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 .

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

............................39 Domestic Exports Destination in 2008........01 Figure 4..........................11 Figure 3........................................ 60 Evolution of Singapore’s Microeconomic Competitiveness............... 21 Singapore’s per-capita GDP per capita..........................39 Top Five Goods Export Destinations ..........................................................................50 Singapore-owned Patents in the USPTO (2004-2008) .......................................... 68 Relative Comparison of R&D Researchers........................................................................ 40 Top Five Service Export Partners..............................................07 Figure 3........................................32 Price Accessibility for Selected Products .......................................05 Figure 3.............. 2007 .................................................................................22 Figure 3.............................................................23 Figure 3................31 Country-level Price Comparisons ...............................................13 Figure 3....................................................................................................16 Figure 3..................................................................10 Figure 3................................................................................................................18 Figure 3..........................30 Contributions to Change in Labour Mobilisation.......................................................................................21 Figure 3.......................06 Figure 4.08 Figure 4.....................................................................24 Figure 4.....................19 Figure 3.................................................49 Comparative Organizational Patents ................................................ 2000-2008 ...................................................06 Figure 2........................................ 33 Total Factor Productivity...........................07 Figure 2.............. 2009 Estimates . in thousands of 1990 PPP$ ................................27 Human Development Index and Components ...............................12 Figure 4........................................................................................................01 Figure 3............................................ 51 Singapore Patent Applications in 2007.............................17 Figure 3..............................................................05 Figure 4........................10 Figure 2....................52 Evolution of Singapore’s Macroeconomic Competitiveness .......................15 Figure 3...............42 Electronics Demand versus Production ........................ by type of Service ................................................50 Patent Applications by Field of Technology (2002-2006) .................................................... 68 Relative Comparison of R&D Personnel......................................52 Measures of Entrepreneurship (average of available 2000-2007 data) ............43 Investment Intensity .......01 Figure 2...................................70 A Case Study of Singapore’s Interactive Digital Media Cluster ......31 Comparison of Female Labour Participation Rates.............................................................. by type of Service ......................................................72 Global Internet Use and Penetration .47 Relative FDI Inward Indicators .26 GINI Coefficient Comparisons...................................................................................39 Top Five Goods Import Origins .......................................................................................................................................................................................Boxes Box 1 Box 2 Box 3 The Global Economic Context: What Changes Will the Crisis Bring? ..............04 Figure 2............20 Assessing Competitiveness ....27 Singapore’s Gini Coefficient among Employed Households.............................................29 Relative Productivity and Prosperity ............................................02 Figure 4.01 Figure 1..................................................... 48 International Comparison of Patenting Activity ..............14 Figure 3...........................32 Normalized Comparative Price Levels of selected Cities ............59 Government Effectiveness Scores of Top-Rated Countries......................................... 64 Math and Science Test Scores............................................................. 40 Top Five Service Import Partners......................62 Ease of Doing Business Ranks................................14 Figure 2.................................................................................. 2006 ....................... 64 Comparison of Doing Business Components..............................................................07 Figure 4................09 Figure 2........ 69 Attractiveness as Financial City ........................72 4 SINGAPORE COMPETITIVENESS REPORT ........................................................04 Figure 3......................02 Figure 2........................ 37 Extent of Re-Exportation .......................05 Figure 2............................... 2008-2009 .............................................................................. 51 Papers in the Engineering Citation Index (2007) ..........06 Figure 3................................ 41 Top 25 Destinations of Singapore Electronics Exports .........................................................................47 Presence of Foreign Investment . 2007 .......................................................... 41 Singapore’s Electronics Performance.....28 Labour Productivity and Growth .................20 Figure 3..............................................................................................................................................12 Figure 3...................................................................02 Figure 3..................................................................................................................................................................................................................................................13 Figure 2...09 Figure 3..............................38 Comparison of Global Manufacturing Export Shares .........................................03 Figure 3..........................................................08 Figure 2................................................................................................................................................................................................11 Figure 4........................................................................38 Share in Global Trade of Goods and Services .................................................................................................................. 66 Innovation Input Trends ............................................................. latest year ................09 Figure 4..................................................................................11 Figure 2.......................08 Figure 3.................................................67 Comparison of Private R&D Spending..........................................................................................02 Figure 2........................................................................................................................................... 44 International Rankings of Innovative Capacity ....................... 61 The Porter Diamond.........................................................................................................42 Singapore Electronics Production by Broad Segment ........................................................................................................................................03 Figure 4............................................ 2007 .....03 Figure 2................................................................78 List of Figures Figure 1.........................................43 Production of Electronics Components .........................................................................................................................................................................................04 Figure 4..............15 Figure 3....12 Figure 2....................................13 The Competitiveness Framework: Determinants of Prosperity ...................................................................................................................25 Comparison of GDP per capita .........................................................................................29 Change in Sectoral Labour Productivity...............................................................................................................................30 Participation and Growth...........................................10 Figure 4.......................... 33 Trading Trends.

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

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whether or not they agree with every conclusion or recommendation. 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. Singapore is widely known for its expertise within government.Singapore Competitiveness Report FOREWORD The Asia Competitiveness Institute (ACI) was created to provide policy-relevant analysis on competitiveness in Singapore and the ASEAN region. The report suggests that government needs to support these changes and the overall resilience of the economy.. Asia Competitiveness Institute SINGAPORE COMPETITIVENESS REPORT 7 . or other advanced economies. Michael E.S. The Report highlights the virtue of a stable economic strategy in this time of global economic crisis and uncertainty. My hope is that this first Singapore Competitiveness Report achieves this purpose and become a model for many other reports to follow. I would like to congratulate the ACI team for this important piece of work. 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. Japan. Our ambition with ACI and the Singaporean Competitiveness Report is to provide government leaders with data and frameworks to make more informed policy decisions. Singapore has shown a remarkable ability to reinvent the key tenets of its competitive model in line with its rising level of development. 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. based on rich data and a comprehensive framework. Harvard Business School Chair of the International Advisory Panel. Singapore cannot follow the same approach as the U. Singapore’s fundamental model is working and there is no need for drastic changes. On behalf of ACI’s International Advisory Panel.

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Singapore Competitiveness Report Executive Summary SINGAPORE COMPETITIVENESS REPORT 9 .

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

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

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

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

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

16 SINGAPORE COMPETITIVENESS REPORT .

Singapore Competitiveness Report Chapter 1 Introduction SINGAPORE COMPETITIVENESS REPORT 17 .

