Btw, he’s being modest in calling his Facebook post “My Comments on the CFE report”: it’s a very good analysis of the Report of the Committee on the Future Economy (CFE).
My Comments on the CFE report.
A. Executive summary
On a general note, while the report covers a few important areas, I do see quite a number of initiatives that have been suggested before, from the time we started T21, to the ERC and the ESC. The key is going to be in implementing some of these as in the past we did not achieve the desired results. The key is going to be the details on how the government plans to implement.
I do feel that there are no major new radical ideas that can greatly contribute to the transformation of the economy which we greatly need. In the past, we saw new ideas like – making the finance sector as a core sector of the economy, developing the Life Science industry, implementing the knowledge economy. I was hoping for some fresh and significant ideas that can show us the light a little better. But we should perhaps wait for implementation before brushing off the recommendations made because if they are done well we could achieve the outcome we failed to achieve in the past.
It seems that the government remains in a state of denial about the worrying state of the economy. There seems to be a mismatch between what many companies, SMEs, business owners and PMETs are seeing on the ground versus what the government is telling us – that things are not bad, that many jobs will be easily created. I do believe that Singapore’s economy needs to be structurally corrected and government policies need to be changed significantly in certain areas for us to grow a long term sustainable economy.
For example, although there is some admission that we need to develop more locally grown companies, we need this to be backed by changes in the way the government supports the various sectors of the economy. I was hoping to see greater clarity in this shift of strategy in the CFE. If we don’t make a clear change on how we want the economy to grow in the future, we will never create the local global companies that are very much needed to fuel the economic growth of the future. We cannot keep relying on an old formula that we put in place in the 1960s.
I do feel that the CFE has blamed the current state of affairs solely on the global slowdown which is not a complete picture of our economic woes. We should have also gone deeper into what is wrong locally and addressed those issues as we do need a restructuring in some areas like cost competitiveness, government agencies’ support and the financing landscape that has become very tough for companies.
Below, I am making some more detailed comments for some of the strategies and just minor comment in some areas where I don’t have a good feel of things.
1. The report has given a broad-brush view of the government’s thinking on the strategies they plan to adopt in the coming years. My initial reaction is that many of the ideas spelt out were expansion of many initiatives that the government had already been working on for many years. For example, since 1999, we first started looking catalysing the VC industry through the T21 programme which has limited success and we are seeing the same recommendation again. I hope in implementation, the government will study the issues with past programme so that we don’t make the same mistakes.
While the CFE pointed to the changing global landscape, I would have thought a little introspection was also needed to study what has changed in Singapore. A few things have changed drastically;
a. Cost structure in Singapore has changed, making us uncompetitive. Land cost, rentals, REITs are all issues;
b. Financing environment has shifted, making credit more difficult to come by;
c. MNCs are shifting out faster than before because we have become less competitive and also because other cities can offer better terms and a lower cost structure with easy access to manpower. Along with the flight of MNCs, our SMEs will have to either leave Singapore to follow the MNCs or shut down.
d. Manufacturing is very important and we should keep it at least 20% of the economy, but we don’t have enough homegrown companies with deep manufacturing capabilities. Economic strategies of the past focused on prioritizing new areas of technologies or capabilities instead of deepening the skills and strengths we already developed in the past. For example, we have lost the disk drive industry, while the semiconductor industry has a few big MNCs players but we have lost most of the local big players because we lost technological competitiveness and did not invest enough in R&D. So, every 15 to 20 years a new focus on a new industry cluster instead of retaining the core capabilities we already developed over the years.
I therefore feel the CFE missed the opportunity to study what weaknesses Singapore has developed and how to overcome these. The CFE could have recommended some near-term plans to resolve some key current issues hindering our ability to restructure the economy. Because without resolving the issues the longer-term goals may be more difficult to achieve.
My bigger worry is that we will see huge structural problems that will take a long time to resolve if we don’t change the economic growth model of the country – rebalancing the contribution of FDI and MNCs vs local companies.
C. Specific comment on some of the sections;
1. Deepen and diversify our international connections
This is important and is something Singapore has focused on since the beginning, 50 years ago. It remains important as we are a small market. I would like to see how local companies, especially SMEs can benefit from these. I feel many of the FTAs benefitted larger companies and not many small companies benefitted. So, I hope in implementation we will focus on helping more start-up and SMEs benefit from this connectivity.
The government needs to also be more aggressive to tap further away emerging markets. The last major frontier is Africa. Most developed economies are already playing a key role in Africa while Singapore has not even seriously started with serious support structures for companies that already ventured there. Most of the companies who are in Africa have done it on their own with negligible direct support from the government.
autonomy and flexibility to manage their GIAs. We should allow different models to develop and not imposed a central government driven model.
