What Asian economic integration needs

What Asian economic integration needs

By MALMINDERJIT SINGH

THERE should be a greater institutional presence in Asia to facilitate economic integration in the region.
This was the key message that Barry Eichengreen delivered in his public lecture on Asian Economic Integration at the Monetary Authority of Singapore (MAS) yesterday.
Professor Eichengreen, the newly appointed MAS Term Professor in Economics and Finance, explained that a more elaborate institutional presence in Asia would help cement existing gains, widen geographical coverage as well as further deepen economic integration.
He highlighted that regional integration efforts thus far have contributed to the growth of economic activity and living standards. Prof Eichengreen explained, however, that while trade shares and intensity have increased in Asia, this has happened at differing rates in different sub-regions, with East Asia experiencing greater progress in this regard as compared to South and Central Asia.
Prof Eichengreen, who is also professor of economics and political science at the University of California, Berkeley, said that going forward, institutional building in Asia should be more systemic as opposed to the ad hoc and reactive approach currently used. He suggested six areas in which institutional presence could be strengthened in the region. Firstly, he suggested making the most of current international conventions such as those from the World Trade Organization (WTO) and the 1980 United Nations Convention on Contracts for the International Sale of Goods. This would be easy to harmonise since their designs were already done.
Prof Eichengreen said that Asia should also look to develop institutions to exploit sub-regional opportunities such as enhancing transport infrastructure, exploring new economic corridors and perhaps more bilateral and sub-regional free trade agreements (FTAs). He added that there should be more opportunities for sub-regional groupings like Asean and the South Asian Association for Regional Cooperation (SAARC) to connect, perhaps through annual summits or conventions.
Prof Eichengreen recommended introducing a compliance board, made up of business and academic members, to help monitor and assess what institutions are doing and urged Asean to consider such a set-up as it would improve transparency. Further, he called for the Asean Secretariat to be given more freedom in setting the agenda and suggested that current review processes in Asean be strengthened. He pointed out that these measures would help strengthen existing groups and that governments should even consider expanding the Asean + 3 grouping, with an eventual objective of a pan-regional institution in mind.
The lecture was organised by MAS and the National University of Singapore Department of Economics.

S’pore unis see opportunities in India’s new education policy

S’pore unis see opportunities in India’s new education policy
They see a chance to increase their presence in a lucrative market
By MALMINDERJIT SINGH


INSTEAD of seeing India’s move to allow foreign universities to set up local campuses as a threat, Singapore’s universities and private education institutions are looking at it as an opportunity to expand their presence there.
The Indian Cabinet’s ratification of the Foreign Educational Institutions Bill, partially designed to arrest the outflow of Indian students, has been seen as potentially detrimental to Singapore’s higher education providers who see many Indian students.
They, however, remain optimistic and, in fact, see it as an opportunity to increase their presence in a lucrative market. The number of Indian students in higher education stands at 14 million currently, but sources say that the Indian government has targeted to raise this figure to 21 million by 2012.
The Singapore Management University (SMU), for one, is already looking for partnerships with Indian universities for postgraduate education in areas such as finance, wealth and healthcare management, Rajendra K Srivastava, provost and deputy president (academic affairs) at SMU, told BT.
“On the postgraduate front, India is very much on the radar of SMU for executive education, including specialised master’s programmes and customised training for professionals,” he said.
Others with pre-existing partnerships there may be looking to expand further.
Peter Pang, assistant vice-president, university & global relations at the National University of Singapore (NUS), pointed out that NUS has partnerships with several universities in India, including joint PhD programmes with the Indian Institute of Technology Mumbai, the Indian Institute of Technology Chennai {SEE CORRECTION 1 ABOVE}, and the Indian Institute of Technology Kanpur, as well as an NUS Overseas College in India.
“The foreign universities bill will open up even more opportunities for collaboration,” he said.
Raffles Education Corporation in Singapore, which already has seven education centres in various Indian cities through joint venture projects with Educomp Solutions, India’s largest education company, may also be on the lookout, although chairman and chief executive officer Chew Hua Seng preferred to comment broadly on this development. “The new law is timely to unleash India’s vast human resource potential to propel it forward economically”, he said. Local players, however, will have their work cut out for them because international players are getting in on the game, too.
New York-based Columbia University will be setting up an international centre for research and regional collaboration in Mumbai later this month, while the Graduate Management Admission Council (GMAC), which conducts the Graduate Management Aptitude Test (GMAT), has also announced plans to set up an office in India, its third globally after the United States and the UK.
But still, most remain buoyant about prospects because “the Indian market is big enough to accommodate multiple players”, said a Singapore Institute of Management {SEE CORRECTION 2 ABOVE} (SIM) spokesman.
“(Even though) with market liberalisation Indian students will have more choices, Singapore will still be attractive to international students who want an overseas education in a safe and vibrant multi-cultural environment, as well as one that offers attractive career opportunities in the future.”
The devil is in the details though. The fine print of the bill includes clauses that bar the foreign universities from repatriating profits and put conditions on them to shell out around 500 million rupees (S$15.3 million) upfront and make complete disclosure on their curriculum and faculties, reported India’s Financial Express.
Such clauses may influence Singapore-based institutions to enter the market through joint ventures and partnerships, rather than establishing a direct presence, and to be more cautious about expansion plans. “It is still too early to tell at our current stage of development,” reiterated the SIM spokesman. “We would like to remain focused on our mission, which is to provide good-quality education for adult learners in Singapore.”
But still no one doubts that India’s new bill will up the ante in the education business.
“India’s policy will spur us to be more competitive,” said Lalit Goel, dean of admissions and financial aid at the Nanyang Technological University (NTU). “NTU will continue to put in effort to attract talent . . . We are always looking for bright talent from all countries, including India, and due to the sheer volume of applicants from India, we do not believe that this will affect applications significantly.”
Prof Srivastava echoed the positive sentiments. “SMU has always been a popular destination for Indian students seeking higher education given our close proximity in the heart of Asia and the excellent connections we have with Indian businesses. I believe that going abroad for tertiary studies remains a very attractive option among Indian students for the global exposure and opportunity to know the region better.”
‘Going abroad for tertiary studies remains a very attractive option among Indian students for the global exposure and opportunity to know the region better.’ – Prof Srivastava

