This commentary asks many tough and important questions about the evolving economic reality facing Singapore. This minuscule country of 716 square kilometres with little natural resources has always had to overcome the odds to survive, and paradoxically we are at once both one of the richest and one of the most insecure nations on earth. It is our fate. Again the winds of economic change are sweeping across our offices, factories, hotels and R & D labs; again we have to adapt and overcome.
Granted we remain astoundingly capable at attracting foreign direct investment (FDI). Singapore attracted S$56.7 b of FDI in 2012 (the most recent data I could find), more than Indonesia, Malaysia, the Philippines, Thailand and Vietnam combined. Global firms like Google, Citigroup, Rolls-Royce and Procter & Gamble continue to make very substantial investments in our country, creating numerous jobs.
However, when it comes to entrepreneurship, innovation and creating our own companies, Singapore is found wanting. Most of our largest, most successful companies are actually founded and/or majority-owned by the government — the likes of Singapore Airlines, Singapore Airlines Engineering (which carries out maintenance of aircraft for many airlines), DBS Bank, Keppel Corp, Capitaland and Singapore Technologies Engineering. While these companies have been successful and profitable over the years, some are seeing their competitive advantage eroded by more nimble, hungry competitors. For instance, SIA Engineering saw a 40.7 percent plunge in net profit in the second quarter of its current financial year as competition intensified. Singapore’s model of state-directed capitalism has been extremely successful and many countries have studied our model and sought to emulate it. However, the government’s heavy hand in business and the country’s strong emphasis on academic achievement may have stifled the people’s natural entrepreneurial and innovative instincts. Question marks remain too over whether the government-linked corporations (GLCs) are innovative enough to adapt to the accelerating changes in the world economy.
Other than the GLCs, we produce very few world-class or even leading regional companies. Most of our home-grown, non-GLC firms cater mainly or exclusively to the domestic market and are unremarkable in terms of innovativeness or branding. Many are in very traditional industries such as property, construction and food and beverage; and operate very traditional, unimaginative business models. Companies like Charles & Keith and BreadTalk are few and far between. This is why in the Singapore stock market, there are not many exciting companies to invest in. Revolutionary companies with a strong brand such as Alibaba, Google, Nestle, Philips and Apple are mostly to be found in other stock exchanges.
Having an extraordinarily good government can ironically come with a drawback: the people become overly dependent on it, particularly when the government has strong paternalistic inclinations as Singapore’s does. Even our companies, says the writer of the aforementioned commentary, suffer from this over-dependence.
It would be risky to depend excessively on foreign investment for our continued prosperity. If we suffer substantial loss of competitive advantage in attracting FDI, our economy will be hollowed out. Singapore needs to shift the balance carefully towards nurturing homegrown companies and brands. The government would do well to moderate its presence in business; give non-government linked firms more room to grow; hold back on its micro-management of Singaporeans’ lives; and restructure our education system to encourage young people to take more risk. Singapore turns 50 next year. The government has capably played the role of strict but benevolent parent to its people since independence, but even the best parent needs to eventually set his child free to let him grow up and spread his wings.
Singapore’s continuing modest economic growth of only 3 per cent or so each year and the uncertainty inherent in the global economy suggest that we cannot be complacent about our immediate economic future.
Within South-east Asia, the Republic’s competitiveness is being eroded by high domestic business costs and the economic uplifting seen in economies more rich in resource and human capital, such as Indonesia and Myanmar. It has been nearly five years since the Government adopted the recommendations of the Economic Strategies Committee (ESC). The targets set included annual growth in gross domestic product of 3 to 5 per cent, annual productivity growth of 2 to 3 per cent and a 30 per cent rise in the median wage by 2020.
We have barely met the GDP target and only with a significant contribution from the Government’s fiscal impulse into the economy.
We have not yet had a single positive productivity growth year apart from 2010, whose positive number was a one-off given the labour contraction during the 2009 recession.
And while wages at the lower end have risen slightly, they have not done so fast or far enough to give confidence that we will meet the median wage target.
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