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Singapore’s road to recovery — The impact of Covid-19 and the path ahead

Collaboration and diversification will add to ability to enhance resilience and navigate post-Covid-19 world

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By: Dr Faizal Bin Yahya

Covid-19 has severely impacted Singapore’s trade and economy. But the virus is also proving to be a catalyst for exploring alternate development pathways and for motivating Singapore’s greater integration into the Asean region.

Singapore’s business activities have been curbed due to social distancing measures that have adversely impacted the profit margins of firms. Hard lessons were learnt along the way when infection rates spiked among the 320,000 foreign workers living in dormitories. This required quarantine measures with the government assisting in paying wages, waiving levies and providing the costs of their care. The rate of infection in foreign worker dormitories continues to concern authorities.

There are also foreign workers living outside of the dormitories. Approximately 100,000 foreign workers from Malaysia’s southern Johor state crossed over into Singapore daily before the border closures were implemented on March 18, 2020. The Singapore government provided some funds at the beginning to assist companies to maintain their Malaysian foreign workers. Singapore’s dependency on foreign workers has been exposed as a key vulnerability by the pandemic.

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Singapore’s second vulnerability is its relative exposure to supply chain disruptions. Singapore was forced to trade face masks for bed frames with Indonesia to establish care facilities for Covid-19 patients. This highlighted the need for Singapore to work more closely with its immediate neighbours for mutual benefit and to strengthen its free trade agreement network to increase diversification of source materials, including food supplies.

For Singapore to facilitate recovery, economic development strategies need to pivot in new directions by leveraging internally on Industry 4.0 initiatives and externally by accelerating earlier initiatives such as regionalisation through high-tech parks.

Mitigating the more adverse impacts of Covid-19 on businesses and workers to boost economic recovery requires three things. First, the economic transformation through Industry 4.0 pathways that began in 2015 needs to be accelerated. Companies already on Industry 4.0 transformation journeys are reaping the rewards of digitalisation — remote work arrangements and contactless processes have enabled business continuity. The manufacturing sector comprises about 20 per cent of the Singapore economy but locals are reluctant to work in this sector. There is a need to create smart factories in Singapore, coupled with the utilisation of regional high-tech parks to manufacture components at larger scales.

Singapore has already developed several high-tech industrial parks in surrounding countries, including Indonesia, China, India and Vietnam. Small and medium enterprises (SMEs) represent the majority of investors in these tech parks. For example, in 2016 Singaporean SMEs had invested cumulatively S$9.4 billion (US$6.9 billion) in the Suzhou Industrial Park. The redesign of business models and workflow processes by using these high-tech industrial parks will not only enhance revenue streams for the companies involved but also enables them to create employment opportunities in Singapore and reduce overall business costs.

Second, the pandemic has highlighted the need for diversifying Singapore’s supply chain networks, the importance of “near shoring” and a “China Plus One” strategy. This would involve utilising more “near shore” high-tech industrial parks and developing new ones, like those already appearing in Indonesia. For example, the Batam Industrial Park was established in 1989. The manufacturing outputs from Batam are usually transported to Singapore ports to be exported overseas. The concept of industrial parks has endured and evolved into digital parks like the Nongsa Digital Park in Batam.

Third is human resources, innovation and ecosystems. It is critical to accelerate reskilling, especially in popular local sectors. The professional, manager, engineer and technician (PMET) category comprises 57 per cent of Singapore’s total labour force. This employment category will be the most disrupted during transformation and comprises a large number of mid-career and mature workers.

Fortunately, the innovation start-up scene is expanding in Singapore and collaborating with regional start-up hubs such as Nongsa. In their journeys to maturity, Singapore start-ups also require industry and professional experience. The PMET category can provide this. The blend of youthful start-up developers and mature PMETs provides complementary strengths for business growth and expansion.

The Singapore economy has to embed itself more and evolve with the Asean region and beyond. Collaborations with regional economies and diversification will also add to Singapore’s ability to enhance its resilience and navigate a potentially divided economic world order post-Covid-19.

Faizal Bin Yahya is a senior research fellow at the Institute of Policy Studies, School of Public Policy, National University of Singapore.

This article, a part of an EAF special feature series on the novel coronavirus crisis and its impact, was first published on the East Asia Forum. Read the article in full HERE.

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