Speech by Minister Chan Chun Sing at the 11th Singapore Economic Policy Forum

KEYNOTE SPEECH FOR MR CHAN CHUN SING, MINISTER FOR TRADE AND INDUSTRY, AT THE 11TH SINGAPORE ECONOMIC POLICY FORUM ON 25 OCT, 9AM, AT MANDARIN SINGAPORE

A very good morning to friends and colleagues of the Economic Society of Singapore.

SINGAPORE’S CURRENT CONTEXT

1.            The Singapore economy has been doing reasonably well despite the challenges that we are facing. In the first three quarters of 2018, our economy grew by 3.8% on a year-on-year basis, and we expect GDP growth for the full year to be in the range of 2.5% to 3.5%. This is despite greater uncertainties and downside risks in the global economy due to ongoing trade conflicts, and the slowing pace of expansion of regional economies such as China.

2.            So this morning, as Professor Euston said, we need to understand the challenges, opportunities and where we can go forward together.

FIVE CHALLENGES

3.            We are facing both external and internal challenges – there are five key challenges that we have to deal with squarely.

4.            First, on the external front, there is a rise in nativist politics and protectionist economics that is threatening to fragment the current global trading system.

a)   US and China are raising tariffs in their trade conflict, with the US placing three rounds of tariffs on Chinese products totalling around US$250 billion this year and China retaliating with its own tariffs on US products. Bilateral trade between the US and China contributes indirectly to 1.1% of Singapore’s GDP due to our role in global value chains. As such, a disruption in trade between the US and China is likely to have an impact on the Singapore economy.

b)   If the trade conflict continues to intensify, consequences can continue to escalate non-linearly. The greatest danger is if it triggers a sharp and sustained plunge in business and consumer confidence. In such an environment, Singapore’s open economy and our dependence on global trade could have severe consequences for us, and the kinds of jobs we can provide our people.

5.            Notwithstanding the current trade spat, there are also significant technological disruptions that will shape the global production and value chains.

a)   China has declared its "Made in China 2025" ambition, not only insourcing more, but also aiming to capture the market for higher quality products.

b)   The Trump administration has been careful about foreign investments that could lead to the transfer of technology, IP and innovation, and has been calling for US companies to bring manufacturing back home.

c)   This together with technological disruptions, means we can expect in the coming years a significant shift in the global production patterns.

d)   In my recent conversation with MNC leaders, they are making contingency plans to redistribute and redesign their entire global supply chain.

e)   This does not mean that there are only downsides to the Singapore economy, there could also be opportunities. We need to be alert to how the global production chain shifts, and how we can play a role in the new economy.

6.            Third, with the rise of the new digital economy, business models will also be evolving rapidly. This will create new competitive dynamics and affect the way we work, the way our businesses compete locally, regionally and beyond.

a)   Digital connectivity has bolstered the rise of the sharing economy. Uber is now the largest taxi company in the world, while AirBnB the largest hotel chain, all without owning a single car or property under their ledger. Meanwhile, cable TV is being challenged by the likes of Netflix, and supermarkets are facing increasing competition from players like Redmart and Amazon Fresh.

b)   We need new rules not only to keep up, but also to ensure that we support the growth of these new sectors while protecting consumers.

7.            The fourth and fifth challenges are more on the domestic front. While the Singapore economy has been growing, there is widespread growth trajectories across different sectors. As I shared on Monday, we can expect a widening of growth trajectories between industries in the new economy. We need to couple broad-based economic policies with targeted efforts to build capabilities for each different sector.

a)   For example, in the second quarter of 2018, the manufacturing sector expanded by a robust 10.6% year-on-year, with growth led by the electronics, biomedical manufacturing and transport engineering clusters. However, sectors such as wholesale & retail trade clocked in slower growth of 1.5%, while the growth of the transportation & storage sector eased to 1.3%.

8.            Our fifth challenge relates to our labour and land constraints. We need to find ways to allow these factors of production to be recycled more efficiently in this more perse environment. Our policies need to ensure that barriers of entry are low while the market remains efficient to facilitate the recycling and optimal allocation of resources.

