Singapore Government Press Release

Media Division, Ministry of Information and The Arts,

36th Storey, PSA Building, 460 Alexandra Road, Singapore 119963.

Tel: 3757794/5

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BACKGROUND OF THE CSC

In November 1996, the Prime Minister announced that a thorough review would be made of Singapore’s economic competitiveness over the next 10 years. The Committee on Singapore’s Competitiveness (CSC) was formed in May 1997. See Annex A for more background details on the CSC.

Whilst the CSC was deliberating, the Asian financial crisis swept through the region and altered the external environment suddenly and significantly. The CSC has critically re-examined Singapore’s competitiveness in the light of these major changes.

The CSC’s main recommendations comprise a significant package of measures to tide over the current crisis and a set of long-term strategies to enhance Singapore’s competitiveness over the next decade.

COST/TAX CUTTING PACKAGET

The Singapore economy has slowed sharply, contracting from 7.8 per cent last year to 6.2 per cent, 1.8 per cent and –0.7 per cent respectively in the first, second and third quarter of 1998. GDP growth for 1998 is expected to be 0.5 to 1.0 per cent. The seasonally-adjusted unemployment rate edged up to 4.5 per cent in September 1998. For the first 9 months of 1998, retrenchments exceeded 20,000, more than double the number for the whole of last year.

Our relative unit labour cost (RULC), compared to our competitors, has been rising gradually but steadily over the years (Chart 1). The sharp depreciation of the other regional currencies against the Singapore dollar since July 1997 has worsened our competitiveness further.

The CSC recommends that the Government promptly implement a comprehensive and significant package of cost/tax cutting measures, to help companies compete during this difficult period and minimise further job losses. The package should include the following components:

1. Reduce total wage costs (including contributions to the Central Provident Fund (CPF)) by 15 per cent from 1997 level to bring our wage competitiveness, as measured by RULC, back to the level of 1994. To achieve this, the employers’ CPF contribution rate should be reduced by 10 per cent points. The rest of the cost reduction should be achieved through the flexi-wage scheme, by a reduction in the annual and monthly variable components of wages. The public sector should take the lead in this;
2. Reduce the levy for both skilled and unskilled foreign workers in the manufacturing and services sectors by $50-$100 per month. For the construction sector, a similar cut should be considered for skilled foreign workers;
3. Reduce Jurong Town Corporation (JTC) and Housing Development Board (HDB) land and factory rentals significantly to reflect current market conditions. This should bring our land and factory rentals back to the levels of the early 1990s. JTC should also lower the 7.6 per cent maximum annual rental escalation rate imposed on its lessees;
4. Reduce charges for services like electricity, telecommunications (e.g. business-related services such as international direct dial (IDD), international and local leased circuits, public data services), and port services, where this is economically justified;
5. In line with the shift from ownership to usage restraint measures (e.g. electronic road pricing (ERP)) for traffic management, to lower vehicle-related overhead costs, including customs duty and petrol/diesel duty;
6. Extend the 55 per cent property tax rebate and the suspension of stamp duties on share transactions; and
7. Reduce, or extend rebates for, Government taxes like corporate and personal income taxes in FY1999.

The CSC proposes that the package should reduce business costs by about $10 billion a year. This will be equivalent to about 7 per cent of Singapore’s GDP. Using companies in the electronics sector as an indication, the CSC estimates that this will reduce business costs by about 15 per cent.

 

STRATEGIES FOR FUTURE COMPETITIVENESS

Even as Singapore takes steps to deal with the crisis, we should focus on the challenges that lie ahead beyond the crisis. Regional economies are taking active measures to reform their economies. When these reforms are completed, they will emerge leaner and more competitive. The global driving forces of economic liberalisation and technological progress will also have a profound impact on the way Singapore competes and makes a living in the future.

The CSC’s vision is for Singapore to develop into an advanced and globally competitive knowledge economy within the next decade, with manufacturing and services as the twin engines of growth.

To realise this vision, we require a quantum jump in capabilities while managing our cost competitiveness. CSC recommends eight key strategies to work towards this vision.

First, promoting manufacturing and services as the twin engines of growth will diversify our dependence beyond any single industry, sector or market, thereby reducing vulnerability and providing a broader economic base.

The manufacturing sector should move beyond being a pure production base to position itself as a critical hub where Multi-National Companies (MNCs) and local enterprises use Singapore as a base to manufacture high value-added products and services covering the entire value-added chain. At the same time, Singapore should strive to become a premier services hub in Asia with a global orientation by growing our existing hub services and developing new high growth services.

Second, Singapore should continue to strengthen and diversify our external economic wing by incorporating a global dimension, as a complementary source of growth to the domestic economy to help overcome our domestic resource, market and talent constraints.

