Which course to chart next for Singapore economy?

Faced with the headwind of a slowing economy, Insight convenes a special panel of experts to explore some areas a new economic committee can focus on

Workers heading back to work after lunch in Tampines. Singapore is facing a leaner workforce, tapering growth, and a weaker global economy. Growth in labour productivity has inched up in some quarters, and slid backwards in others.
Workers heading back to work after lunch in Tampines. Singapore is facing a leaner workforce, tapering growth, and a weaker global economy. Growth in labour productivity has inched up in some quarters, and slid backwards in others. ST PHOTO: NEO XIAOBIN

An economy in transition, but still wanting deeper change. A nation on the right track, but it could try a more holistic approach to get there faster.

This was the collective prognosis of Singapore's economic future given by four panellists at a roundtable hosted by Insight last Wednesday.

"We've started with fixing a few quick wins, and I think the next stage is how to make more fundamental changes," said Ms Aparna Bharadwaj, principal at the Boston Consulting Group in Singapore.

Insight's roundtable discussion comes at a time when - nearly six years into the sometimes less-than-stellar results of a 10-year restructuring drive - the economy is up for review yet again.

Earlier this month, Prime Minister Lee Hsien Loong announced that Finance Minister Heng Swee Keat would lead a committee on "The Future Economy" to study how to create opportunities and move faster towards higher skills, innovation and productivity. This is an urgent task, he said, as Singapore faces a leaner workforce, tapering growth, and a weaker global economy.


  • A new review committee on "The Future Economy" will look at Singapore's economy in an increasingly volatile world, and will be chaired by new Finance Minister Heng Swee Keat. Here's what two previous committees proposed.


    FORMED: May 2009

    GOALS: To study five broad strategies:

    • Exploring new growth areas
    • Anchoring global companies here while nurturing home-grown enterprises
    • Growing human and knowledge capital
    • Creating high-value jobs for Singaporeans
    • Maximising finite resources such as land and energy

    MEMBERS: 25 from the Government, business sector and academia; chaired by then Finance Minister Tharman Shanmugaratnam.

    REPORT SUBMITTED: February 2010


    Productivity-driven growth

    • Hike foreign worker levies; encourage less reliance on cheap foreign labour
    • National Productivity Fund to give productivity grants to firms, tax rebates or incentives to invest in productivity
    • Enhance Workfare to keep older workers employed; encourage skills upgrading

    Global-Asia hub

    • Make Singapore a leading consumer business centre
    • Keep manufacturing at 20-25 per cent of the economy
    • Attract companies here to test urban innovations, such as the Electronic Road Pricing system

    Diverse mix of companies

    • Double the number of small and medium-sized enterprises (SMEs) with revenues of over $100 million by 2020
    • More mergers and acquisitions among SMEs; boost cooperation between multinationals and SMEs
    • Government and private sector to form a growth fund of up to $1.5 billion; invest in growth-oriented SMEs in next decade

    More innovation

    • Spend 3.5 per cent of GDP on R&D by 2015, up from 3 per cent
    • "Designed in Singapore" accreditation to emphasise design-driven innovation
    • Centres of Innovation in polytechnics to help firms enter new growth areas


    FORMED: December 2001

    GOALS: Implement immediate measures to deal with impact of the Asian financial crisis, look at longer-term strategies to restructure the economy

    MEMBERS: 20, led by then DPM Lee Hsien Loong, comprising government ministers, union leaders, academics and CEOs

    REPORT SUBMITTED: February 2003


    More immediate proposals to cut costs and stay competitive

    • Defer restoration of the CPF rate beyond 36 per cent by two years; progressive increase to 40 per cent thereafter
    • Lower salary ceiling for CPF contributions from $6,000 to $5,000
    • Lower employee CPF rate to 16 per cent for those aged 50 to 55, from 20 per cent

    Remake Singapore into a global economy in 15 years

    • Build a creative and entrepreneurial nation; and a diversified economy powered by manufacturing and services
    • Appoint a minister to champion entrepreneurship
    • Establish a ministerial committee to lead the drive to develop service sector

Growth in labour productivity has inched up in some quarters, and slid backwards in others.

If the year 2010, which saw strong productivity gains, is excluded, productivity growth has averaged only 0.3 per cent a year, far short of the 2 to 3 per cent annual growth target outlined by the previous Economic Strategies Committee in 2010. Meanwhile, "the economic cycle is getting shorter and changes are happening faster", warned Mr Heng.

