Singapore’s Economic Response to Covid-19: An Outsider’s View from Inside

To use jargon from the domain of investments, Singapore is a leveraged play on the world at large.

When the rest of the world does well and deals well with each other, Singapore benefits more than proportionately. When the rest of the world goes into a blue funk and trades less with each other, Singapore hurts more than proportionately.

Arguably, Singapore’s economic profile is a bit like that of an investment bank – albeit a highly capitalized one with plenty of reserves - intermediating, arranging, packaging, aggregating, accrediting, arbitrating and channeling flows between others.

A small country, punching well above its weight with per capita GDP of ￡50,000, Singapore’s economic mission statement is to make itself attractive and relevant to the outside world. This is reflected in its economic profile: total exports and imports across goods and services add up to three times of GDP, and net exports contribute to 28% of GDP. Within the country, foreign-owned enterprises create 31% of jobs and 63% of value-add.

Before Covid-19

The year 2019 had already ended with Singapore’s weakest GDP growth rate (+0.7% year-on-year) since the global financial crisis. The US-China trade war and the premature tightening of monetary policy by western central banks as well as the forces of technological disruption were already in play. By January this year, before the pandemic hit the radar, the IMF had downgraded global growth forecasts several times, and the US federal reserve had started to reverse its interest rate hikes.

The global economy wasn’t exactly fighting fit, but Singapore wasn’t exactly a sitting duck either.

The Committee on the Future Economy (CFE) was convened as early as 2016. It engaged 9,000 stakeholders across trade associations, public agencies, unions, companies, and academics to help “build capabilities that could give enterprises and workers the best chance of succeeding in the open world”. ‘SmartNation’ and ‘SkillsFuture’ were already in the national lexicon, ready to be turbo-charged with greater urgency, later in 2020.

Covid-19: January – March 2020

Singapore’s initial response to the “Wuhan coronavirus” (as it was then called) was decisive. On the 31st of January, it barred entry to anyone who had recently travelled to mainland China. By then, with eleven cases detected thus far, the Ministry of Health website was providing updates on contact tracing. Learning from the experience of SARS 2003, Singapore sought to ensure that health workers had adequate protection equipment. They also developed PCR test kits early on, using genomes published by China in January. On the 8th of February, the national alert level (“DORSCON”) was raised to the second-highest level of Orange, accompanied by a national address by Prime Minister Lee Hsien Loong.

The following week, I recall hosting students from Spain at LSE for a session on risk, including risk communication. The video of Prime Minister Lee Hsien Loong‘s speech became an exhibit - a demonstration of framing, measured assurance (with intellectual honesty), call to action, and empathy. (There was no boasting about shaking hands with coronavirus patients, for example).

The Foreign Minister Dr. Vivian Balakrishnan’s CNBC interview of 16th March provides a comprehensive summary of Singapore’s initial response to the virus. What struck me is the sobering acknowledgement that the shadow of the pandemic was to remain with us for a long time; there was no bravado about things returning to normal in the summer or by Christmas.

Circuit-breaker

Now, things took a turn for the worse in the second half of March on two fronts: (a) foreign workers residing in dormitories were infected at an alarming rate and (b) imported cases were coming from the West.   

On the 25th of March, as I was partway through my two-week “Stay At Home” quarantine, I was informed that the National University of Singapore, which was allowing in-person classes of up to 50 students, had decided to reduce the number to 25. My notes were ready for full online delivery by the time the country went into lockdown or “circuit-breaker” in April. (I notice, the UK is now using the same language).  

It was evident that Singapore did not see the challenge as a symmetric tradeoff between lives and livelihood. For an economy that thrives on confidence and that needs to function as an entrepot in steady-state, getting a handle on the virus had to take priority.

Four budgets were announced between February and June with a total amount of 100 billion Singapore dollars (￡60 billion) or 20% of GDP in support measures. The primary focus was to keep people in jobs with businesses (SMEs in particular) receiving support towards cost of wages, rental, and other financing needs – not dissimilar to what the UK had rolled out.

However, it was not just about “bouncing back” schemes. That phrase does not seem to appear here. Implicit in the design of the budgets is the view that the economy will have to bounce forward to something different. “New normal” as a sustained state of affairs, is often repeated in public communications.

Is it right-wing or left-wing?

What sometimes confuses outsiders is whether Singapore is right-wing or left-wing, laissez faire capitalist or interventionist-socialist in its approach.

The reason is that it is a bit of both.

There is a belief in market forces but also an understanding that markets don’t clear quickly enough in certain circumstances. Market discovery can take too long when there’s structural change and radical uncertainty.

There is a belief in individual responsibility but also an understanding that government needs to address coordination failures. The metaphor of a trampoline (as opposed to a safety net) continues to describe Singapore’s approach to fiscal assistance, although its effectiveness or “springiness” is being put to test.

Can I get financial assistance?

Take the approach to jobs and skills development. In view of the fourth industrial revolution, the World Economic Forum warns of a dramatic disparity in the demand and supply of skills going forward. The question is, on that backdrop, is re-training and upskilling a public or a private good?

This summer, I looked up two almost identical courses offered online by a London university and NUS business school. Both cost roughly ￡2,000. How about financial assistance?

The London website says, “Please speak to your employer; they might want to pay for it”. The Singapore website says:

“If you are a Singaporean, you will pay a third of the price. If you are a Singaporean who is over the age of 40, you will pay 12% of the price. Even if you are below the age of 40, if your employer is an SME and they wish to sponsor you, they will pay just 12% of the price”.

