EC2373 Global Economic Dimension of Singapore

Topic: Singapores New Growth Areas

Research Objective: To Examine the Sustainability of the New Growth Areas
Tutorial Group W1
Group 2 : Michael Christopher C. Cruz, A0093852X

Fong Jin Wen U091420L1.0 Introduction

Harvard Business Professor Michael Porter once said: Innovation is the central issue in
economic prosperity, and in many ways, he has been proven correct. Throughout history,
countries that have been centers of research and innovation have used their technological
prowess for economic gain improving economic efficiency, which in turn, raised their nations
standards of living. For Singapore and the other so-called Asian Tigers, this has been proven
true as well. The island nation has been at the forefront of economic and technological efficiency.
As observed by Minister Mentor and former Prime Minister Lee Kuan Yew, What it took the
West 200 years, East Asia is experiencing in half a century.
In the present day, the Singaporean government is pursuing an ambitious, long-term economic
plan that involves developing what it considers to be new growth areas, spending billions on
Research and Development projects, free trade areas, and offering generous incentives to
talented foreigners who can help develop these Singapore-based infant industries.
Singapores economic policy is geared towards developing the two areas of Manufacturing and
Services, or the so-called twin engines of growth. The new growth areas can be grouped within
either one of these two areas.

1.1 Research Objective

This paper aims not just to describe these growth areas but also aims to examine and analyze
these growth areas, to see what constraints and issues these growth areas face, and to examine
the sustainability of pursuing the new growth areas.

1.2 Key driver of Sustainable Growth is Productivity

Continually raising productivity through innovation is vital for Singapores sustainable growth
because our only resource is human capital. Hence, both manufacturing and services greatly rely
on productivity to remain competitive.

2.0 Overview of Manufacturing Sector

Singapores manufacturing sector currently accounts for about 20-25% of the countrys GDP.
(Economic Strategies Committee, 2010) The sector have played an important role during the
countrys early stages of development, with an electronics sector boom leading the stellar growth
of the 1970s. Today, it remains an important and essential sector in the economy, and is called by

the Ministry if Trade (MTI) as one of Singapores twin engines of growth, along with services.
As the world becomes more connected, as Asian countries develop at a fast pace, and as
Singapore moves to a more knowledge-based, future-ready economy, the sector faces several
threats regarding the sustainability and future of Singapore manufacturing. These threats stem
from both structural constraints, and policy implications. Of the 23 major growth areas identified
by the Economic Development Board, more than half are high value manufacturing industries,
including Aerospace engineering, Chemicals & Petrochemicals, Green technology,
Pharmaceuticals and Biotechnology, and Precision Engineering. New growth areas in this sector
aim to increase the industrys value added through capital investment, technological innovation,
and skills training.

2.1 Key Challenges and Constraints

The future development of the manufacturing sector in Singapore face several challenges, many
of which can be grouped along three main areas that also represent the constraints to be faced:
Land, Labor, and Capital.
Land
It is basically a clich to call Singapore a red dot, because of its small size. At only 710 square
kilometers, the islands main physical constraint is its small land area and the lack of natural
resources within this area. Economically, it means that it cannot, to minimize risk, diversify its
economic activities like other countries. Singapore can and must make strategic choices with
regard to what industries it can develop, or for the purposes of this paper, investing in a lot of
new growth areas. (Krause, et. al, 1987.) In developing the countrys new growth areas, the
countrys main constraint is how these areas could be accommodated in a small island.
Despite the countrys size, however, several of its industrial estates are actually at par with large
industrial estates in Asia. However, Singapore can only build a limited number of highly
concentrated estates. The JTC Corporation, the principal industrial developer in the island,
manages 43 estates, the largest of which already cater to the new growth areas and totaling about
3.4 million square meters of facilities. (See Table 3.1, 3.2)
Labour
The second of Singapores omnipresent scarcities is its lack of labour. Human Capital is
arguably Singapores main and most important resource (having no natural resources of its own.)

