The Road to Singapore’s Future Economy

Alexander N. Chen & Soh Zheng Yang

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Abstract

Our late founding father, Mr Lee Kuan Yew, moulded a Singapore suited for the country’s first 50

years of independence. However, our country’s fate is shrouded in uncertainty as current

circumstances hint towards a drastically different world in time to come. China is maturing and

becoming more assertive on the world stage; tensions within the European Union suggest greater

fragmentation; the US is turning increasingly inwards. These signs call for major restructuring for

our globally vulnerable nation to not only stay afloat, but to flourish.

Internally, our country seems to be reaching productive capacity, and a new model for growth is

required to sustain the long term survival of Singapore’s economy. The goal of economic prosperity

has trumped equity, leaving Singapore with one of the highest income disparities in the world.

We propose a 3 theme approach to tackle these challenges.

We aim for “Quality Growth”, focusing on productivity-led and innovation-led growth that Singapore

innately needs for such a small country to remain relevant and competitive as more economies

emerge and mature. “Global Opportunism” is another engine. Acknowledging shifting trade routes,

changing CAs and trade ties that may diminish Singapore’s geographical advantage, our country

requires to make the most of opportunities to sustain externally-induced growth. “Mindful Growth”

takes into account the challenges of a matured economy - inclusiveness, non-material living

standards, culture - to ensure the vibrancy of the economy.

Our vision for Singapore considers what can and cannot change in the future. Still constrained by

geography, we choose to focus on what brought Singapore out of the marshes and into rapid

modernisation - our people. The road to Singapore’s future economy requires resilience. Just as

Singapore has displayed during the first 50 years of troubled waters, our nation’s economy will

continually adapt to tide the oncoming waves. (299 words)

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Table of Contents

Introduction

Context

Chapter 1: Quality Growth - Productivity and Innovation

Chapter 2: Global Opportunism

Chapter 3: Mindful Growth

Conclusion

Bibliography

Appendices

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Introduction

Our late founding father, Mr Lee Kuan Yew, shaped a Singapore suited for the country’s first 50

years of independence. However, our country’s fate is shrouded in uncertainty as current

circumstances hint towards a drastically different world in time to come.

The road to Singapore’s future economy requires resilience. To thrive in the future world economy,

Singapore has to be adaptable and flexible to tackle new challenges both internally and externally.

Our vision is for Singapore to flourish by establishing a solid foundation for economic growth and to

take up and even make opportunities globally in light of unfavorable circumstances - all done

without neglecting income distribution, non-material living standards and cultural vibrancy.

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Context

Tough Journey ahead in post- SG 50 era: Transiting from SG 50 – SG 100

2015 marks the year of celebration and commemoration for Singapore, the nation that our founding father described as “improbable (and) unlikely”.1 As the SG 50 celebrations and laudatory speeches come to a close, we ought to envision the future we would like to create by the next Jubilee. “Singapore “cannot expect” an easy journey”2 as a plethora of challenges has beset our economy. Essentially, Singapore is being faced with both internal and external challenges.

Internal Challenge – Tepid Productivity Growth Due to the paucity of natural resources in Singapore, in an attempt to achieve sustainable economic growth, she has to take the less traversed path of boosting productivity and increasing efficiency to effectively utilize our limited resources. Yet, productivity growth has been sluggish even though Singapore reaches the halfway mark of its economic restructuring agenda. Annual growth in productivity registered 0.3% in 2013 and worsened to -0.8% in 2014 (Department of Statistics 2015). Low productivity will only impede the potential growth of our economy, hindering the creation of new jobs as well as development of enterprises.3

Internal Challenge – Bustling Port May Not Sit on Its Laurels Due to climate change, Singapore may not be as geographically fortunate as it continues to sit on the Strait of Malacca. A 2013 paper published in Geophysical Research Letters highlighted that the Arctic ice-shelf will possibly disappear by 2050, opening up shorter trade-routes between East Asia and Europe, engendering a long-awaited shipping revolution. Potential trade lanes cutting across an ice-free Arctic Ocean may be developed and such development will undercut Singapore’s current strategic location as a trading port. With the possible loss in its comparative advantage, Singapore has to seek new aspects of comparative advantage to continue attracting foreign investment as an economic hub.4

