Singapore Analytical Brief: Committee on the Future Economy Report

Singapore Analytical Brief | March 6, 2017
Authors: Kim Yaeger, Sunita Kapoor, and Riley Smith
 

Singapore’s Committee on the Future Economy Report

Rather than providing detailed prescriptions on how to boost Singapore’s economy, the Committee on the Future Economy’s (CFE) report, released on February 9, is a set of broad economic policy recommendations that comprise a general strategy for how Singapore can navigate the external and domestic economic challenges it faces.  These challenges include a shift by major trading partners away from globalization and towards more protectionism, disruptive technological advances, and slowing global growth and demand.  Despite concerns that the recommendations are too broad, the fact that the external economic climate can change rapidly as a result of these new challenges means that a broad strategy ends up being more adaptable than a detailed roadmap.  This adaptability allows Singapore to try to respond to these external challenges despite its own domestic constrictions, including an economy that relies heavily on trade and resources—both in terms of land and manpower—that are reaching capacity.  The fact that the recommendations are broad in nature is also a consequence of Singapore’s success in fostering a developed and maturing economy, as there are no longer clear quick fixes to bolster domestic economic activity.  Out of the 29 recommendations that the Council submitted to the CFE, the report incorporates at least some aspect of 11 of them, including eight of the Council’s key recommendations.  A copy of the full CFE report can be found here, and a copy of the executive summary can be found here.  A copy of the Council’s recommendations to the CFE can be found here.

Overview of CFE Report

The CFE, which was first announced in October 2015, was tasked with devising economic policy recommendations to boost Singapore’s economic growth to between 2-3% and lay out the country’s economic development path for the next 10 years.  In its recommendations, the CFE outlined seven strategies to help Singapore take advantage of opportunities to increase domestic innovation, deepen the capabilities of the domestic workforce, and maintain its connections to the world.  These strategies are:

  • Deepen and diversify international connections,
  • Acquire and utilize deep skills,
  • Strengthen enterprise capabilities to innovate and scale up,
  • Build strong digital capabilities,
  • Develop a vibrant and connected city of opportunity,
  • Develop and implement Industry Transformation Maps,
  • Partner each other to enable innovation and growth.

Several recommendations stand out in the report.  One is that Singapore should increase focus on deepening ties with countries in Asia, especially those experiencing rapid urbanization and rising middle classes, as opposed to trade partners in the West that appear to be moving towards more protectionist trade policies.  Another is the formation of a Global Innovation Alliance between Singaporean institutes of higher learning and companies and overseas partners in what the report calls “major innovation hubs and key demand markets.”  Collaborating partners could then share expertise as part of in-market “innovation launchpads” or Singapore-based “welcome centres.”  Yet another recommendation emphasizes enhancing Singapore’s status as a hub for finance, communications, logistics, aviation, maritime, and, in the future, data services by expanding infrastructure and ICT connectivity to its regional neighbors.

Inclusion of US-ASEAN Business Council Recommendations in CFE Report

To both inform the CFE’s deliberations and serve as a basis for continued engagement, the Council solicited input from member companies and then submitted recommendations to the CFE.  The recommendations, a copy of which can be found here, highlighted areas where the Singapore Government can adapt approaches to regulatory frameworks and reorient its resources towards changing market trends in emerging high-growth fields.  They also addressed potential constraints U.S. firms face to increasing investment and strengthening economic cooperation with Singapore.  The CFE’s final report incorporates at least some aspect of 11 of the Council’s total 29 recommendations, including eight of its key recommendations (in bold below).  These recommendations include:

  • CFE Rec. 7.4, para. 150 (Council Rec. 1.2): Reforming Singapore’s tax system so that it is competitive and pro-growth and promotes innovation
  • CFE Rec. 7.2, para. 143 (a, b) (Council Rec. 1.4): Regulatory reforms that support innovation and risk-taking, including an expansion of the regulatory sandbox approach beyond fintech  
  • CFE Rec. 1.2, para. 79 (Council Rec. 1.7): The creation of a Global Innovation Alliance that would see the establishment of “innovation launchpads” in foreign cities where Singaporean and in-market firms could collaborate on technology projects  
  • CFE Rec. 4.2, para. 109 and 110 (Council Rec. 2.2): The creation of joint laboratories between the Government and industry focusing on enhancing digital capabilities, such as applied data analytics
  • CFE Rec. 3.2, para. 100 and 101 (Council Rec. 2.2): The encouragement of partnerships between large and small enterprises and the stepping up of existing efforts that reinforce these partnerships, such as the SPRING PACT (Partnership for Capability Transformation) program
  • CFE Rec. 4.3, para. 112 (Council Rec. 2.4): Systematically share more Government-collected data with the private sector to catalyze more innovations and value
  • CFE Rec. 3.3, para. 102 (Council Rec. 2.7): Making it easier for Singapore-based small and medium-sized enterprises to have access to financing
  • CFE Rec. 1.3, para. 82 (b) (Council Rec. 2.8): Encouraging the development and increased use of e-commerce
  • CFE Rec. 3.1, para. 98 (a, b) (Council Rec. 2.12): Strengthen Singapore’s IP ecosystem to better support innovation and the commercialization of IP
  • CFE Rec. 4.3, para. 111 (Council Rec. 3.1, 3.2, and 3.4): The general treatment of data as an asset in the future digital economy, and the creation of a dedicated program office to catalyze the use of data in the economy and coordinate with industry on flagship data science projects
  • CFE Rec. 6.2, para. 131 and 135 (Council Rec. 4.2): Taking a cluster approach that maximizes synergies between industries and creates innovation ecosystems, while remaining alert for new industries, such as those built around new technologies, that do not fit into existing classifications.