To be fair, Singapore is structurally disadvantaged in this regard because of its small size and
small resident population. However, this constant shortage represents a threat to its long-term
economic prospects, this shortage being both a numerical shortage of workers and a qualitative
shortage of specific human capital. (Terauds, 2011)
While the solution is a matter of debate, the presence of the problem isn't. A study in the Grant
Thornton International Business Report reports that up to 41% of Singapore Businesses believe
that the lack of skilled labour is the number one constraint to Singapores growth (land/space did
not even feature as a problem.) As Singapore pursues the development of new growth areas, it
will follow a labour and development policy that it has followed before. When Singapore began
its economic development, it acknowledged its lack of experience in several fields by using what
is called the import-adopt process: importing and adopting locally both foreign labour and
capital into the islands economy.
However, the source of Singapores lack of skilled labour also has its roots in government policy.
In the 1970s to 80s, the government pursued an anti-natal population policy, called the two is
enough policy. While this may have been sound policy given a spatially challenged island, the
shortage repercussions of this is exacerbated in the long-term for a rapidly developing,
diversified globalized economy. As early as November 1987, the problem began to be seen when
the Trade and Industry Ministrys Economic Survey identified a labour shortage, rather than a
lack of export markets will curb the islands long term prospects. (Reuters, 1987)
A short-term problem of the new growth areas would be restructuring issues, resulting in
unemployment for many locals.
Capital External Market Dependence
Like Land and Labor constraints, the manufacturing sectors dependence on the world market is
a given, inherent challenge for Singapores growth prospects. With its lack of an economic
hinterland, Singapore is extremely vulnerable to price shocks. With one of the highest Trade-toGDP ratios in the world (second only to Hong Kong), Singapore is particularly vulnerable to
global crises, such as in October 2008, when the country officially slid into recession after failing
consumer demand from the US and Europe cut through its exports. (See Table 3.4) Despite
Singapores healthy recovery the following year, the specter of recession remains real. Up to
97% of Singapore executives surveyed by APAC fear a recession, and the countrys growth
prospects in the immediate future remain low due to the crises plaguing the globe. (SBR, 2011)
As shown, the manufacturing sector is a leader of growth during its boom years, yet it can also
be a cause of economic woes in bad times. In other countries, a basic response would be to
4

stimulate domestic demand, an option that is simply not practicable in Singapore as it is simply
too small a market for its large manufacturing output.
Any move to pursue new growth areas is thus reliant on the state of the global economy. The
industries chosen by the country must be resilient even through times of crises. However, the
risks will remain. In the 1970s, then-Finance Minister Goh Keng Swee said that Singapores
manufacturing sector was greatly helped by the decades of prosperity achieved by Western
countries. However, current uncertainty regarding western economies, together with increased
competition from Asia, threatens the prospects of the sector. (Federal Research Division, 1989)
Small and Medium Enterprises
Another important issue with regards to the sustainability of Singapores manufacturing sector is
its relative lack of small native companies, due mainly to an over-reliance on MNCs. When
Singapore achieved independence, a cornerstone of the governments first economic plan is to
attract a lot of foreign investors, especially multinational corporations (MNCs) into the country.
Over the years, this policy has undoubtedly borne fruit, bringing in billions to Singapores
economy. However, a major issue is the sustainability of this policy. Singapore SMEs may find it
very difficult to compete due to their smaller capital. . (Rajan, Thangavelu 2009) Another major
challenge for local companies is their need to expand globally, due to Singapores small domestic
market. Already, Singapore is facing stiff competition from its Asian neighbors because of high
labor costs. The relative lack of local companies is also a source of worry if Singapore is to
continue growing its manufacturing sector.