Labour

a)   Workforce growth will slow down significantly in the years ahead given our demographics. On the one hand, our population is aging and significant cohorts of workers are retiring from the labour force. On the other hand, our population growth has dropped to 1% over the last five years from 3% in the previous five. Our total fertility rate at 1.16 is not only below the full-replacement level of 2.1 but amongst the lowest in the world. The median age of our workforce is now at 43, and will only increase in the future.

b)   At the same time, rapid technological changes will lead to skills obsolescence at an ever faster pace than before. Jobs, particularly routine tasks, may disappear soon as they are automated. On the other hand, there will be new jobs requiring new skills that will be created.

c)   It is pertinent to ensure that available labour is channelled to the more productive activities. This is a question not just of numbers, but also a question of the quality and speed of training to see how fast we can recycle, retrain and upgrade our workers to keep pace with the new demands of the new economy.

Land

d)   Unlike bigger countries, land is a finite and scarce resource for us, even as our portfolio of economic activities continue to grow. We need to be more innovative and more imaginative in the ways we use land. Be it by going high-rise as we traditionally have, or going underground and having shared facilities in order to create the economies of scale that we need.

FIVE OPPORTUNITIES

9.            The five challenges may seem formidable, but I also see five significant opportunities for Singapore.

10.         First, a fast-growing Asia. We are a member of the Asian community. The question for us is how do we make ourselves relevant and how do we seize the opportunities of a rapidly rising Asia?  

a)   There is increasing urbanisation, and Asia, with China and India in the lead, is projected^[1] to represent 66% of the global middle-class population, and 59% of middle-class consumption by 2030 will be in Asia.

b)   ASEAN’s combined gross GDP of US$2.6 trillion in 2016 made it the world's sixth-largest economy. With an annual growth forecast of around 5%, ASEAN is expected to become the fourth-largest economy by 2030[2]. IMF has projected that Indonesia, Thailand, Philippines and Vietnam, on top of Malaysia and Singapore, will make up the majority of ASEAN’s GDP by 2022.

c)   So there is this tremendous opportunity called Asia. In order for us to seize opportunities, we need to know Asia in-depth, not superficially. For example, to know China is not to know China in general. Each province in China is slightly different. For us to know China, we need to know China in-depth, down to the provincial level and even beyond the provincial level. What I have illustrated applies similarly to India, Malaysia, Indonesia and many other Asian countries. We should not make the wrong assumption that a country is monolithic, with monolithic interests, monolithic institutions and mono-interest inpiduals.

d)   We need to be immersed, to understand all these countries in depth and know how they interact dynamically in order for us to secure our interests.

11.         Second, the rise of new technologies – digital, robotics, artificial intelligence (AI). This is a tremendous opportunity for Singapore. These technologies will allow us to transcend our age old geographical constraints. If we seize the opportunities well, the Singapore economy will no longer be constrained by size and will not need to compete on the basis of price alone. Instead, these new technologies allow us to compete on the basis of connectivity, the quality of our ideas and the standard of trust that we can bring to the global markets. So this is very significant for us. Probably the most significant thing that could have happened to Singapore since independence. In the history of mankind, the lack of a hinterland has always been a constraint to the growth and survival of small cities. For the first time in history perhaps, we have a chance where the growth and survival of a city-state is no longer dependent on size but on connectivity, knowledge and technology.

12.         On a similar note, the non-physical modes of connectivity will play an increasingly important role and enable us to grow beyond our physical constraints.

a)   When we talk about connectivity, we traditionally talk about land, air and sea – three physical dimensions. Now and in future, when we talk about connectivity we need to think about seven dimensions. Not just the three physical dimensions but also four non-physical dimensions – data, finance, talent and technology. While we are already well-connected to the rest of the world physically through our sea port and airport, we need to challenge ourselves to become a global node for data, finance, talent and technology.

b)   We are starting from a good foundation. We already have extensive trade links, and are open to talent and ideas. We are recognised as a regional financial hub and a regional data hub of the world.

c)   But the competition is not linear. It does not mean that because we are ahead today, we will be ahead forever. Those who are ahead could face greater difficulty to transform. This has been demonstrated in recent history where seemingly less developed countries have adopted transformative technologies to surpass incumbents.

