Buoyed by growth, India to cut deficit - February 27, 2010

Buoyed by growth, India to cut deficit - February 27, 2010

My article in the Business Times on the Indian Budget 2010.

Expect a bold Budget - February 22, 2010

Expect a bold Budget - February 22, 2010

My article on Singapore's Budget 2010

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.