2. Acquire and utilise deep skills
This will be very important especially if we want to anchor the IT and manufacturing sectors in Singapore. The compensation system needs to favour people with deep skills as much as those with general management. For this to succeed, society and government need to change their mindset.
I think the issue with PMETs who lose their jobs and go for reskilling is that they go through a training programme without knowing if they will get a job at the end of the training. To encourage more people to upgrade themselves, the government should start the reverse way – match PMETs to jobs and then they go through a OJT or part-time training programme. Salary support can come from government to incentivize companies to hire such people and train them. The Professional Conversion Program where the government pays up to $4,000 monthly salary to the company when they hire and re-train the employee is in place. The agencies managing this need to identify why the take up is not as much as desired to be effective in absorbing the displaced PMETs
There is also a need for closer management of the work pass system to make it more difficult for companies to hire foreign professionals who are not among the best in their fields. Unless they are best, companies should be compelled to hire Singaporeans and be give a 1 to 2 year training programme to build up their skills, with salaries supported by the government.
3. Strengthen enterprise capabilities to in novate and scale up
I find the recommendations here repeating what the T21 recommended in 1999 and what the ERC recommended in 2002. Yes, there is a need of more innovation and creation of new enterprises. How we do it is very important. I do believe the ERC did achieve the key objective of encouraging more entrepreneurship among Singaporeans and we already have an ecosystem that supports start-ups well. What is missing is their ability to grow beyond their start-up phase for a few reasons;
a. Market Access
b. Growth Capital
c. Management skills
It would have been useful if the CFE addressed these issues.
The recommendation of smaller companies partnering bigger companies has been made many times over the last 20 years and we have no seen great success. Unless there are new ideas I see this as motherhood in nature.
The ESC and also ACE in the past recommended an Exim bank to be set up to support overseas projects. The government accepted the ESCs recommendation but this never materialized. The CFE has recommended a few schemes in the areas of financing support. I hope this time we will see better outcome.
I disagree with these recommendations :
a. “Significantly grow the community of IP and commercialisation experts”
b. “bringing in dedicated commercially-oriented entities that are focused on the commercialisation of IP
We need less control and more flexibility in our commercialization efforts. To many lawyers and experts will slow down the process. I have seen this happening in many cases where the researchers and the entrepreneurs get too tried dealing with too much of bureaucracy and failing to spin-off a company or the commercialize the IP.
It is a pity that after spending so much in research, I believe in the region of over $40b in the last 20 years, Singapore has not scored well in innovation and creation of enterprises despite the large amount of money spent.
The few things I liked in the report are;
a. “The standardized IP protocol” – I believe many start-us and spin-offs don’t get formed because of rigidity of some of the RIs in wanting to control more or wanting to earn more form the IP they developed. The end result has been that the IP remains on the shelf and does not get an opportunity to be commercialized. I would suggest IP be made relatively very cheap and RIs practice flexibility to encourage more researchers, SMEs and entrepreneurs to want to innovate and commercialize new products and hopefully create a few big winners. Even if the IP was given out for $0, the value added to the economy can be significant – so the RIs should not see themselves as entities that have to earn more income from the IP (because the R&D grants should be seen as government’s investment for the general economy and not for the RIs own benefit).
b. “Provide high-growth enterprises with more dedicated and customised support” – the best way for this to happen is to bring all government agencies dedicated to SME and start-up support under 1 umbrella. The CFE suggests “ lead Government agencies could be assigned to coordinate all Government assistance rendered to enterprises”. This has been recommended before but has not worked well. We should bite the bullet and create a one stop all encompassing SME and start up agency – like a “Local EDB” with the same resources, power and funding like EDB. It sis about time we have one Local EDB that follows the company from birth till the company become a global SMEs (and supported by agencies who may be experts in certain horizontal agencies – IT, Internationalization, Finance, etc.). These verticals should be invisible to the SMEs if the LEDB coordinates everything.
c. “For unlisted companies, the Government should facilitate the creation of a private market platform”- This is important for money to circulate faster for investors. Today, may investors wait a very long time before they can exit from a company – by an IPO or a trade sale. IN countries like Taiwan, private equity exchanges are really private, with minimal government regulation. If investors can cash out earlier through such private equity exchanges, it will encourage them to invest more money in start-up and growth companies.
Having said that, this is not a new recommendation, ACE made this recommendation about 15 years ago, and it took a long time for the government to respond and when they did, we created such a private equity platform, called the “OTC”. This platform last just a few years before being shut down because of very unfriendly government regulations, particularly from MAS. I suggest the government study why the OTC failed before implementing another similar platform. Otherwise this recommendation will not translate to an effective outcome. I acknowledge however that part of the problem then was also because we were too ahead of time and there were no good start-ups here to invest in yet. Hence, the VCs invested outside. The eco-system is more mature now and we do have a good crop of start-ups. The key question is how to continue to anchor their key value adding activities in Singapore as they scale given our small market.