External Challenge – The Worldwide Uncertainty

1 Tham, Yuen-C. “Defying the odds for 50 years.” The Straits Times. December 20, 2015. Accessed May 1, 2016.2 Prime Minister's Office Singapore. (2015, December 31). PM Lee Hsien Loong's 2016 New Year Message [Press release]. Accessed May 5, 2016.http://www.pmo.gov.sg/mediacentre/pm-lee-hsien-loongs-2016-new-year-message3 Teo, Travis. “Singapore falling behind in productivity growth: Lim Hng Kiang.” TODAY. February 17, 2015. Accessed April 29, 2016. 4 Benette, M. (2016, April 11). As the Arctic Melts, Singapore Rises to the Top. The Maritime Executive. Accessed May 4, 2016.http://www.maritime-executive.com/magazine/as-the-arctic-melts-singapore-rises-to-the-top

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Ripple effects of the 2008 Global Financial Crisis continue to frustrate economic powerhouses. Recoveries are still weak in many countries, with negative interest rates being registered in Japan and Europe. China’s economy has entered the Abyssal Zone as it continues to slowdown, clocking first quarter growth of mere 6.7% in 2016.5 Singapore’s reliance on these trading partners epitomizes the domino effect it is suffering from, with exports shrinking 15.6% in March 2016. The world economy is running out of ammunition and Singapore has to seek for alternatives to continue engaging herself in the battlefield.

Chapter 1: Quality Growth

1.1 Productivity-led Growth

The two fundamental means of promoting growth in output is by either increasing inputs, or

improving productivity of existing inputs. Singapore’s future economy will be focused on increasing

the quality of inputs, rather than quantity.

1.1.1 Adjusting to Complement the Age of Automation

Automation is bound to takeover majority of routine jobs. An Oxford study suggests that 47% of

traditional occupations including accountancy and legal work have a high chance of being

computerised6 (Frey, Osborne, 2013). The assumption made is that automation increases 5 The Straits Times. “China first-quarter growth slows to 6.7%.” The Straits Times. April 13, 2016. Accessed May 9, 2016. 6 Frey, Benedikt, C and Osborne,M. “The Future of Employment: How Susceptible Are Jobs to Computerisation.” September 17, 2013. Accessed May 9, 2016.

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productivity in a ceteris paribus fashion. However, this leaves a high risk of technological

unemployment7 which potentially negates any gains from this phenomenon (Appendix A). We

propose the alteration of the education system to produce higher skilled workers that will

complement an automation-saturated future. Above and beyond non-routine tasks, critical thinking

and judgement skills should be emphasised on. This consequently avoids the conflict in future

automation trends and workforce skill sets, to maximise human capital in the future.

1.1.2 Bringing the Foreign Workers (FWs) On Board

We acknowledge that Singapore cannot fully close the tap on FWs. Given the permanency of FWs

in the country’s future, they should be included in Singapore’s productivity campaign8. Schemes

should be rolled out to sieve out quality FWs, who have the motivation to adopt new skills and

knowledge that will improve work processes. This may be achieved through incentive-based

programs that raise the wages of FWs who go through skill upgrading. A modified SkillsFuture

scheme dedicated to FWs may be implemented, sharing upgrading costs with employers. The levy

system can also be replaced by a savings account, that contents can be withdrawn upon

repatriation, ensuring cooperative workers9 (Ho, 2014) rather than increasing the cost of hiring

FWs that may be ineffective10.

1.2 Innovation-led Growth

In the future economy, Singapore has to shift from value-addition to value-creation. Rising

business costs, an aging population and the emergence of competitive neighbours have

engendered the drop in Singapore’s ability to compete in industries such as medical tourism. This

necessitates the development of globally-competitive local companies to drive economic growth11.