CECA review may begin soon

CECA review may begin soon

It will address areas such as mutual recognition agreements
By MALMINDERJIT SINGH
 

[SINGAPORE] The review of Singapore’s Comprehensive Economic Cooperation Agreement (CECA) with India could be launched as soon next month, said India’s High Commissioner to Singapore, TCA Raghavan, at the sidelines of the Opportunities in Special Economic Zones (SEZ) Sector in India conference yesterday.
Mr Raghavan said that some preliminary work has already been done for a review of the CECA, and it will be formally launched when Minister for Trade Lim Hng Kiang visits India. He added that the review will take into account the changes in the overall trade scenario since the CECA was signed in 2005, which provides traders in Singapore more opportunities as they can now benefit from both the CECA and the Asean-India free trade agreement.
“I think the review will certainly address areas which both sides feel could do with more focus. One area is the MRAs – the Mutual Recognition Agreements. There has been some progress, and some things only mature over time. And the MRAs are a process which depends a lot on the professional organisations on both sides. I think there will be progress in those areas,” elaborated the high commissioner on the possibility of a new and improved CECA.
He also told reporters that the CECA review will be an ongoing dialogue with both countries’ trade ministers making bilateral visits. The review is expected to extend over several months and is expected to be completed substantially by the end of this year.
Singapore is the second largest investor in India, providing 9 per cent of India’s total foreign direct investment (FDI) flows. Mr Raghavan was confident that investment flows between both countries can grow out of the shadows of last year’s dampened global investment climate, and attributed this to India’s macroeconomic stability and a potentially high quality trade in investments agreement between India and Asean, which Singapore investors may find complementary to the CECA.
“One example is the very good turnout we’ve seen in this conference from both India and Singapore. From India, we have about 35 SEZ developers and officials participating, and even more so in terms of the local participation and the queries we have had. The High Commission can provide a platform and our intention is to make the platform as focused as possible, that is to look at the sectors and sub-sectors because the overall argument is now well made and well known – that is, the Indian economy is going to be a growth story over the next decade,” he said.
LB Singhal, director general of India’s Export Promotion Council for Export Oriented Units and SEZs (EPCES), said that there were 575 formal SEZ approvals in India at the end of 2009. Some 105 of these were already functioning and housing as many as 2,761 units, he said. He also pointed out that Singapore companies could play a role in these SEZs as developers or as individual units. In doing so, he highlighted that they stand to benefit through various tax exemptions, duty free goods and 100 per cent FDI through the automatic route, among other features.
Mr Lim said that Singapore companies have gained much experience from planning, developing and implementing SEZs in the region and could apply this expertise to the Indian case, notably in the areas of master planning and industrial development, and in establishing an efficient transport and logistics chain.
Mr Lim noted that although concerns surrounding land acquisition, resettlement and creation of employment need to be addressed and managed effectively, Singapore companies such as Ascendas have done well in India and have a lot to offer to SEZs there.

