Strong city-state continues to engage with the world

Strong city-state continues to engage with the world

Without having to confront the more "competitive politics" feared before last Friday's election, Singapore will still be able to enjoy its status quo in the regional arena, according to analysts.

Kishore Mahbubani, dean of the Lee Kuan Yew School of Public Policy, told Asia Focus that while a little more opposition in Singapore politics might be a worry to some officials, it was normal for other countries to have active citizens.

As it turned out, the ruling People's Action Party confounded most pundits by dramatically increasing its popular vote share and even added one more seat to its already commanding majority in Friday's polls.

"The past election week has been a significant period in Singapore history. It might seem that the whole country is focusing on domestic political issues, but I'm optimistic that Singapore continues to remain strong and stable, politically and economically," said Mr Mahbubani.

He foresees no impact from the election results on foreign policy or the way Singapore interacts with the world.

"This is a country that is consistent and predictable. Very few countries can be this confident. A strong government has shown that it can handle domestic challenges and play an active role in regional issues," said the senior scholar.

The fact that the election was held before the expiry of the government's term and before the official creation of the Asean Economic Community means the PAP administration has a fresh five-year mandate to implement local and regional policies, said Mr Mahbubani.

"The prime minister is a liberated man after the election. He has perhaps the greatest domestic support [in the region] compared with leaders in Malaysia, Thailand and Indonesia," he said.

Ong Keng Yong, executive deputy chairman of the S Rajaratnam School of International Studies, said foreign policy has never been an issue in elections in Singapore. However, the timing of this year's vote ahead of the AEC, which will allow freer movement of skilled workers, does have people wondering about the hot-button issue of foreign workers and professionals in Singapore.

"This is a sensitive economic policy issue that has been hotly debated and the concerns of those who sensed the impact of the foreign labour force have been well-registered," said Mr Ong, who is also a former Asean secretary general.

The government, he said, has conceded that it made some mistakes "but I think any corrective measures need to take into account the comprehensive economic policies that Singapore is required to get both prongs -- a talented professional and labour force."

Manu Bhaskaran, director of Centennial Group International, told Asia Focus that it would be wrong to say Singaporeans have turned inward or are anti-immigration just because a small minority said nasty things about foreign workers during the election campaign.

"Rather, the feeling has been against government policy on immigration which has brought in too many foreigners, too quickly, so naturally some people are unhappy about that," said Mr Bhaskaran.

Singapore remains highly committed to Asean integration and there was no reason to change that at all, he added. "Of course, the economy is slowing and small companies, in particular, are facing tough times. However, the economy -- in terms of growth rates -- has not been quite an issue in this election."

Santitarn Sathirathai, director for non-Japan Asia economics with Credit-Suisse, said the political landscape in Asean countries had been shaken up to some extent, and those that had long dominated the scenes have been tested. The Malaysian governing coalition is facing serious challenges, and in Indonesia the army-linked elite suffered major setbacks after the victory of Joko Widodo in last year's presidential election.

But the strong mandate given to the PAP, he said, would allow the next government to maintain the balance of growth and inclusion.

"The government might attribute its [election] success to the right set of policies including greater subsidies to lower-income people, the older generation and housing," said the Thai economist.

So from now on there is no need to reduce "this right dose of medicine for the people", he added.

But in practice, he said, Singapore is also taking steps to shift from a society and workforce long accustomed to being streamlined and orderly to become more creative and innovative in order to perform better in a globally interactive economic setting.

The strong mandate will also help the Singapore government deal with an increasing number of economic challenges at a time when the global and regional outlook is weak.

DBS Bank and the global ratings agency Moody's Investors Service have lowered their economic growth forecasts this year to below 2%, reflecting the recent stock turbulence and China's economic slowdown.

Curbs on the employment of foreigners, in response to the growing dissatisfaction of Singaporeans, have already taken a toll -- the economy contracted by 4.6% in quarter-on-quarter seasonally adjusted annualised terms in the second quarter, Xinhua reported.

According to BMI Research, the more labour-intensive producers in particular are struggling under the yoke of tighter hiring criteria and higher levies for foreign workers, which in many cases have forced these producers to decide between throttling production, or cutting into their profit margins by hiking wages.

As for the services sector, the hospitality industry has also been hard-hit by more restrictive policies of hiring foreigners.

BMI expects this situation is unlikely to resolve itself in the near future. Instead, Singapore's economic restructuring initiatives will take many years to work themselves out, as the country has become quite heavily dependent on the consistent supply of foreign workers across all skill levels.

Capital Economics, an independent macroeconomic research firm, highlighted the policy dilemma with regard to the labour crunch. It noted that the resident labour force participation rate rose from 66.1% in mid-2011 to 67% in mid-2014.

It said this may be the desirable outcome of government effort to boost the local labour force participation rate, but there is a limit to how far it can go. The average labour force participation rate for high-income countries is much lower than Singapore's, at 61%, it added.

A stricter immigration policy will likely continue after the election and lead to higher wages due to labour shortages, and the government also hopes to lift the wages of low-income Singaporean workers. The risk, said Capital Economics, was that gains in nominal wages could be eroded if employers decide to pass on the increase in wage costs in the form of higher inflation.

This makes efforts to improve productivity growth essential to the success of Singapore's shifting growth model.

"If firms can raise the productivity of their workers, there will be less need to pass higher labour costs on to consumers," the agency said. "Likewise, productivity gains would help exporters retain competitiveness in the face of rising wages. The government is more than aware of this, and has been stepping up policies to boost productivity for several years now."

But there is limited room for further productivity gains in Singapore at its current stage of development. Average labour productivity growth in advanced economies was just 1.3% in the last two decades. Growth of around 1.5% over the coming decade is about the best Singapore can hope for, said Capital Economics.

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