Reactions to Economic Strategies Committee recommendations

A blueprint for fundamental change?
Choy Keen Meng, Today Online 3 Feb 10;

THE Economic Strategies Committee (ESC) Report released this week is the latest instalment in a long series of economic restructuring plans issued by official committees that were typically convened in the wake of crises. None were radical departures from the tried and tested formulae for economic success, and at first glance, the current report seems not to be an exception to the rule.

On closer examination, however, there is reason to hope this document heralds a qualitative break from previous growth paradigms. Or at least, it promises to achieve such a shift if the reform agenda outlined is brought to its logical conclusion.

What is different and refreshing this time is in the big picture: The acknowledgment that, despite being fortuitously situated in a continent towards which the economic centre of the world is gravitating, Singapore cannot grow at the breakneck pace of the last three decades because its population and space constraints have caught up with its economic progress.

Hence, the targeting of a more sustainable medium-term GDP growth rate of 3 to 5 per cent - to be driven, significantly, by productivity increases rather than additions to manpower, especially foreign manpower.

Indeed, the report recognises that a renewed emphasis on the quality of economic growth is desirable at the current stage of Singapore's development.

This involves paying greater attention to the efficient use of land and energy resources as well as the objective of inclusive growth - meaning that the elderly and less educated will not be left behind even as Singapore continues to advance.

To their credit, the ESC members realised these groups in our society will find it hardest to move up the skills ladder, and have therefore recommended an enhancement of the currently modest Workfare Income Supplement scheme. Ideally, this should take the form of an increase in both the frequency and quantum of cash payouts.



TARGETS FEASIBLE?

Frankly, achieving labour productivity growth of 2 to 3 per cent over the next decade will require a Herculean effort from firms and workers. One factor will work to Singapore's advantage, though: Because productivity levels here are so low compared to some of the OECD countries, there is plenty of scope for improvement.

Still, the Government can do its part by doling out financial aid and incentives. Companies facing higher wage costs with the impending increases in foreign worker levies will welcome state subsidies to automate, mechanise and innovate, as well as to re-tool their employees for the workplace of the future.

Insofar as the micro prescriptions of the report are concerned, there are no real surprises to be found in 'more of the same' strategies of attracting large (and now small) MNCs, nurturing foreign talent, encouraging commercialisation of R&D, and so on.

Nonetheless, there are a couple of good ideas amongst the proliferation of proposals. One concerns the multi-pronged plans to help local SMEs grow and compete internationally.

The recommendations to provide seed capital and cross-border financing are novel and promise to be more successful than previous measures. Given their predominance in the economy and in previous regionalisation drives, however, the GLCs have - strangely enough - not been roped in to spearhead overseas expansion, or even to act as catalysts to private sector firms venturing abroad.

Closer to home, the emphasis on exploiting and further developing Singapore's vantage point as a service platform for Asian markets, companies and consumers is not misplaced.

The report correctly identifies the financial services, wealth management and healthcare industries as being well-placed to serve the region's burgeoning urban class. It remains to be seen what carrots will be offered to firms in these sectors when the Budget is announced later this month.



AN UNFINISHED AGENDA

Another interesting twist in the business hub strategy is the symbiosis between targeting high value-added manufacturing and the demand for sophisticated services it generates, for example in headquarter-related activities and product life-cycle management.

Even so, the stated aim of keeping the manufacturing share at a quarter of GDP seems a tad too ambitious in the light of the changed post-crisis landscape and the potential rise of protectionism in the West.

The ESC could have gone further to suggest that the void be filled by promoting services and home-grown businesses catering to domestic demand.

Sadly, too, the Report remains silent on measures to mitigate economic volatility - and apparently does not concur that Singapore's private consumption has to be boosted to serve as an automatic stabiliser in times of recession, despite the protestations of local economists and notwithstanding the laudable efforts of the country's Asian neighbours to move towards this goal.

All in all, the ESC Report represents an unfinished agenda for fundamental change, although it does supply a coherent vision for sustaining economic vibrancy.



Dr Choy is Assistant Professor of Economics at the Nanyang Technological University.


Businesses get on the ESC train
But some questions raised about foreign worker levies and approaches to raising productivity
Chuang Peck Ming, Business Times 3 Feb 10;

(SINGAPORE) Business organisations not only welcome the recommendations of the Economic Strategies Committee (ESC), but are ready to work with the government to boost productivity and make the big shift to quality-driven economic growth in the next 10 years.