http://www.oxfordmartin.ox.ac.uk/downloads/academic/The_Future of Employment.pdf7 The Economist. “The onrushing wave.” The Economist. January 10, 2014. Accessed May 9, 2016.8 Ministry of Manpower. (2011, November 4). Foreign Workforce Has a Part in Productivity Drive [Press release]. Accessed May 3, 2016.http://www.mom.gov.sg/newsroom/press-replies/2011/foreign-workforce-has-a-part-in-productivity-drive9 The Straits Times. “The next 50 years of Singapore’s economy.” The Straits Times. November 13, 2014. Accessed April 27, 2016. 10 Chia, Yan Min. “Foreign worker levy “not serving its intended purpose.” The Straits Times. July 2, 2015. Accessed April 28, 2016. 11Tay, Kelly and Soh, Andrea. “Beyond 50: Singapore’s growth strategy shifts.” The Business Times. August 11, 2015. Accessed April 29, 2016.

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1.2.1 Graduate Education

In a frontier12 country like Singapore, graduate education is a pillar of innovation13 (Aghion, Akcigit,

2015). This leads to higher productivity growth through innovation (Figure 1) as compared to

undergraduate education that is more effective for “catch-up growth” in non-frontier states.

Figure 1: Growth Effects of Graduate Education at Frontier States

compared to Undergraduate Education

As such, we propose for schemes to encourage graduate education especially for the industry

clusters14 chosen by the Ministry for Industry and Trade as niche drivers of growth in Singapore’s

future economy.

1.2.2 Expanding Specialised Finance for SMEs

Financial aid for innovation is proved to be significantly effective in upper-middle income

countries15 (Chopra, 2015). Furthermore, SMEs face greater difficulty in obtaining financial aid

compared to large firms, yet benefit the most from it16 (Beck, Demirguc-Kunt, Maksimovic, 2005).

12 Where productivity levels are comparable to the highest productivity levels in the corresponding sector13 Aghion, P., & Akcigit, U. “Innovation and Growth: The Schumpeterian Perspective.” October, 2015. Accessed April 27, 2016. http://www.coeure.eu/wp-content/uploads/Innovation-and-Growth.pdf14 The clusters are advanced manufacturing, applied health sciences, smart and sustainable urban solutions, logistics and aerospace, and Asian and global financial services15 https://piie.com/sites/default/files/publications/wp/wp15-6.pdf16 Beck, Orsten., Asli Demirguc-Kunt., & Maksimovic, Vojislav. 2005. Finance and Legal Constraints to Firm Growth: Does size Matter? Journal of Finance 60, issue 1: 137–77

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The Asian Development Bank (ADB) has emphasised that, “there is a need for public sector

funding to bridge the so-called valley of death, which prevents new technologies and knowledge

from being commercialised by local start-ups and SMEs”. To sustain an innovation-driven

economy, we suggest that funding be referenced from the successful Small Business Innovation

Research (SBIR) programme in US (Chopra, 2015). This involves an incentive-based grant system

that awards SMEs with funding based on the technical merit and commercial potential, ensuring

the proper allocation of funding and development of high potential SMEs.

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Chapter 2: Global Opportunism

2.1 The Worldwide Wobble – An Imperative Need to Search for Alternatives

Current trends project a starkly different world economy in the future. Singapore’s open economy

will continue to be affected by the volatile and vulnerable external environment and consequently

has to adapt - to minimise negative shocks and to convert opportunities for economic benefit. We

suggest that Singapore transits to a focus on emerging markets, on top of current diversification

and rethink our geographical advantage as Singapore’s entrepôt industry is threatened.

2.1.1 Exporting CA into Asia’s Emerging Markets

There is an imperative need for Singapore to seek alternatives through venturing into emerging

markets. A key export Singapore may embark would be environmental management17 cum city

planning. Many emerging economics face a paucity of infrastructure development and this has

impeded their overall economic development. Singapore should therefore ride the waves of

opportunities by engaging developing countries like India and Indonesia with this comparative

advantage which we have the potential to nurture.18

For example, the Singapore Ministerial Committee could kick-start this new initiative in Jaipur

(Refer to Appendix B), India, a Tier 2 city that lacks infrastructure but possesses huge potential for

economic growth. Ranked as India’s second most attractive region for Foreign Direct Investment

(FDI), Jaipur is also part of the Golden Triangle – a popular circuit travelled by 50% of India’s

tourists.19 Yet, waste management has not been able to keep up with its expansion and it is

virtually non-existent in peripheral areas.20 To stimulate investment in waste management, the