HSBC's customised trade finance for S'pore firms

HSBC's customised trade finance for S'pore firms
Bank may soon offer option for S'pore-India trade

By MALMINDERJIT SINGH

(SINGAPORE) Singapore companies looking to do business in India may soon look towards customised trade financing options available there, according to Puneet Chaddha, Hongkong and Shanghai Banking Corporation (HSBC)'s managing director and head of commercial banking, India.

Speaking to The Business Times, he explained that while HSBC's standard products are good to a point, custom-made options are necessary and thus the bank is putting together the proposition of developing country-specific financing products.

Quoting examples of the India-Bangladesh and the India-UAE customised trade financing packages currently available in India, Mr Chaddha added that we are likely to see the same appearing for India-Singapore trade.
Such a development is likely to improve documentation and processes standardisation between banks in Singapore and India. Mr Chaddha said this would allow Singapore companies doing business in India to gain better access to financing than before and they would save through lower financial costs and turnaround time.
The global economic recession has altered the trend of financing choices for businesses in India. According to Mr Chaddha, the involvement of banks was kept low in the pre-crisis environment as buyers and sellers trusted each other more with credit options. However, as commercial trust becomes more fragile with the onslaught of the recession, more companies have turned to banks and their instruments, such as letters of credit, as credit enhancers.

Currently, Mr Chaddha explained, both small and medium-sized enterprises (SMEs) and large multinational corporations (MNCs) can draw from a host of financing structures and trade products that the banks in India provide. He pointed out that MNCs may also raise financing domestically or off-shore, depending on which is the cheaper market to borrow from.

Singapore is India's 14th largest import market and fourth largest export destination, as well as being the second largest provider of foreign direct investment into India. While Singapore's exports to India have largely been concentrated in mineral oils, electrical and medical equipment and organic chemicals, recent announcements by the Indian government to liberalise certain sectors of the economy, particularly financial services, higher education and defence, could signal more opportunities for businesses in Singapore.
'I see a greater sense of comfort among Singapore companies in doing business in India now,' Mr Chaddha said. 'As a result of the recent announcements by the Indian Finance Minister (on offering more banking licences), we will see more Singapore companies setting up operations in India, and particularly in the financial services industry,' he added.

HSBC, according to Mr Chaddha, will be following this segment of leading international business very closely as it looks to focus on facilitating cross-border trade. As such, he said the bank is clear that it will look towards penetrating the market that the India-Singapore trade flows creates.

At the same time, he explains that HSBC will create a proposition that it would like to bring to its customers in this segment, so as to highlight the benefits they may enjoy in doing business with the bank. This, he says, represents a more scientific approach to bilateral trade that HSBC is looking to adopt as opposed to simply targeting a certain percentage share of the market and he is confident that this will be a successful strategy.

Mr Chaddha was in Singapore to speak at a session of the International Enterprise Singapore's advisory seminar series on 'Doing Business in India' yesterday.

Expect a Bold Budget

Expect a Bold Budget
By Malminderjit Singh
In the run up to the Budget, to be unveiled by Finance Minister Tharman Shanmugaratnam this afternoon, the rumour mills have been working overtime on what might be in store. While analysts have expressed mixed views on the likely contents of the Budget, many would agree that expectations in this year of economic recovery are higher than usual.

There are signs to indicate that Budget 2010 will be bold, and will target some broad objectives, as well as some very specific ones. But the economic backdrop to the Budget, while better than last year, is by no means rosy. Although the government has raised its growth forecast to 4.5-6.5 per cent for this year, in reality there are still obstacles to steering the economy to a full recovery. As long as US unemployment figures remain grim and the debt crises afflicting Europe, as well as Dubai, continues to fester, any talk of full recovery is premature.

Clouding the picture even more are the growing asset bubbles in parts of Asia, coupled with high inflation levels in China and India - which could lead to policy tightening in this region and add to the slack in global demand. Given such uncertainties, yet another bold Budget may be necessary to help stimulate the domestic economy.

Moreover, with the General Elections possibly on the horizon later this year, the government may be unwilling to risk any decline in economic growth. This is another reason for it to lean towards an expansionary budget to boost job creation and output. We already have a foretaste of what is to come in the recommendations of the Economic Strategies Committee on Feb 1. It could be argued that the ESC recommendations did not produce as much excitement as expected. After all, the push for productivity and enterprise development, which the committee emphasised, has reappeared many a time over the decades and then fallen off the radar screen. However, the ESC's role was not to generate hype or excitement, but to come up with ways to achieve more sustainable and inclusive growth.

