At the beginning of 2011, the current issues remain global economic recovery, stability, and geopolitical order. What of Singapore’s place in this changing world? Almost two and a half years after the height of the global financial crisis, many questions remain. How sustainable is the global economic recovery so far? Can Asia continue to drive growth, both within the region and elsewhere? Will global political conditions foster a foundation for continued growth, in addition to regional and local ones?
At the Singapore Institute of International Affairs’ 2nd Annual Members’ Circle, members convened for a closed door event. The aim was to promote free flowing discussion amongst the group, in order to facilitate the genesis of ideas. The 2011 AMC was a half-day event that concluded with a lunch dialogue between J Y Pillay, Chairman, Singapore Exchange Limited and Ngiam Tong Dow, Former Permanent Secretary (Administrative Vice-Minister) of the Ministry of Finance and the Prime Minister’s Office of the Government of Singapore.
The discussion began by focusing on Singapore’s domestic economy and how it can best meet challenges and seize opportunities across different sectors in an evolving policy environment. Economic activity has picked up quickly in the wake of the global financial crisis. More and more companies are making Singapore their “control tower” for the region.
But by some measures, Singapore has slipped within the global context. It fell in an Ernst & Young ranking of the “most globalized cities”. According to the study, lower net migration and a reduction of trade in R&D were key factors in reducing Singapore’s score, even though there were improvements in cultural integration measures.
There also remains a question of competition: can Singapore keep up with high growth rates in the region? China and India seem set to post near double-digit growth rates for the foreseeable future. Is there a risk that Singapore will lose out to investment into its two neighboring giants? The group seemed to agree that there can be value-added success for Singapore abroad. While the total share of investment in China or India may be small, for Singapore it is a significant portion.
Within Singapore, opportunities are improving. But can Singapore set the domestic stage to harvest from recovery? A significant election issue in Singapore this year is foreigner migration. The city-state has added an estimated 50,000 new permanent residents per year from China and India for the past few years. There is some desire to rein in the migration, and a risk that the “election effect” may exert a drag on the economy.
Members touched on other difficulties facing the domestic economy. The Singapore dollar is losing competitiveness and hurting manufacturers here. There are questions as to whether there is a wider objective to keeping the Singapore dollar strong. On a micro-level, there continue to be issues of transfers of foreign talent to Singapore and whether there are demotivators and “glass ceilings” preventing skills transfer to the local population.
The overall view however was positive. There was general acknowledgement that Singapore has many strengths to build on. The government has made a number of smart moves in the wake of the crisis. Moreover, in a 21st century global economy with many areas of political uncertainty and fragility, Singapore’s stability is well-recognized by the international business community.
At the same time, the government has done a good job of keeping Singaporeans local and increasing the talent pool. The dynamic combination of cleanliness and livability in Singapore has and should continue to attract and maintain talent and capital.
The focus of the discussion then shifted to the broader region. ASEAN remains a source of untapped potential, with overwhelming economic logic pointing towards deepening regional integration. Many in the private sector are skeptical of efforts to build the ASEAN Economic Community, as progress has been slow. But although many SMEs are not taking advantage of ASEAN trade agreements and the wider market, members acknowledged that there have been important success stories. A recent study shows that about 28% of firms sampled in Asia (the sample included Singapore, Thailand and the Philippines) take advantage of free trade agreements. For businesses however, the bottom line is that they should have more input into the trade liberalization process.
ASEAN faces many challenges from within. It is very heterogeneous: politically, socially, and economically. Moreover, some question whether ASEAN identity among its people is robust enough to support its ambitious plans. There is a danger that increasing specialization without integration will create economic spheres. Vietnam would be the base for cheap manufacturing, Indonesia for resources, etc.; thereby removing the need for ASEAN to discuss issues amongst each other.
ASEAN also faces challenges from the outside. It is sandwiched between the world’s two most populous countries, China and India, both of which have exciting prospects for growth. This has made the two increasingly attractive to investors. If ASEAN is to “keep up” with its neighbors, it must continue to integrate economically.
To meet these challenges, ASEAN will have to continue to develop connectivity and interdependence. The Thai-Lao power generation project is an excellent model. Participants noted that an inter-ASEAN highway or railway will have benefits for supply chains. There was even mention of the ASEAN bid for the 2030 World Cup.
ASEAN going forward must be resilient. As Indonesia rises in importance, seen especially at the G20, it could begin acting in its own self-interest and lessen the importance of ASEAN. Therefore, all ASEAN members must work especially hard to promote ties at this crucial stage in the region’s development.
After morning discussion had drawn to a close, the Annual Members’ Circle featured a lunch dialogue between Mr J Y Pillay and Mr Ngiam Tong Dow. The two of them discussed how Singapore can “punch above its weight”. Singapore as a small city-state faces many unique challenges but can also seize new opportunities.
To understand where Singapore is going, one must understand where it has come from. The two statesmen underscored that the question for Singapore was originally one of mere survival. In those days, it was “90% doing, 10% thinking”, with a focus on creating jobs. Perhaps there are issues of security now, but now Singapore is in a much better position to control its destiny.
Nonetheless, there are questions of whether Singapore can rely on the same model it has used for the past 30-40 years and prevail. It must transition from a skills-based economy to a knowledge-based one.
Much of the discussion centered on the issue of immigration and the corollary of how best to “expand” Singapore. A few potent ideas were tabled. First, the idea that the total “pie” of Singapore’s output must grow, but individual slices should also grow. Second, that perhaps a “bread and butter” growth rate of 1%-2% is a more suitable target than a 4%-6% rate of growth. Finally, there were questions of whether demographic changes in Singapore spurred by immigration will have the effect of “re-engineering” the city-state’s political dynamics.
Although Singapore faces challenges, Mr Pillay perhaps best summed up the mood of optimism in the room: Singapore is starting to “happen”. There may be bumps in the road, and questions of identity, freedom and growth will persist. But overall, signs point to a continued economic recovery, increasing social integration and a solid foundation of human and intellectual capital for future growth and stability.