or EASB is a top notch educational institution that aims to be a global education provider, equipping students with the latest knowledge and technical competence, and imbuing in them high ethical standards, that enable them to be immediate value contributors to businesses and society.

EASB offers a wide range of programmes that cater to the healthcare sector such as the MSc in Nursing (Education) and MSc in Nursing (Management). Both programmes aim to promote excellence in practice by offering opportunities to develop personally and professionally in the discipline of Nursing and can also benefit nurses who work in hospitals as nurse educators. EASB also offers the Bsc Professional Practice (Nursing) part time post registration programme which is accredited by Singapore Nursing Board (SNB) and the BSc Hons Medical Bioscience programme, both of which are relevant to the healthcare setting in Singapore.

Doris Lim Ching Lin is currently enrolled in Queen Margaret University – MSc in Nursing (Education), at the same time, she works as a Section Head and Lecturer in Health Sciences in the Nursing Education sector, specialising in the areas of nursing and also teaches

Doris Lim Ching Lin Queen Margaret University MSc in Nursing (Education)

anatomy and physiology at the Institute of Technical Education.

A lecturer herself, Doris chose to upgrade academically to value-add to her organisation (an education institution), which in turns broadens her perspective of the nursing landscape.

This will then be transferred down to her students, the future generation of healthcare professionals. As soon as Doris started her course with EASB, she knew the programme can help her enhance her professional development and succeed in her career.

Thorough selection process Doris reckons that EASB collaborates with many well-known and prestigious universities from overseas. The mission and vision of EASB, its methods of lessons deliveries and mode of learning are at par or near equivalent to Singapore post-graduate education.

During the process of course selection, Doris did a thorough market research to check out what were the modules and skills relevancy each university is offering. Realising that choosing an MSc

“In order to keep this passion going for years, I felt that there is a need for me to upgrade myself too.”

course is a serious career decision, Doris did check with her colleagues and peers who were currently doing their Masters as well as the university administrators on the course structure, the mode of assessment, course fees, the hours of direct contact with the university lecturers, the duration of the course, the reliability of the university as well as their success rate. After such a rigorous process, she took the MSc in EASB as she believes the course structure is comprehensive and modules offered are relevant to her current job scope.

Being a nursing lecturer is a double calling as both professions require a lot of passion and dedication, according to Doris. “In order to keep this passion going for years, I felt that there is a need for me to upgrade myself too. As a nursing lecturer, I believe the programme offered by EASB gives an individual a helicopter view of the nursing education thus generate new thinking and ideas which could shape the nursing education in Singapore,” says Doris.

Holistic learning Given that the system, processes & objectives of EASB are at par or near equivalent to other educational institutions, Doris is convinced that her current MSc degree in EASB will help her excel in her present role as a lecturer. It is without doubt that with the knowledge gain, the maturity level are understanding of complex issues pertaining to education and nursing will be attained. Knowledge is a powerful tool to a lecturer, a tool that could bring a better life to the student as a useful human being to the society.

“I believe the MSc degree in EASB will also give me a holistic view of the different approaches of nursing education while imparting knowledge to my students. Currently at the management level, the skills that I would gain from EASB could allow me to review, re-modify, reform and shape a new meaning of the nursing education in Singapore. With a new meaning, it thus indirectly brings about a change of the healthcare system in Singapore.”

SINGAPORE BUSINESS REVIEW | SEPTEMBER 2013 19

feature: Commercial investment

Appetite for commercial and hotel properties wanes

Pessimism lingers as commercial and hotel investment sales drop 50% in 1H of 2013 to $3.7 billion year-on-year.

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ith the latest round of cooling measures, investors are again rushing into commercial and hotel properties in Singapore, but the question now is whether they remain good investments amidst anticipation of higher interest rates to come.

According to Knight Frank, commercial and hotel investment sales in 1H 2013 comprised of smaller bite-sized deals compared with last year which saw larger investment transactions exceeding $1 billion, such as the $2.1 billion investment from the flotation of Far East Hospitality Trust and the $1.1 billion investment deal from the increased NTUC Income’s stake in Parkway Parade. Knight Frank’s director and head of investment Ian Loh said that despite the lower transaction volume in 1H 2013, investment interest in private commercial and hotel sec-

“Commercial and hotel investment sales in 1H 2013 comprised smaller bitesized deals.”

20 SINGAPORE BUSINESS REVIEW | SEPTEMBER 2013

tor remains active.

Key concerns Buyers have been continuously searching for suitable investment developments, but compressed yields and elevated asking prices for available commercial developments remained key concerns, he said.

“The commercial and hotel investment market remains active as both local and foreign investors show continuing interest in this sector. Hotel and retail developments are sought after though availability remains a quandary.

While foreign investors are still observed to enter the local market, some of the local investors are also expanding their foothold in other Asian countries in view of more available developments in the market and the potentially more attractive yields,” said Loh. The analyst, however, warned

that while liquidity in Singapore’s investment sales market remains for now, the compressed yields on the back of high selling prices, coupled with limited commercial properties available for sale, serve as key obstacles for the conclusion of successful deals.

Colliers International has a different view. It believes that investment sales in the Singapore property market are likely to remain healthy for the rest of the year, supported by the continued low interest rate environment as well as improving market sentiment as the result of a rally in the equity market. “The commercial sector, particularly retail strata space, is expected to stay on investors’ radar as it is still being spared from government intervention. The hospitality sector is also picking up momentum, with four hotels sold since the beginning of the year. The value of investment sales in the next nine months could be bolstered by the Singapore-REIT Initial Public Offering market, which has gained momentum in recent months.”

Major transactions Knight Frank reported that in 1H 2013, private investment sales

feature: Commercial investment for retail and office developments comprised the bulk of total private commercial and hotel investment sales transactions.

Mixed commercial developments accounted for 41% of total private commercial and hotel investment sales; pure office developments and retail developments accounted for 27% and 16.4%, respectively. Investment transactions for full hotel developments comprised the remaining 15.6%.

One of the largest private investment transactions in 1H 2013 was Robinson Point, bought

by Tuan Sing Holdings for $348.9 million. Another office development includes 16 Collyer Quay, or formerly known as Hitachi Tower, of which the remaining 51% stake in the building was bought by NTUC Income. Some other larger deals include the Pines Club, a mixed commercial and hotel development at Stevens Road, and Park Hotel Clarke Quay at Unity Street, which were transacted at $318 million and $300 million respectively.

Other prominent commercial transactions include 2HR at Havelock Road purchased by Guthrie at $282.9 million, the sale of Lend Lease’s direct stake of 25% in JEM at around $227 million and 135 Cecil Street at $182 million.

Buoyant retail sales market Colliers said that the strata-titled retail sales market remained buoyant especially in 2Q 2013, with strong demand from both individual and institutional investors. For example, 65 of the 107 retail units in The Midtown, a new 12-storey mixed development developed by Oxley Holdings and Lian Beng, were reportedly snapped up during the project’s preview. Wen Way Investments Pte Ltd reportedly purchased all 22 retail units at The Sail@Marina Bay for S$105 million, which works out to S$4,582 per sq ft based on the total strata area of 22,916 sq ft.

“Barring any policy measures from the government that might dampen the commercial sector, the capital value of prime stratatitled retail units in Orchard Road is likely to increase by some 10% for the entire 2013. Comparatively, capital values of prime strata-

titled retail units in the Regional Centres are expected to see an increase of at least 15% by the end of 2013,” according Chia Siew Chuin, Director of Research & Advisory at Colliers International.

Colliers also observed that there were more sellers leveraging the buoyant demand by putting their office properties up for sale.

Examples of such properties were units in Samsung Hub, Springleaf Tower, Sunshine Plaza and Suntec Tower.

“Notable deals that were concluded in 2Q 2013 included an 883-sq-ft unit at Samsung Hub which was sold for S$3,500 per sq ft, and a 10,333-sq-ft unit at Springleaf Tower which was sold for S$2,200 per sq ft. The prices were the highest achieved for the respective developments,” noted Colliers in a separate report.

A positive outlook Chua Yang Liang, Head of Research, Southeast Asia and Singapore at Jones Lang LaSalle also holds a positive outlook, noting that the commercial market is expected to maintain its activity in the second half of 2013 as institutional investors’ confidence returns on the back of stronger US performance and overall resilience in Asia. “Due to weaker global performance, institutional investments have been weaker in 1H 2013, what we have seen is demand driven largely by local/regional private equity. The forecast price growth will remain limited given the potential rise in interest rates in the medium term. There-

fore yield may expand on the back of stronger rental income from these commercial assets,” she said.

On the debate whether commercial and hotel properties are still good investments, Liang noted that the issue is actually about the investor’s risk appetite.

“Commercial assets are generally higher yielding reflective of the economic business risk. Our pro-business policies, political stability and free trading with many economic powerhouses, induce a high volume of business and tourist arrivals each year and support demand for these assets.

Residential, on the other hand, has a relatively lower rental return but the capital appreciation is there.”

Liang said that with the economic upside from recovery demand, and considering that the office market is nearing its trough, the investment opportunity for commercial assets are on the upside.

“Stratatitled retail sales market remained buoyant especially in 2Q 2013.”

Total investment sales value for private commercial and hotel sector

Source: Knight Frank Research

SINGAPORE BUSINESS REVIEW | SEPTEMBER 2013 21

OPINION

richard branson

This is how you should pitch a business idea

W “While my approach was unorthodox, it did the trick.”

hen you’re preparing to tell investors about your idea for a business, people are going to tell you to prepare an elevator pitch, the standard summary selling a business idea in a minute or less.

But there are many more locations and situations in which you may encounter a potential investor – anyone from a business leader in the industry to a family member — and you’ll need to be able to convince that person that your business will be gamechanging. Why limit yourself or your imagination to elevators? You need to think of it as your anywhere pitch.

Over the past few months entrepreneurs have pitched their ideas to me in two far more interesting settings than elevators. One was while riding a bicycle in South Africa. Some of the Virgin team and I were in the country in March for the Cape Argus Pick n Pay Cycle Ride, which is 109 km long. I hadn’t been on a bicycle since I was a boy, so we had decided to use my last-minute training ride to raise money for the Branson Centre for Entrepreneurship South Africa, a nonprofit that provides assistance and training to new entrepreneurs, and for the JAG Foundation, which tackles community problems through sport. We agreed to listen to some quick pitches from the participants during that Ride With Richard.

Sixty people signed up to ride and pitch their ideas to myself, Josh Bayliss, who is CEO of the Virgin Group, and Tracey Webster, who is the new CEO of the Branson

22 SINGAPORE BUSINESS REVIEW | SEPTEMBER 2013

Centre South Africa. The entrepreneurs had to think on their feet and make their ideas stand out from the rest of riders in our peloton. The novelty factor kept everyone laughing, the huffing and puffing helped people to keep their pitches succinct, and the exercise got everyone’s brains into gear - we heard some good initial ideas and built on them together. And we all completed the entire race the following day, so that practice was very helpful.

Then in May, I listened to some enthusiastic pitches during an AirAsia flight on which I was working as a stewardess. Some passengers passed proposals forward and I invited those who’d handed me the most attention-grabbing ones to tell me about their ideas. One woman had even worn a beard to ensure that she caught my eye. It was a pretty surreal experience, but several people shared excellent pitches and I was able to point a few of them in the right direction.

