Friday, May 06, 2011

The New Singapore Economy - Part II

This is a continuation of the last post.

As with the Govt, various Ministers took pain to tear down the proposals in the paper by biting on points that appeal to peoples' hearts and emotional logic. These are:

1. The $60bn Price Tag
2. Raiding Temasek
3. Loss of Manufacturing Jobs

The first big rebuttal that came about was the big price tag. $60bn is unheard of. Our Govt annual budget is roughly around $30bn. Big no.s floating around are usually terms of millions or single-digit billion like YOG cost overrun ($300mn), Grow and Share Package ($3bn) and Lehman Crisis Emergency Help Everybody Fund ($10bn or so, which drawdown our Reserves for the first time).

However, it was not mentioned that the $60bn would be spent over 5 years. In fact I think it is more likely that it is spent over 10 years. This would be a more reasonable $6-12bn per year. Also it was highlighted that the Govt surpluses over 5 years (over $100bn) would have been more than enough to fund the $60bn.

An additional funding source mentioned was Temasek Holdings. $60bn was roughly just 1/3 of Temasek's portfolio and hence not a major issue. In fact by reducing Temasek's stakes in various listed entities (over a couple years), we could add liquidity to our equity markets and attract more investors to invest in Singapore.

While I do not know if that's entirely workable bcos it would cause major stock price disruption to the various listed entities and change the way investors look at these companies, I think the idea deserves scrutiny rather than the usual simply-brush-it-aside bcos it didn't originate from the Govt.

Perhaps the biggest hoo-ha came from this 3rd point of de-emphasizing manufacturing. 25% of Singapore's economy relies on manufacturing which support hundreds of thousands of jobs. Is this guy crazy to even suggest this?

On closer look, maybe not, you know... Below is a list of countries and the size of their manufacturing sector in % terms relative to the size of their economy.

China 33%
Korea 25%
Singapore 25%
Japan 22%
Germany 22%
Italy 18%
Brazil 15%
US 13%
UK 13%
France 5%

As you can see, most developed countries have a small manufacturing sector (less than 20%) unless they have an edge in manufacturing such as Germany and Japan. Of course in China and Korea, they compete on other factors such as lower cost. But what is the edge that Singapore has against these countries? Why are we pursuing manufacturing? Can we make better cars than Germany? Or better ships than Korea and China? There is no good answer.

The model that we have pursued 50 years ago might no longer be so relevant. Back then Singapore was as cheap as China today, we had a young population and we needed to provide a lot of jobs, fast. Today, we are so different. Things have changed.

On the other hand, the service industry suits our highly educated workforce and is not subjected to the volatility of global consumer demand. Singapore already have some brand with its education, healthcare and creative industries. We can definitely leverage on that and grow them bigger.

Granted, there will be a lot pain during the adjustment but what was proposed does make sense. Again my point is that we shouldn't just brush it off. Someone should be doing more study into whether this actually works.

Of course, the other angle is also that actually our Govt is already doing it. They might have started to shift out of manufacturing years ago. And we did get LucasArts to setup shop here and we got Chicago and Insead to have their MBA campuses here. But still, we shouldn't have built the casinos, right?

Next post, we look at some of the real issues with the paper.
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