SINGAPORE'S OUTREACH TO THE MIDDLE EAST

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