4. RELIANCE ON THE WEST

Must Singapore change to survive?

CLOSER to home, what will Singapore's role be in this global game of economic musical chairs?

A heavy reliance on exports and its small size means the Republic has ranked among one of the worst-hit economies in the region.

So far, suggestions for change to the growth model have been met with the official line that the slowdown is across all markets and all sectors and Singapore could not have avoided the pain.

Yet its ailing manufacturing sector, which turned south long before the whole economy did, appears to be a particularly weak link in the chain. Credit Suisse economist Cem Karacadag attributes Hong Kong's better growth performance to the fact that it has no dependence on manufacturing at all.

Structural transitions already at work have been accelerated by the crisis, say economists. Within manufacturing, Singapore is moving away from electronics in favour of pharmaceuticals, which are higher up the value chain. In the bigger picture, the manufacturing sector as a whole is giving way to a greater focus on services.

With China rising as the main source of demand in a new world order post- recession, countries relying on manufacturing for growth - such as Singapore - will have to rethink this whole strategy, according to Citigroup's Singapore economist Kit Wei Zheng.

'China can be competitive in all sorts of manufacturing if it wants to, and it's going to get increasingly tiring and expensive for Singapore to try and keep one step ahead,' he said.

'If we want to supply anything to China, we can't do it through manufacturing. We have to rethink our whole industrialisation strategy: Is it sensible to continue down this path, or are we just stuck with the legacy of our past economic strategy?'

Other economists have also voiced concern over Singapore's MNC-dependent manufacturing.

They suggest the Government should reduce its role in the economy and allow room for locally built small and medium-sized businesses that provide services to grow. But this will be a tough road ahead.

Said OCBC economist Selena Ling: 'Singapore's never had a totally free market-driven economy before and entrepreneurs are not born overnight.

'But maybe this recession will help because people who have been retrenched can break out of the mould and do something different, perhaps start their own home-based businesses.'

And services is an area 'where there's a little more room for entrepreneurship in contrast to staid old manufacturing'.

Indeed, economists agree that services - which make up 70 per cent of Singapore's economy versus manufacturing's 25 per cent - provide a bigger comparative advantage for the country.

The services sector is dominated by trade-related and financial services, but other smaller businesses are now coming into their own.

'We're known for being a transparent and safe place, which helps for us to develop wealth management services. And we can build on our tourism experience to provide medical tourism and education tourism as well,' said DBS Bank's Singapore economist Irvin Seah.

'We're ahead of the region in this respect and we should make use of this advantage.'

Ramping up exports of services to other countries in Asia such as China will help reduce Singapore's heavy reliance on Western markets - something that is likely to prove crucial if this city state wants to experience strong growth in services.

This article was first published in The Straits Times.