18 SINGAPORE COMPETITIVENESS REPORT .

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

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

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

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

TABLE 2. and Singapore’s GDP is expected to grow by 3.02: COMPARISON OF GDP PER CAPITA Source: Total Economy Database (September 2009). and often offers significantly better access to public infrastructure and services. especially for housing. Higher density provides opportunities for higher productivity.01) shows Singapore’s average prosperity level to be solid and comparable to leading Asian. Consensus forecasts suggest that the worst will be over by the end of 2009.738). 26 SINGAPORE COMPETITIVENESS REPORT . lead to much smaller differences in the actual living standards. especially at lower and medium levels of prosperity. and North American peers. But overall.226) was below only that of Norway ($53. goes hand in hand with urbanization. calculations by ACI. Urban areas tend to register higher GDP per capita levels than surrounding regions. In 2008. there is evidence that among advanced economies. European. Economic development. Even in advanced economies like the United States. Singapore’s comparative PPP-adjusted per-capita GDP ($51. The Conference Board and Groningen Growth and Development Centre. A comparison with other major urban cities (Table 2.FIGURE 2. although different price levels. Singapore’s prosperity figures are influenced by its character as a city state.5% in 2010. the per capita income in urban areas is significantly higher than in rural areas. differences in urbanization rates are an increasingly less important factor in explaining prosperity differences. All other Asian economies are expected to show positive growth as well in 2010.01: 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).

inequality in China is even higher than in Singapore.481 (0.462 after government transfers and taxes). 2009. including China. followed by the Philippines. a measure which increases with greater inequality of income distribution. However. in Singapore as well as in many other economies. is the other Asian economy that comes closest to Singapore in inequality levels.04: SINGAPORE’S GINI COEFFICIENT AMONG EMPLOYED HOUSEHOLDS Source: Singapore Department of Statistics (2009). After government transfers and subsidies are taken into account.FIGURE 2. 2008). Equality Average GDP per capita figures can give a misleading view of actual standards of living if inequality is very high. have seen even stronger jumps in inequality. and more open markets creating greater opportunities for entrepreneurs to leverage their capabilities across larger markets. Russia. after a significant increase of inequality over the last few years. FIGURE 2. The high level of inequality could. and Indonesia.03: GINI COEFFICIENT COMPARISONS. some emerging economies. as the positions of Singapore and Hong Kong suggest. available data on inequality across cities indicate that this explains Singapore’s high inequality level to a relatively modest degree (UN-HABITAT. Singapore ranks as an economy with relatively high income inequality. is an important indicator as to whether that might be the case. SINGAPORE COMPETITIVENESS REPORT 27 . only New York City and a number of Latin American metropolitan areas register inequality at or above Singaporean levels. LATEST YEAR Source: CIA World Factbook. China. Across a wider sample of countries. Inequality has risen significantly over the last decade. retrieved on June 18. The key reasons often cited are: technological change providing higher returns to talented individuals. A location’s GINI coefficient. Singapore’s rise in inequality was more pronounced than in all OECD countries. However. be a function of being a city state. only Hong Kong and a number of Latin American countries register higher levels of inequality. At a value of 0. Singapore’s inequality is higher than in the vast majority of other advanced economies. In addition to Hong Kong.

with the exception of South Korea. Leading European countries and the U. Singapore puts great weight on its cohesion. Environmental quality is another factor influencing the quality of life which is not well captured through income measures. and how effective the economy is in mobilizing available labour. These indicators are an important signal of the overall performance that a country reaches. FIGURE 2. aim to establish positions in clean technologies. it has kept up with East-Asian levels and reached the average HDI level of OECD countries in 2005. both important drivers of income. Singapore still comes in behind Japan and Hong Kong. This could create tension if these dynamics are not carefully considered in advance. 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%. most OECD. 2009). 2009. have become increasingly important assets. Over the last few years. their quality of life and attractiveness as a place to live. As countries compete for global talent. A study by the ADB (2006) provides information on urban air quality in Asian cities. 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. they have also become important factors in global competition. As Singapore moves further towards a knowledge-driven economy.06). South Korea and Taiwan. also rank higher. Brazil.S. or the Czech Republic. The demand conditions created by public policy measures trying to ensure environmental sustainability are also an increasingly important factor. Scandinavian and Asian comparator countries. including Singapore. was closest of all Asian cities to meeting the WHO standards with annual average ambient concentrations of 30 micrograms per cubic meter in 2006. Starting from a low base in 1975. Singapore only reaches a level comparable to countries like Venezuela. However. 28 SINGAPORE COMPETITIVENESS REPORT . But the dynamics in this area need to be further analysed. As a relatively young nation of significant ethnic heterogeneity. as well some Scandinavian and OECD countries. independent from the income level individuals can reach. Bolivia.05: HUMAN DEVELOPMENT INDEX AND COMPONENTS Source: UNDP. 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). the forces pushing towards higher income inequality are likely to strengthen. 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. Labour Productivity Singapore’s current GDP per employee performance puts it only marginally ahead of the weaker economies within the OECD (Figure 2. This is the result of the high level of public services available to all citizens. cohesion is seen as a critical condition for developing as a peaceful society. Singapore has improved its position on the HDI in the last 30 years. which has adopted the United States Environmental Protection Agency Standards. Components of Prosperity Generation Income is ultimately the result of how productively labour is being used. In 2008. Singapore did perform better than Continental European countries like Germany and France. There is also increasing evidence that mobile individuals see better environmental quality as an important reason to locate in Singapore. Similarly.It is not obvious that inequality has created significant problems in Singaporean society. which disproportionately benefit lower income groups. as many countries. had higher labour productivity than Singapore. 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. are driven by different dimensions of the business environment. Singapore. the rate labour productivity growth from 1995 to 2008 was higher in Asian comparator countries such as Hong Kong. This is especially relevant for countries like Singapore that thrive on their ability to attract foreign capital and talent. These two factors.

SINGAPORE COMPETITIVENESS REPORT 29 . a significant productivity gap. the picture has become much more volatile. Since 2005. two periods of fast labour productivity growth (1992-1997 and 2003-2007) were interrupted by a period with low growth (1997-2003). Between 1965 and 1990. 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. which shows little signs of closing over the last decade.FIGURE 2. Since then. remains intact. The productivity decline affects the entire economy and is not principally driven by structural change. calculations by ACI. dominated by within effects of productivity growth in individual sectors. Relative to the United States.2 FIGURE 2.1 Structural change did make a positive contribution. calculations by ACI. the change in Singapore’s labour productivity was.06: LABOUR PRODUCTIVITY AND GROWTH Source: Total Economy Database (September 2009). Singapore has continued to register higher labour productivity than its OECD peers from 1990 to 2007. Singapore has registered stable productivity catch-up relative to the US and Western Europe. The Conference Board and Groningen Growth and Development Centre. like in most advanced economies. However. the within effect accounted for 85% of the change in labour productivity. but was much smaller in size: over this period. the country registers a labour productivity levels above the EU and the OECD level. The Conference Board and Groningen Growth and Development Centre.07: RELATIVE PRODUCTIVITY AND PROSPERITY Source: Total Economy Database (January 2009). Between 1970 and 2005.

