Commodities derivatives could bolster Singapore as trading hub- Nikkei Asian Review

SINGAPORE — Singapore has a great opportunity to further develop its commodity derivatives markets and cater to the needs of food producers, said Sunny Verghese, founder and chief executive of Singapore-based agricultural supplier Olam International, in an interview with the Nikkei Asian Review. Verghese, who built his company from a small single-product trading house in Nigeria into one of the world’s largest agricultural suppliers, reflected on how his decision to relocate Olam to Singapore helped the company ride Asia’s economic growth.

Q: Olam moved its headquarters from London to Singapore in 1996. Why was that?

A: Moving our headquarters was a huge decision. In 1996, we realized that Asia was becoming important both as a producer and a market of agricultural products. We felt that our next phase of growth was to tap into Asia’s growth potential, and this would be better served by relocating our business to Singapore.

At that time, the Singapore Trade Development Board (known today as International Enterprise Singapore) was actively attracting global trading companies to Singapore. The process of getting employment passes for our employees was smooth because of the support from the board, which we appreciated. We also wanted to attract capital to grow, and we felt that a big pool of capital was shifting to Asia that we could tap into. We also had an advantage in the tax regime. These were all extremely important for us.

Q: After 20 years in Singapore, do you think your decision was right?

A: When we moved to Singapore, our Asian business was a very small part of our business. Today, it is our largest. Our investments in the region and sourcing volumes grew significantly, and because we are in Singapore, we could manage and oversee the operations around Asia. Our investments in Thailand, Vietnam, Laos, India and China among others were all done after we moved to Singapore. If we hadn’t moved here, we would not have had the same success in Asia.

We raised our first private equity capital [in the early 2000s], from Asia-based investors including [Singapore’s state investor] Temasek Holdings. In 2005, we listed in Singapore. Our ability to raise funding, both in bank and debt capital market, was assisted by [Singapore’s] deep, liquid market. These are strong evidence that moving here was the right decision.

Q: How do you evaluate Singapore’s business environment?

A: We operate in 70 countries and we haven’t seen many other countries as good as Singapore in being pro-growth and pro-business. Singapore government, its ministries and statutory bodies work as one to ensure that the government policy [can] stimulate business and create higher-paying jobs for Singaporeans. All countries are competing very aggressively, but I think the best example of that for me is in Singapore.

To set up business, Singapore has among the shortest possible times compared to most developed economies. There is enough venture and angel capital available. Once the company is established and it needs capital to grow, there is enough depth in banks and debt and equity capital markets. The limitation is that Singapore is a small market. You have to look beyond Singapore and into the region and more importantly, if you can, even globally to allow you to grow.

Q: Some say Singapore’s business policies are too paternalistic. Do you agree?

A: I think Singapore has the right balance. Many countries have excess regulation which stymies entrepreneurship, business development and growth. Or, there is very little regulation. Singapore has the right balance of effective regulation that protects enables Singapore’s pro-business, pro-growth environment — they don’t see businesses as bad. If you breach regulatory standards, you’ll be taken to task, so people know it’s a well-governed environment. But at the same time, [the government] works in partnership with businesses to make them successful. For me, it’s not a paternalistic government or a big parent government– that is more the stereotype or an unfair assessment.

Q: How can Singapore better utilize its position as a trading hub?

A: I think Singapore has a major opportunity to develop more commodity contracts. Singapore is a neutral country — it is not a big producer or consumer of commodities. In large producing countries, there is a temptation for governments to get involved in the markets to protect the producers. Or they would put in price controls to keep prices artificially low. Singapore has no vested interest in that way. You also need a very good regulatory regime to get more participants involved in the markets. The examples of some of the successful derivatives contracts on the Singapore Exchange, like iron ore and rubber, can be templates to develop other commodity derivatives markets.

To me, that is an opportunity. Indonesia and Vietnam, which are large coffee producers, still hedge in New York or London. From a time zone perspective, it is not really convenient. There are liquid milk contracts in Chicago, but [they are mainly used by] U.S. producers and consumers. I think an alternative center in Asia for deep derivatives markets will create a catalyst for more commodity trading.

Interviewed by Nikkei staff writer Tomomi Kikuchi

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