Singapore Government Press Release
Media Division, Ministry of Information and The Arts,
MITA Building, 140 Hill Street, 2^nd Storey, Singapore 179369
Tel: 837-9666

Confederation Members

Distinguished Guests

Ladies and Gentlemen,

The global economy is slowing down. Although the US economy registered first quarter growth of 2%, other indicators suggest that the downturn may continue till the end of the year despite interest rate cuts by the Fed. The unemployment numbers are rising. President George Bush's tax cuts will help the recovery when it takes place hopefully by next year.

The Japanese economy is in crisis. Widespread frustration has led to the surprise election of Junichiro Koizumi by the LDP as the new Prime Minister. He is determined to carry out fundamental reforms including allowing weak Japanese companies to go bust. In the short term, this means pain but, in the longer term, restructuring will strengthen the Japanese economy and restore sustainable growth.

Although the European economy is still growing, it is also slowing down to an estimated 2.8% this year. The European Central Bank has decided that it is not yet necessary to reduce European interest rates. But if the slowdown worsens, the Bank will be forced to loosen money supply.

Reflecting the global economy, the electronics sector is in a sharp cyclical downturn. Electronics demand will turn around when excess inventories are cleared and the US economy recovers. Two recent major investments in Singapore express this confidence: the US$3.6b wafer fab investment by UMC and Infineon, and the US$1b Thin Film Transistor Liquid Crystal Display investment by Toshiba and Matsushita.

We must expect the coming months in Singapore to be difficult. We were able to rebound sharply from the last Asian financial crisis and achieve 9.9% growth last year because the US economy was booming and kept up global demand. This current slowdown is due to the cyclical downturn of the US economy. The pace of our recovery will be set by the US recovery. It is not realistic to hope for a V-shape recovery this time round. We should therefore take careful stock of the global situation, prepare for a longer haul and reposition ourselves.

The Government is monitoring the situation closely and, if necessary, we will implement measures to mitigate the effects of the slowdown. Some cost-cutting measures from the last financial crisis, like JTC rental rebates, are still in place. This year�s Budget contained several new measures to help businesses including lower corporate tax rates especially for SMEs, a property tax cut of 2 percentage points and various measures to help HDB shops and retailers. Given the weak economic conditions, the Government is mindful not to add to the cost burden of doing business. We must also weigh carefully the timing for the full restoration of the CPF rate.

At the same time, companies should continue to reorganize and upgrade their operations to reduce cost and improve efficiency. Employers should build up a monthly variable component in the wage structure for greater flexibility. To keep up with changes in the world, all of us must internalize the habit of updating ourselves and our skill levels.

Although the dot.com bubble has burst, the New Economy is real. The ICT revolution will continue to change every aspect of our lives. No country can insulate itself from its effects. Just see how China is being changed by the mobile telephone and the Internet. Recent nationalistic reaction in both China and the US over the Hainan Spyplane Incident has encouraged computer geeks from both sides to hack into each other's systems. Any major conflict between China and the US will be accompanied by electronic warfare in cyberspace. In China, the meaning of Communism will be changed beyond recognition by the New Economy.

We must therefore persist in our efforts to restructure the Singapore economy and make every sector internationally competitive. There is no safe harbour for our SMEs. Even the corner sundry shop will be affected. The more aware our people are of the effects of globalization, the better prepared we will be.

With the end of the Cold War, large parts of the Third World, previously closed, are being opened up like China, India and Brazil. This presents both threats and opportunities. Take the electronic industry which is constantly reconfiguring itself to take advantage of lower costs and improved technology. In the last few years, we have been losing lower-end jobs to China, Malaysia, Mexico and elsewhere because of their lower costs. But we also gain because of our higher skills and efficiency. Recently, Seagate decided to close down its disk drive factory in Penang. The labour intensive operations will go to China but the higher value-added bits will be re-concentrated in Singapore where EDB has been helping Seagate to build the 'factory of the future'.

We cannot compete simply on labour costs. Instead, we must keep climbing up the value ladder. We must maintain our competitiveness in industries which require a high level of system efficiency. For example, despite high land costs, Jurong Island has become one of the world's major petrochemical hubs.

Our investment in R&D is also paying dividends. Because of the availability of scientists and engineers, and the general high standards, we have become a major centre for the pharmaceutical industry. We are now making major long-term investments in the biomedical sciences for which there are very high barriers to entry.

Last month, Singaporeans were pleasantly surprised by the successful separation of the Siamese twins in Singapore General Hospital. The doctors and nurses richly deserved the high praise they received all over the world. But they could only do their good work because of the quality of the healthcare system in Singapore which is a complex system built up over many decades.

