This article first appeared in Forum, The Edge Malaysia Weekly on December 23, 2024 – December 29, 2024
Andy Gove, the long-serving CEO of Intel, wrote of how only the paranoid will survive. Such are the times we live in that his advice is probably a helpful starting point as we think about what Singapore will be like in coming years.
No one should underestimate the enormity of the challenges the city state will face in the years to come. Some of the fundamental prerequisites for Singapore’s well-being will be at risk — such as a peaceful world and continued globalisation. But neither should we be fearful. After all, Singapore has faced down many challenges over the past 60 years of independence. Much will hinge on how we use our still formidable strengths to protect ourselves from what will go wrong while leveraging some of the factors that remain supportive in our environment.
The external world will be dangerous for Singapore
In our previous column (The year ahead: Prepare for the worst, The Edge, Issue 1553), we explained our fears for the global environment in 2025 and beyond. If anything, things have got worse just in the short time since that was written. The key point is that, as the US and China, which play an outsized role in shaping world events, face a period of difficulties, there will be little capacity to contain the growing risks in geopolitics, trade, finance and the climate. What does all this mean for Singapore in particular?
First, there is going to be more instability in the world, compromising the peaceful world that Singapore needs for it to thrive.
The swift collapse of the Bashar al-Assad regime in Syria and possible Israeli and American action against Iran can only lead to more instability in a strategically important region, with many implications for Singapore and the world:
• There had been some hope that lower oil prices might be a bright spot in the world economy, given the expansion of oil supply relative to demand. But with a troubled Middle East providing the world with much of its oil, that hope might be dashed now.
• The US will now be further distracted by Middle East events with less bandwidth to deal with stress points in Asia, such as Taiwan and the Korean peninsula or for that matter in Europe. That might give North Korea, for instance, an opportunity to take advantage of the current turmoil in South Korean politics.
• It might also strengthen the arguments of those in the incoming Donald Trump administration who argue that the US should stop diverting resources to helping Ukraine. Then we will have to ask ourselves whether something that smacks of abandonment of Ukraine might embolden bad actors in other parts of the world into thinking that they could act against smaller neighbours with impunity. If the latter comes to pass, no small country like Singapore would feel safe.
Most importantly, the speed with which events turned in Syria is a reminder to us not to ignore simmering tensions and gradually worsening problems in some potential flash points.
• For example, something might give in Iran, where its unpopular religious regime has survived, like Assad in Syria, only through brutal repression. Like Syria, its economy is in shambles and its people increasingly prepared to risk their lives to protest against their rulers.
• Or, take Russia, where one has to wonder how long more it can withstand accelerating inflation, a potential fiscal crisis and mounting casualties from its war against Ukraine.
• Closer to home, the civil war in Myanmar has intensified, with the ruling military junta losing control of key border areas as well as some critical transport routes closer to the heartland of the country. The insurgents are probably too divided and lacking in external support to overthrow the junta, but the junta is on the backfoot and could well go into a death spiral through its own incompetence and misjudgements.
Second, President-elect Trump’s selection of relative moderates to key economic posts does not alter the grim outlook for world trade.
He has made it crystal clear that he will be employing tariffs not just against China but also against his closest neighbours, Canada and Mexico, as well as allies such as Europe. Even if he is only negotiating and does not go as far as he has threatened, the final outcome will be higher tariffs and some degree of retaliation from trading partners. Given that China and the European Union are going through a difficult economic transition, the last thing they need is a hit to economic growth from reduced trade and greater business uncertainty.
Moreover, other political leaders might be encouraged by America’s turn to protectionism to also pursue aggressive trade measures. Industrial lobbyists all over the world will use the excuse of Trump’s tariffs to press their policymakers to turn to protectionism as well.
How can Singapore deal with this more difficult world?
Despite the sombre global outlook, Singapore still have quite a number of supportive factors helping it.
First, its hinterland of Southeast Asia is likely to continue prospering.
The region’s strategic value means that the US is likely to avoid antagonising it through aggressive trade penalties. It will be seen as relatively safer than other regions. At the same time, the foreign investor-friendly region also possesses clusters of manufacturing excellence as a result of all the foreign investment that has flowed into the region and which stimulated the growth of efficient component manufacturers and other suppliers. That makes it highly attractive to producers who need to relocate production out of China. Chinese manufacturers themselves feel comfortable operating in the region, given the large Chinese diaspora and the region’s good relations with China. The investment promotion agencies in Southeast Asia are reporting a large increase in foreign investment commitments which will translate into factory construction and new manufacturing output in coming years.
As the trading, financial, transport and business hub for the region, Singapore will benefit from improved growth prospects in the region.
Second, a more collaborative relationship with Malaysia will generate considerable synergies.
