Singapore Competitiveness Report

foreword by

Michael E. Porter
Harvard Business School

Christian Ketels Ashish Lall Neo Boon Siong
with research assistance from

Stevenson Q. Yu Susan Chung Lai Ling

b

SINGAPORE COMPETITIVENESS REPORT

Singapore Competitiveness report

foreword by

Michael E. Porter
Harvard Business School

Christian Ketels Ashish Lall Neo Boon Siong
with research assistance from

Stevenson Q. Yu Susan Chung Lai Ling

Singapore CoMpeTiTiVeneSS reporT

1

2 SINGAPORE COMPETITIVENESS REPORT .

.................................75 Supporting and Related Industries ............................................................................................................................................................................................................................................................................................................................................. 58 Social Infrastructure and Political Institutions ................................................. 21 Chapter 2: Economic Performance Standard of Living ............................................................................................ 30 Purchasing Power .................................................................................................................................................................. 49 Entrepreneurship ................................. 85 Implications ............................................................................................................................................................................................................................................................................................................ 28 Components of Prosperity Generation ............................................................................................................................................................................25 Equality . 86 Recommendations.......................................................................................................................................................................................... 28 Labour Productivity........................................................................................................................................................................................... 47 Innovation ...........................Table of Contents Foreword ...................................................................................................................................................................................... 41 Investment .............................................................................................................................................. 87 SINGAPORE COMPETITIVENESS REPORT 3 ....................................................................................................................................................................................................................................................................... 19 The Report’s Conceptual Approach ......................................................53 Chapter 4: Competitiveness Fundamentals Assessing Competitiveness ............ 80 Chapter 5: Conclusions Summary of Findings ..................................................................................57 Macroeconomic Competitiveness......... 60 Microeconomic Competitiveness .............................................................................................................................................................................................................................................................................................................................................................................................................................7 Executive Summary ...............................9 Chapter 1: Introduction Singapore’s Competitiveness Challenge in 2009 .................................................................................................................52 Assessment ..................................................................................................27 Quality of Life ................................................................................. 61 Factor Conditions .......... 19 Report Outline.....................................25 Prosperity............................................. 61 Business Environment Quality .................................................................................................................................................................................................................................................................................................................................................................. 28 Labour Mobilisation ...........................33 Chapter 3: Intermediate Economic Outcome Indicators Trade ............. 58 Macroeconomic Policy ..............................................................................37 A Case Study: Electronics Exports ......................................................................... 76 Company Sophistication ..................................................................................................................................................................................................................................................................... 80 Singapore’s Competitiveness in Perspective............................................................................................................................................................................................................................................................................................................57 Endowments ................................................................................................................................................................................. 31 Assessment ....................................................................................................73 Demand Conditions .................................... 62 Context for Rivalry and Strategy ...........

.......................................................................................................................................................................................... 68 Relative Comparison of R&D Personnel...........................................11 Figure 4........................................................................................................72 4 SINGAPORE COMPETITIVENESS REPORT .....................................................................39 Top Five Goods Export Destinations ......................................................11 Figure 3..............07 Figure 3....................................49 Comparative Organizational Patents .......................................... 44 International Rankings of Innovative Capacity ............................ 64 Comparison of Doing Business Components..................................................................................................................... in thousands of 1990 PPP$ ..............09 Figure 2.........................................................................................................................................................23 Figure 3.....................................................................................39 Domestic Exports Destination in 2008............................................................07 Figure 2..10 Figure 4..........01 Figure 2.............................................................................................30 Contributions to Change in Labour Mobilisation...................................................................................16 Figure 3.......................................................................................................................... 37 Extent of Re-Exportation .............................................43 Production of Electronics Components .............................................................................................................................................................................................12 Figure 3............................................................... 60 Evolution of Singapore’s Microeconomic Competitiveness.............................Boxes Box 1 Box 2 Box 3 The Global Economic Context: What Changes Will the Crisis Bring? ...................20 Figure 3.....................................................................................................................................................12 Figure 4............08 Figure 3........ 69 Attractiveness as Financial City ..............................................42 Singapore Electronics Production by Broad Segment ...................................................12 Figure 2..................................22 Figure 3............................................................................. 48 International Comparison of Patenting Activity ........07 Figure 4.................70 A Case Study of Singapore’s Interactive Digital Media Cluster .........38 Comparison of Global Manufacturing Export Shares ...............06 Figure 3......................03 Figure 2............................................................................................................25 Comparison of GDP per capita ....14 Figure 3.................................................................... 2007 ..................................................... 41 Singapore’s Electronics Performance................................................14 Figure 2..........10 Figure 3.................................................10 Figure 2...................................................................................50 Patent Applications by Field of Technology (2002-2006) ............................................. by type of Service .....03 Figure 3................................ 2000-2008 ............................... 61 The Porter Diamond..................... 2007 .........................................59 Government Effectiveness Scores of Top-Rated Countries...39 Top Five Goods Import Origins ....................21 Figure 3.......................78 List of Figures Figure 1................................................ 2008-2009 ......................................................09 Figure 3.......................................................................01 Figure 3..................................................................................................................................................................08 Figure 2.............................................................. by type of Service .............................29 Relative Productivity and Prosperity ........................................................................................... 21 Singapore’s per-capita GDP per capita..................................................................... 33 Trading Trends.......................................47 Presence of Foreign Investment ..........................13 Figure 3...04 Figure 3.................................................................................17 Figure 3.. 41 Top 25 Destinations of Singapore Electronics Exports ............ latest year ............................................................................................................67 Comparison of Private R&D Spending..............13 The Competitiveness Framework: Determinants of Prosperity .................................................... 40 Top Five Service Import Partners................04 Figure 2.......................................................................................02 Figure 4........................................................................................ 2007 .............................................................................05 Figure 4..........................................................................................................................72 Global Internet Use and Penetration .. 64 Math and Science Test Scores...................................31 Country-level Price Comparisons .......................................08 Figure 4.........11 Figure 2...................... 33 Total Factor Productivity...........................27 Human Development Index and Components .........................................................................04 Figure 4..28 Labour Productivity and Growth ........................................05 Figure 3.................24 Figure 4..29 Change in Sectoral Labour Productivity.............32 Price Accessibility for Selected Products ....02 Figure 2...........62 Ease of Doing Business Ranks.............................27 Singapore’s Gini Coefficient among Employed Households.......20 Assessing Competitiveness ...............................................................01 Figure 1...................................................................................32 Normalized Comparative Price Levels of selected Cities ..............................................................................47 Relative FDI Inward Indicators ......................... 40 Top Five Service Export Partners........01 Figure 4.........................52 Measures of Entrepreneurship (average of available 2000-2007 data) .....................43 Investment Intensity ...........................13 Figure 2.........02 Figure 3.................................................................................................................................................................................18 Figure 3.................................................................................................................19 Figure 3...05 Figure 2................................ 51 Singapore Patent Applications in 2007..........09 Figure 4............................................................................ 66 Innovation Input Trends .......................06 Figure 2.................... 51 Papers in the Engineering Citation Index (2007) ................................................ 2006 ...................................... 68 Relative Comparison of R&D Researchers................................15 Figure 3.......................06 Figure 4...........................15 Figure 3.... 2009 Estimates ......................................50 Singapore-owned Patents in the USPTO (2004-2008) .................................38 Share in Global Trade of Goods and Services ..............................................................................02 Figure 2............................................................................................................................................................03 Figure 4................................31 Comparison of Female Labour Participation Rates.................................................................26 GINI Coefficient Comparisons..........52 Evolution of Singapore’s Macroeconomic Competitiveness ...........................................................................30 Participation and Growth...............................42 Electronics Demand versus Production ..........................

............74 Demand Conditions Indicators ..................................................................................................03 Table 4......................01 Table 3.......................... 69 Capital Market Infrastructure Indicators .......................................................................06 Table 4..................................................................................................................................67 Growth of Innovation Inputs ..............................63 Innovation Infrastructure Indicators............... 71 Financial Sector Development...........................................................................22 City Prosperity in 2005 ...........................................................................................65 Comparative Reading Scores .......................58 Social Infrastructure and Political Institutions Indicators .............................................................21 Table 4...............................75 Supporting and Related Industries Indicators .....................16 Table 4.......................................................................................................................................................................................................................................................................................................................................................................................................................16 Figure 4................................11 Table 4........17 Table 4...............................15 Table 4.....02 Table 4..............................65 Average Education Levels ................. 81 SINGAPORE COMPETITIVENESS REPORT 5 ......................75 Singapore’s Export Profile in 2007..........................................20 Table 4..........................................................................08 Table 4....................05 Table 4................................................................................................................49 Ethnic Demographics in Singapore ......................................................63 Ranks in the 2007 Logistics Performance Index .............................................................. 60 Factor (Input) Conditions and Components ...................................................................................... 2009 .................................................................................................................................72 Context for Rivalry and Strategy Indicators .........................09 Table 4...............14 Figure 4....................67 Academic Ranking of World Universities...........76 Company Sophistication Indicators ......List of Figures Figure 4...........................................................................................................................................02 Table 4........................................................ Porter Cluster Methodology .........77 New Global Competitiveness Index and Singapore’s 2009 Ranks ....................14 Table 4.... 2009 ......................................................63 Shipping Statistics .....................73 Consumer Sophistication Survey...............19 Table 4........... 48 Top Ten Non-OECD M&A Acquirers .....................63 Administrative Infrastructure Indicators ............................13 Table 4.................... 2007 ..................10 Table 4.............................................................................................................................................................59 Macroeconomic Policy Indicators ....................65 Public Education Expenditures............................................. 81 List of Tables Table 2.....................62 Logistical Infrastructure Indicators ...........................................07 Table 4......12 Table 4.........................................................................................................................................................................................................................................................01 Table 3..........................18 Table 4........................................................... 71 Communications Infrastructure Indicators ................................................15 Figure 4.............01 Table 4.....................................17 Internet Use Comparisons .......04 Table 4.............26 Profitability of FDI in Selected Industries.................................73 Largest Companies in Singapore .........................................................................................................................................

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The Report highlights the virtue of a stable economic strategy in this time of global economic crisis and uncertainty. Michael E. Singapore cannot follow the same approach as the U. Singapore has shown a remarkable ability to reinvent the key tenets of its competitive model in line with its rising level of development. The report suggests that government needs to support these changes and the overall resilience of the economy. Harvard Business School Chair of the International Advisory Panel. I would like to congratulate the ACI team for this important piece of work. The Singapore Competitiveness Report highlights the need for Singapore to define a new model of an innovation-driven economy that fits its specific capabilities and ambitions. but Singaporean leaders saw clear value in objective outside ideas from an institution dedicated to understanding the “big picture” of where Singapore and ASEAN are heading. based on rich data and a comprehensive framework.. Japan. On behalf of ACI’s International Advisory Panel.Singapore Competitiveness Report FOREWORD The Asia Competitiveness Institute (ACI) was created to provide policy-relevant analysis on competitiveness in Singapore and the ASEAN region. Our ambition with ACI and the Singaporean Competitiveness Report is to provide government leaders with data and frameworks to make more informed policy decisions. or other advanced economies. Singapore’s fundamental model is working and there is no need for drastic changes. Asia Competitiveness Institute SINGAPORE COMPETITIVENESS REPORT 7 .S. whether or not they agree with every conclusion or recommendation. My hope is that this first Singapore Competitiveness Report achieves this purpose and become a model for many other reports to follow. Singapore is widely known for its expertise within government. Porter William Lawrence University Professor. The Singapore Competitiveness Report 2009 is an important milestone in realizing this vision. A new approach towards ASEAN collaboration is one of the steps that can make a significant contribution in this direction.

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Singapore Competitiveness Report Executive Summary SINGAPORE COMPETITIVENESS REPORT 9 .

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and provides the authors’ evaluation.to medium-term. How far has the country progressed on this path? What are the outcomes on innovation measures? And how much has the profile of Singapore’s competitive strengths shifted from one typically associated with investment-driven economies (strong business environment. the aim is to put the short-term developments into the context of the fundamentals that will drive economic development over longer periods of time. Singapore made no gains on productivity between 1995 and 2008. Second. High competitiveness. In this time of economic crisis. The downturn is significantly deeper and more global than anything experienced since the Great Depression.albeit historically deep bump on the road? Or will it lead to changes in economic policy and structures that alter the course of economic development for individual countries and regions? The Singapore Competitiveness Report 2009. rule of law. Is the crisis indicating that Singapore’s economic model does have serious weaknesses? Are there indications that the crisis has triggered or accelerated the transition of the global economy towards a new scenario in which Singapore’s strengths are less valuable? 11 . despite the fact that Singapore ranks comfortably among the most competitive locations in the region. Relative to the United States. especially physical infrastructure. SINGAPORE COMPETITIVENESS REPORT Key Competitiveness Challenges for Singapore Improving competitiveness is a constant challenge all economies face. what explains Singapore’s failure to continue the previous catch-up to the productivity levels of other advanced economies? Each of these questions could easily motivate an independent study. IP protection. But Singapore will have to refine its strategic direction and make some rather fundamental adjustments in its economic structure if it aims to move to a new level of competitiveness. Unlike their predecessors at the time. This uncertainty affects not only the short term but also the longer term. the Report suggests a framework to address them. Singapore is transitioning from an investment-driven economy to an innovation-driven economy. This Report addresses all three of them. However. even if their primary motivation now is to deal with the immediate crisis at hand. and using old and new monetary policy instruments. For all of them. set the overall context in which companies operate. Productivity is as an outcome influenced by a large number of factors that are shaped by the collective action of all participants in an economy. policy makers have now reacted strongly.EXECUTIVE SUMMARY Economies around the globe are in turmoil. For Singapore. Porter of the Harvard Business School and Chairman of ACI’s International Advisory Panel. entrepreneurship)? Third. Will the crisis only be a . company sophistication and strategy. provides data and analysis to inform the discussions on the impact of the crisis on the medium-term development of Singapore’s competitiveness. there are concerns about Singapore’s ability to generate sustainable productivity growth. Productivity depends both on the value of the goods and services produced and on the efficiency with which they are being provided. drawing on one integrated conceptual framework to organize data from multiple sources. demand sophistication. organized under the heading of macroeconomic competitiveness. has developed over the last two decades. quality of life. rather than providing generic policy advice. This constant challenge then translates into more granular questions that individual countries face at a given point in time. The overall picture that emerges is guardedly optimistic: Singapore is not facing a fundamental threat to its economic position. we examine three such specific questions that currently shape the competitiveness debate. and government agencies provide in-depth coverage of this question. after registering strong and consistent catch-up in the previous period. There is little reliable experience on how consumers. bailing out banks. or is it largely cyclical or driven by external shocks? If it is structural. other research centres. despite the overall economic growth in the last few years. Instead. then. the first in this new series of regular assessments by the Asia Competitiveness Institute (ACI) at the Lee Kuan Yew School of Public Policy. These factors include the quality of social infrastructure and political institutions as well as of macroeconomic policy. in this period of dramatic shocks. is ultimately reflected in high productivity. solid skill base. the Report’s discussion of the medium-term fundamentals aims to contribute to a better recognition of these linkages. explores the relevant data available. especially in Asia: the rate of decline has fallen and the hope is increasing that while a drawn-out period of adjustment lies ahead. The Report’s Conceptual Approach The Report’s analysis is grounded in the competitiveness framework that Professor Michael E. openness to trade and investment) to one more in line with the needs of an innovation-driven economy (strong innovation system. financial institutions. and producers will react to the massive government efforts under way. The outlook now seems slightly more positive. no matter the level of prosperity they have already reached. Clearly these are related: many of the policy choices made today will impact the fundamentals that exist tomorrow. certainly not in the short. They do not affect productivity directly but create the opportunity space in which productivity-enhancing actions can be taken. It recognizes their interdependence and makes no prior assumptions about the critical role of any individual factor. investors. forecasts have become much less accurate than in periods of stable trends and calm. The central tenet of the competitiveness framework is the notion that productivity – the ability to create valuable goods and services through the use of a country’s human. the global crisis has hit Singapore harder than many of its Asian peers. In fact. One set of factors. This is both an explicit ambition of the government and the assessment of many outside observers. it will not be the abyss that bankers and exporters were facing in late 2008 and early 2009. Is this slow-down a sign of structural problems. launching stimulus packages. and natural resources – is the ultimate driver of sustainable prosperity. This framework is flexible in capturing the role of many different types of factors on competitiveness. It does not aim to provide a better forecast on what will happen over the next six or twelve months. one of the framework’s explicit uses is to support the identification of policy priorities based on the specific circumstances that exist in an economy at a given point in time. capital. especially on total factor productivity. First.

As an investment location. the tendency for higher inequality is likely to increase. 12 SINGAPORE COMPETITIVENESS REPORT . important driver of prosperity growth. Singapore’s environmental performance does not stand out globally. It focuses on analysing and presenting this data in an integrated fashion. and measures of human development. especially for other parts of Asia. a group that in other countries has been driving increasing labour mobilization rates. captures the way companies operate and the external dimensions that have a direct impact on the results of their activities. Future growth will have to come from productivity growth . the main driver of growth will have to be total factor productivity growth. Higher labour mobilization has over time been an increasingly Singapore’s performance on intermediate measures of economic activity indicates that a good foundation has been built for current and future prosperity. rather than conducting extensive primary research as part of this Report. There are no signs that Singapore’s position in the global trading system is eroding. as an increasing share of the population retires from the workforce. and entrepreneurship. the selection of time periods to look at can lead to highly different results. • The second group of indicators looks at economic outcomes that are signs of and contributors to competitiveness but may not be the ultimate goals of economic policy. putting pressure on the cohesive social model the country has adopted. slowly changing: Singapore is shifting from being a direct supplier to the US and Western Europe to becoming a specialized supplier of services and components to the Asian production system. As Singapore’s economic strategy explicitly aims to accelerate the pace of technological change. In this period. Many other countries have recently experienced a similar increase in inequality. the provision of primary public services. but the country does perform better than most of its Asian peers. These factors include the sophistication of companies. Patenting intensity is high. the strength of clusters. In fact. The objective is to present the best possible analysis given the data available. government-funded research institutes. and the research activities of foreign investors. The defining characteristic of Singapore is its high level of integration into the global economy. and the solidity of public finances to the sophistication of companies. the country has developed a capable scientific development system around a core of strong universities. while adding additional primary data only in selected areas where gaps exist. While this has exposed the country to the onslaught of the current crisis. A more recent development is Singapore’s growing position in innovation. Starting in 2006. • The third group of indicators then tracks Singapore’s position on the broad range of macro. Labour productivity is at a solid level.and microeconomic competitiveness factors that ultimately explain the medium-term trends on the economic outcomes previously discussed. Singapore continues to register low labour mobilization among females.with capital stocks already high and skill levels improving. The data is organized in a number of key categories that provide different perspectives on Singapore’s competitiveness position: • The first group of indicators assess Singapore’s track record on the indicators of economic performance: the quality of life Singaporeans are able to enjoy as a consequence of the fundamentals present in their economy. But Singapore is increasingly moving beyond being a host of FDI into becoming an important source of FDI. labour productivity growth did stall and overall growth was driven entirely by higher labour mobilization. Singapore’s high standard of living is the result of high income levels and a strong position on life expectancy and basic education. total factor productivity growth also slowed down significantly. Singapore’s prosperity is driven by high labour mobilization and solid but far from exceptional levels of labour productivity. and the quality of the business environment. ranking among the leading countries both within Asia and globally. the quality of physical infrastructure.for example the growing number of FTAs and the more active outward investment approach of government-linked companies . even though individuals policies . although not quite at the level of the best Asian peers. it is one of the key drivers of its medium-term prosperity. Given these shocks. The indicators covered range from assessments of governance quality. but the data does indicate a significant increase in the volatility of productivity growth since 1995. equality. The Report uses multiple sources of data to assess Singapore’s competitiveness in this broad framework. the data suggests that recent growth in labour mobilization has been driven as much by a rising share of foreign workers as by increasing labour mobilization of Singaporean residents. Foreign multinationals play an important role as patentees but increasingly also local universities. Taking this volatility into account. the dynamism of clusters. there are no conclusive indications that it is the result of a structural change in trend. The position is. driven by both cyclical trends and one-time shocks. the data suggests that there is a moderate slow-down in Singapore’s catch-up to the United States. The demographic trends will make it increasingly challenging for Singapore to keep labour mobilization rates stable at current levels.The other set of factors.supported them. Intermediate Indicators Summary of Findings Economic Performance Singapore continues to be a highly prosperous economy. Over the last two decades. Singapore remains highly attractive for foreign companies. These changes are largely driven by market forces. High labour mobilization is typical for economies with a significant share of immigrant labour. and many more. Relevant data points include prosperity levels. while productivity growth has decreased in prominence. A comparison with other cities reveals that Singapore has solid levels of prosperity. however. called microeconomic competitiveness. All of them have a direct impact on productivity. most likely as the result of technological change. This is consistent with the cyclical upswing during this period. international trade. This is fully in line with the changes in Singapore’s role in the global economy revealed in its trading profile. and increasingly also to meet the final demand from Asian consumers. The relatively high and rising income inequality suggests that there are significant differences across Singaporean society in the standard of living. Among residents. the intensity of local competition. but growth relative to the European Union (EU-15) continued and parity was reached in 2004. but is also experiencing some challenges. innovation. This includes measures of foreign and domestic investment.