The excitement could be delivered through other means, including the Budget. If the ESC's framework was skeletal, then the Budget will look to add flesh and muscle. It could make the recommendations more concrete and help improve their mass acceptance. An expansionary Budget would be most conducive to measures aimed at restructuring the economy.

Expect Budget 2010 to also address social issues, albeit subtly. This is as good a time as any for the government to use the fiscal tools at its disposal to tackle rising socio-economic concerns. For instance, by incentivising companies to focus on worker productivity, the government would be able to begin the process of reducing Singapore's dependence on low-cost labour from overseas. It is no secret that the influx of foreign labour has been on the minds of many Singaporeans, and this is likely to be addressed in the Budget. There have also been calls for a minimum wage to help tackle the issues of depressed wages and rising income inequality.

If the government does introduce a minimum wage, or a derivative in some part, then it could help improve the standards of living of a significant proportion of Singaporeans. Thus, while previous Budgets have been geared mainly towards economic concerns, do not be surprised if the measures in Budget 2010 are also focused on social policies.

Of course, we should not expect this year's budget to dig as deep into the coffers as did last year's $20.5 billion Resilience Package. After all, the Resilience Package was an urgent solution to help the economy avert the worst effects of the recession - which it did successfully. This time around, the Budget is likely to be less extraordinarily generous. But it could contain measures that have a profound long term impact in terms of guiding the direction of Singapore's future economic development

Watch List for 2010

We are well into 2010 so it is timely to anticipate the events that Singaporeans will need to look out for as these are most likely to have the greatest impact on the country collectively. In no particular order, here are the 10 events most likely to shape public debate:

1. Budget 2010
The Economic Strategies Committee (ESC) has already announced its recommendations, which are a prelude to Budget 2010 announced by the Minister of Finance on 22nd Feb. It remains to be seen how bullish the government will be in rolling out incentives this year. Analysts have predicted that we are unlikely to see figures close to the $20.5 billion rolled out last year. According to reports by a local financial institution, as the 2009 tax revenue was healthier than initially budgeted, the budget deficit is likely to be smaller than the estimated $8.67 billion, which would have been equivalent to 3.5% of GDP. The report estimates the budget deficit to be around $6.8 billion or 2.8% of GDP. This may spur the government to be bolder than most analysts expect as they look to finance some of the ESC recommendations and pave the way for economic recovery. If last year's budget focused on saving businesses and jobs, this year's is likely to emphasize on strengthening the labour force and enterprises.

2. Economic Recovery
It is natural that, as we exit from one of the largest and widespread recessions of recent times, there are nervous glances to this end. We have to give the government and its schemes, like the Jobs Credit and SRI, credit for preventing this recession from being as severe as initially expected. Nevertheless as the debt crisis unfolds in Europe, unemployment continues to be high in the US and Asian governments tighten monetary policy to curb asset and consumer inflation, we may expect to revisit this topic several times during the year. Even thought economists have predicted the economy to grow between 3-5%, it may not be as smooth a recovery as we would like.

3. Youth Olympic Games
All eyes will be on Singapore as we host the YOG. As we draw closer to the event proper, there will be widespread buzz and excitement among Singaporeans. Like always though, there will be some who stand to gain less than others so expect to see less complementary letters in the Forum pages scattered among the bouquets. More importantly though, after the success of hosting APEC in 2009, this will be another to chance for us to prove that Singapore can deliver on varied platforms. This will be crucial if we are looking to host even bigger events in the future.

4. World Cup 2010
With the greatest sporting event in the world (you can tell I am biased here) less than 4 months away, there is still no clear indication if Singaporeans are going to be able to watch it from the comfort of our homes. Going against all norms of micro-economics, this is perhaps one of those few examples when competition has actually compromised consumer welfare instead of enhancing it. If either of the parties involved fails to deliver, there will be scores of angry football fans here, lots of finger pointing and plenty of filled up hotels in JB and Bintan. It will be interesting to see who takes advantage of this desperate situation and steps in to resolve it. Instant heroic status beckons.

5. Integrated Resorts
Well, if Singaporeans don't have the World Cup, they can take heart that there are alternative forms of entertainment. While the casino at Resorts World has just opened, there is still lots more to be launched across both IRs during the year. There will be plenty of attention on how the economic gains are balanced against the moral implications as we progress and how successful it is in increasing visitor arrivals into Singapore.