Third, Singapore needs to increase the depth of our corporate profile and broaden the economic base for more sustained and resilient growth. We should strive to nurture a stable of our own world-class companies (WCCs) with core competencies that can compete effectively in the global economy. This will form another key source of growth to complement foreign MNCs’ contributions to Singapore’s economy. With their financial depth, core capabilities and experience, Government-Linked Companies (GLCs) are especially well placed to develop into WCCs and help grow our external wing.

Fourth, we should strengthen our base of small and medium local enterprises (LEs). This will not only increase the enterprises’ resilience, it will also entrench their relevance as important strategic partners to MNCs and GLCs over the long run.

Fifth, Singapore needs to develop a world class workforce, comprising domestic and foreign talent, which is motivated, cost-competitive and with outstanding capabilities. This is crucial to our transition to a knowledge economy. This developmental process needs to be comprehensive. It should start with schools, where the young are taught new skills and their creativity talent nurtured. The process should continue at the workplace in a life-long learning environment. It should include the development of entrepreneurship.

Concurrently, we must continue to strengthen the harmonious industrial relations climate through even closer tripartite co-operation between the Government, employers and trade unions. This is an invaluable asset Singapore must preserve.

Sixth, Singapore needs to leverage on science, technology and innovation effectively as competitive tools. They will enable us to upgrade our existing industry and business clusters and to build core capabilities to position Singapore to take advantage of new emerging industries.

Seven, we need to continually optimise on our allocation of scarce resources to support the needs of various industries. This requires a dual approach of increasing supply as well as efficient usage. In addition, such resources should be priced to the market to ensure proper allocation and use.

Eight, the regional economic crisis has highlighted the importance of Government’s role in economic and financial management. The Government should continue to play an active role to support and facilitate the private sector through provision of sound, consistent economic policies and a regulatory environment that is conducive to the conduct of business.

The CSC is confident that the above strategies and recommendations will enable Singapore to weather the current economic crisis, ride the wave of recovery when it comes, and develop into a vibrant knowledge economy of the future.

 

SUB-COMMITTEE RELEASES

In February 1998, the Finance and Banking Sub-Committee released its findings in order to facilitate the on-going work of the Financial Sector Review Group. Over the next 10 days, the four remaining Sub-Committees (Manufacturing, Hub Services, Domestic Business and Manpower and Productivity) will be releasing more details and recommendations for their respective sectors.

 

DISTRIBUTION AND ACCESS TO THE CSC REPORT

A simplified version of the executive summary of the CSC report will be accessible today at the Ministry of Trade and Industry website, [http://www.gov.sg/mti/competitiveness/index.html].

Copies of the full report will also be made available at Singapore National Printers (SNP) and leading bookstores.

SECRETARIAT TO

THE COMMITTEE ON SINGAPORE’S COMPETITIVENESS

C/O MINISTRY OF TRADE AND INDUSTRY

11 November 1998

1. The CSC’s terms of reference are:

1. To assess Singapore’s economic competitiveness over the next decade, taking into consideration global trends and development of existing and emerging competition
2. To identify problem areas and propose strategies and policies with a view to maintaining and strengthening Singapore’s competitive position

2. The members of the Main Committee are:

Mr Lee Yock Suan Minister for Trade and Industry

(Chairman)

Dr John Chen Minister of State for Communications

Mr Cheng Wai Keung Managing Director

Mr Kwa Chong Seng Managing Director

Mr Kwek Leng Beng Executive Chairman

Mr Lim Ho Kee Chairman

Mr Lim Hock San President & Chief Executive Officer

Mr Lim Swee Say Deputy Secretary General

Mr McCarthy, Colm Executive Vice President / Regional Manager

Mr Morikawa, Koji Managing Director

Mr Ong Beng Seng Managing Director

Mr Peter Seah Lim Huat President & Chief Executive Officer

Mr William C. Spelman President

(up to February 1998) Delco Electronics Asia Pacific Pte Ltd

Mr Knud E.Stubkjaer, Managing Director

(up to February 1998) Maersk Singapore Pte Ltd

Mr Ken Windle Regional Director (Asia Pacific)

3. In addition to the Main Committee, five Sub-Committees were formed to undertake detailed reviews in the following key sectors/areas:

a) Manufacturing

(Chairman: Mr Kwa Chong Seng)

b) Hub Services

(Chairman: Mr Kwek Leng Beng)

c) Finance and Banking

(Chairman: Mr Peter Seah)

d) Domestic Businesses

(Chairman: Mr Cheng Wai Keung)

e) Manpower and Productivity

(Chairman: Mr Lim Swee Say)