SINGAPORE ECONOMY (Volatility)

[Mr Speaker in the Chair]

Dr Amy Khor Lean Suan asked the Minister for Trade and Industry (a) whether the Singapore economy is likely to be subjected to even greater volatility in future as we invest more heavily in the life sciences, pharmaceuticals and bio-medical sectors; and (b) what measures his Ministry has taken or will take to help mitigate the possibility of even greater volatility of the Singapore economy.

The Minister for Trade and Industry (BG George Yong-Boon Yeo): Mr Speaker, Sir, the greater variation in Singapore's economic growth recently is in part due to the volatility of the global electronics industry. After the bursting of the Internet bubble, global semiconductor sales fell sharply by 32% in 2001 after a record 37% growth the year before. Given Singapore's small and open economy and the significant size of electronics, we cannot insulate ourselves from the cyclical nature of the global electronics industry.

To lessen the cyclical swings, we have been diversifying our economy. In manufacturing, we are strengthening the other 3 clusters besides electronics, namely, chemicals, engineering and the Biomedical Sciences. Within electronics, we are developing various segments like data storage, info-communications and key modules to diversify the value chain. As these segments do not necessarily follow the same cycle, the sector as a whole will be less volatile.

Dr Amy Khor asks if our promotion of life sciences, pharmaceuticals and bio-medical sectors will increase the volatility in our economy. This is not likely, for 3 reasons. First, the cycle for these 3 areas, which we refer to as the Biomedical Sciences cluster, is not synchronised with electronics. Hence, it can help to even out overall growth rates. For example, while electronics fell by 21% in 2001, the Biomedical Sciences cluster grew by 10%, moderating the decline in the manufacturing sector.

Second, within the Biomedical Sciences cluster itself, there are three different segments - pharmaceuticals, medical technology and biotechnology. Pharmaceuticals account for some 80% of the total Biomedical Sciences manufacturing output. Pharmaceutical producers have diversified their manufacturing activities to include formulation, fill and finishing of final dosage forms and biotech products. Although smaller in size, the medical technology industry is also expanding strongly. Last year, it enjoyed a 14% growth in manufacturing output and contributed the remaining 20% of Biomedical Sciences output. Over time, the increase in the number of plants and product types will also smoothen output patterns. As the Biomedical Sciences cluster develops greater breadth and depth, the growth pattern will likely be more stable. In this regard, rather than greater volatility, investing in Biomedical Sciences can help to even out the growth of the manufacturing sector in Singapore.

Third, media reports on monthly figures have characterised the pharmaceutical segment as "volatile". This is not accurate. There are no inherent swings in demand for pharmaceutical products per se. Rather, the variations in output from month to month are due to the way pharmaceutical products are made. Pharmaceutical companies in Singapore manufacture active ingredients for global markets in batches, to take advantage of the high degree of flexibility of our new "multi-product" plants. The plants are designed to be multi-purpose and produce different batches of ingredients at different times of the year. Each batch of ingredients has different value and market requirements. The batch-oriented manufacturing process is a major reason for the seeming volatility in Biomedical Sciences output from one month to the next. It would be more accurate to measure performance on a year-to-year basis, which shows that the Biomedical Sciences cluster has achieved strong and consistent growth in total output, employment and value added for the past 5 years.

The ERC has also recommended a number of strategies to build a more diversified economy. This includes developing exportable services and encouraging greater entrepreneurship to complement the MNCs. Our national objective is to build a globalised, diversified and entrepreneurial economy.

Dr Amy Khor Lean Suan (Hong Kah): Sir, may I ask the Minister if, in addition to placing emphasis on sectors such as pharmaceuticals and biomedical, the Ministry would continue to ensure that sectors which may not be identified as growth areas but which are equally viable, for instance, those proposed by small and medium enterprises, would also receive equal attention or help?

BG George Yong-Boon Yeo: Absolutely. We are interested in all viable sectors and we are paying particular attention to growth enterprises, including those from small and medium enterprises. In fact, this constitutes a fair proportion of the recommendations in the Economic Review Committee's report.