Malaysia is a particularly important economic partner for Singapore because of the deep historic ties with it. Its economy is perking up as a result of greater political stability in recent years and its increasing popularity with foreign investors — massive electronics-related investments in the Penang-Kulim corridor and huge investments in data centres and other activities in southern Johor, bordering on Singapore.
The proposed Johor-Singapore Special Economic Zone (JS-SEZ) is likely to take firmer shape in January when the two prime ministers meet to formalise the arrangement. Given the strong complementarities between Johor and Singapore, the economic benefits for both countries will be very substantial in our view.
More importantly, the JS-SEZ could be just the first step in a broader strategy of helping Singapore and Malaysia overcome the challenges posed by protectionism. If the JS-SEZ can be shown to be successful, other parts of the region could be persuaded to join as well. After all, in the 1990s, the Singapore-Johor-Riau Growth Triangle produced bountiful economic results until the Asian financial crisis and the tumult that followed sidelined it.
Third, Singapore’s global hub will continue to expand.
Although Hong Kong is likely to remain as a formidable competitor to Singapore, its greater integration into China’s political and economic system has created a perception of risk among Western businesses. Singapore will continue to gain from more of such groups relocating their regional hubs to the city state. In addition, we expect Chinese companies, which still need to do business with the western world, establishing Singapore operations to help them do so. Singapore’s role as a “connector-economy” will stand it in good stead.
Singapore has done well in finding ways to refresh its standing as a global hub. Bold infrastructure projects in port and airport development are one example and regulatory innovations such as the introduction of the variable capital corporation show Singapore as a friendly but still well-regulated place for global corporations.
Fourth, Singapore can devise ways to contain the damage from a more protectionist world.
As far as the direct risk of protectionism from the US is concerned, Singapore is fortunate in running a trade deficit with the US and thus is not an obvious target for the deficit-hating new president. It also has a strong military and strategic relationship with the US which has won the country good friends in the US system, including within Congress and the defence establishment. Singapore has had differences with the US Treasury over accusations of currency manipulation but that is not likely to lead to tariffs against it.
It is the indirect effects of protectionism that Singapore would have to deal with. Aggressive tariffs against China and other major trading economies will depress world trade and hurt Singapore. Singapore needs to mitigate these effects as much as it can. One way is to keep trying to expand economic partnership arrangements with like-minded nations. It has taken the lead in drafting Digital Economic Partnership Agreements, for instance. Trade arrangements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is gaining traction with more nations seeking to join, including China and South Korea. Similarly, the Regional Comprehensive Economic Partnership Agreement can also be expanded and improved upon.
Where can we do better?
In short, while Singapore has much to be concerned about in the global environment, it is also blessed with some strengths and certain advantages that can help it face down those risks. Strong leadership has helped.
But it is also crucial that Singapore avoids complacency and keeps adapting and adjusting its policies and strategies. There are a number of areas to watch.
First, Singapore’s costs have risen sharply — the cost of living as well as the cost of doing business. The latter is particularly hard for small businesses. Sometimes, one gets the feeling that policymakers, while offering some support, seem to believe that a high cost structure is just inevitable and its downsides, particularly in terms of difficulties for small businesses, is simply something we have to live with. Of course, there are some reasons why a wealthier society will have higher costs than less prosperous places. But that should not absolve policymakers from rigorously studying where it is that costs have escalated unnecessarily. One area that is in dire need of a deep and independent study is the role played by government land pricing in driving up costs in Singapore.
Second, as we have seen time and time again, Singapore’s economy can go from boom to bust very quickly. We need good and reliable lead indicators to alert us to possible turning points. A system of gathering feedback from the ground and for that feedback to be assessed with an open mind is important — particularly in times like this when changes can come quickly and furiously. For example, it may be time to revisit the composite lead indicator which was developed several decades ago to see if it can be improved.
Third, given how vulnerable we are to external shocks, we need to ensure that our domestic fundamentals are as good as they can be. Areas of weakness need to be tackled expeditiously no matter how difficult they may be. It is commendable, for example, that there is a review of what to do about the moribund stock market, a real blemish on our global financial centre. But this problem had been around for a long time and it should not have taken so long to begin addressing it. It would be a pity if the review does not come up with persuasive recommendations to improve the functioning of the equities market in Singapore.
Conclusion
As its management of the Covid-19 pandemic has shown, Singapore has an impressive capacity to manage challenges. But big changes are brewing in geopolitics, in trade and in other areas, and some will be earth-shattering in nature and test even the most impressive of systems. In facing a world that is likely to be troubled, it is vital that we remain alert and able to adjust quickly and flexibly. If Singapore can do that, then this little red dot will still sail through the turbulence reasonably well.