MSDW: S'pore: External Economy -- Low Return Is a Concern
- 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
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
We conjecture that the following factors could have contributed to
the poor returns earned by the external economy despite the higher
(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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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
"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,
Structural unemployment refers to those who can't find work because
they don't have the skills. It affects most modern economies to some
"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-
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
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
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
"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
(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
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