by Chris Kuan
A number of FB friends were asking me about the impact on the Singapore economy resulting from foreign workers' repatriation of savings in one of Tay Kheng Soon's post. There is no research particular to this but I can go one better - the impact of the repatriation of income by all foreign entities, i.e. workers, foreign owned companies and Multi-National Companies (MNCs).
Courtesy of an excellent research paper "SG: National vs Domestic Growth" by DBS. Focus on the attached chart in which DBS show the relationship between our Gross Domestic Product (GDP) and our GNI (Gross National Income) - the latter is the former plus net income payment (or repatriation) of income into Singapore by Singaporeans and Singapore companies based overseas. As DBS points out GNI is lower than GDP by 2.2% of GDP and as much as 7% of GDP. The chart shows that the gap has widened especially in the last 15 years.
This means that the outward remittance of income earned by foreigners and MNCs significantly exceeds the repatriation of income earned by Singaporeans and Singapore owned companies based overseas.
Result - net outflow of income from the economy and a drag on our current account. DBS thinks this will reverse once we have successfully developed the "external wing" of our economy and correctly points out the Japanese economy's external wing enable GNI growth to nearly double the GDP growth rates, a hugely important consideration in view of slow domestic growth resulting from demographics. Ditto Taiwan to a lesser extent than Japan.
I agree with DBS that pushing the GNI over GDP is very important for Singapore given the new normal of 2-3%, low productivity and demographics but I am not so optimistic as DBS that we can reach anywhere near the success achieved by the Japanese in developing the external wing.
That is simply because we do not have industrial champions and SMEs of the scale and breath of Japanese or even Taiwanese companies who spread their wings overseas very widely. That even today our Outward Direct Investment (ODI) continues to be small, as pointed out by DBS, in relationship to Foreign Direct Investment says as much. It pales by comparison to the massive Japanese and Taiwanese ODIs. In my humble opinion, our historic MNC and latterly foreign worker reliance might have push up our growth rates in the past but this could be troublesome for the future if we fail to achieve enough success in internationalizing local companies. Much have been talked about the external wing, but results are not coming through enough.
Outward repatriation of income by foreign entities (workers, foreign owned companies, MNCs etc) exceeds inward repatriation of income by Singaporeans and Singapore companies based overseas. This accounts for the shortfall of GNI to GDP and the gap has widened in the last 10-15 years.
This means that the external wing of the Singapore economy and the the internationalisation of local companies has not or yet to bear fruit, at least in terms of narrowing the large gap between outward and inward flow of income.
Why is this so? Does the answer lie in risk aversion by local companies? If so, that is not surprising given how local companies are slow to act and are always looking for the government to set directions.
Does the answer also lies in being too comfortable in Singapore? Very likely given that the Singapore government is very business friendly, taxes are low, no unions to contend with and access to low cost foreign workers easy. So like productivity, the external wing and the internationalisation fall victim to local companies being mollycoddled.
Remember "spurs are not stuck in their hide"? Heck, there isn't even a Singaporean version of the legendary Mrs Watanabe, the archetypal Japanese housewife cum household Chief Financial Officer who invests the family savings across the world. As said many times before, there are always trade-offs in economic policies and some may seem small at first but can loom very large over time.
Our falling demographics ought to have been a powerful push factor to build the external wing long ago but of course it proved far easier to open access to foreign workers. But one of the positive outcome of having a large enough external wing other than addressing the drag on the current account, is that it should finally wean the economy off its over dependence on foreign workers. This should generate other positive outcomes like higher productivity, less spending on infrastructure leading to higher social spending (hopefully!) ...... not sure about real estate prices though.
This post was first published on Chris Kuan's Facebook page.