Having transformed from a Third to First World nation in slightly more than half a century, Singapore today is confronted with a similar set of challenges while facing Covid-19. How can it transform itself to stay relevant for the next 50 years?
Singapore (Aug 7): Fifty-five years ago in 1965, the idea of an independent Singapore was a political, economic and geographic absurdity, the republic’s founding Prime Minister Lee Kuan Yew once remarked. At that time, the small nation lacked the resources and know-how needed to transform itself from a fishing village to a modern metropolis.
Fast forward to half a century later and the red dot is still little, but it has created a big name for itself on the global map by punching well above its weight. The republic is known for its clean and effective government, litter-free walkways and garden city image, skyscraper buildings, and the award-winning Changi Airport. Collectively, these developments have led Singapore to the top of country rankings where aptitude and economic competitiveness are the chosen yardsticks.
Recently, Singapore outdid 63 economies to top the Institute for Management Development’s (IMD) 2020 World Competitiveness Ranking, scoring highly in benchmarks of international trade and investment, employment and labour. The stable performance of its education system and technical infrastructure — comprising telecommunications, internet bandwidth speed and high-tech exports —also helped boost the nation’s overall economic strength and score.
Singapore’s transformation has intrigued the likes of former Chinese leader Deng Xiaoping, who inspired thousands of officials to visit the island on study trips in the early 90s. The republic’s model of development and urban planning has also been copied by other countries such as Rwanda. Today, the country — particularly its capital city of Kigali — is christened “the African Singapore” for its manicured streets and strong economic growth.
In the past 55 years, the Singapore model has evolved according to the needs of the global economy as well as the geopolitical issues it faces. Leveraging on existing capabilities, the country has ventured into new verticals to remain relevant to the global economy. Today, it is known for its strength in rendering knowledge and expertise in the areas of finance, arbitration, mediation and infrastructure. It is also lauded as one of the easiest places in the world to do business.
EduTech entrepreneur Devi Sahny can testify to that. “I am grateful to Singapore,” she tells The Edge Singapore. The 27-year-old Belgian national is the founder of AscendNow, a Singapore-incorporated online academic coaching platform for over 650 students. Sahny was introduced to the city two years ago when she was posted here for a stint at a financial services firm. She soon realised her role was ill-suited but decided to stay on to pursue her passion of teaching.
“Singapore has a world-class education system, so I thought this would be the perfect laboratory to test my nascent EduTech idea,” she says. Sahny’s experience has been positive from the very start when she was incorporating AscendNow. Two years on, she says the mentorship and support given to entrepreneurs by Enterprise Singapore and the Ministry of Education to AscendNow by reviewing its course curriculum have been highly beneficial. They “have framed our success”, asserts Sahny.
To Arturo Bris, director of the IMD World Competitiveness Centre, Singapore’s economic growth and appeal to entrepreneurs highlights the advantages of managing a small state. “The benefit of small economies comes from their economic competitiveness and their ability to fight a pandemic,” he says.
However, this may not always be the case, says José Calbellero, a senior economist at IMD’s World Competitiveness Centre. He argues that a resultant recession could have a negative impact on Singapore’s competitiveness going forward. Depending on how the pandemic pans out, if resilience levels dip drastically, this would heighten economic uncertainty which ultimately affects investment decisions.
“Furthermore, it can limit the recruitment of highly skilled foreign staff by reducing employment opportunities and also remuneration levels,” he says, noting that both aspects have historically been key drivers of Singapore’s competitiveness.
Cracks in the economy
Addressing Singapore’s economic challenges and economic transformation have gained urgency in the wake of the Covid-19 pandemic. Singapore’s 2Q GDP ended June plunged an eye-popping 41.2% q-o-q and 12.6% y-o-y, no thanks to the lockdown imposed in April and May.
With the pandemic still raging, Singapore might still end the year with a slump of between 4% and 7%, according to official estimates, although its economy is gradually reopening. In comparison, Singapore’s economy contracted by 2.2% and 1.1% in the 1997 Asian Financial Crisis and the 2001 tech bubble bust respectively. During the 2009 Global Financial Crisis (GFC), Singapore still eked out a full-year growth of 0.1%.
The current slowdown, with no end in sight, has triggered growing worries over the job market. Singapore’s total job losses hit 121,800 in June, more than four times the 25,600 registered in March, preliminary numbers from the Manpower Ministry shows. The latest data marks Singapore’s largest quarterly contraction on record since the SARS pandemic which saw hiring dip by 24,000 in June 2003. This June, the seasonally-adjusted unemployment rate edged up to 2.9%, worse than the 2.4% it was at in March. While this is still below the 3.3% rate seen during the GFC, companies this time round were supported by significant wage subsidies handed out by the government.
