Commentary: COVID-19 could redefine Singapore’s place in the global economy
COVID-19 may bring challenging economic times to Singapore but its more pervasive, lasting effects will accelerate shifts in the economic landscape that require adjustments by the country, says Alex Capri.
SINGAPORE: Singapore is grappling with the economic symptoms of COVID-19, the acronym assigned by the World Health Organization to the virus which saw the outbreak begin in the city of Wuhan.
COVID-19 has resulted in dramatic reductions of Chinese tourism into the city-state, for example, which has put a sizeable dent in the earnings of the travel, hospitality and retail sectors.
A marked reduction in air cargo from China is crimping supply chains across a wide spectrum of the economy.
Labour flows have also been impacted. Some 30,000 Chinese nationals with Singapore work permits were put under quarantine lock-down in China and have struggled to return to their jobs, mostly in manufacturing or in small businesses.
Prime Minister Lee Hsien Loong has warned that COVID-19 will have a significant impact on Singapore’s economy.
GDP growth forecasts for the country have been revised downwards to -0.5 to 1.5 per cent, while the IMF has sounded the warning bells over the damage to the global economy this year.
Given this backdrop, Deputy Prime Minister and Finance Minister Heng Swee Keat highlighted on Sunday (Feb 16) what businesses and households can look forward to for Budget 2020, when the Government will announce a package of measures including wage support for impacted workers and local businesses as well as cost-of-living assistance for households.
More broadly, however, COVID-19 represents a defining moment for Singapore’s economic future, primarily because the spread of this global virus has accelerated two powerful trends: The de-coupling from China’s supply chains and the relocation of strategic manufacturing operations out of China.
Singapore’s importance as a regional financial, logistics and innovation hub puts it at the centre of a dramatically changing business landscape, and the world’s leading businesses will turn to the city-state to meet new economic needs.
THE CHINA CONUNDRUM
Like other Southeast Asian countries, Singapore is faced with a “China conundrum”. Singaporean investments in China have been growing steadily over the last few decades, but are now exposed to increasing levels of risk.
Since the 2003 outbreak of SARs, China’s economy has grown from approximately 4 per cent of global GDP to just shy of 20 per cent. Today, China represents Singapore’s largest non-oil export destination, at 17.3 per cent of the country’s overall exports.
China’s huge consumer market and its competitive edge as a manufacturing and assembly hub means it will remain a major trading partner for Singapore well into the foreseeable future.
But COVID-19 threatens to do further damage to an increasingly vulnerable Chinese economy already stung by the on-going US-China trade war and the negative consequences of a growing “systemic rivalry” with the West, especially in the technology sector.
READ: Commentary: The US-China tech rivalry is fracturing the world and affecting trade, firms and jobs
Singapore, therefore, must safely manage existing trading ties with China, while simultaneously adjusting to the realities of de-coupling and restructuring of global value chains. This inevitably means turning to more diversified and well-balanced international strategies.
DECOUPLING AND DIVERSIFICATION
For more than a decade, multinational and Chinese firms have looked to escape rising labour costs in China by moving operations to new locations in Southeast Asia and beyond.
More recently the threat of rising tariffs and export controls have led to further de-coupling from China-centric supply chains and have resulted in the construction of new manufacturing and assembly facilities in, for example, Vietnam, Malaysia, and Thailand - even as far afield as Mexico.
COVID-19 is accelerating these trends.
As such, state and non-state actors experiencing this new demand are turning to Singapore for expertise and services. For example, Singapore’s world-class logistics ecosystems - such as the Port Authority of Singapore and its business partners - are in high demand for containerisation, warehousing and port operations around the region.
Singapore’s Networked Trade Platform (NTP), for example, is a model of efficiency for a trade and logistics IT ecosystem. NTP connects businesses, community systems, platforms and government systems. This kind of innovation must meet fresh demands to facilitate the growth of efficient, transparent global supply chains.
As COVID-19 forces companies to double down on de-coupling and value-chain relocation, Singapore-based tech start-ups, financial and professional services firms and logistics companies can become imbedded in these new capacity-building solutions.
AUTOMATED FACTORIES AND ROBOTICS
COVID-19 has highlighted the global economy’s vulnerabilities to diseases and pandemics. Could automated factories and intelligent supply chains reduce risks and enable more diversified, better coordinated supply chains?
This is a question that the Japanese automotive companies Toyota, Honda and Nissan are now asking, as they have had to suspend production, both in China and on some domestic production lines in Japan, because of over-reliance on single source suppliers in Wuhan.
Meanwhile, Canon, the Japanese company, has implemented fully automated, end-to-end camera manufacturing operations at a new plant in Japan - to which it is reshoring manufacturing previously done abroad.
Another leading company, Amazon, is combining cognitive AI with data analytics and robotics to manage highly automated, intelligent supply chains around the world.
There is high demand in the market for next-generation, technology-enabled value chains. The Singapore Government, which has allocated US$19 billion under the Research, Innovation and Enterprise 2020 Plan (RIE), with the fund potentially topped up at Budget 2020, is well placed for participation in these advanced manufacturing and engineering areas.
This will allow the city-state to become a prime destination for leading multinationals that are seeking an edge in this area.
Meanwhile because human capital is still hugely important, Singapore’s world-class universities and a rapidly growing ecosystem of start-ups, business incubators and funding initiatives will strengthen a renewed push for automated factory technologies.
THE ECONOMIC VALUE OF GOOD GOVERNANCE
Singapore has become a regional hub for many of the world’s top companies because of its ability to facilitate what I consider the 5 most important “T-words” in the modern business lexicon: Transparency, truth, trust, technology and talent. These are the backbone of corporate good governance and rules-based frameworks.
Even at time when the World Trade Organization is in existential crisis and the United States - the historic champion of open, rules-based trade - has become increasingly less engaged in international frameworks, a significant bloc of the world’s trading nations still recognise the benefits of multilateral trade agreements.
READ: Commentary: The brewing discontent with trade and one step to restoring faith in globalisation
Singapore is a member of two highly progressive FTAs, including the EU-Singapore Free Trade Agreement and the Comprehensive and Progressive Trans-Pacific Partnership.
Both are based on “deep” rules-based frameworks that have standards, among other things, that address environmental sustainability, labour ethics, data privacy and other key values - all of which, in today’s world, are critical for the development of new trading ecosystems in Asia and beyond.
Singapore’s reputation as a champion of good governance and the “5 T-words,” combined with its designation as one of the world’s most innovative tech centres, provides a unique environment for companies to build transparent, truthful and trustworthy value chains around a set of progressive trade values - empowered by the right talent and technology.
In the near term, COVID-19 may bring challenging economic times to Singapore. These local challenges will most certainly be met and overcome by a proactive government.
But COVID-19’s lasting effects will be more pervasive and long-term, as Singapore adjusts to a new and promising role in a shifting economic landscape.
Alex Capri is Visiting Senior Fellow with the Department of Analytics & Operations at NUS Business School.