After six months of brainstorming, the Economic Strategies Committee is now polishing up its recommendations for its much-awaited report to be unveiled next month. What new directions will the committee chart for the Singapore economy in a post-recession world? What new ideas will it throw up to ensure sustainable growth in turbulent times? Insight figures out what might lie in store.
The Economic Strategies Committee (ESC) is expected to release its report soon. What recommendations would you like to see, and why? What other ideas would you offer to ESC?
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THE beloved children's story of Goldilocks and the three bears holds a lesson on getting the economic growth model just right - not too hot or too cold.
Just as Goldilocks went around tasting the porridge of papa bear (too hot) and mama bear (too cold) before slurping up baby bear's porridge which was just right, Singapore also has to find the right degree of growth for the future.
It is referred to as 'Goldilocks growth', the optimal level of economic expansion that is not overheated, to prevent problems such as inflation and capacity constraints.
Neither is it too cool so as to avoid slipping into a situation in which weak growth leads to insufficient jobs.
What is the ideal economic growth figure for Singapore, and how to achieve it?
That is the task for the Economic Strategies Committee (ESC), set up by the Government last May to find new ways to grow the economy in this post-recession world.
Chaired by Finance Minister Tharman Shanmugaratnam, the ESC has 24 members from the private and public sectors. They held their first meeting in July, and decided to focus on eight areas (see box).
Eventually, more than 230 people were involved in mapping out the blueprint for sustainable growth in Singapore. They worked within a tight deadline of six months as the report is scheduled to be released before the annual Budget next month.
Amid the flurry of meetings, feedback was sought from business organisations and expert groups. Reams of reports became required reading.
Nothing was taboo. The growth model was questioned, from Singapore's heavy reliance on global trade which led to the country being among the first few economies to slide into a recession during the economic crisis, to its continuing dependence on foreign labour as a key growth driver in the last few years.
Worrying issues were also highlighted - declining labour productivity, dipping share of contribution from local companies to growth figures, and low domestic consumption due to lower wages and increases in financial liabilities.
Proposals to tackle these problems were plentiful. Among the suggestions put up by the Government Parliamentary Committee (GPC) for Finance and Trade and Industry was the setting-up of a National Investment Agency to grow more local enterprises.
GPC chairman and a PAP MP for East Coast GRC Jessica Tan tells Insight: 'While I am not advocating special privileges for our local companies, I hope to see more focus and deliberate strategies to nurture local champions in key industries.'
The Singapore Chinese Chamber of Commerce and Industry also has its wish list. Its president, Nominated MP Teo Siong Seng, is hoping that at least two out of 10 suggestions will be given the green light - more support for local companies venturing overseas and more help for trade associations.
Along the way, several hints have been dropped by Government leaders about the changes to come.
One consistent message is the need for companies to boost productivity levels, rely less on foreign workers, improve the skills and wages of local workers, and grow Singapore's external wing.
While reshaping the economy looks set to be a major feature of the recommendations, these economic changes are also aimed at improving the livelihood and living standards of Singaporeans.
As Mr Liang Eng Hwa, a PAP MP for Holland-Bukit Timah GRC and deputy chairman of the GPC for Finance and Trade and Industry, puts it: 'Inclusive growth means that our GDP growth cannot lead only to increase in asset values. It should also increase the income levels so that a broader cross-section of Singaporeans will benefit from the growth.'
Some analysts believe the ESC report will also include proposals to help low-wage Singaporeans.
'The ESC is likely to echo the political message of recent months, to reassure Singaporeans in the lower-income, lower-skill segments of our society that they will not be neglected, even as the country as a whole needs to embrace the opportunities that the global economy presents,' says Singapore Management University economist Davin Chor.
Can Singapore keep the bears away and find the Goldilocks formula to grow its economy steadily, sustainably and equitably? Insight checks out the possible ideas and solutions that may surface in the ESC report.
Pumping up productivity
IT IS no secret that Singapore workers are slacking. Official figures show that labour productivity has been plummeting over the years.
But the blame cannot be pinned solely on the workers as employers must also bear their share of the responsibility.
Many have not stretched their manpower resources to the fullest or changed work processes to make them more efficient. That is because of their heavy dependence on a never-ending supply of cheap foreign labour - thanks to liberal immigration policies.
Economists have long argued that such a situation is not tenable.
By last year, foreigners accounted for a third of the three-million-strong labour force, up from only a quarter in 2004. While this has fuelled economic growth, the actual productivity of each worker has fallen.
For some sectors like manufacturing, hotels and restaurants, the productivity decline started in 2006 - about the same time foreign workers started entering Singapore on a massive scale.
Arresting the slide in productivity is therefore expected to be a major focus in the report from the ESC. What can really be done?
