[SINGAPORE] Singapore has again been ranked as the world's second-most competitive economy by the World Economic Forum (WEF), but economists warn that a further tightening of foreign labour policies could knock the country off its perch.
They qualify, however, that if ongoing restructuring efforts pay off, the Republic would reap the rewards in the long run - boasting higher competitiveness levels on a more sustainable basis.
Barclays economist Leong Wai Ho told The Business Times: "Our labour constraints will no doubt affect the ratings, and we've been told that (these policies) will be with us for quite some time. But we've engineered this for a reason - we're setting the stage for the next quantum leap in productivity, which should show up in the rankings later."
According to the WEF's latest Global Competitiveness Index (GCI), Singapore kept its No 2 spot for the fourth year running. It was trumped only by Switzerland, which has been in first place for six consecutive years.
The 2014-2015 report released on Wednesday uses 12 pillars - including infrastructure, macroeconomic environment, and health & primary education - to rank the competitiveness performance of 144 economies worldwide. Because of its scale and depth, the GCI is viewed as the most comprehensive assessment of its kind globally.
Once again, Singapore was the only economy to feature in the top three spots in seven out of the 12 indicators. It topped the goods market efficiency pillar, placed second in terms of labour market efficiency and financial market development, and came in third on institutional frameworks.
While economists weren't surprised by Singapore's strong performance - citing the Republic's world-class infrastructure, prudent fiscal management, and transparent policy-making processes - they warned that the country could slip from its No 2 spot in the years ahead, due to labour constraints.
Said CIMB economist Song Seng Wun: "There's a real risk of Singapore moving down if policy missteps occur - for instance, if the government meets populist calls to tighten the foreign labour population further."
Added DBS economist Irvin Seah: "The only reason we've not taken a hit (on the GCI) is because it's a much broader index that measures other things. But if it measured export competitiveness alone, the drop would have been glaring. The impact of (foreign labour) tightening has already been felt in the economy and by businesses."
The WEF's poll of business leaders worldwide appears to support this. In tandem with the GCI, the WEF asked 14,000 top executives globally to select and rank the five most problematic factors for doing business in their economy.
In Singapore, where 163 business leaders were surveyed, the biggest gripe was "restrictive labour regulations" (28.2 per cent), followed by inflation (20.5 per cent).
Still, other economists such as Barclays's Mr Leong and Mizuho's Vishnu Varathan stress that a short-term loss of competitiveness would merely be a necessary, if painful, by-product of restructuring efforts.
Said Mr Varathan: "If labour constraints are a means to an end - and that is to raise productivity eventually - we shouldn't be too worried about this kind of fleeting loss of competitiveness. The labour market issue is perhaps more meaningful if you boil it down to whether or not certain industries can achieve the high bar that's set for them . . . Whether foreign labour restrictions will help to transform the sector, or cripple it."
Mr Varathan and DBS's Mr Seah also pointed out the need for Singapore to improve on the sub-index of innovation and sophistication. Here, the Republic ranked 11th, behind countries such as Switzerland, Japan and Finland, the top three. Business leaders had also flagged the "insufficient capacity to innovate" as the third-most problematic factor in Singapore.
Said the WEF: "Room for improvement exists in both areas, especially as these are the keys to Singapore's future prosperity."