6. Social Cohesion
We spent a huge chunk of 2009 discussing various social issues and 2010 has started on the same note. Whether it is racial tolerance and respect, integration of foreigners or civil-society relations, these issues have gained in prominence over the course of the past year. While some may celebrate this as a sign of maturity of Singaporeans in addressing such issues, I am certain that many segments of the community is less enthusiastic that these topics have emerged. Recent incidences of teenage boys posting insensitive remarks online or of religious leaders displaying signs of racial intolerance, coupled with continued tension across the Causeway, is a sign that we may not have seen the last of racial intolerance bear its ugly head. It is affirmative action that senior political leaders have come out to address the situation but there will need to be more concrete steps taken to prevent the problem from exarcebating. Strangely enough, the racial prejudice cases have actually over shadowed the foreigner integration issue recently. However, the government has also helped to alleviate concern by acknowledging the problem exists, by introducing recent changes in healthcare, education and housing policies in favour of citizens and by understanding that the flow of foreigners needs to be calibrated.

7. Formula One
Many argue that the novelty of the F1 races will wear off by this year and so it may not be as profitable and popular. However, if last year was a reflection of what is to come, then I would say that Singapore will only be more ready this year to welcome back the Night Race into town. Fringe events, such as the F1 Rocks concert, were successful this year and so expect many more this time around. This was one of the reasons the F1 was brought in; to create an ecosystem of supporting businesses that will leverage on the F1's existence here. Expect another festive time but yet more complains on disrupted businesses and traffic congestion.

8. General Elections
Whether or not it will happen this year is anyone's guess really. The excitement has already set-in since last year with the rumour mills working overtime on several accounts. Even before the elections are announced, there is already plenty to look out for.
Firstly, with the recent cooling-off period introduced, there may be greater focus on online campaign strategies this time around; an area where the incumbent has to develop greater expertise in. Then, there is the Electoral Reform Bill to be passed, which may see smaller GRCs and more SMCs. Lastly, it remains to be seen on who the parties involved will be roping in to contest their electoral battles with the opposition parties recently generating some hype on this topic. Also, look out for the announcement of the electoral boundary review committee who will decide on the constituency lines and size.

9. Tourism 2010
Recent reports have shown that tourism figures declined for 2009 so it will be interesting to note the steps STB takes to improve on this trend, especially since tourism contributes to more than 5 percent of GDP. STB has already taken steps in the right direction by implementing a public ideas portal, the Tourism Compass 2020, to better its blueprint targets, to achieve $30 billion in tourism receipts and 17 million visitor arrivals to Singapore, by 2015. The new plans may unveil some exciting new attractions to enhance our growing tourism landscape.

10. Productivity
The P word comes back to our dictionary after being inconspiciously absent for some years. Productivity will be key to long-term competitiveness but expect some displacement if efficiency makes a larger headcount redundant. However, this may not be significant because by the time productivity efforts begin to show results, a calibrated foreign worker intake, along with economic expansion, will free more jobs in the economy.  The ESC has already identified this as a major are of concern and with PM setting 2-3 percent increases as a benchmark, the Tripartite will now be responsible for driving this forward.

Singapore's Most Influential News Story of 2009 - Poll Results

I ran this little poll here on Insights-Asia, just to get a sense of which of these news stories created the largest impact on readers in Singapore. In fact, when I was compiling the big news stories of 2009, the list was endless as there were many more that created waves. However, I wanted a good balance between economic, social and political stories and hence, my list.

There is little surprise that voters chose the Resilience Package, Economic Recession and Its Woes as the most influential news story of 2009, given that it was topic that was on most Singaporeans' minds. What is perhaps more surprising though is its margin of victory as the second placed news story lost by only 1 vote (2%)! It is the Integration of Foreign Expats which came close to topping it and few can deny that this was one of the most discussed issues in Singapore last year and is still being carried forward until now.

The ranking of the other stories, APEC Singapore, Multiracialism in Singapore and the Singapore Youth Olympic Games, did not score as highly as the other two and I guess this may give a slight indication of what influences Singaporeans most. Having said that, the sample size was a challenge and I hope to get more respondents in the future so that the voting results can be more reflective of the general population.

Challenges Facing Singapore's Economy (Part 4) - Implications of Rising Costs on Businesses

In my previous post, I explained how Singapore has moved rapidly up the value chain based on international comparisons of the Manufacturing Value-Added (MVA) data. Many may look at this as less of a problem and more of a positive sign as having a higher MVA indicates progression in manufacturing activity. Critics may also argue that since we are being presented with these opportunities to upgrade, there is no reason to turn them away and should instead embrace them.

