Singapore exploring new tools to manage significant investments in critical entities

SINGAPORE is exploring “new tools” to “manage significant investments into critical entities”, Minister for Trade and Industry Gan Kim Yong told media on Monday (Aug 28), without elaborating on what form this might take.

“Going forward, we will need to strengthen Singapore’s position as a trusted hub for businesses to invest with confidence,” he said. “And to do that, we will need to make sure that investments into critical entities do not affect Singapore’s economic resilience and our national security interest.”

He noted that “many countries around the world are already doing this”, without specifying what he meant.

“We will reach out and engage industries, to better understand their own perspectives and to work with them to minimise the impact on the businesses and investments,” he added.

Academics said that legislation could be on the way, pointing to precedents at home and abroad.

Singapore already has laws governing ownership and control of companies in certain industries, noted Terence Ho, associate professor in practice at the National University of Singapore’s Lee Kuan Yew School of Public Policy.

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Restrictions apply to foreign investment in broadcasting and news; banking and financial services; and telecommunications. For instance, approval is needed before substantial changes in shareholding or receiving foreign funds.

The “new tools” could build on these examples while adding broader requirements, “taking reference from investment screening practices in other countries that require notification or approval for investments in sensitive sectors or firms”, he said.

Singapore Management University (SMU) associate professor of law Eugene Tan said he expects new legislation. “Existing sector legislation for investments can provide a guide, but I won’t be surprised if we have an omnibus legislation for this.”

This could include a “national security and/or economic resilience review process”, to determine an investment’s impact, he said. Advisories could be provided for Singapore businesses and investors to consider these national security review provisions.

Such a framework might consider the nature of the assets or activities; the parties involved, including the ultimate controller; and potential for third-party influence.

Heightened scrutiny might be given to investments by other countries’ state-owned enterprises, or “entities where the beneficial owner is a foreign state or private investors assessed to be closely connected or subject to direction from foreign governments”, said Prof Tan.

Singapore will have to consider whether such moves are motivated by harmful, non-commercial imperatives, regardless of investment value.

The screening process may consider whether an investment could enable foreign surveillance or espionage, and the potential impact on Singapore’s international interests. Another concern is “the potential of the investment to offer access to sensitive personal data” that could harm Singapore’s national security, he added.

Possible moves, said Prof Tan, might include allowing an investment only if the foreign entity provides certain written undertakings, or implements specified terms and conditions. Some planned investments could be disallowed, or investors could be made to divest control.

NUS associate professor of political science Chong Ja Ian expects the approach to “come down to some triangulation among investment, access to technology at present and in the future, security, and reliability over time”.

Impact likely to be limited

As for the potential impact of such a move, Prof Chong said: “In the short run, there may be some adjustment costs in volume and type, but if the strategy is successful these should even out over time.”

Prof Ho said that investment into Singapore may not be adversely affected – assuming the new moves take into account legitimate business interests, with appropriate safeguards – as many other countries practise some form of investment screening.

Investment screening laws exist in countries such as the US, the UK, Australia, China, Vietnam, France and Germany, many of which have updated their regulations post-Covid.

For instance, Australia imposes monetary screening thresholds, and foreign persons need approval for “notifiable national security actions” such as starting a “national security business”, acquiring a direct interest in such a business, or acquiring an interest in “national security land”.

China prohibits and restricts foreign investment in several areas through a “negative list”, with the authorities’ approval needed for restricted activities, often requiring a joint venture with a Chinese party.

SMU’s Prof Tan expects a limited impact on investments, adding that a price cannot be placed on national security or economic resilience.

“Certainly, affected investors may seek regulatory arbitrage and seek jurisdictions without such screening,” he said. “But I don’t expect the impact to be significant given the other benefits that Singapore offers.”

Sensitive sectors and technology areas will have to be identified, and when the framework is in place, it will “enhance Singapore’s standing as a safe place to do business” in these areas, he added.

Gan was speaking to media on the sidelines of the annual Ministry of Trade and Industry Economic Dialogue. In a separate speech there, he highlighted major structural shifts: pressure on the multilateral trading system as security concerns outweigh economic efficiency, disruptive technologies, and climate change.

He also flagged opportunities amid these shifts. Singapore can distinguish itself as a reliable trading partner and a gateway to South-east Asia, as well as growing its digital and green economies, he said.