Staying the course till the storm clouds clear
WE PRESENT HIGHLIGHTS OF FINANCE MINISTER LEE HSIEN LOONG'S SPEECH IN PARLIAMENT
IN 2001, our gross domestic product (GDP) shrank by 2.4 per cent in our worst-ever recession since independence.
Despite the global uncertainty, manufacturing grew by 8.3 per cent, driven by biomedical sciences, says DPM Lee. -- WANG HUI FEN
Last year began promisingly.
Despite the uncertainties of the war against terrorism and the conflicts in the Middle East, initially the recovery of the United States (US) economy boosted our growth prospects.
But as the year progressed, a wave of corporate scandals and the WorldCom and Enron collapses shook the confidence of investors and consumers.
This slowed down the US economy. The European Union (EU) and Japanese economies also lost steam.
However, the East Asian economies did well. Our exports to China grew strongly, but this was not enough to make up for the fall in external demand elsewhere.
Despite the unfavourable conditions, our economy grew by 2.2 per cent in 2002. Unemployment peaked at 4.6 per cent, but improved slightly to 4.2 per cent by the end of the year. DPM Lee's full speech
Manufacturing grew by 8.3 per cent driven largely by the small, but fast-expanding, biomedical science cluster. Exports remained resilient, growing by 1.9 per cent.
Singapore continued to attract investments. We garnered over $9 billion of fixed-asset investments in manufacturing.
Foreign manufacturing fixed-asset investments rose from $6.6 billion in 2001 to $7 billion, while committed foreign business spending grew by 35 per cent to $1.5 billion.
The electronics cluster continued to attract the largest share of investments followed by the chemicals cluster.
Investments in biomedical projects generated the second highest value-added for the economy. All these investments are expected to create 21,000 jobs.
Despite some public concern about the cost of living, the consumer price index (CPI) last year fell by 0.4 per cent.
Health-care and education costs rose, but housing and car prices fell.
Lower electricity tariffs, cheaper accommodation and household durables combined to reduce housing costs by 2.2 per cent.
Cheaper petrol and a lower road tax reduced transport and communication costs by 1 per cent. Basic food items such as rice, cooking oil, meat, seafood and vegetables all cost less.
The Government implemented a slate of measures to help Singaporeans cope with the downturn and adapt to the economic restructuring.
Last year, our training and upgrading programmes helped 36,000 workers learn new skills to match the jobs that are available or being created.
The Off-Budget package helped all Singaporeans, especially the lower-income and unemployed. 800,000 HDB households received 10 months of utilities rebates worth a total of $226 million.
A further $110 million went towards helping Singaporeans through rebates on rental and service and conservancy (S&C) charges.
WAR PROSPECT CLOUDS OUTLOOK
AT PRESENT, the major uncertainty hanging over the world economy is the prospect of war in Iraq.
Consumers are holding back their spending, and companies are delaying investment plans.
Within a few weeks we will know whether war is going to break out. Within a few months we will know how things have turned out.
One significant worry is oil prices. After a war, they could fall back to normal and give a boost to growth, or they may stay high and slow down the recovery process.
The crisis in Venezuela, which has significantly reduced world supplies of oil, makes it more likely that oil prices will stay high.
Growth in Europe and Japan this year is expected to remain sluggish.
In the US, the consumer confidence index in January reached its lowest level since 1993. The current projection remains for a pick-up in the second half of the year, bringing growth close to 3 per cent, slightly better than 2002.
In East Asia, sustained domestic consumption should maintain growth at rates similar to last year, despite tensions in the Korean peninsula.
Exports from the South-east Asian region should stay robust, as stronger demand from China should compensate partially for the weaker demand from the developed economies.
China is a large and rapidly growing market that offers many opportunities to nimble entrepreneurs and companies.
India's economy too has much potential. It is showing a new dynamism and a more outward orientation, especially in the southern states.
Economic cooperation among the Asean countries is deepening gradually, for example through the Asean Free Trade Area (Afta). Asean is also launching free trade agreement (FTA) negotiations with China and Japan, and preparing to benefit from an FTA with India and the Enterprise Asean Initiative with the US.
