May 29, 2009
Transforming the economy
Prime Minister Lee Hsien Loong outlined the economic challenges facing Singapore in a speech in Parliament on Wednesday. This is Part 2 of an edited excerpt from his speech.
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THE immediate measures to tackle the crisis have been taken, announced, debated, settled.
We have Spur, the training programme for workers. We have the Resilience Package, which contained the Jobs Credit and the Special Risk Sharing Initiative as key measures. We have the President's approval to draw on past reserves.
Despite these measures, there's no getting away from the fact that this is going to be a very difficult year.
Our latest growth projections are between -6 and -9 per cent. It's not just Singapore, but all countries have been hit. Even large economies with big domestic markets - Germany, Japan - are expected to decline significantly this year. The most vibrant economies - China, India - too have seen a sharp slowdown in growth.
It's obvious now, if it wasn't already obvious in January, that we were right to mount a decisive response in the Budget with all the resources at our disposal then, rather than to wait to see how the battle unfolded and gradually dribble in our resources bit by bit.
We haven't won the war yet, but we've succeeded in moderating the rise in unemployment. In the first quarter, our GDP shrank sharply, 10 per cent. But our unemployment rose only moderately, from 2.5 per cent in the fourth quarter of last year to 3.2 per cent in the first quarter of this year. Much less than other countries, but at the same time much less than the shrinkage in our GDP.
It's something to feel relieved about, but it's also something to give pause to thought and to worry about, because our output has gone down 10 per cent. It's still down. Our unemployment hasn't gone down.
That means each worker is doing 10 per cent less work. That means employers are still holding on to the workers for now because of Spur, Jobs Credit, flexi-work and flexi-wage arrangements, because they hope that if they grit their teeth and see through this sharp downturn, the business will come back and there will be work for workers, and the workers will be there.
We hope that our firms will receive new orders soon. If so, the decision to hold on these workers through the downturn will pay off. So far there are orders, but most of the orders coming in will only see the companies through to the middle of the year. And no company can tell what the third and the fourth quarter this year is going to be like.
I asked the EDB. They're not sure. I asked MTI. They can't predict. I asked the unions, which usually have their ears close to the ground, and they're equally anxious.
If the orders don't come, then the companies have to let more workers go because they can't sustain short-time work and job sharing indefinitely.
Eventually, if this situation persists, the companies have to rightsize, and the workers have to be redeployed into new businesses which have orders, which have better prospects, and where they can become fully productive again. That's from the company point of view.
From the economy point of view, from the Government point of view, if we're in that situation, we've to let the companies restructure. We have to let the resources shift from the businesses which are shrinking to the businesses which are growing and gear up for the changed new world rather than wait in vain for the old businesses to come back.
We can't prevent this from happening. We have to see how it unfolds. But what we can do and what we have done is to have measures to save jobs in the time being, to buy time for us to make this transition so that we can massage the problem away and the workers do not have to endure too much dislocation, unemployment and pain in the process.
We're watching the situation very closely. All the economic agencies are alert and engaged and, if we need to, we have the resources and the will to do more.
CRISIS MANAGEMENT
TO OVERCOME crises, it's not good enough to excel at crisis management. We also have to be able to strengthen ourselves during normal times so that when problems come, we meet the problems in a strong position.
Otherwise, we would be champion crisis managers, but we will be chasing our tails without end. We must have a sound long-term strategy for growth and development.
We have regularly reviewed and updated our longer-term policies to meet changing circumstances. Each time we've had a major downturn, we've had a major review.
We did it in 1985 when there was a very severe recession after more than a decade of sharp growth. We did it again in 1997 during the Asian financial crisis and, after 9/11 in 2001, we formed the Economic Review Committee, which made wide-ranging recommendations, most of which have been implemented.
And since the Economic Review Committee, we have continued to make major policy changes over the last few years.
We restructured government revenues. We cut the corporate tax progressively from 25 per cent to 17 per cent. We raised the GST to 7 per cent. We amended the Constitution to put in place a new framework for spending from investment returns so that we can achieve a better balance between saving for a rainy day and investing now for our future.
We invested heavily in education. We recruited and trained more teachers. We strengthened and reorganised our ITE into three new colleges. We built a fifth polytechnic. We are setting up two new institutions - the Institute for Applied Science and Technology, to open up more direct routes for polytechnic graduates to acquire degrees; and a new publicly funded university teaming up with MIT in America and with a leading university in China.
