Singapore Government Media Release
Media Division, Ministry of Information and The Arts,
140 Hill Street #02-02 MITA Building, Singapore 179369.
Tel: 837 9666

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Singapore lives by trade. Last year�s total trade reached $470 billion. This was almost 3 times last year�s estimated GDP of about $160 billion.

Singapore has always been reliant on trade since Raffles founded it as a trading post for the East India Company in 1819. However, the patterns of trade change all the time. There was a period when Malayan rubber and tin were a mainstay of our economy. Today, the electronics trade is dominant. Last year, Malaysia overtook the United States to become once again our No. 1 trading partner. This is principally because of the movement of intermediate products for the electronics industry. In the same way, Mexico�s electronics exports to Singapore is greater than its electronics exports to the rest of East Asia combined. Global manufacturing therefore finds its reflection in global trade.

The mode of transportation has also changed from the days of rubber and tin. Although 99% of global trade by tonnage is carried on board ships, 50% of global trade by value is carried by aeroplanes today. With the growth of electronic commerce, more and more of global trade will be weightless.

We can therefore expect the patterns of world trade to continue changing in the coming years. With the end of the Cold War, the forces of globalisation unleashed by technology enable large numbers of people in the Third World to join the global trading system for the first time.

Because we are a trading nation, we have to adjust ourselves constantly to these changing patterns and find new ways to benefit from them. To put it starkly, the permanent condition of Singapore�s economy is change. We are like a little ferry boat that crosses a river between two fixed points. What we have is a sturdy boat with a good rudder and a strong sail connected by a sliding ring to a rope stretched across the river. For as long as the wind blows and the water flows, we are able to move back and forth across the river without the need for an engine. In fact, the more the wind and the water move, the more energy we are able to tap from the environment to power our ferry boat.

Our ability to draw energy from global change is dependent on three factors. First, there should be as little friction as possible to our moving backwards and forwards. Second, we must position our rudder and sail optimally to the direction of the wind and the current. And third, we need strong anchor points for the rope at the two banks of the river. If these three conditions are met, we are in business. If any is missing, we are in trouble. Let me now talk about them in greater detail.

We must reduce friction to trade both domestically and internationally. Domestically, we have been systemically deregulating our services sector. Unlike our manufacturing, which is globally competitive, some parts of our services sector still lag behind. In recent years, we have taken big steps to liberalise financial services and infocomms. We are now in the process of exposing our power sector to full competition. We are also opening up professional services, for example, in the legal and medical fields. All this will improve our total factor productivity and make our products and services more competitive in the world. We still have much to do to free up our domestic economy and facilitate the free movement of capital and talent.

It is particularly important that we review our rules and regulations which may inadvertently make restructuring more difficult. Take, for example, our efforts in the life sciences. To achieve a breakthrough in this new field, we must remove some of the barriers which traditionally separate manufacturing from research, and research from healthcare service provision. Scientists, doctors, engineers, lawyers and bankers will all have to work together for the life sciences to flourish in Singapore. The quicker we can break down old silo mentalities, the better. All countries face this problem. Those which are able to reorganise themselves to move quickly will gain first-mover advantages.

Another example is the development of the Buona Vista Science Park into a 21^st century habitat. Our vision is to make it an integrated work-live-play environment for the New Economy. To achieve this, many regulations will have to be changed. We must get our planning, regulatory and implementing agencies to work together including the universities, research institutes, EDB, NSTB, JTC, IDA, LTA, URA, HDB, Finance Ministry, Education Ministry, Environment Ministry and even the Fire Department. Many of the rules perfected for the Old Economy have become obstacles to the development of the New Economy.

We must also reduce the external friction to trade. Our first circle of interest is the region around us. Today, trade with ASEAN countries makes up 25% of our total trade. For the ASEAN Free Trade Area, tariffs on all manufactured goods, except for motor vehicles and components, have been reduced to between 0-5%. The remaining tariffs will be eliminated within the next few years. We must now move on to remove non-tariff barriers to trade and open up the services sector. Intra-East Asian trade is also growing rapidly. In 1980, intra-East Asian trade was one-third of total East Asian trade. In 1990, it was over 40%. Last year, it grew to more than half. The more we are able to facilitate Singapore�s trade with other countries in the region, the better it is for us. This is the reason why we are very strong supporters, not only of the ASEAN Free Trade Area, but also of ASEAN�s economic integration with the economies of Japan, China and Korea in the North and with the economies of Australia and New Zealand in the South.

Our recent FTA initiatives will help us to reduce external trade frictions. We now have a free trade agreement with New Zealand. We have started or are about to start negotiations with Japan, Mexico, the United States, Australia and Canada. We would also like to establish free trade with Europe. EFTA � which is the FTA for Switzerland, Norway, Liechtenstein and Iceland - has already indicated publicly its interest to negotiate a free trade agreement with Singapore. I hope we will be able to interest the European Union as well.

To get the most benefit out of these free trade agreements, we must improve coordination within our corporate sector. Although we have always had business chambers, manufacturing associations and trade associations, they do not work closely together and lack research facilities. I will soon be moving a bill in Parliament to recognise the Singapore Business Federation as the apex business federation in Singapore and empower it to require all companies operating in Singapore with paid-up capital above $� million to be members of the federation. A strong SBF will help MTI in international trade negotiations. It will also strengthen the representation of business in national councils like the NWC. We need the help of companies and business associations to make the SBF a success.

While reducing internal and external friction is very important, we must also position ourselves skilfully for the future. This can only be done in a broad way at the national level. It is for companies and individuals themselves to analyse the specific threats and opportunities and respond to them accordingly. We must keep up with technological changes in infocomms, the life sciences, robotics and nanotechnology, among others. Without exception, every industry sector will be transformed by these new technologies sooner or later.

