Ladies and Gentlemen,
Welcome to today’s event.
A few months ago, we held a seminar in London on Globalisation. So I thought that I was well prepared to make these remarks today. But, in fact, the Asian experience of globalisation is different from what we have seen in the West.
A sevenfold increase in imports and exports has famously lifted over 500 million Chinese out of poverty. And although, in financial terms, it is still the developed economies which have benefited the most from globalisation, I believe that the forces of globalisation have had a greater impact on Asia than any other continent.
Singapore is a prime example of an economy which has made the most of the opportunities offered by world trade, by the digital revolution, and migration flows. It is a highly compelling case for an open, liberal economy, focused on growth and competition.
In the West – and this was clear from our conference in London – globalisation produces a more ambiguous response. This tendency has become more marked since the financial crisis. Many column inches have analysed what went wrong. But one phrase, I think, sticks in the mind above all: systemic risk. The barriers which, over the last twenty years, had been lifted to allow goods, capital and people to travel freely from country to country had also created a free conduit for risk to travel the same path. The collapse of Lehman brothers demonstrated how financial risks can spread. But other networks spread other risks.
The digital network is a pipeline for cyber crime. Only last week, the UK’s National Security Council identified cyber attacks as a “Tier 1” threat to UK security. And businesses too, must manage the threats from hackers, viruses and simple human error on a keyboard.
One of the main carriers of systemic risk is, simply, people travelling from country to country. This has always been the case. When Spanish conquistadors landed in Latin America in the 16th century, the most deadly danger was not gunpowder, but from the germs which they carried and spread to communities which had no resistance to them.
Nowadays, people travel easily and regularly around the world. I was struck by one figure in our new report on globalisation, that the top
30 airports in the world, including of course Changi, service almost half of all international passengers and handle over two-thirds of all international freight. In addition, the top ten ports in the world, including the port of Singapore handle 50% of the global economy’s container traffic.
This new proximity to each other makes us more vulnerable to pandemics. In fact, the speakers and panellists at our event in London kept on coming back to this issue, with insurance experts asking, how can you price the risk of a pandemic?
The potential losses to businesses arising from a pandemic are huge. The SARS outbreak in 2002 is a perfect example of how pandemics affect business. There were fears that Cathay Pacific would have to ground its entire fleet, passenger numbers fell by 75%, staff were asked to take unpaid leave and its shares dropped by 7%.
The cost of the SARS pandemic on the Asia Pacific region was estimated to be $40 billion.
We are also more interconnected in terms of infrastructure which means that one incident, or failure somewhere in the system, can have consequences for a myriad of organisations and individuals. In 2008, a ship attempting to moor in Egypt, cut a cable which led to seventy five million people in the Middle East and Asia suffering an IT blackout.
The combination of people moving with more ease around the world, and communicating in real time across the internet has changed the nature of older, more traditional threats, for example, terrorism. We have seen a number of terrible attacks in Asia, in Bali and Jakarta as well as in the Indian sub continent.
There is a tendency when we run one of these events, that we leave the audience quivering with fear, as they contemplate the impact of systemic risk on their business. That, you will be pleased to learn, is not the point of this seminar. We are not the first generation to experience rapid technological advances. Lloyd’s has been in the risk business for over 300 years. We helped businesses manage the risks of the new industrial risks in the late 19th and early 20th centuries. Risk is nothing new.
We should not respond to digital threats by throwing away our laptops – however tempting that may sometimes be.
So even though the financial crisis has reminded us that removing trade barriers carries risks, we do not believe that fact creates a case for reintroducing the obstacles that prevented us from trading with many nations in the seventies and eighties.
I want to make clear that Lloyd’s remains a strong advocate of world trade and free markets.
But we do want to see boards examine the potential impact of a systemic risk on their business. Globalisation has, in particular, brought enormous rewards to the business community, but it also confers responsibilities.
International businesses are not simply passive victims of globalisation. They are highly active agents in creating and managing the global frameworks which move people and goods around the world – whether that is the construction of a railway, the operation of a mobile phone network, or indeed underwriting an insurance policy on a transnational oil pipeline. As Asian businesses expand to become multinationals it is not only their exposure to risk which grows, but also their ability to act as a carrier of systemic risk.
This requires very robust risk management techniques. But Lloyd’s can help businesses in understanding, and in offsetting some of these risks.
Ladies and gentlemen,
Distance is no longer nature’s insurance policy which insulates you from events happening on the other side of the world. This is perhaps more true of Asia, as it re-emerges into the global economy, than any other continent.
We need to know what is happening in the countries where we build factories, invest capital or sell services. We need to understand the risks in these places and crucially how a failure in location X will effect our operations in location Z.
Ladies and Gentlemen,
We cannot go backwards. We must not go backwards. We should not be protectionist when faced with globalisation. Instead we must manage these risks better.
So I hope that during today’s seminar we can discuss not simply the risks that our businesses face, but also how we are trying to manage those risks and I am delighted to welcome a number of distinguished speakers who will address these issues.
First of all it is a great pleasure to welcome Mrs Lim, the Minister of Finance of Singapore. The Minister began her career in the Ministries of Finance, Education and Law before moving to the corporate world, working for the Swiss Bank Corporation, as well as Jardine Fleming and Temasek Holdings. She returned to government in 2004 where she was appointed Minister of State for Finance and Transport. Her stewardship of the Singapore economy has been widely admired, not least during the difficult last few years.
I am also delighted to introduce a former colleague of mine, Mark Daniell who is Chairman of The Cuscaden Group which is an investment business based in Singapore. Mark is also currently a Director Emeritus of Bain & Company. Many of you will know him best as a regular expert guest commentator on business strategy and economics for the BBC, CNBC, CNN and Channel News Asia. We are delighted that you can speak at our event today, Mark.
Finally, I hardly need to introduce another familiar face to you, Lorraine Hahn. In her twenty-year career in journalism focused on Asian business issues, Lorraine has interviewed numerous Heads of State and business leaders and spent several years hosting programmes on CNN International. Based in Hong Kong, Lorraine is currently developing and anchoring Earth Factor Asia, a weekly TV series highlighting environmental issues in the Asia region and today she has the task of chairing our seminar, a duty I know she will perform with her customary skill and insight.