We are developing new industries. In high-tech, we have biomedical sciences, interactive and digital media, clean technologies, R&D beginning to take off. We're developing services industries: financial services - now hit but still with considerable potential - high-end tourism, the IRs coming up, and what EDB calls HQ and control tower activities.
We are getting companies from new geographies, not just Americans or Europeans or Japanese, but companies from China, India setting up in Singapore.
We're also strengthening our social safety nets. We've created ComCare, which has been a lifesaver for many families and a very valuable tool for many grassroots advisers. We have the Workfare Income Supplement to help boost the incomes of those at the lowest end of the totem pole. We've improved our CPF system, raised the interest on CPF accounts, particularly for those with less than $60,000, and introduced CPF Life to make sure you're seen and looked after into your old age.
We have avoided Western-style welfare, but still ensured that every Singaporean who makes the effort to look after himself will get help and will be looked after. He will not be alone. These measures have seen us through good times and bad.
In good times they've enabled our GDP to grow strongly - 7 or 8 per cent per year - created many skilled jobs for skilled workers as well as for PMETs, raised incomes for households so that the median resident household income has gone up from $3,600 in 2003 after the previous crisis to almost $5,000 last year.
In bad times, the policies have stood us in good stead. We've got a restructured economy which is efficient and competitive. We've got accumulated resources to help fund counter-recessionary measures without borrowing.
MORE UNCERTAIN WORLD
AFTER this crisis, the world is not going to be the same again. This not just another cyclical downturn and recovery. The world economy is undergoing a structural shift. We don't know what will come out, but we can see some of the outlines to come.
The developed countries will have slower growth for quite some time to come. The financial sector is likely to have much more stringent regulations. Businesses will have industries which have excess capacity, which will now be consolidating. They will have access to less credit. Their customers will have access to less credit, that means there will be less demand, less need for new capacity, less new investments.
Governments all over the world will play a larger role in their economies. The governments will be more interventionist, more redistributive. I think the result will be less vibrancy, less dynamism, slower growth, but hopefully less likelihood of a repeat disaster.
In Asia, we expect the Asian economies to develop faster than the OECD. China is shifting to boost its domestic demand to drive growth. India just had a general election, a decisive victory by the Congress Party. We hope this will help it to push faster towards further economic reforms, but we shall see.
With rising affluence and rapid urbanisation, Asia will offer new opportunities for growth. But taken as a whole, Asia doesn't have the weight, the heft, the size to make up for the slowdown in the OECD countries and so overall I think we are in for a slower period. But it isn't just faster or slower, I think it's also a change in attitudes worldwide.
In the West, many voters have turned against globalisation and become negative on international trade and investments. In America, for example, which has been one of the most open of the developed economies, the mood has become nationalistic and anti-trade.
The American government has announced a proposal to make American companies pay tax on their offshore income. President (Barack) Obama vowed to make the US tax code 'more fair'. He said, they'll be 'finally ending tax breaks for corporations to ship our jobs overseas'. It's emotional, rousing political language, completely understandable in their situation but the effect will be less support for trade, for globalisation, less opportunities to grow and prosper together.
On May Day, we had a rally. We celebrated at NTUC Downtown East. I went back and looked at the TV pictures. Everybody else had demonstrations and riots, in Asia as well as in Europe. These are real sentiments which will have real implications. The protectionist moves will affect us because our economy depends so much on the free flow of goods and services, on capital and talent.
There will be political impact. There is deep anger against those who are perceived to have caused this problem, to have led the countries into this mess, against those who prospered and got rich during the good times.
As countries come under political pressure, relations between countries are also likely to be affected. Trade disputes will widen into broader frictions in their relationships.
The Chinese are very worried. Their leaders are writing op-eds in Western newspapers extolling the virtues of free trade, encouraging countries to work together, to keep their doors open. They are especially worried that their relations with America will turn sour, and sour up not just the trade relationship, but also the whole global strategic situation.
So far, the major economies are emphasising the need for cooperation. They're saying the right things, but what they are being forced to do is another matter. So we will have to watch what they do and not just listen to what they say.
OUR STRATEGY
IN THIS more difficult and uncertain outlook, there are opportunities for Singapore.
The Asian growth story is intact and it's the main plot for us going forward. We are small, which makes us vulnerable to external changes, but at the same time, it enables us to focus on doing well in niche areas. We don't have to be good across the board.
We are not doing badly in some of these areas. We have 70 per cent market share manufacturing oil rigs, thanks to Keppel and SembCorp. Every time you drink Milo, it contains malt extract. One third of Nestle's malt extract for the whole world is made in Singapore. Foreign law firms servicing South-east Asia, nine out of 10 situate themselves in Singapore.