Thus, while we invest in individuals, we must also invest in the upgrading of the systems we operate in Singapore for scientific development, manufacturing, education, finance, transportation, logistics and so on. To succeed, organizations like SGH, PSA and SIA have to compete worldwide. Benchmarking to international standards must become our way of life in Singapore. And this applies to both the private and public sectors.

For example, our shipyards compete for jobs far away. A few weeks ago, I opened two shipyards in Brazil belonging to Keppel FELS and Jurong Shipyard. Both are world class and they compete fiercely with each other. They were selected to convert two supertankers into floating platforms for the drilling, processing and storage of undersea oil. The conversion work is being done by Brazilian workers but the key supervisors are Singaporeans. I was surprised to find out what a good reputation we have in Brazil and it is not only in shipbuilding. Some years ago, a mayor of Sao Paulo was so impressed by our public housing programme here, he named a major housing project he started there after Singapore.

However, the globalization of Singapore companies also means that we are helping workers in other countries to compete with workers in Singapore. This cannot be helped. If Keppel FELS and Jurong Shipyard did not go to Brazil, they would not have won the contracts because of the requirement for local content. Although the Brazilian economy is liberalizing, many sectors are still relatively closed which is partly why the US is pushing for the Free Trade Area of the Americas.

The general trend in the world is towards tariff reduction and global sourcing. This means that, in everything we do, we must be prepared to compete worldwide. Because we have no domestic market worth protecting, it is in our interest to negotiate free trade agreements with as many countries as possible so that we can sell our goods and services to them. This principle has always served us well. PSA and SIA are internationally competitive because there is no cabotage on our small island to shelter them.

Our national interest therefore lies in free or freer trade. For this reason, we have been consistent supporters of the WTO and the launch of a New Round of trade liberalization. However, because agriculture is a major political issue in many countries, it will not be easy to conclude a New Round even assuming we can get it launched this year or next year. Also, the multilateral trading system requires a global consensus which means that we can only progress as fast as the slowest countries.

For this reason, in addition to our support of the New Round, we have also been working hard to negotiate bilateral and regional trade agreements which go beyond the WTO. In all our negotiations, with Japan, US, Mexico, Australia and the European Free Trade Area, we are committed to trade deals which are not only WTO-consistent but also WTO-plus.

The less friction there is in the trade links between Singapore and other countries, the more we will be able to build Singapore up as a regional and international hub for business and finance. MNCs are more likely to locate their command and control facilities here because they know that this is our strategic commitment. And we can only be a knowledge economy if we succeed in attracting large numbers of international decision makers to base themselves here. Like attracts like. We need a critical mass of them to succeed.

This is a big challenge for us because we are now competing in the international league. We can only be a regional centre if we are also an international centre. This is why we have liberalized our financial and ICT sectors in a determined way. The factors for success go beyond cost, infrastructure and law and order. To attract entrepreneurs, decision-makers and scientists, we must provide an entire enterprise ecosystem which is conducive to their creative work. In this new game, the arts become very important. So too the availability of other amenities like fine dining, high-quality entertainment and sports facilities. What matters above all is a city culture that is charming and cosmopolitan.

We need to do many things to succeed. This evening, I would like to highlight three for your particular consideration.

First, we must think increasingly of an extended region which goes beyond South-East Asia. Our links to the ASEAN countries are a given because this is our backyard. Thus, what happens in Indonesia and Malaysia will affect us profoundly. But we must also include China, India and Australia in our sense of the region. The EDB International Advisory Panel recommended that our extended region should be marked out by a 7-hour flying radius to include North-East Asia, South Asia and Australasia. In fact, within this circle lives half the world's population. The middle classes, already numbering in the tens of millions outside Japan, will grow into the hundreds of millions. The opportunities will only be limited by our courage and resources. Some of our businessmen already operate on the basis of a larger region. Our doctors are seeing more and more patients from countries farther away like Vietnam and Bangladesh. Our hoteliers already enjoy a good reputation all over Asia.

Second, we must market Singapore as a home away from home for talented individuals from the US, Japan and Europe. For many of them, we are their favourite city in Asia. But we must do more. One idea MTI and PSB are working on is making Singapore not only a hub for MNC headquarters, but also a hub for SMEs. We are prepared to offer some facilities to SMEs from other countries provided our own SMEs enjoy reciprocal privileges when they go to their countries. This is like the arrangements which some golf clubs go into for reciprocal playing rights. JTC is converting the old McDermott House located near the International Business Park in Jurong for this purpose. The presence of SMEs from all over the world in Singapore will create new opportunities for our own SMEs in the region.