The magic trick One of the most unusual pitches I ever gave involved a magic trick. Back when we were working on starting up Virgin Atlantic, I met with Airbus, hoping to buy a plane. As a new business, we desperately needed a big discount, and I told them that if they sold their plane to us and our airline became successful, which it surely would, they’d receive much more business in the long term. However, Airbus would not agree to the price we could afford.I knew that their executives had

probably heard pitches like mine before, so I decided to make mine stand out.

As we sat down for lunch, I asked the executives: “Do you think that there is any chance that your CEO could be hypnotized?”Absolutely not,” they replied. I said to the CEO, Jean Pierson: “If I can hypnotize you in five minutes, will you give us the $2 million dollar discount?”

He and they all agreed and we shook hands.

Hypnotism About three minutes later I asked what time it was.

Pierson glanced down at his wrist and discovered that his watch was gone. He looked worried. I then looked at my wrist, where there were now two watches. The executives believed that I had hypnotized Pierson and he had handed me his watch, rather than simply being nimble enough to pocket his watch when we shook hands!Airbus gave us the discount as promised, which was critical in getting Virgin Atlantic off the ground. While my approach was unorthodox, it did the trick.

Whatever your idea is, follow these simple steps: Explain how your new business will make a difference, but do it in an entertaining fashion.

Show off your expertise in a personable way, highlight your experience and your team’s strengths, and ground your idea with simple, realistic messages. Do not use jargon. Most importantly, pitch quickly. You never know – the person you are pitching may have an elevator to catch.

THOUGHT LEADERSHIP SERIES 2: TRAINING & DEVELOPMENT

Strut your healthy legs with Boehringer Ingelheim’s Antistax products Relieve your tired, heavy legs with Antistax Leg Cooling Gel or Healthy Active Leg Tablets.

S

ome people have very busy lifestyles that they tend to neglect taking care of their health and body. One body part that is most used by every person of any age is none other than the legs. Office workers who are sitting for long periods and daily commuters who may be standing for the whole bus or train ride are only some of the people who have a high probability of having tired and heavy legs.

While small quantities of red wine serve as a secret to long and healthy life, not many people know that red vine leaves are responsible for keeping legs healthy. This home remedy was used by French wine growers who have never suffered from vein disorders. They revealed that they were actually making infusions and poultices from vine leaves to treat their swollen and painful legs.

The wonders of Bio-active Flaven To make this solution accessible and available to more people, researchers analyzed the active ingredients of the red vine leaf and developed it into an extract with significant amounts of bio-active Flaven which has been scientifically proven to help maintain healthy leg vein circulation, and reduce pain and

“They revealed that they were actually making infusions and poultices from vine leaves to treat their swollen and painful legs.”

swelling noticeably. It has a positive effect on the elasticity and density of vein walls, which is why it is used for treatment of heavy, achy and tired legs.

Bio-active Flaven works inside the coronary system to increase elasticity and keep blood vessels healthy. It has been proven to increase the microcirculation of the skin and increase its supply with oxygen and nutrients. This extract is the basis of the Antistax range of products for the prevention and treatment of leg health issues.

Boehringer Ingelheim, one of the leading pharmaceutical companies in the world, has the consumer brand Antistax and its 360mg tablets have a clinically proven effect on the reduction of oedema caused by chronic venous insufficiency, as well as relieving pain and feelings of tiredness and heaviness in the legs. Antistax therefore delivers a significant improvement to the quality of life of the relevant population.

Antistax is considered a medicine in Germany, Switzerland, Austria, Russia, Mexico and Spain and is known to improve leg vein circulation, relieving achy swollen legs.

But in Italy, France, Belgium, the UK, and South Africa, Antistax is known as a food supplement and helps to maintain leg vein health by avoiding an aching, heavy, tired feeling due to our modern lifestyle.

Antistax products Consumers can choose which of the Antistax products, which all contain Flaven, are best suited for their condition. The Antistax Leg Cooling Gel comes in a pack size of 125ml

Antistax Gel

tubes and has a comforting, cooling and soothing effect on the legs. It also stimulates the microcirculation in your legs, especially when gently massaged onto the skin, preferably from the ankles towards the top of the leg.

The Antistax Healthy Active Leg Tablets, which come in packs of 30s, are a food supplement and considered to be a powerful antioxidant that will strengthen and protect your veins from the inside. When taken every day as part of a well-balanced diet and active lifestyle, the easy-to-swallow tablets may help avoid the feelings of aching, heavy and tired legs that are often brought on by standing or sitting for long periods of time. One Antistax tablet contains as much bio-active Flaven as you would get from three bottles of red wine.

In a recent study, 260 men and women with aching, heavy and tired legs were asked to take one to two Antistax Healthy Active leg tablets a day and produced noticeable improvements by the end of week 6. Positive feedback became even more marked after the full 12-week trial period. Feelings of tired, heavy legs, tension, and aching, were significantly improved, and leg volume was reduced by 100 ml per limb.

It is recommended that you take Antistax tablets every day for at least 6 weeks, as part of a normal, balanced diet. Antistax Active Leg Tablets can be continued indefinitely, as part of a normal diet unless you have other concerns about your leg vein health. It is recommended that you take 2 Antistax Active Leg Tablets in the morning, with a glass of water at breakfast time.

SINGAPORE BUSINESS REVIEW | SEPTEMBER 2013 23

REGIONAL ECONOMY BRIEFING

Southeast Asia’s economic roadmap to 2020 DBS Economist Eugene Leow predicts the combined size of the Thai, Indonesian and Philippine economies to reach USD 2.4trn by 2020.

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outheast Asia is fast becoming a third growth force in emerging Asia, next to China and India. In particular, the TIP economies – Thailand, Indonesia and the Philippines – are increasingly garnering investor attention. The three countries have a combined population of around 400mn, but a GDP of only USD 1.5trn.

They argue that that optimism in the TIP economies is justified, as GDP growth is expected to be elevated relative to the past decade. By 2020, the size of the TIP economies is projected to reach USD2.4trn (in constant 2012 US dollars), implying a USD1trn odd increase in demand over just eight years. Accordingly, the size of the middle class (defined as the

“Indonesia remains the most important of the TIP economies and is expected to contribute the bulk of economic growth over the next eight years. ”

24 SINGAPORE BUSINESS REVIEW | SEPTEMBER 2013

number of motor vehicle owners) is expected to soar to nearly 200mn by 2020, from 80mn in 2012.

The most important economy In absolute terms, Indonesia remains the most important of the TIP economies and is expected to contribute the bulk of economic growth over the next eight years.

Demand is expected to increase by USD 600bn between now and 2020, an increase of 62%. Thailand and the Philippines provide additional demand amounting to USD 182bn (up by 50% compared to 2012) and USD 158bn (up by 63% compared to 2012) respectively.

Similarly, Indonesia is projected to add the largest number of middle

class members to its population (85mn), followed by Thailand (18mn) and the Philippines (15mn). In terms of living standards (USD per capita GDP in 2012 prices), all three economies will experience significant improvements in the coming years, but Thailand should maintain a sizable lead over both Indonesia and the Philippines. Indonesia is projected to pull away from the Philippines over our forecast horizon.

DBS estimates are based on differing stages of economic development, government growth strategies, demographics and potential economic constraints.

Thailand will rely heavily on public infrastructure spending and is positioning itself to take advantage of economic growth in the greater Mekong region. An aging demographic profile and a stretched banking sector present the key challenges.

In Indonesia, commodity prices are unlikely to boost GDP in the coming 2-3years as much they have in the past 2-3. This has negative implications for the budget, external accounts and banking system liquidity. The next few years will be critical as Indonesia reaps the full benefits from its demographic dividends and attempts to transition the economy from commodities to secondary industries.

For the Philippines, it is easy to remember the many false dawns over the last few decades. But the current turnaround holds much promise even as the country needs to attract real investment instead of just portfolio flows. Generating jobs and utilizing human capital effectively will remain the key challenge. On the plus side, risks on the fiscal and external front appear low.

Indonesia: Moving beyond commodities Indonesia was one of the worst hit during the Asian Financial Crisis (AFC) of 1997/98 and living standards only recovered to pre-AFC levels in 2004 after several years of political turmoil. The economic situation began to turn for the better in 2007/08 when growth in the global economy led to sharp increases in commodity prices in the subsequent

REGIONAL ECONOMY BRIEFING years. Barring the global financial crisis in 2009 and the price slump over the past year, commodity prices have stayed elevated relative to early 2000s levels, and this has sparked the first wave of investment into resourcerelated industries. In the post-Global Financial Crisis (GFC) years, low interest rates in the developed economies allowed Indonesia to bring domestic interest rates to record lows, facilitating this period of accelerated capital accumulation. Unsurprisingly, a large proportion of investment is allocated into primary industries. In 2011 and 2012, almost 25% of foreign direct investment (FDI, data from BKPM) went into the primary sector.

Comparatively, during the period from 2005 to 2009, that number was only 5%.

Less rapid price gains The era of rapid primary sector investment is closing. With China heading into a more moderate pace of GDP growth, commodity price gains are likely to be less rapid even if the global economy rebounds. Notably, as China’s growth pace noticeably slowed in the last few quarters, commodity prices also embarked on a downtrend. This has implications for investment and GDP growth.

As Indonesia transits into secondary and tertiary sector investment-led growth, it will be challenging in the next few years to offset the drag from lackluster commodity prices. In the four quarters ending 1Q13, secondary sector investment rose by 80% compared to the same period a year ago, outpacing the 25% registered for primary sector investment.

In particular, investment in the pharmaceuticals/chemicals, metal/ machines/electronics and motor vehicles/ transport equipment segments have been gathering pace. The secondary sector will be dominant in driving investment in the coming years for two reasons.

First, costs are still relatively low in Indonesia compared to its peers in the region and will prove attractive to manufacturers. Notably, China’s comparative advantage as a manufacturing hub has been eroding as its currency strengthens and wages continue to push higher. To deal with

rising costs, multinationals will be looking to diversify their factories into other countries and Indonesia should be a major beneficiary.

Secondly, the rise of the middleclass has been rapid and businesses will be looking to satisfy the higher spending power. We estimate that the size of the middle class was around 40mn in 2010 and has risen to around 46mn in 2012. This figure is projected to reach 131mn by 2020 and represents a tripling of the middle class population in just ten years on the back of favorable demographics and the spread of investment into the less developed areas.

Regional diversification To put things into perspective, investment outside Java rose by nearly 3x between 2009 to 2012. Put another way, investment per person in the other regions have closed the gap with Java (the most populous island in Indonesia) in the most recent two years. Regional diversification in investment limits saturation in Jakarta and facilitates productivity improvements across the archipelago.

The resulting wage increases and the spread of wealth across Indonesia will be necessary to maintain the rapid increase of the middleclass.

As an additional tailwind, Indonesia is reaping the full benefits of its demographic dividend with its dependency ratio falling to 0.53 by 2020, compared to 0.55 currently.

A rising proportion of the working class population and moderating population expansion will continue to be supportive of per capita income

“In 2012, Thailand was the largest auto manufacturer in Southeast Asia and ranked 15th in the world.”

growth. The current account deficit is a key constraint on economic growth.

Structurally, the deterioration in the current account is to be expected after several years of investment-led growth.

Thailand: Revitalizing infrastructure Thailand is the most developed amongst the TIP economies having already embarked on a period of high single digit/low double digit growth in the late 1980s and early 1990s.

