Monday, 17 August 2015

Singapore’s strategic challenge: SG50 to SG100

SG50 celebrations are quickly fading from Singapore's collective memory. The mutual self-congratulations and laudatory speeches are a thing of the past. Indeed, the political focus has shifted decisively towards the future with the official announcement of general elections expected imminently.

While Singapore's 'usual suspects' (e.g. immigration, public transport, cost of living, etc.) will command most attention during the forthcoming election campaign, it is Singapore's welfare over the next 50 years which demand more focus.

Arguably, the 50 years nation building period since 1965 may prove easier to navigate than the coming 50 years. Why? Several reasons come to mind.

Lee Kuan Yew (LKY) is the most obvious answer.

Singapore was fortunate to have firm, visionary leadership for several post-independence decades – a luxury denied most newly decolonized nations. Leadership best symbolized by LKY, but also includes other cabinet members (e.g. Goh Keng Swee, Rajaretnam et. al.) influential in their own right in shaping critical national policy frameworks.

Singapore circa 1965 was a typical third world city: undeveloped, unclean and riddled with crime. Arguably, things could not get much worse – only better. Certainly, development is easier when started from a low base - improvements are more visible and impactful.

Singapore took a free market, export led approach to generating economic growth in an era when many decolonized countries practiced and preached economic self-reliance. China was well and truly a People's Republic. Deng Xiao Ping had not yet worked his magic. India was a socialist country firmly implanted on the Soviet Union's side during the Cold War. Both China and India were off limits to international investors.

For ASEAN's Asian Tigers it was a sunny period as they received large doses of direct foreign investment from wealthy industrialized nations. There was far less competition for the international investment dollar. Fast forward to 2015 and things are different.

Singapore no longer starts from a low economic base.

On the contrary, Singapore is now one of the wealthiest nations in the world. It is hard, if not impossible, to generate and sustain (say) seven percent annual GDP growth with GDP per capita at USD 56,000 versus the 1965 per capita income of USD 516. Put simply, seven percent growth equals an annual increment of USD 36 in 1965 versus a yearly increase in income of almost USD 4,000 today (a monthly wage increase of approximately SGD 450).

Suddenly one pillar of Singapore's historical social contract looks a bit wobbly?

Like other Asian Tiger economies, a key factor in Singapore's early economic success was its low cost structure. Contemporary Singapore is no longer cost competitive for traditional businesses. Quite the reverse, recent surveys suggest Singapore is now a frightfully expensive place for international companies.

That's not all. Singapore's economic success brings with it other concerns.

A wealthy, literate population has different expectations from the country's political leadership.

Having achieved success, some Singaporeans believe they are entitled to a 'cradle to the grave' social welfare structure, often citing various European countries as appropriate models. The increased demands by citizens coupled with the power of the social media – think Arab Spring – has on occasion forced the government's hand towards populist polices.

Undoubtedly, Singapore can afford higher social expenditure but if the 'entitlement' trend continues then Singapore becomes closer to Europe in other ways too: high taxes, poor delivery of government services and a rigid labor market. Or Singapore heads towards unsustainable social expenditure (think Greece)?

Unfortunately (or fortunately) ASEAN is not the European Union and no one owes Singapore a living!

Politically, no single leader has the gravitas and respect accorded to LKY and his team.

The political contract was simpler in 1965: the government improves economic conditions and the citizenry don't ask too many difficult questions. In contrast, today's electorate is keen to question the leadership and flex its muscles at the ballot box. The upshot: despite the ruling People's Action Party's achievements for Singapore over the last 50 years, the city's long standing rulers cannot take the popular vote for granted.

Consequently, the government cannot enact unpopular policies with the same bluster as before. A literate, connected and wealthy (entitled?!) electorate is not as easy to boss around as the less well-off, kampong dwelling Singaporean of the past.  

History is for historians and the future is for the next generation (or, PAP, what have you done for me lately)?!

Despite all the challenges face in an uncertain world, there are many reasons to argue for Singapore's continued success in the next 50 years.

Governmence structures are solidly in place.

Public service and the bureaucracy continue to attract talent due to competitive compensation structures. In an often unstable region, Singapore's educated and English speaking society provides a haven of stability which allows the country to charge a 'Singapore Premium.'

Currency reserves – effectively savings squirreled away for a rainy day - are sizeable.

Between GIC and Temasek, Singapore's two sovereign wealth funds, GIC and Temasek, contain a massive USD 538 billion in assets. A sum equivalent to approx. USD 161,000 for each of Singapore's 3.4 million citizens! These savings provide a limited insurance policy for increased social welfare expenditures.

Singapore's new found wealth also makes the country ideally placed in a capitalist world.

The Republic is a global investor in its own right with large investments, particularly in developing ASEAN and China. In time these investments will generate significant positive income for the country.

But let's forget logic for a moment. After all, human society is a collection of human emotional endeavours?

Singapore's future is about survival for its resourceful and creative population. So if necessity is the mother of invention (or re-invention is this case) then the odds suggest that this small (non-secular!) island republic will succeed in for the next fifty years!

Imran is a business and management consultant. Through his work at Deodar Advisors and the Deodar Diagnostic, Imran improves profits of businesses operating in Singapore and the region. He can be reached at