Singapore back on the rise

Business Asia, Dec, 2003 by Sarah Jones

Investor confidence in Singapore is on the rise again after its tumultuous SARS affected 2003, Austrade chief economist Tim Harcourt says.

Harcourt said confidence in Singapore also received a boost from the signing of free-trade agreements with Australia, Chile and the US.

"I think it means that the country is desirable to have a free trade agreement with ... and is quite good for Singapore in terms of confidence," he said.

"People do see Singapore as a nice hub for services exports for the rest of Asia, as it is a good place to base yourself.

"Singapore has had a couple of unusual factors in the last year. Probably SARS affected them and Hong Kong more than anyone else and I think when you are an entrepot--a place that focuses a lot on international trade--then anything that affects trade is going to affect you."

Recovering

Harcourt maintains Singapore has performed "reasonably well" and is doing all that it can with the limited resources available.

Despite the fact that Singapore's overall growth rate is only expected to expand by one per cent this year, compared to the nine per cent levels the city-state enjoyed in the late 1990s, the city-state is well and truly on the road to recovery.

Singapore's economy expanded at 17 per cent in the third quarter of last year, with the growth momentum set to continue into 2004, thanks to a boost in manufacturing which improved 24 per cent and accelerating growth in the US.

At the height of the SARS outbreak, Singapore's $89 billion economy shrank a huge 9.8 per cent in the second quarter, as spending in tourism and retail was slashed.

Hi-tech

Harcourt said while Singapore's macro outlook did not compare as favourably to other countries in the region such as China, it was a plus that its location was based "in a sea of Asian economies that (were) still industrialising".

"Singapore does not have the low-labour costs and does not have a lot of the growth that you get with growing young populations," he said.

"They don't have land, and they don't have a big resource base, so they have to go for hi-tech manufacturing and knowledge-based services, and they have had some success with it. Singapore is pretty good at services, so that is a comparative advantage for them."

However, Singapore's high wages compared to other countries in the region has threatened foreign investment levels, and has prompted Singapore's finance minister Lee Hsien Loong to cut employer's contributions to worker pension by three percentage points.

According to Harcourt, wage rates are not a major concern as the country is also known for its high productivity growth rates.

"Foreign investors do look at growth opportunities, so investing in Singapore is a bit like investing in the wealthiest suburbs of Sydney," Harcourt said.

"Investors often look for the up and coming, so Singapore is working against that. But on the other hand, foreign investors like ability and efficiency and low risk and that will always be in Singapore's favour."

Art focus

While Singapore's main industries lie in hi-tech manufacturing, logistics as well as education, Harcourt says the country is also starting to focus its attentions on the creative arts, led by Singapore's Minister of State for Trade and Industry and Foreign Affairs, Raymond Lim--one of seven emerging politicians hand-picked by Prime Minister Goh Chok Tong.

"Singapore has traditionally had people who are very good technically with mathematics and engineering, and Raymond is more of a renaissance man," Harcourt said.

"Given that the Government is trying to attract creative business industries and entrepreneurship, I think he is going to be well suited."

In an article written by Harcourt titled Everybody Loves Raymond, he wrote that Lim was upbeat about Singapore's prospects.

"We are keen to nurture our creative industries and encourage innovation in the new Singapore," Lim told Harcourt.

"Singapore is a high-income, mature economy with many knowledge-based industries.

"In this environment, our best chance is to encourage (and) build our own human capital, support local entrepreneurship and to encourage other countries' businesses to base themselves in Singapore."

Additional reporting by Bloomberg