FIGURE 2. Employment is from TED. Figure 2. provided by the Singapore Department of Statistics.08: CHANGE IN SECTORAL LABOUR PRODUCTIVITY Source: Singstat Time Series Online.8%.1%.1%.09: PARTICIPATION AND GROWTH Note: Utilizes combination of data sources. with the shift effect contributing 0. within industry effects contributed 3. Singapore’s labour mobilisation rate was already relatively high at the beginning of this process. Percent of population aged 15-65 for 2007 was taken from the WDI and multiplied against population reported in the TED. Together. The patterns have changed over time. it now ranks among the five countries with the highest rates of labour mobilisation globally. Sectoral productivity data reported confirms this view. within effects dropped to 2. Labour Mobilisation Labour mobilisation reflects how well a country uses its human resources and gives an indication of possible policy challenges in this respect. and up to 2008.FIGURE 2. The shift effect made an ever-decreasing contribution to labour productivity growth. and shift effects declined to 0. growing the rate of employees in its working age population at a rate surpassed by only a very small number of countries globally. 30 SINGAPORE COMPETITIVENESS REPORT . calculations by ACI.08 shows the change in labour productivity for selected goods and service sectors over 2003-2008. these sectors account for about 65% of employment and 60% of real GDP. Singapore has registered a significant increase in labour mobilisation. The drop of the within effects was especially pronounced after the dotcom crisis in 2001.6% to labour productivity. Before 1995. Since 1995. After 1995. Sources: Total Economy Database. January 2009 (The Conference Board and Groningen Growth and Development Centre) and World Development Indicators online (World Bank).

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

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

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

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

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

36 SINGAPORE COMPETITIVENESS REPORT .

62% of Singapore’s total exports.5 for goods and 1 for services) in 2008. adding to the analysis of outcomes that directly contribute to living standards discussed in the previous chapter. however.69%) over the period of 1980 to 2007. the ratio of Singapore’s total trade (goods and services) to GDP fluctuated between 3. with data on goods and services.2%. Entrepöt trade is an important component of Singapore’s economy and trade mechanism. retrieved on July 9. The Department of Statistics defines reexports as goods that were exported without undergoing any transformation (except repacking. for example. Export growth of goods (at 10. Figure 3. They are the result of strong underlying competitiveness .01 show the overall trends.75% per annum) outpaced growth in imports (9. These intermediate indicators have a number of interesting characteristics. entrepreneurship. Trade Singapore is a trading nation. for example. since 2002. which is primarily a function of geography. Entrepöt trade continues to be important and in addition being an island city-state. for example.0 and 3. Only in 2007 and 2008 did Singapore again register a service trade surplus.high export levels. which will be the subject of Chapter 4. for example. 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. grading. While intermediate indicators are important analytical tools. indicate a build up capacity that is likely to lead to future market success. Performance on intermediate indicators is the outcome of the interplay of many dimensions of underlying competitiveness. signal the ability of companies to compete successfully on the world market. are intermediate indicators of economic activity. can boost exports and inward FDI. 2009 via WITS.01: TRADING TRENDS Source: UN Comtrade database. re-exports under this definition accounted for 42. Total trade in goods increased from $43 billion in 1980 to $658 billion in 2008. this ratio has increased more or less monotonically and it stood at about 4. SINGAPORE COMPETITIVENESS REPORT 37 . and similar activities). targeting them directly can lead to poor policy choices. high innovation or investment rates. sorting.5 (3. Service trade registered a surplus in the 199os and has been broadly balanced for the last decade. investments. representing an annual growth of 10. Between 1988 and 2001.5. Some of the intermediate indicators also signal whether current prosperity levels will be sustainable in the medium-term future. calculations by ACI. A positive goods trade balance is a relatively recent phenomenon that started to be the norm after 2001. FIGURE 3. In 2008. leads companies towards higher levels of performance. But they also contribute to higher competitiveness. marking.INTERMEDIATE ECONOMIC OUTCOME INDICATORS The second stage of analysis. but are costly and lead to little upgrading of underlying competitiveness. Singapore is dependent upon imports for all basic goods. Exports. exposure to international competition through trade and investment. Direct subsidies or an undervalued exchange rate.

reaching its highest level at 74. The significant share of Singapore’s growing trade in recent years has been driven by the strong growth in total world trade.03: COMPARISON OF GLOBAL MANUFACTURING EXPORT SHARES Source: WTO Statistics Database provided by the World Trade Organization. Singapore has gained market position in service exports. This is a segment of world trade that has grown strongly prior to the current crisis. Between 1986 and 1995.37% in 2007. Singapore’s global share in fuel and mining products peaked at 4. 2009.94% in 2007. Market shares then dropped during the Asian crisis. The other important product category among re-exports is petroleum and related products.1% in 2005. and after 2007. some of the gains evaporated. and declined thereafter to 4. this share has been increasing significantly. During the rapid expansion of Chinese exports after 2000. While trade in services still account for less than a third of total world trade value. and the narrower category of manufacturing goods (which excludes fuel and mining products). and was 3.84% in 1993. FIGURE 3. recovered somewhat in the immediate aftermath of the crisis.17% in 2008. Over time.04).52% before the Asian financial crisis. This is the part of world trade where China’s growing exports have had the biggest impact (Figure 3.04). Singapore’s share in world manufacturing trade peaked at 5.22% in 1995 to 67. goods. Singapore’s re-exports are dominated by high-tech products. this has has grown more quickly during the past few years. After 2000/2001. Singapore managed to keep its relative position quite stable while most other countries saw a significant loss of market share. Gains in market shares have played a role until the Asian crisis. 38 SINGAPORE COMPETITIVENESS REPORT . and were again hit during the dotcom crisis. but in 2007/2008. Singapore managed to regain some market share.FIGURE 3. largely as the result of significant prices increases for energy and raw materials. despite huge drops in the mid-1980s. the Asian crisis. with the pattern becoming more pronounced over time. The share of high-tech products in total re-exports increased from 63. Growth in re-exports has accounted for 51. Singapore’s world market share of global exports doubled (Figure 3.13% of total Singaporean export growth between 1990 and 2008. but not since then. calculations by ACI. Trade patterns have development somewhat differently in services.02: EXTENT OF RE-EXPORTATION Source: Singapore Department of Statistics Since 1990. retrieved September 1.

