Challenges ahead for Singapore - Eye On Singapore

Business Asia, Sept, 2002 by Tamsyn Smith

Nestled between Malaysia and Indonesia, the tiny island of Singapore has long been a humming financial centre, with businesses from around the globe clamouring to stake a spot on the glittering shores.

The lights have dimmed slightly as Singapore emerges from its worse recession since 1965, but by trading on its top notch reputation and making some serious economic reforms, the country has more than a fighting chance of staving off competition and retaining its lofty position.

Last year's faltering US economy and consequent nosedive in the global electronics industry had a negative effect on Singapore's economy, with overall real GDP declining by two per cent in 2001, according to Australian Foreign Affairs and Trade figures.

This year, the outlook is brighter--the Singapore Ministry of Trade's official estimate for 2002 being revised from two per cent to four per cent GDP growth.

In his recent National Day speech, Singaporean Prime Minister Goh Chok Tong was positive about the country's growth, but expressed wariness over the effect of global issues such as the faltering US recovery, and the war on terrorism.

"We are now more like a developed country. Therefore, we cannot expect to grow as rapidly as in the past. But over the medium term, we should be able to make four to six per cent growth on average, provided the US economy stays resilient and the global environment remains stable," Goh said.

More competition

On a regional basis, Singapore is also having to deal with the issue of increased competition from other Asian nations.

Low wages and cost structures in other countries have seen companies relocate production away from Singapore, according to Australian Business Limited's senior manager of international trade Ian Bennett, who has seen 430 Singapore companies move to the off-shore Indonesian island of Batam due to more economical labour in the past decade.

Bennett, who lived and worked in Singapore for nine years, says nearby Malaysia is a major threat on the waterfront, as evidenced by the movement of Maersk Sealand and Evergreen operations from Singapore to Malaysia's Port of Tanjung Pelepas. "Malaysia has really shaken up the dogmatic policies of the Port of Singapore Authority," says Bennett, who explained the policies provided little room for negotiation.

A recent report in a Malaysian publication says the PSA has announced new "customer-focussed" flexibility in a bid to ward off competition from the neighbouring nation.

Bennett says a review of the policy could be an indication that a lot of other structural policies in Singapore may have to become more flexible to maintain their regional dominance.

In October last year, an Economic Review Committee (ERC) was established to "fundamentally review Singapore's development strategy and formulate a blueprint to restructure the economy", says a DFAT tradewatch update. This review is expected to be completed this month.

Chinese threat

China's recent inclusion in the WTO could be viewed as a threat to Singapore's position, as an increasing wave of businesses are drawn to the relative "greenfields" offered by the huge population of potential consumers. However, Bennett points out that China has a long way to go before it can offer the wealth of experience as a financial centre. "It could have down-stream effects on Singapore's financially significant position in the region, but it will require China to develop the integrity and openness that Singapore has used to secure its current position," says Bennett.

The Singaporean Government recognises the challenges it faces and is stepping up to the plate by making changes to several aspects of the economy, including tax policies, in order to "remake" Singapore, according to Prime Minister Goh.

"We must keep improving efficiency and productivity, and get companies, including shipping lines and airlines, to continue to hub in Singapore," he said. "These and other strategies will help us to respond to China's growing economic strength, and to compete against others like Korea and Taiwan."

Foreign Investment

The Singapore Government expects to attract about S$9 billion ($9.5 billion) worth of investments this year. Prime Minister Goh says multinational companies invest in the country due to "strong fundamentals".

"They have confidence that our Government and people will take hard decisions for the good of the economy," he said.

According to Bennett, the Government's commitment to spurring on development and innovation is an encouraging factor to foreign investment, as people recognised that Singapore was still the best managed financial centre in South-East Asia. Top level investments are the order of the day, in areas such as ICT, finance and high end manufacturing.

"Singapore would still be the pre-eminent position in South-East Asia for investments of that size," says Bennett, adding that the country's skilled workforce adds to the attraction.

Linkages

Construction, health and environmental are other opportunity industries for companies coming into Singapore, which can be used as a route into other parts of Asia.