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MSDW: S'pore: External Economy -- Low Return Is a Concern

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  • sg_review@yahoogroups.com
    Singapore: External Economy -- Low Return Is a Concern Daniel Lian/Anita Chung (Singapore) The report on Singapore s Investment Abroad 1997-1998 released by
    Message 1 of 1 , Jul 5, 2004
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      Singapore: External Economy -- Low Return Is a Concern

      Daniel Lian/Anita Chung (Singapore)

      The report on "Singapore's Investment Abroad 1997-1998" released by
      the Singapore Department of Statistics in the second week of
      September 2000 validates our balance of payments methodology for
      valuing the stocks and flows of Singapore's external economy, which
      we presented in the first week of September (See "External Economy --
      Some Intriguing Arithmetic," September 7, 2000).

      Without taking into account the part of the external economy that is
      owned by the government (i.e., other than foreign reserves),
      official statistics valued the stock at around S$297.7 billion
      (US$177.8 billion) in 1998 compared with S$344.7 billion (US$205.9
      billion) estimated by our model.

      We believe the difference of S$47 billion (US$28 billion) at the end
      of 1998 largely represented the part of the external economy owned
      by the government (through government agencies such as Temasek
      Holdings, GIC, and statutory boards like EDB and JTC). In fact, for
      1998 alone, the government directly, without this being captured by
      the official survey statistics, recycled some S$15.7 billion (US$9.4
      billion) worth of the current account surplus abroad. It is thus
      reasonable to assume that by the end of 1999, the government-owned
      external economy (excluding foreign reserve holdings) could be as
      large as S$40 billion to S$60 billion.


      Government, GLCs and MNCs Dominate>

      The government external economy constituted more than 50% of the
      total external economy in 1998. If one takes into account the GLC-
      owned external economy, then the government share balloons to some
      60%. Foreign MNCs accounted for 29% whereas the local private
      sector (excluding GLCs) owned 11%. It is therefore clear that if
      the government and GLCs fail to secure a good return on their
      external economy, the performance of the economy overall would be
      adversely affected.


      Low Returns of External Economy a Major Concern

      We are somewhat concerned about the apparent low return generated by
      the external economy. We collate gross factor income of
      Singaporeans abroad and express it as a percentage of both GNP and
      the external economy (public and private sector). Returns have been
      declining over the past few years, according to our projections, and
      the selection by our model of a 6% nominal return as the proxy of
      profitability for the external economy during 1980-1999 was
      consistent with real world observations.

      We do not know the exact sources contributing to the reduced
      profitability of the external economy in the past few years.
      However, such a decline has coincided with a period in which the
      government and GLC-led buildup of the external economy (primarily
      through direct investment, portfolio investment and other foreign
      assets) has taken precedence over the past practice of accumulating
      plain vanilla foreign reserves. The former forms of investments
      assume more risks and should earn better returns than foreign money-
      market instruments and bonds. Something appears to have gone wrong
      with the risk and reward profile of the external economy in recent
      years.

      We conjecture that the following factors could have contributed to
      the poor returns earned by the external economy despite the higher
      risk profile.

      (1) Longer gestation period. Direct and portfolio assets tend to
      take longer to reap returns after their initial formation.
      Industrial parks, transportation and telecommunication infrastructure
      are examples of major projects of the external economy that could
      have generated poor returns in the early years.

      (2) Asian crisis and currency devaluation. The Asian crisis and
      currency devaluation in Southeast Asia could have negatively
      affected both stocks and income flows of the external economy.
      Singapore's direct investment in Asian countries accounted for 58%
      of total direct investment abroad and among the top four investment
      destinations, i.e., China, Malaysia, Hong Kong and Indonesia, three
      were severely hit by the crisis. Both the ringgit and the rupiah
      have also sharply depreciated against the Singapore dollar.