Below the aggregate levels of trade volumes and market shares. 2009 via WITS. and Sino-Asia (China. Hong Kong and Taiwan). Singapore has seen a gradual shift from trading mainly with North America and Europe to increasingly growing ties with the rest of Asia. There is a significant increase in the share of ASEAN countries. calculations by ACI. 2009 via WITS. 2009 via WITS. FIGURE 3.06: TOP FIVE GOODS IMPORT ORIGINS Source: UN Comtrade database. retrieved on July 9.04: SHARE IN GLOBAL TRADE OF GOODS AND SERVICES Source: UN Comtrade database. retrieved on July 9. trade with Asia accounted for 65% of total trade. calculations by ACI. FIGURE 3. On the goods side. from 17% share a decade ago to 10% in 2008.FIGURE 3. SINGAPORE COMPETITIVENESS REPORT 39 . the United States dropped in 2008 to 3rd rank among Singapore’s most important trading partner.05: TOP FIVE GOODS EXPORT DESTINATIONS Source: UN Comtrade database. Europe’s share has dropped even more over time. behind Malaysia and China. In 2008. it is revealing to look at Singapore’s trading partners. calculations by ACI. retrieved on July 9.

40 SINGAPORE COMPETITIVENESS REPORT . is another fast-growing destination.07: DOMESTIC EXPORTS DESTINATION IN 2008 Source: Singapore Department of Statistics. The important role of Asian destinations. is even more evident than for goods exports. This indicates a declining importance in the future if these trends continue. and has therefore become more important over the years. Since then the pattern has been reversed. both in magnitude and growth. while Asian countries are partners on trade-related services and. The importance of Japan has declined. Trade patterns became more concentrated in the 1990s. the United States and the European Union figure prominently in most service categories.08 and 3. in the case of ASEAN. mainly processed raw materials and basic manufacturing goods.09 show the top three trading partners for various service categories. starting from 1995. i. management services. although growing from a small base. the share of the five largest partners is now slightly below 50%. culminating in 1995 when 59% of trade was with the five largest partners. China is growing faster than any other major export partner.08: TOP FIVE SERVICE EXPORT PARTNERS. With the exception of construction where the top three trading partners are all Asian. growth from 1993 to 2008 was low. and though the United States remains important in terms of size. Malaysia has become Singapore’s most important trading partner. calculations by ACI. Figure 3.FIGURE 3. calculations by ACI. India. FIGURE 3. BY TYPE OF SERVICE Source: Singapore Department of Statistics.07 shows the top 25 destinations of Singapore’s domestic exports.e. Europe is not an important destination. On the services side. Figure 3. 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. on construction. and knowledge. The United States and Europe provide financial services. whereas that of China and Indonesia has increased.

Malaysia is now the largest market and others such as Hong Kong and China are large customers which have grown in importance. retrieved on November 2. Figure 3. calculations by ACI.FIGURE 3.09: TOP FIVE SERVICE IMPORT PARTNERS. RCA of 4. Singapore has lost significant market share in this cluster over the last decade.7% of global IT exports in 2007. A Case Study: Electronics Exports This section further explores the changing profile of Singaporean trade. Asian destinations figure prominently in electronics. looking closer at electronics.5 billion in 2007) and specialization (9. SINGAPORE COMPETITIVENESS REPORT 41 . Often also called information technology (IT) goods. IT is Singapore’s largest cluster by export value (USGD83. provided by Reed Electronics Research. electronics is one of Singapore’s most important exports. UN Comtrade database.11 shows that the United States figures prominently. Despite clear growth in absolute export value. 2009 via the World Integrated Trade System software.10: SINGAPORE’S ELECTRONICS PERFORMANCE Source: Yearbook of World Electronics Data 2008. BY TYPE OF SERVICE Source: Singapore Department of Statistics. calculations by ACI.5). but is losing share over the years. A look at export destinations provides a first indication on how the changes in the global IT industry affect Singapore’s trade. FIGURE 3.

their value peaked in 1995 and declined ever since. FIGURE 3. calculations by ACI. Figure 3.FIGURE 3. retrieved on April 6.12: SINGAPORE ELECTRONICS PRODUCTION BY BROAD SEGMENT Source: Yearbook of World Electronics Data 2008. still figured prominently in Singapore’s portfolio in 1985. A look at product categories provides another important angle. Electronic data processing (EDP) products such as computer peripherals were the most important between 1985 and 1998. Singapore’s changes in electronics production have roughly paralleled shifts in global demand. provided by Reed Electronics Research.12 shows how Singapore’s product export portfolio has changed over time. Industries are clustered either in the top-right or bottom-left quadrants.13. 2009 via the World Integrated Trade System software. Consumer electronics. which plots growth in global demand against growth in Singapore’s production. the initial focus of the cluster. calculations by ACI. Active and passive components have been the dominant product category since 2004.11: TOP 25 DESTINATIONS OF SINGAPORE ELECTRONICS EXPORTS Source: UN Comtrade database. but their production has declined since 1997. There is a clear upward-sloping trend in Figure 3. with bubble size representing the value of Singapore’s production in 2008. 42 SINGAPORE COMPETITIVENESS REPORT .

And it has sold its output increasingly to other Asian countries.FIGURE 3.14 shows the emerging competition in the electronics sector from China. 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. China’s gains have come primarily at the expense of the United States and Japan. not so much at the expense of Singapore. where they have been integrated into final products for the domestic as well as for the US and European market. Overall. provided by Reed Electronics Research. provided by Reed Electronics Research.13: ELECTRONICS DEMAND VERSUS PRODUCTION Source: Yearbook of World Electronics Data 2008. The average annual growth rate of Chinese production in this segment over the period 1992 to 2008 was about 30% per annum. In this product segment. FIGURE 3. Figure 3. Singapore has grown in those product categories that have seen the highest demand globally. SINGAPORE COMPETITIVENESS REPORT 43 . calculations by ACI. China dominates electronic data processing (EDP) products and accounted for well over 40% of world production in 2008.14: PRODUCTION OF ELECTRONICS COMPONENTS Source: Yearbook of World Electronics Data 2008. calculations by ACI.

