logo logo

Singapore: Russia’s new gateway to Southeast Asia?

OZY - 31 May 2020

Singapore: Russia’s new gateway to Southeast Asia?
By Dimitri Simes Jr.

Since 2014, Vladimir Putin has been plotting a way back into a region where the Soviet Union once wielded influence.

  • A new free trade agreement with Singapore is giving Moscow unprecedented access to Southeast Asian markets.
  • Russia has been desperate for a springboard to the region, especially since facing sanctions in 2014.
  • Singapore is eager to access Russia’s large, relatively untapped market.

Singapore Prime Minister Lee Hsien Loong had never been to Armenia. But his visit late last year to the capital Yerevan wasn’t just an introduction to the Russia-led Eurasian Economic Union (EEU) — a grouping that also includes Belarus, Kazakhstan, Armenia and Kyrgyzstan.

After seven rounds of what Lee described as “breakneck” negotiations, Singapore and the EEU signed a free trade agreement, the first of that scale for the Eurasian bloc. It marked an important victory for Russia’s ambitions in Southeast Asia. Since Russia launched its pivot to Asia back in 2014, the Kremlin has been desperately searching for a country that can serve as its springboard to the rest of the region. Now it may have found an ideal partner — in pro-West Singapore.

Singaporean government and private sector funds have begun investing in everything from Russian dairy products to airports. There are almost 700 Russian companies in Singapore, including tech heavyweights like Kaspersky Lab and energy giants such as Rosneft and Gazprom. Trade between the two countries reached $5 billion in 2018 and is growing.

It’s an unlikely partnership. One is seen by the West as a principal strategic rival, the other as a fundamental ally. But for Singapore, a city state with no natural resources of its own, Russia — a large market many are avoiding because of Western sanctions following Moscow’s annexation of Crimea — is an attractive proposition.

“By incorporating in singapore, a russian company becomes a de facto singaporean company, and can therefore access free trade agreements [across the region].”
Chris Devonshire-Ellis, Dezan Shira & Associates

For Russia, the benefits are even clearer. Singapore is a global financial center, a major technological powerhouse, and a member of the Association of Southeast Asian Nations (ASEAN), a regional economic grouping of all 10 Southeast Asian countries. Through deals like the FTA between the EEU and Singapore, Russia can now access all those markets.

“This agreement is not just about trade between Singapore and Russia,” says Dmitriy Mosyakov, a Southeast Asia expert at the Russian Academy of Science’s Institute of Oriental Studies. “Now Russian goods which go to Singapore could potentially end up in Indonesia, Thailand and so on.”

Moscow once wielded significant influence in the region through its patronage of communist movements during the Cold War. But when the Soviet Union collapsed in 1991, so did Russia’s presence there. After relations with the West deteriorated over the crisis in Ukraine, Russia began pushing for a comeback in the region, seeking new markets.

Singapore is an appealing gateway. China and India also both have free trade deals with ASEAN. Such a network of trade agreements presents Russian firms with many tantalizing opportunities.

“By incorporating in Singapore, a Russian company becomes a de facto Singaporean company, and can therefore access free trade agreements inside of ASEAN, as well as those between ASEAN and China and India,” says Chris Devonshire-Ellis, founding partner of Dezan Shira & Associates, an advisory firm that works with foreign investors across Asia.

Devonshire-Ellis says Singapore has for decades also been on the lookout for new promising markets to unlock.

“The overall government policy of Singapore is to assist its top companies to invest overseas in new emerging markets, and Russia is a good choice for them,” he says. “It’s got a fairly sizable consumer base, it’s relatively wealthy, and it has improved communication and trade links that are getting better all the time.”

Russian President Vladimir Putin paid his first visit to the island nation in November 2018, when he was greeted with an elaborate state banquet. Putin unveiled a new Russian cultural center there. And Singapore welcomed Putin with more than just pomp. During his trip, the two countries inked several deals to expand cooperation in everything from trade to education.

Singapore’s recent investments in Russian businesses are fairly modest — they totaled around $17 billion in 2018, including some that might actually be round-tripping by Russian businesspeople using the island nation’s tax haven status. But they represent an important first step, argues Gennady Chufrin, a researcher at the Russian Academy of Sciences’ Institute of World Economy and International Relations. The two sides, he says, have long made promises to each other, without actually delivering. “That shift has finally begun to take place over the last few years, and while we should not overexaggerate the shift, it clearly is happening,” Chufrin says.

But how far can the new momentum between Singapore and Russia take them? Singapore is a longtime ally of the U.S., which has since 2014 imposed a wide range of sanctions against many Russian entities that have deterred some of Moscow’s closest partners from doing business with it.

Singapore has so far escaped similar pressure from Washington, says Devonshire-Ellis. While there’s no guarantee that will continue, there are reasons for Singapore’s relative immunity from the Trump administration’s threats. Unlike China, the country is quasi-democratic, is fairly transparent and is the Asian headquarters for 7,000 American companies. Sanctions against Singapore could spell trouble for those businesses too. “Singapore ticks a lot of good boxes for the United States,” says Devonshire-Ellis. “I think that means the Americans are going to leave Singapore alone.”

Putin won’t mind.

 source: OZY