Terrorism is still a problem in South-east Asia, but after the Bali bombing, Asean countries are cooperating more closely to combat this threat.
Given the external conditions, I expect Singapore's economy to continue to grow slowly in the first half of the year.
In the second half, if the US economy and the global electronics industry strengthen as we hope, Singapore should also recover more strongly, and our unemployment should start to decline.
For 2003 as a whole, the Ministry of Trade and Industry expects GDP growth to be between 2 per cent and 5 per cent, although it is less likely to be at the high end of the range. Like in 2002, growth is likely to be narrow and uneven across the different sectors.
A broader-based recovery is not expected until 2004.
KEEPING UP AMID CHANGES
WE NOW live in a fundamentally changed world.
Singapore is at a turning point. We face not just greater economic volatility, but also new political and security uncertainties.
Competition is keener and changes are coming faster. To stay in the race and ahead of the pack, we must constantly adapt to the changes around us, and restructure our economy.
After many years of rapid growth and development, our people now enjoy a high per capita income and standard of living.
But as our economy matures, it will be difficult for us to maintain the same high rates of growth that we experienced in the 1980s and 1990s.
Structural unemployment will become a more serious problem. Older, less educated workers who fail to update and upgrade their skills will be particularly vulnerable.
The Government's fiscal position will tighten as slower growth means less buoyant revenues, while an ageing population will lead to increased social spending.
We must find new sources of growth or else stagnate and decline. These challenges are formidable, but we can overcome them.
Over the last 30 years we have built up our financial, physical and human resources through toil and teamwork.
We have strengthened our social cohesion and institutions.
We share ideals and values that help us to work harmoniously together for maximum results.
These key advantages help us tackle difficult problems together, and restructure our economy for continued prosperity.
We have already begun the task of restructuring. In October 2001, the Government announced the establishment of the Economic Review Committee (ERC) to develop new strategies to take us forward.
Last year, the Government accepted and implemented two major recommendations of the ERC.
Firstly, we decided to restructure our tax system.
We are lowering corporate and top personal income tax rates substantially. This will help to retain and attract businesses and talent, and thus create good jobs for Singaporeans. At the same time we are raising the GST rate.
Secondly, we restructured the CPF to focus on the basic retirement needs of Singaporeans and trim over-investment in housing. This will keep the burden of CPF contributions as low as possible, while meeting the essential needs of the majority of the population.
To help older workers aged 50 to 55 stay employable, we also capped employers' contributions to their CPF at 16 per cent.
Besides these ERC recommendations, we responded to the recession by moderating wage increases to maintain our competitiveness and retain jobs.
Singaporeans have been guided by the National Wages Council's recommendation of wage restraint, which extends until June this year.
Their willingness to accept these sacrifices reflects their pragmatism, as well as the close tripartite relationship between the unions, employers and the Government.
This clear response has distinguished us from other countries. Foreign investors and analysts have noted our decisive actions to restructure the economy and tackle the downturn, as well as our support for difficult but essential policies.
This is a key reason why we have continued to attract investments, even as investment flows into other South-east Asian countries have declined.
HIGHER LEVEL, TOUGHER CLIMATE
LOOKING ahead, we expect the Singapore economy to grow more slowly, even after the present slowdown, because we are now at a higher level of development, and external conditions are more difficult.
We grew by an average of 7.3 per cent per year over the last 15 years.
For the next phase, the ERC estimates our medium-term growth potential to be 3 to 5 per cent, comprising labour force growth of 1 to 2 per cent and productivity growth of 2 to 3 per cent.
Growth of 3 to 5 per cent is lower than what we have become used to, but it is still an ambitious target.
Few developed countries with per capita GDPs similar to ours have maintained such a high rate of growth. However, the major global cities in those countries, such as London or New York, which draw on wider hinterlands, have been able to grow faster and sustain higher per capita incomes than their national averages.
Singapore too should be able to achieve 3 to 5 per cent growth, provided we too adopt the approach of these global cities.
This is why we must stay flexible, adapt quickly to changing markets and technologies, continue to welcome global talent and keep on upgrading our capabilities.