macroeconomic policy in Singapore is strong and provides an important pillar to support the general stability of the economic environment. but a reminder that Singapore has now reached a level of performance where it has to consider more strategically which position it should aspire for in the global innovation landscape. the dimensions of the overall context that have a direct impact on company productivity and innovation. Again. i. the presence of private domestic companies is still very limited. On microeconomic competitiveness. and there is little evidence that these differences are strong predictors of economic outcomes. This is an area where the potential for creating value from exporting this competence in different ways remains underexploited.e. but there it has less of an advantage relative to leading peers. rather than an innovation-driven economy. Still. However. The slightly lower ranking on domestic rivalry is likely to be a consequence of the small size of the local market. this risk has not materialized. Implications The analysis discussed above provides perspective on the three key challenges identified at the outset of this Report. But Singapore seems well prepared to adjust to these trends.e. In fact. Competitiveness Singapore’s fundamental competitiveness remains strong. On macroeconomic competitiveness. Remarkably for a relatively small economy. Singapore ranks among the leading countries in the world. reflecting the strong position Singapore has in this area.Electronics is by far the most important sector in which patenting occurs. A relative weakness is Singapore’s position on company sophistication. This is quite typical for an economy dominated by foreign multinational companies. and the government’s focus on developing specific sectors. There is no indication that the changes in the global economy system currently under way will fundamentally challenge Singapore’s competitive position. an ambition outlined by the Economic Review Committee in 2003. Singapore does particularly well on the quality of its microeconomic business environment and the rule of law. Factor input conditions are world-class across all dimensions. In innovation capacity. possibly at a faster rate. This may include the development of innovations that are not based on the hard sciences but that focus on new commercial ideas using existing technologies and knowledge. Start-up rates in Singapore are rising. The data raises concerns about the risk that a dominant political group. but a reminder that Singapore has now reached a level of performance where it has to consider in more detail which position it should aspire for in the global economy. The challenge remains how Singapore can extend its significant investments in scientific research to the commercial exploitation of knowledge. Context for strategy and rivalry is very strong too. the attractiveness of multinational companies (MNCs) and GLCs for the best available talent could explain Singapore’s disappointing performance on entrepreneurship. Competition will increase. Differences between countries on the specific indicators used are relatively small among the leading group. Singapore ranks relatively high on other indicators of clusters or supporting and related industries. may become unresponsive to the needs of society or focus on private benefits rather than overall competitiveness. Singapore particularly excels on its openness to global trade and investment. they operate as private companies would. In the export-oriented sectors. there are some concerns about the strong role of government-linked companies (GLCs). If this is the case. but this is more likely a reflection of entry into activities serving the local markets. and provides a solid foundation for the level of prosperity and the overall pattern of economic outcomes already achieved. the changes in its trade and investment profile already reflect how its position is evolving to meet new market dynamics. including those discovered elsewhere. This is not an indication of failure. This is a clear reflection of the economy’s high level of specialization. Singapore’s transition towards an innovation-driven economy. And it remains uncertain as to whether or how fast foreign investors or government-funded entities commercialize the outcomes of their Singapore-based research. maybe even more quickly than expected before the current crisis. and effective collaboration between companies and universities. especially in retail and services. or even increase in importance. Their high efficiency and full exposure to global competition limit any negative impact on the level of rivalry on local markets. and the geographic profile of markets and value chains globally will continue to evolve. Singapore provides a strong mix of world-leading quality in education with high R&D spending. But there remains a question as to whether these GLCs are effective in existing markets but less nimble in pursuing entrepreneurial ventures in new fields. Overall. In Singapore. Fundamental competitiveness will remain crucial. where the ultimate control of global value chains and strategic decisions rests with headquarters located elsewhere. from physical infrastructure and administrative efficiency to skills and innovation capacity. But. there remains a concern that the controlled nature of Singaporean society might inhibit “creative” activities that tend to thrive in less-structured environments. Singapore’s competitiveness fundamentals are strong. and Singapore has clear strengths to draw on here. Singapore continues to be ranked as the best country in the world in terms of the rules and regulations affecting business (World Bank. The evidence suggests that government linked companies can match the performance of their best private sector-owned peers. but remain broadly more in line with a high-skill version of the investment-driven model. Singapore’s somewhat weaker position on macroeconomic policy is not a major concern. However. this is not an indication of failure. i. 2009). The necessary scientific infrastructure has been put into place. Its position in other areas is good. which also explains the weaker position on the quantity of locally available suppliers. unchallenged by a potent opposition or aggressive press. while MNCs and government-funded research institutes already draw on the scientific talent that has been attracted to Singapore. if they are appropriately governed and the market environment is right. solid quality of research institutions. their operations here do not seem SINGAPORE COMPETITIVENESS REPORT 13 . remains a work in progress. policies and conditions that set the overall context in which companies operate. Singapore does particularly well on the effectiveness of its public institutions.

Singapore’s disappointing recent performance on productivity growth is. The second recommendation relates to fundamental existing or emerging challenges where staying the course will not be enough and decisions are required. and highly attractive conditions for talent is closer to Singapore’s current competitive strengths than is becoming a global R&D hub creating the next generati0n of global technologies and products based on scientific breakthroughs. This gap may be the result of operational choices that companies make in response to the context of factor costs and business environment conditions they face. like the high quality of life that attracts talent. Since 2006. and whether it is leveraging new knowledge or applying existing knowledge in different contexts. Singapore has always been willing to implement new solutions that create value for its citizens. Singapore will need to move to a different view on productivity. This is an area where huge potential exists for creating value through exporting this expertise. for example. but also face some obvious challenges. This remains an important principle when considering new policies. have systematically built on existing capabilities to create new strengths. Changes in the labour market. First. like trying to instil innovative thinking and risk-taking in a highly organized society with a tradition of manufacturing for exports products that were created and designed elsewhere. but they remain a small part of Singapore’s overall economy. especially from domestic sources. would also fit well with Singapore’s tradition as a regional business hub. The recent slowdown of productivity is the most immediate challenge to deal with. Collaboration with companies and clusters to discuss the possible transition to higher-productivity business models should be on the agenda. especially for low skill labour. Being an important global knowledgeinnovation hub with focused research laboratories. capitalizing on unique business solutions implemented in Singapore and the region. while labour productivity dropped as the economy reached its capacity constraints. and developing new business models and brands. Second. But they indicate that the country needs a fundamental discussion to refine its ambition along two key dimensions: First. this Report aims to inform decisions about possible government action.S. It needs to be further investigated why Singaporean companies do not seem to be as effective in their response to these new opportunities. More research on disaggregated productivity and company-level operations data would clearly by useful. In the past.the introduction of new concepts. is already underway. a longer term analysis of Singaporean competitiveness indicates how stable the country’s key competitive advantages have been over time. a secure legal environment. Becoming a global connector of knowledge. there needs to be a much broader view on what innovation is. the goal has been to create an existing product or service with fewer factor inputs. The third recommendation suggests a policy priority to increase the potential for economic growth through trade and investment with neighbouring Asian countries. there are many possible visions of an innovation-driven economy that are feasible. growing demand. Singapore’s fundamentals are solid and there is no obvious reason for making any dramatic changes. but much remains to be done in order to turn these ambitions into reality. The current view is highly science-oriented . The first recommendation from the analysis above is that Singapore should not overreact to the current crisis. But there is no clear evidence that productivity growth and the catch-up to other economies has structurally come to a halt. This would also build on the existing scientific strengths that are crucial in understanding and leveraging the best knowledge available globally but with greater emphasis on commercializing research.looking at innovation as the translation of knowledge generated in universities and research labs into products and services. bridging together scientific research (discovered locally or elsewhere) with companies able to draw on it and identifying opportunities where existing knowledge is not fully applied in some geography or field. In fact. like the development of a strong research system over the last two decades. productivity growth has become more volatile as Singapore’s economy has been hit by a number of external shocks over the last decade. by translating. has driven up labour mobilization. its experience into systematic knowledge that may be sold by operating such services abroad or through training and consulting. new strategies. If this data substantiates the hypothesis of a low-productivity business model outlined below. and particularly for the economic review process currently under way. If future research supports the hypothesis of a low-productivity equilibrium. In the future. Singapore’s shift from direct exports to the United States and Western Europe. to a large degree. because of highly sophisticated local demand. Changes. Recommendations For policy makers. From health care to city planning and public administrative services. there are significant policy implications. has done particularly well in taking advantage of new information technologies to improve the productivity of its companies through the redesign of its systems and processes. it has done so versus the United States. new processes or new business models. Singapore could benefit more from these trends if its partners become more competitive and the ties within the region are more developed. Research suggests that the U. and potentially wage policy may have to be considered. ASEAN has made ambitious statements of intent. however. the goal has to become creating more customer value with a better design for organizing a set amount of factor inputs. These observations do not imply that Singapore has failed in the mission it has laid out for itself. Part of the 14 SINGAPORE COMPETITIVENESS REPORT . There are two reasons for concern. One of the areas in which Singapore has arguable been most innovative is public services. Companies face wage costs. but only 19th on labour productivity. independent of where the idea is coming from. “Creative” activities are growing.to be translating the scientific research into new products and services at a significant scale. despite frequent policy reviews and action programs. Second. to becoming an important part of the Asian production system and a supplier to Asian markets. Companies in these areas can draw on some clear advantages. and some might be a better fit for Singapore than others. while Singapore’s productivity catch-up has not stopped generally versus other advanced economies. world-class companies. Singapore’s productivity record has to be seen against its level of competitiveness: Singapore ranks 3rd in the world on overall competitiveness. a cyclical phenomenon. at which it is not commercially attractive to move to an operational model based on higher skills and productivity. But innovation can be viewed from a broader perspective . Looking at longerterm trends. immigration.

and is achieved in the context of a less favourable business environment. It has traditionally placed a high value on the cohesiveness of its society. This would sow the ground for more locally-rooted entrepreneurship and ultimately innovation. More fundamentally. Other models exist that can support high levels of prosperity as well. but government policies set the context in which women look at the incentives they receive for entering and sustaining a professional career. there is an uncritical benchmarking towards the U. Female labour force participation is the result of individual choices. model. The data presented in this report indicate that Singapore has made clear progress on science-related innovation. in the past. This Report is written in this context. Too often. in some of these fields. A potential short-term opportunity is to work more intensively with MNCs and GLCs to create programs that allow some of their local managers to create spin-offs. and the further transition towards an innovation-based economy will continue to fuel this trend. and has taken decisive action where needed. Inequality has been rising. At the minimum.reason could be that ASEAN has. there is no fundamental reason why this should not be possible in the future as well. there needs to be a review of whether the policy approach in these areas needs to be adjusted. But its success in creative and entrepreneurial activities is more limited. This requires creative thinking on how such commercialization could happen. but it will not stay this way automatically. where activities are focused on areas where collaboration creates direct benefits to participants.S. the potential for commercially exploiting innovation in fields like public services needs to be more deeply leveraged. ASEAN would benefit from adopting an approach aimed at improving competitiveness. Inequality and the mobilization of the female labour force is a fifth challenge that is likely to become more pressing over time. because it puts negotiations into a zero-sum game of reciprocal market access concession. hoping to provide Singaporean policy makers with our analysis and perspective of the key issues and some possible options to consider. and could be more in line with Singapore’s capabilities. Singapore has become an internationally respected model for a country that is willing to continuously review its position. The fourth recommendation that concerns a medium-term challenge Singapore should address. possibly with initial capital stakes of the anchor companies. followed a trade liberalization logic that is politically difficult. is defining the specific model of innovation-driven economy that Singapore should aspire to become. Singapore needs to decide how to deal with these dynamics. and we intend to continue to use subsequent reports to highlight our analysis and perspective of the competitiveness issues facing Singapore in the medium term. This is the first Singapore Competitiveness Report produced by the Asia Competitiveness Institute. SINGAPORE COMPETITIVENESS REPORT 15 . markets do not traditionally exist. This might be neither appropriate nor ideal for Singapore. Policy tools that have been successful in the attraction of capital-intensive activities may need to be modified in new innovation-intensive fields that rely more on talent and culture than capital investments. a more textured policy debate is necessary to decide what type of innovation-driven economy Singapore wants to become. Going further. Singapore should have an open debate about the type of environment it wants to provide to women.

16 SINGAPORE COMPETITIVENESS REPORT .

Singapore Competitiveness Report Chapter 1 Introduction SINGAPORE COMPETITIVENESS REPORT 17 .

18 SINGAPORE COMPETITIVENESS REPORT .

it will track multiple indicators of Singapore’s competitiveness over time and in international comparison. It draws on one integrated conceptual framework to organize data from multiple sources. no matter the level of prosperity they have already reached. and the assessment of many outside observers. certainly not in the short. rather than providing generic policy advice. and is not wedded to a particular type of economy or economic ideology. and could even lead Singapore on the wrong path. The framework is flexible in capturing the role of many different types of competitiveness factors. company sophistication and strategy.is the ultimate driver of sustainable prosperity. Designed to be a recurring publication. capture the way companies operate and the external dimensions that have a direct impact on the results of their activities. Is the crisis indicating that Singapore’s economic model does have serious weaknesses? Are there indications that the crisis has triggered or accelerated the transition of the global economy towards a new scenario in which Singapore’s strengths are less valuable? Finally. providing the key foundations to discuss the direction policy responses should take. larger effort such as the Economic Strategy Committee (ESC) process currently under way and many smaller reviews of individual policies. rule of law. and the quality of the business environment. entrepreneurship)? SINGAPORE COMPETITIVENESS REPORT 19 . organized under the heading of macroeconomic competitiveness. For Singapore. Singapore’s Competitiveness Challenge in 2009 Improving competitiveness is a constant challenge all economies face. capital.the ability to create valuable goods and services through the use of a country’s human. The Report explores the relevant data available and suggests a framework to address them. called microeconomic competitiveness. Following the role model of successful peers is increasingly outliving its usefulness. High competitiveness. What explains the challenges in further catching-up to the productivity levels of other advanced economies. The ambition is to inform the policy dialogue in Singapore through data. Productivity is an outcome influenced by a large number of factors that are shaped by the collective action of all participants in an economy. These factors include the sophistication of companies. This broad challenge then translates into more granular questions that individual countries face at a given point in time. and makes no prior assumptions about the critical role of any one of them.especially physical infrastructure. then. Productivity depends on both the value of the goods and services produced. It will have to refine its strategic direction and make much clearer choices about the type of economy it aims to become. especially the US? Each of these questions could easily motivate an independent study. demand sophistication. one of the framework’s explicit uses is to support the identification of policy priorities based on the specific circumstances that exist in an economy at a given point in time. despite the overall solid economic growth in the last few years. One set of factors. Singapore has recently been struggling with falling rates of productivity growth. three such specific questions currently shape the competitiveness debate. Third. The Report’s Conceptual Approach The Report’s analysis is grounded in the competitiveness framework that Professor Michael E. openness to trade and investment) to one more in line with the needs of an innovation-driven economy (strong innovation system. Porter. They do not directly affect productivity. is there a need for new government intervention to put Singapore on a different path for dealing with the changes in the global context? Second. The benchmark for this Report’s value is its ability to inspire informed action that helps Singapore reach increasing levels of prosperity over time. It is in this spirit that the Singapore Competitiveness Report is being launched. Singapore has again and again been able to take action and implement change in response to dynamic global challengers. analysis. The overall picture that emerges is guardedly optimistic: Singapore is not facing a fundamental threat to its economic position. solid skill base. This slowdown has occurred in addition to a higher frequency of economic shocks that have hit the Singaporean economy over the last fifteen years. IP protection. The other set of factors. is ultimately reflected in high productivity. First. But Singapore is facing some complex challenges on its future growth path. These trends have occurred despite a stable position on overall competitiveness and an explicit policy focus on productivity. the global crisis has hit Singapore harder than many of its Asian peers. This is both an explicit ambition of the government. the strength of clusters. set the overall context in which companies operate. It recognizes the interdependence among the many factors that matter. political institutions.INTRODUCTION Singapore has over the last few decades achieved impressive success in moving from a young developing nation to become one of the most prosperous economies globally. The central tenet of the framework is the notion that productivity . How far has the country progressed on this path? What are the outcomes on innovation measures? And how much has the profile of Singapore’s competitive strengths shifted from one typically associated with investment-driven economies (strong business environment .to mediumterm. and natural resources . These factors include the quality of social infrastructure. In fact. but create the opportunity space in which productivity-enhancing actions can be taken. Singapore is transitioning from an investment-driven to an innovation-driven economy. despite the fact that Singapore ranks comfortably among the most competitive locations in the region. and macroeconomic policy. quality of life. especially on total factor productivity. All of them have a direct impact on productivity. One important reason among the many individual factors that played a role in this process has been Singapore’s willingness to constantly review its position in an international perspective. and a conceptual framework that helps policy makers evaluate where Singapore stands and what policy priorities it needs to address. the Bishop William Lawrence University Professor at Harvard Business School and the chairman of the Asia Competitiveness Institute. and on the efficiency with which they are being provided. Based on these assessments. This Report addresses all of them.

the quality of physical infrastructure. measures of human development. The data is organized in a number of key categories that provided different perspectives on Singapore’s competitiveness position: 1. while adding additional primary data only in selected areas where gaps exist. and many more. international trade. The ambition is to present the best possible analysis given the data that is available. 20 SINGAPORE COMPETITIVENESS REPORT . the provision of primary public services. It will focus on integrating and analysing this data in an integrated fashion. The third group of indicators tracks Singapore’s position on the broad range of macroeconomic and microeconomic competitiveness factors that ultimately explain the mediumterm trends on the economic outcomes previously discussed. The second group of indicators looks at economic outcomes that are signs of and contributors to competitiveness. The indicators covered range from assessments of governance quality. equality. and the solidity of public finances to the sophistication of companies. Relevant data points include prosperity levels. labour productivity. 2. These include measures of foreign and domestic investment. as well as the direct components of income generation at the economy-wide level. The first group of indicators provides an assessment of the quality of life Singaporeans are able to enjoy. the intensity of local competition. but not ultimate goals of economic policy.FIGURE 1. 3. rather than conducting extensive primary research as part of this Report.01: THE COMPETITIVENESS FRAMEWORK: DETERMINANTS OF PROSPERITY The Report uses multiple sources of data to assess Singapore’s competitiveness in this broad framework. the dynamism of clusters. and labour mobilisation. and entrepreneurship. innovation.

using the available data and analysis to provide preliminary answers. While GDP per capita is a central benchmark used in the analysis. SINGAPORE COMPETITIVENESS REPORT 21 . Policy can do nothing to change them. They are important analytical tools but not appropriate policy objectives. The diamond. and domestic price levels. It also includes a short case study analysing the changes in Singapore’s global trading position in electronics over time. this section widens the view to capture whether average GDP per capita gives a good sense of the quality of life for broad segments of Singapore’s society. Key observations from the analysis of competitiveness indicators are summarized at the end. but they do have an impact on the level of prosperity Singaporeans can enjoy. For each of these issues. inward FDI). labour mobilisation. basic human capacity. an interesting example of the country’s more recent push into new. the context for strategy and rivalry. For SIPI. a concept introduced by Professor Michael Porter that encapsulates factor input conditions. and other given factors. This part of the chapter also includes summary observations from a case study on the Interactive Media cluster in Singapore. Chapter 3 looks at a series of intermediate economic outcome indicators that. natural resources. The three strategic issues identified earlier in the Report will be revisited. as many countries have done. the strength of social infrastructure and political institutions (SIPI) and the quality of macroeconomic policy. Chapter 4 provides the assessment of the competitiveness fundamentals that underpin the economic outcomes observed. Chapter 5 will draw on these different observations to derive a number of overall observations. e. imports). global integration (FDI. and also an initial focus in terms of critical policy areas. the Report looks mainly at the general approach to fiscal and monetary policy. This decomposition provides insights into the strengths and weakness of Singapore’s economy. This chapter includes a section written by Manu Bhaskaran on the external economic environment Singapore is likely to face in the future as a consequence of the global economic crisis. e.g.02: ASSESSING COMPETITIVENESS Report Outline The remainder of the Report is organized in three chapters. Chapter 2 looks at economic outcomes as indicators of revealed competitiveness. knowledge-driven activities. often leads to better performance on the indicator but no improvement in either prosperity or competitiveness. demand conditions. tend to foreshadow future prosperity. For macroeconomic policy. cluster strength. and business environment quality. The second part of the chapter decomposes Singapore’s overall performance on prosperity into its mathematical components of labour productivity. the rule of law. and supporting and related industries. The second part then looks at the two dimensions of macroeconomic competitiveness. The first part of the chapter addresses different dimensions of Singapore’s prosperity. Key observations from this analysis are summarized at the end. and the effectiveness of the political system are key concerns.g. Targeting them directly. innovation. A short first part of the chapter reviews Singapore’s endowments in terms of geographical location. an integrated set of action recommendations are given. will be used to analyse the different dimensions of the business environment. Key observations from the analysis of outcome indicators are summarized at the end. company sophistication. as signals and contributors of competitiveness. The third part covers the three dimensions of microeconomic competitiveness.FIGURE 1. and entrepreneurship. The economic outcome indicators include measures of investment (domestic. exports.

22 SINGAPORE COMPETITIVENESS REPORT .

Singapore Competitiveness Report Chapter 2 Economic Performance SINGAPORE COMPETITIVENESS REPORT 23 .

