Saturday, September 27, 2008

On Liberalisation & De-regulation in Singapore

Define: Privatisation, Deregulation and Liberalisation

Privatisation (alternately"denationalisation") is the transfer of ownership from the public sector (government) to the private sector (business). A transfer in the opposite direction could be referred to the nationalisation of some property or responsibility.

One of the main arguments for the privatization of publicly owned operations is the estimated increases in efficiency that can result from private ownership. The increased efficiency is thought to come from the greater importance private owners tend to place on profit maximization as compared to government, which tends to be less concerned about profits. Proponents of privatization argue that whereas government producers have no incentive to hold down production costs, private producers who contract with the government to provide the service have more at stake, thus encouraging them to perform at a higher level for lower cost. The lower the cost incurred by the firm in satisfying the contract, the greater profit it makes. On the other hand, the absence of competition and profit incentives in the public sector is not likely to result in cost minimization.

Click to read "Overview of Privatisation in Singapore - A 10 year process"

In many countries, privatisation of state-owned entities was followed by deregulation and liberalisation of the industries to open up the market further to enhance competition.

Deregulation is the process by which governments remove, reduce, or simplify restrictions on business and individuals with the intent of encouraging the efficient operation of markets. The stated rationale for deregulation is often that fewer and simpler regulations will lead to a raised level of competitiveness, therefore higher productivity, more efficiency and lower prices overall.

Economic liberalization is a broad term that usually refers to less government regulations and restrictions in the economy in exchange for greater participation of private entities. The arguments for economic liberalization include greater efficiency and effectiveness that would translate to a "bigger pie" for everybody.

In developing countries, economic liberalization refers more to liberalization or further "opening up" of their respective economies to foreign capital and investments. Three of the fastest growing developing economies today; China, Brazil and India, have achieved rapid economic growth in the past several years or decades after they have "liberalized" their economies to foreign capital. Many countries nowadays, particularly those in the third world, arguably have no choice but to also "liberalize" their economies in order to remain competitive in attracting and retaining both their domestic and foreign investments.

Deregulation is different from liberalization because a liberalized market, while often having less and simpler regulations, can also have regulations in order to increase efficiency and protect consumer's rights, one example being anti-trust legislation (to control monopoly power). However, the terms are often used interchangeably within deregulated/liberalised industries.


Market Liberalisation in Singapore

Some forces that drive liberalisation:
  • efficiency gains from introduction of new technology and entry of new players new
  • technological changes renders less significant certain natural monopoly elements in network industries
  • globalisation
In Singapore, the telecommunication, power and mass media sectors were liberalised in phases. Other industries that have been liberalised includes: banking and finance, transport and postal sectors.

Deregulation of Telecommunications Industry

In 1989 the government of Singapore started eliminating restrictions on the sale of telecom consumer goods to make businesses more competitive. In recent years the government of Singapore has realized that technological advances in the areas of telecommunications have made deregulation and liberalization almost impossible to avoid and have taken a number of steps to open the market. The government is working to deregulate the telecommunications market in order to attract new competitors, lower prices, and provide a larger range of services and products to the citizens.

Along with the efforts to deregulate the industry, barriers to market penetration have been lowered and at the present time, Singapore does not have any barriers to imported telecom equipment. As a result of the current trend towards deregulation, the telecommunications market is becoming a fast growing sector of the Singapore economy due to its openness. This deregulation has also started to provide numerous opportunities for companies to get into the telecommunications market.

Read "The Liberalisation and Privatisation of Telecommunications in Singapore by Mr Lim Chuan Poh, Director-General of Telecommunication Authority of Singapore (TAS); and article from IHT: Analysts Split on Deregulation's Impact : For Singapore Telecom, Battle on Home Front

Deregulation of Electricity Retail Market
The Singapore electricity retail market is being liberalised to facilitate competition and to allow consumers to buy electricity from retailers of their choice. Companies that operate in the competitive parts of the industry have been separated from those that operate the natural monopolies at the ownership level. To further enhance competition and market efficiency, a new electricity market has been developed to replace the existing Singapore Electricity Pool which has facilitated wholesale trading of electricity since April 1998.

The deregulation of the electricity market was aimed at introducing competition to achieve a more efficient market. The deregulated market has so far benefited customers through more competitive electricity prices and electricity package choices. Under the deregulated market, contestable customers are free to choose independent electricity retailers, such as Tuas Power Supply and the type of contract that will best meet their business needs.