At the broadest level, our approach to economic development and to growth remains valid. We have to stay open to trade and global competition. We have to be present all over Asia, link up with the world. We have to upgrade our skills, build new capabilities and keep our lead and we have to encourage our people to be self-reliant and enterprising, rather than dependent on state support and welfare.
But while the broad strategy is valid - which MPs have acknowledged, even Mr Low Thia Khiang when he spoke on Monday, which I thank him for - we need to review our specific strategies to develop the different sectors of our economy, find new ways to attract investments, implement policies to keep growing faster than developed countries can and to give Singaporeans good jobs.
I think we should study five specific strategies.
First, how to seize growth opportunities because without growth, there is nothing to distribute; there is no prosperity to share. But if we are creative and spry, there are still ways to prosper.
We should pursue more niche opportunities, for example, manufacturing aerospace components where it is very high technology, precision, needs absolute reliability, quality assurance and cost is less of a consideration.
We can develop new markets in emerging economies, which are still expanding and growing new business. We have many projects in the Gulf, which is still investing in infrastructure. We can look for and win more projects there with the capabilities, reach and track record which we are progressively building up.
We can make the most of Singapore's unique strengths and experience. We use our urban planning and development capabilities to help fast-growing cities in Asia. You've seen Suzhou Industrial Park. It's celebrating its 15th anniversary.We signed two additional agreements for the Suzhou Industrial Park to develop new projects in Nanjing, in Jiangsu, Nantong, there's one, and another mixed township development in Nanjing City on an island. It's our reputation, our ability to deliver, our reliability, which is creating these new opportunities overseas.
We maximise our win-win cooperation with neighbours. Closest of course is just across the Causeway, the Iskandar Malaysia project. I had a good discussion with Prime Minister Najib Razak last week and he is keen to develop our relationship and take it forward and have a forward-looking constructive relationship between Malaysia and Singapore. I told him I fully agree with this approach and we will try to work together. We must try to work together in these difficult times.
Second, how do we strengthen our corporate capabilities, make our companies stronger?
We need not just MNCs, but also local companies, not just big companies but also small ones, start-ups as well as mid- sized companies, so that we will have a diversified and resilient corporate landscape.
We've got many of the big global companies in Singapore - Exxon, Shell, Motorola, Hewlett-Packard, Sumitomo, Thomson. We need to attract the next tier of global companies, after the Fortune 500, slightly smaller, but by Singapore's standards, still large. And they are not quite so familiar with Asia. They can invest here because they're comfortable with our business environment and they see this as a good base to expand in Asia.
The Germans have a powerful small and medium enterprise sector. We've been courting them for many years. And some of them are here. We've a German centre where they can start up, begin to get their feet on the ground before they have their own premises.
We've got other European companies which are in this cast, which are setting up here, like Berg Propulsion, a Swedish manufacturer of marine propellers and thrusters. We should look for not quite so large, but still valuable global companies.
We should look for Asian companies. Chinese and Indian multinationals are going worldwide. Can we be the global HQ for such companies?
Focus Media, which is China's leading provider of advertising platforms, is here and I think more can come because many of them are going into the world and Singapore is at once familiar with them and at the same time operates by Western and international business norms, so they can learn how to work in this international environment.
We also want to nurture our own companies and make them globally competitive in time. The Government wants to help these companies to grow and we're trying many ways to do this and we're willing to do more. We will study this further. But I'd like to say that there's no simple answer to this question. I do not believe this can be done simply by the Government pouring money in, or one of the favourite quick proposals - setting up Temasek II.
The critical factor is not the availability of money or capital. The critical thing is that you need to build up the entire enterprise ecosystem, the whole environment where you can attract talent, and develop entrepreneurship, which means people with bright ideas, passion, the drive and the organisational ability to take a spark to brainwave, to a start-up, to a company, to an IPO.
Third, we have to develop the capabilities of our people, grow our human and our knowledge capital. Our future lies in being a leading global city for talent, our own talent as well as top talent from around the world. How do we make Singapore an exceptional place in Asia? It's a chicken-and-egg problem. If you can get talent, you can shine. But you must be a first-class place for talent to want to come.
We have to encourage talent to come here, to work here, to take root here. We have to encourage Singaporeans to welcome them and help them integrate into our society. I think it will happen.
If we say foreigners out, Singaporeans first and only, we've a problem. We've to say foreigners come, Singaporeans first, but we are going to make this place prosper with all the help we can get, and then we will have a bright future.