17 Singapore has been at the forefront of environmental innovation and was an early adopter of innovative solutions such as NEWater (wastewater reclamation) and the Deep Tunnel Sewerage System.18 Singapore Economic Development Board (EDB). “Industries- Environment and Water.” Accessed April 25, 2016. https://www.edb.gov.sg/content/edb/en/industries/industries/environment-and-water.html19 Chakraborty, Kahini. "Twist in the Triangle." - Express Travel World. November 7, 2012. Accessed May 3, 2016.http://archivetravel.financialexpress.com/sections/management/900-twist-in-the-triangle20 Sancheti, H. S. et. al "Development Masterplan - 2025 Jaipur Region." 1:175. Accessed April 29, 2016. https://jaipurjda.org/pdf/MDP/Vol1.pdf.

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central government offers 100% tax exemption on all infrastructure undertakings and technical

support to firms developing infrastructure in this area.21 Local experts, Jurong International22 and

Sembcorp Industries could be contracted – to assist Jaipur in its city planning and enter its waste-

management industry. In essence, entrance into developing cities like Jaipur will serve as a

catalyst for future investment as it creates inroads for Singapore companies to reap economic

benefits when Jaipur prides itself as an economic hub.

2.2 Ushering in New Growth – Regional Economic Initiatives

Singapore has been working towards expediting the ratification and bringing into force several

regional economic initiatives. It is quintessential for Singapore to actively engage in initiatives in

their early planning stage, prospering as an active member in the region though attracting foreign

investments.

2.2.1 China’s One Belt, One Road Initiative

“One Belt, One Road” comprises 2 routes – Silk Road Economic Belt and 21st Century Maritime

Silk route.23 In particular, the 21st Century Maritime Silk route24 aligns with Singapore’s

geographical proximity which possibly will benefit Singapore economically. The maritime portion is

expected to span across three continents, involving 65 countries. Although this initiative was

spearheaded by the Chinese government as an outlet for the problem of vast overcapacity in

industries such as steel and heavy equipment to be ratified, there is still much to be achieved by

undertaking One Belt, One Road as a process of co-creation where participating countries

21 Endres, Dieter. "Tax Incentives in the Asia-Pacific Region." In Company Taxation in the Asia-pacific Region, India, and Russia, 40. New York: Springer, 2010.22 Jurong International has extensive experience in master-planning, with an international portfolio from Asia to Africa. Moreover, as one of the master planners for the city of Andhra Pradesh, it has valuable expertise in the Indian market.23 One Belt One Road (Rep.). (2015, November). Accessed May 4, 2016.BDO Advisory website: http://www.bdo.com.sg/pub/pub_reports/BDO_One-Belt-One-Road.pdf24 It is aimed at fostering collaboration along the historic Silk Road and maritime routes, which would pass through Southeast Asia, Middle East and East Africa. The Maritime Silk Road is part of China's overall One Belt, One Road framework which will also include the land-based Silk Road Economic Belt

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perceive themselves as being able to influence the outcome and attain a sense of ownership over

the pace and texture of collaboration.25

This initiative will benefit Singapore on a multitude of aspects. Singapore currently has an

advantage over countries in the region in the field of Infrastructure and Logistics. Due to this

expertise we have developed, Chinese enterprises have been increasing their investments into this

field of ours. Additionally, as this initiative attempts to create a more inter-connected, borderless

region, Singapore’s economy is likely to be fueled by its tourism industry when people in this region

travel for business or leisure.26

25 Lim, P.J. ”China’s One Belt, One Road initiative could usher in new growth: Josephine Teo.” Channel Newsasia. July 27, 2015. Accessed May 5, 2016. http://www.channelnewsasia.com/news/business/singapore/china-s-one-belt-one-road/2010212.html26 One Belt One Road (Rep.). (2015, November). Accessed May 4, 2016.BDO Advisory website: http://www.bdo.com.sg/pub/pub_reports/BDO_One-Belt-One-Road.pdf

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Chapter 3: Mindful Growth

3.1 Inclusivity - Leave No Man Behind

Our vision for Singapore’s future economy is one of prosperity. Yet, how we achieve this feat is

important - whether economic growth will be in an inclusive manner, or ruthless in the quest for

success.

