VZCZCXRO1063
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHGP #0167/01 0420851
ZNR UUUUU ZZH
R 110851Z FEB 10
FM AMEMBASSY SINGAPORE
TO RUEHC/SECSTATE WASHDC 7807
INFO RUCPDOC/DEPT OF COMMERCE WASHDC
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 02 SINGAPORE 000167 
 
STATE PASS USTR 
 
SENSITIVE 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ETRD EINV ELAB SN
 
SUBJECT:  SINGAPORE COMMITTEE RECOMMENDS PRODUCTIVITY BOOST TO DRIVE 
GROWTH 
 
REF: SINGAPORE 113 
 
¶1.  (SBU) Summary:  Singapore's Economic Strategies Committee 
released recommendations to drive future growth, focusing on raising 
productivity by improving worker skills, encouraging innovation, and 
limiting the economy's reliance on foreign labor.  The 
recommendations mark a policy shift from a previous focus on 
expanding growth at all costs to a recognition that Singapore's 
physical limits in resources and population have caught up with its 
economic growth and that a slower pace of growth will be more 
sustainable.  The Committee's report recognizes the need to continue 
to attract foreign multinational companies and position Singapore as 
a global hub for business, but also advocates policies to support 
local enterprises become more competitive.  PM Lee has broadly 
endorsed the goals and the 2010 budget due February 22 will likely 
put many of the proposals into practice.  End Summary. 
 
¶2.  (U) After eight months of deliberation, Singapore's Economic 
Strategies Committee (ESC) released its report February 1 with 
recommended strategies to provide sustained and inclusive growth for 
Singapore.  Prime Minister Lee Hsien Loong established the committee 
with representatives from government, business and labor last year 
in the wake of the global economic crisis and a growing perception 
that the Singapore model of economic growth was in need of 
retooling.  The Committee is the latest in a series of similar 
committees that the government has established after previous 
economic crises to put the country back on the right economic track. 
 Although the recommendations remain just that, PM Lee has already 
broadly endorsed the ESC's report.  The 2010 budget due out on 
February 22 will almost certainly include many of the Committee's 
recommendations and specific measures to put them into practice. 
 
Working Smarter, Not Harder 
--------------------------- 
 
¶3.  (SBU) Central to the ESC's report are recommendations to boost 
productivity growth over the next decade.  The Committee proposed a 
goal of 2-3 percent annual growth in productivity over the next ten 
years, after a relatively anemic average of one percent growth in 
the previous decade.  Although Singapore's GDP grew at an impressive 
annual pace of 4.7 percent between2000-9, much of the growth was 
driven by increases in the labor force rather than through 
improvements in productivity (reftel).  The ESC's initial 
recommendation is to improve worker skills through continuing 
education and training.  Enterprises are encouraged to be more 
innovative by putting more investment into technology and training, 
with a goal to spend 3.5 percent of GDP (from 3% currently) on 
research and development.  The ESC recommends establishing a 
National Productivity Fund to provide grants to support productivity 
initiatives.  The Committee also pitched ideas for greater land 
productivity, including suggestions that Singapore place more 
facilities underground. 
 
And With Fewer Foreigners 
------------------------- 
 
¶4.  (SBU) The ESC also recommended increasing productivity by 
managing the economy's dependence on foreign workers, which now make 
up one-third of the total workforce.  The Committee called for a cap 
on the size of the foreign workforce at the current proportion of 
the total labor force, which would allow foreign workers to continue 
to enter Singapore but at a slower rate.  Economists have blamed the 
easy availability of low-cost imported labor for relatively low 
investment in modern manufacturing methods and the resulting 
declines in productivity growth in recent years.  To avoid a shock 
to the manufacturing sector the Committee recommends managing the 
inflow of foreign workers by gradually raising levies on their 
employment.  However, the gradual pace means the impact on 
productivity in the short term will be modest.  A Standard Chartered 
Bank analysis suggested that industries likely to be hardest hit by 
the restrictions will be the construction sector, low-end 
manufacturing, and labor-intensive service industries like hotels 
and restaurants. 
 
