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Thursday, 2 August 2007

Singapore courts the Middle East sheikhs

SINGAPORE - Singapore is bidding to position itself at the center of growing diplomatic and business ties between the Middle East and East Asia, a state-led strategy aimed at enhancing the city-state's standing as a regional finance and energy hub. Despite the heightened political tensions surrounding the Middle East - or, indeed, perhaps because of them, as Middle Eastern businesses have looked to East Asia as an alternative destination for their investment and commerce beyond the petroleum trade since September 11, 2001 - extraordinary new linkages are emerging between the two regions. And Singapore is at the front edge of the engagement. Since September 11, there have been more than 50 visits of a ministerial or higher level from Middle Eastern countries to Singapore, more than double the total over the preceding decade. Over the past two years, senior Singaporean government ministers, including Prime Minister Lee Hsien Loong and President Sellapan Ramanathan, have made official visits to the Middle East and North Africa, sometimes accompanied by big business delegations. Those have been reciprocated royally, with high-profile visits including the Crown Prince of Bahrain Shaikh Salman Bin Hamad Al-Khalifa this March, when he launched a new local Middle East group set up by the Singapore Business Federation (SBF). He was preceded by the Saudi Crown Prince Sultan bin Adbul Aziz Al-Saud in April 2006 and King Abdullah of Jordan in March last year. Former prime minister and current Minister Mentor Lee Kuan Yew urged a delegation of Middle Eastern businessmen to the island state late last year and encouraged them to use Singapore as a "launch pad" for embarking on new regional investment initiatives. Lee said Singapore is uniquely placed to help Middle Eastern investors make inroads to Chinese markets because of the government's close ties to China's leaders. The diplomatic exchanges have gone hand-in-hand with upgrading bilateral political representations, the establishment of new joint chambers of commerce, trade and investment agreements and other business initiatives, including the recent promotion of Singapore as a regional center for Islamic banking. Singapore signed in May 2004 a free-trade agreement with Jordan and is now negotiating similar agreements with Egypt, Oman, Bahrain, Kuwait, the United Arab Emirates, Qatar and Saudi Arabia - the latter six acting together as an economic group known as the Gulf Cooperation Council (GCC). Transcending commerceYet Singapore's outreach to the Middle East transcends plain trade and investment. Senior Singaporean officials speak about a multi-dimensional and long-term approach to building relations with the region, pointing to plans to establish an academic Middle East Institute at the National University of Singapore and institutionalizing Arabic as a language option for the island state's secondary and university students. Former prime minister Goh Chok Tong, the intellectual architect of Singapore's Middle East push, is still actively involved with the wide-ranging initiative in his current capacity as senior minister. In interviews, he often speaks of a new era of deeper and wider relations between the Middle East and East Asia, which he describes as a "mutual rediscovery" of the ancient cultural links between the two regions. One step in that direction has been the Singapore-inspired Asia-Middle East Dialogue, which Goh initiated. The first intergovernmental meeting was attended by representatives of some 50 states. The meeting was first held in Singapore in June 2005, with the next scheduled for Cairo this year and then in Bangkok in 2009. Singapore and the Middle East have a long history of commercial and cultural ties, but until recently this was widely as a residue of the imperial or colonial past. Arab traders, commonly from the Hadramut region, in and near today's Yemen, were for centuries active in Southeast Asia and settled in British Singapore in the first days after its founding in 1819. Before World War II, Arab merchant families such as Al Juneid and Al Kaff were among the wealthiest in all of Singapore. They controlled the pilgrim trade to Mecca from Singapore, which served Muslim populations across the region, maintained interests in much of the small-scale shipping trade in the Indonesian and Malayan archipelagos, and had sizable land holdings in Singapore itself. Many of the colonial-period buildings still standing in Singapore were commissioned by these Arab families, and other reminders of Middle Eastern influence can be seen around Arab Street in the shadow of Singapore's largest mosque, the 183-year-old Masjid Sultan, where descendants of earlier traders still maintain shops. Ancient links, modern flows Those ancient links are nowadays often cast as trendy, and entrepreneurs are capitalizing on that notion through an array of recently established Middle Eastern-style restaurants, many run by new arrivals from Egypt and countries on the Persian Gulf. In the modern era, the most important trade connection has been the steady supply of crude oil to Singapore, home to perhaps Asia's most important fossil-fuel processing and export hub. Middle Eastern investment in Singapore's petroleum sector is still small, though there are growing indications this may be changing. Middle Eastern investment has played a role in pumping up Singapore's property market, including recent big outlays in commercial properties. Recent statistics show that Middle Eastern investors are increasingly looking for new business opportunities in Asia as a way of hedging their exposure to North America and Europe after