The point is that moving up the value-chain too quickly has forced business costs in Singapore to rise rapidly. This is reflected by higher unit business costs here as unit labour costs in Singapore increased by 22.8 percent in 2007 to 2008. This is enormous when compared to corresponding figures of 0.4 percent and 2.8 percent in Japan and US respectively, not to mention the drop in Korea’s unit labour costs by 0.3 percent.

Moreover, the rising labour costs in Singapore are not directly a result of higher productivity. Comparing the productivity growth rates released by the International Labour Organization, Singapore’s productivity increased by 3.7 percent from 1980 to 2002, thus showing that its productive efficiency is increasing at a slower rate than its MVA growth as well as its rising business costs. We can conclude from this that Singapore’s rapid rate of rise up the manufacturing value chain has contributed to higher unit labour costs here, and consequently higher business costs, which have not been compensated by a substantial increase in productivity. If we are to continue on this trend of moving up the value chain quickly, then we should at least ensure that productivity gets a greater push so that higher labour costs can be substantiated for our SMEs and MNCs.

Challenges Facing Singapore's Economy (Part 3) - Implications of Rising Costs on Industrial Policy

As briefly explained in the Part 1 of this series posted on Dec 20 below, rising costs have an impact on industrial policy here as well. The implications of these rising costs are the viability of low-cost industries operating in Singapore. As other more cost-competitive countries, such as China and Vietnam, exist in this region, we have been forced to push the level of economic activity in Singapore up the value-chain and forcing lower value-added activities to lower cost countries. An analogy for this is like the Business Process Outsourcing (BPO) strategy that multinationals have adopted in decentralizing production processes. Most developed nations also adopted a similar strategy.

Advocates of this policy may argue that moving up the value chain is a positive development for the economy as we will benefit from greater technological and capital advancement. The point I feel that should be reevaluated is the rate at which this transition has occurred for Singapore. The Manufacturing Value-Added (MVA), which reflects the composition of a country’s higher value-added activities in its aggregate production, helps to put my point in perspective.

Source: United Nations Conference on Trade and Development Trade Development Report                                                                          

Looking at Singapore’s MVA in the table above, it can be seen that our share of medium and high value-added activities in the world has increased by 4.5 times in these 23 years. Singapore’s rate of transition is more than other developing countries over the same time period. Even China, which experienced an unprecedented level of industrialization and technological adoption over this time period, increased its MVA by only 2.5 times with the group of developed countries, which was 64.5 percent of the world’s share in 1980, and grown to 73.3 percent by 2003, had its MVA increased by only 1.1 times during this period. Hence we can derive that Singapore’s transition up the value chain has occurred too rapidly. In my next post, I will discuss why this quick transition up the value chain has been a problem for Singapore and may continue to do so.

Challenges Facing Singapore's Economy (Part 2) - Implications of Rising Costs on Households

Rising costs have been a problem for Singapore in recent years due to our scarce resources. As Asian countries grow and competition for these resources intensifies, this may translate to higher costs of production passed onto consumers as higher prices. In the first half of 2009, the inflation rate for the bottom 20 percent income group was 1.6 percent, compared to 0.9 percent for the top 20 percent. As inflation rate differs for households across the income groups, lower-income households will be worse hit and this will contribute to the widening of income inequality in Singapore. According to the 2000 Singapore Census, the average household income from work for the bottom 10 percent is $61 compared to $16,804 for the top 10 percent.

Besides social implications, increasing income inequality also creates economic concerns. A study done by Robert H. Frank of Cornell University, argued that income inequality creates price distortion as rapid income growth for the top earners allows them to spend more resulting in an “expenditure cascade”. This in turn raises the expenditure standards for those in the lower income brackets, and since their incomes have not grown as rapidly, they experience a loss of welfare. This could particularly be seen in the current property prices boom in Singapore leading to higher HDB prices for the lower income here.

Also, current income inequality in Singapore could potentially lead to the future generations of the lower income to sink deeper into this predicament assuming that they may not be positioned to take advantage of opportunities to better themselves economically. When income inequality worsens, poverty could become a major economic issue, which could be a severe strain on government resources dedicated towards this problem. Although many countries utilize the progressive income tax regime as their main tool to tackle income inequality, and even though this is the existing tax structure here, it will be a challenge for Singapore to rely too heavily on this instrument as it could disincentivise the upper levels of society from living here and potentially lead to a brain drain. Hence, the government will have to look into more creative ways of tackling this problem.