During that period, living standards in Thailand pulled sharply ahead of both Indonesia and the Philippines thanks to high investment and favorable demographic dynamics.

The Asian financial crisis in 1997/98 and the military coup in 2005 dampened investor sentiment and growth rates. However, Thailand managed to carve out a niche in manufacturing, especially in autos and electronics. In 2012, Thailand was the largest auto manufacturer in Southeast Asia and ranked 15th in the world. It is the world’s largest

TH, ID, PH: Size of middle class

Source: DBS Group Research

SINGAPORE BUSINESS REVIEW | SEPTEMBER 2013 25

REGIONAL ECONOMY BRIEFING hard disk drive manufacturer and has significant production capabilities in household durables such as refrigerators and air conditioners as well.

In the coming years, Thailand will face increasing challenges to its dominant position in autos and electronics production as other economies catch up. Labor costs are relatively high and have been exacerbated by the cumulative 150% rise in minimum wages over the past two years. Facing competition and costs pressures, industries must move up the value chain and raise productivity.

Meanwhile, the government has unveiled a long-term infrastructure construction plan to facilitate the industrial shift to higher value-added output. Thailand should maintain its higher per-capita income through to 2020 despite a lower level of GDP growth compared to the other TIP economies. Notably, while population growth is not going to add any tailwind to the economy, low birth rates actually help in pushing up GDP per capita.

The government takes the lead The good news is that public investment is about to be revitalized after many years of stagnation. Since falling off sharply post the Asian financial crisis of 1997/98, real

government investment has gone nowhere, while private investment has risen more than twofold since 2000.

Under the THB 2.2trn (17% of GDP) infrastructure investment plan, THB 1.5trn will be allocated to land transport projects. These include high-speed railways (scheduled 20122020) linking all the key districts in the country and a mass rapid transit master plan (scheduled 2010-2029) for the Bangkok Metropolitan Region. Other areas of concentration in the infrastructure investment plan include ports, airports and utilities. The spending schedule for the infrastructure projects has been outlined by the government, with some 70% of budgeted THB 2.2trn to be disbursed by 2016. If implemented, the infrastructure plan will add an average of 1.6 percentage points to GDP growth annually for the next eight years.

The scenario above is relatively optimistic. To complete the analysis and make it more realistic, spillover effects and constraints should be considered. Three questions / constraints present themselves.

First, can the government afford to take on THB 2.2trn worth of direct/ indirect debt? The short answer is yes. Government debt levels are still low, with debt-to-GDP amounting to 44%. Debt levels should not greatly

The spending schedule for the infrastructure projects has been outlined by the government, with some 70% of budgeted THB 2.2trn to be disbursed by 2016.

exceed 50% of GDP even in 2020.

Second, can the labor force supply a sustained increase in demand for construction workers? Possibly, but the current workforce is already stretched with the unemployment rate below 1%. Gauging the construction labor requirement from the planned infrastructure spending, we estimate that 300- 400k of additional construction workers will be needed. Currently, there are around 2.8mn construction workers and total unemployment stands at about 0.25mn. Thus, even if all the unemployed become construction workers, a large shortfall would still exist. This could be overcome by bringing in foreign workers but this is more difficult than it sounds. Wage pressures are still likely to mount given tight labor conditions.

Third, some crowding out of private sector investment seems likely. As a more developed economy, Thailandâ&#x20AC;&#x2122;s loan-to-GDP ratio and

TH, ID, PH: GDP per capita

Source: DBS Group Research

ID, TH, PH: GDP reaches USD 2.4 trn by 2020

Source: DBS Group Research

26 SINGAPORE BUSINESS REVIEW | SEPTEMBER 2013

REGIONAL ECONOMY BRIEFING loan-to-deposit ratio are both close to 100%. This implies less room for the financial sector to extend credit (absent of course, foreign funding and a current account deficit). The extent to which foreigners are willing to finance such a deficit at current interest rates is an open question.

Philippines: Attracting investment The Philippines had the highest living standard (GDP per capita in PPP constant USD terms) amongst the TIP economies in the early 1980s. But the economy stagnated due to a prolonged period of poor administration and political instability. Consequently, the Philippines failed to participate in the Asian boom in the early 1990s and dropped below Thailand in 1985 and subsequently Indonesia in 1991.

Living standards have been essentially unchanged for the past 30 years. But that is set to change.

Conditions have fallen into place for the Philippines to re-emerge as an investment destination of choice. Economic growth is robust; indeed it is the highest in Southeast Asia. Reforms on the fiscal front are starting to pay off and this has led both Fitch and S&P to raise the Philippinesâ&#x20AC;&#x2122; sovereign rating to investment grade this year. Balance of payments dynamics remain strong, with the current account staying firmly in surplus. Inflation expectations are anchored and monetary policy is accommodative.

Investor perception of the Philippines has changed and this has been reflected in the surge of the stock index, low government bond yields and compressed credit default swap spreads. In terms of economic development, the Philippines is several years behind Indonesia and is only in the nascent stages of investment-led growth.

However, the template for the Philippines is going to be different to the path Indonesia embarked on several years ago. Over the past five years, Indonesia relied heavily on commodity-related investment to kick start growth and that was only possible because commodity prices were favorable. In contrast, the Philippines opted to take a more

service-oriented route as its mining industry remains mired in difficulty.

Utilizing human capital The Philippines has a highly educated workforce with a good command of English compared to its peers in the same development group. Gross secondary school enrollment stands at 84%, compared to 79% and 75% in Thailand and Indonesia respectively.

Moreover, tertiary school enrollment stands at 28%, higher than Indonesia (22%), but lagging Thailand (48%).

The Philippines has not managed to fully utilize the amount of human capital at its disposal despite success in selected sectors. Over the past few years, growth in services exports has been striking.

Momentum has been building and an increasing number of multinational companies have been transferring BPO-related jobs to the Philippines to take advantage of low labor costs and government incentives. In 2012, the Philippines generated USD13bn worth of revenues in the BPO sector and provided employment for close to 800,000 individuals.

Tourism is another bright spot.

Under the National Development Plan (NTDP) of 2010-2016, PHP 266bn worth of investment in tourism-related sectors is targeted.

The private sector is expected to provide PHP 192bn while the government is expected to contribute

The Philippines had the highest living standard (GDP per capita in PPP constant USD terms) amongst the TIP economies in the early 1980s.

PHP 74bn. In the three years ending 2012, close to PHP 30bn has been invested in tourism and medical tourism related projects. To be sure, the investment numbers still seem to be on the low side but some early signs of success can already be seen.

Persistent shortage of jobs However, services growth alone cannot push down the unemployment rate with roughly 1.2mn people entering the workforce annually. Notably, the persistent shortage of jobs explains why around 10% of the population works overseas. For job creation to proceed at a faster pace, development of the manufacturing sector will be needed.

Liberalization of foreign ownership rules can be the catalyst for a surge in secondary sector investment. There have been some encouraging signs.

Approved FDI into the manufacturing sector each year from 2010-2012 amounted to three times the average from 2002-2009. In 2012, there were also clear improvements in the transport & storage and information & communication segments. The government has taken the lead in facilitating investment growth via the private-public partnership projects (PPP) launched in 2010. While progress was slow in the initial phases, things were notched up in recent quarters. Six projects are in the bidding phase while two projects have already been awarded.

SINGAPORE BUSINESS REVIEW | SEPTEMBER 2013 27

legal briefing

Singapore announces new licensing scheme for online sites Protests rage over freedom of speech issues.

W

ith effect on June 1, 2013, online news sites that regularly report on Singapore matters and which are accessed by a significant number of Singapore readers will need to apply to the Media Development Authority (MDA) of Singapore for a new individual licence. The new rule however was stormed with criticisms over issues centred on hindering free flow of information online.

What online sites are required to be individually licensed?

Allen & Gledhill partner Tham Kok Leong outlined two criteria. First, the online news sites are reporting an average of at least one article per week on Singapore’s news and current affairs over a period of two consecutive months. Secondly, they are visited by at least 50,000 unique IP addresses from Singapore each month on average over the same period of two consecutive months.

So far, the MDA has identified 10 online sites which require individual licences including 9 from the main newspaper publishers and broadcasters in Singapore, and 1 operated by Yahoo! News.

Hogan Lovells partner Gabriel Kennedy noted that the new licencing regime is currently limited to local Singapore based sites, which appears to include sites owned by foreign entities but with the “.sg” domain name. “It is intended that the Singapore Broadcasting Act will be further amended in 2014 to more broadly cover any foreign news sites targeting the Singapore market,” she said.

What does the new licensing framework mean for online news sites?

Kok Leong said that the new framework will place such online news sites on a more consistent regulatory framework with traditional news platforms which are already individually licensed. Online sites have been automatically class-licensed under the Broadcasting Act previously. According to Leong, once the MDA assesses that an online site has met the criteria to be individually licensed, the MDA will issue a formal notification and work with the site to move it to the new licensing framework. Such online news sites are required to put up a performance bond of S$50,000, which is consistent with that required of niche TV broadcasters, he said. The Licence would be valid for a year, and the MDA will determine whether the Licence should be renewed.

Baker & Mckenzie partner Ken Chia added that while it is expected that the prevailing content regulation requirements will not change, the new 28 SINGAPORE BUSINESS REVIEW | SEPTEMBER 2013

licence will also provide greater clarity on what the MDA would consider prohibited content, and impose a requirement for licensees to comply with the MDA’s direction to remove infringing content within 24 hours.

Ken Chia

Tham Kok Leong

Gabriel Kennedy

What are some concerns over the new rule?

Chia said that there is a risk that the new licensing regime could have a chilling effect online as it may also potentially apply to other local or foreign websites providing commentary on local current affairs, particularly if such commentary is critical of the Singapore Government.

Chia added that a number of analysts have also complained about the lack of public consultation and Parliamentary debate before the amendments were introduced. “Dissent to the new licensing framework is building up online, and it remains to be seen whether the MDA would be forced to address such criticisms in the implementation of the regime,” he said.

According to Hogan Lovells’ Kennedy, while the MDA contends that the new licensing regime has been implemented in order to create greater

“Online sites have been automatically class-licensed under the Broadcasting Act previously. ” consistency amongst other news platforms, concerns have been raised that the new licensing regime will hinder the free flow of information online, and will prevent smaller online news sites or blogs from being run.

“Over 150 sites, including the popular sociopolitical blog The Online Citizen, protested against the new licensing regime by participating in a twenty-four hour online “blackout” on 6 June 2013. Participants in the protest blocked access to their sites and redirected users to a page called “Free My Internet”, an online movement started by the blogging community to protest against the new changes. A further protest was also held at Hong Lim Park in Singapore on 8 June 2013,” she said.

Kennedy said that the main concerns appear to be the new twenty-four hour deadline to take down prohibited content; the large performance bond; and the potentially broad applicability of the new licensing regime, and the implications that the foregoing may have on freedom of speech.

co-published Corporate profile

District Cooling – The Smart, Efficient, and Economic Way! It’s time to bid farewell to traditional cooling solutions.

Many experts in the corporate world are looking for an economic and energyefficient cooling solution, one that meets the challenges of property development in the region. District Cooling has the answer to your cooling needs that will meet or exceed your expectations.