13.         Fourth, we must leverage our hard-earned competitive advantage in trust and standards.

a)   Companies and people choose Singapore because they know they can trust Singapore and Singaporeans. When they sign a contract, they know it will be honoured and they can trust the rule of law. Even if there are any disputes, there are established systems for legal recourse and arbitration. They locate sensitive investments and valuable intellectual property here, because they know that their assets and intellectual property will be protected. Our standards provide assurance on the quality of goods and services that come through Singapore. We want it to be known that whenever a product or service comes with the red lion head logo, it speaks of quality, it speaks of standards, it speaks of something you can trust. And because of that, it commands a premium in global markets.

14.         Finally, our predictable, pro-business economic environment is a strength that we must use to our advantage in an increasingly volatile world.

a)   Singapore has been ranked highly by the World Bank in the ease of doing business^[3]. We must never be complacent. What we can do, others can copy. If we’re at the forefront, we have to keep reinventing rather than follow others.

b)   This is especially important for sectors, such as deep tech and biopharma, where there are long gestation periods from upstream research to R&D and commercialisation. It is critical for such activities to be sited in a stable environment where investments will be able to bear fruit without disruption from volatile political climates.  

EIGHT STRATEGIES

15.         Now let me move on to the eight CRITICAL strategies to share with you:

Connectivity
Rules (International)
I4.0 (Deep Tech, 4-Highs – Mix, Trust, Knowledge, Value-Add)
Talent Network
Innovation (RIE Cycle)
Capabilities Building (LLE-SME-Start-Ups)
Agile Regulations
Learning (Continuous)

16.         Connectivity – building connectivity and persifying our reliance on any particular node, in order to enhance our competitiveness at the whole-network level. Connectivity has both an offensive and defensive dimension. On the defensive front, connectivity means that we will never be held ransom because of our dependence on any particular resource or market. Connectivity on a defensive basis means persification.

17.         But connectivity can also be an offensive strategy because as we say, we are not just investing in physical connectivity, but we need to strengthen our connectivity in data, finance, talent and technology. We need to continue investing in physical connectivity, and establish linkages and build capabilities to support trade and data flows. We can then better support both global MNCs and regional start-ups to use Singapore as a platform to operate elsewhere.

18.         Incidentally, you have all heard the story of Dyson making a significant investment in Singapore. Many wonder why Dyson chose Singapore and if you have read the statement by Dyson, the reason is because of our connectivity. Dyson will require a global supply chain. While our land and labour costs may not be the cheapest, our superior connectivity will allow them the opportunities to create a new industry in Singapore.

19.         Beyond those seven dimensions of connectivity, we also need to talk about relational connectivity. We need to understand the inpiduals, institutions and interests of the Chinese, the Indians, the Malaysians, the Indonesians, and the Asians in-depth. No matter how technology progresses, no matter how much automation there may be, at the end of the day when it comes to business it is about relationships. Unless we have relational connectivity, it will be very difficult for us to say that we have that added advantage.

20.         Rules – Today, the WTO system forms the bedrock of the global trading system. We will be the first to admit that it is not perfect. But that does not mean we should throw the baby out with the bathwater. We need to continue working with like-minded countries to update the global trading system and there are two parts to this.

21.         Firstly, there is a need to update the rules to take into consideration the context that we are operating in for existing goods and services sectors. There is a lot of debate going on if the rules are fair. This is because the relative share of the global economy has shifted significantly. Some say that the rules can no longer be applied in context. This is one set of issues we need to discuss with like-minded partners.

22.         Secondly, we need to find new rules for the new economy consisting of data flows, digital flows and financial flows. Today’s WTO system is built in a world dominated by merchandise trade and to an extent trade in services. It does not have a suite of rules that enables the new economy and encourage innovation in the new economy. This is why MTI, MCI and MFA are working with like-minded partners across the globe to try to establish pathfinder rules for this new economy that can inspire confidence, promote innovation, and create new business opportunities for everyone.

23.         So, there are two parts to rules. The first is to strengthen the existing system. This includes building up rules that ensure better access and reduce market distortions through FTAs like the EU-Singapore FTA, the CECA we have just upgraded, and the China-Singapore FTA that we are in the final stages of completion for the upgrade. Second, we need to couple this effort with new rules for the new economy.

