Beyond 50: Singapore's growth strategy shifts

SINGAPORE may have achieved an economic miracle in the five decades since independence, but its growth matrix for the next 50 years will be very different - and far more complex.

As the economy matures and enters a new phase - one marked by slower but better-quality growth - the government envisions that expansion will be driven by deep skills and innovation, with Singaporeans and local enterprises at the core.

This marks a distinct departure from the strategies of before, including the courting of multinationals for export-led industrialisation and the making of Singapore into a reliable centre for high value-added activities in global supply chains.

These days, the government - and in particular, Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam - is stressing the need for value to be created in Singapore; and not just by foreign multinationals, but also by Singapore firms.

Said Mr Tharman late last month at the Economic Development Board (EDB) Society's 25th anniversary gala dinner: "We have now embarked on a new phase in our nation's economic development . . . We are moving from value-adding to value-creation. It means making innovation pervasive in every industry and for firms small and big - so that we can come up with our own products and services, and also to establish Singapore as a leading centre for value creation in (the) business strategies of foreign companies."

Articulating the importance of small and medium-sized enterprises in this new phase, Mr Tharman added: "We can only become an innovative, value-creating economy if a significant segment of our SMEs is driven by innovation. This is a major priority."

That is not to say that multinational companies (MNCs) will decline in importance. As Morgan Stanley's head of ASEAN research, Hozefa Topiwalla, put it: "There are three legs for Singapore - GLCs (government-linked companies), MNCs and globally-competitive (local) companies. The third leg has not been completely formed (and so) developing private-sector enterprise is absolutely important."

This helps to explain the government's recent push for Singaporeans to develop a mastery of skills in every vocation, via the SkillsFuture initiative. This is seen as instrumental in developing innovative and high-skilled teams in every sector, which would enable Singaporeans to develop good careers for themselves.

Of course, the promotion of innovation, enterprise and entrepreneurship is not new - structural reforms to do so started as early as the late 1980s, and have continued into the present.

But economists welcome the "more targeted and coherent" approach this time around. Said DBS economist Irvin Seah: "As the population ages and costs continue to rise, Singapore will increasingly become less attractive to many MNCs. We need to ensure that SMEs will be ready to drive our economic growth.

"It's not just about opening up a branch office elsewhere and doing the same thing - it's about coming up with new products and services that will give them the comparative advantage to carve out a niche in the global market . . . I look forward to the day when we have Singapore-based MNCs."

International Enterprise (IE) Singapore, for its part, is aiming to achieve exactly that. Said its chief executive officer Teo Eng Cheong: "(It's an) evolution from just externalisation to becoming more competitive, and in the future, becoming innovative and creating new products and services."

With this shift, economy-watchers expect the gross national product (GNP) measure to gain in importance, even though for comparability purposes, they do not foresee it usurping the traditional gross domestic product (GDP) metric. The former measures the levels of production of any person or corporation of a country, whether on home soil or on foreign land; the latter measures the domestic levels of production within a country's boundary, whether by its nationals or by foreigners.

To drive economic growth beyond 2015, the government also seems to be moving away from its earlier strategy of picking winning sectors - such as the electronics and petrochemicals clusters in the 1970s and 1980s, and more recently, integrated resorts and entertainment services in 2005.

Mr Topiwalla believes the government is now refining its approach, and is recognising that "facilitation is more important than actually driving or choosing specific sectors".

To independent economist Song Seng Wun, this is a good move. "We probably won't see the kind of policies we saw in the past, where there was a big push for a certain sector like biomed. With the global economy now changing so fast, it's very difficult to try and spot (winning) sectors. Just look at how quickly things become redundant and outdated, and how fast competitors can outdo you."

EDB chairman Beh Swan Gin also told The Business Times that the government must be a lot more selective in wooing new investments going forward.

"We want to attract investments that build on our strengths and continue to strengthen our industry clusters. But we also want to build on strengths to move into adjacencies; we want to make sure we're attracting investments that bring in good-paying jobs for Singaporeans," said Dr Beh.

In identifying the five growth clusters for future growth in Budget 2015, the government had signalled its intention to build upon existing strengths instead of plunging head-first into a wholly new growth area. The clusters are advanced manufacturing, applied health sciences, smart and sustainable urban solutions, logistics and aerospace, and Asian and global financial services.

The Ministry of Trade and Industry (MTI) told BT: "These sectors were chosen in view of the strong capabilities and reputation of quality that Singapore has established in these fields, as well as global trends of ageing, urbanisation and disruptive technological change."

The more "sector agnostic" approach, as some economists have called it, will make the government's job far more complex. Economists acknowledge that it will no longer be a matter of targeting how many jobs will be created or what GDP growth rate will be achieved.

Said Mizuho economist Vishnu Varathan: "I think the heightened level of complexity comes with the territory. Previously, we just had to say we're all in on electronics, and we just have to do everything possible to support that industry. (Moving forward), our economic strategies committees will have to think on their feet about restructuring, and have the flexibility to adapt.

"Instead of a single path and destination as a focus, we'll need to wrap our heads around the different possible pathways to get there, and have multiple game-plans at the ready."

This article was first published on Aug 11, 2015.
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