We also are making a big investment in our R&D programme. It's five years since we started this programme. It's time for a review. It's starting to yield results. We've made good progress. The question now is how do we take it to the next level and expand the economic payoff from R&D?
The fourth question is how to create good and high-value jobs for Singaporeans.
Growth is important, but growth is for the purpose of improving the life of Singaporeans. Not just a few at the top, but many across the board, improving their lives through good jobs, through rising incomes.
We have to attract industries that will require skilled workers and technicians, as well as professionals and managers, so that our polytechnic graduates, our ITE graduates, our skilled workers, our technicians, our diploma holders will have their skills in demand and can find jobs which will pay them well.
We must have companies upgrading their workforce, raising productivity and creating high-value jobs. We must have Singaporeans acquiring skills that are in demand through good education, through upgrading opportunities, like the new university and the new Institute of Applied Technology. We need continuing education and training - all the good work which e2i, NTUC, the WDA are doing.
CREATIVE SOLUTIONS
FIFTH, how can we deploy our resources to maximum effect? Singapore is small. Population, finite. Land is finite. Our resources are finite.
Land, for example. Seven hundred square kilometres. Every plot planned and 'choped' for something significant on our masterplan. If you fly over Singapore on a sunny day without clouds, it looks like a beautiful tapestry. Go to Google Earth, zoom in and you can see every building, every road, almost every ERP gantry, but nothing is left to chance, nothing is left over.
What do we do if we need to expand? We are reclaiming land, but reclaiming land doesn't stretch our international boundaries and the more land you reclaim, the less ocean space you will have and PSA reminds us we need sea space for port, for anchorages, for navigation lanes. So there's a limit to how far you can reclaim.
We have to make judicious trade-offs: recover land from less productive, declining industries; make space for new industries which are bringing in better jobs. We also have to make difficult decisions. The port is 30-plus million TEUs per year. If you're going to make a 60-million TEU port, you need twice as much land. Can we afford that? It means fewer factories, less housing. It may mean less training areas for the SAF. Nothing is for free. There's always a trade-off. But I think that we should try to relax this trade-off as much as possible.
Think of creative ways to expand the supply of space, if not of land. Can we go down, underground space? We have underground ammunition storage. We are thinking about underground malls. We've talked about ideas to have a whole underground space under the Padang. It's expensive, but some of it can make economic sense.
Can we go upwards? There are limits, partly because of air traffic constraints. But with better air navigation and air traffic control, I think the limits for the aeroplanes can be tightened, the height constraints can be relaxed and we can build higher with high-rise development in such areas. These are real issues which we are studying. I think that there is potential. We have not reached the absolute limit yet.
Another area where we have to consider limits is foreign workers. One-third of our workforce are foreign workers, about one million. Majority are lower skilled Work Pass holders. They've helped us to grow our economy, building our infrastructure, bolstering our workforce, filling critical gaps. I think in this downturn, the number of foreign workers will fall, particularly in manufacturing and services.
But when the economy recovers, demand for foreign workers will grow again. We cannot do without them, but I think we should find ways to reduce our dependence on them. Try as we may, we run up against limits. We have to study how we can grow our economy without indefinitely growing our foreign worker numbers and making the best use of the foreign workers to complement our workers.
There's a third area of limits, and that's energy. It's an important utility like water. I expect in the long term, the trend for energy prices will be up because as China grows, as India grows, their demand will grow and that will put pressure on the energy markets worldwide. So the question is how do we encourage energy conservation to grow more sustainably and to be less affected when energy prices go up from time to time or in the long term?
We have to diversify our sources of energy for security. We need to become less dependent on piped natural gas, which is from nearby sources, and look for alternatives to piped natural gas. We are building an LNG terminal. That is an alternative because once it is LNG, you can buy from around the world - Australia, the Middle East, Trinidad & Tobago, Russia, many possibilities. What do we need to do beyond that? Do we need to develop other sources of energy?
We also have to consider climate change. There's a global deal currently being negotiated under the UN Framework Convention for Climate Change. Singapore must do its part in any global deal because it will be expected of us. There will have to be improvements in our energy efficiency. It will mean costs for our economy and we have to prepare for a carbon-constrained world.
These are important enough issues for us to have a major strategic review. We will form an Economic Strategies Committee to look into these issues, and Minister Tharman Shanmugaratnam will chair the committee. We will involve both the public sector as well as the private sector so as to tap the strengths of both.
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