However, with international air travel still largely restricted, the aviation, hospitality and related sectors like F&B and retail are expected to be badly hit. Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye expect a severe “services recession” that could send total job losses to between 180,000 and 220,000 this year, or 5%. Their earlier estimate was between 100,000 and 150,000.
UOB economist Barnabas Gan expects unemployment to be at a more modest 3.5% in 2H2020. “Given the slowdown, companies may continue to show reluctance in hiring while the pressure to retrench their existing workforce could also increase,” he says.
Road to transformation
To cope with the outbreak, the government has allocated a $92.9 billion rescue and support package announced over four instalments. Deputy Prime Minister Heng Swee Keat said the “landmark package” was a “necessary response to an unprecedented crisis”.
The key feature of this package is the $23.5 billion Job Support Scheme to help lighten the wage bills of 140,000 companies that employ some 1.9 million Singaporeans. Valid until October, companies will receive a monthly subsidy of up to $3,450 for each Singaporean employee.
Senior Minister Tharman Shanmugaratnam explains that keeping people gainfully employed is a critical goal. He stresses that a critical way to preserve Singapore’s capabilities is by helping people stay in jobs or get back to work quickly. “Governments should help firms bring forward hiring rather than taking a wait-and-see approach to reduce the amount of time that people spend out of work,” adds the chair of the National Jobs Council.
With this in mind, Maybank’s Chua and Lee anticipate an extension of the support after its October cut-off date. For this, the economists expect the government to roll out a fifth budget based on the $13-billion contingency fund set aside in the fourth Fortitude Budget announced on May 27. This way, the government can provide fiscal support without having to draw on past reserves.
Besides the blanket wage subsidy, the government is targeting its aid at specific industries such as the $45-million nine-month-long campaign to market domestic tourism.
Nevertheless, there is a need to stay focused on longer term objectives. Over the next five years, some $20 billion in investments have been set aside to boost scientific research, support innovation and help foster commercialisation of technologies. The aim is to help sharpen Singapore’s competitiveness, Heng said on June 20. The funds will go towards supporting basic and applied research in high impact areas such as health and biomedical sciences, climate change and artificial intelligence.
The initiative is part of the government’s five-yearly science and research masterplan. Prior to this, the previous Research, Innovation and Enterprise 2020 plan announced in 2016, allocated $19 billion towards such initiatives. Economists believe these stimulus measures will help boost spending and spur developments which will be instrumental in helping Singapore chart its future economic direction once the Covid-19 pandemic abates.
When is enough enough?
The profound uncertainty around the pandemic limits the ability of governments to ascertain the feasibility of policies and which firms or sectors will survive into the future. In fact, University of Chicago professor Raghuram Rajan cautions that the phase of transitioning out of the crisis will bring its own set of problems, especially when government support measures are cut off. “When the economy opens up more fully, there will be more damage that will be uncovered,” notes the former governor of the Reserve Bank of India. Many firms will simply not reopen, contracts may fall through, and debts will have to be reckoned with, he explains.
As depressing as this may sound, Dietrich Vollrath, economics professor at the University of Houston, says that a slow or stagnant economy may actually be a stepping stone to a country’s eventual economic rebound. As an example, he points to America’s average annual growth rate of 2.3% between 1950 and 2000 against around 1.15% between 2000 and 2018. To him, the slowdown symbolised improvements in “human capital” as the workforce became more productive and creative.
Similarly, economists believe the crisis may force the labour market to ramp up productivity and output to achieve stronger growth. “The crisis will reveal not just vulnerabilities but opportunities to improve the performance of business,” say Kevin Sneader and Shubham Singhal of Mckinsey & Company. These opportunities could come from an accelerated adoption of technology to make work processes more seamless and efficient as well as a “reimagination” of the company’s target audience and product offerings.
Indeed, many Singapore companies — ranging from storied institutions to unpolished start-ups — have been quietly adapting and transforming what they do best, how they do it, and how they sell. In short, they are all reimagining the new reality in their very own different way.
In the following pages, some of these company leaders share with The Edge Singapore their transformational journey that may inspire others to forge their own path out of the crisis.
Just like in 1965, Singapore is now confronted with a major Black Swan event requiring a drastic transformation of its economy. The road ahead is uncertain, but the city state is much better equipped than before. If successful, it may well again be a role model to other nations — 55 years on.
