SINGAPORE has again been ranked the world's third most competitive economy by business school IMD, but lost its top spot on the Asia Pacific ranking to Hong Kong, which also by-passed Switzerland in its rise from fourth to second place in the 2015 world rankings.
Both Singapore and Hong Kong have improved and are closing the gap between them and top-ranked US. But the impact of Singapore's ongoing restructuring effort showed up in its relatively weaker performance on indicators such as productivity, the labour market and sentiment-related factors.
Arturo Bris, director of the IMD World Competitiveness Center, which ranks annually nations' ability to foster an environment that sustains the competitiveness of enterprises, said: "It's not that Singapore is deteriorating. Hong Kong was the surprise of the year."
He added that both are now closing in on top-ranked US. Singapore's score rose to 95, from 91 last year, while Hong Kong's rose to 96 from 90. Economies are scored relative to the top economy, which is assigned a score of 100. "It's interesting that if they continue at the same pace of improvement they could overtake the US," Prof Bris said.
He also noted that the areas in which Singapore's competitiveness declined tended to be "softer" ones such as attitudes to globalisation, corporate values and management practices, which draw from survey data. Hard data that can be measured - such as GDP - accounts for two thirds of the overall ranking, while the remaining third is drawn from IMD's survey of executives based in each location.
"It's true that sentiment is deteriorating a little. Economies nearby are catching up, Singapore has lost its competitive edge in some areas, real estate is extremely expensive. In that sense, there is the sentiment that Singapore's growth potential is reaching its ceiling," he said.
These less positive perceptions could be the result of uncomfortable adjustments that enterprises and executives alike have had to make as the government shifts the economy towards a more productivity-driven, less labour-reliant one, said economists based here.
"Restructuring and a less open environment to foreign talent will likely lead to more runner-up positions in the future. Restrictive labour regulations, tight property measures and high operating costs are probably hurting competitiveness and investments," said Bank of America Merrill Lynch economist Chua Hak Bin.
Some of the IMD World Competitiveness Yearbook's indicators of business efficiency, for which Singapore lags behind Hong Kong, speak both of the reasons for and impact of ongoing economic restructuring.
On productivity and efficiency, Singapore ranked 12th compared to Hong Kong's sixth - paling in comparison on measures such as the productivity of small and medium enterprises and workforce productivity. But this was already an improvement over its ranking of 15th in 2014.
Singapore's labour market was ranked 11th, versus Hong Kong's third. DBS economist Irvin Seah said: "I think it's part and parcel of restructuring. Some of the policy measures introduced have made Singapore less competitive, affected our ability to latch onto new opportunities."
"We often hear of companies that see orders coming in but are unable to take on these orders because of a manpower shortage," he added. IMD's report said Singapore's labour market trailed Hong Kong on factors such as the availability of finance skills, competent senior managers, and international experience, as well as apprenticeships, working hours and worker motivation.
Centennial Asia economist Manu Bhaskaran said that attention should be paid to perceptions of the key factors that make the economy attractive too. "I think it is really worrying that we rank poorly in the really important factors for our next phase of growth - cost competitiveness, open and positive attitudes, strong R&D culture, economic dynamism."
Those factors drew the fewest votes from executives polled by IMD on the characteristics they believe are most attractive about Singapore's economy. Sharing this concern, Dr Chua said: "This seems to point to a poor environment for entrepreneurship, risk-taking and innovation."
He thinks Singapore risks losing its competitiveness standing not just to Hong Kong, but also to other fast-growing, emerging Asian cities such as Shanghai, in future.
What is most attractive about Singapore, according to the IMD report, is its infrastructure, policy stability and government competency. "This reflects the strength of government, but also raises the question about the dominance of top-down ideas and policies," said Dr Chua.
Prices and costs remained an area that Singapore was significantly less competitive in. It ranked 50th out of the 61 economies in IMD's study, while Hong Kong was 61st. Prof Bris thinks that this is inevitable. "Singapore is a small island state. There is a constrained supply of real estate, commodities - so prices have to be high." In fact, prices in competitive economies tend to be high - with the exception of the US, he said. "Look at Switzerland, Hong Kong."