Current efforts including progressive taxes and transfer payments serve to alleviate the symptoms

of income disparity. We recommend implementing a specialised extension of the Continuing

Education and Training (CET) scheme targeted at improving the productivity and social mobility of

low income earners. This scheme would take into account the high opportunity costs of enrolling in

skills upgrading classes for the low income earners (that deter the reach of existing efforts) by

providing structured financial support while on course.27 A structured job placement wing of the

extended CET would then allocate workers with upgraded skills to matching occupations, reducing

frictional unemployment. Furthermore, productivity and wage growth have to be closely linked in

order to continually motivate vulnerable workers to increase their skills. The combined effect of

such a policy raises the lower income group into greater financial independence and is more

sensible in the long term.

3.2 Welfare in a Knowledge-Based Economy

Non-material living standards are of increasing importance especially in a knowledge-based

economy. The future economy is one that intrinsically motivates rather than extrinsically

motivates28 (Neo, Chang, 2008) in order to maximise human potential.

This is highly relevant for Singapore, given that the proportion of Professional, Managerial,

Executive and Technical (PMET) jobs are expected to make up two thirds of the workforce by

27ESC Subcommittee on Fostering Inclusive Growth (Rep.). (n.d.). Accessed May 8, 2016. http://www.mof.gov.sg/Portals/0/MOF For/Businesses/ESC Recommendations/Subcommittee on Fostering Inclusive Growth.pdf 28 Neo, B., & Chung, S. (2008). Singapore’s Declining Productivity Growth An Exploratory Paper (Asia Competitiveness Institute Working Paper Series, pp. 1-13, Working paper). Singapore, Singapore

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2030.29 We propose for the adoption of work-life programs such as flexible work arrangements,

extended parental leave and maternity leave that have found to boost the productivity of

professionals significantly30 (Konrad, Mangel, 2000). It is found that professionals usually start

families at the peak of productivity levels (Konrad, Mangel, 2000). Hence, such schemes are win-

win in nature in order to support the changing workforce demographic in the future.

29 http://population.sg/whitepaper/resource-files/population-white-paper.pdf30 “The impact of work-life programs on firm productivity”, by Alison M. Konrad and Robert Mangel, Strategic Management Journal, Vol. 21, No. 12, December 2000

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Conclusion

The ever-changing global landscape has certainly challenged Singapore to create a new “road to

Singapore’s future economy”. This essay has identified a few key trends which have the potential

to morph into the key pillars of our economy. We have suggested 3 aspects Singapore can work

towards: Quality Growth through Productivity and Innovation; Global Opportunism; Mindful Growth.

With these fundamentals being laid down, it is integral for Singapore to also focus on tackling

social and political issues to create stability and harmony in our country. “By helping one another

and working as a team; Singapore can shape the nation’s identity and build a country that is

inclusive and united in diversity.”31 Cohesiveness of our nation has to be reinforced and sense of

belonging has to be instilled in all Singaporeans so that we will be united as one even when beset

with external threats.

Singapore’s future lies in our hands and "It is up to each one of us to voice our hopes and future

dreams, to make the choices to realise these dreams."32 2015 Golden Jubilee National Day Parade

was a melding of old and new.33 As we kick off the journey into the next 50 years, with our vision

and tenacity, SG 100 at the Padang would be a well-anticipated one.

31 Sim, Walter. “PM Lee launches platforms to discuss nation’s future.” November 30, 2015. Accessed May 10, 2016. 32 Sim, Walter. “Work together to help build a future that is inclusive and united in diversity: PM Lee.” November 29, 2015. Accessed May 9, 2016.33 Teng, Amelia., Lin, Melissa., Zaccheus Melody., and Chew, Hui Min. “Singaporeans celebrate 50th National Day with nostalgic and touching Parade at the Padang.” August 9, 2015. Accessed May 7,2016.

