Singapore cannot be a First World economy with Third World costs, said Trade and Industry Minister Lim Hng Kiang yesterday at a lunch dialogue with prominent European diplomats and business leaders based here.
But he also assured them that Singapore will stay competitive and business-friendly even as it restructures the economy to achieve quality growth.
He was speaking at the Shangri-La Hotel Singapore at a Europe Day celebration organised by the European Chamber of Commerce (EuroCham) in Singapore.
Responding to a question from the floor on rising business costs, Mr Lim said: "We have to acknowledge that, over time, Singapore cannot be a First World economy with Third World costs. There has to be some balance."
He explained that Singapore's strategy is to "make sure we create value commensurate with the costs". That is the way to ensure that it is sustainable in the long term, he added.
Rising costs have been an ongoing issue. The Budget debate in Parliament in March had included intense discussions about rising costs for businesses here, with soaring rents and utilities, increased wages and worker shortages among the complaints.
Rising costs were also a key factor behind the country's global competitiveness ranking slipping to No.5 last year from No.1 in 2010, a study by Swiss business school IMD found.
Economists have argued that Singapore must continue on its economic restructuring journey to ensure its "value-add", or economic bang for the buck, keeps pace with the rising costs.
Yesterday, Mr Lim said: "Singapore will continue to move towards higher value-added activities and at the same time develop greater innovative capabilities."
He also highlighted the Republic's strong network of free trade agreements, which positions Singapore as a "nexus from which companies can control and coordinate their regional and global business activities".
A "much-welcomed addition", said Mr Lim, is the landmark Singapore-European Union free trade agreement (FTA), signed last September, which could take effect as soon as later this year: "It is in the interests of both the EU and Singapore to see the (agreement) come into force early to allow businesses to reap benefits as soon as possible."
EuroCham president Stefano Poli said Singapore remains a key business hub in the region for European companies, adding that the FTA signing brings "a shining light on the still gloomy European economic overview".
Shoppers will find a greater variety of European goods in stores here while businesses will find it easier to trade with Europe once the deal kicks in. The EU is Singapore's third-largest trading partner and largest source of foreign direct investment, with over 10,000 European firms here.
During the lunch, EU Ambassador to Singapore Michael Pulch announced a pilot programme starting October to boost the presence of EU small- and medium-sized firms in South-east Asia and create business links using Singapore as a launch pad to the region. Three business missions of 40 companies each will travel from Europe to Singapore, and the programme will focus on the clean technology and interior design sectors initially.