Moderate the influx of foreign low-skilled workers by prioritising sectors that really need them and those that have more scope for automation, suggests economist Choy Keen Meng from Nanyang Technological University (NTU).
'As wages rise to reflect the true scarcity of labour in Singapore, firms will likely come up with ways to improve productivity,' he says.
He also proposes introducing a subsidy to encourage companies to mechanise or computerise by purchasing labour-saving equipment. The subsidy can also cover worker training, which could dovetail with the existing Skills Programme for Upgrading and Resilience (Spur) scheme.
'Management probably also has to be retrained to wean them off their acquired dependency on imported labour,' he adds.
In addition, he believes the tripartite partners - the labour movement, employers and Government - should set up an institute to research and conduct courses on productivity-enhancing measures.
Curbing the inflow of foreign workers will, however, have some consequences such as slower economic growth, inflationary wage hikes because of the need to attract Singaporeans to fill jobs normally done by foreigners, and the loss of labour-intensive industries to cheaper locations.
On the upside, it could ease the downward pressure on the wages of low- income Singaporeans, possibly narrowing the income gap which has widened in recent years.
Growing GNP, not just GDP
AS CAUTIONED by Prime Minister Lee Hsien Loong in his New Year Day message, Singaporeans may have to brace themselves for slower growth.
'In terms of total gross domestic product or GDP, our economy will likely expand more slowly than before,' he said.
'But we must make up for this, firstly by growing our gross national product or GNP, which means expanding our external wing; and secondly, by focusing on raising per capita income, through up-skilling and economic upgrading.'
GDP is the sum of output, or value-added, by all residents, including foreigners in the country. GNP, on the other hand, is GDP minus income of non-residents in the country plus net income of citizens abroad.
Some economists like Mr Kit Wei Zheng from Citigroup have noted that GDP is at best an imperfect measure of the economic welfare of citizens.
This is because Singapore's GDP growth has been driven by, and largely benefited, foreign entities, according to Mr Kit in his paper, ESC: Issues In Charting The Path Ahead.
While resident companies and individuals accounted for roughly two-thirds of GDP in 1998, this share had declined to 54.3 per cent a decade later, in 2008.
It is even more worrying when one looks at the contribution to GDP growth.
Residents contributed slightly more than half of GDP growth in 2004, a figure that dipped to less than a third from 2005 to 2008.
This has led to a growing gap between overall per capita GDP ($53,192) and resident per capita GDP ($38,372), Mr Kit notes, pointing to a 'widening gap between high-productivity foreign economic entities and lower-productivity indigenous SMEs and workers'.
In his view, the relevant question the ESC has to reflect on is: Growth by whom, for whom and to what end?
To stop the slide in GDP contribution by local enterprises, analysts expect to see Government funding to promote local companies, nurture more local enterprises and help them venture abroad.
One interesting proposal came from the Singapore Chinese Chamber of Commerce and Industry (SCCCI). The Government could set aside affordable land to help traditional industries - such as fishery and horticulture - to restructure their business for long-term survival, and develop business hubs.
Instead of letting them fade away, they could add to Singapore's growth.
Just as Tokyo transformed its Tsukiji fish market into an iconic landmark, Singapore could develop, say, its Jurong fish market into a tourist attraction too, notes SCCCI president Teo Siong Seng.
DBS economist Irvin Seah also argues for the promotion of local enterprises in new growth sectors.
Rather than invite foreign participants into new areas such as the environment-related and green energy sector, the Government should encourage organic growth in these sectors with significant growth potential, he says.
All these moves could hopefully boost the resident GDP per capita, resulting in, to a certain extent, a higher living standard for Singaporeans.
Sharper shift to services
WITH mounting concern over the declining contribution of local enterprises to growth figures, there have been calls to grow the domestic market.
Dr Choy from NTU had said at an economics conference last year that a 'long-held bias in favour of manufacturing must be shed' so as to develop the services sector.
Singapore's high but declining growth rate has been accompanied by severe volatility not merely because of external factors such as the global economy or electronics cycles, but also because of domestic industrial restructuring and falling consumption ratio, he noted.
Thus, a stronger services sector would help temper volatility and stimulate private consumption, he said, adding that he expects services to make up 70 per cent of output in future.
To this end, he suggested that the Government offer greater tax incentives and reduce start-up costs for service-sector companies.
Government Parliamentary Committee (GPC) chairman for Finance and Trade and Industry Jessica Tan also sees value in developing the services sector.
'Given the opportunities in the service industry, I do hope to see deliberate strategies to develop and professionalise this industry. This will need to go beyond providing incentives and skills training,' says the East Coast GRC Member of Parliament.