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

Agric ultural Production and Development. For Singapore. Singapore’s share of global inward flows was 1. just before the Asian financial crisis. only South Korea had a marginally higher rate. China and India lead the BRIC countries. retrieved on October 12. Traditionally manufacturing and financial services attracted most of the FDI inflows. The rest of the comparator countries hover around a fifth of GDP. Among the comparator countries used earlier. FDI inflows doubled from 82% (of GDP) in 1991 to 171% in 2007. As a proportion of GDP. In 2007.FIGURE 3. published by the United Nations Conference on Trade and Development. Investment Most East Asian countries have relied on investment-intensive models (domestic and foreign) of economic growth. While Singapore’s share of global FDI flows has declined. one of the highest rates in the world with only Hong Kong relying even more on foreign capital to finance investment. while Russia and Brazil are comparable to Singapore’s European and Scandinavian counterparts. SINGAPORE COMPETITIVENESS REPORT 47 . FIGURE 3.16: RELATIVE FDI INWARD INDICATORS Source: World Investment Report 2009: Transnational Corporations. 2009. with the United States and the U. the peak was in 1996 at about 2.32%.K. Since 2004. Western foreign firms continue to dominate investments in the manufacturing sector with the United States continuing to be the leading investor. Investment intensity continues to be high in Singapore with gross fixed investment accounting for 28. having the lowest investment intensity. FDI plays a growing role in the Singaporean economy. foreign investment accounts for about 80% of gross fixed capital formation.8%. finance has outpaced manufacturing as a target for FDI.15: INVESTMENT INTENSITY Source: EIU CountryData database (provided by Bureau Van Djik Electronic Publishing).5% of 2008 GDP.

FIGURE 3.02 shows the value of acquisitions firms from non-OECD countries. Singapore has also become an important investor in its own right. Table 3. Over the last few years.01: PROFITABILITY OF FDI IN SELECTED INDUSTRIES Source: Singapore Department of Statistics (20072009). M&A activity is the dominant form of foreign direct investment. calculations by ACI. 48 SINGAPORE COMPETITIVENESS REPORT . the United States accounted for 29%.9 billion (4. and outward FDI stock amounting to 103. accounting for well over 80% of cross border flows of capital. In 2007. calculations by ACI.01 shows a key reason for why foreign companies continue to come to Singapore: In the majority of sectors. Japan for 16% and European countries for another 18%.17: PRESENCE OF FOREIGN INVESTMENT Source: Singapore Department of Statistics. local investment accounted for 28% of gross fixed investment in the manufacturing sector.91% of GDP) in 2008. they are generating attractive returns from their investments. TABLE 3. with outward FDI f lows reaching USGD8. Singapore tops both lists and in dollar terms its acquisitions were evenly split between OECD and non-OECD targets. Table 3.9% of GDP. These shares have remained remarkably stable since 1997.

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

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

There is limited data on academic publications. In 2007. and has a particular focus on engineering. S. but available evidence is in line with patent data impressions. A little more than a third of all applications by Singapore residents were filed in the United States. which is about 7% of total applications received. Figure 3. the United States was the most popular location for Singapore residents to file patents. institutions dominate patent applications in Singapore and together. than Harvard University (excluding the significant patenting of Harvardrelated teaching hospitals) and reached about a third of MIT’s patenting level.S. Singapore amended its intellectual property laws about a decade ago.S. industrial designs and patents can since be registered here at the Intellectual Property Office. calculations by ACI. institutions account for over half of all patent applications received in Singapore in 2007.22: SINGAPORE PATENT APPLICATIONS IN 2007 Source: Statistics Database (July 2008).22 shows data on patent applications.21: PATENT APPLICATIONS BY FIELD OF TECHNOLOGY (2002-2006) Source: Statistics Database (September 2009). and trademarks. Singapore is strong. Japanese and U. U. provided by the World Intellectual Property Organization. Only a fifth of the patents filed by Singapore residents in 2007 were filed in Singapore. SINGAPORE COMPETITIVENESS REPORT 51 . calculations by ACI. Public research institutions have filed more patents in the U.FIGURE 3. provided by the World Intellectual Property Organization. FIGURE 3. Singapore has the strongest focus on electrical engineering in its patenting of all major innovation countries.

does not distinguish between truly new ventures and the registration of merely new legal entities. However. 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). this section relies on business registration data as a proxy measure. 2008. Entrepreneurship Entrepreneurship. Singapore has not participated in this survey since 2006. 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. As is the case with innovation. The World Bank database provides two measures. New business formation is one such widely-used indicator. FIGURE 3. However. Developed countries have both high density and entry rates. Figure 3. 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. The first is a measure of density.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).the number of new businesses registered every year .24 shows data averages for Singapore between 2000 and 2007.4 This measures just one aspect of entrepreneurship . entrepreneurship is complex to measure. It illustrates that Singapore has the highest entry rate in the group of comparator countries. Comparative business registration data is available from the World Bank. and is mired by differences in legal systems. calculations by ACI. 52 SINGAPORE COMPETITIVENESS REPORT .23: PAPERS IN THE ENGINEERING CITATION INDEX (2007) Source: National Science Council of Taiwan. but has a relatively low business density. is another characteristic of particular importance to advanced. the mobilisation of new combinations of assets within new or existing companies. knowledge-driven economies. As a result.FIGURE 3.

