HEAD V - MINISTRY OF TRADE AND INDUSTRY

Head V - Ministry of Trade and Industry

The Chairman: Head V - Ministry of Trade and Industry. Mr Inderjit Singh.

Economic Outlook and Forecast and Restructuring the Economy

Mr Inderjit Singh (Ang Mo Kio): Madam, I beg to move,

That the total sum to be allocated for Head V of the Estimates be reduced by $100.

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Madam, I would like to discuss two points on our economy as we move forward – what to expect of it and how we should restructure it.

First, on the Economic Outlook and Planning. Madam, I do not expect MTI to have a crystal ball to be able to predict accurately Singapore's economic numbers and as we have seen, MTI has had to revise economic growth forecasts many times recently, but it would be useful to know the outlook that the Government has of the economy and which scenarios it is using to plan ahead.

As the economist Paul Krugman says, and I mentioned this during the Budget debate, that in depression economics, the usual rules of economic policy no longer apply. And while we are in the middle of this storm, how does the Government decide on economic policies. Whether it is UK or USA or Japan, all the fiscal and monetary measures implemented do not seem to have an impact on turning around their economies. As normal rules of planning would not work in today's world, how then do we forecast moving foward? In the coming years, I do realise that we are going to see a destruction of many accepted economic models and new models will soon have to arise. So what will MTI do to adapt to this new reality?

Madam, our 2001 Economic Restructuring Committee was convened to look at tapping opportunities of a fast developing world and our status as a developed nation and therefore we chose industries and sectors that reflected this. Such an approach made high costs an acceptable thing for the sectors with higher value added activities that we have selected. Can I ask the Minister during this downturn what areas of growth can we depend on to bring Singapore out of the severe downturn? Will our economy

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be able to handle this fast rate of change? How will this impact our GDP?

Madam, I believe that we need to once again restructure our economy. In my view, cost structure is at the top of the list of things that we need to change as it erodes our competitiveness. Also, our high cost structure now reflects our inability to support certain industries and we risk losing many of them. The semi-conductor industry and the disk drive industry are now starting to look unattractive here in Singapore. An important contributor to the GDP, the manufacturing sector is also very quickly looking uncompetitive as our costs have escalated during the good years.

I also do not think a high-cost Singapore is inevitable, as I mentioned before. We could perhaps devise a two-Singapore structure where we can institute differential pricing mechanisms, and particularly for land and property. We could price our industrial land not based on competition with other users of the land in Singapore, for example, but in competition with use of land in other countries that we are competing with – Taiwan or Korea, for example. So for example, we could price industrial land according to what it cost for our companies to want to locate in a similar, in a location in Taiwan doing the same type of activity and doing the same type of facility there. This is the type of competition that we need to worry about. We had followed this differential pricing approach before. It got taken away. So I would like to ask the Minister whether he will consider looking at this once again. Because if we do not do this, sooner or later we will make obsolete too many of our industries too early.

Madam, during the Budge debate I had asked the Minister to start to think about Economic Restructuring Committee to help plan the next phase of development for us. I hope that MTI will champion the

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cause of this ERC even if it is an MTI committee.

And back to my point on forecasting. I would like to suggest that MTI think about setting up an institute of economic studies, something like the Institute of Policy Studies simply because I think on its own, with the complex environment that we are seeing, it is becoming increasingly difficult to predict the type of models and forecasts and what is it that is going to help us be successful in the future global economy. And perhaps MTI can consider championing this. And I think something like this would be a valuable resource not just for the Government but also for both existing and potential investors as they decide to place their operations here in Singapore.

Finally, on our economic development model for the next generation – I believe focusing on MNCs will soon have limited growth potential as global companies are going to aggressively consolidate and Singapore may lose the traditional companies and operations that we could attract in the past. I think it is not a wrong strategy to refocus on growing more local enterprises, creating local anchors that can globalise out of Singapore. Does MTI see this happening or does it plan to stick to its original multi-national model that has been tested but may not work in the future?

Mdm Ho Geok Choo: The Finance Minister has spoken on incentives and measures to improve Singapore’s competitiveness. I would like to see more measures to broadly restructure our economy. I would like to ask the Government whether there are any measures to develop industries that are more recession resilient and that would diversify our economic base beyond finance, pharmaceuticals and electronics.

On the first issue, some of the more recession resilient industries are education

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and healthcare. While we have been making efforts to develop our schools, can we devote more resources such as funding and expertise to develop also the private education industry?