Boosting Industry 
----------------- 
 
¶5.  (U) Unlike similar committees in the past, the ESC did not 
single out specific industries for targeted support to drive growth 
forward, but did recognize that the country's financial services, 
healthcare and urban services industries are well-placed to serve 
the region's growing demand for services.  The coming budget may 
include incentives to further support those industries.  The report 
also recommended keeping manufacturing as a key pillar of 
Singapore's economy, maintaining its position as 20-25 percent of 
 
SINGAPORE 00000167  002 OF 002 
 
 
GDP. 
 
¶6.  (U) The Committee recommended continuing Singapore's strategy of 
positioning itself as a "Global-Asia Hub", attracting multi-national 
firms to establish operations in Singapore to take advantage of 
opportunities in rapidly growing Asia.  However, the Committee also 
added global mid-sized companies to the mix of industries to 
attract, and encouraged measures to make local Singapore enterprises 
more competitive globally.  The Committee called for better 
cross-border financing capacity for local industry, including an 
Export-Import Bank and a seed fund for new capital for small- and 
medium-sized enterprises. 
 
Going Nuclear 
------------- 
 
¶7.  (U) More controversially, the Committee's report recommended 
examining the feasibility of nuclear energy to diversify the 
Singapore's energy sources.  S. Iswaran, co-chair of the ESC 
sub-committee on energy, made clear that the prospect of nuclear 
energy was in the very distant future, but advocated beginning the 
process of studying its potential now given the complexity of the 
issue.  Given Singapore's small size a standard nuclear power plant 
would not meet current international safety guidelines on proximity 
to populated areas, but energy analysts said an offshore or 
underground facility could reduce dangers.  In the meantime, the 
Committee recommended exploring diversifying energy sources, 
developing renewable energy, promoting energy efficiency, and 
pricing energy to reflect external costs like environmental 
stability and energy security. 
 
The Paradigm Shift 
------------------ 
 
¶8.  (SBU) Dr. Choy Keen Meng, Associate Professor of Economics at 
Nanyang Technological University and frequent commentator on 
Singapore's economy, told Econoff that many of the report's 
proposals are close in line with Singapore's existing economic 
strategy, but that the report did demonstrate a paradigm shift 
toward the quality of economic growth and not just its rate of 
expansion.  The recommendations would move Singapore away from a 
previous "growth at all costs" strategy to one more reflective of 
Singapore's population and space constraints that require a slower 
and more sustainable pace of growth.  Nevertheless, Dr. Choy saw the 
goal of three percent productivity growth as a tall order.  Serious 
restrictions on the import of foreign labor could curtail overall 
economic growth in the short run, particularly if unemployment 
continues to drop. 
 
Comment 
------- 
 
¶9.  (SBU) The ESC's recommendations accurately gauge some of 
Singapore's economic problems and provide steps to overcome these 
barriers to broader economic growth. However, the committee did not 
address some key structural issues that will continue to limit 
Singapore's growth potential.  Although many of these issues are 
politically-related, and therefore presumably more difficult for a 
public/private entity like the ESC to tackle, pushing these bolder 
reforms would have a much greater and more successful chance to 
transform the economy.  The ESC recommendations focused on labor 
productivity, but neglected to address the productivity of capital, 
which is linked to the lack of a truly competitive business 
environment because of the overwhelming size of government-linked 
companies in many core areas of the economy. The report notably 
lacked a plan to rebalance the economy away from a dependence on 
exports, as pushed by the G-20 and to which Singapore has agreed to, 
and boost domestic demand. No mention was made of the low level of 
private savings for retirement among the ageing population, and 
whether to use the large public savings of  Singapore's sovereign 
wealth funds towards supporting private savings for this growing 
segment of the population.  Finally, the report accurately pointed 
out the need to make Singapore a more vibrant and culturally rich 
city to attract talent and promote innovation, but did not recommend 
a political and cultural shift to greater openness and debate that 
would be necessary to foster that vibrancy. 
 
¶10.  (U) The ESC's full set of recommendations can be found at 
www.esc.gov.sg. 
 
SHIELDS