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

54 SINGAPORE COMPETITIVENESS REPORT .

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

56 SINGAPORE COMPETITIVENESS REPORT .

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

but there are differences across sub-areas. Singapore’s heterogeneous ethnic composition has the potential to lead to political strife. especially since there is no conflict between rural and metropolitan areas. Macroeconomic management also needs to avoid the emergence of overall imbalances in the economy. i. But size also makes it easier to reach consensus on policies.9% are citizens and permanent residents (who are collectively called “residents” by the Department of Statistics).4% and 9. respectively. Singapore was forced to focus on creating prosperity.TABLE 4. while Malays and Indians account for 13. The small size of the country reduces the attractiveness of the domestic market for foreign investors. Singapore is a small island with an area of about 700 square kilometres.2%. in that public services can usually be offered more efficiently. government does not build up unsustainable levels of debt. the rank would have been higher were it not for decentralization of economic policy-making (106th) . with no inherited wealth to distract the policy process. Singapore’s limited endowments were a short-term challenge but a long-term opportunity. Singapore has no meaningful natural resources or inherited sources of prosperity to fall back upon. Fiscal policy largely has to ensure that the balance of public revenues and spending remain within what economist call the inter-temporal budget constraint. should it become the foundation for an open society attractive for foreign talent. reflect the specific nature of Singapore’s political system. it also free from the negative consequences of natural resource wealth.e. be it Dutch Disease-dynamics or the corrosive impact of these endowments on the quality of public institutions. Ethnic Chinese account for 74. and sound political institutions ensure that the laws put into place remain legitimate. 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. like basic levels of health care and education. Overall.2% of Singapore residents.01: ETHNIC DEMOGRAPHICS IN SINGAPORE Source: Population Trends 2009. Social Infrastructure and Political Institutions Singapore’s position on social infrastructure and political institutions is strong on average. However. Basic human development. Rule of law provides the necessary stability in the incentive structure. However. particularly press freedom (106th) and the measure of voice and accountability (93rd). Monetary policy has to ensure that inflation remains in check. Of this. Singapore ranks highly on rule of law (5th) and on the quality of political institutions (6th). Metropolitan areas like Singapore have an advantage.a concept that does not really apply in a city-state like Singapore. published by the Singapore Department of Statistics. From the beginning. Due to a lower fertility rate. On political institutions. Macroeconomic Policy keeps the economy in balance at an aggregate level. 74. are necessary so that individuals can go beyond pure subsistence activities. a fate that it has managed to avert. with the rest of the population being foreigners with temporary work permits. with a present population of about five million. Chinese residents as a proportion of total residents have steadily declined over the years. this ethnic diversity can provide an interesting magnet. 58 SINGAPORE COMPETITIVENESS REPORT . Other areas where ranks are low.

02: SOCIAL INFRASTRUCTURE AND POLITICAL INSTITUTIONS INDICATORS Source: Unpublished data from the New Global Competitiveness Index (2009). Professor Michael Porter and the Institute of Strategy and Competitiveness.FIGURE 4.01: EVOLUTION OF SINGAPORE’S MACROECONOMIC COMPETITIVENESS Source: Unpublished data from the New Global Competitiveness Index (2009). Professor Michael Porter and the Institute of Strategy and Competitiveness. SINGAPORE COMPETITIVENESS REPORT 59 . TABLE 4.

These low ranks warrant further investigation. worked hard to keep healthcare costs from escalating. Due to the present economic crisis.is a reflection of how the Central Provident Fund (CPF) is treated.5 billion resilience package which will result in a deficit of SGD8. the government announced a SGD20. the government would incur the biggest deficit since Singapore’s independence in 1965. Unlike other countries. 60 SINGAPORE COMPETITIVENESS REPORT . but this overstates the actual differences to the best ranked countries on these measures. Indeed. and would pursue their narrow private interests. CPF contributions are captured as public debt. Singapore has.03: MACROECONOMIC POLICY INDICATORS Source: Unpublished data from the New Global Competitiveness Index (2009). World Bank Policy Research June 2009 In many countries. such low rankings would be associated with a government leadership that is not accountable to the people.7 billion (the biggest since 1965) or 3.9 billion of this deficit is funded by an unprecedented draw from accumulated reserves. there is no evidence that the dynamics have played out in this way in Singapore.FIGURE 4.02: GOVERNMENT EFFECTIVENESS SCORES OF TOPRATED COUNTRIES Source: Daniel Kaufmann. with high incidence rates for tuberculosis. 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. TABLE 4. and the incidence of tuberculosis (48th). the focus is on prevention rather than on treatment.g. Singapore gets dragged down by low scores on healthcare expenditures as a proportion of GDP (3. Singapore is not relying on issuing debt instruments to fund the stimulus. such as India and China. Professor Michael Porter and the Institute of Strategy and Competitiveness. and typically runs budget surpluses as a result of which it has accumulated some of the highest reserves in the world. the stakes in GLCs) are not taken into account. Macroeconomic Policy Singapore reached a mediocre rank of 58 on macroeconomic policy.consistent with the data reported by the IMF (where Singapore provides the data) . but are not necessarily signs of weakness. SGD4. “Governance Matters VIII: Governance Indicators for 19962008”.3% ranked at 122nd). Thus. Singapore always had sound macroeconomic management. for example. Singapore is ranked 25th overall on human development. while the corresponding assets (e. Singapore’s poor ranking on national debt . secondary school enrolment (63% ranked at 101st). while the rest draws on previous budget surpluses. However. and the government encourages people to maintain healthy lifestyles.5 per cent of GDP.

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

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

Professor Michael Porter and the Institute of Strategy and Competitiveness.05: LOGISTICAL INFRASTRUCTURE INDICATORS Source: Unpublished data from the New Global Competitiveness Index (2009). SINGAPORE COMPETITIVENESS REPORT 63 . TABLE 4.06: RANKS IN THE 2007 LOGISTICS PERFORMANCE INDEX Source: Logistics Performance Index 2007.08: ADMINISTRATIVE INFRASTRUCTURE INDICATORS Source: Unpublished data from the New Global Competitiveness Index (2009). in cooperation with the Turku School of Economics in Finland. Professor Michael Porter and the Institute of Strategy and Competitiveness. published by the International Trade and Transport Department of the World Bank. Air Cargo World. TABLE 4.07: SHIPPING STATISTICS Source: Shipping Statistics. TABLE 4.TABLE 4.

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

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

Singapore has over the last decade or so made great strides in strengthening its science capabilities.23 billion) of the expenditure. Business enterprises led the way as their expenditures on R&D increased at an average annual rate of 15.95% per annum over the same period.63% between 1994 and 2006. the total number of R&D personnel stood at 24.07: MATH AND SCIENCE TEST SCORES. but is not necessarily the best driver of intellectual 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.FIGURE 4. like Korea. In 2007. Opinions on how these strong showings on standardized tests should be interpreted vary. standardized test have proven to provide better opportunities for children from lower social strata to progress than more comprehensive assessments of intellectual abilities.34 billion. and gross expenditure on R&D was SGD6.08. publications. Japan. where social background is a significantly stronger determinant of performance. 66 SINGAPORE COMPETITIVENESS REPORT . with the private sector accounting for about two-thirds (4. and more broadly the international positioning of Singaporean research and educational institutions. These figures all compare favourably to the OECD average but lag behind Singapore’s leading peers. and the Nordic countries. This has been reflected in the inputs into R&D but over time also in patenting.5% from 1994 to 2006 and R&D expenditures per capita grew at 12.3% per annum. R&D manpower as a per-thousand of the total labour force increased at an average annual rate of 8. At the same time.506 research scientists and engineers. in absolute terms both have increased by about a factor of five over the period 1994 to 2006. 2007 Sources: Trends in International Mathematics and Science Study (TIMSS) 2007. There is a concern that Singapore focuses too much on the type of repetitive memorization of knowledge that generates high performance in standardized tests. which shows a consistent increase in both spending and personnel since 1994.