2.2 Opportunities
Several opportunities present a case for the sustained growth of the sector:
1. The rise of China, India, and other Asian countries
The spectacular economic rise of Singapores Asian neighbours need not necessarily be seen as a
threat because of competition, but an opportunity for greater partnership and stronger trade links.
The ESC Subcommitee report of 2010 recommends that Singapore must strengthen its status as a
Global-Asia hub, where MNCs can manage and integrate their Asian operations, without being
tied down by market challenges and constraints. The report also recommends improving
Singapores cross-border finance links, allowing for the development of the region as a whole by
investing in it and Singapores economy benefitting from more Asian growth.

2. Knowledge-driven growth
Singapores manufacturing sector has, for the last decade, pursued the higher-value added, high
technology products. If this shift is continued, the sector will continue to be globally competitive,
especially in areas enhanced by Singapores high R&D investment and well-developed precision
engineering base, an area generally called Complex manufacturing.
These next set of jobs created will need a diverse skill set, provide opportunities for upgrading,
and stimulate demand for even more sophisticated products. New growth areas in manufacturing
fit the criteria, and stands to continue technology-driven growth of the sector. Singapores highly
skilled manpower base is crucial for continuing this development.
3. Industry Flexibility and Resilience
While some may see Singapores large external dependence as a handicap, Jayaram et.al argues
that Singapores volatile business cycle can be seen in a different light: mainly that first, the
benefits of big trading links with the world has much more advantages, and that market volatility,
and the fact that Singapore makes spectacular recoveries soon after a recession, is a sign of
resilience that the countrys economy is flexible enough to remove inefficient firms easily from
the market. The benefits would be easier seen in the medium to long run, yet result in lost output
for the short run as firms re-allocate resources. (Jayaram et. al, 2009)

2.3 Outlook
The prospects for Singapores manufacturing sector looks bright. Despite the recent recession,
Singapore remains a competitive location for manufacturing, with several indicators, such as
Industry Value Added rising from $12.5 B to $14.4 B from 2009-11 and Fixed Asset Investment
rising from S$ 12.5B to S$12.9B. (EDB Annual Report, 2009-11)
The S$ 13.6B 2010 Science plan has also made Singapore a frontrunner in innovation, a
budget to be surpassed by the 2015 R&D plan, which plans to inject another S$ 16.1B for R&D.
The countrys growing science and research talent base, coupled with this massive public and
private investment, has already begun to bear fruit: with the resulting products and services
already yielding over S$18 B. This comprehensive Research and Development plan serves as a
strong foundation that will help the sectors future growth.
With regard to the constraints, Singapore has never looked upon land or the lack of natural
resources as a major constraint, but as an impetus to make strategic shifts towards higher value
added, land-efficient economic activities. Using advanced strategies such as the Cluster
Industrial Complex and the Plug-and-Play factory, Singapore has been able to do maximize land

resources. Also, instead of focusing on just sheer land area, Singapore land management also
aims to maximize the plot ratio (gross floor area.) The countrys new growth areas are also
aligned to maximizing land space. The new growth areas are mostly catered to high value-added
activities, ensuring that the economic output of Singapores land is higher relative to density.
Singapores well-developed infrastructure stands to help the sector grow, as seen in the rapid
development of facilities at the countrys industrial parks. For example, the Biopolis and
Fusionopolis areas in One-north area have state-of-the-art facilities that encourage the research
and development in the biological and physical sciences. On the other hand, the Seletar
Aerospace Park is designed to support the business infrastructure needed for Aviation
maintenance and assembly, using the facilities of the old Seletar airport. In terms of
infrastructure development as a whole, Singapore already ranks 2 nd in the World Banks 2010
Logistics Performance Index, easily outstripping its neighbors Malaysia (29th), Thailand (35th),
and Indonesia (75th). (Southeast Asian Economic Outlook, 2010) Regarding labour, the
government has set up a Continuing Education and Training scheme (CET) to help Singaporeans
re-adjust their skills for the new economy on top of its already successful policy of attracting
skilled foreign talent into the country. (World Bank, 2010)
Given Singapores location, its strong free-market credentials, a skilled and constantly upgrading
labour force, strong government investment, well-developed infrastructure and logistics systems,
land maximization, and sound government policies, the manufacturing sector stands to continue
its strong role in the island nations economy.

