S’pore should ‘buy over’ good foreign SMEs to partner local private sector, GLCs, says ex-GIC chief economist Yeoh Lam Keong

The Singapore Government should consider “taking stakes” or “buying over” good foreign small and medium-sized enterprises (SMEs) to partner with the local private sector and the government-linked companies (GLCs), given that many companies are now seeking capital amid the COVID-19 crisis, said former GIC chief economist Yeoh Lam Keong.

Mr Yeoh was among the panellists in the webinar titled, “The Future and Challenges to the Singapore Economy”, organised by the Future of Singapore (FOSG) via Zoom on Saturday (17 Apr).

The webinar touched on the fractured global economy with Singapore caught between the US and China blocs, disruptive technological revolutions to jobs and global supply chains in artificial intelligence (AI), the internet of things, 3D printing as well as future pandemics.

He started off by summarizing the three main strategic deficits in Singapore’s economic structure and policy, which were discussed in the previous FOSG discussion.

The first deficit was the declining and uncertain competitiveness owing to excessive reliance on footloose and fickle foreign capital, as well as the declining GLC sector.

The second deficit is the nation’s excessive reliance on foreign labour that threatens to lead to “an explosive terminal population” and depress productivity and the shift to high-quality jobs.

While the third deficit was Singapore’s “insufficient integration” into an ASEAN free trade area that is as important economically as China and India in the economic future.

Elaborating on the first deficit, Mr Yeoh noted that the Multinational Corporation (MNC) sector is concerning, given that the foreign MNC sector is now “footloose” and “increasingly fickle”.

“If you look at the corporate culture, a lot of them are stakeholder-oriented, US, UK type crowd who have no loyalties to anybody,” he noted. “And so if they’re willing to sacrifice their own employees on the altar of the next two-quarters profit, what loyalty will they have to the country of their current domicile?”

Mr Yeoh stressed that Singapore is “heavily dependent” on the “foreign fickle sector”, while the domestic sector, which could be more stakeholder-oriented, has been “hollowed out”.

“The GLC sector I have mentioned is securely declined, but more important than that is it shifting towards a more shareholder-oriented culture from what used to be a more stakeholder-oriented culture just at the time when we need the GLCs to be able to move the other SMEs into the region and expand them as the stakeholder economies of Korea and Taiwan and Japan have been doing.

“The Government alone is not enough to push us into the region, into the world. They need to engage the big companies, a series of organization allies, and our current GLCs unfortunately, in my opinion, are not yet fit for purpose to do this,” he explained.

In terms of the nation’s excessive reliance on foreign labour, Mr Yeoh pointed out that such reliance depresses wages and productivity, which adversely impact the “whole economy” of the nation.

“We have depressed wages let in 1.2 million unskilled and semi-skilled workers, depressed productivity, addicted our SMEs to labour-intensive production, which they are only beginning to crawl out of now very reluctantly,” he added.

On the third deficit, Mr Yeoh highlighted that Singapore has not been “proactive” or “bold” enough, despite the country participated in ASEAN.

“For example, we did not participate in a bold infrastructure plan led by Singapore to finance infrastructure in the region even though it was totally affordable.

“We have been too cautious, too hesitant, to really engage with the region, but we need to do this for the reasons I mentioned. It is the only safe harbour we have if the world splits into two or three,” he added.

Essential elements to cover the deficits

On the essential elements to address the deficits, Mr Yeoh suggested replicating the industrial policy of Korea and Japan for the SMEs.

“EDB [Economic Development Board], the way it runs was excellent in the past, but to me was yesterday’s game. It was largely getting foreign direct investment in, but the way it coordinated across the Ministries, its power and cloud, need to be replicated in an incoherent industrial policy of the kind they have in Germany, Taiwan and Switzerland.

“At least [the industrial policy] of the kind they have in Korea and Japan. It needs to be replicated in an agency like that for the SMEs,” he stressed.

Though Mr Yeoh acknowledged the “powerful” efforts by EDB in physical infrastructure and fiscal infrastructure in attracting investments, he believes that the agency should consider “new things” that are cost-based and financial infrastructures.

“The Government’s participation in both equity and loan capital in large enough amounts. I’m not saying that in the pricing for this not do it, they are doing it in the right amounts. But just to give you an idea, in 2019 they gave away about S$50 million to 65 startups as equity.

“That’s good. But it’s way too little for the Government agency to run the whole thing. NUS itself is thinking to give this kind of equity capital to 50 organizations. Where is the scaled national effort that needs to accompany this sort of effort?” he added.

That said, part of the best practice industrial policy includes “rejuvenating” the manufacturing sector, which is a key sector as it is the “locus of productivity growth”, said Mr Yeoh.

He also recommended buying over foreign SMEs – with the highest potential impact in their industries – to partner with the local private sector and GLCs.

“The other thing that the agency needs to do now – besides coming up with this financial infrastructure that I mentioned – is actually taking stakes, buying over good foreign SMEs that have a future in their industries, good managements that can fit in, energize and that we can control locally to partner our private sector or the GLCs,” said Mr Yeoh.

He implied that this could be a good time to explore as many companies impacted by the COVID-19 crisis are now “seeking capital”.

Touching on the commercialization of research and development (R&D), Mr Yeoh noted that the Government has spent “a ton of money” on R&D which resulted in “spectacular scientific results”, but the results have not gone the “last mile”.

“[They] have not been supported the last mile commercially, financially by this financial infrastructure I was talking about to actually become prototype factories. How do you then productize it, optimize the factory, the technology?

“And then locate it optimally in the labour-intensive, industrially booming region. The region will boom not just because it is competitive cost-wise, it will doubly boom because a lot of the countries in China trying to escape the US ban will naturally move to Southeast Asia,” he explained.

As for the GLCs, Mr Yeoh suggested shifting from bureaucratic management to entrepreneurial management.

“Think of the people who created huge value, where has that value gone? Can we do it again in this new environment with a new set of entrepreneurs? This is the challenge,” he asserted.