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Bibliography

Aghion, P., & Akcigit, U. “Innovation and Growth: The Schumpeterian Perspective.” October, 2015. Accessed April 27, 2016. http://www.coeure.eu/wp-content/uploads/Innovation-and-Growth.pdf

Beck, Orsten., Asli Demirguc-Kunt., & Maksimovic, Vojislav. 2005. Finance and Legal Constraints to Firm Growth: Does size Matter? Journal of Finance 60, issue 1: 137–77

Benette, M. (2016, April 11). As the Arctic Melts, Singapore Rises to the Top. The Maritime Executive. Accessed May 4, 2016.http://www.maritime-executive.com/magazine/as-the-arctic-melts-singapore-rises-to-the-top

Chakraborty, Kahini. "Twist in the Triangle." - Express Travel World. November 7, 2012. Accessed May 3, 2016.http://archivetravel.financialexpress.com/sections/management/900-twist-in-the-triangle

Chia, Yan Min. “Foreign worker levy “not serving its intended purpose.” The Straits Times. July 2, 2015. Accessed April 28, 2016.

Endres, Dieter. "Tax Incentives in the Asia-Pacific Region." In Company Taxation in the Asia-pacific Region, India, and Russia, 40. New York: Springer, 2010.ESC Subcommittee on Fostering Inclusive Growth (Rep.). (n.d.). Accessed May 8, 2016. http://www.mof.gov.sg/Portals/0/MOF For/Businesses/ESC Recommendations/Subcommittee on Fostering Inclusive Growth.pdf

Frey, Benedikt, C and Osborne,M. “The Future of Employment: How Susceptible Are Jobs to Computerisation.” September 17, 2013. Accessed May 9, 2016. http://www.oxfordmartin.ox.ac.uk/downloads/academic/The_Future of Employment.pdf

Lim, P.J. ”China’s One Belt, One Road initiative could usher in new growth: Josephine Teo.” Channel Newsasia. July 27, 2015. Accessed May 5, 2016. http://www.channelnewsasia.com/news/business/singapore/china-s-one-belt-one-road/2010212.html

Ministry of Manpower. (2011, November 4). Foreign Workforce Has a Part in Productivity Drive [Press release]. Accessed May 3, 2016.Neo, B., & Chung, S. (2008). Singapore’s Declining Productivity Growth An Exploratory Paper (Asia Competitiveness Institute Working Paper Series, pp. 1-13, Working paper). Singapore, Singapore

One Belt One Road (Rep.). (2015, November). Accessed May 4, 2016.BDO Advisory website: http://www.bdo.com.sg/pub/pub_reports/BDO_One-Belt-One-Road.pdf

Prime Minister's Office Singapore. (2015, December 31). PM Lee Hsien Loong's 2016 New Year Message [Press release]. Accessed May 5, 2016.http://www.pmo.gov.sg/mediacentre/pm-lee-hsien-loongs-2016-new-year-message

Sancheti, H. S. et. al "Development Masterplan - 2025 Jaipur Region." 1:175. Accessed April 29, 2016. https://jaipurjda.org/pdf/MDP/Vol1.pdf.

Sim, Walter. “Work together to help build a future that is inclusive and united in diversity: PM Lee.” November 29, 2015. Accessed May 9, 2016.

Sim, Walter. “PM Lee launches platforms to discuss nation’s future.” November 30, 2015. Accessed May 10, 2016.

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Tay, Kelly and Soh, Andrea. “Beyond 50: Singapore’s growth strategy shifts.” The Business Times. August 11, 2015. Accessed April 29, 2016.

Teng, Amelia., Lin, Melissa., Zaccheus Melody., and Chew, Hui Min. “Singaporeans celebrate 50th National Day with nostalgic and touching Parade at the Padang.” Augest 9, 2015. Accessed May 7,2016.

Tham, Yuen-C. “Defying the odds for 50 years.” The Straits Times. December 20, 2015. Accessed May 1, 2016.

The Economist. “The onrushing wave.” The Economist. January 10, 2014. Accessed May 9, 2016.

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Appendices

Appendix A: Bring on the personal trainers34

Appendix B: Jaipur’s Location

34 Obtained from: http://www.economist.com/news/briefing/21594264-previous-technological-innovation-has-always-delivered-more-long-run-employment-not-less

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