SINGAPORE – It will be harder for Singapore to achieve economic growth in the coming years, as it comes up against internal constraints and a tougher external environment.

But there is strong basis for optimism that the Republic can continue to thrive, provided that it continues to restructure along three lines to drive productivity-driven growth, Deputy Prime Minister Heng Swee Keat said on Feb 27.

These lines are sustaining efforts to transform Singapore’s economy through shared ownership, building a strong innovation ecosystem and continuing to be a trusted partner for the world, DPM Heng said in Parliament.

He was speaking on the second day of the debate on the Budget delivered by Deputy Prime Minister Lawrence Wong on Feb 16, which DPM Heng described as a “confident path forward for Singapore, as our domestic and global environments change”.

Laying out the challenges ahead, DPM Heng noted that the world is currently facing a slow-growth, high-inflation environment.

Despite the great benefits brought by three decades of globalisation, the mood has shifted from collaboration to competition, partly driven by technological change that is reshaping jobs and competitiveness across countries and industries, he said.

“From globalisation anchored in economic competitive advantage, we are now seeing fragmentations based on political alignment,” he said. “This, together with the recent upsurge in geopolitical unrest, has brought new uncertainties.”

At home, the days of “catch up” growth are over as Singapore becomes a mature economy, while its resource constraints – be they labour, land or carbon – are becoming biting, added DPM Heng.

The country’s ageing population means local labour force growth is shrinking quickly to zero, which means Singapore has to double down on growing through productivity, which is hard.

“Even as we invest in strengthening productivity, such as growing depth in certain industries, it is impossible to match the scale and size of larger countries,” he said.

While the outlook appears pessimistic, DPM Heng said he is upbeat about the Republic’s prospects given its record of rallying together to find new ways forward.

He cited how tripartite efforts to transform 23 industry sectors went back to 2017, when the Future Economy Council formed and then embarked on Industry Transformation Maps (ITMs).

The ITMs saw government agencies collaborating with businesses and trade associations and chambers, while unions worked with companies to support workers in reskilling.

In creating these road maps, stakeholders across each industry built trust, identified synergies and shared resources and experiences.

“This shared ownership of transformation is critical... Government plans and programmes will remain important, but when enterprises and workers embrace transformation, they can be at the forefront of seizing opportunities,” said DPM Heng.

Singapore’s collaborative approach to transformation is unusual and enviable, and is how it ensures that the opportunities and benefits from transformation can be shared by all, he added.

DPM Heng said that while these efforts will take time to bear fruit, indicators so far are positive. The economy achieved real value-added growth of 2.8 per cent a year between 2016 and 2023, even amid the shocks of the Covid-19 pandemic, he noted.

A fuller report on the ITM efforts will be released in a few months’ time, he added.

Second, Singapore must build an innovation ecosystem that enables high-value, cutting-edge work to be conducted here.

This is as technologies such as artificial intelligence (AI) offer the prospect of overcoming resource constraints and unlocking new value, powering the Republic’s next bound of growth, said DPM Heng.

To achieve this, universities and research institutes here have to generate a body of basic scientific insights; companies and start-ups have to translate these insights into industry-applicable innovations and solutions; and the right training and support should be provided to enable workers to take on new jobs created by these opportunities, he said.

Supporting the research, innovation and enterprise ecosystem requires proactive shaping and patient investment, he noted.

To that end, the additional $3 billion injection into research and development announced at Budget 2024 is timely as Singapore seeks to deepen its capabilities in growth areas like AI, sustainability and advanced manufacturing, he said.

The Republic’s efforts in this area are going well; Singapore ranked top in Asia and took fifth place globally in the 2023 Global Innovation Index, said DPM Heng. Investment by companies on research and development has also grown significantly over the past decade, on a par with GDP growth, he added.

Singapore must now press on and continue to strengthen commercialisation and translational capabilities, to produce more “output” and capture value amid shortening innovation cycles and intensifying competition, he said. 

Third, Singapore must continue to foster greater connection and collaboration at all levels, and strengthen its standing as a trusted node for technology, innovation and enterprise.

Doing so has meant that even as global cooperation slows, businesses and countries know that Singapore continues to be a constructive and neutral location for business, innovation and talent, noted DPM Heng.

“This is how the Economic Development Board has over the past two years managed to secure investment commitments which are above its medium-to-long-term goals,” he said.

The 2023 commitments are expected to create 20,000 jobs and contribute $26.7 billion in value-add a year.

Asked by Workers’ Party MP Gerald Giam (Aljunied GRC) whether training has limits, given that only three in 10 Singaporeans have used their SkillsFuture credits, DPM Heng said training is only one aspect of raising productivity.

There has to be collective effort from managers and owners of businesses to take training seriously, and not just pursue training for its own sake, but translate it into better job performance, he added.

Ms Denise Phua (Jalan Besar GRC) joined in to add that the SkillsFuture take-up rate is not the only indicator of learning, as there are many free courses available, including from institutes of higher learning.

DPM Heng said that by maintaining the momentum of transformation efforts, Singaporeans can remain well placed to partner others and seize new opportunities with confidence.

“The world may be more difficult, and our domestic constraints may be more challenging,” he said.

“But I have laid out the strong basis for my optimism, that a small and open economy like Singapore can continue to thrive and secure our next bound of growth.”

DPM Wong is slated to round up the debate on the Budget on Feb 28. Following that, the debates on each ministry’s budget will commence.