As it gets squeezed by competition from China and others, the republic is using its vast assets to achieve something not many rivals can do – developing an external wing on its current scale.

Decades of thrift and reserves building are now giving Singapore the financial muscle to buy up stakes in flourishing economies.

Statistics showed some US$180bil had been invested overseas as at end-2003, half of which – some US$90bil – were direct investments. They had doubled in six years from 1997.

The tempo has continued with two major changes.

Firstly, Temasek, the government investment company, has led the charge and become a direct investor itself, unlike in the past when it was done largely through cash-rich government-controlled corporations.

Secondly, the trend has been towards billion-dollar purchases instead of smaller stakes worth hundreds or tens of millions. Temasek has deeper pockets and longer holding power.

The bulk of it has gone to booming China but funds are now increasingly moving into promising Asian countries.

Singapore’s “external” investment has steadily become a bright spot that promises a more secure economic future. In the years ahead, it will turn into a major source of revenue to make up for Singapore’s small size.

Other strong potentials will likely emerge from other economic activities like tourism, with two casino-resorts due to open in 2009, and from its investments in biotech and hub education and health services.

These happy signs contrast with the feeling of gloom and despondence that many Singaporeans feel in the face of China’s competitiveness, and years of economic weakness. Incomes, job opportunities and asset values have declined. Thousands who were worried about prospects for their children have emigrated.

During recent years, the overseas investments have picked up.

Last July, Temasek entered into a strategic partnership with China Construction Bank, the fourth largest in the country, investing US$1.5bil in it and seeking approval to buy another US$2.4bil of its shares.

It also took a 10% stake in the Bank of China for US$3.6bil and paid US$1.88bil for 49.6% of Premier Thaksin Shinawatra’s family telecoms firm, Shin Corp.

The improving economies in Indonesia and Malaysia also make them choice partners. The Singapore government investment company paid US$700mil for a majority holding in debt-ridden Indonesian petrochemical firm, Chandra Asri Petrochemical Centre.

Others included a bank in Pakistan, and property in Malaysia, China and South Korea.

Temasek is, of course, not the only government player. Affluent government-linked companies like SingTel, SIA, DBS Bank, PSA International, Neptune Orient Lines, Keppel Cp, etc, are all large investors in Asia.

Singapore’s strategy of investing overseas and getting its companies and workers to span out abroad in large numbers could eventually remake the economy.

“Our gross national product (GNP) in 10 years’ time will be significantly greater than our gross domestic product (GDP),” said (the then) Trade and Industry Minister George Yeo.

But that could take a greater level of savings for a longer period.

“Singapore will need to invest heavily overseas for at least another 20 years before its GNP can become substantially larger than its GDP,” says Morgan Stanley.

The strategy is not without risks. Even at the best of times, business has its twists and turns.

Recently, NextMall, the China hypermarket venture of NTUC FairPrice, shut down with nearly S$80mil in debts and more than S$40mil in losses over the three years since it was formed.

During the 1987 financial crisis in South-East Asia, Singapore’s investments took a knock, which took years to recover. Things may go wrong again. Cultural differences (like Suzhou), political upheavals, terrorism or the threat of bird flu could upset the best-laid plan.

Based on recent research, Daniel Lian, economist in Morgan Stanley, said, “The size of this external economy will be quite substantial and, based on my rough calculation, it will grow to the tune of US$500bil by 2020.”

This will be more than five times Singapore’s 2003 nominal GDP of US$91bil. “No other economy on earth will own such large external assets relative to its domestic economic size,” he added.

Temasek-owned PSA Int is now engaged in a multi-billion dollar battle to purchase British port giant P&O with Dubai.

A Singapore victory would create the world’s biggest container port operator by capacity, leap-frogging Hong Kong's Hutchison Ports.

The Morgan Stanley research said the government’s economic measures were working.

“Singapore’s leaders have again quietly re-established the Singapore vision over the past few years. The structural prospects of Singapore thus deserve a strong re-rating, in our view,” it said.

o Seah Chiang Nee is a veteran journalist and editor of the information website littlespeck.com

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