Services Sector: Making Singapore Asias leading provider of world-class services

3.0 Overview of Services Sector
The services sector has been a vital component of Singapores GDP and is expected to grow
amidst the opportunities present in this century. As seen in Table 3.1, the services sector accounts
for 69.7% of GDP in 2010 and reflects the importance of Singapore as a regional hub for
financial and professional business services. According to the World Trade Organization,
Singapore is a major exporter of services accounting 2.3% of total global trade in services (Table
3.2). Since the global crisis, there has been a shift of markets to Asia and the opening of new
growth opportunities as a result of increasing demand for services in China, India and ASEAN
playing to the strengths of Singapore-based companies. Particularly, Singapore is looking to

develop its financial markets abroad in a knowledge-based economy that capitalizes on our high
level of education.
3.1 Key Challenges
The strategic focus to develop our service sector is not new, however we have yet to exploit the
services sector to its full potential due to the following reasons.
Firstly, competition in services is intensifying as countries shift their focus to aggressively
develop their service industries. The openness of our economy has necessitated our embrace
towards globalization, which brings along stiffer competition from region wide. For example, in
the logistics sector, our port has been facing rising competition from Malaysias port of Tanjung
Pelapas (PTP) (Abeysinghe, 2007). Singapore has already lost two major shipping lines, Maersk
and Evergreen, to PTP. In addition, competition in the airline industry has been fierce as Hong
Kong and Taiwan are positioning themselves as the regional aviation hub.
Secondly, we have allowed regulatory hurdles to get in the way of services growth. Powerful
regulations would often end up hindering the growth of the exportable component, whether
intentionally or otherwise. For example, for social policy reasons, we have deliberately restricted
the supply of healthcare and legal services in Singapore. For instance, under MOMs regulation,
a stringent foreign labor quota is imposed on the logistics industry. This would reduce cost
effectiveness and flexibility for firms to supplement their workforce, acting as a deterrent to
conduct business in Singapore. (Economic Review Committee, 2002)
Thirdly, the same labor constraints discussed for manufacturing applies to the service sector.
Singapore needs a large pool of highly skilled workers that are well equipped to provide
professional services such as accountancy and legal advice to encourage foreign investments.
Also, Singapore must seek growth through an increase in workers productivity over size of labor
force to remain competitive. A slower growing workforce reinforces the importance of extracting
value through innovation to maximize the potential of every worker. There is room for
improvement in productivity as seen in Figure 1, where Singapores productivity level is only
55-65% of those in Japan and US in manufacturing and services. (Economic Strategies
Committee, 2010)

3.2 Competitive Edge

However, Singapore also possesses strong competitive edges in services:
1) Well-educated workforce and good physical infrastructure that includes integrated transport
and efficient communication system
2) Strategic geographical location and well-placed to service countries in Asia
3) Reputation for reliability, quality and trustworthiness and a conducive legal environment
4) Sophisticated base of MNCs activities provide services such intellectual property and brand
equity management, aggregating a strong demand for professional services

3.3 Opportunities
A 2011 survey conducted by BERI ranked Singapore first in the world as the city with best
investment potential. Hence, we are in a good position to be a major services hub in Asia (refer
to Table 3.3). There are also opportunities that are fertile ground for Singapores foray into the
service sector.
1) The most important window of opportunity is that emerging economies in Asia are expected to
grow and will hence be a significant production base as well as a growing market for
professional and business services such as legal and management consultancy. As a global city in
the heart of Asia, Singapore is well positioned to seize the new growth opportunities that may
arise. (Economic Strategies Committee, 2010) The recent Euro crisis has shifted the focus of
markets in Asia with the contraction of the G3 economies. Also, growing urbanization would
increase demand for services in India, China and ASEAN that would complement Singaporebased companies.
2) The Euro crisis has altered the landscape of global finance, leading to a reduction in the
capacity to finance cross-border and emerging markets that could persist for some years.
Singapore should further develop our financial markets and be an enabler for Singapore
enterprise venturing abroad through its role in the intermediation of capital.
In short, there is no lack of opportunities for Singapore in the next decade. Our companies have
an important window of opportunity to create a strong presence in Asia over the next 5 to 10
years, while their skills are high in demand. (Economic Strategies Committee, 2010) In time,
other Asian economies will catch up as they start investing in human capital. Hence, we must
establish our key niche areas that would act as a springboard to add further value in this golden