08: INNOVATION INPUT TRENDS Sources: Science and Technology Indicators 2008/2. FIGURE 4.Test of English as a Foreign Language(TM) (retrieved October 1. SINGAPORE COMPETITIVENESS REPORT 67 . U. published by Institute of Education Sciences. 2009 from the IMD World Competitiveness Online 19952009 database.S.TABLE 4. Department of Education. published by OECD. jointly published by the World Economic Forum and INSEAD. National Center for Education Statistics. Fourth-Grade Students in an International Context: Results from the 2001 and 2006 Progress in International Reading Literacy Study (PIRLS). The Reading Literacy of U.S.12: COMPARATIVE READING SCORES Sources: The TOEFL(®) Test . calculations performed by ACI. TABLE 4.13: GROWTH OF INNOVATION INPUTS Sources: The Global Information Technology Report 2008-2009.

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.41 full-time equivalent researchers per 1. Singapore also has comparatively more public institute researchers than any other country except the UK. where government has made major investments.22 per 1. Japan. whereas OECD countries such as Germany. but the focus appears to be on the former as Singapore’s researcher population (10. compared to 2005 data. FIGURE 4.09.11 show that Singapore ranks quite well on both R&D researchers and personnel. published by Singapore’s Ministry of Manpower. In the data available so far. Singapore Yearbook of Manpower Statistics 2008. the United Kingdom and the United States have a much more diverse research portfolio. and a very low 0. This number is surprisingly high.000 employed workers) places it in the top four. published by the OECD.000 employees. there is little evidence that private R&D spending has significantly gone into ‘new’ areas like biotechnology. provided by the National Science Council of Taiwan. countries such as Taiwan and South Korea also have a focus on electronics.10: RELATIVE COMPARISON OF R&D RESEARCHERS.10 and Figure 4. where Singapore had 7. 2006 Sources: Science and Technology Indicators 2008/2 and 2007/1. Figure 4. 2007 Sources: Science and Technology Indicators 2008/2 and 2007/1. 68 SINGAPORE COMPETITIVENESS REPORT .000 employees. At 35%. ahead of every Asian country except Japan.38 full-time equivalent R&D personnel per 1. published by the Organization for Economic Cooperation and Development.09: COMPARISON OF PRIVATE R&D SPENDING. Taiwan Science and Technology Indicators 2008. As shown in Figure 4.FIGURE 4. the government’s share in total R&D spending is higher than in most other OECD countries.

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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Broadband penetration rates in Singapore are also not the highest in Asia. a sector which relies both on IT infrastructure as well as consumers of digital media. Professor Michael Porter and the Institute of Strategy and Competitiveness. 72 SINGAPORE COMPETITIVENESS REPORT .17: COMMUNICATIONS INFRASTRUCTURE INDICATORS Sources: Unpublished data from the New Global Competitiveness Index (2009). The main reason is the slightly lower penetration rates for fixed line telephony and internet usage.http://www. by Mark Yeandle. penetration rates are much higher in Scandinavian countries and in other Asian countries such as South Korea and Japan.13 shows internet penetration rates for various countries. Jeremy Horne. Figure 4. This is an area where Singapore ranks as 7th globally slightly lower than in the other dimensions. and Alexander Knapp of the Z/Yen Group.14 shows internet use by age group and shows less internet use across all age groups. Communications Infrastructure Communications Infrastructure is the final dimension of factor conditions. Figure 4. with little changes over time. Nick Danev. While Singapore compares well with comparator countries. Retrieved June 26.12: ATTRACTIVENESS AS FINANCIAL CITY Sources: The Global Financial Centres Index 5. 2009. internetworldstats.13: GLOBAL INTERNET USE AND PENETRATION Sources: Internet World Stats . TABLE 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. FIGURE 4. This is a concern given Singapore’s ambition to promote industries such as interactive digital media.com (Miniwatts Marketing Group) and the World Development Report Online (World Bank). Thus while Singapore’s IT infrastructure compares well with developed countries.FIGURE 4. Published by the City of London on March 2009. it is not outstanding and neither is internet use.

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

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

but can also be the result of government action. which in many industries is an important part of overall demand. 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. have long been ignored in the academic debate. 2007 Sources: National Competitiveness Research 2008-2009. Singapore ranks first globally on demand sophistication. the awareness has grown that local demand conditions play a significant role in shaping company behaviour. but still within the range of other advanced economies.TABLE 4.15: CONSUMER SOPHISTICATION SURVEY. FIGURE 4. This is driven by government policies affecting IT. Singapore ranks significantly weaker. SINGAPORE COMPETITIVENESS REPORT 75 . both in terms of consumer behaviour and government regulation. either in terms of rules and regulations or in the form of public procurement. Demand Conditions Demand conditions. Demand sophistication is a reflection of consumer behaviour. both in terms of regulation and procurement.20: DEMAND CONDITIONS INDICATORS Sources: Unpublished data from the New Global Competitiveness Index (2009). Professor Michael Porter and the Institute of Strategy and Competitiveness. Innovation is often the result of sophisticated customers that are willing to experiment and push companies in directions that later become market standards. In recent years however. In other areas of demand sophistication.