At present, cooling activities are responsible for the largest portion of energy consumption. Production, operation and maintenance of individual air-conditioning units are inefficient in large scale applications and no longer the only option in property development. District Cooling is economical, scalable, and an energy efficient way of providing refreshing cool air to residential, commercial and industrial properties via insulated underground pipes that save money and increase both comfort and productivity among satisfied customers.

District Cooling has been in use for many years in the United States as well as in Europe, with emerging markets in South East Asia now moving to the forefront of development. In recent decades, major urban project developments have opened the door for District Cooling in the region, particularly in Singapore, Malaysia, Thailand and the Philippines. Today, metropolitan property development projects in the region start with these words – Energy Efficiency and Green Energy. Sustainable development of energy resources can be obtained through District Cooling; today’s answer to your cooling needs.

“Compared to 10 years ago, District Cooling is getting a lot of attention in Asia because of increased environmental awareness which is more sensitive now. Many developers realise that District Cooling is a good way to reduce their carbon footprint.

“District Cooling is economical, scalable, and an energy efficient way of providing refreshing cool air to residential, commercial and industrial properties.”

There is still a long way to go in education on this issue, but I see that architects, town planners and developers understand more fully the effectiveness of District Cooling from an environmental point of view.”

“As an industry that is growing rapidly in the region, government regulation is needed to ensure balance between provider and consumer.”

So says Mr. Pierre Cheyron, CEO of Cofely South East Asia (part of GDF Suez group), who sees District Cooling as one of their priority segments for investment in the energy market, in South East Asia. He sees huge potential within the District Cooling industry in the region, both in the Green Energy field as well as existing district cooling applications which practice both technical and technology transfers to improve overall plant performance and increase reliability.

George Berbari, CEO of DC Pro Engineering says District Cooling is more efficient now than at any time before. Higher efficient chillers, pumps, cooling towers, use of TSE water and thermal storage as well as CCHP are making District Energy more efficient and hence more appealing technically, financially and environmentally.

“In order to have an efficient district cooling plant, high standards of maintenance are required. However, in this part of the world good maintenance practice has not really been a priority. We need to improve the way the existing district cooling plants are operated and maintained so we can deliver value improving the process of operation and maintenance.”

In Singapore the District Cooling industry is “Uniquely Singapore”. It is the only country in the ASEAN region with a solid, well-defined legal framework that protects consumers’ right while provides tangible return on investment for developers, operators and project owners. Malaysia is “Truly Asia” where pure market principles on mutual basis determine the provider-consumer relationship

Sean M. Safarkhani Marketing manager, Fleming Gulf

“In order to have an efficient district cooling plant, high maintenance is required.” including technology, scale of investment and end user pricing.

Silvester Pullman, Managing Director of Fleming Gulf Malaysia put it best when he said “as an industry that is growing rapidly in the region, government regulation is needed to ensure balance between provider and consumer.” The importance of having an efficient knowledge-sharing platform is another essential factor which should come into consideration.

Thailand and the Philippines are areas of upcoming opportunity and represent a kind of a gold rush situation in District Cooling, whereas in Japan, District Cooling is considered a public utility just like water or electricity. There they have introduced energy efficiency themes in early education – starting as early as kindergarten.

This represents the future of the market’s possibilities and is thus a feasible goal for all market participants. The question that remains is how fast the South East Asian District Cooling industry can reach that same level of development?

SINGAPORE BUSINESS REVIEW | SEPTEMBER 2013 29

COUNTRY REPORT: MYANMAR

Myanmar is ready for some serious business

The roads to Mandalay may not be smooth, but a tsunami of cash and expertise is about to transform Myanmar.

I

t has been less than two years since the US and EU lifted sanctions on Myanmar, but already the country is experiencing the greatest investment boom South East Asia has seen in a generation. The latest sign that the country is truly open for business was the commitment of Qatar telecom to invest US$15 billion over the next two years to roll out a mobile telecoms network.

And it also has a competitor who will likely invest a similar amount. All of which will propel Myanmar from the country with the lowest direct FDI in the Association of Southeast Asian Nations (ASEAN) to one of the highest. This tsunami of cash and expertise is set to transform a country that was once the heart of the British Empire. The roads to Mandalay are not smooth, and basic infrastructure is yet to be built. For the savvy busi-

“In terms of foreign investment Myanmar is still near bottom of the league tables, raking in just US$1 billion for 2012”

nessman, those are opportunities. But where should he start?

Myanmar’s GDP is expected to to grow more than 6% over the next two years. The country is rich in natural resources, including large natural gas reserves, and has extensive agricultural potential, particularly in rice production. Growth is expected to be bolstered by the EU’s reinstatement of preferential access for Myanmar’s exports and the US’ suspension of its ban on imports from Myanmar. DBS analyst Tan Ai Teng notes that a lot of changes are on the horizon. Two large gas fields, Shwe and Zawtika, are expected to come onstream in FY2013, more than doubling gas production and raising exports to the PRC and Thailand. Higher gas exports, greater access to international markets, and faster economic growth in key markets such as the PRC will support

growth in exports. Visitor arrivals are likely to post further large gains. There is a long way to climb up when you are near the bottom.

Foreign investment In terms of foreign investment, Myanmar is still near bottom of the league tables, bringing in just US$1 billion in 2012, compared to US$2.4 billion for the Philippines and US$111 billion for the 6 largest in the ASEAN. Singapore alone got the biggest chunk of US$56.7 billion, followed

by Indonesia with US$19.9 billion, Malaysia with US$10 billion, Thailand with US$8.6 billion, and Vietnam with US$8.3 billion. So far, China is the largest investor in Myanmar, accounting for nearly half of the current investment commitments.

Key exports are natural gas, agricultural products, gems and jewellery as well as timber and garments, but perhaps one of the most geo-sensitive exports is rice. It is a little known fact of history that Myanmar was once the biggest rice exporter in the world under British colonial rule. Located at the foothills of the Himalayas, the country is blessed with an abundance of fresh mineral-rich water flowing

COUNTRY REPORT: MYANMAR down to feed its vast rice fields. But decades of isolation and military rule have seen the industry dwindled and starved of capital to revitalise the farms. Despite this, Myanmar is still the world’s seventh largest producer of rice, farming almost the same amount as Thailand and twice as much as the Philippines, with only half as many mouths to feed. Rice exporting to Japan is about to begin after a 45-year break, and all that is needed to ramp up production is modern agricultural machinery and better technology.

Indeed, the Myanmar Agribusiness Public Corporation Ltd (MAPCO) is collaborating with Japanese conglomerate Mitsui to form a JV to set up four rice-milling and processing plants. According to the US Department of Agriculture, Myanmar’s total rice exports last year stood at 600k tons, making it the world’s tenth largest supplier.

The government hopes to raise exports to 5m tons within five years.

This would put Myanmar in the league of its neighbours - Vietnam (7.4m) and Thailand (8m)– according to economists at DBS. In time they could again top the world’s largest rice exporters’ league table, making them a very important part of the Asian food security chain.

Political will Political changes on the ground that have led to a lifting of sanctions and the opening up of Myanmar. Since taking office in March 2011, President Thein Sein and key ministers in Myanmar have reformed laws, taken steps to liberalise the tightly controlled state economy, signed ceasefire agreements with the majority of the ethnic groups, enhanced freedom of expression by scrapping press censorship, and allowing circulation of privatelyowned newspapers in Burma for the first time in almost 50 years.

Politically, the military-turned-civilian government has continued to release more political prisoners. Notably, the military-dominated power has allowed opposition parties to hold seats in Parliament.

To implement a clean government and flush out corruption, the President has also formed a nine-member anti-graft team and overhauled his administration early this year, resulting in six high-ranking officials were forced to retire due to mismanage-

ment or corruption, while 40 others were transferred to other ministries.

The authority further probed and put the former Minister of Posts and Telecommunications under house arrest while investigating more than 50 officials over possible links to high-level corruption in a proposed nationwide telecommunications network that is currently in a bidding process.

China vs Japan Japan stands out as the most eager party buying into Myanmar’s growth prospects. The Japanese government not only waived US$3.36bn in bilateral debt, its overseas development bank -Japan Bank of International Co-operation ( JBIC) - also provided nearly US$1bn of bridging loan to cover an outstanding debt to the World Bank and the Asian Development Bank so that the latter could resume lending. In addition, Japan announced an extra US$220m in soft loans for infrastructure and human resources development, which is the first of such lending in 26 years.

But for now it is still near neighbours China and Thailand who have invested the most in Myanmar. China is Myanmar’s largest investor and its second largest foreign creditor, followed by Thailand. Together, these two countries have invested US$25bn out of Myanmar’s official total cumulative foreign investment of US$42bn for 2012. The Chinese have mainly invested in energy/natural resources and infrastructure development projects such as Nay Pyi Daw airport.

“The government hopes to raise exports to 5m tons within five years.”

Now, they are also targeting Myanmar’s underdeveloped infrastructure and construction sectors as well as manufacturing due to availability of cheap labour.

Thailand’s investments are mostly in oil and gas, through PTT Exploration and Production (PTTEP), the overseas arm of state-owned PTT. PTTEP operates the Zawtika gas project in the gulf of Mottama, while also being a partner in the Yetagun and Yadana offshore gas projects.

Foreigners welcome November 2, 2012 will go down as an important date in Myanmar’s history.

No one was shot, no one was elected.

But nevertheless a new foreign investment law was passed which makes Myanmar one of the most pro-investment countries in ASEAN. Under the new law, any investments can be up to 100% foreign-owned. Foreigners have the choice to either set up shop on

Monthly tourist arrivals

Sources: CEIC, Standard Chartered Research

COUNTRY REPORT: MYANMAR their own or establish joint ventures with local firms or government agencies where they are free to agree on the ratio of foreign to/local capital.

To promote foreign investment, the new law has extended the tax grace period from three to five years and permits repatriation of funds/profits after tax at market exchange rates.

And although Myanmar still prohibits foreign ownership of land, foreigners can now lease land for as long as 70 years, up from 40, giving them a degree of long-term security.

The country is yet to pass laws to kickstart its condominium law but when it does it should allow for full foreign ownership of condominiums.

In banking, the country still has a long way to go. ATMs were only introduced in 2012, a shock for many international visitors who had expected to find cash points dotted around the city.

There are still no foreign banks in the country, but it is expected that JVs for foreign banks will eventually be followed by wholly owned subsidiaries and then full branches.

But perhaps the biggest challenge facing Myanmar is the sheer reality of

“The current airport can only handle 3 million passengers a year, but is being upgraded to handle 6 million by 2015.”

Myanmar FDI

Sources: Myanmar Investment Commission

Office supply in Yangon relative to the region

Sources: Colliers, CBRE, Savills, Cushman & Wakefield, Silk Road Mgt

its capital city which would be as instantly recognisable to George Orwell when he wrote the Burmese Days in 1934 as it would be to a visitor today.

Floating the Myanmar kyat was another important reform that was implemented on April 2, 2012.

Money ready The government replaced an “overvalued” peg (compared with informal market levels) with a managed float.

Before the reform, the Myanmar kyat (MMK) was officially pegged at 8.51 against Special Drawing Rights (SDRs), and it varied around 6.406.45 against the US dollar (USD) over 2004-11.

However, besides the official exchange rate, there were several unofficial exchange rates in the informal market, and the spread between the official and informal exchange rates varied significantly (to illustrate, informal USD-MMK was quoted at around 830 when the official rate was only about 6.40).