time frame. Hence, the following section seeks to discuss Singapores attempt at positioning
itself as a pre-eminent financial centre in Asia.

3.4 Financial Sector as an engine of growth

The financial sector has been an integral source of Singapores growth in the past ten years. In
Table 3.4, financial services accounts for about 12% of total revenue for the services sector in
2010. Broad initiatives have been employed to achieve our goal of building a world-class
financial hub and Singapore must position itself to exploit the opportunities abound in Asia and
the following are reasons why Asia is a fertile ground for future growth.
First, Singapore is well placed to tap the growing wealth in Asia and is a Premier Asian Asset
Management Centre. The lesson learnt from the financial crisis in 2008 is that there is a shift in
investors mindsets. (SG Press Centre, 2009) Investors are demanding more protection for their
wealth and risk protection for their portfolios. This plays to Singapores advantage as we have a
reputation for a sound regulatory regime and a trusted legal framework. Hence, Singapore should
build on this fundamental ground to facilitate the growth of a trusted financial system with high
standards of risk management. Findings from the results of the 2010 Singapore Asset
Management Industry survey results, which showed that assets under management (AUM) by
fund managers in Singapore have reached a new high of S$1.4 trillion, representing a 12% yearon-year growth, thereby reaffirming Singapores position as a leading Asian investment centre
for global investors.
Second, Singapore should leverage on the massive infrastructure needs in Asia. A recent ADB
study showed that Asia needs to spend about US$8 trillion on transport, power and
communications infrastructure over the next ten years for Asia to emerge as a viably connected,
integrated and competitive region. Singapore is able to play a significant role in regional
infrastructural financing because of our urban infrastructure management expertise and strong
legal and regulatory framework. The government has been proactive in channeling investments
towards this area. For instance, Singapore has entered into a Memorandum of Understanding
(MOU) with the World Bank last year, which would leverage on our developmental expertise to
provide urban solutions for developing countries, which will also have spillover benefits to our
financial sector. (Goh, 2009)

10

Overall, there is a positive outlook and Asia remains a fertile ground for investments. However,
Singapore should also take caution of more volatility ahead for Asian financial markets as they
mature and deepen. While the economic centre of gravity is shifting to Asia, Asian economies are
not immune from troubles in the West. In a speech delivered by Prime Minister Lee Hsien Loong
to celebrate the Monetary Authority of Singapore's 40th anniversary in 2011, he said the
Monetary Authority of Singapore (MAS) must remain alert to new developments in the financial
sector. Regulation has to keep pace with new products and processes, and larger and more
diverse institutions."

Conclusion
The sustainability of Singapores new growth areas is largely dependent on productivity as the
key driver of growth. Through experience, we have seen that certain propellers of growth are
only temporary at best. For example, over-leveraging in developed markets exposes us to the risk
of asset bubbles and crashes. As we move to a knowledge-intensive and sophisticated economy,
innovation is vital for increasing the productivity of our workforce as we move ahead to improve
the quality of our workforce in both manufacturing and services.
While both sectors remain as the twin engines of growth, we conclude that Singapore should
shift its focus more on the service sector with the increase in demand for services in emerging
Asian economies in the near future. As Singapore is unable to compete with developing
economies for low manufacturing products, we should capitalize on our high skilled labor to
produce higher value products. However, both sectors should not be seen as competing but rather
as complementing roles. There are significant opportunities to grow service sectors that are
closely tied to manufacturing. (Economic Strategies Committee, 2010) For example, aerospace
companies do not only produce high-end components, but also significant value through services
such as maintenance and repair.
With the current economic landscape, the outlook for Singapore is largely positive and
Singapores targeted new growth areas are sustainable for the next 5 to 10 years. However, past
performances are not guarantees for success in the future. There is no panacea for a countrys
economic troubles. Hence, Singapore should be sensitive to changes in the macroeconomic
environment and continually revise its strategies for growth.

