EMERGING markets remain a focal point for many Singapore companies - including small and medium-sized enterprises (SMEs) - despite the forecast slowdown in the global economy. This week, we look at some of the key trade statistics of various economies, the growth segments and the challenges SMEs should take note of.
INDIA
India's economy will continue to grow, though more moderately than it did in 2007. Property prices have eased from their peaks after the reserve bank tightened money supply.
This has made it harder for Indian companies to raise debt and equity as the stock market is down. Short of a world financial meltdown, the credit crisis will hamper - but not stop - investment in India. For example, Unitech, a large Indian property developer, secured a US$175 million investment project from Lehman Brothers only last month.
High food and energy costs are a problem for the man in the street - and the government, with elections due next year.
Opportunities remain in areas such as infrastructure, manufacturing (in the special economic zones or SEZs) and retail.
Bilateral trade grew strongly to $12.9 billion in the first five months this year, from $8.9 billion during the same period in 2007.
Infrastructure
Singapore companies have a strong value proposition for the Indian market. Our companies have good capabilities in building industrial estates, airports and seaports.
India requires significant investment in infrastructure in the coming years, so there are opportunities for Singapore investors and developers to participate in the building of seaports, airports and industrial, residential and commercial infrastructure to drive India's next stage of growth. To sustain its current annual gross domestic product (GDP) growth rate of 8-10 per cent, India will require huge investments in infrastructure. An example is its target to modernise 35 non-metro airports by 2010.
Manufacturing
India is putting a strong focus on manufacturing to drive its economic growth. This has resulted in international companies such as Nokia, Flextronics, Ford and Nissan, as well as Indian conglomerates such as Tata Motors and Mahindra setting up large manufacturing operations. Over the past 30 years, Singapore companies have built up strong and complementary capabilities in electronics and precision engineering, including automation and machine building. Given the complementary needs and strengths of Singapore and Indian companies, there are lots of opportunities for collaboration.
Retail
India was ranked first for three consecutive years (2005-2007) in the AT Kearney Global Retail Development Index (GRDI), which sorts 30 emerging countries on their attractiveness to global retailers based on various macroeconomic and retail factors.
According to the India Brand Equity Foundation, the Indian retail market - estimated to be the world's fifth largest - is projected to grow from US$330 billion in 2007 to US$427 billion by 2010 and US$637 billion by 2015.
India has among the world's largest number of retail outlets - about 12 million. Of these, about five million sell food and related products. Thus, this is a sector that offers vast opportunities to Singapore companies offering consumer goods and services.
CHINA
Singapore's economic relationship with China has improved continuously since 1991. Bilateral trade reached $91.56 billion in 2007, an increase of more than 16 times from $5.3 billion in 1991. Bilateral trade in 2007 was 7.39 per cent higher than the $85.26 billion in 2006. Bilateral trade in the first five months of this year was $37.3 billion, an increase from $36.7 billion in the same period of 2007.
In 2007, Singapore's foreign direct investment (FDI) in China reached US$3.19 billion, an increase of 41.15 per cent from US$2.26 billion in 2006. This made Singapore the fifth largest foreign investor in China in 2007. At end-2007, Singapore's cumulative FDI in China was US$33.19 billion, with a total number of 16,615 projects.
Despite rising costs, the China market is still growing and there are many opportunities for Singapore companies. Although inflation has driven up business costs, companies still show keen interest in venturing to China. For example, a recent Singapore business mission to Liaoning on July 8-11 attracted 29 Singapore-based companies, several of which signed deals with Chinese counterparts on July 11.
In China, Singapore companies are known for their expertise in manufacturing, trading, real estate, industrial park planning and development, ports and logistics, infrastructure services, urban planning and management. In recent years, more players are making headway in modern service sectors such as the environment, education, transport and logistics and financial services. These are areas that hold a lot of promise for Singapore players.
With the growth of China's economy, many companies there now have bigger market capitalisation than Singapore companies. This new phenomenon changes the dynamics of Singapore's relationship with China. Instead of one-sided investment by Singapore in China, we will see more Chinese companies looking to invest overseas. Singapore can do more to attract such investments, or work with Chinese companies to invest in third countries such as those in the Middle East.
At present, China's coastal region faces rising costs and competition, so Singapore companies are increasingly shifting their attention to the north-east region and inland to the west and central regions. Looking ahead, the north/north-east and west/central regions will likely move up the economic chain and demand more services that Singapore players can provide.
