US embassy cable - 05SINGAPORE887

C O N F I D E N T I A L SECTION 01 OF 03 SINGAPORE 000887 
 
SIPDIS 
 
E.O. 12958: DECL: 03/16/2015 
TAGS: ECON, EFIN, ETRD, ETTC, PGOV, KTFN, PREL, PTER, SN, XD, XF, XI 
SUBJECT: SINGAPORE'S OUTREACH TO THE MIDDLE EAST 
 
 
Classified By: E/P Counselor Laurent Charbonnet, Reasons 1.4(b)(d) 
 
1. (C) Summary: For the past year, the Singapore government 
has talked up a campaign to expand the country's economic and 
political ties with the Middle East.  On the economic front, 
the GOS wants to expand trade and investment beyond its 
traditional partners.  Politically, Singapore seeks to 
diversify its international relationships and earn goodwill 
from its domestic Malay/Muslim minority and its two large, 
Muslim-majority neighbors.  As part of its campaign, 
Singapore is sponsoring an Asia-Middle East dialogue (AMED) 
in June (septel).  Senior Minister Goh Chok Tong has taken on 
personal leadership for these initiatives.  End Summary. 
 
The Middle East: The "Missing Piece" 
------------------------------------ 
 
2. (SBU) Senior Minister Goh Chok Tong, who spearheaded 
Singapore's previous initiatives to move beyond ASEAN toward 
India, Europe, and Latin America, is now leading Singapore's 
effort to forge a closer relationship with the Middle East. 
As Prime Minister, Goh visited Egypt, Jordan, Bahrain, 
Turkey, Pakistan, and Iran.  As Senior Minister, he recently 
concluded a six-day trip to Saudi Arabia, the first such trip 
in 20 years by a senior Singaporean political official.  Goh 
has called the Middle East the "missing piece" in Singapore's 
external relations, and a region where he aims to devote more 
attention.  In Singapore's highly coordinated government, no 
one person--even Goh--could push through an initiative that 
the government as a whole did not find useful.  Nevertheless, 
Goh clearly is seen as a force pressing a sometimes reluctant 
government bureaucracy and business community on this 
initiative. 
 
Forays into Islamic Banking 
--------------------------- 
 
3. (SBU) Singapore's primary financial goal is to attract 
Middle Eastern wealth to Singapore banks.  As chairman of the 
Monetary Authority of Singapore (MAS), SM Goh has stated that 
Singapore must tap new markets to maintain its role as a 
leading financial center in Asia.  The Middle East offers 
attractive opportunities for both wealth management and 
capital market activities.  Consequently, Singapore plans to 
introduce Islamic financial products and it will apply to 
become a full member of the Islamic Financial Services Board 
(IFSB), which sets international standards for Islamic 
financial regulators.  MAS also plans to hold a conference on 
Islamic financial services by mid-year; a previously planned 
conference on Islamic banking was canceled in fall 2004 
apparently because of a lack of interest.  Goh and MAS 
officials concede that Singapore will never be a major 
Islamic finance center that can compete with long-established 
Islamic banking systems like Malaysia.  Instead, Singapore is 
modeling itself after London, seeking to be an international 
banking center that offers Islamic financial products along 
with conventional products to foreign investors.  In recent 
years, a number of banks began offering Islamic banking 
products in Singapore, including Citibank, HSBC, OCBC, and 
Deutsche Bank. 
 
4. (SBU) MAS does not plan to change Singapore's regulatory 
framework to encourage Islamic banking.  Individual financial 
institutions will be obliged to hire their own experts in the 
target market to design financial products that comply with 
Islamic law, in part because Singapore does not have a pool 
of experts on the subject.  The Islamic Religious Council of 
Singapore (MUIS) had hoped that Singapore would adopt the 
Malaysian model, with a central, government-mandated 
religious body certifying that all Islamic financial products 
are shariah-compliant, and is disappointed that the GOS has 
decided to leave the question to the market.  MUIS foresees 
limited local interest in Islamic financial products since 
Singapore Muslims are accustomed to using conventional banks, 
says its vice president. 
 
Barriers to Entry 
----------------- 
 
5. (U) As a well-established oil-trading center and 
petro-chemical hub, Singapore is urging Middle Eastern 
companies to use it as their Asia-Pacific axis and gateway to 
the region.  Spurred by Malaysia's success in attracting 
big-spending Arab visitors, the GOS is also promoting 
tourism, especially for medical services.  But Singapore's 
effort to attract Arab tourists and investors is hampered by 
tough visa rules.  The Saudi ambassador in Singapore has 
complained in the press that it is difficult for Saudis to 
get visas due to GOS security concerns.  Goh has promised to 
make it easier for Saudis to get visas, but MFA says the GOS 
cannot compromise on the fundamental issue of security. 
Education is one key sector that Singapore doesn't seem to be 
promoting in the Middle East, despite its effort to become a 
"global schoolhouse."  GOS officials say this is "a sensitive 
issue;" Malaysia and Indonesia might not like the competition 
for Muslim students.  In addition, the GOS may be concerned 
about exposing its population to more conservative Arab 
Muslims. 
Lukewarm Response from Private Sector 
------------------------------------- 
 
6. (U) Singapore is also marketing its expertise in 
infrastructure development, such as ports and airports, 
telecommunications, and e-government, sectors where it faces 
significant competition in the Middle East.  International 
Enterprise Singapore (IE), which is responsible for promoting 
overseas expansion by Singapore firms, notes that many 
Singaporean firms are too small to compete with regional 
corporations or large American and European companies in the 
Middle East.  While IE Singapore is realistic about the 
limited prospects in the region, it has to put together 
business delegations in support of SM Goh's initiative.   The 
GOS is trying to get Singapore businesses to expand beyond 
their traditional base in U.A.E. (home to more than 400 
Singapore companies) by running informational seminars and 
organizing trade delegations to countries like Bahrain, Oman, 
and Turkey.  It is trying to "create a buzz" about the Middle 
East, in the same way it tried to stir up "India fever" in 
the 1990s. 
 