Challenges Facing Singapore's Economy (Part 1) - Shifts in the Global Economy

Global economic shifts, highlighted by the current economic crisis, have seen a severe fall in demand from the Western hemisphere with Asia playing a more central role. As the US and European countries recover, with their demand for Asian exports taking a much longer time than expected to return to normalcy, export-oriented Singapore will have to look at newer markets to correct its falling trade balances and fuel aggregate demand. Here, newer markets in Asia, Latin America and Middle East will have to be developed through a more creative trade policy. Bilateral and multilateral engagements within the region, such as ASEAN, may allow Singapore to develop the hinterland as its market so as to supplement a small domestic economy.

The rise of China and India provide economic potential for Singapore exports and businesses as they are large markets that may help compensate the drop in demand in the US. While they provide opportunities, the ascendancy of these countries, particularly China, may also compete with Singapore for resources and investments for similar industries. Given that China primarily engages in more labour-intensive lower-end manufacturing activities, nevertheless a large domestic market and cheaper labour provides China with a comparative advantage that Singapore may find difficult to compete with over time. Moreover, the rising costs of fuel have made transport costs no longer negligible and may reverse the trend of transnational production networks. If production networks become more vertically integrated, then China may be well-placed to capture more stages of the production process, creating adverse impact for other manufacturing-intensive countries in the region.

Given that Singapore could concede this competition and continue to move up the value-chain of economic activities, this in itself has implications for the economy. Singapore has been quick to move up the value-chain and phase out industries that are lower in the rung. While this is strategic in utilizing the comparative advantage we have in technology, knowledge and capital, it has led to rising costs of doing business here, which has disadvantaged our Small and Medium Enterprises (SMEs).

Challenges Facing Singapore's Economy

The year is almost over and many believe that we have also seen the end of the gloomy economic climate. That may be a little presumptuous, but I would rather leave that discussion to a separate post. For this particular series of posts, I thought it would be informative to take a glimpse into the future and to discuss some of the challenges that face Singapore’s economy, recession or not.

Although Singapore’s economic growth has often been described as miraculous, there are also a fair number of skeptics who firmly believe that the best may be over for the island-state. While such unqualified prophecies garner little ground in economic policy review, it can be agreed that Singapore faces certain significant challenges that will have implications on its economy. The key among these are an ageing population, shifts in the global economy, restructuring of the economy, rising costs, declining labour productivity and widening income inequality. In the coming weeks, Insights-Asia will attempt to assess some of these challenges and their implications on the Singapore economy in a series of posts.

Citizenship Tests - Choosing Wisely

There has been some discussion recently on the need for a Citizenship Test for new Singaporeans. While this is not a novel idea, with Citizenship Tests being employed in many Western societies, including the US, as a criteria for being accepted as a citizen, it is probably the first time this idea has been discussed as widely in Singapore.

The discussions that have emerged thus far have largely focused on the need for a General Knowledge/Current Affairs Test on all things Singapore. Critics of this proposal have, however, questioned if this was a fair assessment, their rationale being that many Singaporeans are also ignorant of the history and general knowledge regarding the country. There is some validity in their argument though, but a discussion on the criteria of who gets to be a Singaporean begs a more detailed analysis than pointing out the obvious neglects of our society. The things we have to ask ourselves are: Why the test and what do we intend to achieve out of it? Who should take this test?

The answer to these questions are related, of course. Let us first trace the underlying issue that acted as a catalyst for this debate evolving in the public domain. There has been some concern within society regarding the poor grasp of English some of the foreign workers, particularly those working in the service industry as shop assistants, waiters and coffeeshop attendants etc., have. As a result, irate members of society have been voicing out the need for a quality check on the qualification of foreigners we bring in. This concern also drew light to the ability and willingness of foreigners to contribute to the shared values central to the society here. While initial discussion focused on the use of English as a medium of communication here (perhaps a spillover from the discussion surrounding the inadequate command of the language by a certain beauty pageant winner), and how certain foreign groups of employees coming in may be less able to or comfortable in contributing towards that, this analysis soon engulfed other values that Singaporeans held close to their heart, such as multiracialism. Lo and behold, suddenly we all started asking ourselves if the next foreigner queueing to apply for Citizenship thought the same way as us, took an interest in the same things as us or stood for the same values and principles as us. It is a valid concern nonetheless, especially since there was a rapidly growing rate of foreigners in Singapore and that many of these values being discussed formed the bedrock of our economic and social development ever since the country was given independence. The point is, will a Citizenship Test be the answer to these questions being thrown up. The answer, as disturbing as it may sound, is that we will never be able to guarantee that every single new citizen is able to assimiliate into our body of values and way of life, just as we cannot guarantee that every Singapore-born and bred would do so. However, we can certainly put procedures in place to improve the chances of this happening. Let us look at the process that may help us achieve this.