Still, some harbour short-term concerns, especially the prospect of higher foreign-worker levies - an ESC recommendation to better manage the dependence on guest workers and push companies to invest in productivity boosters.

At the same time, while noting that there is no choice, but to grow productivity, economists and other industry players warned yesterday that it will be an uphill task.

'It's not easy, or other developed economies will be achieving 5 per cent growth (instead of around 2 per cent yearly),' said Robert Prior-Wandesforde, senior Asian economist at HSBC Bank.

He doubts that Singapore can hit the top end of the ESC's 3-5 per cent economic growth target for the next 10 years.

Yet, Mr Prior-Wandesforde does not think that Singapore's growth - 5 per cent average in the past decade - will slip to the level of Western developed economies.

Unlike these economies, which are saddled with huge debts and deficits that will take years to clear, business-friendly Singapore is in a stronger fiscal position, he pointed out. More importantly, it is closely tied to high-growth Asia.

The ESC concedes that ramping up productivity growth from the dismal one per cent posted in the past decade to 2-3 per cent - needed to sustain a 'good' 3-5 per cent economic growth - is tough, but doable.

Because Singapore's productivity performance lags that of many developed economies', the ESC says that there is plenty of room for improvement.

Some are not fully convinced.

While describing the ESC recommendations as 'very pivotal' for the next phase of Singapore's economic growth, Ho Geok Choo, chief executive of Human Capital Singapore, also said: 'The recommendations include many schemes to drive productivity growth, but the big question is how and who will be able to implement these schemes for Singaporeans.'

Ms Ho, who is also a Member of Parliament, added: 'We must not be misled into looking for key performance indicators as indicators of success for these schemes. Rather, we should focus on the process and the journey to reach these indicators.'

David Ang, executive director of the Singapore Human Resources Institute, said that productivity is already a complex subject at company level - and becomes even more complex at national level.

He also fears that the high-level national council, recommended to be set up to spearhead productivity growth, may become prescriptive and stifle innovation if it were to start issuing guidelines to companies.

Should that happen, instead of helping to raise productivity, the council may turn out to be counter-productive.

But Heng Chee How, deputy secretary-generation of the Trades Union Congress, sees things differently.

The setting up of a high-level national council will signal that the government has come to acknowledge Singapore's poor showing on the productivity front - and is now giving top priority to improve it, he said.

Mr Heng, who is also an MP, has been urging the government to tackle Singapore's low productivity. He is now happy that the ESC has made it a key thrust of its recommendations.

The Singapore Business Federation, which boasts 15,000 member companies, has pledged to work with government agencies 'to champion' productivity and capability development programmes.

The Singapore Manufacturers' Federation (SMa), which also indicated that it is ready to play its part, said: 'Productivity is everybody's business - from government, CEOs and management to workers.'

But together with the Singapore Chinese Chamber of Commerce & Industry (SCCCI), the SMa worries about the increase in foreign-worker levies.

'Any further increases in the foreign worker levy will add to our high business costs and curtail the labour supply that is critical to securing and meeting overseas orders to sustain economic recovery at this point of time,' SCCCI said yesterday.

And now, to turn vision into reality
Business Times 3 Feb 10;

THE recommendations of the Economic Strategies Committee (ESC) unveiled on Monday reflect an imaginative vision for the Singapore economy in the post-financial crisis world. It is panoramic in scope, does not offer quick fixes and is bold without being unrealistic. But making it happen will need the cooperation, and a willingness to change, on the part of companies and workers as well as government agencies.

The ESC's recommendations have been made against the backdrop of a medium-term economic growth projection of 3-5 per cent a year - modest by Singapore standards, but decent by OECD benchmarks. Given that growth in the US, Europe and Japan is set to remain low for the foreseeable future, the projection seems, for now, prudent. But this does not mean Singapore should resign itself to modest growth; the economy has surprised on the upside before, and could do so again.

However, the ESC has rightly focused not on growth per se, but its quality. Here, productivity-driven rather than input-driven growth is the key. Singapore's abysmal productivity growth - just one per cent per year over the last decade - is a glaring fact. The performance of some sectors - construction, for example - has been particularly weak, but there is scope for improvements economy-wide. It is thus appropriate that the ESC has made productivity growth the centrepiece of its proposed strategy. However, the initiative would still have to come from companies themselves. A change of mindset will be needed such that companies view training and skills upgrading more seriously, as investments in the future of their employees, and thereby, of themselves.