Then we can take advantage of the new opportunities, provide good jobs for our people, and raise our income and standard of living. Not every Singaporean will find the going easy. The powerful forces of globalisation will widen our income gaps. A small number of citizens will need help to keep up.
But every Singaporean can benefit from our country's progress, provided he puts in the effort and is willing to adapt himself to the opportunities and jobs available.
The Government will concentrate its social safety nets on the minority of Singaporeans who need them most. This will ensure that the help reaches the neediest Singaporeans without undermining our work ethic and culture of self-reliance.
However, the task of caring for less successful Singaporeans cannot fall entirely on the Government. Singaporeans have a responsibility to look after others doing less well than themselves.
The generous response of Singaporeans to charity drives is thus both heart-warming and reassuring.
Concern for our fellow citizens and government assistance will help keep our society cohesive as we navigate an uncertain world.
No amount of aid to lower-income Singaporeans can substitute for job-creation through strong economic growth. Despite the uncertain outlook, we are well placed to seize the opportunities that only present themselves in uncertain times.
If we stay the course, when the storm clouds clear, all Singaporeans will share in the fruits of success.
GEARING UP WITH FRESH GOALS
WE CANNOT predict how the international security situation will evolve, nor do we know for sure when the global and regional economy will regain its health. But we can and will use our resources and strengths to give ourselves the best chances to succeed, whatever the circumstances.
In this spirit, the Government accepts the ERC recommendations to revitalise the economy in the immediate future and sustain growth over the longer term.
Vigorously implemented, over a decade these strategies will make Singapore a leading global city, a hub of talent, enterprise and innovation, and one of the best places in Asia to live and work.
We will be host to both global multinational corporations and emerging business networks linking up China, India and South-east Asia.
Our broad economic base will have services complementing manufacturing industries, start-ups operating alongside established companies, and Singaporean companies reinforcing MNCs.
These diversified activities will provide a wide range of rewarding jobs for Singaporeans, either as knowledge workers, skilled technicians, or semi-skilled workers.
Change will not be effortless. There is no safe harbour where our ship can shelter to rebuild and refit, before heading out to sea. In a rapidly unfolding situation, all work must be done on board the ship while we are sailing and battling the elements.
The Government will act to bring about and facilitate these structural shifts, but success depends ultimately on the resourcefulness and resilience of Singaporeans.
We must shake free of our old mindsets, and adjust our positions to better face a changed world order out of which new opportunities will arise.
Some of us may not find this easy to do. But everyone who makes the effort will find a place in the new Singapore economy.
And all will get focused assistance from the Government and support from employers and unions. Through our joint efforts, our economy will bounce back.
At the end of the day, the purpose of restructuring is more than finding new growth sectors and creating new jobs.
It means forging a bond between all Singaporeans, in a spirit of joint endeavour, to secure our common future.
In an uncertain and volatile world, we have to overcome new challenges and set fresh goals for ourselves.
We have to grow as a united people, to create a better tomorrow for ourselves and our children, regardless of race, language or religion. And we must bring to this task tough minds and warm hearts.
KEY UNCERTAINTY
'The major uncertainty hanging over the world economy is the prospect of war in Iraq. Consumers are holding back their spending and companies are delaying investment plans. Within a few weeks we will know whether war is going to break out. Within a few months we will know how things have turned out.'
GROWTH FORECAST
'For 2003 as a whole, MTI expects GDP growth to be between 2 and 5 per cent, although it is less likely to be at the high end of the range. Like in 2002, growth is likely to be narrow and uneven across the different sectors. A broader-based recovery is not expected until 2004.'
TOUGH ROAD AHEAD
'Not every Singaporean will find the going easy. The powerful forces of globalisation will widen our income gaps. A small number of citizens will need help to keep up. But every Singaporean can benefit from our country's progress, provided he puts in the effort and is willing to adapt himself to the opportunities and jobs available.'
WINNING VALUES
'Producing entrepreneurs will also depend on our social values. A society that prizes self-reliance is more likely to produce winners. So is one in which winners are celebrated, while the unsuccessful are encouraged to learn from their mistakes and try again.'