Read more: SINGAPORE’S ELECTRICITY AND GAS SECTOR: The Competitive Market Moves Forward; and slides

Liberalisation of Singapore media market
MediaCorp has held a virtualised monopoly in the television broadcasting market, and most of the radio broadcasting market for a substantial amount of years. In June 2006, the Singapore government announced a liberalisation of the Singapore media market to introduce competition in the broadcast and newspaper industry. With the liberalisation of Singapore media in January 1,2001, SPH MediaWorks, a division of Singapore Press Holdings entered the market, transmitting 2 new free-to-air terrestrial television channels, Channel U and TV Works, broadcasting in Mandarin Chinese and English respectively. The process of establishing the 2 new channels entailed one of the largest staff crossovers in Singapore. A significant number of MediaCorp’s employees moved to SPH MediaWorks, including renowned producers, celebrated artistes and notably the media veteran, Man Shu Sum, one of the pioneers in the local broadcasting industry.

However, losses by both companies due to competition led to a merger, and as of 1 January 2005, MediaCorp once again became the monopoly in the mass market free-to-air terrestrial television provider. At present, MediaCorp runs 6 television channels and 14 radio channels, making MediaCorp the largest media broadcaster and provider in Singapore.

Liberalisation of Singapore's Gas Market
The Government deregulated Singapore's gas market on 14 February 2008. The amended Gas Act will cover technical and operational aspects of rules for gas installations to the licensing of gas service workers. The Act will allow both gas importers and retailers to have open, competitive access to Singapore's gas pipeline grid. This includes the upcoming liquefied natural gas (LNG) terminal on Jurong Island. Under the changes, all natural gas imports will eventually be accessible to all industry players from a common gas pipeline grid. This will prevent any power outages caused by a cut in gas supply from a single source, an expensive problem for industry and businesses.

Singapore's Postal Sector Fully Liberalised
In 1 April 2007, Singapore's postal sector was fully liberalised. The Government decided to open the Basic Mail Services market, which includes the collection and delivery of letters and postcards, within, into and out of Singapore, after a 15-year monopoly by Singapore Post Ltd (SingPost). With this, new players will be allowed in both domestic and international mail services. This adds greater competition to Singapore's postal sector, which has seen the liberalisation of other segments such as Express Letter Services as early as 1995. The decision will further the Government's commitment towards building an open economy and strengthening Singapore's position as a regional business hub. Liberalisation is expected to generate cost savings of S$8 million to S$25 million per year over the next two to three years, to largely benefit businesses. Today, businesses account for almost 95 per cent of Singapore's total domestic mail.


Liberalisation of Commercial Banking Sector
MAS announced on 17 May 1999 a programme to liberalise commercial banking in Singapore. This was aimed at promoting a more open and competitive environment and to spur the development and upgrading of local banks. The programme included a package of new banking privileges and licences for foreign banks, to be granted over 3 years (1999-2001).

One of Singapore's core strengths, built up over the 1980s, has been its financial centre status. It is intimately linked to Singapore's status as a trading and regional business hub, given the importance of financing and credit to business. Fairness, efficiency, liquidity and transparency are all key attributes for a top banking system, and these have all been key features driving Singapore's rise as a financial centre. As a follow-through to the dominant late-twentieth century trends of globalisation, deregulation and liberalisation, and to drive the next phase of growth, the government recognised the need for Singapore's banking sector to open up to foreign competition.

MAS issued full qualifying banking licences to six foreign banks (Citibank, ABN Amro, Maybank, HSBC, BNP, Stanchart) through 1999-2002, the most privileged status for foreign banks that allows them to open new branches locally and to develop their ATM network (even Citibank's expansion of its presence into the heartlands). At the same time new wholesale licences (the next most privileged status) were given to banks from Switzerland, Japan, France, Australia etc. The number of branches that these banks can open, and the number of ATMs that they can operate, both key measures of permitted penetration into the local commercial banking sector, are set to rise further.

The local banks have responded to the coming foreign competition by a process of consolidation to achieve the necessary operational scale: DBS with POSB, UOB with OUB, OCBC with Keppel-Tat Lee. On the investment banking side, there are the less-publicised acquisitions of Vickers Ballas by DBS and Kay Hian by UOB. The three main local banks were also required by the government to dispose of non-core assets by 2006: a measure probably designed to prevent conflicts of interest and abuses of the great power bankers wield over their clients, and presumably also to give greater focus to the core banking business. Additionally, there was a wave of expansion overseas: DBS bought Dao Heng Bank in Hong Kong to establish a Northeast-Asia presence, UOB established a strong presence in Malaysia (long-standing) and Thailand (through Bank of Asia), while OCBC built on its traditional presence in Malaysia. Clearly, the banks were diversifying their revenue sources and risks in view of the coming foreign threat onto local shores.

Read more: "MAS ANNOUNCES PROGRAMME TO LIBERALISE COMMERCIAL BANKING AND UPGRADE LOCAL BANKS"


Click here to read related article on the trend of deregulation, privatisation and market liberalisation in Asian markets, including Singapore: Regulatory Environment: Creating Stable and Expanding Markets - Remarks by Yong Ying-I, CEO, Infocomm Development Authority (IDA) -

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