Indeed, perhaps the brightest point among recent economic data was the official estimate out the same day as the Insight roundtable, which showed that Singapore had narrowly escaped a technical recession in the third quarter.

So far, The Future Economy committee's timeline, scope of work and the identities of its other members have not yet been revealed.

Ahead of that, Insight brought together a panel of experts to get a sense of what different stakeholders in the Singapore story hope to see at the next review, which will mark the third such policy assessment in the past 13 years.

Voicing the concerns of a group that employs 70 per cent of the workforce was Mr Kurt Wee, president of the Association of Small and Medium Enterprises (Asme). Mr Joshi Venugopal, managing director of Singapore and Asian emerging markets at drugmaker Novartis, brought a multinational's perspective to the table. Ms Aparna Bharadwaj of the Boston Consulting Group came to the issues as a strategist looking at broad industry trends. And Professor Ng Yew Kwang, Winsemius Professor of Economics at Nanyang Technological University, balanced the discussion with his take on population well-being.

The Straits Times business editor Lee Su Shyan asked panel members what they felt The Future Economy committee should focus on.


One main theme floated by the panellists was that the economy needs a more comprehensive report card to better chart its progress.

An ageing population means a longer working life for workers here, and more career changes as well. As each worker goes through multiple and, perhaps, diverse job transitions, the adaptability of the workforce is crucial. "Productivity is not just in terms of upskilling and moving up the ladder, it's also in terms of transferability of skills," Ms Bharadwaj pointed out.

"Are people able to transition from career path A to career path B mid-career if they need to? Are people able to develop new skills later in their life and then rotate across industries or rotate within?"

So, while many firms are still puzzling over how to cut costs or raise prices to boost productivity, emphasis should also fall on longer-term investments in careers and "pathways" - to use PM Lee's choice of word - that can result in broader productivity gains.

This is especially so as most firms have already plucked the low-hanging fruit of using technology to improve their business processes, and will need to find new business models and redesign jobs to reach the next stage of growth, said Mr Wee.


A balanced measurement of well-being that considers the quality of national spending on top of its absolute level may also be useful as policymakers can better weigh the social and economic trade-offs in their decisions this way, said Prof Ng.

"Focus on factors that affect people's welfare rather than just GDP," he suggested.

Mr Venugopal noted that happiness and healthcare may belong to the domain of the Government rather than an economic committee. But it would make good sense to focus resources on the health, technology and education sectors as the "cornerstone" to drive social well-being, he said.


The panel agreed that Singapore's multifaceted approach to getting firms future-ready has shown encouraging results. "We are on the verge of breaking through with some wins, even in the science and technology space," said Mr Wee, noting that scientists at the Agency for Science, Technology and Research (A*Star) are doing next-generation DNA sequencing, and making headway in stem cell research.

These, he said, are the fruits of foundations that were laid down in the science and technology cluster in the last eight to 10 years.

But, even as new businesses emerge, companies also struggle with very real barriers to transformation.

The skills gap is very glaring in certain industries. "The IT industry, for example, is not getting traction with finding local headcount," said Mr Wee.

"We probably need to create and bring back some of the technical skills, because we also suffer quite a bit of talent drain into, for instance, the financial industries," he said, although what the new growth sectors need more desperately is mechanical, electronics and robotics engineers.


Another problem faced by companies is that they often recognise the need for wide-ranging technological overhauls, though the high cost often means they can only afford to make incrementalchanges.

Mr Venugopal suggested that the Government step in to carry the cost of such ambitious projects, such as the building of an IT ecosystem that enables e-commerce. Singapore firms have not yet made waves in this area, perhaps because such a project would require immense cooperation from retailers, logistics and payments firms to share costs and lay down infrastructure.

"I think it's a fine balance (for the Government) to say, I'm not going to be a crutch where you get a voucher, instead I'm going to help create the ecosystems, I'm going to help create all thecogs in the way that allow an e-commerce movement to come across," said Mr Venugopal.

"Look at the example of Creative Technologies, it developed the MP3 player before Apple did, right? But it didn't become Apple."

The problem? Individual geniuses cannot go it alone - they need the help of venture capitalists, research institutions, and integration with larger economies so that a product can properly takeoff once it is tried and tested here, he said.