24 SINGAPORE COMPETITIVENESS REPORT .

and in outperforming its East Asian peers such as Taiwan and South Korea (Figure 2. Since 2002. Second. with an annual growth rate of 5. Purchasing power parity (PPP) adjustments then translate the income level into an internationally-comparable level of consumption that citizens can afford given local prices. After the shock abated. SINGAPORE COMPETITIVENESS REPORT 25 . social and ethnic factors. FIGURE 2. good health and well-being. with prosperity at 90. The bursting of the internet bubble in 2001 again disrupted this development. Singapore has done remarkably well in catching-up to the income levels of industrialized countries. Individuals value leisure time. at $2. in a simple accounting sense. regions. GDP per capita does not capture important non-income related dimensions of the quality of life. growth rates rebounded to put Singapore back on the previous growth trajectory. After that crisis. measuring an economy’s performance along these different dimensions provides initial insights into the possible challenges and policy priorities it faces.Standard of Living ECONOMIC PERFORMANCE A high standard of living for its citizens is the ultimate benchmark for high competitiveness and successful economic policy. but can also be based on gender. average GDP per capita might not give a good sense of the median citizen’s income level if economic participation differs significantly across groups of society. Once again. It ranks seventh globally and is second in Asia. the result of real labour productivity and labour mobilisation. In 1965. behind Hong Kong. Singapore’s prosperity growth was stable at 4. While this Report does not capture all of these dimensions. a measure used for long-term comparisons of real prosperity trends across countries) the third highest PPP-adjusted GDP percapita in East Asia. GDP per capita is a central but imperfect measure of the standard of living. and kept its lead over Taiwan and South Korea despite experiencing lower growth of about one-half to one percentage per annum over 1965-2008. for a number of reasons. The Conference Board and Groningen Growth and Development Centre..65% that lasted until the Asian financial crisis struck in 1997/1998. There are many other issues that a more comprehensive analysis would aim to address (Stiglitz et al.667 (in 1990 PPP adjusted international dollars. This accounting exercise does not give insights into the ultimate drivers and causes of prosperity.8% between 1965 and 1984 when the country was hit by a severe recession. Singapore moved in 1987 to a higher growth path. Singapore recovered. Singapore had. However. In late 2007 however.01: SINGAPORE’S PERCAPITA GDP PER CAPITA.3% of the US level. and by 2007 had reached the level it would have reached if growth between 1997 and 2007 continued at the pre-Asian crisis decade rates. despite a positive spike in the first quarter of 2008. 2009). GDP per capita is. These differences might be the result of a skewed distribution of income. after Japan and Hong Kong. Singapore has done particularly well compared not only to Taiwan and South Korea. IN THOUSANDS OF 1990 PPP$ Source: Total Economy Database (September 2009). Singapore started from a higher initial level of GDP per capita. First. it looks at both inequality and non-income measures of the standard of living. but also to selected Scandinavian and OECD countries.02). Prosperity Singapore’s current GDP per capita of SGD53. and a clean environment. The most widely used indicator for assessing living standards is real per-capita Gross Domestic Product (GDP). Singapore’s economy was one of the first in the region to go into a recession.192 puts it among the most prosperous economies in the world.

Higher density provides opportunities for higher productivity. Even in advanced economies like the United States. lead to much smaller differences in the actual living standards. All other Asian economies are expected to show positive growth as well in 2010.226) was below only that of Norway ($53. The Conference Board and Groningen Growth and Development Centre. there is evidence that among advanced economies. But overall. especially at lower and medium levels of prosperity. the per capita income in urban areas is significantly higher than in rural areas. In 2008. differences in urbanization rates are an increasingly less important factor in explaining prosperity differences. Urban areas tend to register higher GDP per capita levels than surrounding regions. and North American peers. A comparison with other major urban cities (Table 2. especially for housing.02: COMPARISON OF GDP PER CAPITA Source: Total Economy Database (September 2009). Consensus forecasts suggest that the worst will be over by the end of 2009. and Singapore’s GDP is expected to grow by 3. although different price levels. goes hand in hand with urbanization. Singapore’s comparative PPP-adjusted per-capita GDP ($51. 26 SINGAPORE COMPETITIVENESS REPORT .01: CITY PROSPERITY IN 2005 Sources: World Urbanization Prospects: The 2007 Revision Population Database (provided by the UN Population Division) and UK Economic Outlook March 2007 (published by PWC).738). European. TABLE 2.FIGURE 2. Economic development. Singapore’s prosperity figures are influenced by its character as a city state.5% in 2010. calculations by ACI.01) shows Singapore’s average prosperity level to be solid and comparable to leading Asian. and often offers significantly better access to public infrastructure and services.

retrieved on June 18. In addition to Hong Kong. After government transfers and subsidies are taken into account. At a value of 0. have seen even stronger jumps in inequality. Russia. China. Singapore’s rise in inequality was more pronounced than in all OECD countries. The key reasons often cited are: technological change providing higher returns to talented individuals. is the other Asian economy that comes closest to Singapore in inequality levels. inequality in China is even higher than in Singapore. be a function of being a city state. A location’s GINI coefficient. and more open markets creating greater opportunities for entrepreneurs to leverage their capabilities across larger markets. in Singapore as well as in many other economies. as the positions of Singapore and Hong Kong suggest. is an important indicator as to whether that might be the case.FIGURE 2. Across a wider sample of countries. Inequality has risen significantly over the last decade. a measure which increases with greater inequality of income distribution. and Indonesia. SINGAPORE COMPETITIVENESS REPORT 27 .481 (0. LATEST YEAR Source: CIA World Factbook. including China. some emerging economies.462 after government transfers and taxes). The high level of inequality could. However. followed by the Philippines. Equality Average GDP per capita figures can give a misleading view of actual standards of living if inequality is very high. FIGURE 2. 2008). only Hong Kong and a number of Latin American countries register higher levels of inequality. 2009. Singapore ranks as an economy with relatively high income inequality. only New York City and a number of Latin American metropolitan areas register inequality at or above Singaporean levels. Singapore’s inequality is higher than in the vast majority of other advanced economies.03: GINI COEFFICIENT COMPARISONS.04: SINGAPORE’S GINI COEFFICIENT AMONG EMPLOYED HOUSEHOLDS Source: Singapore Department of Statistics (2009). available data on inequality across cities indicate that this explains Singapore’s high inequality level to a relatively modest degree (UN-HABITAT. However. after a significant increase of inequality over the last few years.

As Singapore moves further towards a knowledge-driven economy. 2009). they have also become important factors in global competition. However. are driven by different dimensions of the business environment. These indicators are an important signal of the overall performance that a country reaches. Similarly. both important drivers of income. Labour Productivity Singapore’s current GDP per employee performance puts it only marginally ahead of the weaker economies within the OECD (Figure 2. as many countries. cohesion is seen as a critical condition for developing as a peaceful society. with the exception of South Korea.It is not obvious that inequality has created significant problems in Singaporean society. This could create tension if these dynamics are not carefully considered in advance. Quality of Life The exclusion of non-income indicators that have a significant impact on the actual standard of living is another reason that economic measures alone tend to be a potentially misleading indicator. 2009. 28 SINGAPORE COMPETITIVENESS REPORT . These two factors. Leading European countries and the U. most OECD. Singapore. or the Czech Republic. Starting from a low base in 1975. Environmental quality is another factor influencing the quality of life which is not well captured through income measures.05: HUMAN DEVELOPMENT INDEX AND COMPONENTS Source: UNDP. as well some Scandinavian and OECD countries. their quality of life and attractiveness as a place to live.06). Scandinavian and Asian comparator countries. the forces pushing towards higher income inequality are likely to strengthen. was closest of all Asian cities to meeting the WHO standards with annual average ambient concentrations of 30 micrograms per cubic meter in 2006. Understanding the relative strengths and weaknesses of an economy with respect to the drivers of its prosperity thus gives important insights for policy makers on the action priorities they face. also rank higher. FIGURE 2. Components of Prosperity Generation Income is ultimately the result of how productively labour is being used. including Singapore. and how effective the economy is in mobilizing available labour. Brazil. Singapore still comes in behind Japan and Hong Kong. While no Asian city meets the World Health Organization’s (WHO) guidelines of 20 micrograms per cubic meter for PM10 (particulates with a diameter of no more than 10 microns). As a relatively young nation of significant ethnic heterogeneity. which disproportionately benefit lower income groups. the rate labour productivity growth from 1995 to 2008 was higher in Asian comparator countries such as Hong Kong. South Korea and Taiwan. Singapore did perform better than Continental European countries like Germany and France. have become increasingly important assets. This is the result of the high level of public services available to all citizens. This is especially relevant for countries like Singapore that thrive on their ability to attract foreign capital and talent. The main reason for Singapore’s somewhat disappointing performance is a particularly low rank on the education measure used: at a combined gross enrolment ratio of 85%. Singapore only reaches a level comparable to countries like Venezuela. There is also increasing evidence that mobile individuals see better environmental quality as an important reason to locate in Singapore. Singapore has improved its position on the HDI in the last 30 years. independent from the income level individuals can reach. But the dynamics in this area need to be further analysed.S. Singapore puts great weight on its cohesion. Bolivia. As countries compete for global talent. which has adopted the United States Environmental Protection Agency Standards. it has kept up with East-Asian levels and reached the average HDI level of OECD countries in 2005. The UN Human Development Index (HDI) extends the economic perspective by adding further information on health and education as basic requirements for meaningful participation in society (UNDP. A study by the ADB (2006) provides information on urban air quality in Asian cities. had higher labour productivity than Singapore. In 2008. aim to establish positions in clean technologies. The demand conditions created by public policy measures trying to ensure environmental sustainability are also an increasingly important factor. Over the last few years.

while the shift effect (increase in employment shares of industries with above-average levels or above-average growth rates of productivity) accounted for 15% of the total labour productivity change. Singapore has continued to register higher labour productivity than its OECD peers from 1990 to 2007. Relative to the United States. a significant productivity gap. the change in Singapore’s labour productivity was. However. two periods of fast labour productivity growth (1992-1997 and 2003-2007) were interrupted by a period with low growth (1997-2003). remains intact.2 FIGURE 2. the within effect accounted for 85% of the change in labour productivity. but was much smaller in size: over this period.07: RELATIVE PRODUCTIVITY AND PROSPERITY Source: Total Economy Database (January 2009). the picture has become much more volatile. Between 1965 and 1990. Singapore has registered stable productivity catch-up relative to the US and Western Europe.1 Structural change did make a positive contribution. calculations by ACI. The Conference Board and Groningen Growth and Development Centre. The Conference Board and Groningen Growth and Development Centre. Since then. the country registers a labour productivity levels above the EU and the OECD level. Since 2005.06: LABOUR PRODUCTIVITY AND GROWTH Source: Total Economy Database (September 2009). calculations by ACI. The productivity decline affects the entire economy and is not principally driven by structural change. like in most advanced economies. Between 1970 and 2005.FIGURE 2. which shows little signs of closing over the last decade. dominated by within effects of productivity growth in individual sectors. SINGAPORE COMPETITIVENESS REPORT 29 .

Employment is from TED. Before 1995. Percent of population aged 15-65 for 2007 was taken from the WDI and multiplied against population reported in the TED. and shift effects declined to 0. within effects dropped to 2. provided by the Singapore Department of Statistics. with the shift effect contributing 0. The patterns have changed over time. Figure 2. Together. calculations by ACI.8%. Singapore has registered a significant increase in labour mobilisation. The shift effect made an ever-decreasing contribution to labour productivity growth. FIGURE 2. these sectors account for about 65% of employment and 60% of real GDP. within industry effects contributed 3. Sectoral productivity data reported confirms this view.08 shows the change in labour productivity for selected goods and service sectors over 2003-2008. After 1995. 30 SINGAPORE COMPETITIVENESS REPORT .08: CHANGE IN SECTORAL LABOUR PRODUCTIVITY Source: Singstat Time Series Online. Sources: Total Economy Database. The drop of the within effects was especially pronounced after the dotcom crisis in 2001. Labour Mobilisation Labour mobilisation reflects how well a country uses its human resources and gives an indication of possible policy challenges in this respect.FIGURE 2.09: PARTICIPATION AND GROWTH Note: Utilizes combination of data sources. January 2009 (The Conference Board and Groningen Growth and Development Centre) and World Development Indicators online (World Bank).1%. Since 1995. Singapore’s labour mobilisation rate was already relatively high at the beginning of this process.1%. growing the rate of employees in its working age population at a rate surpassed by only a very small number of countries globally. and up to 2008. it now ranks among the five countries with the highest rates of labour mobilisation globally.6% to labour productivity.

the decline in female participation starts in the relatively young age group of 25-29. 2000-2008 Purchasing Power The final step in the evaluation of the standard of living is to understand the amount of products and services that can be bought in a location for a given amount of income. Singapore does only average on female labour participation. two Asian countries overall with relatively low female participation rates that are. The cost of a standard basket of goods in Singapore is relatively modest compared to the cost for the same goods in most comparable countries and cities.. Most European countries register high local prices. The data on labour mobilisation among Singaporean residents shows a high level of stability over the long term. registers even lower relative local prices than Korea. but Figure 2. the ratio between purchasing power parities (PPP) and market exchange rates is often used. FIGURE 2. but the gap has been slightly falling in the years of high economic growth prior to the current global crisis. the United States comes in at a middle level.A closer look at the Singaporean data provides more insights into the process of labour force mobilisation. The right policy response was to break up the local market structure inhibiting higher performance in this sector of the economy. together with Hong Kong. High education levels of women. while Asian countries have more affordable local prices. Contrary to its overall profile. but with very high local prices that reduced the benefits citizens could ultimately gain from their income. and availability of domestic help should result in much higher participation rates. much more stable over the women’s life cycles than in Singapore. FIGURE 2. The remainder has been driven by an increasing share of non-residents in the overall labour force and an increasing activity level among non-residents. SINGAPORE COMPETITIVENESS REPORT 31 .11: COMPARISON OF FEMALE LABOUR PARTICIPATION RATES. however. Since 2000. Its challenge was a highly-inefficient local sector that drove up prices. Singapore ranks roughly on par with the OECD average but significantly below the Nordic countries. provided by the ILO. Activity levels among non-residents are about 30%-points higher than among residents. In Singapore. 2000) was the classic example of an economy with solid labour productivity and mobilisation. Japan. 61% of the change in Singaporean labour mobilisation has been the result of higher activity levels among Singaporean residents. 2009 ESTIMATES Source: LABORSTA Labour Statistics Database. Source: Singapore Department of Statistics. This is different from South Korea and Japan. labour scarcity. Data again provides important insights into the actual performance of an economy and on the policy areas that need attention. not just implementing broad based policies for higher productivity.10: CONTRIBUTIONS TO CHANGE IN LABOUR MOBILISATION. calculations by ACI. For the cross-country comparisons.11 shows otherwise. Singapore. for example (Porter et al.

Singapore’s local cost position would look less favourable. Another way to look at the standard of living is the measure how long an average person has to work to be able to purchase specific goods or services across different locations. The data also suggests that rent levels are relatively modest in Asia compared to Western Europe and North America.S. provided by the International Monetary Fund. but is most likely still better than the situation in the United States.FIGURE 2. and not only of low local prices.13: NORMALIZED COMPARATIVE PRICE LEVELS OF SELECTED CITIES Source: Price and Earnings 2009 Edition: A Comparison of Purchasing Power Around the Globe. 32 SINGAPORE COMPETITIVENESS REPORT . both in absolute terms and in relation to the level of GDP per capita reported earlier. this is to a large degree the effect of low average prices. After adjusting for this. The ratio of PPP to market exchange rates is an appropriate measure. Singapore performs much less favourably. FIGURE 2. 2008). below most European and North American cities but pricier than other countries in emerging economies across Asia. so long as market exchange rates reflect international price equalisation for traded goods and services.13) again shows Singapore roughly at the same price level as Hong Kong. This measure combines information on local prices (which we discussed in this section) and on wage levels. dollar at a price below the market-based rate (IMF. Given the data on relative prices. Comparisons of price levels across cities are regularly done by private companies to help multinational companies set wages for their expatriate staff. published by UBS AG.3 This would suggest that a low purchasing power factor relative to the foreign exchange rate is at least partly the result of an undervalued currency.12: COUNTRY-LEVEL PRICE COMPARISONS Source: World Economic Outlook (April 2009). a fact that also applies to Singapore. On this measure. The data (Figure 2. This is consistent with relatively high inequality and a low wage share in GDP. with a view on the standard of living that income can afford in different locations. There is some discussion as to whether Singapore’s monetary policy is keeping the parity of the U.

In countries like Singapore. This profile is quite similar to North America and Australia.14: PRICE ACCESSIBILITY FOR SELECTED PRODUCTS Source: Price and Earnings 2009 Edition: A Comparison of Purchasing Power Around the Globe. provided in the following sections of this Report. and many continental European countries combine higher productivity with much lower labour mobilisation. The data in this chapter indicates that the recent productivity slowdown occurred across the entire economy. either higher labour mobilisation or a larger capital stock. Singapore’s strategy over the last few years was to develop activities with higher levels of productivity. casual observation suggests that for housing. A factor that is not captured well in the existing data is the segmentation of prices across different consumer groups. Singapore’s key challenge is the problematic trajectory over time: labour productivity growth has become more volatile. But the long term challenge is clearly to increase labour productivity. SINGAPORE COMPETITIVENESS REPORT 33 . So far. (for example. has dropped in importance. Source: Singstat Time Series Online. Improving the female participation rate among Singaporean residents would bring some temporary relief. have become the dominant drivers of GDP growth. provided by the Singapore Department of Statistics. A limited role of structural change combined with a simultaneous productivity slowdown in many sectors suggests that the Singaporean economy is facing broader underlying challenges. published by UBS AG.15: TOTAL FACTOR PRODUCTIVITY Assessment Singapore’s prosperity rests on high labour mobilisation combined with respectable but unexceptional positions on labour productivity and local price levels. already high in international comparisons. and possibly other areas. The recent growth in labour mobilisation rates. Whether or not these prices differences across market segments are larger or smaller than in other countries could be a topic for further investigation. which includes the growth in labour productivity not accounted for by higher labour input (accounting for improvements in skills) or higher capital intensity. local hawker centres) while prices in the international restaurants frequented by the higher-income groups are at or above the level of comparable restaurants in Europe or North America. calculations by ACI. these activities have not led to structural change towards these sectors becoming a significant growth driver. Scandinavian countries tend to have higher local price levels. and the productivity gap with the United States remains high. markets are highly segmented across income groups.15 confirms this assessment: Factor inputs. Only a look at the country’s underlying competitiveness. FIGURE 2. can unmask the drivers of these trends. Total factor productivity growth.FIGURE 2. Figure 2. This provides society’s lowincome segments access to affordable dining in. has been driven by cyclical factors and has little longterm potential. food.

See Pender (2002) for further explanations and estimates for EU.” IMF Country Report No.htm.S. “Singapore: 2008 Article IV Consultation-Staff Report. International Monetary Fund (2008). U. 2000.” United Nations. Public Information Notice on the Executive Board Discussion.C. and Japan. Geneva. Vienna. UNDP (2009). working paper no. WIFO. Jean-Paul Fitoussi (2009). Singapore. New York.” Commission on the Measurement of Economic Performance and Social Progress. Can Japan Compete?. “State of the World’s Cities 2008/2009: Harmonious Cities. However. UN-HABITAT (2008). See http://www. (2002) “Industrial Structure and Aggregate Growth”. D. Washington. 2. Manila. and Mariko Sakakibara. Paris. Amartya Sen. Discussion Draft. Singapore Department of Statistics (2009). Chapter References Asian Development Bank (2006) “Urban Air Quality Management: Summary of Country/City Synthesis Reports Across Asia”. “Key Household Income Trends.” United Nations. IMF. accessed July 25.. The dynamic shift effect is the interaction between changes in employment shares and changes in productivity and can be negative if either of these components is negative. Stiglitz. Michael. The Singaporean authorities did not challenge this assessment of the IMF. 08/280. they argued that it was appropriate to support a structural current account surplus that provides foreign reserves to shelter the Singaporean economy in case of external volatility. These calculations were done using the ten sector database for Singapore. Pender.net/databases/10_sector. and Statement by the Executive Director for Singapore. 2008. Joseph. positive static shift effects and negative dynamic shift effects.Endnotes 1. The static shift effect is the product of changes in employment shares and productivity levels. 2009. Porter. 182.” Occasional Paper on Income Statistics. Hirotaka Takeuchi. “Human Development Report 2009. 3.ggdc. “Report of the Commission on the Measurement of Economic Performance and Social Progress. Michael E. 34 SINGAPORE COMPETITIVENESS REPORT . Most developed countries show large within effects.

Singapore Competitiveness Report Chapter 3 Intermediate Economic Outcome Indicators SINGAPORE COMPETITIVENESS REPORT 35 .

36 SINGAPORE COMPETITIVENESS REPORT .

which is primarily a function of geography. the ratio of Singapore’s total trade (goods and services) to GDP fluctuated between 3. Figure 3.75% per annum) outpaced growth in imports (9. and similar activities).01: TRADING TRENDS Source: UN Comtrade database. however. grading. for example. can boost exports and inward FDI. Only in 2007 and 2008 did Singapore again register a service trade surplus. Total trade in goods increased from $43 billion in 1980 to $658 billion in 2008. Performance on intermediate indicators is the outcome of the interplay of many dimensions of underlying competitiveness. investments. for example. which will be the subject of Chapter 4.5 for goods and 1 for services) in 2008. These intermediate indicators have a number of interesting characteristics.01 show the overall trends. Singapore is dependent upon imports for all basic goods. since 2002. signal the ability of companies to compete successfully on the world market.5.62% of Singapore’s total exports.69%) over the period of 1980 to 2007. Entrepöt trade is an important component of Singapore’s economy and trade mechanism. sorting.2%. leads companies towards higher levels of performance. Trade Singapore is a trading nation. Entrepöt trade continues to be important and in addition being an island city-state. for example. But they also contribute to higher competitiveness.INTERMEDIATE ECONOMIC OUTCOME INDICATORS The second stage of analysis.5 (3. Between 1988 and 2001. representing an annual growth of 10. indicate a build up capacity that is likely to lead to future market success. 2009 via WITS. and innovation outputs are such indicators that provide insights in the process leading up to ultimate prosperity and are analytical tools to identify potential weaknesses. SINGAPORE COMPETITIVENESS REPORT 37 . with data on goods and services. targeting them directly can lead to poor policy choices. Service trade registered a surplus in the 199os and has been broadly balanced for the last decade. for example. high innovation or investment rates. entrepreneurship.0 and 3. marking. adding to the analysis of outcomes that directly contribute to living standards discussed in the previous chapter. In 2008. this ratio has increased more or less monotonically and it stood at about 4. The Department of Statistics defines reexports as goods that were exported without undergoing any transformation (except repacking. While intermediate indicators are important analytical tools. but are costly and lead to little upgrading of underlying competitiveness. Direct subsidies or an undervalued exchange rate. exposure to international competition through trade and investment. FIGURE 3. retrieved on July 9. They are the result of strong underlying competitiveness . are intermediate indicators of economic activity. calculations by ACI. Some of the intermediate indicators also signal whether current prosperity levels will be sustainable in the medium-term future.high export levels. Export growth of goods (at 10. A positive goods trade balance is a relatively recent phenomenon that started to be the norm after 2001. Exports. re-exports under this definition accounted for 42.

