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Singapore Budget 2016: Singapore's continued relevance - that's the big question
AS the latest Singapore Budget is rolled out on Thursday, much of the focus will be on what it means for businesses, households and individuals. But a more fundamental question is whether and how Singapore can remain relevant to the rest of the world - and in particular, to South-east Asia.
For now, Singapore's relevance is still something that most acknowledge and hold aloft with pride. With no restrictions on the repatriation of profits and the import of capital, the city-state is consistently ranked as one of the best places to do business, and is renown for its status as an air and sea hub.
But with technological disruptions to global supply chains, it would be folly to assume that will always be the case - trite as it may sound.
Said Mizuho economist Vishnu Varathan: "Success cannot be taken for granted. It's a stretch for anyone to say that Singapore's relevance is going to be guaranteed, even if we try."
Citing for example how Singapore's status as a key port of call is "under threat", Credit Suisse economist Michael Wan added: "Global warming is opening up the arctic route, and China is already looking at more trade links through Thailand and Myanmar ... So to say that Singapore will always be a pre-eminent logistics and sea hub is probably a bit of wishful thinking."
It is precisely for these reasons that the government is looking at ways to tap future growth markets - ones that will drive the global economy of the future. And that, experts emphasise, means more than just China.
Economic Development Board chairman Beh Swan Gin told The Business Times: "If we were to think about the medium to long term, we have to ask ourselves where the fundamental growth drivers will come from. And there's no question that Asia remains a growth opportunity for Singapore, given the fact that we are, of course, located right in the middle of it all. Asia today is not just about China - it's very much about South-east Asia, and also about India."
Indeed, the Organisation for Economic Co-operation and Development (OECD) says that South-east Asia's annual growth is projected to average 5.4 per cent between 2014 and 2018.
By 2020, the region will have a US$3 trillion economy and a population of more than 600 million - thanks to growing foreign direct investment, a young and rising middle class, an abundance of natural resources and growing urbanisation.
Still, Dr Beh described South-east Asia as "a fragmented market", with 10 marketplaces vying for attention. Singapore firms will therefore need to decide where they have the best chances of success.
Ivan Tan, International Enterprise (IE) Singapore's group director for South-east Asia, said Indonesia, Myanmar and Vietnam hold out prospects for investors, "given their strong market fundamentals and recent developments".
He told BT: "Indonesia is South-east Asia's largest market and Jokowi's administration is putting in place stimulus and reforms to boost economic growth. As for Myanmar, watershed elections and a relatively smooth transition of power to the NLD (National League for Democracy) suggest economic reforms and liberalisation will continue. This will be in investors' favour.
"For Vietnam, recent leadership renewal and conclusion of the Trans-Pacific Partnership (TPP) negotiations have provided a game-changing impetus for accelerated economic reforms."
Apart from using such countries as a manufacturing base, Singapore companies can also look for infrastructure-related opportunities, said IE Singapore. These include projects in utilities, urban development and transport & logistics.
Even so, there are those who remain skeptical about the Asean Economic Community (AEC). This initiative, which aims to build a single market with a free flow of goods, capital, and labour, should, in theory, help the region compete with the likes of China for foreign investment.
Naysayers cite most often the extreme mismatch in development levels, styles of governance and institutional capability, saying that these factors will inevitably detract from the lofty goals of the AEC.
But its proponents counter that even if the AEC never hits its vision of a single market, its very existence will give some momentum for change.
And even with worries that Singapore could be outpaced by its neighbours who are fast catching up, economists remain optimistic about the Republic's value proposition.
UOB economist Francis Tan, for example, emphasised that Singapore's strengths are less easily replicated: "We have a different set of comparative advantages that has taken us 50 years to develop - our corporate governance, financial-hub status, legal know-how and even our IP (intellectual property) framework set us apart."
DBS economist Irvin Seah said these merits can be exported to the rest of Asean, and that while Asean players would have homeground advantage in their respective countries, Singapore companies venturing there would still have an edge in technology, management skills and best practices.
EDB's Dr Beh said that, strengths aside, one area in need of improvement is the quality of Singapore's equity market. He said: "We don't have a capital market particularly on the equities side that allows us to play regionally. We just need to compare ourselves with the Hong Kong Stock Exchange to know that we are lagging behind on that front.
"There's no easy answer, and this is not meant to be a criticism of the Singapore Exchange (SGX) or anything ... (but) that's one aspect that if we could somehow find that magic silver bullet, it would be great for the Singapore economy, because it would provide another engine."
The question of relevance is what the Committee on the Future Economy (CFE) chaired by Finance Minister Heng Swee Keat will have to grapple with, even as it tackles issues such as Singapore's productivity conundrum, its ageing population and the need to shore up entrepreneurship.
Mr Varathan said that just because the conversation feels abstract for now, it doesn't mean it's not worth having. "It's true that a lot of this is very woolly. Things are not as hard, not as tangible (as saying) Singapore needs to have 70 per cent of the region's petrochem processing share.
"But even if you're not entirely sure how to put it out as a sculpture, it's nonetheless like a bit of a plasticine mould," he said.