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3-on-3 with Manu Bhaskaran: Low commodity prices – curse or blessing

24 Feb 3-on-3 with Manu Bhaskaran: Low commodity prices – curse or blessing

Mr Manu Bhaskaran is the founding CEO of the Centennial Group’s Singapore subsidiary, Centennial Asia Advisors, and a Council Member of the SIIA. He is also an Adjunct Senior Research Fellow at the Lee Kuan Yew School of Public Policy.

We asked him for his views on recent economic headlines – labour productivity in Singapore, and the impact of low commodity prices on our region.

Q1: Are there weaknesses in the local labour market preventing Singaporean employees from being more productive?

Mr Bhaskaran: I think we’ve had a long period where we allowed in a very large number, maybe a disproportionate number of foreign workers, at the lower end of the skill category. I think it’s fair to say that this probably helped to keep the wages at the lower end of the skill spectrum much lower than they would have been. The fact of the matter is that companies respond to incentives. If wages are low, there’s less incentive to move up the value chain. It’s moving up the value chain that delivers productivity growth. And the incentive structure was wrong, that’s what I think was wrong with the labour market: the excessive inflow of cheap foreign labour.

Q2: We’re nearing the end of a commodity supercycle. What sort of implications will this have on ASEAN economies, in particular economies that export commodities like Malaysia and Indonesia?

Mr Bhaskaran: Well, I’m not sure if we are ending the cycle or not but I personally don’t see lower commodity prices as necessarily negative for the way we interact with the region. Malaysia is very important to us. Malaysia exports much more in terms of non-commodity exports than commodity exports. We benefit from that because we have supply chains and services that are geared to benefiting from manufacturing and other activities in Malaysia, but less so the commodity activities in Malaysia. Similarly in Indonesia, while a fall in base metal prices and so on will hurt Indonesia, I think it will spur Indonesia to consider moving back into what it used to be very good at, which was export-oriented manufacturing, which has been neglected for 14-15 years. And I think that will happen under the new administration. And that pattern of growth in Indonesia will be extraordinarily positive for Singapore compared to a purely commodity-driven growth, which is not sustainable anyway.