Singapore should consider using nuclear power and depend less on foreign workers in its efforts to transform the economy in the next decade, a government- appointed panel said.
The city state must aim to double its productivity rate in the next decade and encourage companies to expand abroad to spur growth after emerging from a recession last year, Finance Minister Tharman Shanmugaratnamm (pic), who heads the Economic Strategies Committee, said in Singapore today.
The recommendations have been accepted by the government and will be addressed in the budget to be unveiled on Feb. 22, he said.
Singapore is seeking ways to ensure its economy expands in a more sustained manner after three recessions in the past decade, with its most recent slump the deepest since independence in 1965. The government has said it wants to boost productivity to make up for an anticipated slowdown in growth as the nation becomes more developed.
The panel today announced seven proposals to restructure the economy. They include making the city state a hub for global companies seeking to expand in Asia, improving energy security and being more flexible in land usage.
The committee urged the government to study using nuclear energy as a future source of power and the import of coal and electricity. It also recommended the creation of a “waterfront city” on existing port facilities run by the Port Authority of Singapore in the southern part of the island when the lease expires in 2027.
The government plans to reduce the Southeast Asian island’s dependence on foreign workers by raising levies imposed on employers hiring overseas labor in a “gradual and phased manner,” Shanmugaratnam said. Policy makers will seek to maintain the foreign labor force at the current level of about one-third of the total workforce, he said.
Singapore has been looking at ways to restructure its economy since 2001, with the government-appointed Economic Review Committee that preceded the current panel urging changes to policies relating to taxation, wages and new industries to draw more investments.
That led to the promotion of industries such as pharmaceutical manufacturing, biotechnology research and wealth management to offset slowing electronics exports. Singapore’s efforts to be a more competitive place to do business has also seen it shave 9 percentage points off the corporate tax rate since 2000.
Singapore may grow at a slower annual pace compared with the average 5 percent expansion of the past decade because the $182 billion economy is more developed now, Prime Minister Lee Hsien Loong said last week. Gross domestic product may grow 3 percent to 5 percent in 2010, after a 2.1 percent contraction last year, the government forecasts.
“We have to do it so that progressively and inexorably, our economy will be transformed,” Lee said Jan. 25. “Then, provided we can raise our productivity, even if our total GDP grows more slowly, our workers can become more productive and our income per capita can continue to rise.”
Singapore’s productivity rate lags behind that of the U.S., Japan and other countries, the panel said today. Productivity in manufacturing and services are about 55 percent to 65 percent of the levels in the U.S. and Japan, it said.
Productivity growth of between 2 percent and 3 percent annually will help GDP increase by 3 percent and 5 percent per annum in the next 10 years, the panel said. The rate averaged 1 percent in the last decade.
“We have significant room to increase productivity in every sector of our economy,” the panel said in a report. “This shift to productivity-driven growth will require major new investments in the skills, expertise and innovative capabilities of our people and businesses over the next decade.”
The country is targeting as much as S$12 billion in fixed- asset investments this year, after attracting S$11.8 billion in 2009. Singapore should aim to be a “key Global-Asia hub for global players seeking to tap opportunities offered by a rising Asia, and for Asian enterprises looking to expand beyond their home markets,” the panel said.
Singapore’s manufacturing industry makes up about a quarter of the economy and its dependence on electronics and pharmaceutical exports has made it vulnerable to fluctuations in global demand and business cycles. That pushed it into a deeper recession than many neighbors in last year’s global slump.
The government aims to keep its manufacturing industry an “integral” part of the economy even as it seeks new strategies to help it grow faster than other advanced countries, Trade Minister Lim Hng Kiang said in November.
“High value and complex manufacturing generates good jobs with diverse skill requirements, provide opportunities for constant upgrading and stimulated demand for sophisticated services,” the panel said, recommending that the industry continue to contribute as much as 25 percent of GDP. “We should continue the shift into complex manufacturing.”
The panel recommended fostering the growth of local companies. There were about 530 Singapore companies that had revenue of more than S$100 million as of 2007, and the target is to create 1,000 such enterprises by 2020, the panel said.
The government should help companies expand abroad by forming institutions such as an export-import bank and export credit agencies, the panel said.
The panel recommends that the government develop an “underground master plan” to create more space as there may be limits to how much land it can reclaim, it said.