OPENING REMARKS BY MR S ISWARAN, MINISTER, PRIME MINISTER’S OFFICE AND SECOND MINISTER FOR HOME AFFAIRS AND TRADE & INDUSTRY AT THE INAUGURAL FORUM FOR EMERGING LEADERS OF EMERGING MARKETS ON THURSDAY 4 OCTOBER 2012, 0950 HRS AT THE SENTOSA RESORT AND SPA, SINGAPORE
Excellencies,
Distinguished Guests,
Good morning to all of you. I am pleased to join all of you at this Forum. Many of you have travelled quite long distances to be here. We appreciate that because it signifies the import you attach to this Forum and the opportunity it represents.
We want to warmly welcome all of you here and Singapore is pleased to host this inaugural event. This is a Forum or gathering that probably would not have been contemplated even given about 5 to 10 years ago. It would have been difficult to have this Forum because of distance, culture and language. These have all been diminished in a world that is rapidly shrinking. It is a world that is shrinking because of our mutuality of interests and mutuality of the challenges that we face. This is an excellent opportunity to come together.
Singapore is not necessarily the most logical venue for such an event. However, the reason why Singapore might be a suitable venue is precisely the reason why we exist. We are small, and we have made it a point in our strategy for growth and development as a nation to be useful to the rest of the world. We need to understand what is happening around us and make sure that we keep abreast of the changes that we see at the moment. That perspective and raison d’être which our Minister Mentor Mr Lee Kuan Yew has emphasised time and again, is what perhaps might be of value to you, especially to those that have come from other countries in contemplating the future for the emerging markets and emerging nations of the world.
I thought I would share some thoughts with you on what are some of the opportunities and the challenges in the emerging economies and the role that young leaders can play in addressing them. By no means is this an exhaustive list but I thought it might be a good way to kick off something on this matter and perhaps seed some ideas for you to develop in your discussions.
Need for Economic Diversification beyond Europe, US
The state of the global economy and the European Union are going through difficult times. The European Union’s growth forecast for 2012 has been downgraded further to negative 0.3%. The US appears to be going through a relatively period of tepid economic recovery with a growth forecast for this year of 2% but unemployment persists above 8%.
Against this backdrop of continued economic uncertainty, the emerging markets of Asia and Latin America remain as vibrant and bright spots. In fact, they are expected to grow at more than double the rate of the developed world in the next 3 to 5 years.1 If you take a longer view, I think the circular prospects are very strong.
Like many emerging economies, Singapore has recognised the need to expand our economic links beyond our traditional markets of Asia, Europe and the United States. We have embarked on the strategy that has significantly increased our trade and investment links with emerging regions especially with Latin America in recent years. This is something that has come to the fore especially in the last 10 years or so.
To give you a sense of Singapore’s trade and economic engagement with the world, we have 18 bilateral Free-Trade-Agreements. We are a member of ASEAN and it would have an integrated economic community, i.e. the ASEAN Economic Community (AEC), by the year 2015. One of the key benefits of the AEC is the free flow of goods, where almost all tariffs in ASEAN would be eliminated or reduced to 0-5% by 2015. We are actively in APEC and the WTO. More recently, we have been one of the founding members of the initiative of the Trans-Pacific Partnership. We have taken this approach because we believe greater economic integration in the world will herald greater opportunities, not only for Singaporeans but clearly for the people of the world. And we, as a small country feel that we can help to facilitate the creation of new ideas and models of economic engagement across all borders and creating greater integration in the regions.
Today, our trade with the regions emerging markets has more than doubled to reach S$168 billion (US$134.4 billion), that is about 17.3% of Singapore’s total trade. Singapore’s total trade is about more than 3 times of its GDP. This gives you a sense of our reliance to external markets. Many Singapore companies have ventured into a wide range of areas, in oil and gas industries, waste and water treatment facilities as well as infrastructure and infocomm technology sectors in order to provide the kind of services that Singapore has already developed over the years.
Singapore as a Hub for the Exchange of Ideas
Even as we actively explore the many opportunities that Asia and Latin America offer, our public sector officials and private enterprise leaders need to deepen our understanding of trends and developments in the respective emerging markets, exchange ideas and build broadbased networks with a wide range of stakeholders.
I am happy that Singapore is hosting the first meeting of the Forum for Emerging Leaders of Emerging Markets, where this exchange of ideas and the building of strong relationships and partnerships can begin. I certainly hope that this will seed long-lasting partnerships and collaboration. I also want to congratulate the Development Bank of Latin America and International Enterprise Singapore who have made this possible. What we want to foster through this and other efforts is to facilitate inter-regional dialogue and cooperation, and create opportunities for plans to be developed but also action to be initiated to address specific needs. I thought that I might add that in Singapore, we have recognised the importance of Latin America. Traditionally, in our schools, our students, besides learning English and their Mother Tongue, Mandarin, Malay or one of the Indian languages, specifically, Tamil, we have always learnt German, French or Japanese. More recently, we have also introduced Spanish as an option for our students. This again, is a reflection of Singapore’s outward looking stance and the importance we attach to the engagement we have with Latin America.
Thought Leadership and Action
I think there is much that we can learn from each other through this Forum. Let me touch on two issues which I believe are long-term trends which are going to have significant bearing of the way Asia and Latin America develops. The first, is rapid urbanisation and the second is, growing middle-class.