13% of total Singaporean export growth between 1990 and 2008. calculations by ACI. this share has been increasing significantly. FIGURE 3. Over time.04).84% in 1993. This is the part of world trade where China’s growing exports have had the biggest impact (Figure 3. reaching its highest level at 74. Growth in re-exports has accounted for 51.04).02: EXTENT OF RE-EXPORTATION Source: Singapore Department of Statistics Since 1990. and were again hit during the dotcom crisis.1% in 2005. and declined thereafter to 4. Singapore’s re-exports are dominated by high-tech products. and the narrower category of manufacturing goods (which excludes fuel and mining products). retrieved September 1. The significant share of Singapore’s growing trade in recent years has been driven by the strong growth in total world trade. the Asian crisis. Singapore’s share in world manufacturing trade peaked at 5. and was 3. Singapore has gained market position in service exports.FIGURE 3. goods. Singapore managed to regain some market share. 38 SINGAPORE COMPETITIVENESS REPORT .03: COMPARISON OF GLOBAL MANUFACTURING EXPORT SHARES Source: WTO Statistics Database provided by the World Trade Organization. Singapore managed to keep its relative position quite stable while most other countries saw a significant loss of market share. Singapore’s world market share of global exports doubled (Figure 3. Singapore’s global share in fuel and mining products peaked at 4. and after 2007.22% in 1995 to 67. with the pattern becoming more pronounced over time.17% in 2008. Trade patterns have development somewhat differently in services.52% before the Asian financial crisis. While trade in services still account for less than a third of total world trade value. 2009. largely as the result of significant prices increases for energy and raw materials. The share of high-tech products in total re-exports increased from 63. During the rapid expansion of Chinese exports after 2000. but not since then. This is a segment of world trade that has grown strongly prior to the current crisis. Market shares then dropped during the Asian crisis. The other important product category among re-exports is petroleum and related products. Gains in market shares have played a role until the Asian crisis. but in 2007/2008. some of the gains evaporated. this has has grown more quickly during the past few years. despite huge drops in the mid-1980s. After 2000/2001.37% in 2007.94% in 2007. Between 1986 and 1995. recovered somewhat in the immediate aftermath of the crisis.

Europe’s share has dropped even more over time. 2009 via WITS. 2009 via WITS. calculations by ACI.05: TOP FIVE GOODS EXPORT DESTINATIONS Source: UN Comtrade database. and Sino-Asia (China. behind Malaysia and China. FIGURE 3. Singapore has seen a gradual shift from trading mainly with North America and Europe to increasingly growing ties with the rest of Asia.04: SHARE IN GLOBAL TRADE OF GOODS AND SERVICES Source: UN Comtrade database. trade with Asia accounted for 65% of total trade. from 17% share a decade ago to 10% in 2008. it is revealing to look at Singapore’s trading partners. Hong Kong and Taiwan). On the goods side.FIGURE 3. calculations by ACI. There is a significant increase in the share of ASEAN countries. In 2008. 2009 via WITS. retrieved on July 9. calculations by ACI. SINGAPORE COMPETITIVENESS REPORT 39 . the United States dropped in 2008 to 3rd rank among Singapore’s most important trading partner. Below the aggregate levels of trade volumes and market shares. retrieved on July 9. FIGURE 3.06: TOP FIVE GOODS IMPORT ORIGINS Source: UN Comtrade database. retrieved on July 9.

e. The United States and Europe provide financial services. both in magnitude and growth. Figure 3. growth from 1993 to 2008 was low. BY TYPE OF SERVICE Source: Singapore Department of Statistics. starting from 1995.09 show the top three trading partners for various service categories. the United States and the European Union figure prominently in most service categories. is another fast-growing destination. patterns are somewhat more varied with Asia being more important as an export destination of service and the United States and Europe being more important import partners. while Asian countries are partners on trade-related services and. FIGURE 3. in the case of ASEAN. Figure 3. mainly processed raw materials and basic manufacturing goods. Trade patterns became more concentrated in the 1990s.07: DOMESTIC EXPORTS DESTINATION IN 2008 Source: Singapore Department of Statistics. the share of the five largest partners is now slightly below 50%.07 shows the top 25 destinations of Singapore’s domestic exports. India. is even more evident than for goods exports. management services.FIGURE 3. calculations by ACI. The important role of Asian destinations.08 and 3. i. although growing from a small base. China is growing faster than any other major export partner. 40 SINGAPORE COMPETITIVENESS REPORT . and though the United States remains important in terms of size. and knowledge. and has therefore become more important over the years. This indicates a declining importance in the future if these trends continue. Malaysia has become Singapore’s most important trading partner. calculations by ACI. On the services side.08: TOP FIVE SERVICE EXPORT PARTNERS. whereas that of China and Indonesia has increased. The importance of Japan has declined. culminating in 1995 when 59% of trade was with the five largest partners. Europe is not an important destination. Since then the pattern has been reversed. on construction. With the exception of construction where the top three trading partners are all Asian.

UN Comtrade database. calculations by ACI. looking closer at electronics. Often also called information technology (IT) goods. 2009 via the World Integrated Trade System software. SINGAPORE COMPETITIVENESS REPORT 41 . Figure 3. A Case Study: Electronics Exports This section further explores the changing profile of Singaporean trade. Malaysia is now the largest market and others such as Hong Kong and China are large customers which have grown in importance.5 billion in 2007) and specialization (9. BY TYPE OF SERVICE Source: Singapore Department of Statistics.09: TOP FIVE SERVICE IMPORT PARTNERS.7% of global IT exports in 2007. IT is Singapore’s largest cluster by export value (USGD83. retrieved on November 2. Asian destinations figure prominently in electronics. FIGURE 3. RCA of 4. but is losing share over the years.5).FIGURE 3.11 shows that the United States figures prominently. A look at export destinations provides a first indication on how the changes in the global IT industry affect Singapore’s trade.10: SINGAPORE’S ELECTRONICS PERFORMANCE Source: Yearbook of World Electronics Data 2008. provided by Reed Electronics Research. electronics is one of Singapore’s most important exports. Despite clear growth in absolute export value. Singapore has lost significant market share in this cluster over the last decade. calculations by ACI.

There is a clear upward-sloping trend in Figure 3. Singapore’s changes in electronics production have roughly paralleled shifts in global demand. 42 SINGAPORE COMPETITIVENESS REPORT . Consumer electronics. A look at product categories provides another important angle.12: SINGAPORE ELECTRONICS PRODUCTION BY BROAD SEGMENT Source: Yearbook of World Electronics Data 2008. but their production has declined since 1997. Industries are clustered either in the top-right or bottom-left quadrants. retrieved on April 6.11: TOP 25 DESTINATIONS OF SINGAPORE ELECTRONICS EXPORTS Source: UN Comtrade database. calculations by ACI. still figured prominently in Singapore’s portfolio in 1985. FIGURE 3.12 shows how Singapore’s product export portfolio has changed over time. the initial focus of the cluster.FIGURE 3. Electronic data processing (EDP) products such as computer peripherals were the most important between 1985 and 1998. which plots growth in global demand against growth in Singapore’s production. Figure 3. with bubble size representing the value of Singapore’s production in 2008. Active and passive components have been the dominant product category since 2004.13. calculations by ACI. their value peaked in 1995 and declined ever since. 2009 via the World Integrated Trade System software. provided by Reed Electronics Research.

provided by Reed Electronics Research. calculations by ACI. provided by Reed Electronics Research. China dominates electronic data processing (EDP) products and accounted for well over 40% of world production in 2008. SINGAPORE COMPETITIVENESS REPORT 43 . calculations by ACI.FIGURE 3. where they have been integrated into final products for the domestic as well as for the US and European market. the electronics/IT case study is an example of how Singapore has been able to deal with the dramatic changes in global markets and value chains.14 shows the emerging competition in the electronics sector from China. Overall. In this product segment. Singapore has grown in those product categories that have seen the highest demand globally. The average annual growth rate of Chinese production in this segment over the period 1992 to 2008 was about 30% per annum. And it has sold its output increasingly to other Asian countries.13: ELECTRONICS DEMAND VERSUS PRODUCTION Source: Yearbook of World Electronics Data 2008. not so much at the expense of Singapore. FIGURE 3. China’s gains have come primarily at the expense of the United States and Japan.14: PRODUCTION OF ELECTRONICS COMPONENTS Source: Yearbook of World Electronics Data 2008. Figure 3.

BOX 1:

THE GLOBAL ECONOMIC CONTEXT: WHAT CHANGES WILL THE CRISIS BRING?
BY MANU BHASKARAN
CEO, CENTENNIAL ASIA ADVISORS PTE LTD AND ADJUNCT SENIOR FELLOW, INSTITUTE OF POLICY STUDIES.

The global economy is suffering its worst economic crisis since the Great Depression of the 1930s. The immediate consequences of this crisis have been substantial enough - major financial institutions have collapsed, developed economies are enduring the largest job losses in a recession for many decades and efforts are underway to re-shape global financial regulation. More than that, some trends that were emerging before the crisis are now likely to intensify. These include the relative decline of the United States economy and associated with it the likely erosion of the dominant role played by the United States Dollar. Changes of such a momentous nature are unlikely to occur without having a material impact on Singapore’s economy and its competitiveness.

Third, Singapore will also have to manage the political fallout from this crisis on policy formulation in developed economies. Increased regulation, particularly in financial sectors; more rigorous taxation; and other forms of intrusive state involvement in the economy are likely in the United States and Europe. The distribution of growth between profits and wages will also probably become less skewed towards profits than it has been in the past two decades, a result of the growing backlash against widening income gaps. Specifically, countries such as Singapore will have to watch the following closely: President Obama in the United States and Prime Minister Gordon Brown in the United Kingdom have pledged at the recent London G20 summit to crack down on tax havens. To this end, the OECD had put Singapore on a “grey list” of countries that had agreed to improve transparency standards but had not yet signed the necessary international accords. This has implications for Singapore, which due to its low tax and highly developed financial system, could in future be labelled a tax haven. Despite Foreign Minister George Yeo’s statements about Singapore being a “low tax” country and not a tax haven, pressure might still be put on Singapore if the political backlashes intensify. In that case, Singapore might lose some measure of attractiveness, and therefore competitiveness. Greater financial regulation, together with the de-leveraging process in global financial institutions, capital destruction and the rising risk-aversion we are witnessing, suggests that financial sectors and cross-border capital flows will shrink, and financial innovation diminish, for a probably significant period of time. There may even be a retreat from globalization toward some “localization of finance” just as there may be some localization of tourism and manufacturing supply-chains because of energy costs. None of this is good for Singapore’s current economic model. Fourth, it is almost certain that global economic growth will be slower. The crisis will create more headwinds to growth or accelerate emerging trends. The developed economies will almost certainly see slower growth as their banks and companies restructure in response to the crisis and their household sectors raise their savings rates to rebuild damaged pension assets (see the diagram below which shows the International Monetary Fund’s estimates of declining potential growth in the major economies and emerging countries). Accommodating climate change will also become a more important aspect of the business environment and add to business costs.

The Changed Structure of the Post-Crisis Global Economy

The global economy is likely to see substantial changes once the worst of the crisis is over. The changes we outline below amount to a transformation of the economic environment that Singapore will operate in. First, Singapore will have to deal with a more volatile and unpredictable global economy, one that is probably subject to various stresses and shocks in the aftermath of the crisis. Such is the scale of the policy response that it is reasonably likely that the global economy will emerge from recession by early 2010 at the latest. However, this has probably been achieved at a high cost new vulnerabilities have been created in the global economy by the extraordinarily large monetary, fiscal, regulatory and other changes that policy makers have put in place. At some point, the costs of these policies will become more of an operating concern for businesses and policy makers. These costs could be higher inflation in some countries because of the extraordinary amount of monetary easing. Or it could be the fallout from not bringing massive fiscal deficits under control in a timely fashion. Moreover, the contrasting approaches likely to be taken by major economies in reversing the monetary and fiscal stimuli could itself create new stresses in the longer term, particularly in relation to currency risks. For instance, if the European Central Bank tightens monetary policy ahead of the Federal Reserve Bank in the United States, there are likely to be substantially negative implications for the US Dollar. Second, there are likely to be important changes in currency values after the crisis. While it is not clear if there will be a substantial depreciation of the US Dollar, it seems reasonable to conclude that Asian currencies on average will tend to appreciate against the currencies of the major economies after the crisis ends, particularly the US Dollar and perhaps even the Euro. Given the political mood in the United States and Europe regarding what they see as Asia’s responsibility in bearing part of the burden of adjustments in global re-balancing plus the rising protectionist pressures in the developed countries, self-interest and prudence suggest that Asian policy makers will choose to allow a gradual but material appreciation of their currencies.

44

SINGAPORE COMPETITIVENESS REPORT

THE GLOBAL ECONOMIC CONTEXT: WHAT CHANGES WILL THE CRISIS BRING?
GROWTH OF POTENTIAL GDP

Source: Collated by Centennial Group from IMF World Economic Outlook, April 2009.

Fifth, the post-crisis period will probably see some consolidation of production networks. Singapore and other Asian economies had been able to exploit the international fragmentation of production involving the splitting of production process into discrete activities which were then allocated across countries in recent years (Athukorala, 2006). Production networks have played a central role in the massive expansion of Asia’s intra-industry trade, especially in machinery parts and components. While the share of parts and components in world manufactures trade grew by 3 percentage points between 1992 and 2003 (from 18% to 21%), it grew by 8 percentage points in Asia (from 19% to 27%). There are some indications that this could change - fragmentation of production expanded when the benefits of fragmentation in the form of lower labour and other costs offset the logistics and other costs involved in such fragmentation, especially transport costs. With a post-crisis energy cost likely to be substantially higher than pre-crisis, with currencies of source countries set to depreciate against Asian currencies as a result of the crisis; and with increasing political backlashes at home, the multinational companies that drove production fragmentation are likely to be more circumspect about pushing this process too hard. Sixth, countries and companies will restructure their business models and operations in response to these fundamental changes. The crisis has concentrated minds and allowed reformist policy makers in emerging market economies to press their case for liberalisation more successfully. Governments in competitor countries, knowing that external demand will not be as bountiful a source of growth, will react in ways which will impact us. For example, they are spending more on infrastructure, which over time could narrow the advantage we have over them in this respect. China and India are certainly upgrading their capacity to compete but so too are other emerging market economies, including Singapore’s closest neighbours:

China’s policy responses during the crisis will tend to reinforce and accelerate emerging trends in its economy that were changing its competitiveness structure even before the crisis began. Rising land, labour and other costs coupled with a gradual appreciation of the Renminbi had caused labour-intensive export activities such as toys and garments to suffer a loss of competitiveness. This forced Chinese producers to restructure and move up the value chain into higher-value activities, including some that competed more directly with economies at Singapore’s level of development. Well before the crisis, for instance, China’s imports of higher-value components from the rest of Asia were already slowing as Chinese companies re-tooled themselves to be competent in producing these items. China’s policy response to the crisis involves a massive push to build up its already impressive infrastructure. The result will be vastly improved connectivity between coastal and hinterland regions in China, enhancing the lower-cost hinterland regions’ ability to compete in global markets. China’s stimulus package also includes a step up in the spending on upgrading technology. Afraid that its reserves are over-exposed to the US dollar, it is also encouraging its companies to use the opportunities presented by the crisis to acquire technology through acquisitions of innovative companies in the United States and elsewhere. This will help enhance the technological competence of Chinese companies over time.

SINGAPORE COMPETITIVENESS REPORT

45

THE GLOBAL ECONOMIC CONTEXT: WHAT CHANGES WILL THE CRISIS BRING?
THE CHINESE GOVERNMENT’S 10-POINT PLAN FOR INFRASTRUCTURE

Source: Collated by Centennial Group from the World Bank and the National Development Reform Commission of China

India, too, is likely to emerge from the crisis in a relatively stronger position than pre-crisis. Its economy has not been hurt much by the crisis - its financial institutions remain strong, its companies continue to restructure aggressively especially in manufacturing and the re-elected government of Prime Minister Manmohan Singh is in a much stronger position to, at least, modestly accelerate the pace of competitiveness-enhancing reforms. Other large developing economies are also well positioned. Indonesia has weathered the crisis well and with President Yudhoyuno’s re-election along with top economic technocrat Mr Boediono as Vice President-elect, Indonesia is also poised to see an acceleration of reforms that will strengthen its economy. Like India and Indonesia, Brazil has suffered relatively little damage from the crisis. If anything, its central bank and policy makers come out of the crisis with their credibility strengthened as a result of their skilful management of the crisis fallout. Malaysia is also stepping up the pace of economic reforms, with several major liberalisation initiatives launched this year. Many of these address shortcomings in its investment environment so as to attract foreign investment while also striving to enhance the competitiveness of its financial sector. These initiatives in competing economies will help to narrow the gap between these economies and Singapore in a range of areas - attractiveness of policy regime to foreign investors, infrastructure quality and macro-economic stability.

With considerably slower growth post-crisis in Singapore’s most important trading partners, Singapore may have to look elsewhere. However, its manufacturing industry may not be structured to service growth in China, India and other large emerging market economies. An analysis conducted by Citibank found that “China’s imports from Singapore for its own domestic demand comprise just 37% of Singapore’s domestic exports to China (including oil), and just 4.2% of Singapore’s total domestic exports. Effectively, within Asia, Singapore ranks as the third least exposed to China’s domestic demand” (Sim and Kit, 2009). The likely consolidation of production networks reverses a very important factor in Singapore’s competitiveness. The Singapore economic model relied heavily - and perhaps disproportionately - on attracting to Singapore MNCs keen to outsource production as part of this process of fragmenting production networks. A fundamental change in this process will dilute an important driver of its competitiveness - its ability to attract MNCs to locate production in Singapore. Second, the structure of competitiveness is changing. Putting together the points made above: China is becoming less competitive in lower-value goods while raising its competence in higher range goods, including some that will compete more directly with Singapore-made products. Indian manufacturing is likely to expand the spectrum of products it is globally competitive in as a result of the restructuring going on in Indian manufacturing. Currency depreciation and crisis-induced def lationary cost adjustments in the United States, United Kingdom and other parts of Europe are likely to increase the number of manufacturing activities that these developed economies are competitive in. The rising cost of transport will add impetus to the cost advantages of domestically produced goods versus imports in these countries. Clearly, the competitiveness landscape will change substantially and this will require countries such as Singapore to re-think its policy approaches towards the broader issue of economic growth and specifically towards competitiveness. The winners from this new global landscape will be those who are quick to devise new economic models - new approaches that build resilience to the inevitable stresses of the new global economy and which accommodate the structural changes of competitiveness identified above.

Implications for Singapore

Essentially, the changes discussed above mean that Singapore is likely to face a changed landscape of competitive advantage in the post-crisis period. First, some the driving forces of competitiveness will be different: Singapore has geared its export industry to service demand in the United States, Japan and Europe. The multinational companies it attracted built production facilities here that ultimately serviced demand in these developed economies. Direct non-oil exports to these economies accounted for 34.8% of the total in 2008 while the indirect exports (through components exported to other countries which eventually ended up as finished goods in the developed economies) adding another approximately 23%).

46

SINGAPORE COMPETITIVENESS REPORT

the peak was in 1996 at about 2.5% of 2008 GDP. SINGAPORE COMPETITIVENESS REPORT 47 .32%.16: RELATIVE FDI INWARD INDICATORS Source: World Investment Report 2009: Transnational Corporations. FIGURE 3.8%.FIGURE 3. For Singapore. Singapore’s share of global inward flows was 1. only South Korea had a marginally higher rate. Traditionally manufacturing and financial services attracted most of the FDI inflows. foreign investment accounts for about 80% of gross fixed capital formation. Agric ultural Production and Development. published by the United Nations Conference on Trade and Development. with the United States and the U. Western foreign firms continue to dominate investments in the manufacturing sector with the United States continuing to be the leading investor. Investment Most East Asian countries have relied on investment-intensive models (domestic and foreign) of economic growth. China and India lead the BRIC countries. FDI plays a growing role in the Singaporean economy. While Singapore’s share of global FDI flows has declined. The rest of the comparator countries hover around a fifth of GDP. Investment intensity continues to be high in Singapore with gross fixed investment accounting for 28. one of the highest rates in the world with only Hong Kong relying even more on foreign capital to finance investment. having the lowest investment intensity. retrieved on October 12. In 2007. As a proportion of GDP. Among the comparator countries used earlier.K. while Russia and Brazil are comparable to Singapore’s European and Scandinavian counterparts. FDI inflows doubled from 82% (of GDP) in 1991 to 171% in 2007. just before the Asian financial crisis.15: INVESTMENT INTENSITY Source: EIU CountryData database (provided by Bureau Van Djik Electronic Publishing). 2009. Since 2004. finance has outpaced manufacturing as a target for FDI.