This approach treats the general level of skills in the population (continuous skills development, not just a one-off university degree) as a public good that requires co-investment from the individual, company, and state. Such an approach might be hard to fit into the ideological dichotomy of some political cultures.

Furthermore, there need not be a tooth-and-nail conflict between privatization and nationalization, as long as there is an appropriate governance structure.

Singapore set up a taskforce - Emerging Stronger Taskforce – with 15 senior executives to help the country “refresh, reimagine, or reset its economic strategies, to stay economically resilient and build new sources of dynamism in the post-COVID-19 world.” Many of these private-sector CEOs are making public commitments about jobs and skills. 

Roadmaps and Hubs

Overall, there is a consistent direction of travel. The path of phasing out distancing measures, whether one agrees with them or not, is telegraphed well in advance, which allows for some degree of planning.

On the economy, there seems to be a “roadmap” for every other sector and issue. Just one day’s newspaper can cover a range from traineeships in the maritime sector, special needs teachers, automation of the waste management sector, storage capacity of solar power and urban farms through hydroponics!

The other word that makes the rounds is “hub”. Singapore has always fostered centers of learning and agglomeration of resources.

The Risk Management Institute (RMI) at the National University of Singapore where I serve as Adjunct Professor was established in that spirit in 2007. It is telling that one of our early Directors Prof. Duan Jin-Chuan, has just been tapped to run the new Asian Institute of Digital Finance, to study fintech. Also this month, Imperial College and Singapore Management University launched the Singapore Green Finance Centre (SGFC). The Singapore fintech festival, held in December, is the world’s largest conference on emerging technology in finance. In orchestrating all of these, the central bank plays a key role.  

From Hub to Platform and Collab-lab?

Perhaps I need to update my analogy. More than an investment bank, Singapore’s aspirational profile might be that of a platform company: hosting, curating and catalyzing cross-collaboration across sectoral hubs to deliver innovation for the future, not just building siloed hubs for industries of the past. I’m thinking of Netflix as the quintessential platform company; only 5% of what we watch over there is actually produced by Netflix.     

It’s early days but there are signs of progress. It was recently announced that Hyundai Motor is building its factory for electric vehicles (EVs) here in Singapore. Apparently, customers can customize these cars directly using a mobile phone app and watch the cars being put together.

The analogy of Singapore as a platform company is particularly relevant on the backdrop of techno-nationalism coming out of US-China rivalry. The US is the largest source of investment coming into Singapore and China is the largest destination of investment going out of Singapore.

It is argued that if Singapore can indeed be seen as an ecosystem for collaboration, it can transcend and even benefit from US-China conflict. This year, ByteDance (the parent company of TikTok), Alibaba, and Tencent have all announced big investments in Singapore. Another Chinese company called Envision Digital established its global headquarters here.

We know that 3M makes N95 masks here and at no point did Singapore feel the need to restrict exports. Perhaps in an ideal world, from Singapore’s perspective, the likes of HP, Apple or Microsoft would collaborate with Chinese companies on a Singaporean platform, with a local institute acting as mid-wife!

Trade Agreements

Singapore’s fervour for international trade agreements remains unabated – with a slight shift in focus towards building resilience, as opposed to old-style hyper-efficiency.

It should be recalled that the Trans-Pacific Partnership (TPP) came out of an agreement between New Zealand, Brunei, Singapore, and Chile back in 2005 (when the WTO Doha round proved too unwieldy). This year, Singapore activated arrangements with what it called “like-minded countries” to ensure that essential supplies continued to flow through. In April, to underline the importance of Covid diplomacy, Singapore’s Foreign Minister personally went to the airport to receive a shipment from New Zealand.

I learnt last week that Singapore celebrates an annual “FTA Day”, organized by the Singapore Business Federation and Ministry of Trade, to “help companies understand and leverage Singapore’s network of FTAs”. Part of the focus right now is on “digital economy agreements” to ensure interoperability of IT standards between countries. Ms. Chi Hsia Foo, who was until recently Singapore’s High Commissioner to the UK (and a friend of LSE) is playing a leading role in this space. They also seem to be approaching the re-opening of flights through air corridors, in the mould of trade agreements.

In terms of numbers, Singapore’s GDP in the second quarter was 13% smaller than it was in the second quarter of 2019; the third quarter was better at only 7% smaller than the third quarter of 2019. Full year GDP for 2020 is expected to be 5% smaller than it was in 2019. The September numbers revised today show a 24% increase in manufacturing, compared to September last year, driven mostly by biomedical exports – an example of Singapore being a leveraged bet on external demand.   

What next?

In terms of the social dialogue within the country, two things appear to be in play right now: inequality and the role of foreigners. Both issues featured in the general elections held in July, which resulted in the formal recognition of the post of Leader of the Opposition.  

I have noted elsewhere that Covid-19 has overturned policy taboos around the world. I observe Singapore’s discourse on inequality in that light. As we speak, the debate is on the desirability or otherwise of a minimum wage: should it be set at a national level? Or sector-by-sector? Is this the right time?

On foreigners, Singapore has indeed tightened the rules around employment passes issued to non-citizens. During the election debate, one minister said that the “only reason we have foreigners here is to give that little extra wind in our sails when the opportunities are there”, and now that Singapore is in a storm, it needs to shed ballast”. Not unlike some other countries, Singapore appears to be calibrating its optimum wind-to-ballast ratio right now.

I’ll stop here. We are still “with Covid” and nowhere near a post-Covid world. Much of this is work-in-progress. However, Singapore’s general approach of setting out roadmaps (doing “the vision thing”) and an execution style of pragmatism should stand it in good stead for the future.

END

Text of opening remarks at South East Asia forum, London School of Economics, Monday 26th October 2020.