Tag Archives: Economy

Do Singaporeans eat tomatoes? Let’s understand cost of living

Eggs and tomato.  Expat favourite

Eggs and tomato soup. Expat favourite

Take a few eggs with peanut oil to fry them, add some chopped fresh tomatoes and mix it all up. Serve alongside a bowl of white rice and wash it down with orange juice. Is this the expatriate lifestyle Finance Minister Tharman had in mind when rebutting the Economist Intelligence Unit’s finding that Singapore is now the most expensive city in the world? Because all those items are included in the shopping basket used by the EIU to assess cost of living globally – including the frying pan you cook it in and the dishwashing liquid you use to clean up afterwards. So it seems unlikely that Tharman was correct when he said the survey does not accurately reflect the cost of living for locals.

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Botched Tender? LTA performs u-turn on private bus operators

The decision to award the first City Direct private bus tender to ComfortDelGro – the parent company of existing public operator SBS transit is baffling. The original intention to use private operator capacity to augment existing public operators appears to have gone up in smoke. Was the introduction of competition to the existing government controlled duopoly operators too dangerous? Or was the tender itself simply botched up?

Original Intention

Lui Tuck Yew, then Minister for Transport, describe the tendering process thus –

“I have also asked LTA to see how we can tap on the resources of private bus operators, given that the two [Public Transport Operator]s’ resources are already very stretched”
Speech by Lui Tuck Yew, Minister for Transport, at the parliamentary debate on the population white paper. 5 Feb 2013

Josephine Teo later re-iterated this point in an oral reply in parliament –

“the move to invite private bus operators to run City Direct bus services is to tap on their existing resources to improve bus service levels. These operators may have existing buses and drivers available in between their other assignments, such as ferrying school children or workers, and it is our aim to contract them for the required bus services.”

Josephine Teo. Oral Answers to Questions. Parliament Reports. 9 July 2013.

On the face of it, this plan seems perfectly reasonable. Private bus operators with spare capacity and an interest in growing their business can be brought into the industry to address an apparent shortage of resources amongst public operators. Another obvious but unspoken change that such a move would bring is increased competition in the transport segment. The current model, where two operators – both of whom have the state as their largest shareholder – enjoy a duopoly is arguably less good at delivering value to customers than it is at delivering guaranteed profits to shareholders.

Private, Public or Parent?

In awarding the tender to ComfortDelGro, the parent company owning 75% of existing operator SBS Transit, LTA appear to have performed an abrupt u-turn. Ms Teo and Mr Lui’s stated goal of using private capacity to supplement public shortages does not appear to have been realised. While CDG does own a bus operator separate from SBS Transit, there is no meaningful independence between the two companies. With such a large shareholding, CDG enjoys almost complete control over SBS Transit – CDG’s owners control a large enough share of SBS Transit to dictate the running of the company. This is underscored by the management structure. The Chairman of SBS Transit, Lim Jit Poh, is also Chairman of CDG. SBS Transit’s deputy chairman, Kua Hong Pak, is listed as “Managing Director/Group Chief Executive Officer” in CDG’s annual report.

Rather than bringing private operators into the industry to bolster capacity, LTA appear to have achieved nothing more significant than enabling the management of CDG to work with the management of SBS Transit (who are in fact the same people) to use the resources of the former to alleviate the constraints of the latter. While the substantive difference Ms Teo and Mr Liu originally sought to draw between public and private operators is not obvious in hindsight – a bus is a bus after all – getting a parent company to assist a child company is not a game-changing achievement. One is left wondering, if the solution were this simple, why did SBS Transit and CDG not find a way to work together sooner to solve the ongoing transport crunch? Were they suitably incentivised to innovate and problem solve?

Whither Competition?

Competition is the greatest spur to innovation, and it is something that has clearly been lacking in many sectors of Singapore’s economy. Enjoying a comfortable duopoly with 54% Temasek owned SMRT in the transport segment, SBS has earned significant profits – achieving a return on equity over 10% from 2008 to 2011 – before falling to 5.5% in 2012. Were SBS complacent in the knowledge that there were no competitors existing or likely to emerge to their bus operations? Probably. Could SBS really not have found a way to increase their “stretched” capacity without waiting for LTA to award a tender to their own parent company? A parent company with the same senior managers? It seems unlikely. The suggestion that management were complacent due to a lack of competitive pressures is hard to avoid.

As it stands, the move does nothing to increase competition in the sector. The current duopoly is not threatened by a “new entrant” which is in fact closely related to an existing player. Will the man who is Chairman of both SBS and CDG allow his new operator to aggressively challenge the position of his existing player? Again, it seems unlikely – and this represents a missed opportunity. While increased competition was never explicitly mentioned as a reason for the tender to private operators, the language used caused many – not unreasonably – to assume this was an expected outcome. The government controlled Straits Times reported on expected bids from both Woodlands Transport and The Singapore School Transport Association – but made no mention that CDG might bid.