The third idea I would like to propose to you this evening is the importance of group strength as opposed to individual strength. Individual for individual, it is difficult for us to match bigger countries. But, collectively, we can be quite formidable. As a financial system or an educational system or a healthcare system, we can be more than a match in many areas we compete in. Our system efficiency has many aspects to it. It includes our political unity, good public administration, absence of corruption and our tradition of tripartite cooperation. It also means a habit of working with non-Singaporeans, partnering with them here and elsewhere, and seeking their counsel in various areas. More and more of our public committees now include non-Singaporean members. We must also network better with Singaporeans and others overseas.

One area we must improve on is the organization of the business community in Singapore. At the present moment, we have an array of business chambers and associations for different purposes mostly organized along ethnic lines and by industry and national groups. But we lack a collective voice. We are also weak in data collection and research facilities. This is a deficiency we must rectify to improve our system efficiency. For trade negotiations, this weakness may cause us to leave things on the table inadvertently.

That was why, in 1998, Prime Minister Goh Chok Tong called for the establishment of an apex business federation. In response, SFCCI proposed the formation of a Singapore Business Federation or SBF, funded by compulsory contribution from larger companies. I will table a bill in Parliament to facilitate the establishment of such a Federation. A draft bill is now being prepared and will be circulated for comment and feedback from the business community including members of the international business community in Singapore. Based on discussions of the SBF Pro Tem Committee under the chairmanship of Mr Stephen Lee, there is now broad consensus on the key principles.

Let me highlight a few. First, the Government's involvement in the operation of the SBF should be minimal. The new law will require companies with paid-up capital above half a million dollars to be members of the SBF. SBF will decide on the fees to be collected annually subject to a cap of, say, $1500. Smaller companies will of course pay less.

Second, to protect the properties of the SBF and to ensure that those nominated for its Council are not unfit, a Board of Trustees will be formed. Beyond such protection, the Trustees will not interfere in the working of the SBF.

Third, we must include in the Council members of the international business community in Singapore as they play a very important role in our economy. But their representation should be limited to about one-quarter of the total seats.

Fourth, we should not reserve seats in perpetuity for particular chambers or associations except for the three ethnic chambers. Nothing is static. As the nature of our economy changes, it is natural that some chambers or associations should become more important while others become less so. The Council should draw up rules for representation which are fair and transparent. Because the three ethnic chambers reflect our multi-racial society, there is a general feeling that they should always be represented.

Fifth, we should allow membership of the SBF either directly or indirectly through a chamber or association. For example, business associations could adopt the practice of paying membership fees to SBF on behalf of their members. Companies who choose to join such business associations would also become members of SBF.

Sixth, once the SBF is formed, it should link up the various business Singapore clubs that have been established in various parts of the world. In this way, we create an international network for our businessmen all over the world.

These are some of the general principles which have been agreed to but they are not yet cast in stone. I hope that all of you will look at the draft bill when it is ready and give your comments either to MTI or to the SBF Pro Tem Committee.

There were some concerns that the SBF may supplant existing chambers and associations and reduce their membership. I do not believe this will happen. So long as the chambers and associations serve their members and conduct programmes which are useful, they will continue to play important roles. In countries with compulsory membership like France, Germany and Brazil, the apex chambers work closely with the other chambers which continue to flourish alongside. In the same way, the SBF will work closely with existing chambers and associations to serve our business community.

A strong and properly funded business federation will strengthen our tripartite structure and facilitate better coordination between public agencies and the business community. In Singapore, we have nothing but our hands and our intelligence. Unlike most countries, we have to import everything we consume including the water we drink. But this lack of natural resources has made us strong and forced us to raise our children in a certain way.

Every Singaporean is important and we must train him to the limit of his potential. Beyond the individual, we must keep improving our system efficiency so that every Singaporean earns a premium beyond the international market rate. We need to broaden our horizon and think in terms of a larger region that includes North-East Asia, South Asia and Australasia. Because our numbers will always be limited, we have to evolve a culture that enables us to work easily with foreigners. To compete in the new global economy, we must constantly think of new ways to multiply our strengths including establishing free trade links to all parts of the world.

If we do all this, not only will we survive the global downturn, we will be able to turn crisis into opportunity. The last financial crisis hit us hard but our society and our economy stood rock solid while other countries in the region wobbled. As a result, our reputation soared and we are now sought after by others as a strong and reliable partner. The current economic downturn will also challenge us and we must be prepared to do everything that is necessary to weather the storm if or when it comes.

On the occasion of the sixty-ninth anniversary of SCI, I would like to take this opportunity to thank you for your good work and your contribution to the Singapore economy. SCI has contributed much to the formation of the SBF. May you continue to enjoy success in everything you do.