7. (U) Despite a spate of articles in the government-linked 
press about business opportunities in the Middle East, 
Singapore businessmen remain reluctant to invest there.  They 
prefer to focus on China and India, two large, nearby 
economies where they don't face daunting language barriers 
and cultural differences.  They are also put off by the media 
images of violence and upheaval in the region, GOS officials 
note.  Those who do go to the Middle East choose activities 
like franchising, trading, or selling services to avoid 
risking their capital.  One advantage the Middle East has, IE 
officials explain, is the abundance of capital so Singapore 
investors do not have to finance the majority of a project, 
as they do elsewhere. 
 
More FTAs 
--------- 
 
8. (SBU) Having reached the limits of expansion with closer 
trading partners, Singapore is looking further afield.  The 
GOS is attempting to expand its trade relations with the 
Middle East by negotiating FTAs.  In May 2004, Singapore 
signed a free trade agreement and bilateral investment treaty 
with Jordan, its first FTA in the Middle East.  Jordan's 
parliament has not yet ratified the FTA.  Singapore is 
negotiating FTAs with Bahrain, Egypt, and Kuwait.  IE 
officials believe that an important benefit of the 
negotiation process is that it reveals how policy is made in 
a country, and officials get to know their counterparts 
better.  Middle East trade -- 80 percent of it in 
petro-chemical products -- only accounts for 5 percent of 
Singapore's total trade; Ministry of Trade and Industry 
officials do not expect this to increase anytime soon. 
 
A Friend to All 
--------------- 
 
9. (C) Singapore is occasionally criticized domestically and 
regionally for its close relationship with the United States. 
 The GOS, although it values highly those U.S. ties, wishes 
to earn the goodwill of its ethnic Muslim minority and its 
two large Muslim-majority neighbors, Malaysia and Indonesia, 
by forging ties with the Arab world.  MUIS, vice-president 
(protect) said the Islamic council is extremely pleased and 
surprised by the GOS overtures toward the Middle East, 
although they believe the initiative is motivated by a desire 
to make money.  At the same time, the MUIS official said 
Goh's outreach is, in part, an attempt to counter Minister 
Mentor Lee Kwan Yew, whose harsh views of Islam and Muslims 
have antagonized Muslims over the years. 
 
10. (C)  The GOS outreach is also motivated by security 
concerns.  According to a high-level Muslim journalist who 
has traveled with SM Goh to the Middle East,  Singapore's 
leaders are "terrified" of political Islam and the spread of 
Arab-style Islam to Singapore and the rest of Southeast Asia. 
 In the past, the GOS tried to counter Wahabiist tendencies 
by urging its Muslim minority to look to Indonesia as a 
model.  But many local Muslims continue to see Saudi Arabia 
as the ideal.  Consequently, the GOS has to deal with Saudi 
Arabia directly to better understand it, according to the 
journalist.  The GOS is carefully promoting political and 
economic reform in Saudi Arabia and the Middle East. 
Speaking at the Jeddah Economic Forum, SM Goh explained the 
Singapore model of development, which is based on 
meritocracy, tolerance, honest government, openness to new 
ideas, pragmatism, and developing human resources--including 
women.  Singapore is also sponsoring an Asia-Middle East 
dialogue (AMED) in June (septel). 
 
Expanding Diplomatic Ties 
------------------------- 
 
11. (SBU) In connection with Goh's trip to Saudi Arabia, the 
GOS announced that it will appoint a resident ambassador to 
the kingdom.  The GOS also plans to increase its use of 
non-resident ambassadors based in Singapore to cover the 
Middle East, though it is reluctant to open more missions. 
MFA will soon set up a separate Middle East directorate. 
Most Singapore universities are expanding course offerings on 
Islam and the Middle East, and government leaders are urging 
Singapore's Muslim citizens to study Arabic so they can do 
business in the Middle East. 
 
12. (C) Comment: GOS officials concede that Singapore is 
"very late" in focusing on the Middle East.  They have few 
concrete results to show from their outreach efforts so far, 
although they are still in the early stages.  GOS officials 
admit that they have been given few, if any, targets to reach 
in the Middle East beyond trying to establish footholds 
across the region.  Efforts to establish an Islamic banking 
presence appear similarly modest, as evidenced by the lack of 
corporate interest in last year's aborted Islamic banking 
conference.  SM Goh's personal involvement, however, will 
prevent this GOS initiative from losing momentum, for now. 
While the business prospects appear limited, at least in the 
near term, Singapore will continue to seek opportunities in 
the Middle East, not only to diversify its sources of 
economic wealth, but to enhance its overall security 
interests by fostering warmer ties with, and economic 
development in, Muslim countries, both in the Middle East and 
closer to home.  End Comment. 
LAVIN