Singapore workers have comfortably outperformed other high-income economies in the last 15 years, according to ICAEW’s latest Economic Insight: South East Asia report. ‘Pure productivity’ grew by 1.9% though sectoral shifts accounted for a drop of 0.2%.
ASEAN workers overall have had an impressive track record in the last 15 years, with productivity growing 3% per year between 2000 and 2015. This surpasses the per year growth rate of Latin America by 2% and Africa by 1.44%.
Sectoral shifts (workers moving from agriculture to manufacturing and services), urbanisation and an increase of workers in the ‘prime age’ (25 – 54), have been the main drivers of productivity growth throughout the region, with the exception of Singapore.
In the island state, the drop of 0.2% due to sectoral shifts is likely due to the loss of lower-valued manufacturing to other countries which appears to have resulted in workers moving into parts of the services sectors that have a lower output per individual.
Priyanka Kishore, ICAEW Economic Advisor & Oxford Economics Lead Economist, said: “Though Singapore is already a matured and urbanised economy with little scope for sectoral shifts to increase productivity, it has done remarkably well – comfortably outperforming other high-income economies in terms of percentage growth. We anticipate that output per worker growth should register around 1.5-2% per annum in the coming years, a relatively impressive performance by the standards of other economies with similar levels of GDP per head.”
In Singapore, high household savings are also likely to have contributed to productivity improvements as a stable supply of finance is needed to invest in both physical and human capital.
Though Foreign Direct Investments (FDI) have an important role in growing ASEAN’s economies, the bulk of financing for business investment – particularly among the job-rich small and medium-sized enterprises – come from domestic savings and lending.
The local economy will however continue to struggle in the near term as it has been hit hard by the prolonged downturn in global trade and competition with other emerging economies. Further deterioration in manufacturing conditions underscores the country’s reliance on the services sector.
Nonetheless, the latter will remain strong due to the acceleration of government-related services and still robust household spending.
Mark Billington, Regional Director, ICAEW South East Asia, said: “Training, development and skills upgrading must continue to play an essential role if Singapore wants to maintain its competitive edge. A tighter and more expensive labour market means lower value manufacturing and services are relocating to neighbouring countries. So we will become ever more reliant on high-value sectors like professional services and high-tech engineering. If Singapore is to compete against other major centres like Silicon Valley, Hong Kong, London and Shanghai, it will need a highly skilled workforce – which has a global standard of technical knowledge, business skills and innovation.”
Other findings in the report include:
Sectoral shifts, urbanisation and a workforce in the highly productive ‘prime age group’ have helped Vietnam achieve a 5% productivity growth in the last 15 years and will continue to drive 4% growth in the next decade.
Rising domestic demand and booming Foreign Direct Investment (FDI) is driving economic growth of 6.5% in the next 5 years despite the challenging regional and global environment.
Slow employment growth, lower business confidence, higher borrowing costs and falling oil revenues are some of the issues affecting growth in Malaysia. Reforms are needed to help increase growth to achieve the country’s goal of becoming a developed economy by 2020.
Latest indicators suggest that the solid momentum in domestic demand seen at the end of 2015 has continued into this year. GDP growth will be helped by a pickup in government spending and solid household consumption, along with an increase in net exports.