FIGURE 3. local investment accounted for 28% of gross fixed investment in the manufacturing sector. Singapore tops both lists and in dollar terms its acquisitions were evenly split between OECD and non-OECD targets.91% of GDP) in 2008. and outward FDI stock amounting to 103. These shares have remained remarkably stable since 1997.9 billion (4. TABLE 3. calculations by ACI.01 shows a key reason for why foreign companies continue to come to Singapore: In the majority of sectors. Singapore has also become an important investor in its own right. calculations by ACI.9% of GDP. Table 3.02 shows the value of acquisitions firms from non-OECD countries. In 2007. Over the last few years. with outward FDI f lows reaching USGD8. Japan for 16% and European countries for another 18%. the United States accounted for 29%.01: PROFITABILITY OF FDI IN SELECTED INDUSTRIES Source: Singapore Department of Statistics (20072009). Table 3. accounting for well over 80% of cross border flows of capital. M&A activity is the dominant form of foreign direct investment. they are generating attractive returns from their investments. 48 SINGAPORE COMPETITIVENESS REPORT .17: PRESENCE OF FOREIGN INVESTMENT Source: Singapore Department of Statistics.

is the largest market for intellectual property. Most researchers focus on science-related indicators because data is readily available and tends to be significantly correlated to other dimensions of innovation.S. calculations by ACI. such as Wal-Mart’s big-format retail concept that was a huge contributor to American prosperity growth in the last decade. and thus attracts patent activity covering the creation of most meaningful scientific knowledge. As it is increasingly insufficient to support rising prosperity levels by exploiting existing competitive advantages.18: INTERNATIONAL COMPARISON OF PATENTING ACTIVITY Source: Various databases provided by the United States Patents & Trademarks Office. But many commercial innovations.02: TOP TEN NON-OECD M&A ACQUIRERS Source: OECD (2007). SINGAPORE COMPETITIVENESS REPORT 49 . Patenting activity in the United States is a particularly attractive measure because the U. Innovation Innovation. or ways of providing them to customers. is a key characteristic of advanced economies. The simple dimensions of innovation are those related to direct outcomes of scientific research. the creation of new competitive advantages gain in importance.TABLE 3. the generation of new knowledge and of profitable new products. services. are much more complex. Innovation is notoriously hard to measure. FIGURE 3. such as patents or publications.

and Sweden. Patentees from Massachusetts. and is now approaching the level of strong innovators like Canada.. is difficult because of the home bias for U. Singapore ranks high on measures of scientific outputs. South Korea and Taiwan in Asia. FIGURE 3. India.S. electronics companies and government-related research institutions play the most important role.19: COMPARATIVE ORGANIZATIONAL PATENTS Source: Various databases provided by the United States Patents & Trademarks Office. Its patenting rate per capita in the U. Singapore’s patenting has remained broadly unchanged. However.S. Germany.S. has stayed roughly stable over time at about 70% of Singapore-owned patents.S. while countries like Australia.S. South Korea.S. one of the strongest patenting states in the U.5 million is about 41% higher than Singapore. patenting.. Singapore’s patenting in the U. continue to be much more active patentees. 50 SINGAPORE COMPETITIVENESS REPORT . Massachusetts also has a larger pool of would-be innovators to draw from – its 2008 population of 6. China. The share of the most active patentees in total Singaporean patenting in the U.S. steadily go up since 2002. However. countries like Finland.20: SINGAPOREOWNED PATENTS IN THE USPTO (2004-2008) Source: Various databases provided by the United States Patents & Trademarks Office. especially on a per-capita basis In absolute terms. A fair comparison with the U. over the past five years is comparable to that of Denmark and not far behind India. Switzerland in Europe and Japan. and Taiwan have seen their annual patent counts in the U. Among Singaporean patentees in the U.S. Israel. has grown quickly over the last decade\. registered about seven times as many patents with the United States Patent and Trademarks Office (USPTO) over the last five years than Singaporean patentees.FIGURE 3.

22: SINGAPORE PATENT APPLICATIONS IN 2007 Source: Statistics Database (July 2008). Singapore amended its intellectual property laws about a decade ago. S. A little more than a third of all applications by Singapore residents were filed in the United States. Singapore has the strongest focus on electrical engineering in its patenting of all major innovation countries. Japanese and U. and has a particular focus on engineering. There is limited data on academic publications. the United States was the most popular location for Singapore residents to file patents. industrial designs and patents can since be registered here at the Intellectual Property Office. Figure 3. In 2007. Singapore is strong. but available evidence is in line with patent data impressions.21: PATENT APPLICATIONS BY FIELD OF TECHNOLOGY (2002-2006) Source: Statistics Database (September 2009).FIGURE 3. Public research institutions have filed more patents in the U.22 shows data on patent applications. institutions dominate patent applications in Singapore and together. institutions account for over half of all patent applications received in Singapore in 2007. U.S. SINGAPORE COMPETITIVENESS REPORT 51 .S. and trademarks. than Harvard University (excluding the significant patenting of Harvardrelated teaching hospitals) and reached about a third of MIT’s patenting level. provided by the World Intellectual Property Organization. Only a fifth of the patents filed by Singapore residents in 2007 were filed in Singapore. calculations by ACI. which is about 7% of total applications received. calculations by ACI. FIGURE 3. provided by the World Intellectual Property Organization.

It illustrates that Singapore has the highest entry rate in the group of comparator countries. is another characteristic of particular importance to advanced. Figure 3. but has a relatively low business density. this measure excludes the entrepreneurship within companies and includes the creation of many small companies that have no ambition to grow and thus create little if any of the dynamism that is usually associated with entrepreneurship.24 shows data averages for Singapore between 2000 and 2007. The first is a measure of density. calculations by ACI. As a result. this section relies on business registration data as a proxy measure.4 This measures just one aspect of entrepreneurship . which is the number of registered businesses per-capita (calculated using economically active population rather than total population) and the entry rate (which is the number of new business registrations divided by the ‘stock’ of registered businesses in the previous year).23: PAPERS IN THE ENGINEERING CITATION INDEX (2007) Source: National Science Council of Taiwan. However. As is the case with innovation.the number of new businesses registered every year . The annual Global Entrepreneurship Monitor (GEM) is perhaps the best available source for comparative data on both the country context for entrepreneurship and attitudes and aspirations of entrepreneurs.FIGURE 3. knowledge-driven economies. However. and is mired by differences in legal systems. Developed countries have both high density and entry rates. entrepreneurship is complex to measure. The World Bank database provides two measures. New business formation is one such widely-used indicator. FIGURE 3.24: MEASURES OF ENTREPRENEURSHIP (AVERAGE OF AVAILABLE 20002007 DATA) Source: 2008 World Bank Group Entrepreneurship Survey (Leora Klapper) and World Development Indicators Online (provided by the World Bank). 52 SINGAPORE COMPETITIVENESS REPORT .does not distinguish between truly new ventures and the registration of merely new legal entities. 2008. Singapore has not participated in this survey since 2006. the mobilisation of new combinations of assets within new or existing companies. Entrepreneurship Entrepreneurship. Comparative business registration data is available from the World Bank.

2007 Edition”. Love. The growing role of Asia is also visible in the nature of Singapore’s exports. Trading intensity remains high. Paris. The data is consistent with Singapore becoming a more entrepreneurial place. (2008) “2008 World Bank Group Entrepreneurship Survey and Database”. Chapter References Klapper. (2009) “Foreign Equity Investment in Singapore 2007”. and Western Europe. and the returns foreign investors can achieve in Singapore are attractive.are solid. Advanced services and capital-intensive production for Asian final demand is becoming more important. however. Singapore has traditionally been dominated by a small number of large domestic and multinational companies. Leona. Singapore’s progress in shifting its position towards becoming a knowledge-driven economy is more questionable. have been created. and David McKenzie. Miriam. partly as an emerging end market and partly as a step on the way to the U. presumably predominantly private domestic enterprises.both inward and outward . Singapore Department of Statistics. FDI flows . Singapore’s role is increasingly focused narrowly on specific activities within overall Asian value chains that serve these markets.S. And the productivity data presented in the previous chapter sheds doubts on the effectiveness with which new ideas and technologies have been introduced into the overall economy. National Science Council of Taiwan. And patenting and publication/citation intensity clearly point in this direction. Ministry of Trade and Industry. Bruhn. Republic of Singapore. even when the vast majority of these new companies are likely to remain small. there is evidence that a large number of smaller companies. pg. See http://go.S.While Hong Kong has the highest business density among Asian comparators. (2008) “Foreign Equity Investment in Singapore 2006”. Asia is becoming a more important destination of Singaporean exports. market. Taipei. http://go. it is clearly undergoing a transformation. Inessa.org/C8Q8EGTTH0. is less convincing.worldbank. (2008) “Indicators of Science and Technology: Taiwan 2008”. These types of companies are particularly prevalent in services focused on the domestic market. Endnotes 1. Entrepreneurship remains relatively low and seems more concentrated on activities serving the local market than on existing or emerging export sectors. Republic of Singapore. Ministry of Trade and Industry. such as electronics. Singapore Department of Statistics. In most traditional export sectors targeting the U.org/C8Q8EGTTH0. Over the last decade. Republic of Singapore. While Singapore’s position in these areas is not weakening. (2007) “International Investment Perspectives. China. 32. SINGAPORE COMPETITIVENESS REPORT 53 . The indicators of scientific outcomes are quite impressive: Singapore has over the last 10-15 years been able to establish itself as an important academic hub in Asia with global relevance. The evidence on Singapore’s ability to translate its growing scientific potential into economic outcomes. the traditional hallmarks of the country’s competitive position. (2007) “Foreign Equity Investment in Singapore 2005”. Assessment Singapore has retained its strong position as a global trading hub and an attractive investment destination. Ministry of Trade and Industry. Singapore Department of Statistics. however. Organization for Economic Cooperation and Development.worldbank.

54 SINGAPORE COMPETITIVENESS REPORT .

Singapore Competitiveness Report Chapter 4 Competitiveness Fundamentals SINGAPORE COMPETITIVENESS REPORT 55 .

56 SINGAPORE COMPETITIVENESS REPORT .

however. which is defined here as “the set of factors that influence the level of prosperity a location can reach. These factors that have a direct influence on the productivity and innovativeness of firms. First. Second. they are often identified as the most critical determinant of prosperity over longer periods of time. Data is available on the institutional capacity of the country. • Macroeconomic Competitiveness. we provide some more detail on the conceptual approach. Assessing Competitiveness Many elements have an impact on competitiveness. The wealth they provide depends not only on what is in the ground. an annual assessment of competitiveness across more than 120 countries published by the World Economic Forum. Porter since 1990. Importantly for public policy. At its core.e. The data was collected between February and April 2009. Social infrastructure and political institutions are hard to change in the short term. These are factors that may have a direct impact on prosperity. These categories should also be structured in a way that highlights critical action priorities in a natural way.: a skilled workforce) that depends on the value of another (e. But its location at a major global shipping route also provides significant opportunities that turned out to have strong impact on the specialization of the Singaporean economy.and especially the way its competitiveness translates into prosperity and the specific competitive position it has developed .” For policy-relevant analysis. as well as infectious diseases like cholera and tuberculosis. and yellow fever. depend on government policy or competitiveness in more general terms. The approach for assessing competitiveness used here organizes policy categories in three broad groups: • Microeconomic Competitiveness. universities.000 business executives around the world. the choice of indicators and there relation to each other. especially its human capital. Its geographical location makes it susceptible to many infectious diseases that thrive in hot. i.it is useful to summarize Singapore’s endowments as well. it does not provide information on the ultimate root causes of these outcomes. The ranking methodology presented in this report uses a new approach developed by a team under the leadership of Professor Michael Porter. building on the work by Professor Michael E. These include mosquito-borne diseases such as malaria. dengue fever. It is based on statistical data collected from international organizations and on a survey of more than 10. i.COMPETITIVENESS FUNDAMENTALS of elements that policy makers can work with. The productivity of an economy depends on many factors. in the academic literature. our analysis will also make use of other data sources. Only an understanding of the competitiveness fundamentals that ultimately explain performance differences across locations can provide this information. In addition. is an important source of information. Like a gift. it is the outcome of myriad decisions taken independently by many different players in companies. Government. The 2008/09 Global Competitiveness Report has a chapter with more detail on the new index methodology applied for calculating the rankings reported here (Porter et al. But in order to understand Singapore’s overall position more fully . particularly central government. no individual institution controls microeconomic competitiveness. Endowments Our competitiveness assessment focuses on microeconomic and macroeconomic aspects. the academic literature on growth finds few independent long-term effects of macroeconomic policy on prosperity levels once the quality of institutions is controlled for.e. and then mobilizing the right coalition of public and private players to address them. Effective competitiveness upgrading depends on indentifying the interrelated set of issues that hold back firm performance. The remainder of this chapter is organized in three parts. The dimensions covered include different aspects of business environment quality as well as company sophistication.g. but do not directly influence their productivity and innovativeness. The concept of competitiveness applied here. these elements have to be organized in a way that creates categories. we assess Singapore’s macroeconomic competitiveness. Data on prosperity and of intermediate economic outcomes provide important information on the ultimate success of an economy and indicate patterns of strengths and weaknesses. with the value of one factor (e.: quality of infrastructure). provides a framework to deal with this complexity. Natural resources are an obvious example. government agencies. which will be credited in more depth where appropriate.. and we briefly discuss the quality of macroeconomic policy. prosperity is driven by the level of productivity that companies achieve in a location and the ability of an economy to mobilize its resources. • Endowments. Their value for prosperity might. but also on the way a country is able to exploit and leverage these assets. they add to wealth but not to productivity. about 97 kilometres north of the equator. but are not easily amendable to policy. however. Macroeconomic policies can be changed relatively quickly.g. The data collected for the Global Competitiveness Report (GCR). and many other institutions. These factors set the context in which companies operate. the rankings published here are not identical to those published by the World Economic Forum in their global competitiveness report. Singapore is located at the southern tip of the Malaysian peninsula. humid conditions. at a period where the extent of the global crisis had become very visible. 2008). because these are dimensions which policymakers can act upon. Competitiveness captures the medium-term economic fundamentals that ultimately determine the level of prosperity an economy and its citizens can enjoy.e. we look at indicators of the country’s microeconomic competitiveness. for productive economic activity. their effects tend to be unsustainable. Thus. i. Third. controls most of these factors. groups SINGAPORE COMPETITIVENESS REPORT 57 . often with a strong short-term impact on the economy. But without corresponding change in other competitiveness areas. Their impact on firms is often systemic.

From the beginning. government does not build up unsustainable levels of debt. like basic levels of health care and education. with a present population of about five million. especially since there is no conflict between rural and metropolitan areas. On political institutions. respectively. be it Dutch Disease-dynamics or the corrosive impact of these endowments on the quality of public institutions. published by the Singapore Department of Statistics. Ethnic Chinese account for 74.01: ETHNIC DEMOGRAPHICS IN SINGAPORE Source: Population Trends 2009. Due to a lower fertility rate. should it become the foundation for an open society attractive for foreign talent. Metropolitan areas like Singapore have an advantage.e. Other areas where ranks are low. the rank would have been higher were it not for decentralization of economic policy-making (106th) . 58 SINGAPORE COMPETITIVENESS REPORT . 74. i. with no inherited wealth to distract the policy process. Chinese residents as a proportion of total residents have steadily declined over the years. Basic human development. However. Singapore is a small island with an area of about 700 square kilometres. Monetary policy has to ensure that inflation remains in check.TABLE 4. Rule of law provides the necessary stability in the incentive structure. Macroeconomic Competitiveness Macroeconomic factors include two quite different categories: The Social and Political Infrastructure (SIPI) provides the basic condition that enables citizens and companies to engage in economic activity. Macroeconomic management also needs to avoid the emergence of overall imbalances in the economy. Singapore’s heterogeneous ethnic composition has the potential to lead to political strife. but there are differences across sub-areas.a concept that does not really apply in a city-state like Singapore. Overall. this ethnic diversity can provide an interesting magnet. Singapore has no meaningful natural resources or inherited sources of prosperity to fall back upon. Social Infrastructure and Political Institutions Singapore’s position on social infrastructure and political institutions is strong on average. Singapore ranks highly on rule of law (5th) and on the quality of political institutions (6th).2%. However. a fate that it has managed to avert. with the rest of the population being foreigners with temporary work permits. But size also makes it easier to reach consensus on policies. in that public services can usually be offered more efficiently.2% of Singapore residents. it also free from the negative consequences of natural resource wealth. and sound political institutions ensure that the laws put into place remain legitimate. The small size of the country reduces the attractiveness of the domestic market for foreign investors.9% are citizens and permanent residents (who are collectively called “residents” by the Department of Statistics). Macroeconomic Policy keeps the economy in balance at an aggregate level. Singapore’s limited endowments were a short-term challenge but a long-term opportunity. particularly press freedom (106th) and the measure of voice and accountability (93rd). reflect the specific nature of Singapore’s political system. Of this. are necessary so that individuals can go beyond pure subsistence activities. Fiscal policy largely has to ensure that the balance of public revenues and spending remain within what economist call the inter-temporal budget constraint. while Malays and Indians account for 13. Singapore was forced to focus on creating prosperity.4% and 9.

TABLE 4.FIGURE 4.02: SOCIAL INFRASTRUCTURE AND POLITICAL INSTITUTIONS INDICATORS Source: Unpublished data from the New Global Competitiveness Index (2009).01: EVOLUTION OF SINGAPORE’S MACROECONOMIC COMPETITIVENESS Source: Unpublished data from the New Global Competitiveness Index (2009). SINGAPORE COMPETITIVENESS REPORT 59 . Professor Michael Porter and the Institute of Strategy and Competitiveness. Professor Michael Porter and the Institute of Strategy and Competitiveness.

CPF contributions are captured as public debt. Due to the present economic crisis. and the government encourages people to maintain healthy lifestyles. Thus. 60 SINGAPORE COMPETITIVENESS REPORT .FIGURE 4. there is no evidence that the dynamics have played out in this way in Singapore. while the rest draws on previous budget surpluses.consistent with the data reported by the IMF (where Singapore provides the data) .g. World Bank Policy Research June 2009 In many countries. for example. “Governance Matters VIII: Governance Indicators for 19962008”. Unlike other countries. Singapore’s weakness on incidence of tuberculosis could possibly be a result of its reliance on workers from other Asian countries. Aart Kraay and Massimo Mastruzzi (2009). While this overall rank is solid. the stakes in GLCs) are not taken into account. However. TABLE 4. with high incidence rates for tuberculosis. Singapore’s poor ranking on national debt . while the corresponding assets (e. Macroeconomic Policy Singapore reached a mediocre rank of 58 on macroeconomic policy. Singapore gets dragged down by low scores on healthcare expenditures as a proportion of GDP (3.7 billion (the biggest since 1965) or 3. Singapore is ranked 25th overall on human development. Singapore has. such low rankings would be associated with a government leadership that is not accountable to the people. worked hard to keep healthcare costs from escalating. but this overstates the actual differences to the best ranked countries on these measures.03: MACROECONOMIC POLICY INDICATORS Source: Unpublished data from the New Global Competitiveness Index (2009). and the incidence of tuberculosis (48th). and typically runs budget surpluses as a result of which it has accumulated some of the highest reserves in the world. Singapore is not relying on issuing debt instruments to fund the stimulus.02: GOVERNMENT EFFECTIVENESS SCORES OF TOPRATED COUNTRIES Source: Daniel Kaufmann. the government would incur the biggest deficit since Singapore’s independence in 1965. the government announced a SGD20. Indeed. SGD4. the focus is on prevention rather than on treatment. but are not necessarily signs of weakness. These low ranks warrant further investigation. Singapore always had sound macroeconomic management. such as India and China.is a reflection of how the Central Provident Fund (CPF) is treated.9 billion of this deficit is funded by an unprecedented draw from accumulated reserves. Professor Michael Porter and the Institute of Strategy and Competitiveness. secondary school enrolment (63% ranked at 101st). and would pursue their narrow private interests.5 per cent of GDP.3% ranked at 122nd).5 billion resilience package which will result in a deficit of SGD8.

the significant rank difference is no major reason for concern. i. by ownership) in the economy. Singapore ranks first in the world on business environment quality. There is no strong evidence that differences in inflation at the modest levels usually seen in Singapore have a significant impact on long-term prosperity. The sophistication of company strategies and operations directly sets the economic value that they are able to generate from factor inputs for their customers. SINGAPORE COMPETITIVENESS REPORT 61 . but also of their specific co-location in regional clusters. not just co-location.03: EVOLUTION OF SINGAPORE’S MICROECONOMIC COMPETITIVENESS Source: Unpublished data from the New Global Competitiveness Index (2009). The strength of clusters is discussed in the section on related and supporting industries. Despite the large spread. On the monetary policy side. has always been high (ranked 60th) in Singapore. This is likely caused by Singapore’s size. The interest rate spread. in order to have a sustained and thorough effect on prosperity. which is quite typical for an economy of limited total size. Michael Porter introduced in 1990 the Diamond framework to capture the four dimensions of the business environment. and when government actively engages with clusters in its economic policies. although Singapore registered the strongest gains since 2001 in areas where it had previously been weaker. the difference between lending and deposit rates. The strength of local clusters determines the level of positive externalities that companies can nurture at a particular location.e. Business Environment Quality Overall. Since companies are not uniform. demand conditions. And clusters are more effective if there is joint action. Given that the differences in inflation rates between Singapore and the countries ranked highest globally on this measure are small. Only on the presence of related and supporting industries does Singapore continue to rank lower. Prosperity is ultimately created only at the company level. and the presence of related and supporting industries.’ Microeconomic Competitiveness Microeconomic factors include three key dimensions: The quality of the general business environment shapes the productivity of the assets that companies can access as well as the opportunities for their productive use. especially related and supporting industries. Professor Michael Porter and the Institute of Strategy and Competitiveness. These patterns have remained similar over time. factor input conditions. a position that it gained for the first time in 2007 and has retained since then.e. i. inflation (ranked 52nd) has recently dropped dramatically.FIGURE 4. which generally implies higher levels of industry concentration. real interest rates are typically very low in Singapore compared to other countries – a result of the exchange rate policy objectives that Singapore pursues. The cluster perspective adds a geographic dimension to the analysis: productivity is not just a function of the presence of related and supporting industries in a country. It also ranks first on three of four dimensions of business environment quality. Changes in macroeconomic competitiveness or other dimensions of microeconomic competitiveness have to result in changes on the company level. as in many other countries. it is also important to understand performance differences across the different types of companies (by size. the context for the strategy and rivalry.

mainly physical transportation assets. TABLE 4. provides a complementary view on Singapore’s position. Logistical Infrastructure Logistical infrastructure. Singapore has been able to defend its leading position over the years.TABLE 4. An efficient port infrastructure was an important element that enabled Singapore to take full advantage of its geographical location at a major global shipping line. this is the consequence of being a prosperous economy with higher input costs.04: THE PORTER DIAMOND Source: Professor Michael E. and Changi Airport continues to be ranked as one of the best airports globally in independent international assessments. The LPI ranked Singapore first among all countries covered. Over time. airport connectivity has been added.04: FACTOR (INPUT) CONDITIONS AND COMPONENTS Source: Unpublished data from the New Global Competitiveness Index (2009). The World Bank’s 2007 Logistics Performance Index (LPI). as well as an efficient city road system that enables access to warehouses and production sites island-wide. To a large degree. Both have achieved significant global market share. ranging from typical physical infrastructure to public services and knowledge. especially for passengers. is a traditional strength of the Singaporean economy. Factor Conditions Factor conditions include a wide range of infrastructure elements. only in domestic logistics costs does it register a lower position. 62 SINGAPORE COMPETITIVENESS REPORT . Porter. including additional elements of logistics-related administrative efficiency and presence of related and supporting industries in this field. Professor Michael Porter and the Institute of Strategy and Competitiveness. but its balanced position puts it in the global pole position overall. expanding the capacity of the infrastructure in line with the rising demands of a growing economy and burgeoning world trade. Singapore’s strong position on logistical infrastructure is also reflected in the economic performance of its port and airport. Singapore compares favourably on most dimensions. Singapore does not rank first in any of these elements.