Since the decision to unify the multiple exchange rates and introduce a more market-determined rate, the spread between the official reference rate and the informal market rates has narrowed considerably, to 1-3%.

Standard Chartered analyst Edward Lee notes that Myanmar’s FX regime can be classified as a managed float, similar to China’s.

Before the decision to unify the exchange rates, the official exchange rate was used mainly to allocate foreign currency from export earnings to import payments, and for fiscal accounting. This use, combined with complex FX restrictions, forced the private sector to rely on an informal market to obtain foreign currency via multiple exchange rates. A study by the IMF suggests that the informal market exchange rate for the MMK was, on average, 19% overvalued in FY10/11 (year ending March 2011) and 40% in FY11/12.

Modern trappings The huge influx of visitors and and the reduction of car import taxes have led to congested roads and overburdened infrastructure. There are plans to move the CBD and some government buildings out of the city and construction will soon begin on an outer green belt with four new towns surrounding

Yangon’s CBD within a 10- to 15-kilometre radius. Visitor numbers are sky rocketing since the lifting of sanctions and are now on track to surpass 1 million in 2013, putting Myanmar on the way to matching the Philippines, which lured 4.27 million in 2012, by the end of the decade.

The current airport can only handle 3 million passengers a year, but is being upgraded to handle 6 million by 2015. There are also plans for a second airport 80 km away from Yangon with a capacity of 12 million, which should be ready by 2016. Getting tourists into the country is one thing, but finding them somewhere nice to stay is another. Unlike in Field of Dreams, the visitors are coming, but the hotels have not been built.

There are currently only 2,500 international standard hotel rooms in Yangon, according to property consultant Jones Lang LaSalle, of 8,000 rooms in total. This translates to a maximum of 912,500 room nights against 1 million tourist arrivals last year. As a result, hotel room rates in Yangon have more than tripled to US$250-300 from US$80 in 2011.

There are another 6,000 hotel rooms that may be more suitable to independent travellers or backpackers on the hippy trail, but that is not going to help grow the economy. Myanmar’s tourist arrivals are expected to grow by 30% in 2013 to 1.3 million, rising to 2m by 2015.

Mad men There is now a rush on to build as many hotels as possible in Myanmar with international brands scrambling to plant their flags. Hilton will open their first 300-room hotel in Yangon in 2014, while French hotel chain Accor is in talks to partner with Max Myanmar to open a Novotel Hotel in Yangon, notes DBS. In total, Jones Lang LaSalle estimates that international hotel supply in Yangon will triple to around 6,242 rooms by 2015. Even then, the supply situation is likely to still remain tight, providing room for hoteliers to raise room rates progressively.

Based on tourist arrivals of 6.5m to Vietnam and 3.5m to Cambodia, market watchers expect ample room for tourism growth in Myanmar since it is also a country rich in cultural heritage, not unlike its Indochina

COUNTRY REPORT: MYANMAR neighbours.

No room at the office Perhaps the biggest challenge to foreign investment is the lack of offices. There was not a single new office completed from 1997 and 2010, so there is an acute shortage of office space with merely 62,000 sqm of office space in Yangon.

Apart between 2 modern office towers, Sakura Tower and Centrepoint Towers, most office units date back to the British colonial period. Rents have skyrocketed from US$20-US$45/ sqm six months ago to US$80/sqm. Some market watchers believe rents could even go beyond US$150/sqm as the more stable political situation and continued opening up to do to keep up of the economy lead to more new company formations, estimates DBS. Residential has a lot of catching to do to keep up with population growth. The real estate market, particularly in Yangon, was buoyant in 2012 due to continued tight supply on the back of growing demand.

Apartments/ condominiums remain the mainstay accommodation due to affordable pricing. For a city of 5 million, there is a massive supply shortage. A total of 1,070 units of condominiums were added in 2011, followed by 1,100 units in 2012.

Demand is reportedly highest in the mid-to-high income sector in good locations. Based on approximately 2% p.a. population growth in Yangon, and a household size of 4.87, the city would need at least 25k new homes each year. However, only about 1500 units are expected to be delivered in 2013 and just slightly more in 2014.

The scramble to ‘get into’ Myanmar has seen industrial property prices also shoot up, so much so that in many cases they are now more expensive than neighbouring Vietnam or Cambodia.

DBS reports that prices of land in Yangon’s key industrial areas including Shwe Than Lwin, Hlaing Tharyar, East Dagon and Dagon Seikkan have increased dramatically in recent months due to high demand. To keep land prices in check, the government has developed several special economic zones (SEZ) including Thilawa and Dawei. International agencies like the Japan International Cooperation

Agency (JICA) have granted aid packages including Yen 17bn for infrastructure projects, Yen 20bn for the development of infrastructure for the Thilawa Special Economic Zone and Yen 29bn for infrastructure for power supply in Yangon and for upgrading the Kyangin cement plant.

Oil boom Perhaps the biggest investor interest in Myanmar will be in its oil and gas industries. The country exported its first barrel of oil way back in 1853, but the industry was nationalised in 1962 and predictable oil production and exploration collapsed. By 2007, foreign companies were involved in 16 onshore blocks and many more offshore blocks. Today, Myanmar’s oil output remains small. The scale of oil reserves is difficult to predict because of very limited exploration.

However, high interest in recent oil blocks highlights strong hopes among oil and gas majors of rich finds in Myanmar. Official data shows that Myanmar exported US$3.5bn worth of gas, mainly to neighbouring

“There was not a single new office completed between 1997 and 2010, so there is an acute shortage of office space with merely 62,000sqm of office space in Yangon.”

Thailand, in FY12 compared with US$2.5bn a year ago and US$2.4bn in 2008-2009. Currently, the country produces around 19,600 barrels of crude oil and 1.475 billion cubic feet of natural gas each day. With 18 onshore blocks up for bid, the pre-qualification list indicated more interest from Western oil majors. Last year, Myanmar awarded nine onshore blocks to foreign companies.

Port o’ call Both Singapore and Hong Kong will also have a keen interest in who gets to develop and control Myanmar’s ports. Hong Kong’s Financial Secretary Donald John Tsang visited the Burmese ports in July, a sign that the city’s port operators would like to get involved. Currently 90% of all port shipping goes through Yangon, but with 2,800 km of coastline there are other opportunities. These could pose a threat to Singapore if shipping can bypass the Malacca straits.

KPMG managing partner Yasuhude Fujii reckons Myanmar has the potential to become an alterna-

COUNTRY REPORT: MYANMAR tive international trade route to Asia, bypassing the longer route through the Straits of Malacca. The development of its ports could see Myanmar becoming a regional trade and transport hub.

“The Bay of Bengal is already home to some of the biggest ports in the world –Chittagong in Bangladesh and Chennai in India, a good indicator of the strong potential of the location,” he says. Myanmar currently has 9 ports along the western and southeastern coast of the country, namely: Yangon, Sittwe, Kyaukphyu, Thandwe, Pathein, Mawlamyine, Dawei, Myeik, and Kawthaung. In addition, Myanmar International Terminals Thilawa (MITT) is a private multi-purpose container terminal owned and operated by Hutchinson Port Holdings.

However, with the exception of the country’s principal port in Yangon, the rest are reportedly small coastal ports with limited port handling capabilities.

Deep water ports are currently being jointly developed at the southern city of Dawei (in association with Thailand) and Kyaukphyu in the north (in association with China).

Other recent activities in the ports sector include interests in developing ports in Thilawa and Sittwe. The government has also identified sites in Kalegauk and Bokpyin for the development of ports. Under the new Foreign Investment Law, construction of warehousing facilities at ports can only be carried out in a joint venture with Myanmar nationals. Construction of ports will be allowed only after an environmental and social impact study has been successfully completed.

Iron roosters Railways are also in as delapidated state as could be imagined, The railway sector in Myanmar is currently a monopoly operated by state-owned Myanmar Railways. The rail network has grown considerably over the last twenty years, expanding by almost 78% between 1988 and 2010, with the focus on providing transport services and connectivity to remote areas of the country.

According to ADB’s initial assessment of the railway sector, the rail network is in poor condition and investment in basic infrastructure,

“The rail network has expanded considerably over the last twenty years, expanding by almost 78% between 1988 and 2010.”

such as track renewal, replacement of sleepers, and upgrading of signalling and communications systems, has been inadequate.

Travel between Yangon and Nay Pyi Taw takes 5 hours by road and almost 9 hours by rail. With approximately 70% of Myanmar’s population currently living in rural areas, there is growing demand to develop efficient transportation networks between the rural hinterland and the urban centres - Yangon and Mandalay.

This will also tie in with the government’s goal of equitable development between the various regions in the country and the development of rural-city connectivity. There are also

existing plans under the SingaporeKunming Rail Link (SKRL) project to build a high-speed railway to connect Kunming, in Southwest China, with mainland Southeast Asia. The project is a priority agenda under the ASEAN transport cooperation and three routes, going through Vietnam, Lao PDR and Myanmar respectively, have been planned for the rail link. When completed, the SKRL project will become part of the 14,080 km TransAsian Railway network across Europe and Asia. Under the new Foreign Investment Law, foreign investment in construction of railways can only be effected through a joint venture with a Myanmar national.

REGIONAL INDUSTRY BRIEFING: RETAIL

Mid-range brands storm Hong Kong’s fashion scene Mid-range fashion retailers are expanding at a faster rate than luxury retailers.

C

entral may be overrun by luxury brands but the next era of retailing in Hong Kong may well belong to the mid-range brands, a hitherto overlooked segment of the retail scene.

There are already some strong signs that Hong Kong, being the main destination for mainland shoppers, is the first city for new international fashion brands looking to establish a foothold in Asia.

In 2012, Hong Kong ranked no.

1 for new retailer entries with 51 entrants, almost double of that in Singapore’s 27 and Tokyo’s 24. Midrange fashion retailers are expanding at a faster rate, accounting for 21% of new entries in HK in 2012.

Mr. Joe Lin, Executive Director at CBRE, noted that in terms of new entrants by sector, while luxury and business retailers continued to account for the highest percentage

“In 2012 Hong Kong ranked no. 1 for new retailer entries with 51 entrants.”

36 SINGAPORE BUSINESS REVIEW | SEPTEMBER 2013

of new entries to Hong Kong at 23%, mid-range fashion retailers are expanding at a faster rate.

“If you add together the number of new entrant specialist clothing, value and denim retailers, the total number significantly exceeded that of new entrant luxury retailers,” Lin noted According to CBRE figures, at an Asia Pacific level, luxury and business fashion retailers also accounted for the largest number of new market entries in 2012 (26%).

However, with the most of these groups already having a firm presence in established cities, many are turning their focus towards opening new stores in emerging locations.

In overall terms, their portion of new openings is shrinking as other sectors such as mid-range fashion (18%) expand at a faster rate.

Aggressive American retailers American retailers were expanding most aggressively with 70 chains, followed by the Japanese with 36.

According to Helen Mak, senior director of retail services at Colliers International Hong Kong, the slowdown in the luxury market could be attributed to a couple of reasons including cautious sentiment over the state of the global economy. But Mak said that we also ought to notice that more and more customers from China are travelling to Europe to shop for luxury products.

“They wanted to visit the headquarters of these products that offer them a better shopping experience and have a larger collection of what’s limited and luxury premium.”

