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For Singapore, pain before greater heights: MAS's Menon

In a speech - delivered as if in 2065 - the MAS chief paints a picture of the next 50 years of Singapore

"Singapore's economy is now in its third phase, after the earlier phases of export-led industrialisation from 1965 to 1984, and the liberalisation and rise of modern services from 1985 to 2010 that took the city-state from third world to first." - Ravi Menon


IN 50 years, Singapore would rank among the top five richest countries in the world in per capita terms, with its economy mainly driven by the export of capital and people.

But to reach there, it must first go through a painful period of economic transition when the entire economy undergoes restructuring - the first time since independence that it has to do so to such a wide extent.

This was how Ravi Menon, the managing director of the Monetary Authority of Singapore, painted the next 50 years for Singapore to some 330 economists, businessmen and policy makers from nearly 40 countries at the Singapore Economic Review Conference organised by Nanyang Technological University (NTU) on Wednesday.

In a speech - delivered as if in 2065 - he said the success of Singapore then was made possible by a culture of innovation, resilience and cohesion.

Gross National Income (GNI) - which comprises income received by a country both domestically and from overseas - would be the more relevant measure of Singapore's income and standard of living, and climate change the defining issue for the global economy, he said.

Singaporeans would be expected to work only 1,400 hours a year, compared to 2,300 hours this year, but would generate nearly three times as much income. The carbon intensity of Singapore's economy would also fall, from 0.2kg of carbon needed to produce a dollar of output today, to 0.05kg in 50 years.

Income distribution would improve, as heavy investments in building human capital and skills coupled with a more progressive tax and transfer system reduce the Gini coefficient. But income inequality would remain more stubborn: the top 1 per cent in Singapore would own around 20 per cent of total wealth, he forecast.

Mr Menon said Singapore's economy is now in its third phase, after the earlier phases of export-led industrialisation from 1965 to 1984, and the liberalisation and rise of modern services from 1985 to 2010 that took the city-state from third world to first.

The land and labour constraints of Singapore "came to a head in the 2010s", he said. In 2011, foreign labour made up one third of the total workforce, and it was "neither economically efficient nor socially desirable" to allow that to grow faster than the local workforce. Hence the shift to a productivity-driven growth model across the entire economy, compared to earlier restructuring that had focused only on the manufacturing sector.

"This third phase of Singapore's economic history marked the most significant step-down in Singapore's economic growth, with real GDP growing by 3.6 per cent per annum," said Mr Menon. "However, it also marked the painful but successful economic transition towards productivity-led growth."

The "decisive turnaround", he said, would come when domestically-oriented services industries such as education and healthcare scaled up by investing in technology and talent, and exporting their services.

After that, Singapore would from 2026 to 2040 enter into a phase of regional integration and the emergence of the ideas economy, accompanied by widespread technological transformation.

Malaysia and Singapore would set up an "Iskandar-Singapore Economic Zone" to provide investors an integrated production and services base, he envisioned. Subsequently, the "Asean Free Economic Zone" would also be established - a network of major cities in Asean connected by extensive transport links and advanced digital communications, allowing for free movement of goods, services, capital and people.

The bulk of the economic benefits would "rightly accrue" to the developing countries in Indochina, but Singapore would also benefit from being the "nerve centre" of this network, and be increasingly driven by the export of capital and people, Mr Menon said.

Singapore, too, would be well-positioned for the pervasive digitisation of the global economy during this period, due to the two key initiatives of SkillsFuture and the Smart Nation push.

By 2040, climate change would become the defining issue for the global economy, and the government would introduce a carbon tax to increase energy efficiency and modify consumption patterns, predicted Mr Menon.

The green industry - comprising the development of renewable energy solutions, and carbon trading permits and derivatives, among others - would emerge as the largest contributor to Singapore's GNI by 2055.

The city-state would also build a dyke that not only prevents rising sea levels from inundating the island, but also generates ancillary economic activities and allows Singapore to become a major exporter of dyke solutions to other coastal cities around the world.

Mr Menon characterised the economic journey of the 100 years as a story of continual restructuring "made possible by a judicious blend of the invisible hand of the market and the visible hand of good government". A spirit of constant adaptation and lifelong learning would distinguish Singapore, as does its ability to bounce back stronger from various upheavals and crises.

Singapore would also be able to "come this far" because it worked together and stayed together.

"It is not only about a willingness to pay higher taxes to support an ageing population but the spirit of philanthropy and volunterism that has taken root in our society, especially over the last 50 years," he said. "Our economic success could not have been possible without this deeper social cohesion that has held the nation together."