      (3) Poor investment decisions. We have emphasized in our previous
      analysis that management of the external economy has rapidly become
      the most important economic activity for the republic.
      Diversification is key to securing steady returns and protecting
      investment. While gestation periods and the Asian crisis may have
      played a role, we cannot rule out poor investment decisions. Even
      though we cannot ascertain whether it is the government (through its
      agencies and statutory boards), GLCs, MNCs or indigenous private
      sector that has been making such decisions, the sheer domination of
      the government in the external economy means that responsibility for
      the poor returns must lie with the government to a large degree.


      In the Hands of Government

      The simulation that we carried out in our previous article
      demonstrates that not only is the future rate of return critical to
      the growth of the external economy, it will also determine its
      relative contribution to the Singapore economy. Our estimates
      suggest that the external economy needs to secure a return of at
      least 8% to be commensurate with the economy's long-term growth
      potential of 6.5%. Given the preponderance of government ownership,
      the task of raising returns clearly lies in the hands of government
      and the GLCs.

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      http://www.forbes.com/home/feeds/ap/2004/07/04/ap1443918.html

      Associated Press
      Singapore Said Facing Rise in Unemployment
      04 July 2004, 02:06 AM

      Wealthy, high-tech Singapore faces a serious and growing problem of
      structural unemployment as older and less-educated workers struggle
      to find work, says a senior union leader, who is also a government
      minister.

      "The new jobs that are coming onto the market, coming with new
      investments entering Singapore, are not suitable for workers, the
      older workers .... who are less technically savvy," said Matthias
      Yao, Deputy Secretary-General of the National Trades Union Congress,
      or NTUC.

      Structural unemployment refers to those who can't find work because
      they don't have the skills. It affects most modern economies to some
      extent.

      "There is going to be a lot of structural unemployment, and it is
      going to grow," Yao, who is also a senior minister of state in the
      Prime Minister's Office, told The Associated Press in an interview
      late last week.

      Singapore has been more successful than many of its Southeast Asian
      neighbors at promoting growth - but Yao's warning reflects official
      concern over the possible emergence of a group of less-educated "have-
      nots."

      Singapore's union movement has close ties to the long-ruling People's
      Action Party government. Unionists are sometimes ruling-party members
      of Parliament. The NTUC head usually holds a Cabinet post.

      The country's jobless rate for March, the latest figure available,
      was 4.5 percent - a high level in a society accustomed to extremely
      low unemployment.

      The long-term jobless rate - those without work for at least 25
      weeks - was 1.5 percent. The indicator, a useful proxy for structural
      unemployment, has climbed fivefold from 0.3 percent a decade ago.

      Yao, who spent several years as a political adviser to Prime Minister
      Goh Chok Tong, said older workers need to be retrained - possibly in
      service jobs to meet the needs of highly trained, high-tech workers.

      Singapore's government has been aggressively trying to develop high-
      tech industries such as biotechnology in an attempt to promote
      growth.

      The island of 4 million people, which has long enjoyed one of the
      world's highest standards of living, faces competition in its
      manufacturing sector from other Asian countries such as China, where
      development is booming but wages remain relatively low.

      Yao said unions - and the government - were also pressing companies
      to make their pay systems more flexible so monthly wages and annual
      bonuses can be swiftly adjusted to reflect changes in the economic
      climate.

      "We have gone through several recessions, and we have found that if
      wages are not flexible enough, companies will take the easier way out
      to manage their manpower costs, which is to retrench people," he
      said.


      ----------------------------------------------------------------------
      --------------

      http://www.menafn.com/qn_news_story_s.asp?StoryId=V047

      (MENAFN) An industry official said that Singapore faces a serious and
      growing problem of structural unemployment as older and less-educated
      workers struggle to find work, the Associated Press reported.

      The official added that the new jobs that are coming onto the market,
      coming with new investments entering Singapore, are not suitable for
      workers, the older workers, who are less technically savvy.

      Structural unemployment refers to those who cannot find work because
      they don't have the skills. It affects most modern economies to some
      extent.
      --- End forwarded message ---
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