Singapore Infrastructure Report Q3 2008

Singapore is one of the smallest markets in the Asia Pacific region in terms of population, but this has not stopped it from becoming one of the most robust economies. Its economic foundations lie in an advanced electronics sector and a strong export-oriented manufacturing sector. The backbone of the economy, however, lies in its maritime primacy, one that it has enjoyed for decades, making Singapore a primary hub for the international maritime industry. However, the rise of China and India, in tandem with the recovery from the financial crisis of the late 90's have produced fierce competition in the region, challenging the traditional competitive advantages that many of the Asian Tigers enjoyed. In the case of Singapore it is its maritime primacy. Asian markets are in a state of flux and these evolving dynamics have prompted investments in infrastructure (among other sectors) to soar, as states are vying to increase their competitiveness. This momentum is evident in Singapore's infrastructure market, where investments are channelled not only in port infrastructure, but also in transport, tourism and residential construction.

We forecast that construction growth will peak in 2008, reaching 8.12%.

We believe that the reason for the decline thereafter to the end of the forecast period to 2012 is twofold: first, the rising costs of construction materials, coupled with a shortage of skilled labour, will take some of the heat off the construction sector; second, many of the infrastructure projects in transport and tourism and commercial construction - which have added to the momentum of the infrastructure sector - are reaching maturity. Nevertheless, average growth of 5.3% annually is still forecast, indicating that the momentum in Singapore will be adequate to merit further investments. Major infrastructure projects in the country include the US$3.37bn second casino resort project at Sentosa, the 10-lane Marina Coastal Expressway and the US$1.8bn Kallang-Paya Lebar Expressway project.

Asia is a very attractive market for private investors looking into non-traditional asset classes and Singapore is a prime target for investors with low levels of perceived risks, both political and operational, and a streamlined and transparent procurement process. This was highlighted recently with the divestment of Tuas Power, which after fierce bidding beat analyst forecasts and was sold to China's Huaneng Group for US$3.04bn.

Although we are anticipating GDP growth of 5.9% in 2008, we will be prompted to revise down our forecast if Singapore's export-oriented economy cannot sufficiently adjust to the forthcoming slowdown in Europe and the US.