IN the next lap of Singapore's economic development, local companies will see the world as their hinterland, instead of being constrained by geographical size or location, said Minister for Trade and Industry (MTI) Chan Chun Sing in Parliament on Monday.
Having this perspective would be one way for Singapore to break the "conventional paradigm" of the gross domestic product (GDP) equation, which comprises only the value of goods and services produced within its borders, he added.
To grow Singapore's economy henceforth, the city-state will also need to focus on gross national product (GNP), he said. GNP refers to the value of goods and services produced by Singapore residents around the world.
For that to happen, Singapore must have a sizeable base of companies that operate beyond Singapore, but which still contribute back to the local economy, said Mr Chan.
He was responding to queries from Member of Parliament (MP) Liang Eng Hwa, who asked how Singapore can sustain its economic growth.
Mr Chan cited three strategies:
- Helping companies and workers build capabilities to compete;
- Managing Singapore's reserves and investments; and
- Building the economy's "external wing" by getting local companies to expand overseas.
Singapore's port operator PSA, he said, was an example of the latter; today, PSA is no longer just a port operator serving the domestic market, but an exchange platform with a string of ports around the world, making it a global logistics player. (see amendment note)
"Even if the goods don't come to Singapore or go through Singapore, they are traded on PSA's platforms. This is a new way of doing business."
Mr Chan said that Singapore's economic strategy is therefore not just about looking at what can be done domestically, but at how to grow the GNP and to manage investment resources to ensure that the country has enough "ammunition to weather the storm".
He also fielded questions by other MPs on the impact of the US-China trade war. In response to Saktiandi Supaat's query on how trade diversion and shifts in supply chain would affect Singapore's economy, Mr Chan replied that some of the global production shifts out of China could come to Singapore. However, he emphasised that Singapore does not necessarily compete with the rest of the regional economies for these shifts.
"There are and there will be sectors that will play to Singapore's advantage, but that doesn't mean that everything that moves out of China or India will come to Singapore - that's not our strategy."
He said that most of the "low-mix, high-volume" production - mass-produced goods - will not come to Singapore, because they compete on the basis of scale, labour cost and land cost. Instead, it is the "high-mix, low volume" type of production, that is, customised goods in smaller batches, that are more likely to move here, because standards, quality and intellectual property protections are prioritised in Singapore.
Mr Chan noted that Singapore has had more of this type of investment coming in, for example, with the opening of pharmaceutical giant GSK's new facilities.
He said that even as Singapore continues to leverage its strengths to attract more foreign investments, clouds are looming on the horizon, given the continued weakening of the global economic environment.
Mr Chan said the outlook for the Singapore economy will be determined by developments in the US-China trade conflict, as well as how the city-state's major export markets perform.
Further tariffs will hit more goods and affect global supply chains, and prolonged tensions are likely to lower global business and consumer confidence, he added.
China's economy could slow down more sharply due to the trade conflict, which would dampen import demand from the region, even as South-east Asia remains a "bright spark" and the US economy holds steady, he said.
Already, lower demand in Singapore's key export markets has affected Singapore's outward-oriented sectors such as electronics, precision engineering and wholesale trade; performance in these sectors remains weak.
In May, the Ministry of Trade and Industry cut its 2019 full-year growth forecast range to 1.5 to 2.5 per cent after just one quarter, from the earlier projection of 1.5 to 3.5 per cent.
Mr Chan also flagged some of the fundamental shifts in the global economy that will shape Singapore's medium- to long-term prospects:
One is the future of the multilateral trading system, which is currently under stress, he noted.
The second is the emergence of global rules that may affect Singapore's status as a global trading hub, such as the ongoing discussions to introduce minimum corporate tax rates across countries, which will affect Singapore's competitiveness, and carbon caps, which constrain growth.
And thirdly, Singapore's prospects will lie in its ability to harness new technologies and create opportunities, especially in the digital economy.
The minister said Singapore will focus its economic strategy on three key prongs:
- Strengthening fundamentals;
- Creating opportunities by constantly refreshing offerings to business and investors; and
- Promoting a conducive global and regional business environment with like-minded countries and companies.
Mr Chan concluded: "While there are clouds looming, we believe that we have the fundamentals to weather the storm. Our economic fundamentals are sound, we are in a strong fiscal position, and we are making good progress in restructuring our economy."
Amendment note: An earlier version of this article incorrectly named PSA Corporation Ltd as Singapore’s port authority. The port authority is in fact the Maritime & Port Authority of Singapore.