September 11 and subsequent attacks on Western cities. One common view is that the tightening of security controls, ethnic profiling and general suspicions and prejudices have made it materially more difficult and costly for Middle Eastern governments and companies to do business in the West. At the same time, the windfall profits earned from the recent spike in world oil prices has underscored the need for new investment destinations for Middle Eastern capital. To be sure, Europe and North America are still the main destinations for investment from Saudi Arabia and other major Gulf countries. But capital flows from the Middle East into East Asia are growing significantly. A study released in May by the Washington-based International Institute of Finance (IIF) showed that the members of the GCC - Kuwait, Qatar, the UAE, Oman, Bahrain, and Saudi Arabia - earned more than US$1.5 trillion in exports over the four-year period spanning 2002-06, representing a doubling of dollar-denominated revenues over the previous five-year period. About $1 trillion of those earnings was used to pay for national imports, while the remaining $500 million surplus was moved on to global capital markets. Of that amount, the IIF estimates $400 billion ended up in US and European markets, while $60 billion, or about 11%, eventuated in East Asia. In 2005 and 2006, for instance, the GCC announced investment projects in Asian infrastructure worth more than $155 billion, concentrated mostly in energy infrastructure. Gulf investors have also recently plowed into Chinese initial public offerings, Asian real estate, banking, and telecom assets, according to the IIF. The Singapore-Saudi Arabia connection is especially potent. Saudi Arabia is Singapore's largest trading partner in the Middle East, with bilateral trade now worth more than US$10 billion, and is also the largest Middle Eastern investor in the island state. Meanwhile, Singapore is eyeing the $800 billion in infrastructure projects Riyadh has planned for the next 20 years, particularly contracts related to engineering, project management and information technology. Sharia-compliant: With so many petrodollars in search of global returns, Singapore is marketing itself as a new regional center for Islamic finance, for which it is vying aggressively with Indonesia and Malaysia for global funds. In particular, Singapore is targeting wholesale and institutional banking, fund management and capital markets to serve as an intermediary for financial flows to and from the Asian region. To enable Singapore banks and other financial institutions to deal in sharia-compliant investment products, the Monetary Authority of Singapore (MAS) has recently adapted its regulatory conditions. Singapore's stock market now offers special indices of Asian stocks compliant with sharia (Islamic) law that exclude companies that deal in activities such as the sale of pork or pork-based products, liquor, and gambling. Recent MAS reports show that more than US$1.6 billion of sharia-compliant property and insurance funds are now parked in Singapore. Although not openly apparent, Singapore's Middle Eastern gambit is also consistent with US foreign policy. Singapore is working closest with the Middle Eastern countries that have maintained strong bilateral ties to Washington during its "global war on terrorism" campaign, including Saudi Arabia and Jordan. Singapore, which provides support for the US military through its Sembawang Naval Base in the north of the island, has been Southeast Asia's strongest supporter of US counter-terrorism policies. The island state has allied itself with Washington over the Iraq war and occupation, it has contributed support personnel to the US-led coalition forces for reconstruction work there, and government leaders have argued that the US should not precipitously withdraw. Singapore also has close ties with Israel, which was an early ally helping to forge its defense force in the late 1960s and 1970s. At the same time, Singapore has not taken a confrontational position over Middle Eastern politics, illustrated best in its diplomatic position on Iran. Although the government has been critical of Iran's uranium-enrichment program, developing better ties with Iran remains a priority in its SBF Middle East program. In March, Senior Minister Goh visited Tehran and held discussions with Iranian President Mahmud Ahmadinejad. At the commercial level, Singaporean companies visited Iran in 2005 in a trip organized by the SBF, and also hosted an Iranian business delegation last year. Pragmatism and a strongly held belief in the moderating impact of commerce on politics are apparently the guiding principles behind Singapore's Middle Eastern gambit. Goh has even argued that stronger economic ties linking the Middle East, Singapore and the rest of Asia could have a moderating impact on religious extremism and terrorism. "It is in our interest that the Middle East develops and prospers. It is in the interest of Middle East countries to plug into the Asian grid," he said at the first Asia-Middle East Dialogue meeting in June 2005. "Relations between the Middle East and the West have been historically difficult. But there are no deep historical, cultural, religious or ideological barriers preventing better relations between the Middle East and Asia," Goh said. "On the contrary, the links between our regions are ancient; the historical influences on each other profound. It was only in the last century or so, with colonialism and the Cold War, that we neglected each other. But the ancient links are now being re-established." # Andrew Symon is a Singapore-based journalist and researcher/analyst - (AT, 3 August 07)
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