The opportunity to bring new blood into the industry, not just in terms of capacity, but new management and new ideas as well, should not have been missed. Faced with a threat to their duopoly, SBS and SMRT would have been forced to re-asses and improve their operations. Conversely, awarding the tender to a government-owned company linked to an existing PTO further entrenches the existing state-duopoly and reduces opportunities for new entrants to break into the industry. It could be that the government feared the effect of competition on the existing players – both of whom have the state as their largest shareholder – and decided to favour a bid from a related party. It is hard to know. It could also be that the government intended to bring in new players from the private market, but botched the tender by not realising that SBS’ parent company would be eligible to bid. If financial parameters were part of the selection criteria, then it is likely that CDG would have an advantage over smaller private operators – and while it could be that this is what happened, it is impossible to say for sure.

As a believer in the driving force of competition, one can only hope for a better outcome in subsequent City Direct tenders. However, only ten routes will be tendered in total and all are likely to be valuable to a new player seeking to establish themselves. For this reason, the decision to award the current tender to CDG is particularly disappointing – with any luck, subsequent routes will go to a new player with real independence from the existing government linked players.


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Singapore to become global retail refurbishment hub by 2025.

Singapore today unveiled plans to become a world leading global hub in retail premises demolition, refurbishment and re-construction by 2025. Speaking from a hastily erected podium littered with rubble at iconic shopping destination Orchard Road, the Minister for National Redevelopment launched the strategic roadmap to much fan-fare.

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A few questions on the Singapore budget 2013

Singapore’s 2013 budget was lauded by some as a “Robin Hood” budget, but the arguments are unconvincing. Who will benefit the most? It appears that through a range politically convenient and populist policies, the government itself will stand to benefit significantly from this budget. I have a few questions to ask on some of the headline initiatives. What do you think?

Is the Wage Subsidy Scheme a populist policy?

The government needs to do more to help the less well off in Singapore who have been left behind by the pursuit of economic growth. The bottom 20% earn less than 1.5k monthly, 50% of citizens earn less than 3k. Low wage earners have seen no real growth in income over the last decade. But the wage subsidy will be available to anyone earning up to 4k, meaning more than half of working citizens will benefit from government-funded cash in hand. So while this policy obviously has significant scope to make the government popular, the question is whether or not it represents money well spent on helping the needy who most require it. Should the government not allocate the same total outlay – 3.6 billion dollars – to do more for those earning less than 2k instead? And what is the long-term plan? The wage subsidy is curiously set to end in the same year the next general election will be due. How do employers plan to make up the shortfall if the subsidy is not extended beyond that time? Will this lack of planning be another example of a lack of 20/20 vision on the part of the government come 2016?

Will the Wage Subsidy Scheme give free cash to company bosses?
Will the Wage Subsidy Scheme give cash back to the government?

Last year I understand that Singtel made approximately 4 billion in profit. Does Singtel need government help to give a pay rise to their staff? It appears that any employer who had already planned to give an increment to eligible employees will now receive free cash merely for implementing an existing plan. Are there any steps in place to prevent subsidies being given to companies that had already planned to implement pay rises? If Singtel for example had already planned pay rises for the year ahead, will this injection of government money not effectively represent a free handout of cash to the business? And if this free cash increases the profitability of the company, will some of that money ultimately be paid to shareholders in the form of a dividend? In the case of Singtel, the government is the largest shareholder (54%) so any dividend funded somewhat from Wage Subsidy Scheme payments will presumably flow, in part, back to the government. Is there a risk that an unintended outcome of the scheme will be that the government gives money to the government, via a company that is owned by the government (Temasek)?

Are car loan restrictions a gift from middle-income earners to the wealthy?
Is this gift politically convenient for the government?

Regarding loan restrictions on car purchases, many see this as a response to sky rocketing COE prices. The most obvious outcome from this policy is that many of the “squeezed middle” will be squeezed out of the market for buying a car. Reduced demand will cause the COE price to come down, but this will only really benefit cash rich individuals who are not affected by the new loan restrictions. So middle-income earners will suffer and the rich will benefit. Lower COE prices are also politically convenient for the ruling party, and this outcome is likely to suit them in the sense of falling COE prices being a counterpoint to the never-ending increases in cost of living in Singapore. The government says these changes are needed to prevent reckless borrowing, but this is not convincing. The changes seem to make no attempt to differentiate between those who have good credit and can afford to borrow to buy a car, and those with bad credit who cannot. Surely the job of assessing credit worthiness or loan eligibility is a job for banks to take care of, and can be regulated through that mechanism, rather than a government policy to kick many interested buyers with good credit out of the market.

It would be interesting to see some of these questions answered by the government or debated in parliament, but our lack of opposition MPs and lack of a free media to hold the government to account means they will most likely go unasked. To see the government claiming this as a progressive and inclusive budget when it suffers from a number of structural flaws is troubling. It is particularly worrying to see the government embracing expensive, short-sighted populist policies in the light of increasing political discontent. Have we not been told, for decades, that this is what a strong and capable government should avoid? The fact that the budget also appears to pour money into already profitable government linked companies, some of which will inevitably return to the government at the end of the year, is also concerning. Why is it that government spending so often results in putting very little cash into the hands of those who need it most?

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