11

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14

Appendix
Table 2.1 Major JTC Industrial Parks
Estate

Industries/ Growth
Areas

Size
(hectares)

Offshore Marine
Centre

Worth of
Industrial
Investmen
t
No info

Regional distribution
13 ha
and logistics, offshore
value chain, oil and
gas equipment
CleanTech Park
Environmental
50 ha
S$ 2.5
technology &
Billion
sustainability
One-north
Biomedical sciences,
200 ha
US $ 7
Infocomm technology
Billion
(ICT), Media, Physical
Sciences and
Engineering
Seletar Aerospace
Aerospace (aircraft
320 ha (airport: S$ 7.2
Park /General
development &
160 ha)
Billion
Aviation Centre
maintenance)
Tuas Biomedical
Pharmaceuticals,
360 ha
S$ 6 Billion
Park
Biotechnology,
Manufacturing,
Medical technology
Jurong Island
Petroleum,
1,000 3,000
S$ 42
Petrochemicals,
ha (under
Billion
Specialty Chemicals
reclamation)
Sources: JTC Corporation, General electric, Economic Development Board
Table 2.2

Selected Industrial Parks, Asia

Estate
Foxconn Campus,
Shenzhen, China
Port Klang Free Zone,
Malaysia
Hsinchu Science and
Industrial Park, Taiwan
Amata Nakorn, Chonburi,
Thailand

Industries/ Growth Areas

Size
(hectare
s)
Consumer electronics (Apple 300 ha
products)
Manufacturing, regional
404 ha
distribution and logistics
Telecommunications,
1,400 ha
electronics, biomedical
technology
Manufacturing, electronics,
2,000 ha
ICT

15

Table 2.3

Singapore Labour Statistics

2001
2,330.5

2003
2,312.3

2005
2,367.3

2007
2,710.3

2009
3,030

2011
3,237.1

Labour Force
(000)
Residents
1,644.3 1,706.4 1,744
1,878
1,985.7 2,080.1
(000)
% Local
70.56% 73.80% 73.68% 69.29% 65.53% 64.26%
Source: Comprehensive Labour Force Survey, MOM; Singstat 2005 Census, 3: Economic
Characteristics Labour Force
Table 2.4

Trade-to-GDP Ratio of Selected countries

Country
2000
2005
2007
2010
Singapore
283.9
347.9
334.4
317.4
Hong Kong
246.4
333.2
347.4
375.6
United Arab 81.3
111.8
120.5
127.7
Emirates
Malaysia
192.1
185.3
173.2
152.9
South Korea 62.4
64.6
69.4
87.9
United
20.6
20.9
22.6
22.3
States
Source: World Bank (http://data.worldbank.org/indicator/TG.VAL.TOTL.GD.ZS?page=1)
Table 2.5 Industry and Investment Indicators
2007
2008
Fixed Asset
S$ 17.2 B
S$ 18.0 B
Investment
Industry
S$ 11.6 B
S$ 14.67 B
Value Added
Total
S$ 7.70
S$ 7.81 B
Business
Spending
Source: EDB Annual reports

2009
S$ 11.8 B

2010
S$ 12.9 B

S$ 12.5 B

S$ 14.44 B

S$ 6.8 B

S$ 8.58 B

16

Table 3.1

17

Table 3.2

Source: International Trade Statistics 2010, WTO

18

Source: Economic Strategies Committee

19

Table 3.4

Source: Yearbook of Statistics Singapore, 2011, Singstat

20

TABLE 3.3

21