24.        Industry 4.0 – We need to continue leveraging these new ideas. There are two parts. One part is to leverage these new technologies and apply them to our existing models of production. In order to lift the productivity of existing industries. The second part, more importantly, is to leverage these new technologies to create new industries and new jobs for our people. 

a)   For example, Facebook recently put in more than a billion-dollar investment for a new data centre. What is the story behind it? Many people would not believe that Singapore can have a competitive advantage. Conventionally, data centers need land and power. The best in class have energy efficiency of 1.8, this means that 80% extra power is required to cool the data centre for every 1 unit of power that is used to run the data center. Data centers also need connectivity.

b)   We take it as a given that we have superior advantages in connectivity. Land and power? This is an example of how the convergence of new ideas can result in the creation of new competitive advantages for us. The Facebook data centre takes up a fraction of land that data centers traditionally use. We scrunched a 2-dimension data centre into a 3 dimensional stack. We also expect to improve the power efficiency from 1.8 PUE to 1.2 PUE. That is a significant reduction in energy cost. Because we can redesign the ways data centers operate, we create new competitive advantages. We made a virtue of our necessity.

c)   It was the same story for Rolls-Royce in Seletar. Conventional production facilities are laid out on a two-dimensional spread. However, because we do not have enough land, we crunched it together in a three dimensional stack and suddenly, we found new efficiencies. So sometimes, constraints are a blessing.

d)   The new technologies allow us to transcend our geography and size. It allows us to enter new sectors that depends on the four highs: high-mix/ low-volume, high value-add, high trust and high knowledge-add (4H). Because these are high-mix, low volume sectors, standards and trust is important. So the convergence of new technology means we can play to our strength.

e)   To this end, we launched the Singapore Smart Industry Readiness Index last November. This is a framework to help companies determine how they may best implement I4.0 solutions in a systematic and comprehensive manner. We are not just applying I4.0 technologies at random. EDB has a strategy to go and build up clusters, centres of excellence that are interconnected. We do not compete on the basis of attracting inpidual companies. We compete on the basis of building a complementary network of companies and industries to strengthen our advantages. We do not just apply technologies to current processes, we must use new technology to transform the current process.

25.         Talent – In all the new industries we talk about today, there is a global contest for talent. Universities are finding it difficult to keep pace with the requirements of the new economies.  

26.         We want to build a competitive team Singapore, not just in Singapore but beyond Singapore. It could mean other people coming to work with us or us working with other people elsewhere. It can also mean that even if we do not go and they do not come, we have access to knowledge networks around the globe.

a) This is the reason why we have been developing the Global Innovation Alliance (GIA), with the objective of establishing networks to create more opportunities for Singaporean students, entrepreneurs and businesses to gain overseas experience, connect, and collaborate with their overseas counterparts in innovation hubs around the world.

b)   EDB is setting up a new unit to connect families, friends and fans of Singapore to be part of the Singapore story. If we can plug into the global network, our human potential of Singapore’s economy will never be limited by the 3-4 million Singaporeans we have.

27.         Innovation – we have spent huge amounts on research and innovation. Our next challenge is translating our outcomes from research institutes and universities to enterprise to complete the RIE cycle.

a) We have set aside S$19 billion over the period of 2016 to 2020 to support public sector R&D in Singapore under the Research, Innovation and Enterprise 2020 (RIE2020) Plan. This is just the start and foundation. We are getting research institutes, like A*STAR and the universities, to work together with government agencies and companies to develop plans that address sector-level needs and opportunities. It is not just about research institutes doing research on their own, or businesses on their own. We need to connect them. I challenged A*STAR to find me “3 times 10”. I asked them to find 10 progressive TACs that want to have a R&D plan for their sector that will help them compete on innovation, not price; to find 10 LLEs that can translate outcomes from science and technology into commercial products that will give us the next new competitive advantages; and to find 10 Government agencies. Everyone, including Government, needs a R&D plan. This is something that we need to do much better.

b) R&D translation to commercial products cannot be left to chance. It is a concerted effort to have regular dialogues between the commercial arm of economy and the research arm of our society. When we connect these two, we will build a powerful ecosystem whereby our people will compete based on our capabilities rather than price or size.

