Thursday, 8 December 2016

The Singapore-Australia Free Trade Agreement

by Tony Cripps, Group General Manager and Chief Executive Officer, HSBC Bank Australia

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We've all been thrown into group dynamics where different personas quickly emerge: the loud one, the powerful one, the pacifist and the antagonist. Often there is a lot of noise but not much traction. But if you look closely, there will be a pair in the corner who are just quietly getting on with things.

In the world of economics and geo-politics, Singapore and Australia could easily fall into this last category.

It was on full display recently as the two countries signed the third iteration of the Singapore-Australia Free Trade Agreement (SAFTA). It was a welcome initiative in an environment in which the benefits of free trade are often called into question.

Established in 2003, the SAFTA was one of the earliest bi-lateral free trade agreements for both countries and has been the catalyst for one of the most successful political and commercial corridors for either country.

Indeed, Singapore is Australia's 5th largest trading partner, 4th largest foreign investor and the 5th largest inbound market for visitor arrivals1. Conversely, Australia is Singapore's 12th largest trade partner and third biggest destination for its outbound investment 2.

The recent enhancements to the FTA between the two countries, which include increasing people mobility, collaboration in innovation and bi-lateral investments in infrastructure and education, will serve as a vital cogwheel in the economic growth engines of both countries.

The changes are more than worthwhile given the IMF and OECD's recent warnings of continued or even worsening global economic conditions.

There is no coincidence that the SAFTA seeks greater cooperation in services and infrastructure. Both countries are striving to further support these sectors and the FTA clearly seeks to deliver a 'float all boats' scenario.

Included amongst it are several initiatives to drive R&D and innovation collaboration including the aligning of the countries' pre-eminent scientific institutions, Singapore's A*STAR and Australia's CSIRO, and for Australia to establish a “landing pad” in Singapore to facilitate high tech Australian start-ups3

This makes a lot of sense.

Singapore is a popular choice for IT companies and start-ups seeking a base for expansion into South-east Asia. Already the world's most wired country with globally-recognised intellectual property protection, Singapore's Smart Nation aspirations will align well with many Australian companies' digital or innovation focus.

The changes will further spur the growth of fintech start-ups and entrepreneurship while providing a platform to cross-fertilise and exchange the latest technological know-how.

Singapore and Australia's commercial links will be buoyed by the improved bi-lateral visa entry arrangements for service suppliers and professionals seeking to enter and work temporarily in each country's market.

There will also be closer collaboration in recognising respective tertiary qualifications and scope for universities to set up campuses in each other's country.

These changes recognise the strong people-to-people links that already exist between the two countries.

HSBC's 2016 Expat Explorer research4 found that Singapore is the top destination for expats globally, including some 20,000 Australians who are here for career opportunities, and we expect the number to grow with reduced barriers to labour mobility.

On the flip side, a recent HSBC study found 66% of Singaporean parents would choose to send their children to study in Australia. With more Australian university qualifications gaining recognition in Singapore, these numbers can only increase.

At the big end of town, SAFTA will see the procurement practices for Government projects in both countries becoming more aligned.

The importance of this change cannot be understated as it will enable businesses to have greater conviction and certainty in tendering for work, particularly in the infrastructure space.

Singapore will be fertile ground for construction.

In the 2015/2016 budget, the Singapore government committed to double its infrastructure spending over the next five years – from SGD$12 billion in 2010 to SGD$30 billion in 20205 with increased spending across the public transport, logistics and healthcare sectors.

Beyond the immediate construction work involved with these projects, there are significant downstream possibilities for Australian business services companies who are world-class, particularly in contracting, engineering and consultancy. The SAFTA will elevate the prospects of Australian companies being running partners with Singaporean counterparts in delivering some of these landmark projects.

SAFTA is certainly a two-way street when it comes to supporting internationally ambitious Singaporean corporates, particularly with their outbound investment ambitions.

As part of the agreement, Australia will raise the foreign investment threshold for private Singaporean investment in non-sensitive sectors from AUD$252 million to $1.1 billion.

This will be a real shot in the arm for Australia's commercial real estate sector given Singapore is already Australia's second largest commercial property investor accounting for 30%6 of its total foreign direct investment stock in the sector.

The growing breadth of financing options and ease of raising debt in Singapore's capital markets is likely to continue to lend support to property companies' transaction activity and asset pricing, as investors continue to seek yield in the current environment.

As a whole, the real estate sector now is typically among the top two largest bond issuers in the Singapore market. With this ability to tap the market to raise funds, property companies have increased cash-flow to fund more opportunistic asset acquisitions, thereby potentially boosting CRE demand in the longer term.

Singapore and Australia are close: both geographically and in in terms of ease of doing business, transparency and political stability, and the enhancements to the SAFTA will solidify our bi-lateral business ties further.

Disclaimer

  1. Singapore International Enterprise: http://www.iesingapore.gov.sg/Venture-Overseas/Browse-By-Market/Asia-Pacific/Australia/Country-Information
  2. SingStat: http://www.singstat.gov.sg/statistics/browse-by-theme/investment
  3. Linked to Singapore's largest integrated startup space, BASH (Build Amazing Startups Here).
  4. HSBC 2016 Expat Explorer
  5. In the 2016 budget, the Singapore government announced plans to increase its infrastructure spend from SGD12 billion in2010 to SGD30 billion in 2020.
  6. Jones Lang LaSalle

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