The CFE’s report also calls for the creation of “special test-bedding zones” for companies to develop and refine their products (CFE Rec. 5.4, para. 120; Council Rec. 1.5), though only Singapore-based enterprises would be able to use these zones.  It is also worth noting that while the Government is open to more input from the private sector, the CFE’s recommendations in general do not go as far as many of the Council’s, which advised that the Government set up a mechanism for regular public-private consultative engagement to solicit private sector input. 

Analysis of CFE Report

When putting together its report, the CFE had to balance the natural tension that exists between specificity and adaptability.  The CFE also had to take into account two factors that favor adaptability over specificity.  One factor is growing uncertainty due to the rapidity at which the economic climate has changed over the last several years.  The second is the fact that as a developed, maturing economy the economic challenges Singapore faces are more complex than when the first economic planning committee was convened in 1985.  Collectively, these factors favor a general strategy that would allow Singapore to navigate the external and domestic economic challenges it faces, while a detailed roadmap risks diverting resources to initiatives or sectors that could end up being too sclerotic for an economic climate that is increasingly uncertain.  Nevertheless, criticism has been leveled at the CFE’s report.

Criticism of the CFE’s report has focused on the fact that its recommendations are not as detailed as those of past economic planning committees.  The recommendations have also received criticism for reiterating past goals and mentioning initiatives, such as the Industry Transformation Maps (ITMs), that are already underway.  Some, such as ex-People’s Action Party MP Inderjit Singh, assert that this lack of detail will make it difficult to successfully implement the policies needed to reorient Singapore’s economy and foster sustainable economic growth.  In particular, Singh called out perceived “implementation missteps” that blunted the effects of past economic planning committees’ recommendations. 

However, even recognizing that Singapore still has structural issues it needs to address, including perennial themes of past economic planning committees such as fostering greater innovation and increasing productivity, the city-state is ultimately a victim of its own economic success.  The main challenge now is one of quality of economic activity—reforms and investment in skills and education that take time to manifest—rather than finding a silver bullet that will provide a quick but short-lived boost Singapore’s GDP growth.  It is for this reason that the CFE again turns a good deal of its focus to start-ups and small- and medium-sized enterprises based in Singapore, and how they can acquire the necessary skilled labor and capital to expand beyond Singapore’s domestic market. 

One metric that emphasizes how much more quickly the economic climate has changed is the fact that the CFE is the fourth such economic planning committee to be convened within the last 32 years, and the third just since 2001.  In 1985, Singapore formed its first committee after experiencing its first economic recession since gaining independence in 1965.  The second economic planning committee, called the Economic Review Committee, was not formed until 16 years later in December 2001.  At that time, the region was still feeling the lingering effects of the 1997 Asian Financial Crisis.  The third committee, the Economic Strategies Committee (ESC), was formed in May 2009 in the wake of the global financial crisis.  With only seven years separating the ESC and the CFE, compared to the 16 years that separated the first two economic planning committees, it is understandable why the CFE would opt for big picture-focused recommendations that could be adapted and applied to an economic climate that appears increasingly uncertain over the last several years.  This is especially true since Singapore, as a small, trade-dependent island, cannot by itself effect changes to the global economy.  Rather, it must be nimble enough to adapt to it.

Despite the current economic concerns facing Singapore, the country’s previous successes mean that it still possesses a number of positive attributes typical of developed, maturing economies—attributes that make a wholesale re-imagining of the economy unattractive.  However, this also means that the challenges that Singapore faces are more complex and require solutions with longer time horizons than previously.  As a small island nation, Singapore is constrained in both its geographical and manpower resources—the most basic drivers of economic growth.  As it approaches the limits of these constraints, Singapore must look to more complex drivers of growth, such as improving the quality and productivity of its workforce, which requires a greater emphasis on developing the relevant skills and education, and the more productive use capital, particularly the most advanced machinery and digital technologies.  Unlike in 1985, when the economic planning committee could recommend a restructuring of Singapore’s economy to put it on a different path for growth, the country is already coming to the table with first class infrastructure, strong fiscal reserves, and its established status as a financial hub and emerging status as a data hub.  Given the progress that has been made up to this point, it is unlikely that the Government would opt for a plan that would again restructure the economy and put all this progress at risk.  Instead, it makes sense that the CFE would issue broader recommendations focused on more complex challenges that prevent Singapore’s economy from running as efficiently as it should.

Reactions to CFE Report

http://www.channelnewsasia.com/news/singapore/committee-on-the-future-economy-outlines-direction-for-singapore/3501854.html#

http://www.straitstimes.com/singapore/committee-on-the-future-economy-outlines-7-strategies-to-take-singapore-forward

http://www.todayonline.com/singapore/cfes-focus-strategy-not-schemes-sign-times

http://www.eastasiaforum.org/2017/02/22/strategies-for-singapores-economic-future/

http://www.cnbc.com/2017/02/09/for-singapore-globalization-is-still-the-future-despite-dark-shift-to-protectionism.html

http://www.todayonline.com/singapore/what-cfe-report-left-unsaid-critical-future-success

https://sg.news.yahoo.com/comment-hidden-harsh-truth-in-future-economy-committees-report-063644246.html

http://www.theindependent.sg/ex-pap-mp-inderjit-singh-on-cfe-report-government-remains-in-denial-about-worrying-state-of-the-economy/

http://www.channelnewsasia.com/news/singapore/cfe-report-maps-out-blueprint-for-singapore-s-future-what-you/3505826.html