Mak also added that high rental costs in Hong Kong are driving retailers to expand network to other locations such as China. “We do not really own this so-called luxury retail market.

They are all from overseas. Retailers in HK that have been here for the last 10 years operating are getting ready to get in to the China market. There’s limited supplies of retail space in HK and the rents are really high – in fact

REGIONAL INDUSTRY BRIEFING: RETAIL HK has the highest rent in the world.

International brands have realised that they have to seriously build up their network in the next 10-20 years because China is very different to HK,” she said.

Mak added that the outlook for the mid-range market on the other hand is very positive as we look forward to the completion of the infrastructure that will link HK and China in the next 10 years. “We will have easier access from Guangdong to HK. Chinese will more likely regard HK as a preferred destination. They can spend a day or two shopping. They would probably look for mid-range products because they don’t have a duty, so they could enjoy at least a 20% discount compared with the price in China.” Mak also anticipates the number of middle class families in China double double in the next 10-20 years.

Mak nonetheless said that midrange brands will face the typical problem of finding a good location.

“We don’t have a new supply at all in the next 5 years in core areas or key shopping district, which makes it a real challenge for new international brands to find locations. Most international brands would like to find huge rooms but HK can only offer a thousand square feet. You would be lucky to find 3,000-4,000 square feet but they are really small, compared with the US or UK.” Leasing activity According to Cushman & Wakefield Executive Director for Retail Michele Woo, retail leasing activity was slightly more subdued in the second quarter of 2013, notably from high-end and luxury brands, apart from local staple watch and jewellery retailers such as Chow Tai Fook and Luk Fook. These brands, she said, continue to increase their footprint in both prime and secondary locations to mostly capture tourist spending, but have slightly shifted their strategy to target the mass market- they are offering new jewelry collections to boost sales as the sales of high-ticket items wane due to China’s crackdown on officials’ lavish gift-giving.

Woo said that more stable sales growth this year and high tourism volume is encouraging penetration

among a growing range of brands.

Mid to high-end fashion and accessory brands, along with cosmetic retailers, are accounting for a growing presence in traditional retail catchments, she added.

“In recent months, two new Korean cosmetic brands opened their first stores along prime streets in Causeway Bay and Mongkok, while local retailer SaSa also leased another prime location in Causeway Bay. Topshop opened its flagship store on Queen’s Road Central during the quarter, adding to the influx of new fast-fashion brands in Hong Kong. The Italian lingerie brand Intimissimi will soon open a small flagship boutique along Queen’s Road Central.”

Having noted these trends, Woo said that there have been slightly fewer new openings and there is a trend of slightly rising vacancy in the market, most notably in secondary locations. The retailers in these locations, she said, are generally nonluxury and they have been highly susceptible to high rental increases in recent months, with many having to close down.

“New tenants are showing a growing reluctance to pay high rents, keeping vacancy elevated. The growing trend of non-luxury brand expansion in the overall market will likely continue and it’s these retailers who have a lower cap on rental expenses to operate profitably.”

The HUB In late August an invitation only tradeshow called The HUB brought together 100 exhibitors and 3,000 visitors to see which international niche brands could expand into Asia. The event was the brainchild of Richard Hobbs and Peter Caplowe who saw the need for a B2B event specifically for mid-range fashion brands and buyers.

When asked to comment on the overwhelming response to the exhibition, Hobbs remarked, “Every international fashion brand has its sights set on Asia because, put simply, Asia is the most lucrative new market on the planet.

It’s pretty clear that any brand anywhere in the world that’s doing its homework wants to sell

“Mid-range brands will face the typical problem of finding a good location.”

more into Asia and the best way to reach the continent’s emerging markets is through Hong Kong.” He concluded, “The HUB’s positioning in Hong Kong is not coincidental.

Its geographical position in the heart of Asia and reputation as an international city makes it the ideal gateway for fashion brands to catwalk into China and beyond.”

Hobbs is no stranger to the fashion industry, being the owner and operator of several premium denim and sportswear labels, with over 24 years’ of experience in the region.

His partner, Peter Caplowe, brought Japanese denim brand, Evisu, into the international luxury denim arena. In its first year, The HUB was modelled on successful shows such as Bread and Butter in Berlin and Project in NYC/Las Vegas.

Examples of internationally recognized fashion brands at The HUB seeking to launch or increase their businesses in Asia include Barbour, John Smedley, Joanna Ho, Private White VC, Nigel Hall, Neuw Denim, Take 5, Studio D’Artisan and Samurai.

New market entries by retail sector to Hong Kong

Source: CBRE Asia Pacific Research

SINGAPORE BUSINESS REVIEW | SEPTEMBER 2013 37

Singapore’s top 25 REAL ESTATE AGENCIES

Giant property brokers reveal success stories

Who would have thought that an agency with only 12 salespersons 20 years ago now has over 5,000 staff?

E

RA Realty Network has topped Singapore Business Review’s inaugural list of largest real estate agencies in Singapore for 2013 based on the number of real estate agents. The data obtained from the Council for Estate Agencies have shown that ERA has a total of 5,103 agents as at May this year, which is a big jump from a humble beginning of only 12 salespersons in 1982.

ERA Singapore’s founder and chairman Harry Chua was quoted as saying, “My vision is when you need a drink, you think of Coca-Cola; when you think of real estate, I want it to be ERA.”

“My vision is when you need a drink, you think of CocaCola; when you think of real estate, I want it to be ERA.”

ERA’s humble beginning According to Chua, in the early 1980s real estate sales was not even considered as a career but the scenarios, he claimed, started to change in 1982 when ERA introduced the first structured real estate sales training program in Singapore.

ERA Singapore also bills itself as the first real estate company in Singapore to introduce the exclusive listing marketing concept. “In 1983 ERA was the first to introduce the open 38 SINGAPORE BUSINESS REVIEW | SEPTEMBER 2013

home marketing concept, and today this has become the industry’s practice in the marketing approach,” said Chua. ERA opened its first branch office in Bishan in 1993 and within five years ERA opened a total of nine offices. In 1999 ERA merged all its nine branches in a 14,00sqft office which the company claims to be the largest real estate office in the world.

ERA is followed by Propnex Realty with 4,847 agents. The firm spearhead

by Mohamed Ismail Gafoore has a 30,000sqft office at HDB hub. It boasts of a turnover rate of over $100 million annually since 2007.

Huttons Asia came in third. From a small team of associates in 2002, the company has now grown to 2,811 agents. Huttons boasts of marketing many successfully sold projects, including those associated with Savills Residential. Based on its website, 194 out of 264 new launched projects it markets are fully sold. Among those notable ones last year are Gambir Ridge, One Dusun Residences, and 91 Marshall which were fully sold within few days of preview.

OrangeTee ranked fourth with 2,460 registered agents from just 50

when it started operation in 2000.

OrangeTee originally occupied a 2,000sqft office at Leng Kee Road but, as a testament to its growing business, has moved its office three times since 2001. Its headquarters is currently settled at OrangeTee Building, a 16-storey modern office development with customised facilities situated next to the HDB Hub at Toa Payoh since 2010.

In 2003 it was able to set up a branch office occupying 2,000sqft at Leng Kee Road. According to OrangeTee, one of its significant milestones last year was the launching of its online CPD registration, E-cert, and tracking services. Based on its website, 53 of its 95 residential projects are fully sold. It caters to the following developer clients: Far East Organization, Frasers Centrepoint Ltd, Heetons Holdings Ltd, Ho Bee Investment Ltd, Koh Brothers Group, MCL Land Ltd, and Sim Lian Group Ltd, to name a few. Among its notable projects which were fully sold last year were Eastrees, Charlton Residences, and Suites 28.

This year, Orange Tee markets Sim Lian’s HIllion Residences which sold 215 of its 546 units as at April.

DTZ and the others DTZ Property Network came in fifth with 2,153 real estate agents. DTZ Property Network is a member company of DTZ Debenham Tie Leung (SEA) which was the former Edmund Tie & Company (ETC) established in 1995 with only 12 staff. DTZ is the marketing agent of Marina Bay Residences which set a number of Singapore records when the 99-year leasehold development was sold out in just three days in December 2006.

Records included S$26.9 million paid for the 11,000sqft super penthouse and a top price of S$3,400 per square foot for another penthouse. The average price achieved across all 428 apartments was over S$1,950 per square foot. DTZ is currently working with the developer for another residential tower called Marina Bay Suites, under the second phase of the Marina Bay Financial Centre.

Ramping up to the top 10 residential agencies in Singapore are HSR International Realtors, Dennis Wee Realty, KF Property Network, Savills Residential, and Global Property Strategic Alliance.

Singapore’s top 25 REAL ESTATE AGENCIES

Largest real estate agancies in Singapore Name of Estate Agent

Number of salespersons (as OF 7 May 2013)

Key Executive Officer

Website

1

ERA REALTY NETWORK

5103

LIM TONG WENG (EUGENE)

www.era.com.sg

2

PROPNEX REALTY

4847

LIM YONG HOCK

www.propnex.com

3

HUTTONS ASIA

2811

TIANG AI SEEK (PEGGY NGIAM)

www.huttonsgroup.com

4

ORANGETEE.COM

2460

TAN WEE SIN MICHAEL

www.orangetee.com

5

DTZ PROPERTY NETWORK

2153

CHAN HWAI HAO ERIC

www.dtz.com

6

HSR INTERNATIONAL REALTORS

1719

LIEW SIOW GIAN PATRICK

www.hsr.com.sg

7

DENNIS WEE REALTY

1496

WEE CHUAN PENG DENNIS

www.dwg.com.sg

8

KF PROPERTY NETWORK

1016

TAN TEE KHOON (HARRY)

www.kf.com.sg

9

SAVILLS RESIDENTIAL

879

ANG YING HUI PHYLICIA (PHYLICIA ANG)

www.savills.com.sg

10

GLOBAL PROPERTY STRATEGIC ALLIANCE

657

HONG ENG LEONG (JEFFREY HONG)

www.gps.com.sg

11

CBRE REALTY ASSOCIATES

638

LEONG BOON HOE

www.cbre.com.sg

12

ECG PROPERTY

632

TAN YEOW SIONG (CHEN YAOXIONG)

www.ecgproperty.com

13

C & H PROPERTIES

574

LU NGUAN SOO (ALBERT)

www.candh.com.sg

14

District 65

430

LEOW HUN SIN (BENSON LEOW)

district65.com.sg

15

SLP REALTY

385

KOE JIAN ENG (TONY KOE)

slpintl.com.sg

16

JONES LANG LASALLE RESIDENTIAL

265

KANG LYE KIM (JOYCE)

www.joneslanglasalle.com.sg

17

MINDLINK GROUPS

241

CHOW YI TONG (MERSON)

mindlink.com.sg

18

REA REALTY NETWORK

139

WOON CHUEN THIAM (WINSTON)

www.rea.com.sg

19

REAL CENTRE NETWORK

114

TOH CHOON KEONG (KENNIE)

www.realcentrenetwork.com

20

JONES LANG LASALLE PROPERTY CONSULTANTS

106

FOSSICK CHRISTOPHER JOHN

www.joneslanglasalle.com.sg

21

COLLIERS INTERNATIONAL (SINGAPORE)

96

DENNIS YEO HUANG KIAT

www.colliers.com/en-gb/singapore

22

HOUSE & HOME PROPERTY

84

ER CHENG HIANG (ALVIN)

N/A

23

SINGAPORE ESTATE AGENCY

84

SEE LYE KEONG (SHI LAIQIANG)

www.seaproperties.com.sg

24

CBRE

78

PAULINE GOH

www.cbre.com.sg

25

REAL CENTRE PROPERTIES

69

TAN THIAM HEE THOMAS

N/A

SINGAPORE BUSINESS REVIEW | SEPTEMBER 2013 39

FEATURE: Future Transport

Trains, planes, automobiles and drones

This year’s Annual Summit on Funding Transport tackled emerging issues of securing long-term funding for transport networks and the growing appeal of public-private partnerships. By Roxanne Primo Uy

A

irports and railway stations are part of our daily lives, but drone ports and evacuated tube transport could become the future of transport, and they will radically reshape the way we think of cities. The future of transport, as well as the innovative solutions and funding that will be needed, were the subject of the recent Annual Summit on Funding Transport organised by the International Transport Forum at the OECD held in Leipzig, Germany.