TABLE 4.TABLE 4. Air Cargo World. SINGAPORE COMPETITIVENESS REPORT 63 . TABLE 4. TABLE 4. Professor Michael Porter and the Institute of Strategy and Competitiveness.06: RANKS IN THE 2007 LOGISTICS PERFORMANCE INDEX Source: Logistics Performance Index 2007.07: SHIPPING STATISTICS Source: Shipping Statistics.05: LOGISTICAL INFRASTRUCTURE INDICATORS Source: Unpublished data from the New Global Competitiveness Index (2009).08: ADMINISTRATIVE INFRASTRUCTURE INDICATORS Source: Unpublished data from the New Global Competitiveness Index (2009). in cooperation with the Turku School of Economics in Finland. published by the International Trade and Transport Department of the World Bank. Professor Michael Porter and the Institute of Strategy and Competitiveness.

is another area in which Singapore traditionally excels.06: COMPARISON OF DOING BUSINESS COMPONENTS Source: Doing Business 2009. 64 SINGAPORE COMPETITIVENESS REPORT . Singapore has been to achieve high markers for its administrative procedures across the board. while lagging far behind in others. It has maintained its first place since 2006. not on the perceptions of business people affected by them. Singapore’s relative weaknesses lie in two areas: Ease of registering property (16) and Ease of enforcing contracts (14). The World Bank’s Doing Business project provides an additional perspective on Singapore’s administrative infrastructure. 2008-2009 Source: Doing Business 2009. While other countries tend to be strong in some areas. the number of procedures to register a new business. is also the area where it has made the most progress of the last few years.05: EASE OF DOING BUSINESS RANKS. Doing Business ranks Singapore ranking first out of one hundred and eighty one countries. The indicator in which it ranks the lowest. The WB focuses exclusively on rules and regulations on the books. FIGURE 4. essentially the efficiency of government services and procedures. Some (but not all) of its indicators are also used in the GCI analysis. Singapore is strong across all the individual indicators used to measure administrative infrastructure. jointly published by the World Bank and IFC. jointly published by World Bank and the IFC.Administrative Infrastructure Administrative infrastructure. FIGURE 4.

TABLE 4. But it is also consistent with a policy that uses migrations as a more cost-effective means to increase the skill stock in the labour force. Singapore tops the attainment indicators both in terms of math and science scores and in reading scores.10 shows that on average permanent residents and new immigrants have a better educational profile than the domestic population. A majority of Singaporeans has at least some secondary education. 2008 (published by the Singapore Department of Statistics. TABLE 4. Any skills shortages are made up by having open immigration policies particularly for educated individuals. science. Table 4. Singapore is particularly strong in educational quality. an area covering education. and science commercialization.09: INNOVATION INFRASTRUCTURE INDICATORS Source: Unpublished data from the New Global Competitiveness Index (2009). Despite Singapore’s lower spending on education.11: PUBLIC EDUCATION EXPENDITURES Source: Education Finance Indicators (retrieved October 1. TABLE 4. This could be the result of higher efficiency. It is also an area where steady progress has been made over the past few years. its outcomes in terms of education achievements are strong.Innovation Infrastructure Innovation Infrastructure. is another area of Singaporean strengths. Table 4. 2009).10: AVERAGE EDUCATION LEVELS Source: Education at a Glance. Professor Michael Porter and the Institute of Strategy and Competitiveness. SINGAPORE COMPETITIVENESS REPORT 65 . provided by the UNESCO Institute for Statistics.11 shows that Singapore is spending less of its GDP than other advanced economies on education.

Singapore has over the last decade or so made great strides in strengthening its science capabilities. The higher education sector drove the growth in manpower with both the number of R&D personnel and researchers increasing at about 14. Singapore’s R&D push is evident from Figure 4. This has been reflected in the inputs into R&D but over time also in patenting. and more broadly the international positioning of Singaporean research and educational institutions.08. Business enterprises led the way as their expenditures on R&D increased at an average annual rate of 15.506 research scientists and engineers.23 billion) of the expenditure. and the Nordic countries.3% per annum. where social background is a significantly stronger determinant of performance. like Korea. Japan. There is a concern that Singapore focuses too much on the type of repetitive memorization of knowledge that generates high performance in standardized tests. but is not necessarily the best driver of intellectual capabilities. which shows a consistent increase in both spending and personnel since 1994.07: MATH AND SCIENCE TEST SCORES. 2007 Sources: Trends in International Mathematics and Science Study (TIMSS) 2007. standardized test have proven to provide better opportunities for children from lower social strata to progress than more comprehensive assessments of intellectual abilities. In 2007.FIGURE 4. publications.63% between 1994 and 2006. and gross expenditure on R&D was SGD6. with the private sector accounting for about two-thirds (4. At the same time. 66 SINGAPORE COMPETITIVENESS REPORT . Opinions on how these strong showings on standardized tests should be interpreted vary. These figures all compare favourably to the OECD average but lag behind Singapore’s leading peers. the total number of R&D personnel stood at 24. in absolute terms both have increased by about a factor of five over the period 1994 to 2006.95% per annum over the same period.5% from 1994 to 2006 and R&D expenditures per capita grew at 12. R&D manpower as a per-thousand of the total labour force increased at an average annual rate of 8.34 billion.

published by Institute of Education Sciences. calculations performed by ACI. published by OECD. SINGAPORE COMPETITIVENESS REPORT 67 .08: INNOVATION INPUT TRENDS Sources: Science and Technology Indicators 2008/2.S.Test of English as a Foreign Language(TM) (retrieved October 1.12: COMPARATIVE READING SCORES Sources: The TOEFL(®) Test . Fourth-Grade Students in an International Context: Results from the 2001 and 2006 Progress in International Reading Literacy Study (PIRLS).S. 2009 from the IMD World Competitiveness Online 19952009 database.TABLE 4.13: GROWTH OF INNOVATION INPUTS Sources: The Global Information Technology Report 2008-2009. jointly published by the World Economic Forum and INSEAD. U. Department of Education. National Center for Education Statistics. FIGURE 4. TABLE 4. The Reading Literacy of U.

10 and Figure 4. there is little evidence that private R&D spending has significantly gone into ‘new’ areas like biotechnology. Figure 4. Singapore also has comparatively more public institute researchers than any other country except the UK. ahead of every Asian country except Japan. Singapore Yearbook of Manpower Statistics 2008. This number is surprisingly high. provided by the National Science Council of Taiwan. whereas OECD countries such as Germany. As shown in Figure 4. 2007 Sources: Science and Technology Indicators 2008/2 and 2007/1.000 employees. Japan. published by the OECD.41 full-time equivalent researchers per 1. 68 SINGAPORE COMPETITIVENESS REPORT . FIGURE 4.11 show that Singapore ranks quite well on both R&D researchers and personnel.09. where Singapore had 7. where government has made major investments. countries such as Taiwan and South Korea also have a focus on electronics. but the focus appears to be on the former as Singapore’s researcher population (10. and a very low 0. compared to 2005 data. the United Kingdom and the United States have a much more diverse research portfolio.38 full-time equivalent R&D personnel per 1. At 35%.10: RELATIVE COMPARISON OF R&D RESEARCHERS.09: COMPARISON OF PRIVATE R&D SPENDING. the government’s share in total R&D spending is higher than in most other OECD countries.000 employed workers) places it in the top four.22 per 1. published by Singapore’s Ministry of Manpower. About 55% of all R&D spending (private and public) is focused on the electronics sector and within that sector an overwhelming proportion of the expenditure is on semiconductors. In the data available so far. published by the Organization for Economic Cooperation and Development. Taiwan Science and Technology Indicators 2008. 2006 Sources: Science and Technology Indicators 2008/2 and 2007/1.FIGURE 4.000 employees.

FIGURE 4.11: RELATIVE COMPARISON OF R&D PERSONNEL, 2007

Sources: Science and Technology Indicators 2008/2 and 2007/1, published by the OECD; Taiwan Science and Technology Indicators 2008, provided by the National Science Council of Taiwan; Singapore Yearbook of Manpower Statistics 2008, published by Singapore’s Ministry of Manpower.

Apart from direct spending on R&D, Singapore has also focused on building a stronger institutional base in the form of highquality universities. The Academic Ranking of World Universities (AWRU) ranks universities by different measures of scientific achievements. Other rankings, like the Times Higher Education ranking and the Webometrics Ranking of World Universities, confirm this general perspective. NUS and NTU are among the top fifty universities in Australasia, focusing mainly on engineering and technology: • The National University of Singapore (NUS) is the highest ranked university in Asia outside of Japan and Australia.

It contains dozens of research centres and has affiliations with many national centres. The “NUS Enterprise” program promotes industry engagement and entrepreneurship; it includes an Industry Liaison Office specifically charged with protecting the university’s intellectual property and promoting collaboration between the university and industry. • Nanyang Technological University (NTU) has six “clusters” of research centres in intelligent devices and systems, nanoand micro-fabrication, biomedical and pharmaceutical engineering, advanced computing and media, information and communications, and environmental and water technologies.

TABLE 4.14: ACADEMIC RANKING OF WORLD UNIVERSITIES, 2009

Sources: Academic Ranking of World Universities 2009, compiled by Shanghai Jiao Tong University.

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Singapore has also taken many steps to provide an attractive environment for science-related investments. In terms of intellectual property rights, Singapore’s legal regime of protection is “TRIPSplus,” and the country has recently emerged as one of only three Asian countries (along with Japan and Taiwan) on the list of the top twenty-five countries in the world with the lowest software piracy rates. Singapore has a very strong intellectual property regime in place with legislation relating to patents, copyright and industrial design. It also has a local registry of patents. The Agency for Science, Technology and Research (A*STAR) is the national research body that oversees public sector R&D activities in Singapore. It not only manages R&D activities, but contains

education and commercialization arms as well. Because of A*Star, significantly more public research activity is in Singapore taking place outside universities than in the comparator countries. An important ingredient for the effective translation of scientific research into commercial success is the ease and intensity of company-university interaction. Singapore has been able to get high scores in this area, reflecting widespread satisfaction among business leaders with their access to universities. However, Singaporean universities have hitherto been unable to generate significant income from royalties. While this is not the key indicator of commercialization success, it is one of the relevant channels.

BOX 2:

INTERNATIONAL RANKINGS OF INNOVATIVE CAPACITY

Over the last few years, rankings that aimed to capture the innovative capacity of countries and regions proliferated. Most of these were a mix of outcome and input measures, which limits their use for giving policy advice. Singapore tends to do well on most of these rankings, especially those that focus more on general business environment conditions than on specific economic returns from innovation. The World Bank’s Knowledge Economy Index measures the country’s ability to generate, adopt, and diffuse knowledge. The index is based on four pillars: use of information and communications technology; education and human resources, the innovation system, and the economic incentive and institutional regime. Singapore (ranked 20) and Hong Kong (ranked 26) are particularly weak in per-capita spending on education). Otherwise, all other components are very strong. The Boston Consulting Group (BCG), the National Association of Manufacturers, and the U.S. Manufacturing Institute released an international innovation index comparing innovation inputs and performance across countries. Singapore ranked first on the index and on inputs, which largely covers general business environment quality. But it ranked only ninth on innovation performance, a measure that combines R&D spending, patenting, and general economic performance measures like technologyintensive exports and labour productivity growth. Singapore’s profile of relative strengths and weaknesses is atypical of advanced economies such as South Korea (2nd), Iceland (4th), the United States (8th), and Japan (9th). Hong Kong, which ranked sixth overall, is also stronger than Singapore on innovation performance vis-à-vis innovation inputs. Singapore’s relative profile is more similar to economies like Armenia, Peru, and Uganda.

The EIU-Cisco Innovation Index ranking of the most innovative countries in the world also includes data on innovation inputs and outputs. Innovation output is measured by total patents granted by the European, Japanese and U.S. patent offices. Innovation inputs include measures such as R&D spending as a proportion of GDP, educational and technical skills and the quality of IT infrastructure. The innovation environment is measured by factors such as policies towards trade and investment, the political environment, taxes, the labour market and infrastructure. This ranking places Singapore in 16th place; as in other rankings, the country performs higher on inputs than on outputs. Japan is first, while the United States ranked fourth over the period 2004-2008. Taiwan (7th) and South Korea (11th) are ahead of Singapore while Hong Kong comes in lower at 21st. INSEAD and the Confederation of Indian Industry also released global innovation rankings for the year 2008-2009. Innovation inputs were measured using five pillars: institutions and policies, human capacity, general and ICT infrastructure, markets sophistication and business sophistication. Innovation outputs included knowledge creation, competitiveness and wealth creation. Many of the measures were drawn from Global Competitiveness Report data. The United States is in first position and Singapore is fifth, followed by South Korea (6th), Japan (9th) and Hong Kong (12th). Singapore has a relatively low score on the general and ICT infrastructure (14th) input pillar, and obtained the lowest output pillar rank in “competitiveness.” The Innovation Index of the Information Technology and Innovation Foundation in the United States follows a similar approach, giving a large weight to indicators on general business environment quality. These include general economic business environment indicators such as trade balance, foreign direct investment, corporate tax rates and the World Bank’s doing business rankings and new business registration data. Singapore is ranked first, and the United States placed sixth on this index. The ranking also provides a change score between 1999 and 2009, which puts China as the country with the best improvement, followed by Singapore.

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TABLE 4.15: CAPITAL MARKET INFRASTRUCTURE INDICATORS

Sources: Unpublished data from the New Global Competitiveness Index (2009), Professor Michael Porter and the Institute of Strategy and Competitiveness.

Capital Market Infrastructure Capital Market Infrastructure is the fourth dimension of factor conditions in which Singapore has a position at the very top of global rankings, ranking 2nd overall. This is an area in which Singapore has made significant improvements over the last few years. Looking more closely at different aspects of capital market infrastructure, Singapore has traditional strengths in the regulatory environment. More recently, this has also translated in better access to different forms of capital. Local equity market access remains somewhat lower ranked, despite clear gains over time. Financial market sophistication and the soundness of banks are ranked among the global top ten, but also come in at levels lower than Singapore’s overall position. The somewhat weaker position on financial market sophistication might be a reflection of the relative cautious approach that domestic banks have taken in their operations; an approach that has, however, enabled them to weather the current global fiscal crisis relatively unharmed. It could also be a consequence of the weaker position in some market segments, where especially the strong position of the Singaporean sovereign wealth funds have led to less private sector activity. Singapore’s slightly lower position on domestic credit to the private sector does not seem to be a reflection of barriers to accessing loans or other sources of finance. However, it might

also be that the lack of local SMEs with growth ambitions - the companies one would expect to have the strongest need of loans - is driving this result. The overall positive assessment is confirmed by a number of other analyses. The WEF’s Financial Development Report ranks Singapore 4th globally, up from 10th rank in 2008. The WEF uses many of the economy-wide indicators used in our overall assessment of competitiveness, but adds a few financial sectorspecific indicators. A recent ranking of financial centres ranks Singapore third in the world, after London and New York. It is the highest ranking financial centre in Asia, slightly ahead of Hong Kong and with a larger advantage ahead of Tokyo and other Asian centres. The ranking is based on an index combines a multitude of financial sector, competitiveness, and liveability factors from various sources. The headline Global Financial City (GFC) score (coloured blue in Figure 4.12) is used to rank global financial cities. The online survey assessment is a separate qualitative measure, and estimates city’s reputation as a financial hub. The figure below shows both the score from the data analysis and from the survey. Singapore has an excellent reputation as a financial centre, even stronger than its position on the hard data assessment.

TABLE 4.16: FINANCIAL SECTOR DEVELOPMENT, 2009

Sources: The Financial Development Report 2009, published by the World Economic Forum.

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The main reason is the slightly lower penetration rates for fixed line telephony and internet usage.com (Miniwatts Marketing Group) and the World Development Report Online (World Bank). Retrieved June 26. penetration rates are much higher in Scandinavian countries and in other Asian countries such as South Korea and Japan.14 shows internet use by age group and shows less internet use across all age groups. Figure 4. This is a concern given Singapore’s ambition to promote industries such as interactive digital media. Thus while Singapore’s IT infrastructure compares well with developed countries. While Singapore compares well with comparator countries. Broadband penetration rates in Singapore are also not the highest in Asia. Communications Infrastructure Communications Infrastructure is the final dimension of factor conditions.12: ATTRACTIVENESS AS FINANCIAL CITY Sources: The Global Financial Centres Index 5. 2009. TABLE 4. Professor Michael Porter and the Institute of Strategy and Competitiveness. FIGURE 4. recent data shows that Hong Kong and South Korea have higher penetration rates than Singapore. include the younger age groups that drive usage in other countries.17: COMMUNICATIONS INFRASTRUCTURE INDICATORS Sources: Unpublished data from the New Global Competitiveness Index (2009). 72 SINGAPORE COMPETITIVENESS REPORT .http://www. Figure 4.13: GLOBAL INTERNET USE AND PENETRATION Sources: Internet World Stats .13 shows internet penetration rates for various countries. Nick Danev.FIGURE 4. it is not outstanding and neither is internet use. This is an area where Singapore ranks as 7th globally slightly lower than in the other dimensions. a sector which relies both on IT infrastructure as well as consumers of digital media. internetworldstats. by Mark Yeandle. with little changes over time. Jeremy Horne. and Alexander Knapp of the Z/Yen Group. Published by the City of London on March 2009.

as well as by other policies in areas like labour markets. The Singapore government has over the last few years continued to actively pursue trade liberalization at all levels.has a central impact on this dimension of the business environment. TABLE 4. SINGAPORE COMPETITIVENESS REPORT 73 .as a policy maker and regulator. The role of government . and Canada. Singapore ranks traditionally very high on the Context for Rivalry and Strategy. bilateral. capital markets. This is driven by the high openness of the country to foreign investment and trade. but in some cases also as a market participant . published by the World Internet Project. and IP that ensure a high level of flexibility and strong property rights. regional as well as multilateral. It has signed sixteen trade agreements either bilaterally.FIGURE 4. But the corporate structure of companies and their actual behaviour on the market is also important. or through ASEAN with more than twenty trading partners from all geographies and is presently exploring further trade liberalization with countries such as Ukraine.18: CONTEXT FOR RIVALRY AND STRATEGY INDICATORS Sources: Unpublished data from the New Global Competitiveness Index (2009). Professor Michael Porter and the Institute of Strategy and Competitiveness. Peru. Context for Rivalry and Strategy The Context for Rivalry and Strategy captures the incentives and challenges companies face in leveraging factor conditions in the market place.14: INTERNET USE COMPARISONS Sources: World Internet Project: International Report 2009. with countries in all regions.

whereas transportation. as well as SMEs and larger firms. Ltd. government-linked companies (GLCs) and private domestic firms. But for smaller local companies. Incidentally. especially those with growth ambitions. TABLE 4. Ltd. The other issue is the dominance of business groups. 5 GLCs were arbitrarily determined based on material published by Temasek Holdings and GIC Pte.” Singapore suffers from a surprisingly weak rank for the Presence of Non-Tariff Barriers and the Openness to Multilateral Trade Rules. Singapore is ranked second out of 118 countries. and other intangible assets. account for similar shares of value added. Domestic SMEs focus on providing business services where as foreign ones focus on wholesale and retail activities.provide attractive and established career paths. Singapore is especially strong in the “Border Administration” sub-index. large GLCs. Given their size and resources. Large foreign firms can be found in sectors such as electronics. many of them large multi-nationals. On the services side. All figures are annualized in respect of a financial period from June 2006 and 2007 to May 2007 and 2008. large GLCs. financial services are dominated by large foreign firms. the report does not provide more detail on how these indicators were compiled. foreign firms dominate in the manufacturing sector and are larger than domestic firms.that is.19: LARGEST COMPANIES IN SINGAPORE Source: Singapore Top 1000. goodwill. large MNCs. patents. and particularly government-linked companies in the economy. The deeper concerns that exist are related to the actual market structures in Singapore. This is not atypical of smaller economies.19 provides data on the top 1. domestic private firms account for a larger proportion of employment than they do of revenues. trademarks. 4 Nationality of companies are determined by the place of incorporation by their ultimate holding companies. Singapore’s manufacturing sector has large foreign firms and small domestic firms. The report measures the extent of necessary attributes that countries have adopted. and the small firms are likely suppliers to large foreign firms. Hong Kong reported no data for these two indicators.000 Singapore firms and again. calculations performed by ACI.The World Economic Forum’s Global Enabling Trade Report combines much of this data with more specific information on trade-specific outcomes and policies. which will enable the free-flow of trade into a country and to its final destination. Singapore businesses are split between foreign firms. But it remains an issue that needs to be closely watched and address more actively by policy than in larger economies. value of sales. assets and net income whereas domestic GLCs account for a small proportion of employment and a much larger proportion of assets. Revenues are “Gross Operating Income” as reported by the company in its financial statements. it is hard to attract talent in an environment where foreign companies. and in some cases – even the government . 2 Net income represents profit/ loss after tax. 1 74 SINGAPORE COMPETITIVENESS REPORT . but before adjustment for minority interest. Clearly. and Singapore has made significant improvements in this area over recent years. and pharmaceuticals. While domestic and foreign firms. and includes sales to related parties. and the presence of smaller domestic private firms which are likely geared towards servicing their larger counterparts – might also explain some of the shortcomings in company sophistication in Singapore. exports and assets was between 20% and 29% depending on which measure is used. Domestic SMEs dominate general manufacturing. 3 Total assets exclude deferred expenditures. Unfortunately. GLCs have no problems either in attaining international prominence (as in the case of Singapore Airlines) or expanding to the region (as in the case of Singapore Telecom which has even expanded to Australia). but the share of domestic firms in terms of value added. The makeup of the corporate sector . One issue is the relative low level of rivalry on domestic markets. provided by the DP Information Network Pte. and restaurants are dominated by large domestic firms. while GLCs dominate transport and engineering. Table 4. while it has a marked weakness under “Market Access. following only Hong Kong. hotels. The 2007 Census of Manufacturing shows that domestic firms accounted for 90% of establishments and 58% of workers. chemicals.

