The FINANCIAL — After a five-decade economic sprint, Singapore has evolved into a prosperous and well-balanced economy, especially compared to other small city states that have largely abandoned manufacturing. Although the services sector accounts for two-thirds of Singapore’s GDP, manufacturing continues to flourish and remains globally competitive.
But Singapore’s small and ageing population means it has had to rely heavily on foreign workers to fuel growth and this has resulted in declining labour productivity in both goods and services. Policymakers have sought to reduce the reliance on foreign workers and incentivise productivity-enhancing efforts.
A defining element of Singapore’s industrial policy over the decades has been the state-sponsored development of key industries and a constant search for the next growth driver. An industrial economy founded on low-end manufacturing and oil refining in the 1960s has evolved into one focusing on electronics, biomedical production and transport engineering – now Singapore’s three largest manufacturing clusters.
It is a world leader in offshore marine engineering; its semiconductor capacity lags only Korea and Taiwan while a robust financial services industry is underpinned by global and regional private wealth management. But this constant economic evolution required a flexible and adaptable labour market that has been historically boosted by a significant foreign workforce that is currently nearly 25 per cent of the population.
Singapore’s government has identified the next key growth driver. It has been positioning the city as a global intellectual property (IP) hub since 2013. This should help rebalance the economy away from reliance on imported labour and manufacturing exports and focus it on value-added industries such as research and development that help lift labour productivity.
Singapore has a large variety of industries and a talented labour force but population and land constraints make it hard to maintain competitiveness in certain sectors. For example, its electronics exports have underperformed Taiwan and South Korea, largely because it missed the recent consumer-electronics boom in items such as tablets and smartphones.
Rebalancing should not mean the current economic model ceases to exist: many manufacturing sectors will remain competitive and there is still significant public and private investment in electronics. But non-essential construction projects are being pushed back to ease pressures on the labour market while some types of manufacturing will become increasingly uncompetitive because of higher wages.
The labour force structure is a key component of Singapore’s rebalancing. The past high growth is seen by some as beyond the economy’s potential because of the high percentage of foreign, unskilled workers. The main policy goal now is to increase overall productivity while limiting the growth of the foreign-worker population.
This is a potentially risky strategy: failure could result in a smaller, yet still decreasingly productive, workforce. But the government has started to increase controls on the inflow of foreign labour, reducing the maximum proportion of foreign workers that can be hired and raising the levies on employers for hiring lower-skilled staff.
However, an increasing number of workers will be needed in the future. One report suggests that by 2030, Singapore may need 150,000 more workers in healthcare, construction and domestic help. And it will need to continue to attract highly skilled workers to ensure its industries remain competitive and innovative.
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