For Singapore as a whole, we should also position ourselves for the rapid growth of the Chinese and Indian economies. Together, they account for about 40% of the world�s population. With the end of the Cold War, hundreds of millions of Chinese and Indians are eager to participate in the global marketplace. While there will be competitive challenges, the growth of the Chinese and Indian markets will open up all kinds of new opportunities for us.

China has overcome the recent Asian economic crisis very well without devaluing the renminbi. It has been able to maintain a growth rate of 7-8% by stimulating the domestic market. Although state-owned enterprises remain a serious problem, the worst is probably over. In the last 10 years, China�s infrastructural development has been dramatic. The push to open up the western provinces will create more balanced growth in China.

China�s coming entry into the WTO will lock it onto this path of reform and opening up. With clearer rules and better dispute settlement mechanisms, more investments will flow into China. Since 1997, China has overtaken Malaysia as our foremost investment destination in cumulative terms. Thus, although many Singapore businessmen complain about the difficulties of doing business in China, where they put their money is where they judge future profit opportunities to be. China�s foreign trade has grown by leaps and bounds. In 1978, when Deng Xiaopeng embarked on the policy of opening up, it was a mere US$21 billion. Ten years later, just before the June 4 incident, it rose to US$103 billion. Last year it exceeded US$450 billion.

India has also been making steady progress. Unlike China, which had gone through tumultuous upheavals and therefore started on a relatively clean slate, the developments in India have been slower. But although the reform process in India has been tortuous, it is generally in a positive direction. It used to be that for India, a modest Hindu growth rate of 4-5% was considered good. After Narasimha Rao�s liberalisation in 1991, growth rates of 6-7% were achieved. Now many Indians believe that the growth rate should be targeted at 8-9% to make �a dent on poverty�. In other words, Indians now aspire to East Asian growth rates, and this aspiration will in turn force the pace of liberalisation in the Indian economy.

In India, it is the New Economy which is dragging the Old Economy along. The software industry is growing at over 50% a year. Last year, India�s exports of software amounted to US$4 billion compared to US$38 billion in total Indian exports. India�s export of software is expected to grow to US$50 billion in 2008. Other sectors are also opening up, for example, telecommunications. In response to this, Singapore Telecoms invested US$1 billion in India last year. Partly to face the competitive challenge of China, India is also giving much more emphasis to infrastructural development. The World Bank and the Asian Development Bank are helping India to build a quadrilateral of highways linking New Delhi, Mumbai, Chennai and Calcutta. In the next 8 years, 12,000 km of highways will be built.

As a result of rapid economic development in China and India, the middle classes are growing rapidly. They will number in the hundreds of millions. Massive urbanisation is increasing the demand for goods and services of all kinds from upmarket condominiums to broadband Internet services. We must position ourselves for these new markets. If we do not stay ahead, we will be left behind. There is no standing still.

Singapore is lucky to be well-situated between these two large growth areas. With both China and India, we enjoy good cultural and political links. The growing importance of the Chinese and Indian economies will change the patterns of trade in the world. Our sail must be trimmed accordingly.

However, political and economic developments are never linear. There are always discontinuities and history is full of surprises. We must always be prepared for sudden changes in weather conditions and stay flexible. It may seem paradoxical but flexibility requires us to have well-anchored positions. The anchor points which hold our rope at its two ends must not wobble. The most important anchor points for Singapore are political stability and good government. Many countries flounder in the face of economic and technological changes in the world because of political instability. Just looking at the countries around Singapore tell us how difficult it is to maintain social cohesion in a period of rapid change. Our ability to stay united and focused in Singapore is a great strength.

The political stability we enjoy in Singapore is not an accident but the result of painstaking effort. The key is the absence of corruption in our political culture. Policies are formulated to benefit Singapore as a whole and not particular interest groups which finance political parties. Because of this, we have a government which is people-centred. The best way to help Singaporeans is to promote the growth of the Singapore economy which means making sure that we stay competitive in the world. We invest heavily in education and worker training and retraining because that is the best way to keep our workforce internationally competitive. Recently, I met a visiting minister from an Asian country. He lamented that in his own country, the Education portfolio was the least sought after because there was little to be gained from it politically. He was therefore not optimistic that the educational infrastructure in his country could be improved. Political corruption is the No. 1 issue in many Asian countries today.

To achieve social cohesion, we must also make sure that those who are unable to make it are not left behind but are helped along. In Singapore, we are more socialist in what we do than in what we say. But, unlike the old socialism which disincentivised effort, our socialism is to help people help themselves. Without the heavy public subsidy for housing, health and education in Singapore, we would not have been able to enjoy the social cohesion and the political stability which we take for granted. In fact, we should never take them for granted because, with globalisation, new social divisions will appear in our society, some along racial lines. The winds of change will create new stresses and strains in our social structure. We must be mindful of them. Otherwise, our anchor points will start to shake.

Although last year has been a very good year for Singapore with an economic growth rate of 10.1%, this year will be more difficult. We expect the growth rate this year to slow down to 5-7%. If the US economy makes a hard landing, life will be harder. With the globalisation of markets and very short inventory cycles, economic forecasting is often not reliable. We cannot be sure what the weather will be like in the coming months and the coming years. This takes me back to our little ferry boat. So long as we reduce internal and external friction, position ourselves flexibly, and strengthen our anchor points, we will not only be able to survive, we will be able to harness the forces of change and use them to push the Singapore economy forward.

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