The move towards greater emphasis on the domestic market was also highlighted by Professor Basant Kapur from the National University of Singapore in an article last June.
He argued that domestic consumption's share of Singapore's GDP - which has been falling over the years, and is now less than 40 per cent - is much too low. By contrast, the figure for Hong Kong is more than 60 per cent.
'If Singapore's figure could move closer to Hong Kong's, domestic consumption would be a stronger pillar of our economy - and a more stable one,' he noted.
It would also provide more scope for domestic enterprises such as BreadTalk, Sakae Sushi and Charles & Keith to arise and develop, first by serving a larger home market, and then expanding abroad.
Extending trade corridors
MANUFACTURING is still regarded as a critical sector for Singapore, but there could be some shifts as seen in Hong Kong and Taiwan, says the GPC for Finance and Trade and Industry in its proposal to the ESC.
Companies there have moved their manufacturing facilities to China while retaining their headquarters in Hong Kong and Taiwan. This has given their home-grown companies a significant competitive edge.
For Singapore, it could look to Iskandar Malaysia - a project to develop southern Johor's economic corridor - as a suitable alternative space for manufacturing companies, says the GPC.
By relocating their factories there to reduce costs and expand production, they can maintain their headquarters, and research and development, in Singapore.
Economist Manu Bhaskaran from Centennial Group had also recommended that Singapore link up with Iskandar Malaysia and open up a larger market for local businesses.
From G-3 to BRIC
WHILE the Government is committed to developing local enterprises, there is no denying that foreign participation will remain a core economic strategy.
'We should continue to position ourselves to multinational companies (MNC) and global small- and medium-sized enterprises as the gateway to Asia,' says Mr Seah from DBS. 'But rather than targeting companies from traditional sources (the Group of Three economies), it is time we focus our efforts on companies from the BRIC countries.'
The G-3 economies are the United States, Europe and Japan, while BRIC refers to the emerging economies Brazil, Russia, India and China.
Similarly, analysts have urged Singapore companies to focus less on exports to the G-3 economies, but consider more tie-ups with the BRIC countries as a lot of incremental demand is likely to come from these emerging markets.
This could mean some form of restructuring and re-engineering of economic strategies, such as moving into new growth areas like health tourism and clean energy, diversifying business models and tapping on technology.
Companies should also work on having more value-added services that set Singapore apart from its neighbours.
Narrowing the wage gap
ONE reason for falling domestic consumption has been attributed to the low-wage share as a percentage of GDP, which could mean growth in disposable income is lower than GDP growth.
There are various factors for this, such as Singapore's MNC-driven growth model in which a large proportion of a company's profits is likely to be repatriated than recycled among the local population as wages, says Mr Kit from Citigroup.
Other reasons include wage restraint policies to ensure competitiveness that lead to lower salaries, and a rise in housing prices that could result in people saving more - and hence spending less - to purchase property.
As analysts call on the Government to look into this issue of low-wage share, they see the need to prop up the salaries of low-wage earners whose pay packages have been stagnating.
The social security net should be gradually expanded and institutionalised beyond its current emphasis on housing, health care and retirement needs towards providing a cushion against transitional pains from economic restructuring, notes Mr Kit.
'Ideological resistance to such moves may need to be gradually overcome,' he says, adding that policymakers ought to look at increased social protection as a tool that promotes social cohesion rather than inhibiting incentives to work.
One suggestion, he says, is a wage insurance scheme for retrenched workers which will pay them only when they find employment. This will induce them to look for jobs instead of holding out for better pay.
Maximising value from land
THE hotly debated issue of housing prices could be touched on by the ESC.
Associate Professor Hui Weng Tat from the Lee Kuan Yew School of Public Policy expects some policy recommendations that de-emphasise the use of residential property as an investment and ensure the sustainability of affordable housing for future generations of Singaporeans.
'The extremely limited land, high population density and potentially explosive property prices pose a severe threat to the competitiveness of Singapore,' he warns.
What is needed, he says, are innovative policies that will rein in rising property prices and discourage capital gains achieved at the expense of the quality of life for most people.
There could also be better planning and coordination of policies to ensure reasonable housing standards for the large population of transient foreign workers whose numbers are likely to increase further in future.
Cosmopolitan Singapore
AS SINGAPORE seeks to change its economic strategy, there will be moves to make the country an attractive home for locals and foreigners.
'Any leading global city needs to be able to develop and retain its human capital, to maintain a vibrancy and dynamism in the economy,' says economist Davin Chor from Singapore Management University.
'More emphasis could be given to the need to attract overseas Singaporeans to return to Singapore to pursue their careers here, as well as to assimilate and root foreign talent more seamlessly in our society.'
Source: Straits Times, 28 Jan 2010.
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