03/09/2015
Singapore / Economics
Things are slowing as the island state turns 50 and its economy matures. What can Singapore do to revive productivity?
This year, Singapore celebrates half a century of independence. Decades of hard work, innovation, and strong policy direction have resulted in transformative national development. For many years, ever-higher productivity delivered prosperity and growth, taking the island state’s economy from third world to first world. But the economy is maturing and things have been slowing down.
What can Singapore do to revive its productivity growth? How can Singapore stay ahead of the economic curve? How should Singapore re-invent itself to secure its prime position within the world’s fastest-growing region?
Singapore launched a ten-year economic restructuring program in 2010. But now, as it passes through the half-way point of this process, productivity growth is languishing. Productivity growth declined by 0.8% in 2014, implying average productivity growth of minus 0.05% per annum since restructuring began in 2010. This is well below the government’s target growth of 2-3% per annum and lower than the 1.4% annual growth averaged between 2000-2009.
We argue that the headline productivity growth figure may not be the best indicator of productivity gains in the near-term. As productivity is widely defined as GDP per worker, the small and open nature of the Singapore economy implies that productivity is mainly a function of the global business cycle, especially in the short term. Efficiency gains get disguised by short-run swings in GDP.
Real median income growth – which the Economic Strategies Committee (ESC) aims to raise by 30% over ten years – may be a better gauge of restructuring success. Real median income grew by 3.2% per year between 2011 and 2014 and by this measure restructuring appears to be on track.
Nevertheless, the dismal productivity growth figure has led to concerns that progress on productivity has been slow. The jury is still out on whether restructuring is working, but the pain felt by companies due to tightening in foreign manpower policies suggests a review may be required.
Click here: To read the PDF of our full report "Reinventing Singapore: Boosting Productivity, Understanding Budget 2015, and Looking Ahead".