Singapore ranks significantly weaker. both in terms of regulation and procurement. Innovation is often the result of sophisticated customers that are willing to experiment and push companies in directions that later become market standards. Singapore ranks first globally on demand sophistication. Demand sophistication is a reflection of consumer behaviour.20: DEMAND CONDITIONS INDICATORS Sources: Unpublished data from the New Global Competitiveness Index (2009).15: CONSUMER SOPHISTICATION SURVEY. but can also be the result of government action. FIGURE 4. more specifically the nature and sophistication of local demand. published by the Institute for Industrial Policy Studies and the Institute for Policy & Strategy on National Competitiveness. both in terms of consumer behaviour and government regulation. In other areas of demand sophistication. which in many industries is an important part of overall demand. SINGAPORE COMPETITIVENESS REPORT 75 . This is driven by government policies affecting IT. Demand Conditions Demand conditions. Professor Michael Porter and the Institute of Strategy and Competitiveness. either in terms of rules and regulations or in the form of public procurement. have long been ignored in the academic debate. the awareness has grown that local demand conditions play a significant role in shaping company behaviour.TABLE 4. but still within the range of other advanced economies. In recent years however. 2007 Sources: National Competitiveness Research 2008-2009.

Singapore ranks tenth on supporting and related industries. Singapore has become somewhat more diversified.21: SUPPORTING AND RELATED INDUSTRIES INDICATORS Source: Unpublished data from the New Global Competitiveness Index (2009). Singapore’s position is somewhat weaker. This is particularly visible in the export sector. TABLE 4. The data suggests that the nature of demand is currently not a key driver of Singapore’s competitiveness and innovative capacity. which is typical for a small economy. Singapore is a relatively specialized economy with a strong focus of activity in a small number of key sectors. it is increasingly hard to achieve competitive levels of productivity. Professor Michael Porter and the Institute of Strategy and Competitiveness. In exports. either on their own initiative or as the result of government policies that mobilize clusters. the importance of key clusters for the economy remains high. Supporting and Related Industries Supporting and Related Industries are the second dimension of the business environment that has traditionally not been covered by academic research. The local availability of relevant inputs and knowledge is now seen as a relevant factor. It gets the highest marks on efforts to mobilize collaboration within clusters. Singapore is ranked 23rd overall and 9th among small economies. Some of the advantages of strong clusters relate to the pure presence of relevant companies in the same location.The South Korean IPS National Competitiveness Research survey provides more detailed information on different aspects of consumer behaviour. This is significantly lower than its overall rank and falls behind especially the US and European countries. 76 SINGAPORE COMPETITIVENESS REPORT . With the growing development of the domestic economy. But other advantages only materialize if there is active collaboration among companies. With the growing interest in geographic factors in economics. Encouragingly. providing complementary advantages to the ones derived from global sourcing. where information technology (IT) exports (including re-exports) account for one-third of all export revenues. which is the natural corollary of a high presence of related and supporting industries. Singapore’s IT cluster has lost share relative to other clusters. On the actual presence of related and supporting industries. This is high compared to other exports that are not dominated by natural resources. On demand quality. this perspective has started to change in recent years. the weaknesses are more in quantity than in quality. But while the dominance of IT might be falling. Without cluster specialization.

Institute for Strategy and Competitiveness. Singapore has ranked highly in two recent studies looking at IT and at Biotech: 1. Porter. there is super-cluster effort including pharmaceuticals. biotech. Singapore’s cluster portfolio has evolved in a policy environment of open markets and active government support for specific clusters. there is infrastructure (Fusionpolis).16: SINGAPORE’S EXPORT PROFILE IN 2007. and regulatory decisions to legalize stem cell research. The box below provides a more detailed discussion of the policy activities in this field. Richard Bryden. and the Institute of Chemical and Engineering Sciences. Michael E. It includes efforts to attract life science manufacturing to Tuas Biomedical Park.FIGURE 4. and an Institute of Bioengineering. educational programs. medical technology. and health care services. The Worldview Scorecard aims to measure the capacity for biotech innovation in nations around the world. and general business environment foundations. while it ranks somewhat weaker on the IP environment. a number of sector-specific efforts have been launched over time: • In chemicals. the creation of the Biopolis Research Park. SINGAPORE COMPETITIVENESS REPORT 77 . to ninth of sixty six countries in 2008. the Chemical Process Technology Centre. Singapore’s rank improved from eleventh of sixty four countries in 2007. PORTER CLUSTER METHODOLOGY Source: Prof. In terms of physical infrastructure and institutional support structures. a SGD1 billion Biomedical Sciences Investment Fund. enterprise support. Underlying data drawn from the UN Commodity Trade Statistics Database and the IMF BOP statistics. the creation of a Genome Institute. The Economist Intelligence Unit’s IT industry competitiveness index evaluates countries on their ability to support a strong IT industry. there is a dedicated Jurong Island industrial park. and new economic development agencies (Infocomm Development Authority and Media Development Authority). Harvard Business School. an Institute of Cell and Molecular Biology. Singapore ranks second only to the United States. Singapore does best on education and workforce. Singapore’s overall rank was dragged down by low scores in the R&D environment (17th) and the Legal Environment (14th). • In biomedical sciences. International Cluster Competitiveness Project. Project Director. • In digital media. In terms of cluster-specific competitiveness. 2.

the creation of content and supporting activities include delivery and distribution systems such as telcos or internet service providers. expected to be completed within 10-15 years. The Cluster Development Program Defining Interactive Digital Media Interactive Digital Media (IDM) is part of a wider “creative” sector. the full analysis will be available as a separate working paper. The global entertainment and media sector is expected to grow at the rate of 2. The Next-Generation National Broadband Network will be implemented within the SMFP parameters to dramatically upgrade Singapore’s internet connection speeds. Work has started 78 SINGAPORE COMPETITIVENESS REPORT . and other related areas. Within the IDM Singapore’s interest in the IDM sector can be traced back to recommendations by the Economic Review Committee in 2002. interactive TV. providing infrastructure and venture capital. Another estimate indicates that value added in IDM was SGD1 billion in 2005 with “core” activities accounting for SGD0. Sector definitions as well as estimates differ depending on the particular approach used by various consulting firms. For interactive game development. and schools. 2007 revenues in Singapore were estimated at around SGD 150-175 million. by 2015. However. theatre. This complex is expected to house an ecosystem that will nurture the development of the media cluster. Sectors such as magazine and newspaper publishing and recorded music are expected to decline over this time period whereas those such as video games. with content accounting for 0. One estimate for 2005 indicates that revenues of digital media and entertainment in Singapore were about SGD1. film and publishing) or were ‘born digital’ (such as games. government launched the Singapore Media Fusion Plan (SMFP) which focuses on Asia and in growing Singapore’s competitive advantage in IP protection and content management capabilities. art. Singapore’s media fusion plan has set a goal to have.7 billion by 2015 with the “core” accounting for SGD3. and post-production activities. the basic value chain includes creation of content. The committee was of the view that that the next phase of development would have to rely on the creative and imaginative capability of Singaporeans. Communications and the Arts (MICA) and the Ministry of Trade and Industry (MTI). will house digital production. aggregation for 0. and interactive digital media to develop new clusters that fit this description. mobile content.6 billion. and IDM Jumpstart and Mentor. processing. IDM and R&D activities. for example. which includes activities in media. Government set up the IDM Programme Office (IDMPO) in 2006.86 billion with aggregation and distribution accounting for SGD3. This fund is dispersed via initiatives like IDM Research Oriented Centres of Knowledge. The IDMPO is an inter-agency outfit hosted by the Media Development Authority (MDA) to coordinate efforts between agencies such as Agency for Science. architecture. Thus. Estimates for 2010 suggest revenues of SGD3. Part of this strategy is a number of programs in areas like biotechnology. gaming. Ministry of Education (MOE). Singapore has broadly defined interactive digital media to include anything that is interactive and digital. processing for 0. development of the 19-hectare Mediapolis complex.000 new jobs by 2015. Futurescape. one of IDMPO’s tasks is to manage the dispersion of SGD500 million from the National Research Foundation (NRF). The United States will remain the largest market for entertainment and media. In June 2009. The key question is whether the program is achieving its goal of promoting structural change towards a new type of economic activities in the Singaporean economy. This short case study summarizes an analysis of the interactive digital media cluster that the Asia Competitiveness Institute has conducted. a media industry that has a value-added of about SGD10 billion creating 10. Estimates on cluster size vary significantly depending on the specific definitions applied. IDM in general includes advertising. Economic Development Board (EDB). film. and promises to increase internet speeds tenfold (to 1Gbps) at a cost lower than current broadband connections. Technology and Research (A*STAR). Research Institutes.0 billion. individuals. Others choose to segregate sectors based on whether they are ‘going digital’ (such as interactive television. The IDMPO strategy is to create a sustainable ecosystem that links four key groups of stakeholders . Instead of just being a “Global Media City” the objective was for Singapore to be the “Trusted Global Capital for New Asia Media. For instance. Government plays a leading role in this sector. Infocommunications Development Authority (IDA).Institutes of Higher Learning. animation and interactive online and mobile media). games.BOX 3: A CASE STUDY OF SINGAPORE’S INTERACTIVE DIGITAL MEDIA CLUSTER Singapore has for some time now followed an explicit policy of moving the country towards becoming a knowledge-driven economy. value added at about SGD75 million and employment at 714 individuals. Several projects included in the plan will directly enhance the IDM sector. film and video.58 billion. industry. Defence Science and Technology Agency (DSTA). For instance.7% per annum between 2009 and 2013. This is expected to expand to SGD4.95 billion and distribution for 0.13 billion. broadcast facilities. Ministry of Information. and providing demand. film and advertising are expected to grow at least at an annual rate of 20%.” An additional SGD230 million will be pumped into the media industry over the next five years (2009-2013). television and radio.7 billion. Nonetheless. attracting foreign investment. Core activities include. The investment from the NRF is spread out over five years (2006-2010) and is expected to generate SGD10 billion value-add and create approximately 10. The fibreoptic network will cost more than SGD1 billion to build.000 jobs. design. International Enterprise (IE) Singapore. online publishing and music. sector. The Singapore market was estimated at USGD3 billion in 2008 and is expected to be at about the same level in 2013. followed by Japan and the United Kingdom. internet access and internet advertising are expected to grow by at least 6% per annum. design. aggregation and archiving and distribution and delivery.4 trillion market in 2008.14 billion.8 billion. accounting for over USGD400 billion of a USGD1. creative and cultural products were to be the new engines of the economy.

the government’s approach to cluster promotion has also been similar to that used in manufacturing. and some firms indicated that business costs appear to have increased dramatically in the past few years. one related to data warehousing and distribution. Screen Australia provides a number of grants which include both development of digital content. and 95% of all homes and offices are expected to be connected by 2012. in pushing towards areas like IDM. As a “managed society. The BIC aims to boost Singapore’s media development and distribution capabilities by serving as a digital media exchange and content distribution hub that connects companies in Singapore to major media capitals worldwide via high-speed satellite and terrestrial fibre networks. Singapore so far remains a small player in IDM. targets foreign investors to become the anchors of the new cluster. But it does indicate that this process will take time. In Australia. uses a highly differentiated menu of targeted policy interventions and subsidies. The literature on vibrant IT clusters in countries like Taiwan. Other countries such as the United States. The foreign companies are in Singapore because of traditional business environment strengths. and travel to showcase projects. First. there are a number of seed and commercialization funding programs to help start-ups. for example. and efficiency. Singapore has quite a different competitive profile from many other countries active in IDM. In addition there are a number of funds such as the Bell Fund and the Quebecor Fund which provide up to half a million dollars per project to produce and develop content.” Singapore is perceived to lack the sufficient room for social and political debate that characterizes the environment in which creative clusters thrive. a strong general business environment valued by foreign investors. Canada for example which has a highly developed interactive digital media sector uses employment tax credits as the main instrument to promote this sector. the private sector and trade associations appear to be taking the lead with government playing a supportive role. In other countries. Singapore is moving into fields where the traditional policy tools might not work as well. The intent is to draw foreign media companies to use Singapore as a base for the development and distribution of their work. Incentives are usually much simpler with. in pushing towards areas like IDM. its multicultural environment which some indicated is hard to find outside of the United States. that the economic benefits are initially going to be modest. particularly when compared to Hong Kong. Interviews with companies in the Singaporean IDM sector confirm this view. The strengths that they find include: SINGAPORE COMPETITIVENESS REPORT 79 . Japan.A CASE STUDY OF SINGAPORE’S INTERACTIVE DIGITAL MEDIA CLUSTER in 2009. Singapore has an established IT industry. Another project that will enhance the local IDM sector is the setting up of the Broadcast Innovation Centre (BIC). and plays a dominant role in developing the cluster. as well as. while creative clusters tend to rely on a strong base of local talent. Many firms are also attracted by the low tax environment and other incentives the government is providing to promote the sector. In addition. But technical IT skills turned out to be less critical then creative abilities. United Assessment Singapore’s experience so far in IDM provides a number of lessons that have important implications for the country’s broader strategy to become a knowledge driven economy. The weaknesses include: a small domestic market and a weak talent pool. Singapore uses essentially the same policy approach in IDM that it has used successfully in the past in capital-intensive activities. and that it will require the development of new competitive strengths rather than just the appropriate marketing of the existing strengths to a new constituency. and living conditions that are attractive for foreign talent. enable Singapore-based broadcasters and content producers to share their work with global audience easily. Third. Overall. This is a joint project between MDA and Singapore Telecommunications. and particularly in Canada. it still has much less of a tradition in more free-wheeling creative activities. Canadian provincial governments relying only on employment tax credits. not because of the creativity of Singaporeans. Singapore has generally adopted a heavily governmentled approach. Second. Game developers can also take advantage of a scientific research and experimental development tax credit. This does not rule out that Singapore can be an effective competitor in this field. Government departments provide demand and have contracted with local firms to develop applications of 3D environments for both mundane tasks such as finding one’s way around a hospital and more sophisticated ones such as to help the police to conduct simulations. The experience of other countries suggests that this approach might have its limits. Singapore is moving beyond its traditional set of advantages. if Singapore is serious about moving into the creative parts of the cluster. South Korea. India. Ireland and Israel indicates that innovative clusters do not respond well to such directive government policy. Thus it is seen as very likely that Singapore may have to settle for “another” part of the value chain rather than content creation. which is to first attract multinationals and rely on imported talent and then to try and link domestic firms to the MNCs and to train local labour. and its immigration rules which allow firms to hire employees from other countries in the region. Focusing on foreign investment is more typical in production-oriented activities. It focuses on providing an attractive business environment. The general view among industry participants is that Singapore’s IDM sector may take as much as ten to twenty years to develop. hard work. A number of other countries also have initiatives in this sector. Singapore’s location between East and West. And while Singapore has a strong tradition of discipline.

the country has further accentuated some of its key strengths over time. Without a strong scientific base. the only indictor in which Singapore continues to do less well. This might limit the positive spill-overs of foreign investment on local company activity to the spin-offs by local entrepreneurs that have gained experience working for the MNCs. in the digital sphere. The more Singapore wants to move towards knowledge-driven activities that move beyond its existing strengths . First. and increasingly. Singapore’s Competitiveness in Perspective Singapore is one of the most competitive economies in the world. and needs to be understood more thoroughly. Without a strong scientific base. The more Singapore wants to move into activities based on individual talent. expanding to include a strong science base. Company Sophistication Singapore is ranked ninth on the aggregate measure for company sophistication. Singaporean companies are ranked best on organizational practices. While companies in Singapore are seen to invest significantly into R&D. Foreign investors spend relatively small amounts compared to the traditional capital-intensive industries attracted to Singapore. This is a significant improvement from recent years. and actually lost position on. But the control of the international distribution channels. It will be critical to target the right kind of activities. And there are no signs that its position is slipping. This is consistent with high levels of efficiency and short-term orientation towards meeting consumer needs but lower levels of innovation and unique market positions. On strategy and operational effectiveness. It will be necessary to review the policy tools applied. combining well educated nationals. Still. is the willingness to delegate authority. it is easier to integrate Singaporean IDM operations with sites elsewhere in the region or globally. Developing IDM to an economically meaningful scale will not be easy for Singapore. This is quite typical for relatively traditional organizational structures that integrate strong incentive elements without changing their underlying architecture. Companies in Singapore also do not rank that well on the nature of their competitive advantages. scientific research is a new activity where Singapore’s traditional model of attracting foreign companies to conduct operations can be applied. If anything. On the internationalization of firms. Foreign companies. the focus has increasingly shifted. rests with foreign headquarters or companies. And the contribution that IDM makes to the Singaporean economy is still very modest compared to the size of traditional IT activities. The overall profile of Singapore’s competitive strengths and weaknesses remains much in line with an investment-driven economy focused on delivering high levels of efficiency for foreign investors. especially for the MNCs. not with the enterprises located in Singapore itself. the more it needs to adopt a new policy approach where government is a facilitator rather than driver. makes it one of the locations where MNCs can tap into the global skill pool.A CASE STUDY OF SINGAPORE’S INTERACTIVE DIGITAL MEDIA CLUSTER Kingdom and Canada are ahead not just in creative industries in general. Science has become important in two dimensions: 1. a highly open market. where they are sixth overall.especially its attractiveness to foreign investors and talent . Within this context. Singapore would lack the credibility and key skills to compete in this area. foreign talent attracted by Singapore’s quality of life. and low-skill lowwage workers temporarily in Singapore. the experience in IDM suggests that Singapore has to take a realistic view in its development of knowledge-driven activities. the specific profile of the company base in Singapore shines through visibly. not only from the region but also globally. Overall. but in IDM and games in particular. This gap reflects the imbalance between R&D inputs and outputs on an economy-wide level. Singapore also provides an attractive workforce. Within this area. While this is a respectable position. the longer it will take for economic activities to reach meaningful economic scale. GLCs target international markets from a Singaporean base. Singaporean companies have made steady progress and now rank within the global top ten. 2. Second. science-related research activities might be a better fit than creative activities or large-scale entrepreneurial start-ups. a number of observations remain reasons for concern. their capacity for innovation is ranked relatively low. The key assets of Singapore remain a very strong physical infrastructure. advanced technologies and ideas would become out of reach in many of the sectors where Singapore is specialized in. and flexible and efficient government rules and regulations. Singapore’s attractive for foreign talent.the more challenging the process will be. 80 SINGAPORE COMPETITIVENESS REPORT . And it will be important to have patience. it is relatively weaker than the business environment score that the economy has achieved. While there is often a significant amount of local outsourcing in manufacturing industries due to transportation cost considerations. and signal changes in the way companies in Singapore are structured. The more Singapore wants to move away from the traditional model of MNC-driven growth. Science is an important driver of efficiency at the performance levels reached by the Singaporean economy.