The fundamental challenge remains: Singapore companies must modify their business models according to market needs and add value for partners, including high quality products and services and rich experience.
This is especially so for Singapore's services sector, such as business process outsourcing, financial services and information technology (IT) software etc, where companies provide added value to the market itself.
RUSSIA
Russia has experienced impressive economic growth over the past eight years. GDP growth exceeded 8 per cent last year. FDI has increased significantly over the past five years, to exceed US$45 billion in 2007.
Despite the global economic downturn, Russia's FDI and growth remain positive - the effect of the slowdown is not badly felt. However, banks there are exercising more caution when lending, especially for real estate.
Bilateral trade in the first five months of this year grew to $983.7 million, from $666.2 million in the same period last year.
Singapore's trade with the Commonwealth of Independent States, and especially Russia, has grown significantly over the years, doubling from $880 million in 2002 to $1.88 billion in 2007.
Singapore businesses can find opportunities to invest in sectors such as real estate, food services, automotive and retail, said IE Singapore.
'So far, they have focused mainly on the high population market centres of Moscow and St Petersburg,' it said. 'We also look forward to the conclusion of double taxation and investment guarantee agreements between the two countries, which are now before the Russian Parliament for ratification, and are expected to take effect by the end of the year.'
IE reckoned that Singapore firms will benefit from these agreements, as they will not need to worry about being taxed by both countries or fear that capital-intensive projects are at risk of nationalisation.
LATIN AMERICA
Overall, Latin America as a region is still looking good. While inflation is increasing as it is everywhere else, Latin America is no longer as susceptible to a slowing US economy as it once was. Buoyed by high commodity prices, the region has somewhat decoupled itself from North America.
Trade and investment flows between Latin America and Asia are at an all-time high. Both regions are looking beyond physical distance, language and cultural differences to forge increased economic engagement. Singapore's trade with Latin America was $13.4 billion in 2007, a 13.1 per cent rise from 2006. While this constitutes only 1.58 per cent of Singapore's total trade, there is tremendous potential for growth.
Growth sectors and business opportunities for Singapore companies include oil and gas, ports and logistics, environmental services, master planning, F&B exports and e-government services.
Singapore companies have made headway in Brazil, Mexico and Panama over the past few years. IE said that SMEs are showing more interest in the region.
IE has organised and participated in numerous initiatives, such as the annual Latin Asia Business Forum (LAB).
Now in its fifth run, the conference and business matching event is a platform that bridges business opportunities between Singapore and Latin America.
IE also continues to spearhead missions to Brazil, Mexico, Peru and Panama to seek out opportunities for Singapore companies and encourage them to consider Latin America in their expansion plans. Singapore is seeing a growing number of incoming delegations from Brazil, Chile, Mexico and Peru. IE has two offices in Latin America, located in Mexico City and Sao Paulo.
VIETNAM
Against the backdrop of globally rising food and fuel prices, Vietnam is experiencing some of its highest inflation ever. The Vietnamese government recognises these challenges and has made inflation reduction its top priority. It is expected that while Vietnam's economic growth will moderate, it will remain strong nonetheless. Despite inflation worries, the sense on the ground is that business interest is still high. Demand for office space and hotel occupancy is still healthy.
FDI is still flowing into Vietnam and foreign donors have continued to pledge aid. In 2007, Vietnam attracted US$20.3 million of FDI. In the first five months of 2008, FDI commitments reached US$14.7 billion, up from US$4.4 billion in the same period in 2007. Singapore is the largest foreign investor in Vietnam in terms of pledged capital.
Bilateral trade in the first five months of this year grew to $6.8 billion, from $5.2 billion in the same period last year.
Although Singapore companies have traditionally focused on real estate, there is now a diversification into logistics services, health care and manufacturing such as food, consumer products and electronic components.
Furthermore, property players are exploring larger township projects since their initial foray into service apartments, hostels and office buildings.
In terms of challenges, the Vietnamese government's plans to cut public investment and expenditure, and tighten monetary policy to tackle inflation may translate into higher business operating costs. Inflation aside, Vietnam remains a complex business environment, so companies should do plenty of homework before taking the plunge.
This article was first published in The Business Times on July 22, 2008.