Another productivity-related issue relates to foreign workers. The ESC proposes reducing the reliance on such workers over time. The argument is that companies should not have the easy option of using cheap labour, which prevents them from upgrading. However, skills take time to build, companies need time to adjust and there are occupations for which there are few job takers in the local workforce, which too needs time to change. The reliance on foreign workers can thus only be reduced gradually, but companies will need to gear up to cope with progressively high foreign worker levies.

A better trained workforce also ties in with another part of the ESC's blueprint: to attract a diversity of companies to Singapore, including not only MNCs, but global mid-sized companies as well as Asian companies, which are growing and internationalising rapidly. Local companies will have to brace for not only more potential synergies, but also more competition.

Promoting Singapore as a cultural capital - a key part of the ESC's 'global city' vision - will also need a determined effort and a greater willingness to accommodate creative industries, which have a dynamism and ecosystem of their own.

In sum, the ESC has laid out a bold blueprint. But turning that into reality will take a painstaking, but also exciting, national effort.

Challenges to accompany new growth strategy of raising productivity
Imelda Saad, Channel NewsAsia 2 Feb 10;

SINGAPORE: Shifting gears to a new growth strategy of increasing productivity will come with its own set of challenges.

The Economic Strategies Committee (ESC), which released its report on Monday, has indicated that growth over the next decade will be slower - averaging at 3 to 5 per cent per year. Another potential fallout will be job losses, which is an inevitable part of restructuring.

The message is clear: change the way you work or Singapore risks losing out in the long run. Raising productivity, said the high-level committee, is the only way to ensure real wages go up in line with inflation.

But the road ahead will not be easy. It will take time and money, something which Far East Flora understands.

The family-owned company has spent the past one-and-a-half years re-looking its business and HR practices. It knows that to survive, it needs to restructure.

Peter Cheok, sales & marketing director, Far East Flora, said: "If we are not able to attract and retain good staff, we will not be able to improve ourselves. Eventually our competitors will become better than us. We will have less market share, our business will suffer."

To attract and retain good staff, Far East Flora has introduced a scholarship scheme for older workers.

In partnership with the Workforce Development Agency, the company forks out about S$12,000 per worker in training and course fees. So far, about 50 workers have taken up the scheme over the past three years. One beneficiary is 47-year-old Sekna Sani, who is undergoing training as a florist.

The company hopes that such incentives will go some way in helping it address the perennial problem of a high turnover.

Mr Cheok said: "Previously when we hire a staff, there was no proper orientation, there was no proper explanation of the benefits of working in Far East Flora.

"So we had cases where the staff come in in the morning and by lunch time they will call it quits and say that they are not suitable for the environment or various other reasons. The quickest I've ever seen someone leave is within half a day."

But enhancing productivity is a long-term investment. Fast East Flora said it will see results only in about three to five years.

For companies that cannot afford the time and money, it may mean potentially having to fold or ship out of Singapore. Still, the ESC feels that now is the time to swallow the bitter pill.

Josephine Teo, co-chair of the ESC Sub-Committee on Fostering Inclusive Growth, said: "To enable ourselves to get onto this path of restructuring when the going is good is probably the best thing we can do for ourselves. Rather than to wait for a situation, for a day that we have lost our competitiveness and to find we are forced to restructure."

She went on to say: "There will be a certain amount of restructuring pains. The question is: if we don't restructure now, will the pain be even bigger further down the road?"

Ms Teo added that not all companies within what could be a sunset industry will face the same fate. "If you take a sector like garment manufacturing, for example, you see that many of the companies find that they are unable to operate competitively out of Singapore.

"However, it doesn't mean that all companies in this sector are doomed to have to move out. In fact, we will still be able to find companies being able to change the scope of their activities, move to more higher value-added type of activities that continue to be attractively located in Singapore."

The key is for companies to tap the support the government will provide to ease the impact on restructuring. Among the proposals thrown up is facilitating upgrading at every level and in any job.

The committee has recommended a multiple skills pathway to complement academic learning in schools.

It has also proposed setting up a centre that will conduct research on productivity and innovation which companies can tap on.

- CNA/ir