THE TEMASEK REVIEW

By Damon Yeo, Business Correspondent

Singapore has moved two spots to number three in the recently published  World Economic Forum (WEF) report on world competitiveness. Without any additional information and details, yes, Singapore deserves a round of applause. After all, it does mean that the Singapore economy is “able to produce higher levels of income for their citizens”, according to the strict definitions as set by the researchers.

However, in this information age, when withholding information is as sinful as erroneous information, so let us look deeper into what this research is actually trying to tell us.

Behind the fancy wordings and the technical jargon, this study is a cold and hard measure of how profitable it is for a corporation to do business in a particular country, with respect to other countries in the world.

It ranks 133 countries according to 12 “pillars” of competitiveness, which are sub-divided into a total of 90 different components. (read more here)

The scores for each component are then  collated and weighted according to each country’s level of economic development to give the overall ranking table.

It will be notesworthy to highlight that this study specifically looks at things from a business / profitability perspective and does not account for any other effects.

For example, one of the components seeks to measure the cost businesses incurred to counter the threat of terrorism (Singapore ranked 79th), giving higher rankings to countries that actually spend less in this aspect and thus masking the obvious non-monetary benefits of a country being more ready in counter-terrorism than others.

The below will provide a drilldown into some of the measuring components of the study and what they actually mean for average Singaporeans. A previous article had already highlighted judicial independence as a particular weakness (read article here), so it will not be touched on again here.

Surprisingly, Singapore did particularly poorly in the Macroeconomic Stability pillar (35th overall).

While we are ranked 10th in national savings rates, our inflation (51sT), interest rate spread (57th) and government debt (126th) ratio ranks unfavourably globally. In layman terms, Singaporeans are saving a lot of money, but everything is becoming more expensive, the banks are ripping us off and our government has been funding its expenditure with high gross debts.

Inflation will be re-visited later, but let us note that in Singapore, the average difference between typical lending and deposit rates from banks is 5.0%.

This indicates that the government had allowed banking institutions to keep lending rates at exorbitant levels while allowing them to keep saving interest rates low. At 57th, we are ranked near Ethiopia, Tunisia and Morocco, countries which do not have a developed and competitive banking sector (hence the few players have monopolistic powers).

The last point raises eyebrows but it is interesting to bear in mind that Japan is ranked bottom in this component (gross debt = 196.3% of GDP) and Timor-Leste is top (0.0%). This is likely to indicate the method our government is funding its expenditure – net debt may have been a better indicator here than gross debt.

Singaporeans have usually assumed that the country has one of the best health and primary education services in the world. This study revealed that we are 13th in the world in this aspect, sandwiched between France and Sweden in the rankings. Singapore ranked very favourably in infant mortality (3rd) and life expectancy (7th), re-affirming that our healthcare system is world-class (a big thank-you to our healthcare workers!).

What is interesting to point out here, is that while the Singapore government had spent meagrely on Primary education (109th), we have produced the 3rd best in terms of quality. For that I salute our lowly paid primary school teachers, who according to this study have worked way too hard and deserve a massive pay rise.

Another interesting area I am exploring here is the Labour market efficiency pillar, as I believe this is an area which has an inverse relationship between labour welfare and business profitability. If a business pays poorly in a country and the workers work long hours, it is good for the business but bad for the workers’ welfare. Singapore is ranked number one globally for this component.

The study states that hiring and firing of workers in Singapore is the most flexibly determined by employers in the world, yet our labour-employer relations are the most cordial.

This highlights a sad way of life for the average Singaporean worker – despite being at mercy of employers all of the time, he/she needs to be maintain that ambient relationship with management. For many who had worked in Singapore all their lives, this is probably a fact of life, but isn’t it interesting to note that this situation is actually the worst in the world (but best for businesses, of course)?

With the economic crisis in the backdrop, it is also worthy to note that on the average, the firing costs (which can be interpreted as the value of redundancy packages) for businesses in Singapore is about four weeks’ worth of wages (6th lowest in the world).

Another part of this study asked respondents to select five most problematic factors for doing business in a particular country. For Singapore, businesses were least concerned about government instability (re-affirming our belief that the PAP will never be toppled) and crime (Thank You Mr Policeman!).

The most problematic factor, according to more than one-fifth of these respondents, is inflation. For 2008, inflation in Singapore was 6.5%. This can be considered somewhat high for a developed economy like ours, considering that most major Western European economies have inflation below 5%.

Instead of coming up with measures to tackle inflation, our ministers had continued to fuel the asset bubble. (read more here)

The pressure is on the government to keep inflation down in the coming years, or Singapore risks losing her number three spot next year.

To sum it all up, this is what this study had told us about the average Singaporean worker – despite having to worry constantly about job security, you have worked hard to make Singapore world-class.

In return, you are paid poorly compared to your counterparts and struggle to get onto the property ladder as everything gets more expensive, house prices rise and banks rip you off with high interest rates.

Other articles by Damon Yeo:

>> DBS and a series of ‘unfortunate events’

>> Sale of Chartered – An Anatomy

About the Author:

Damon is a proud graduate of Nanyang Technological University in 2004 with a degree in Accountancy. He is currently working in the finance department of a UK Bank. He is also a regular contributor at redsports.sg.

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