Professor Michael Porter and the Institute of Strategy and Competitiveness.17: NEW GLOBAL COMPETITIVENESS INDEX AND SINGAPORE’S 2009 RANKS Source: Unpublished data from the New Global Competitiveness Index (2009). FIGURE 4.22: COMPANY SOPHISTICATION INDICATORS Source: Unpublished data from the New Global Competitiveness Index (2009). Professor Michael Porter and the Institute of Strategy and Competitiveness. SINGAPORE COMPETITIVENESS REPORT 81 .TABLE 4.

as a society. not just the local market. Marketwise. present in large numbers. or aims to grow its position. Singapore thus needs to carefully consider which options are available in terms of developing its competitiveness profile: Sticking to Singapore’s traditional strengths. it does not outperform key peers. Singaporeans are risk averse. While it is solid on key ingredients of an innovation economy. developing these strengths gradually by adding more science-oriented elements. or moving ahead towards a truly knowledge-driven economy with more radical reforms. and are. they too do not infuse much dynamism to the local market. Foreign companies are. April 2009. it implies that Singapore is reliant on foreign suppliers not present in the domestic economy. this is also the impression from international assessments that look at the general business environment for entrepreneurs. Scientific American World View. Culturally. Singapore registers a lower level of domestic competition than larger economies.uk/rd_scoreboard/?p=68. and even the public sector. Despite its many achievements. The challenge Singapore is facing developed from a combination of already having a very successful model. But their growth would take a longer period of time. Growing a new entrepreneurial sector on the basis of the strong science system will be challenging. a critical driver of innovation. Chapter References Economist Intelligence Unit. Where China with its huge market receives the automatic attention of foreign companies trying to penetrate its market. 82 SINGAPORE COMPETITIVENESS REPORT . United Kingdom. Singapore had to specialize in terms of clusters and specific activities to be able to reach sufficient critical mass. But in some areas. On related and supporting industries.innovation. of course. Singapore struggles with the transition to a knowledge-driven economy characterized by strong innovation as the key prosperity driver. This could free up some of the talent now working in executive functions in the GLCs for positions in new companies. despite a policy regime that has opened the market to international trade and investment. In addition. as long as the successful MNCs and GLCs outcompete start-ups for the limited talent available in Singapore. But there are serious questions as to whether the strongly government-driven approach around foreign anchor investors provides the right policy tools for knowledge-driven activities with strong local dynamism. Creating the conditions for this transition to happen would require taking greater risks. Singapore has traditionally fared well.Many of the traditional weaknesses of Singapore’s competitiveness are directly related to the small absolute size of the economy. the strong presence of government-linked companies (GLCs) seems to have a dampening effect on local market dynamism. With the GLCs’ focus increasingly shifting beyond Singapore’s borders. they face both cultural barriers and very tough competition for talent. But once in Singapore. But their focus is often the entire region. An EIU report sponsored by Cisco. While the efficiency of the GLCs seems to compare favourably to their global peers.gov. On the context for strategy and rivalry. (2009) “The 2008 R&D Scoreboard”. and is subject to significant uncertainty. not very open to the notion that failure in a business venture is an important educational experience. But Singaporean demand is not the key innovation driver in any of the clusters in which Singapore is strong at. Singapore has to work harder to increase the level of actual competition domestically. Singapore is quite clearly behind its most advanced peers when it comes to having a dynamic private sector with entrepreneurial companies that have the ambition to grow. London. The conditions for such companies seem generally good. the government has done their part in implementing sophisticated regulations and procurement rules. On cluster development. thus exposing the country to sector-specific shocks than a larger economy that can support a broader portfolio of clusters. there are so many opportunities within MNCs. The GLCs are an important example: privatizing the GLCs would have a high likelihood of causing their advanced functions (and local demand for advanced financial and business services) to disappear relatively quickly. at least in IT. http://www. they make it harder for local start-ups to grow and attract the top talent they need to succeed. GLCs. and yet being of small absolute size. On demand conditions. This remains the only feasible way to create the foundations for high productivity. that too little talent is left for new start-ups. (2009) “A new ranking of the world’s most innovative countries”.

Singapore Competitiveness Report Chapter 5 Conclusions SINGAPORE COMPETITIVENESS REPORT 83 .

84 SINGAPORE COMPETITIVENESS REPORT .

above the average levels of the EU and OECD. These changes are driven by market forces. not gains in productivity. and using old and new monetary policy instruments. Over the last two decades. and the development of innovation that is not science-based but focuses on new commercial ideas using existing technologies and knowledge. the Report’s discussion of the medium-term fundamentals aims to contribute to a solid recognition of these linkages. as an increasing share of the population retires and leaves the workforce. It does not aim to provide a better forecast on what will happen over the next six or twelve months. This is fully in line with the changes in Singapore’s role in the global economy revealed in its trading profile. Singapore’s high standard of living is the result of high income levels and high life expectancy. But the volatility of productivity growth has increased and catch-up to the US has proven hard to sustain. it is also one of the key drivers of Singapore’s medium-term prosperity. Economies around the globe are in turmoil. While this has exposed the country to the onslaught of the current crisis. Singapore is increasingly moving beyond being a host of FDI to also becoming an important source of FDI. A comparison with other cities reveals that Singapore has solid levels of prosperity. slowly changing: Singapore is shifting from being a direct supplier to the US and Western Europe to becoming a specialized supplier of services and components to the Asian production system. The recent growth in labour mobilisation has benefited from higher activity levels among residents but a rising share and activity level of nonresidents continued to make a positive contribution. Future growth will have to come from productivity growth. and increasingly also to Asian final demand. with its position on basic education and environmental quality somewhat lower. Singapore also remains a highly attractive location for foreign investment. Unlike their predecessors at the time.bump on the road. provides data and analysis to inform the discussions on the impact of the crisis on the medium. and government agencies provide in-depth coverage of this question. investors.CONCLUSIONS across Singaporean society in the standard of living. The downturn is significantly deeper and more global than anything experienced since the Great Depression. however. launching stimulus packages. Because of the size of the Singaporean economy. This far outside the normal parameters. The most recent improvements in prosperity have been predominantly the result of higher labour mobilisation. not by a clear policy to transform the economy in this way. Instead. Summary of Findings Singapore continues to be a highly prosperous economy. and Singapore is not an exception. Patenting intensity is high. This uncertainty affects not only the short term but also the longer term. putting pressure on the cohesive social model the country has adopted. or will it change the course of economic development for individual countries and regions? The Singapore Competitiveness Report 2009. especially towards other parts of Asia. The influx of less skilled temporary workers is part of the reason for the relatively modest position on basic education. ranking among the leading countries both within Asia and globally. Many other countries have recently experienced a similar increase in inequality. The relatively high and rising income inequality suggests that there are significant differences SINGAPORE COMPETITIVENESS REPORT 85 . Labour productivity has reached a high level. but is not quite as exceptional as the country rankings would suggest. However. The outlook now seems slightly more positive.albeit historically deep . Singapore’s prosperity is driven by high labour mobilisation and solid (but far from exceptional) levels of labour productivity. the country has developed a capable science system around a core of solidly ranked universities and the research activities of foreign investors. The bigger challenges remain the stepping from scientific exploration to commercial exploitation of knowledge. the total amount of patenting is also moderate at a global scale. but the country does perform better than most of its Asian peers.to long-term development of Singaporean competitiveness. Here. As Singapore’s economic strategy explicitly aims to accelerate the pace of technological change. bailing out banks. there is little reliable experience on how consumers. There are no signs that Singapore’s position in the global trading system is eroding. forecasts have become much less accurate than in periods of stable trends and calm. Singapore has further potential to increase labour mobilisation among females. the tendency for higher inequality is likely to increase. Its environmental performance does not stand out globally. in this period of dramatic shocks. other research centres. Singapore’s performance on intermediate measures of economic activity signals a solid foundation for current and future prosperity. Environmental quality tends to be lower in many cities. even if their primary motivation now is to deal with the immediate crisis at hand. and producers will react to the massive government efforts under way. financial institutions. especially in Asia: the rate of decline has fallen and the hope is increasing that while a drawn-out period of adjustment lies ahead. Will the crisis only be a . Clearly these are related: many of the policy choices made today will impact the fundamentals that exist tomorrow. High labour mobilisation is not atypical for economies with a significant share of immigrant labour. most likely as the result of technological change. a group that in other countries has been an important driver of increasing labour mobilisation rates. it will not be the abyss that bankers and exporters were facing in late 2008 and early 2009. In this time of economic crisis. policy makers have now reacted strongly. although not quite at the level of the strongest Asian peers. A more recent development is Singapore’s growing position in innovation. the ambition is to put the short-term developments into the context of the economic fundamentals that will drive economic development over longer periods of time. With capital stocks already high and skill levels solid. This position is. The defining characteristic of Singapore is its high level of integration into the global economy. the first in this new series of regular assessments. The demographic trends will make it increasingly challenging for Singapore to just keep the current labour mobilisation rates. the main driver of growth will have to be total factor productivity growth.

if they are appropriately governed and the market environment is right. Singapore ranks relatively high on other indicators of clusters or supporting and related industries. If this is the case. In Singapore. On macroeconomic competitiveness. possibly at a faster rate. like trying to instil innovative thinking and risk-taking in a highly organized society with a tradition of manufacturing for exports products that were created and designed elsewhere. this is not an indication of failure but a reminder that Singapore has now reached a level of performance where it has to consider in more detail which position it should aspire for in the global economy.e. but also face some obvious challenges. where the ultimate control of global value chains and strategic decisions rests with headquarters located elsewhere. However. their operations here do not seem to be translating the scientific research into new products and services at a significant scale. from physical infrastructure to administrative efficiency. an ambition outlined by the Economic Review Committee in 2003. Singapore’s fundamental competitiveness remains strong. There is no indication that the changes in the global economy system currently under way will fundamentally challenge Singapore’s competitive position. The necessary scientific infrastructure has been put into place. There are some concerns about the dominant role of governmentlinked companies. or even increase in importance. Singapore’s competitiveness fundamentals are strong. Again. A relative weakness is Singapore’s position on company sophistication. 86 SINGAPORE COMPETITIVENESS REPORT . a secure legal environment. Their high efficiency and full exposure to global competition limit any negative impact on the level of rivalry on local markets. world-class companies. But there remains a question as to whether these GLCs are effective in existing markets but less nimble in pursuing entrepreneurial ventures in fundamentally new fields. there remains a concern that the controlled nature of Singaporean society might inhibit creative activities that thrive in lessstructured environments. but this is most likely a reflection of entry into activities serving the local markets. but remain broadly more in line with a high-skill version of the investment-driven model. But Singapore seems well prepared to adjust to these trends. which also explains the weaker position on the quantity of locally available suppliers. bridging together scientific research (discovered locally or elsewhere) with companies able to draw on it and identifying opportunities where existing knowledge is not fully applied in some geography or field. too. i. In fact. Factor input conditions are world-class across all dimensions. The context for strategy and rivalry is very strong. the presence of private domestic companies is still very limited. In most countries. This is a clear reflection of the economy’s high level of specialization. especially in retail and services. and the geographic profile of markets and value chains globally will continue to evolve. the changes in its trade and investment profile already reflect how its position is evolving to meet new market dynamics. to skills and innovation capacity. Being an important global knowledgeinnovation hub with focused research laboratories. But they indicate that the country needs a fundamental discussion to refine its ambition along two key dimensions: First. and provides a solid foundation for the level of prosperity and the overall pattern of economic outcomes already achieved.e. and developing new business models and brands. unchallenged by a potent opposition or aggressive press. this risk has not materialized. In the export-oriented sectors. and Singapore has clear strengths to draw on here. Competition will increase. On microeconomic competitiveness. The data raises concerns about the openness of the political system. The slightly lower ranking on domestic rivalry is more likely to be a consequence of the small size of the local market.Start-up rates in Singapore are rising. they operate as private companies would. but a reminder that Singapore has now reached a level of performance where it has to consider in more detail which position it should aspire for in the global innovation landscape. Singapore does particularly well on the effectiveness of its public institutions. This is not an indication of failure. capitalizing on unique business solutions implemented in Singapore and the region. These observations do not imply that Singapore has failed on the mission it has laid out for itself. remains work in progress. This would also build on the existing scientific strengths that are crucial in understanding and leveraging the best knowledge available globally but with greater emphasis on commercializing research. like the high quality of life that attracts talent. Implications The analysis discussed above provides perspective on the three key challenges identified at the outset of this Report. and highly attractive conditions for talent is closer to Singapore’s current competitive strengths than is becoming a global R&D hub creating the next generati0n of global technologies and products based on scientific breakthroughs. Still. macroeconomic policy is solid. the risk is that a dominant political group. The evidence suggests that government linked companies can match the performance of their best private sector-owned peers. while MNCs and government-funded research institutes already draw on the scientific talent that has been attracted to Singapore. i. Overall. Fundamental competitiveness will remain crucial. rather than an innovation-driven economy. And it remains uncertain as to whether foreign investors or domestic government-linked entities commercialize the outcomes of their Singapore-based research locally. and provides an important pillar to support the general stability of Singapore’s economic environment. the dimensions of the overall context that have a direct impact on company productivity and innovation. Singapore ranks among the leading countries in the world. will become unresponsive to the needs of society and focus on private benefits rather than overall competitiveness. policies and conditions that set the overall context in which companies operate. and the government’s focus on developing specific sectors. Companies in these areas can draw on some clear advantages. there are many possible different versions of an innovationdriven economy that are feasible. the attractiveness of MNCs and GLCs for the best available talent could explain Singapore’s disappointing performance on entrepreneurship. Creative activities are growing. would also fit well with Singapore’s tradition as a regional business hub. This is not atypical for an economy dominated by foreign multinational companies. Becoming a global connector of knowledge. But. Singapore’s transition towards an innovation-driven economy. Remarkably for a relatively small economy. This is an area where the potential for creating value from exporting this competence in different ways remains underexploited. and some might be a better fit for Singapore than others. Singapore excels on its openness to global trade and investment. but they remain a small part of Singapore’s overall economy. maybe even more quickly than expected before the current crisis.

but only 19th on labour productivity. Second. immigration. to a large degree. the goal has been to create an existing product or service with fewer factor inputs. followed a trade liberalization logic that is politically difficult. First. But innovation can be viewed from a broader perspective .the introduction of new concepts. RECOMMENDATIONS FOR PRODUCTIVITY GROWTH • Focus on productivity growth in existing and emerging sectors. by translating. Singapore will need to move to a different view on productivity. because of highly sophisticated local demand. The recent slowdown of productivity is the most immediate challenge to deal with. in the past. its experience into systematic knowledge that may be sold by operating such services abroad or through training and consulting. especially from domestic sources. Singapore’s disappointing recent performance on productivity growth is. Looking at longerterm trends. don’t focus too much on “new opportunities” in narrow industries • Productivity improvements should go beyond developing worker skills (to get more output for the same input) to: – Deploying knowledge effectively to produce new and different outputs that have higher customer value – Enabling innovative recombination of knowledge from different sources to produce new higher-value products and applications – Strengthening management capabilities to organize the best use of the knowledge and skills of every employee and business partner • Productivity improvements should be targeted at the company and cluster level: – Encourage companies to re-invent their business models to create higher value through knowledge and innovation rather than depend on low-cost. has driven up labour mobilisation. low-skill foreign workers – Strengthen cluster linkages to enable companies to develop highly specialized skills that have significant value-added Increasing the potential for economic growth through trade and investment with neighbouring Asian countries is a second policy priority. Singapore could benefit more from these trends if its partners become more competitive and the ties within the region are more developed. Research suggests that the U. The current view is highly science-oriented . Singapore’s productivity record has to be seen against its level of competitiveness: Singapore ranks 3rd in the world on overall competitiveness. a cyclical phenomenon. More research on disaggregated productivity and company-level operations data would clearly be useful.looking at innovation as the translation of knowledge generated in universities and research labs into services and products. Collaboration with companies and clusters to discuss the possible transition to higher-productivity business models should be on the agenda.S. ASEAN has made ambitious statements of intent. The initial implication of the analysis above is not to overreact to the current crisis. at which it is not commercially attractive to move to an operational model based on higher skills and productivity. a longer term analysis of Singaporean competitiveness indicates how stable the country’s key competitive advantages have been over time. productivity growth has become more volatile as Singapore’s economy has been hit by a number of external shocks over the last decade. and potentially wage policy may have to be considered. however. but much remains to be done in order to turn these ambitions into reality. has done particularly well in taking advantage of new information technologies to improve the productivity of its companies through the redesign of its systems and processes. new processes or new business models. like the development of a strong research system over the last two decades. independent of where the idea is coming from. it has done so versus the United States. where activities are focused on areas where collaboration creates direct benefits to participants. the goal has to become creating more customer value given a set amount of factor inputs. is already underway. Changes. while labour productivity dropped as the economy reached its capacity constraints. Part of the reason is that ASEAN has. In the future. In the past. From health care to city planning and public administrative services. This gap is most likely the result of operational choices that companies make in response to the context of factor costs and business environment conditions they face. growing demand. If this data substantiates the hypothesis of a low-productivity business model outlined below. Since 2006. ASEAN would benefit from adopting a competitiveness logic. This is an area where huge potential exists for creating value through exporting this expertise. for example. This remains important advice when considering new policies. because it puts negotiations into a zero-sum game of reciprocal market access concession. Changes in the labour market.Second. Another implication concerns fundamental existing or emerging challenges where staying the course will not be enough and decisions are required. Singapore’s fundamentals are solid and there is no obvious reason for making any dramatic changes. this Report aims to inform decisions about possible government action. There are two reasons for concern. have systematically built on existing capabilities to create new strengths. there are significant policy implications. despite frequent policy reviews and action programs. SINGAPORE COMPETITIVENESS REPORT 87 . Singapore has always been willing to implement new solutions that create value for its citizens. But there is no clear evidence that productivity growth and the catch-up to other economies has structurally come to a halt.1 If future research supports the hypothesis of a low-productivity equilibrium. Companies face wage costs. to becoming an important part of the Asian production system and a supplier to Asian markets. One of the areas in which Singapore has arguable been most innovative is public services. and whether it is leveraging new knowledge or applying existing knowledge in different contexts. new strategies. In fact. especially for low skill labour. Recommendations For policy makers. while Singapore’s productivity catch-up has not stopped generally versus other advanced economies. It needs to be further investigated why Singaporean companies do not seem to be as effective in their response to these new opportunities. there needs to be a much broader view on what innovation is. Singapore’s shift from direct exports to the United States and Western Europe. and particularly for the economic review process currently under way.

UK Department of Trade and Industry Economics Paper No. M. a more textured policy debate is necessary to decide what type of innovation-driven economy Singapore wants to become. Ketels. “UK Competitiveness: Moving to the Next Stage”. Singapore has become an internationally respected model for a country that is willing to continuously review its position. but government policies set the context. global trader of knowledge vs. and the further transition towards an innovation-based economy will continue to fuel this trend. no need for drastic changes in Singapore’s economic strategy • Continue with policy to support the market-driven process towards tighter integration into the Asian economy • Revive ASEAN around a competitiveness agenda where collaboration creates direct benefits for participants – Current trade liberalization approach has clear economic rationale but faces strong political challenges (market access as “concession”) – Competitiveness approach focuses on individual activities with direct mutual benefits o Policy learning o Cross-border infrastructure o Cluster networks o FDI attraction o Skills and research Defining the specific model of innovation-driven economy that Singapore should aspire to become is a third medium-term challenge that Singapore has to address. Singapore needs to decide how to deal with these dynamics. GLCs and Statutory Boards – Infuse talent into local enterprises to develop them into more knowledge-intensive business with higher value-added outputs Inequality and the mobilisation of the female labour force is a fourth challenge that is more likely to become more pressing over time. Inequality has been rising. hoping to provide Singaporean policy makers with our analysis and perspective of the key issues and some possible options to consider.RECOMMENDATIONS TO ADDRESS A CHANGING GLOBAL ECONOMIC LANDSCAPE • Stay the course.S.uk/files/file14771.gov. Singapore should have an open debate about the type of environment it wants to provide to women. Female labour force participation is the result of individual choices. 88 SINGAPORE COMPETITIVENESS REPORT . Michael E. possibly with initial capital stakes of the anchor companies. http://www. This Report is written in this context. At the minimum. and could be more in line with Singapore’s capabilities.pdf. and has taken decisive action where needed. The other short-term opportunity is to work more intensively with MNCs and GLCs to create programs that allow some of their local managers to create spin-offs. More fundamentally. It has traditionally placed a high value on the cohesiveness of its society. This would sow the ground for more locally-rooted entrepreneurship and ultimately innovation. This is the first Singapore Competitiveness Report produced by ACI. Going further. and we intend to continue to use subsequent reports to highlight our analysis and perspective of the competitiveness issues facing Singapore in the medium term. entrepreneurial hotspot • Move beyond science-driven innovation – Go beyond scientific patents and have a broader perspective of innovation as a global knowledge hub – Leverage Singapore’s knowledge and expertise in public services into a strong export industry • Review policy approach in knowledge-driven sectors – Have a closer alignment between developing and commercializing knowledge in publicly-funded research labs – Develop programs to encourage commercial spin-offs from MNCs. Endnotes 1. The phenomenon of an economy being stuck in a relatively low-productivity environment despite high or rising Chapter References Porter. and Christian H.berr. This requires creative thinking on how such commercialization could happen. there is an uncritical benchmarking towards the U. and is achieved in the context of a less favourable business environment. 3. model. Policy tools that have been successful in the attraction of capital-intensive activities may need to be modified in new innovation-intensive fields that rely more on talent and culture than capital investments. The data presented in this report indicate that Singapore has made clear progress on science-related innovation. Too often. the potential for commercially exploiting innovation in fields like public services needs to be more deeply leveraged. But its success in creative and entrepreneurial activities is more limited. it will not stay this way automatically. RECOMMENDATIONS FOR TRANSITIONING TO A KNOWLEDGE-DRIVEN ECONOMY • Develop and choose among different visions for a knowledge-driven economy – Efficient research hub vs. there needs to be a review of whether the policy approach in these areas needs to be adjusted. This might be neither appropriate nor ideal for Singapore. Other models exist that can support high levels of prosperity as well. markets do not traditionally exist. (2003). in some of these fields.

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LEE KUAN YEW SCHOOL OF PUBLIC POLICY NATIONAL UNIVERSITY OF SINGAPORE 469C Bukit Timah Road. Oei Tiong Ham Building.lkyspp.edu.nus. Singapore 259772 www.sg/ACI .

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