Singapore sets its growth path on a gentler slope

[SINGAPORE] Singapore is putting a new economic roadmap in place, one that will see a gentler but more sustainable pace of growth than before. At the same time, it will also start growing its workforce far more slowly than it has been doing so for the past three decades.

The new approach was revealed as the government released its White Paper on Population yesterday. It is estimated that Singapore’s population could grow an estimated 30 per cent from the current 5.3 million to reach 6.5-6.9 million by 2030.

But going forward, moderation will be the key for the economy. No longer will growth targets be set at 5-6 per cent a year. Instead, it is estimated that GDP could grow at 3-5 per cent a year between now and 2020. Beyond that, from 2020 to 2030, growth could be an even more modest 2-3 per cent a year, the paper estimates.

The workforce growth will also be more controlled. It has been expanding at a rate of 3.3 per cent a year for the past 30 years. But from now to 2020, the paper estimates that it will grow at just 1-2 per cent a year. From 2020 to 2030, it will taper off further and grow at just one per cent a year.

Asked if the range might be reviewed if there was more demand for labour, Acting Manpower Minister Tan Chuan-Jin pointed to the constraints on infrastructure.

“There will be growth opportunities, there will be demand. In order for us to grow at a more sustainable level, we need to forgo some of that.”

Deputy Prime Minister Teo Chee Hean added: “Essentially, we are looking for high quality growth and there will be internal transformation and restructuring of the economy.”

While Singapore is banking on productivity gains to power its growth targets, the paper projects that productivity growth would decline to 1-2 per cent in the 10 years beyond 2020, a drop from the stretched target of 2-3 per cent per year in this decade.

There will also be a more calibrated approach to the inflow of foreign workers to complement the Singaporean workforce as recommended by the paper.

Overall, the government leaders were optimistic about the projections made in the paper as they stressed the quality of growth on offer and not just the size of it.

Said Mr Tan: “There is a cost that comes with growth. If we allow fairly unfettered growth and we meet all the demands that are raised to us, you will find that the numbers become quite untenable.”

Second Trade and Industry Minister S Iswaran explained that high quality growth entails creating opportunities in new sectors for businesses and new jobs for Singaporeans.

Rapid urbanisation in Asia would play to Singapore’s strengths – like providing urban solutions and high-end services for a better off middle-class.

Job aspirations in Singapore would change, too, because of the PMET component, he added.

In meeting the aspirations of a more educated workforce in the coming years, the paper proposed creating better quality jobs as it projects that the number of Singaporean professionals, managers, executives and technicians (PMETs), will reach 1.25 million in 2030, a significant increase from the 850,000 in 2011. This will result in two-thirds of Singaporeans holding PMET jobs by 2030, more than the half who currently do so.

To do this, however, the paper recommends that Singapore should remain open and globally competitive to tap Asia’s growth as well as for businesses here to move up the value-chain.

Some economists BT spoke to accepted that such restructuring was inevitable but also highlighted that it came with costs.

Leong Wai Ho, senior regional economist at Barclays Capital, said that the new approach underlined the tough realities that Singapore will have to face in an ageing organic labour force and the need to slow down foreign labour. He said that there was a need to see if there are efficiencies to be gained from investing in capital.

“In the short term, this will entail labour retraining. If the business cycle improves, we will see greater upward pressures on wages, which would slowly filter through into services costs and core inflation,” added Mr Leong.

Chua Hak Bin, an economist at Bank of America Merrill Lynch, said that this higher wage costs and tighter labour market may force some labour-intensive industries to shut down as the focus will be on attracting higher capital-intensive industries and higher value-added jobs for Singaporeans, with even wider implications.

“So far, wage-cost inflation has not been a major driver of inflation (driven more by private transport costs and rents). But this may change this year, if foreign labour restrictions start to bite much more and businesses start to pass the wage increases to prices.”

Small and medium-sized enterprises were also concerned about how they would cope with the tighter workforce. MP for Ang Mo Kio GRC and CEO of Solstar International Inderjit Singh said that although such a strategy is useful in the long-term, companies here will need some time to restructure as the labour reduction may hit them hard.

This sentiment was echoed by R Dhinakaran, managing director of Jay Gee Melwani Group and a nominated member of parliament, who highlighted that it was not feasible to ask every industry to move up the value-chain as some cannot and that the move was more feasible for manufacturing sectors.

Companies involved in the retail and services sectors are already affected by the tight labour market, said Mr Dhinakaran, and such a move may only add to higher operating costs for smaller companies which are then likely to move out of Singapore. “It is fine as a long-term target but in the interim it would lead to high costs, which will eliminate smaller companies. Singapore can’t simply become the Switzerland for companies as we need smaller ones to continue to operate here too.”