Madam, on measures to broadly diversify our economy, while there have been many schemes to incentivise the growth of selected industries, can I suggest that we set up a scheme to encourage the quicker cross-fertilization of ideas among industries and even across countries. What do I mean? The Government, through its industry contacts, can fund more exhibitions as well as develop more business exhibitions or conferences. While private exhibition companies want to target what they consider growth sectors to run a profitable exhibition, the Government's objective would be to encourage development of new industries and new businesses.

Madam, I notice the Government's Calls for Collaboration (CFC) scheme seeks to bring Government, businesses and the public sector together to develop solutions. Can the Government give further details on that? The Core Innovation Fund of $180 million over next two years is an interesting scheme to develop private sector solutions for Government services. Can the Government give more details on that and what achievements or activities have been undertaken since inception last year?

Madam, we can also develop a scheme to encourage foreign internships especially among countries which we have FTAs with. That way, we will have a lot more Singaporeans with direct exposure to foreign industries and countries' business practices and ideas. On a company level, we can encourage establishment of FTA partner countries' companies in Singapore with the provision that they have an active staff development program for Singaporeans.

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Creating Business Demand to Ensure Effectiveness of Supply-side Budget

Mr Zaqy Mohamad: Madam, the slew of budget measures have done well to help the bottomline of businesses with measures such as jobs credit, tax benefits as well as the SRI and bridging loan schemes.

However, the survivability of companies also depends on the ability of companies to maintain or protect their topline. In his reply to the Budget debate yesterday, the Minister for Finance spoke how measures such as GST cuts in the UK failed to stimulate demand.

Can the MTI perhaps update us what measures and activities it is embarking on to stimulate demand for goods and services in the business sector – locally and internationally? I agree with Mr Inderjit Singh that perhaps we need to rethink on our economic model to prepare for the future.

Minister Tharman also mentioned that the Government will promote a variety of infrastructure projects across various sectors in his Budget debate reply yesterday. But today's Business Times reported that Singapore's GDP may face a sharp decline. And OCBC economist Selena Ling was quoted as saying the contractions of manufacturing and exports were expected. What was not was the speed of decline in the services sectors. So, are pump-priming measures such as constructions and infrastructure building still the way to go? I fear that the desired impact may not be felt by sectors concerned because pump-priming infrastructure projects may not be as effective in this day given Singapore's shift in focus towards services sector over the last few years. So are there other areas that the Government plans to pump prime?

Given the indicators on the dip in the services sector, I believe that the MTI can

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also do more to pump prime the services sector in areas such as retail, hospitality, infocommunications, logistics and perhaps even the affected financial services sectors.

The impact of pump-priming the services sector is towards generating local and consumer demand can be significant. The services sector is human resources intensive and sometimes, involves a significant proportion of Singaporean workers who are highly qualified and are likely from the lower- to upper-middle income segment. Giving them assurance of demand and jobs, may actually stimulate more corporate and consumer spending.

In addition, there is a larger chance of leakage in construction and infrastructure projects because of the intensive use of cheap foreign labour at times and purchases of goods sourced from overseas. In the services sector, however, even if PRs and foreigners are involved, the money is likely to circulate in Singapore because people have to be here to perform the work generally.

During the Budget debate, I think Member Gautam Banerjee’s suggestion for a committee to help businesses who are not able to obtain the SRI and bridging loan schemes is a good one. I would like to refine his proposition to the MTI for consideration. Rather than set up a new committee, existing EDCs can be used to help such companies. Given the speed at which industries and demand is contracting, time is not a luxury that we can afford, and the EDCs can provide a ready platform that can be tapped.

I think this could be helpful, if staffed and funded correctly, to find good companies and innovative companies worth helping and growing. I agree with Minister Tharman’s view that we should help companies that are sound, innovative

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and with the potential for growth, but found challenges in doing so.

We can also partner these EDCs with specialists such as venture capitalists (VCs) to deliver more specialised programmes such as IPO underwriting and special funding. This may mean also putting in place Government-developed systems, better resources and paying for better staff to reach out to the ground quicker and more effectively.

The Budget measures and Government schemes are only as good as far as they can reach the ground. I think the Government needs more touch points on the ground to ensure the effectiveness of the Budget measures and obtain reliable ground feedback and data.

The Chairman: Order. It is 7.00 pm.

Thereupon Mdm Deputy Speaker left the Chair of the Committee and took the Chair of the House.