Sovereignty safeguards needed if Singapore gets Air NZ shares

Friday 29th June 2001

Chart 1: Air New Zealand class A

Chart 2: Air New Zealand class B

Chart 3: Brierley investments

A recent trip to Singapore highlighted growing expectations of prolonged economic downturn in the Asia-Pacific region.

Singaporean newspapers quoted government ministers up to the level of the deputy prime minister Brigadier General Lee, son of senior minister Lee Kuan Yew, as saying a "v" shaped recovery of rapid effect would not likely be forthcoming. The government is clearly priming Singaporeans for a period of slower growth, although there was no talk of recession.

Singapore is battening down the hatches in response to the mood of tempered pessimism setting in. Technology is not dead in the area, as it was announced while I was there that Cisco Systems had just chosen Singapore as its regional headquarters.

Singaporean authorities were also emphasising continued heavy state investment in high-tech industries. Expectations are being scaled back, however, as to what can be achieved over the next year or so.

Singapore is a litmus test for the fortunes of the Asia-Pacific because it is so intertwined with other economies around it as well as the major economic powerhouses such as the US. If Singapore officially predicts a rough patch for itself, the inference is the world economy is in downswing.

Part of the problem for Singapore stems from its heavy exposure to high-tech exports, which are vulnerable to existing overstocking at the wholesale and retail levels in the US. Demand for Singapore's tech exports is likely to remain subdued for a time.

Additionally, the country is a major trans-shipping port for the Southeast Asian region and so feels the effects of any downturn in neighbouring countries such as Malaysia, which has also staked much of its export fortunes on high technology.

I was told by expatriate corporate employees based in Singapore that their companies had put a freeze on commercial air travel to save money and, in one case, had tightened up on employee education, so it is apparent budgets are being cut or constrained. Airlines in the region could feel the effect, as well as corporations heavily dependent on flying their staff around to do business.

The slowdown is starting to bite at the bottom line, as was evident also in lower reported corporate earnings and a rash of opportunistic takeover bids on the Singapore Stock Exchange.

The Singaporean view on the Air New Zealand (charts 1 & 2) debacle made interesting reading. Newspapers were clearly rooting for Singapore Airlines to come out the winner in the row with Qantas about which of the two airlines should end up controlling New Zealand's national carrier.

Singapore Airlines is majority-owned by the Singaporean government and the circumspect Singaporean press is careful to ensure official views are given supportive airing.

Singapore-based Brierley Investments (chart 3) would probably also be wise to exercise some circumspection in the way it handles its intended exit from Air New Zealand considering who the principal shareholder of Singapore Airlines is.

The tie-in with Air New Zealand-owned Ansett Australia was evident from the Singapore Airlines terminal in Changi Airport listing Ansett as a Star Alliance partner. Ansett would be useful to channel Australian passenger and freight flows through Singapore and on to Singapore Airlines.

The dispute over the fate of Air New Zealand has taken a nationalistic turn in the Singaporean press, with accusations of "Singphobia" being levelled at claims by a Qantas representative that it was not a good idea to let the Singaporean government, through Singapore Airlines, control too much of the Australasian airline market.

Another Australian business representative had chimed in with a similar message concerning Singaporean government-
controlled Singapore Telecom's bid for Optus Cable & Wireless.

The Singaporean press tendentiously portrayed these commercially motivated Australian comments as anti-
Singapore and reported with satisfaction that the Australian government had been quick to distance itself from them.

The degree to which Australia, and by extension New Zealand, should accept ownership of strategic assets by foreign governments, even if listed companies are used as proxies, is an issue of concern that should be debated thoroughly.

The question is highly relevant to our own government's deliberations over the size of Singapore Airline's permissable shareholding in Air New Zealand. Singapore is jealous of its own national sovereignty and should hardly be offended if other countries raise the same issue.

What could start out as a relationship between the New Zealand government and a commercial entity could rapidly escalate into an international dispute between two sovereign powers if matters deteriorated. It is not to be imagined that the interests of the New Zealand and Singaporean governments will always be identical. Safeguards are surely required, such as pre-agreed mediation procedures.

The views of Singaporean government officials on a regional downturn are relevant to New Zealand's own economic outlook. So far there has been a surprisingly optimistic attitude evident in New Zealand, especially from the government, which in its last Budget committed itself to higher borrowing.

New Zealand's economy threatens to take a caning this year. Having been late to join the decline, New Zealand could be one of the last out.

Companies here should perhaps be taking a leaf out of the book of Singapore-based corporations and hunting down unnecessary expenditure items.

At least the New Zealand sharemarket is cheap by world standards, which might argue for higher local rather than overseas investment in equities at this time.

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