A staggering $11 trillion will be needed to invest in basic infrastructure by 2030 to meet the expected rise in demand for transport for both people and goods. With the current infrastructure only able to accommodate a 50% increase in demand, the challenge is financing the transport gap, considering that both private and public entities are struggling with their own shrinking budgets due to the financial crisis. According to Hans Michael Kloth, Head of Communications from the International Transport Forum at the OECD, this year’s Summit saw 1,000 participants from 76 countries, including 50

“More than 60 bi-lateral meetings took place between countries during the Summit.”

40 SINGAPORE BUSINESS REVIEW | SEPTEMBER 2013

ministers and vice ministers. “I’d like to highlight that more than 60 bilateral meetings took place between countries during the Summit. Also, 5 bi-lateral transport agreements were signed between countries on the fringe of the Summit. We have not had this before, and to me that is a clear sign that the Leipzig Summit has really established itself as the event that transport ministers and other decision makers see as the place to be, in order to understand global trends and to learn about how others approach the strategic problems facing transport,” Kloth added.

The attending ministers noted that transport infrastructure is much more than asphalt, concrete or steel; it is the backbone of national economies, providing connections for people and goods, access to jobs and services, and enabling trade and economic growth.

“With investment in transport infrastructure a long-term venture, robust, credible funding solutions that support trade, economic growth and environmental and social sustainability are urgently needed,” they

added.

Drones for transport Perhaps the most interesting innovation highlighted at the summit was the rise of drones for transport, and the need to develop drone ports across countries. Drone ports would be smaller than airports and located in transport parks and closer to distribution centres, and could go a long way to reducing trucks on the roads and alleviating transport logjams.

One firm investing in drone transport is Matternet, a company that fields a network of Unmanned Aerial Vehicles to ferry heavy packages between destinations, that came about from the need to deliver materials in areas with poor road infrastructure.

Andreas Raptopoulus, co-founder and CEO at Matternet, said 1 billion people or roughly one in seven people in the world currently have no access to all-season roads. Its army of automated aerial drones reaches these relatively remote areas that trucks and trains have difficulty accessing. The key technological feat in Matternet’s case is its use of flying

FEATURE: Future Transport drones to solve the freight problems faced by a large portion of the world, from isolated villages in the developing world to congested cities in the developed world.

The transport innovation shown

by Matternet is not only technological, but also organizational in how the company is able to provide the service in an economical and consistently reliable way to customers.

Matternet drones are less expensive to operate, such that delivering a 2 kilogram package over 10 kilometers only adds up to around 24 cents, inclusive of vehicle, battery, station and energy costs. Reliability is also ensured since the AUVs are guided by a global positioning system.

AUVs can also land easily on stations installed on rooftops and home backyards. Matternet also provides a critical function during times of crisis since its AUVs may be fielded to deliver essential medicines and first-response supplies to disasterstruck locations that other traditional transportation methods may find impossible to reach.

Assessing transport investments One of the sessions discussed the different ways to assess transport investments. The panelists argued that a good investment is made when the timeliness and impact of a decision are carefully considered. They also noted that while the economic crisis has forced leaders to view transport policy through the lens of short-term economic stimulus, transport policy and investments are still, inevitably, long-term. “Transport investments have a very long life. The decisions you make today will be with you for a long time,” said Tyrrell Duncan, Director, Transport and Communications Division, East Asia at Asian Development Bank. However, he notes that the criteria for choosing these investments are not perfect.

One tool that is commonly used to support decisions on funding transport projects is the cost-benefit analysis. It is grounded in modelling and in basic traffic data, allowing for coherent and realistic assessments. However, results derived from cost-benefit analysis depend on the benefits of travel time savings. These in turn are driven by estimates of demand, which often are too optimistic.

This tool, therefore, does not provide

adequate information to decision makers in order to measure how a transport investment contributes to economic growth.

So what are the more effective criteria countries can use for selecting transport investments? Recognising that transport has multiple purposes and multiple effects, the challenge is to get the best balance between maximizing the positives and minimizing the negatives. Duncan noted that economic performance is one thing decision makers must begin with as it is very important that these large investments produce good results.

Unfortunately, one of the positives of transport that is very difficult to estimate is the socio-dynamic effects on the future economy. “Academically, the literature doesn’t have good examples of reliable ways of estimating that part. Ten to twenty years later, when the effects are seen, it’s awfully hard to separate what was due to the transport investment and what was due to so many other things that happened,” he added. Duncan enumerated these socio-dynamic aspects of transport investments: environmental effects, which include effects on global climate change and carbon dioxide emissions; the social aspects; affordability; and preventing deaths from accidents.

Given these socio-dynamic consid-

“The key technological feat in Matternet’s case is its use of flying drones to solve the freight problems faced by a huge chunk of the world.”

erations, the question often asked is: How can leaders incorporate into the traditional cost-benefit analysis all the other dimensions which are not so easy to monetize? Is there some form of multi-criteria assessment that tries to internalize as many of the costs as possible? These tools, Duncan notes, are still lacking. “When decisions are being made, it can be understood that no project will be perfect. A project may be more sustainable in some dimensions than in other dimensions.

But at least, people need to make these choices, avoiding things that will be really adverse on one dimension and trying to make sure that it can be sustainable across all dimensions.”

Singapore: leader in sustainable transport So how is Singapore doing in terms

Investment in road and rail infrastructure as a share of GDP (average 2000-2010)

Source: International Transport Forum at the OECD

Hans Michael Kloth Head of Communications, ITF, OECD

Tyrell Duncan Director, Transport and Communications Division, ADB

Andreas Raptopoulus Co-founder and CEO, Matternet SINGAPORE BUSINESS REVIEW | SEPTEMBER 2013 41

FEATURE: Future Transport

of making these sustainable transport decisions? Duncan reveals that Singapore is one of the world’s leaders in this area.

“I think there are many transport experts from around the world pointing to Singapore as a place that has considered the different options and has come up with a wide array of different transport options that people can choose from by using leading technologies. And the results are clear: the air is clean and transportation is convenient. So, we think that Singapore is a leader.”

He adds that Singapore has done tremendously well in considering methods of demand management through pricing. “That type of method is something that we are often talking with our developing member countries about but it’s something we should still find ways for politicians to carry out. Politicians are very reluctant to tell the population that they will increase prices. Managing demand by using prices is part of a big challenge ahead,” he said.

Another notable argument during the session is that environmental sustainability and economic development should be taken as complementary, not opposite, forces. Glen Weisbrod, President, Economic Development Research Group in USA, said it is wrong to say there is a trade-off between the two.

Public-private partnerships Public-private partnerships (PPPs)

have become an instrument for countries to avoid delays in transport infrastructure construction due to lack of funding. While major transport infrastructure decisions are all political, a PPP is required to bridge short-term political imperatives and long-term investment priorities.

Gershon Cohen, Managing Director and Fund Principal, Infrastructure Funds at Scottish Widows Investment Partnerships (SWIP), UK, notes that PPP is a form of government procurement and is a pioneer in the creation and whole life management of strategically important infrastructure projects.

PPPs, according to Cohen, are faced with the challenge of renewing and upgrading existing networks and putting in some form of distribution networks. But the question still lingers: Why is the contribution of PPPs in the developing world having limited impact?

Alberto Gonzales-Lalueza, Business Development Projects Director at Cintra in Spain, believes PPPs fail because of inflated predictions, and nonsensical behaviours of the government. “Most projects in trouble turn out not to address a real need for mobility and are based on poor costbenefit assessment.”

Jose Luis Irigoyen, Director, Transport, Water, Information and Communications Technologies Department at the World Bank, said PPPs have been a tool to enhance government options and reduce financial

42 SINGAPORE BUSINESS REVIEW | SEPTEMBER 2013

“Public-private partnerships (PPPs) have become an instrument for countries to avoid delays in transport infrastructure construction because of lack of funding.”

gaps. “There is a US$3-4 trillion gap in the developing world between the capacity for public investment and investment needed for growth.

PPPs so far account for only10% of investment and five countries account for 50% of the total. This will have to grow,” he adds.

According to the panelists, the fiscal and economic crises make it counterproductive to use PPPs as a way to keep expenditure off the balance sheet.

Though some projects may be more suited to PPPs than others, for example because demand forecasting risk is relatively low or because there is a potential for major cost savings through engineering innovation, even the most difficult risks can be managed effectively in a PPP if the project design and the PPP contract are spot-on.

Investment in inland transport infrastructure by region from 1995-2010 (as a percentage of GDP, at current prices and exchange rates)

Source: International Transport Forum at the OECD

SINGAPORE BUSINESS REVIEW | SEPTEMBER 2013 43

ANALYSIS: LOGISTICS

The trouble with Asia’s logistic lag Demand for logistic facilities to get physical products delivered increased as Asia’s retail sales volume is expected to overtake the West’s.

A

sia is poised for an e-commerce boom but sharp growth is outstripping the region’s logistics capabilities, warn experts.

Experts are seeing global economic power shifting to Asia and the formerly ‘emerging’ countries surpassing the West in terms of e-commerce in the next decade with global business to customer (B2C) e-commerce sales in 2012 growing 21.1% to top US$1 trillion for the first time ever, according to digital and e-commerce research firm eMarketer. This figure is expected to further increase by 18.3% in 2013 to US$1.298 trillion, with Asia Pacific consumers forecasted to buy up to US$433 billion, surpassing the expected volume of US$409 billion from North America. Already, Asia Pacific’s e-commerce sales were recorded at US$332 billion compared

“Will Asia be able to keep pace with the strong demand amid a lack of investmentgrade assets?”

44 SINGAPORE BUSINESS REVIEW | SEPTEMBER 2013

with the US’ contribution of US$364 billion in 2012.

The total retail sales volume in Asia increased by 12% year-on-year during 2012 and according to Economic Intelligence Unit’s projections, China a is set to overtake the US for the first time ever as the country with the world’s highest volume of sales during 2013.

Demand for logistics facilities to get these physical products delivered from retailers and wholesalers to companies and private individuals is estimated to see equally strong growth. According to Colliers International, the region’s industrial output, as a proxy for the general demand for logistics warehouses, grew at a compound annual growth rate or CAGR of 10.4% between 2009 and 2012 even amid external shocks.

Interestingly, its current growth momentum is faster than during the

pre-crisis period after Asia benefited greatly from China’s entry into the World Trade Organization in 2001.

But will Asia be able to keep pace with the strong demand amid a lack of available investment-grade assets?