28.          Next, Capabilities development, for our SMEs, the LLEs and TACs. This is where the Trade Associations have an important role to play going forward in particular, for large local enterprises (LLEs) and SMEs.

a) The role of the TACs is not just about gathering feedback. In MTI we see them as an extension of the MTI family. Not only do they give feedback on challenges faced by businesses, we also want them to be the intermediary to help develop real capabilities for their companies. For example, in the logistics and supply chain industry, the TACs were instrumental in bringing together different players, combining their capabilities for economies of scale, aggregating their demands for training to bring forth a new generation of supply chain specialists. This is the kind of example we want to see across our entire landscape of TACs.

b) We have much to do in this. Very often, people use the term "to hunt in a pack"” – but to do this we need to learn to work as a team first, to develop real capabilities, then we can go forth to the rest of the world to compete as team Singapore. So we are going to strengthen our efforts, through A*STAR, ESG, working with our TACs to make sure that they are powerful intermediaries to help our local enterprises reach their next milestone.

29.         Agility in regulations – I spoke about why standards and trust are important, but agility in regulations can be a competitive advantage. Someone once told me regulatory agility is an oxymoron.

30.         For example, in the Fintech sector – should it be regulated by MAS because it’s 'fin' or MCI because it’s 'tech'? It does not matter because it is regulated by the Singapore system. The Singapore system must be agile enough to create new rules that are not just defensive to prevent bad things from happening. But new rules that enable good things to happen. We believe that if any system can get its act together, Singapore must be one of them. To make ourselves the choice to incubate, pilot and scale up their new business models and technology. But agility in regulations also has another dimension.

31.         There are many countries putting up protectionist, non-tariff barriers to their economic system. So we need to help our companies skilfully navigate other countries’ regulations to penetrate their markets and find new growth areas.

32.         Learning – Continuous, lifelong learning. Compulsory learning of 10-12 years will only give us foundational learning. The cutting edge of learning is not only in our universities, polytechnics, or ITEs. The cutting edge of learning must go beyond them and work with the cutting edge of business where the latest ideas and technologies are being tested out. That is why I said at the SIT graduation that I hope we stop calling universities Institutes of Higher Learning. There is no higher or lower; learning is continuous learning.

33.         So institutes like SIT are not just institutions providing learning. But they provide an enabling environment for learners to connect with the sharp edge of learning in the industry as well. So we need to fuse the two ideas of compulsory education with continuous learning. Learning in our institutes of continuous education and learning with the cutting edge of business and technology. If we can do this well, then we would have created new competitive advantages for ourselves.

34.         In tomorrow’s economy, it depends less on how much we learn, but how fast our people learn, unlearn, relearn. Whenever I meet students, I always ask – what is the most important skillset that you can take away from your institution? My answer is always the ability to learn and keep learning fast. That will be our special ingredient for the Singapore workforce.

CONCLUSION

35.         We have our work cut out for us but I do not think the challenges will floor us. We are starting from a higher base than in 1965. We have a more educated workforce, greater depth in our resources, and we have much more technological opportunities for us to transcend our geography and size.

36.         So if our Pioneer and Merdeka generations can leave us a strong foundation, our generation has no reason not to leave behind an even stronger foundation for our next generation. Our definition of success is not how well we have done in our generation, but how well we enable the next generation to do even better than us.

37.         For teachers in the hall, let me thank you for your work. We depend on you to bring forth a new generation of Singaporeans who are just as, if not more capable; who are just as, if not more capable and committed to the cause of Singapore for us to continue to grow, thrive and defy the odds of history that a small city-state like ours can thrive and create opportunities for people from all walks of life.

38.         So let me congratulate the two winners of the Outstanding Economics Teachers Awards, Mr Chu Hian Meng from Pioneer JC and Mr Toh Jin Tian from Tampines JC. You lead the way, the rest of the teachers and economists are with you on this journey. Thank you.

[1] Source: OECD forecast

[2] Source: ASEAN Secretariat

[3] Singapore is ranked 2nd among 190 economies in 2019, and has been within the top 3 in the past 12 consecutive years (source: ACRA)