Since most of the foreign expats who are granted citizenship here are well-educated and fluent in English, then an English test is perhaps less relevant to them than it would be for a foreign worker applying for a work permit to be employed in the service sector. Why the discrimination between the work sectors, you may ask? Well, it is actually not disrimination, but a work requirement. Just as the electrical technician applying to work here needs to prove that he has the requisite qualifications for being employed in the technical position, and thus being granted the work permit, a service worker being brought in should display a requisite level of proficiency in the English language since it is the mode of communication here. So, English tests should be made mandatory for workers in the service industry.

What about the foreign expats coming in though? The ideas proposed thus far focus on the current affairs test, which would probably include questions on the history and geography of the country. What is the objective of such a test though? If we are looking for new citizens who are able to memorize a bunch of facts about the country and then able to regurgitate this information in a 2 or 3 hour test, then this would be an ideal tool. I am not downplaying  the power of memory but I am sure that is not the sole criteria we are looking for when selecting our fellow citizens. The Singapore current affairs test could be a part of the whole process but there should be other more focused and complementary mechanisms. Well, an interview is always a useful way to gain an insight into an applicant's opinions and thinking. Just like a job interview, the Citizenship interview should provide an opportunity for both sides to gain a better understanding of what to expect and then to decide if there is a suitability match. To make it an even more objective and calculated process, the interview panel could consist of community representatives and other stakeholders of our society. This should result in a fair and objective assessment.

In addition to the interview, there should be a mechanism to help the new citizen assimilate into society here and perhaps help him to internalize some of Singapore's more important values. For those of you who have taken language courses in college/university, you may remember that many educational institutions use an immersion program as an effective learning method. The rationale behind this is that if you want to learn the language of a particular land and people, then the best way to pick it up is to throw you in so that you are surrounded by these people and are left with no choice but to adopt the language of the majority. As a result, you are forced to drop your inhibitions and replace your normal mode of communication with this less familiar language. I do not have evidence of the success rate of such programs, but I do feel strongly that we can adopt this system to suit the needs of our citizenship assimilation preferences. So, the question is, how do we conceptualize and operationalize an immersion program for new citizens here? The diversity within our society actually does not allow us to structure a program where a new citizen will be immersed in a particular community and pick up a specific language or culture. Nor is it useful to take new citizens on a cultural tour of Chinatown, Little India, Geylang Serai and iconic destinations as it would add little value to his assimilation needs. If we leave the new citizen alone, there is a high probability that he or she would contact other new immigrants in Singapore from his country/city/province/religious/ethnic/linguistic background and as a result, stick to these newly formed cliques. This is of course a rather broad generalization as there are new immigrants who contribute tirelessly towards strengthening the social fabric of our nation. However, we should not take it for granted that each new immigrant coming in would do the same. My suggestion then is to make it mandatory that all new citizens, who are granted their citizenship, be required to complete x hours of community service each year for a period of say, 5 years. I firmly believe that community service is a great platform to bring people from diverse backgrounds together and as they work together for a common purpose, it helps them to develop and strengthen bonds. So, if say, a new citizen is required to complete 80 hours of community service a year, then that works out to be about 1 and a half hours per week for a period of 5 years. Whether this would actually help a new citizen incorporate and believe in the broad values that our society holds dear is indefinite. However, 400 hours of community service over 5 years would definitely go a long way in helping a new citizen assimilate with others here. Even if after 400 hours of community service, a new citizen is able to develop a network of, say, 20 people (which is a conservative figure of 4 people a year) from different segments of community, I think that is a valuable contribution towards strengthening the bonds of our society. Of course the interests and passions of a new citizen play an important role here and therefore the community service definition should be kept broad to include work in various facets of society so as to better suit the aspirations and interests of every individual. This will benefit locals as well, as they get to broaden their horizons during their interactions with the new citizens, who may have different world views and experiences to share.

With this 3 part selection process of a Singapore-knowledge test, an interview and a community service requirement, there is a greater chance that the new citizen is able to understand Singapore, Singaporeans, its values and our way of life better and is able to contribute towards pursuing the common goals of preserving economic and social growth. It may appear as a long and tedious process, but we are selecting a new citizen and therefore, it is our duty to ensure that we give them every chance to embrace us as much as we welcome them as one of us.