Mr Joshi Venugopal says Singapore should focus on developing one industry at a time

Ms Aparna Bharadwaj on how Singapore can do more to attract investors. http://str.sg/ZuHf

Professor Ng Yew Kwang argues that population increase does not create more congestion http://str.sg/ZuHY

Mr Kurt Wee says more can be done to help SMEs http://str.sg/ZuHg

Productivity: Broader, more inclusive approach needed

The push to raise labour productivity should remain a cornerstone of Singapore's economic strategy, but roundtable panellists said the approach should be broader and more inclusive.

They also noted that firms have made significant progress, but there is still more to be done in areas such as business model innovation.

The Economic Strategies Committee set a productivity growth target of 2 to 3 per cent annually, a target that the Government has since admitted was an ambitious one.

In line with this, the Republic embarked on a restructuring drive in 2010, encouraging companies to use better technology while also weaning them off cheap sources of labour. Despite these efforts, however, labour productivity growth remains stuck in reverse, with the overall figure in the first half of this year in negative territory.

Policymakers should not lose sight of the fact that Singapore's workforce now includes more older employees and people who have rejoined the workforce after a period of unemployment, panellists noted.

Ms Aparna Bharadwaj, a principal at the Boston Consulting Group, said companies here have gone from hoping for a U-turn on the tighter foreign labour policy, to accepting their new operating conditions and trying to achieve "quick wins" in areas such as automation and business processes.

"The next stage is how to make more fundamental changes... Can we move towards new business models? Can we internationalise? Build local home-grown brands?

"I think we're still somewhere at the quick-wins stage and moving, hopefully, towards more business model changes."

Instead of focusing on just one productivity metric, policymakers should look at productivity differently across sectors, said Mr Joshi Venugopal, the managing director of Singapore and Asian emerging markets at pharma giant Novartis.

For instance, Singapore gets good bang for its buck in healthcare spending.

It ranks among the best in terms of healthcare dollars spent versus outcomes such as life expectancy and the disease burden.

"How are we doing in terms of education, how are we doing in terms of defence, how are we doing in terms of transportation, when it comes to what we spend and what we get out of it? I think that's an analysis that needs to be done. And then you might see more opportunities in one area and less in others," he added.

Policymakers should not lose sight of the fact that Singapore's workforce now includes more older employees and people who have rejoined the workforce after a period of unemployment, panellists noted. One way of increasing productivity in an ageing population is to make sure that there is healthy ageing, said Mr Venugopal.

This also has implications for the workplace, he noted.

For instance, carmaker BMW's plant in Germany made assembly lines more friendly for senior workers by installing bigger screens and wooden floors, and saw a rise in productivity.

Professor Ng Yew Kwang, the Winsemius Professor of Economics at Nanyang Technological University, noted that labour force participation has gone up in recent years.

"We now employ more older people, and people with lower productivity who were previously not employed. Their productivity and their salaries are usually lower than average, so we expand the workforce but the average productivity actually goes down. This decreases our productivity growth."

However, this is not necessarily a bad thing.

"If people want to get jobs and they like to continue working, that is a good thing, so the overall picture is positive despite lower productivity," he added.

However, Mr Venugopal noted that lacklustre productivity growth here might be part of a wider global trend. "There is a school of thought... which says that the productivity increases have declined over time for the last 100, 150 years. And they think it's reasonable to expect that will continue."

This is because modern innovations have less of an incremental impact compared with previous radical ones such as the telegraph and printing press, he noted.

Population: More people, bigger market, more options

A larger population - and by extension more foreigners - would benefit Singapore in the long term, argued roundtable panellists.

Companies here would have a bigger base for marketing their products and a larger talent pool, two of the four panellists noted.

This is a controversial stance, given that the issue has long been a prickly one for Singaporeans.

The Population White Paper released in 2013 detailed plans the Government was making to prepare for a population parameter of 6.9 million, sparking an uproar among citizens.

Singapore's total population has since hit 5.54 million, five years after crossing the five million mark. Policymakers are worried about the country's flagging birth rates and its ageing population.

Roundtable panellists did not suggest an ideal population size for Singapore, but noted that policymakers should not shy away from a faster population growth rate.

Professor Ng Yew Kwang of Nanyang Technological University said Singapore's economic growth is partly limited by its small size.

"A larger population will provide better business opportunities, a bigger market and more talent. It's, in fact, good for Singaporeans."