Demand for modern logistics According to Colliers International, there has always been a lack of supply of good-quality logistics warehouses with high physical specifications and management support by third-party logistics (3PL) operators in Asia.

For many years, Colliers said that so-called logistics warehouses have been dominated by local players, and the widely varying standards of service quality they have offered has resulted in very different rental and occupancy performance. The research firm noted , however, that demand for top-quality logistics warehouses managed by trustworthy 3PLs is actually expanding, due to the growing requirements of principals engaged in the entire supply chain management process, notwithstanding the challenges posed by the global economic slowdown.

The same concern was pointed out by a recent Transport Intelligence study. Cathy Roberson, senior analyst

ANALYSIS: LOGISTICS and lead author of the study, said that there is limited, if any, access to international logistics providers permitted in domestic markets for example, UPS and FedEx were only granted limited licences to operate in China in 2012.

“Domestic providers do not necessarily have the capital to invest in major network overhauls and new start-ups are entering the market to fill gaps in the e-commerce supply chain. This has led to a high level of fragmentation and disjointed service capabilities. Furthermore, retailers have taken it upon themselves to develop their own logistics networks to overcome the shortfall in suitable domestic transport solutions. For example, Alibaba, Flipkart and Rakuten have all incorporated logistics as part of their individual corporate strategies.”

According to Roberson, in China and India, for example, warehouses have historically served merely as storage facilities. The increase in e-commerce, she said, has resulted in demand not only for more warehouses, but also for facilities that are automated and integrated into retailers’ websites and storefronts with capabilities such as pick and pack. She added that these facilities need to be located in more convenient locations as many consumers expect same-day or next-day delivery.

Logistics solutions Retailers in Asia are constantly searching for sophisticated solutions for managing sales and transporting goods across continents. According to CEVA Executive Vice President for Business Development for Asia Pacific Elaine Low, in ‘last mile’ logistics, visibility and control are two of the key challenges that online retailers may face. Complexity arises, she said, when there are multiple markets, products and systems. One critical way to reduce complexity is to have a standardized e-commerce or e-fulfilment platform which is scalable.

“As companies introduce more brands, more product lines or move into new geographies, they need to guarantee continuity and reliability not only in the shopping experience but right through to the last mile

delivery. It’s incredibly hard to achieve this when there are separate e-fulfilment platforms in different markets. The service, the packaging, presentation and turnaround time for delivery needs to be consistent. With a standardized and scalable solution in place, systems and processes can be easily replicated as new product lines are added or new geographies are set up. Reliability is what matters in online retail,” said Low, adding that companies need to have flexibility and agility in their supply chain management to ensure seamless operation for their last mile logistics.

Network optimization Low said that for some of the bigger multinational companies, network optimization becomes critical to reduce costs and increase efficiency, from pre-manufacturing right down to last mile delivery to the final destination.“Multiple Warehouse management systems (WMS) make it hard to scale one’s e-fulfilment worldwide in a cost efficient way.

Whereas standard solutions operate off the same platform and use the same operating processes. This is where CEVA’s e-fulfilment solution – a modular and flexible solution can be implemented faster and at lower cost.”

Low added that in CEVA’s case, it deploys one standard, CEVA Matrix WMS, for warehouse management which claims to give customers greater visibility of their end-consumer demographics, sales and returns, and more effective management of their inventories.

Zalora, which bills itself as Asia’s fastest-growing online fashion and beauty retailer, shares that there are two critical challenges they are facing when it comes to logistics.

One is the need to provide flexibility to customers and the other is the capability to serve remote areas of Southeast Asia and to offer the same quality of service that it offers in the capital cities.

On flexibility, Michele Ferrario, Regional Managing Director, Zalora Southeast Asia, said that the company works with its 3PL partners to be as flexible as possible and to accommodate customers’ unique delivery requests. In most capital

“Warehouses have historically served merely as storage facilities.“

cities, they have decided to work on launching their own delivery fleet. “In Singapore we have taken our customer-centric approach even further by recently launching a partnership with 7-Eleven which allows our customers to pay and pick their order up at a 7-Eleven of their choice: this offers our customers, who are mostly busy professionals who might not be at home to receive their parcel, a more convenient, 24-hour alternative to collect their order.”

On the capability of serving remote areas, Ferrario said that the company is now working with multiple 3PLs in the region. Patrick Linden, Co-Founder & Chief Executive Officer of independent commerce site Deals.com.sg shared that each of its three businesses – Daily deals, e-Commerce store, and Food delivery –each presents its own unique logistical challenges. However,many issues can be avoided with proper planning.

“For instance, we run a ‘just in time’ delivery structure at our warehouse, and coupled with its location at the very heart of Singapore, this makes dispatching very quick. Fundamentally, however, we have a strong internal system that allows us to schedule deliveries and take in stock, sometimes just 24 hours before deliveries are scheduled.

Our focus has always been on functionality, without the need for multiple systems integration. This is especially important since we work with several local delivery companies in addition to our own delivery team to manage deliveries that range from ‘within 48 hours’ to ‘7 days’. This setup helps us cope with variable volumes and as a system, has a fail-safe built right in – we never rely on a single channel.”

Asia logistics/industrial rentals (by key markets)

Sources: Colliers

SINGAPORE BUSINESS REVIEW | SEPTEMBER 2013 45

DINING

Japanese flavours invade Singapore

These restaurants offer cuisine from the Land of the Rising Sun that take Asian flavour to new heights.

Hashi 46 Bukit Pasoh Road, S S089858 After crossing the globe to work at Michelin starred Umi and Nobu in London and Australia, Chef Tadashi Takahashi opens Hashi in Singapore. Serving fresh seafood, traditional Sushi and Sashimi and traditional Kyoto Kaiseki in a very contemporary space. Indulge in the five or seven course kaiseki menu while a la carte items include assorted 8-piece sushi, grilled fish items and a 150g A3 grade wagyu from lwate.

The dessert is where Hashi surprises and delights. Every week handmade sweets by Ganyudo, a fifth generation handmade sweet shop in Japan, areflown into the restaurant, making sure your experience at Hashi is wrapped up in perfection.

IZY 27 Club Street, Singapore 069413 The newly opened Izy on the revived Club Street redefines the traditional Izakaya. With a thoughtful take on Japanese food and design, Izy promises a sensory experience with quality food and carefully selected drinks.

Chef KazumasaYazawa hails from Tokyo, bringing with him a wealth of knowledge and experience from the kitchen of Waku Ghin. Guests can look forward to Japanese food made with the freshest, seasonal ingredients such as Yasai no ohitashi, Wagyu no tataki and Umimasa no carpaccio, along with carefully paired Japanese sake, whiskies, beers, Old World wines and cocktails.

Recommended by QUINTESSENTIALLY LIFESTYLE, the world’s leading luxury lifestyle group with a 24-hour global concierge service. Contact singaporebusiness@ quintessentially.com.

46 SINGAPORE BUSINESS REVIEW | SEPTEMBER 2013

Hashida Sushi 333A Orchard Road, #02-37 Mandarin Gallery, Singapore 238897 The first overseas offshoot of the famed Tokyo establishment, ‘Hashida Sushi’ makes it way to Singapore. The elegant, minimalist setup is limited to 30 people and promises an intimate experience around the long chef counter. The menu is Omakase style leaving the choice of dishes to the chef’s discretion. With fresh seasonal ingredients imported from Japan, the best of Japan’s four seasons can now be savoured here, including exotic finds at Tokyo’s famous Tsukiji Market. Rivalling a fine sushi meal in Tokyo, patrons may look forward to a curation of exquisite, often exotic selection of choice wines, superior “hard to find” Japanese sakes and other quality beverages to complement its omakase dishes.

LIFE & STYLE

Posh specialty stores you must see These 4 stores offer a wide array of food choices--from Italian biscuits to French herbs to fresh produce.

PasarBella The Providore 315 Outram Road 05-03, Tan Boon LiatBuilding ,Singapore 169074 The Providore is the newest gourmet food company launched in Singapore making sure you have all your kitchen essentials. Collaborating with local and international companies, as well as bringing the best produce and ingredients to eat, entertain and cook with. If you are looking for those Italian biscuits, French herb and spices, blended coffees and baking supplies, The Providore promises to spoil you with choices.

The fine folks at The Providore, also support the local economy by picking a produce from Singapore. Whether it is the roasted coffee blends, or working with local companies on packaging and design- they make sure they contribute back as well.

The Grandstand Bukit Timah , 200 Turf Club Road Singapore 287994 Singaporeâ&#x20AC;&#x2122;s first indoor farmers market promises a new grocery shopping experience at Bukit Timah that focuses on being an idyllic, open-concept market. It houses vendors that sell fresh produce, meat, wine, beer as well as international cuisines. Furthermore, they have a seafood market and activities for kids.

The first of its kind, the market features decorative beams and tiles with a colonial twist to it, along with quirky custom signs that add to the cheery atmosphere. With more than 35 vendors, be prepared to try out a range of fresh produce and artisanal supplies that are exclusively available at PasarBella.

SPRMRKT 2 McCallum Street ,Singapore 069043 Reshaping your local supermarket experience, SPRMRKT melds the enjoyment of food and retail in a single space. It takes casual gourmet dining and shopping for necessities and gifts to a to another level of flavour and enjoyment.

Located in the vicinity of Telok Ayer Street, SPRMRKT offers a variety of home and office produce that helps you simplify life and work. These are lovingly sourced from producers around the world and only available in limited quantity. Enjoy your weekend brunch, while you shop for those essential items for your kitchen.

Jones the Grocer

Block 9 #01-12 Dempsey Road, Dempsey Hill , Singapore, 247697 Providing gourmet food for everyday living, Jones the grocer aims to inspire and excite the imagination of all food lovers. With products sourced and selected from around the globe, the food emporium focuses on providing natural ingredients produced by specialist, artisan suppliers, with products ranging from premium tea leaves to luxury chocolates, from artisan crackers through to handmade pasta sauces.

Recommended by QUINTESSENTIALLY, the worldâ&#x20AC;&#x2122;s leading luxury lifestyle group with a 24-hour global concierge service.

Contact qsingapore@quintessentially.com or +65 6511 1199

48 SINGAPORE BUSINESS REVIEW | SEPTEMBER 2013

numbers

Three in ten Singaporeans splurge on designer products And five in ten Singaporean consumers say commercials increase their preference of the brand and eventually affect their decision to buy the product.

Percent who strongly/somewhat agree

I collect nformation before shopping

I shop around before purchasing

I have preferred brands before buying

I sample first before buying

I trust products recommended by professionals

I buy because of others’ influence

I plan for the future

Nielsen Global Survey of Consumer Shopping Behavior, Q3 2012

I am willing to pay more for designer products than for others with the same functions

I like to buy products of famous brands

Commercials will increase my preference for the brand

The product image created by commercials will affect my decision to buy the product

% of respondents who strongly/somewhat agree

% of respondents who strongly/somewhat agree

% of respondents who strongly/somewhat agree

% of respondents who strongly/somewhat agree

For more information contact: Ipsos, Tim Hill (tim.hill@ipsos.com) and Nicolas Bijuk (Nicolas.Bijuk@ipsos.com); Nielsen, Ellen Cuijpers (Ellen.Cuijpers@nielsen.com) 50 SINGAPORE BUSINESS REVIEW | SEPTEMBER 2013