4. Build strong digital capabilities
Excellent initiatives suggested by the CFE and the future economy need to get the digital capabilities right for us to compete well in the global economy. SMEs and start-ups must be able to easily access these so that they don’t have to invest too much in the same capabilities.
5. Develop a vibrant and connected city of opportunity
I would say these recommendations are not new and the strategies have been in place for the last 30 years or so. But these are areas that gave Singapore our strengths that attracts investments and we need to continue to build on these.
6. Develop and implement Industry Transformation Maps (ITMs)
I believe the ITM strategy needs to change drastically as the proposal is no different from what has been done in the past with multi agencies working with companies. We do need a one stop local Enterprise agency to deal with companies from start-up to the time they become global Singapore companies. I don’t see for example EDB being able to play a useful role in supporting local companies in the clusters they are responsible for.
From the government’s perspective, the ITMs are a very useful way to plan the future industry clusters but the current approach of appointing lead agencies to champion certain sectors is flawed and outdated. The future industries will not come from clearly defined sectors but from a mix of sectors. For example, future retail will have to encompass retail, IT, logistics and Finance (payment systems). In the current Map, Spring is in charge of retail, MCI in-charge of IT, EDB in charge of logistics and MAS in-charge of finance. So, by giving each government agency one sector to manage, we will see things falling into cracks.
It would have been better to reorganize the government agencies to verticals – size and stage of a company – i.e. start-up/SMEs, MNCs, GLCs, Local MNCs and Horizontals – by technology or core competencies. This will require a major reorganization of government agencies. I would have expected the CFE to be more radical in the recommendations for this area as the old models will not work well in the future as we will see companies emerging from nowhere and becoming big and big companies leaving Singapore or completely disappearing.
Furthermore, I have seen in the past that EDB had been ineffective in handling SMEs as their key focus is to attract foreign MNCs. So when a SME in a logistic sector needs support for EDB, they have not been getting the support they need. A former EDB chairman once commented to me when I challenged him and this was his response : “What did you expect me to do, I had a sledgehammer to handle the elephants (MNCs) and the ants (SMEs), so I decided to handle the elephants and ignored the ants”. Of course, it is easier to show results for your KPIs by spending a lot of money to attract MNCs than to work with many SMEs for the same or lesser results. So, if EDB continues to champion clusters for MNCs and SMEs, I am quite sure the SMEs will once again be left behind. Currently, it is a case of too many hands (WSG, SSG, SPRING, IE Singapore, IMDA, JTC), making it rather unproductive with each agency chasing their own KPIs. Sharing of info is also a challenge. There is no universal CRM for businesses with its profile and growth info. But the situation is also different. There are only about 8,000 MNCs but 180,000 SMEs. Maybe another solution is to have a Small Business Agency and a Growth Enterprise Agency. In implementation, I hope the restructuring of government agencies supporting the economic development of Singapore will be seriously relook at.
7. Partner each other to enable innovation and growth
This is also not a new area of focus. We had these strategies before and these are still relevant today. The biggest change that is need is the public sector to be willing to experiment with innovation by partnering start-ups and SMEs. We had some past success – eg Hyflux but we could do with many more, so I hope to see a change in the attitude of the civil service and government agencies to make this happen.
Singapore companies have a bad track record of working together to win business opportunities overseas. Somehow the large companies are not keen to partner smaller companies and SMEs don’t seem to trust the larger companies and we have not been able to create the spirit of cooperation unlike what we can see with Japanese, Korean and Taiwanese companies. I hope there are great ideas to change this mindset among Singapore companies.
The CFE has worked hard to study the Singapore economic landscape and suggested their strategy for the future economy. While the paper is not as inspiring as hoped, there are many details that need to be looked at and the key is successful implementation. We have seen some successes of the ERC and the ESC but we have also failed in a number of areas, productivity being a key failure. To a large extent, the issues we the past strategies were not the ideas but how they were implemented. The government needs to understand why there was failure in implementation because if they don’t understand what went wrong, we risk another round of implementation missteps which may not yield the desired outcomes. It is important that the government agencies responsible for implementation have a much better feel of the ground so that they can get things right this time. The CFE report is out, this is the best we have. We all need to work hard to recreate a vibrant economy of the future for the future of Singaporeans. Hopefully more good ideas will emerge at the implementation stage. We also need to know what we are working towards. So implementation is key, but unlike the ESC we don’t have KPIs here or major timelines. Greater clarity is needed on this.