Negative public sentiment towards population growth has been due in large part to the misconception that more people will mean more congestion, Prof Ng said.

To make a larger population more politically palatable, policymakers should make infrastructure development a priority, so services, such as transport, can handle larger volumes. "Then we won't have to undertake restrictive policies, as we have in the past few years, that put firms under pressure.

"We need the cooperation of the Government, academics and the media to convince the public that, in fact, in the long term, a larger population with adequate infrastructure is good for us."

Other panellists agreed that population should be a key issue in discussions about Singapore's economic future, but pointed to potential stumbling blocks.

Infrastructure aside, policymakers should also closely examine how better to socially integrate foreigners and new immigrants, said Asme president Kurt Wee.

"At the end of the day, we all come from immigrant backgrounds. How do we embrace and assimilate, how do we integrate better?"

Mr Wee noted that the adverse public reaction towards continued population growth has also had an impact on firms here, which have been hit hard by tight foreign labour policies.

"2011, 2012 and 2013, those were the years when (companies) were very frustrated because there was a bigger market that they could serve, but they just didn't have the manpower capacity to serve those markets, so they felt that there was money to be made but they couldn't make it," he said.

Population growth alone is no panacea for Singapore's long-term economic challenges, however - Boston Consulting Group's Ms Aparna Bharadwaj said a larger population might boost growth but is not a "be all and end all".

Companies no longer need to depend on a large market to grow - instead, they can use technology to "leapfrog". "If you use digital as a medium, a medium-sized company can go international," she noted.

Population growth "won't by itself solve all the problems. It will just grant us some more time".

SMEs: Still playing catch-up in areas like digitisation and e-commerce

Small and medium-sized enterprises (SMEs) here need to adapt to a more volatile, disruptive environment, panellists said.

They noted that local firms still lag behind their regional counterparts in areas such as digitisation and e-commerce.

"We are behind the curve on digitisation," said Ms Aparna Bharadwaj, principal at the Boston Consulting Group (BCG) in Singapore.

"We are way behind the curve," agreed Mr Kurt Wee, president of the Association of Small and Medium Enterprises (Asme).

Ms Bharadwaj cited the findings of a BCG study that broke down the components of digitisation in different markets. The first criterion was infrastructure, in which Singapore scored highly.

The missed opportunity to reach a wider market is something that firms here should focus on.

The second was consumer savvy - and Singaporeans were found to spend a large amount of their time online or on their smartphones.

But when it came to the third criterion - where Singaporean shoppers actually spend their money - the study found that most did their shopping on American and foreign websites, rather than local e-commerce portals.

"That's a supply-side issue," said Ms Bharadwaj, noting that online retailers here simply do not offer the same variety and range of brands as their counterparts in the United States.

That Singapore retailers have not been quick to jump on the e-commerce wave may be worrying.

"Until today, we don't have an e-commerce superstructure - a payment gateway system that allows Singapore companies to sell instantly within the region to Singapore, Malaysia, Indonesia, at least two countries," said Mr Wee.

In contrast, Chinese businesses are "far ahead in e-commerce development", he said, with a large proportion of their traditional businesses transacting online now.

"Retail is definitely one sector that will face a big shake-up," said Mr Wee, giving the example of a brand of health supplement he had seen on sale at a store here. It was priced at about four times the price on a US website.

"So, structurally, we have some room to correct there," he said.

The missed opportunity to reach a wider market is something that firms here should focus on, as internationalisation is also a good way for them to relieve some of the high cost pressures which arise from operating locally.

"Our SMEs need to find their own disruptive model. So far, they are finding it through some level of low-hanging fruit - digitisation, job redesign. "But to do that successfully, I think we need to give them a bigger market space," said Mr Wee.

"Because it's no use if you have an innovation and then you can't get the scale: Who is going to pay for that innovation? If we can open and have bigger markets for our SMEs, they can find a broader base for their costs," he added.

But given that building an e-commerce infrastructure is a huge endeavour that the private sector has so far failed to deliver on, the panel suggested that the Government could play a role in cutting across different industries and agencies to stitch together solutions.

"There's some ground noise calling for, maybe, a minister for SMEs in time to come," said Mr Wee.

"We could use a bit of a more heavy political hand in coordination and strategy that's focused solely on SMEs."

A version of this article appeared in the print edition of The Sunday Times on October 18, 2015, with the headline 'Which course to chart next for S'pore economy?'. Subscribe