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

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

sector. theatre.86 billion with aggregation and distribution accounting for SGD3. Research Institutes.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.8 billion. 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. Several projects included in the plan will directly enhance the IDM sector. Others choose to segregate sectors based on whether they are ‘going digital’ (such as interactive television. and interactive digital media to develop new clusters that fit this description. and promises to increase internet speeds tenfold (to 1Gbps) at a cost lower than current broadband connections. 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 basic value chain includes creation of content. The IDMPO strategy is to create a sustainable ecosystem that links four key groups of stakeholders . development of the 19-hectare Mediapolis complex. one of IDMPO’s tasks is to manage the dispersion of SGD500 million from the National Research Foundation (NRF). International Enterprise (IE) Singapore. This fund is dispersed via initiatives like IDM Research Oriented Centres of Knowledge. film and advertising are expected to grow at least at an annual rate of 20%. film.” An additional SGD230 million will be pumped into the media industry over the next five years (2009-2013). Another estimate indicates that value added in IDM was SGD1 billion in 2005 with “core” activities accounting for SGD0. Economic Development Board (EDB). 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.Institutes of Higher Learning. with content accounting for 0.7% per annum between 2009 and 2013. IDM and R&D activities. mobile content. and post-production activities. film and video. Nonetheless. For interactive game development. the full analysis will be available as a separate working paper. expected to be completed within 10-15 years.7 billion. broadcast facilities. Thus. Ministry of Information. processing. Instead of just being a “Global Media City” the objective was for Singapore to be the “Trusted Global Capital for New Asia Media. Sector definitions as well as estimates differ depending on the particular approach used by various consulting firms. Core activities include. for example. Work has started 78 SINGAPORE COMPETITIVENESS REPORT . value added at about SGD75 million and employment at 714 individuals.58 billion. The global entertainment and media sector is expected to grow at the rate of 2. For instance.95 billion and distribution for 0. providing infrastructure and venture capital. Futurescape. followed by Japan and the United Kingdom.000 jobs. This short case study summarizes an analysis of the interactive digital media cluster that the Asia Competitiveness Institute has conducted. 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. by 2015. and other related areas. and providing demand.7 billion by 2015 with the “core” accounting for SGD3. individuals.0 billion.14 billion. industry. architecture. Communications and the Arts (MICA) and the Ministry of Trade and Industry (MTI).6 billion. Singapore’s media fusion plan has set a goal to have. processing for 0. This is expected to expand to SGD4. a media industry that has a value-added of about SGD10 billion creating 10. Ministry of Education (MOE). One estimate for 2005 indicates that revenues of digital media and entertainment in Singapore were about SGD1. Estimates on cluster size vary significantly depending on the specific definitions applied. In June 2009. Estimates for 2010 suggest revenues of SGD3. design. aggregation and archiving and distribution and delivery. The Next-Generation National Broadband Network will be implemented within the SMFP parameters to dramatically upgrade Singapore’s internet connection speeds. creative and cultural products were to be the new engines of the economy. The fibreoptic network will cost more than SGD1 billion to build. aggregation for 0. and IDM Jumpstart and Mentor. and schools. accounting for over USGD400 billion of a USGD1. The Singapore market was estimated at USGD3 billion in 2008 and is expected to be at about the same level in 2013. attracting foreign investment.13 billion. 2007 revenues in Singapore were estimated at around SGD 150-175 million. For instance. Infocommunications Development Authority (IDA). games. will house digital production. This complex is expected to house an ecosystem that will nurture the development of the media cluster. the creation of content and supporting activities include delivery and distribution systems such as telcos or internet service providers. Part of this strategy is a number of programs in areas like biotechnology. The Cluster Development Program Defining Interactive Digital Media Interactive Digital Media (IDM) is part of a wider “creative” sector. Government set up the IDM Programme Office (IDMPO) in 2006. IDM in general includes advertising. online publishing and music. television and radio. internet access and internet advertising are expected to grow by at least 6% per annum.4 trillion market in 2008. Technology and Research (A*STAR). gaming. The United States will remain the largest market for entertainment and media. animation and interactive online and mobile media). design. Government plays a leading role in this sector. which includes activities in media. film and publishing) or were ‘born digital’ (such as games. Singapore has broadly defined interactive digital media to include anything that is interactive and digital. The IDMPO is an inter-agency outfit hosted by the Media Development Authority (MDA) to coordinate efforts between agencies such as Agency for Science. 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. Defence Science and Technology Agency (DSTA).000 new jobs by 2015. Sectors such as magazine and newspaper publishing and recorded music are expected to decline over this time period whereas those such as video games. art. However.

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

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

22: COMPANY SOPHISTICATION INDICATORS Source: Unpublished data from the New Global Competitiveness Index (2009). SINGAPORE COMPETITIVENESS REPORT 81 .TABLE 4.17: NEW GLOBAL COMPETITIVENESS INDEX AND SINGAPORE’S 2009 RANKS Source: Unpublished data from the New Global Competitiveness Index (2009). Professor Michael Porter and the Institute of Strategy and Competitiveness. Professor Michael Porter and the Institute of Strategy and Competitiveness. FIGURE 4.

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

Singapore Competitiveness Report Chapter 5 Conclusions SINGAPORE COMPETITIVENESS REPORT 83 .

84 SINGAPORE COMPETITIVENESS REPORT .

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

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

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

and could be more in line with Singapore’s capabilities. 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. global trader of knowledge vs.gov. This is the first Singapore Competitiveness Report produced by ACI. 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. But its success in creative and entrepreneurial activities is more limited. but government policies set the context. Ketels.berr. hoping to provide Singaporean policy makers with our analysis and perspective of the key issues and some possible options to consider. Singapore needs to decide how to deal with these dynamics. Going further. in some of these fields. M. Other models exist that can support high levels of prosperity as well.S. a more textured policy debate is necessary to decide what type of innovation-driven economy Singapore wants to become. The phenomenon of an economy being stuck in a relatively low-productivity environment despite high or rising Chapter References Porter. 88 SINGAPORE COMPETITIVENESS REPORT . “UK Competitiveness: Moving to the Next Stage”. UK Department of Trade and Industry Economics Paper No. 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.pdf. and is achieved in the context of a less favourable business environment. Michael E. The data presented in this report indicate that Singapore has made clear progress on science-related innovation.RECOMMENDATIONS TO ADDRESS A CHANGING GLOBAL ECONOMIC LANDSCAPE • Stay the course. This Report is written in this context. and the further transition towards an innovation-based economy will continue to fuel this trend. possibly with initial capital stakes of the anchor companies. At the minimum. 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. Too often.uk/files/file14771. Inequality has been rising. Singapore should have an open debate about the type of environment it wants to provide to women. http://www. It has traditionally placed a high value on the cohesiveness of its society. it will not stay this way automatically. 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 would sow the ground for more locally-rooted entrepreneurship and ultimately innovation. (2003). there needs to be a review of whether the policy approach in these areas needs to be adjusted. Female labour force participation is the result of individual choices. Singapore has become an internationally respected model for a country that is willing to continuously review its position. there is an uncritical benchmarking towards the U. More fundamentally. and has taken decisive action where needed. markets do not traditionally exist. This requires creative thinking on how such commercialization could happen. 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. 3. model. and Christian H. RECOMMENDATIONS FOR TRANSITIONING TO A KNOWLEDGE-DRIVEN ECONOMY • Develop and choose among different visions for a knowledge-driven economy – Efficient research hub vs. This might be neither appropriate nor ideal for Singapore. the potential for commercially exploiting innovation in fields like public services needs to be more deeply leveraged. Endnotes 1.

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