Urbanisation is occurring at an unprecedented rate and scale, and cities now accounting for more than half of the world’s population. Urbanisation is obviously be driven by emerging economies, especially in Asia. In China for instance, 300-400 million people are expected to relocate to cities by 2050. In India, this figure is even higher, at half a billion. These are enormous numbers but the key point is that this is a trend that is occurring at an unprecedented rate and it will have significant bearing on the way we run governments, businesses and how society organises itself. Collectively, emerging economies are projected to account for 13 out of 20 megacities in the world by 2025.
Urbanisation presents both opportunities and challenges. If not managed well, urbanisation and industrialisation can profoundly diminish our living environment through pollution and by placing excessive strains on finite resources. We are well aware that there are a number statistics on diminishing air quality and also of poor sanitation systems and other essential utilities and services which in turn have a profound impact on health and life expectancies.
Governments play a key role in ensuring that urban infrastructure and environmental standards keep up with the pace of development. That means there is a need for a long-term perspective on how the populations are shifting into urban centres and how governments can prepare for them, whether through infrastructure or the overall management of cities. I wanted to share with you that IBM has a global centre in Singapore for the management of cities. It is an IT infrastructure system which integrates data from a variety of sources in the management of a city’s day to day operations. This is to help key decision makers at different levels to get the information at their fingertips in real time to make effective decisions. This is not an innovation out of Singapore, in fact, IBM worked on this with the city of Rio de Janerio. The idea is then grown and it has now become an idea that can be ported to many cities around the world. Governments working with corporate leaders need to address this issue of long-term stresses and needs created by urbanisation.
There is a specific role for companies as well in contributing to environmentally sustainable development by adopting responsible business practices so that economic growth does not come at the expense of our living environment. In fact, many companies have already adopted corporate social responsibility (CSR) as part of their core values. I want to make two points about that. First, it is fashionable to talk about CSR but it would only resonate if it is authentic and not something that is artificially inserted into the companies’ infrastructure. The CSR activities that the company advocates must stem from its corporate values in its commitment to the environment. Second, companies have come to realise that providing solutions on how to address the need of environmentally sustainable development, in and of itself, be a lucrative business opportunity.
Urbanisation will create a set of issues that we have to deal with and the governments will have to address this early, because infrastructure planning in particular will take time. At the same time, there will be significant opportunities and this concentration of humanity that will also create new opportunities for businesses. One example that I want to cite where we have public-private collaboration in this area of planning for the future of cities is a project in China called the Sino-Singapore Tianjin Eco-City. This is a project that has been conceived at a Government-to-Government level between China and Singapore. It is a project for sustainable urban development that it is not just a Government project but involves the private sectors from both sides. As a result, what we are hoping to achieve is a modern city, a city where you have thriving economic activity set within the context of sustainable growth and development. I am hoping that your discussions here can spawn similar ideas, where we can collaborate across the continents and pry our comparative advantages to mutual benefit.
The second area that I thought was worthy to discuss in this Forum is the rise of the middle-class. The sheer fact that the middle-class exercises its propensity to consume and its desire for a better life is going to grow and gather momentum in the years and decades to come. I want to use Asia as an example. According to a study published by the OECD, the global middle class is estimated to grow from 1.8 to 4.9 billion people between 2009 and 2020, with Asia accounting for 85% of this increase. That is because the economic level in Asia have risen, its tide has taken large waves of the population upwards. By 2030, the Asian middle-class is projected to account for more than half of global middle class spending.
As a result, there will be a spike in Asian demand for a broad range of products and services, whether is it in telecommunication or healthcare and education. Singapore, certainly, is a leading indicator of that. We have seen this growth and we are tracking the developments in the region. To effectively tap Asian consumer demand, companies are increasingly seeing the need to customise their products and services based on Asian sensibilities and preferences, as well as to site some of their operations in Asia. Basically, there is growth in Asia consumption and many companies from Europe, the US and other parts of the world are setting up operations here because we increasingly realised the need for products that are conceived in Asia, for Asia, taking into account Asian sensibilities. I can give you a case in point, furniture manufacturers from Italy. Italian furniture brands are very popular in Asia, but Italian furniture designs are conceived in an entirely different environment. When you port that to Asia and think of an urbanised environment type of living condition, you need to change your models to make them relevant. The brand stands for certain design quality and care, but at the same time, you need to customise to the context of the Asian consumer. The Asia consumer story is set to take off in a profound manner, and the opportunities are significant. To help companies seize these opportunities, Singapore established the Institute on Asian Consumer Insight, or ACI. What this institute does is it undertakes multi-disciplinary research, working with companies in different verticals in order to understand what are the trends of the consumer demand in Asia, how they might be different in Europe or in US and how your marketing, product development and R&D strategies can be adapted for the context of Asia.
I am convinced that there is an analogous need and opportunity for the similar effort in Latin America. As young leaders, you can play an important role in determining how your organisation responds to these opportunities in Asia, also in Latin America and other emerging economies I urge you to explore strategies to do so, with your fellow participants.
While the Asian growth story is promising, there are challenges that lie ahead. The flipside of rapid development and a growing middle-class is that Asia is seeing rising income inequality. The Asian Development Bank observed that the gap between Asia’s rich and poor has widened. In the group of developing Asian countries, the Gini Coefficient has increased from 39% to 46%. Over the past decade, the share of income going to the richest households has increased, with close to 20% of total income going to the wealthiest 5% in the region.
This is a global phenomenon and it is accentuated by urbanisation. This widening income inequality is a cause for concern as it can threaten the sustainability of Asian growth and the internal cohesion of Asian societies. Ironically, globalisation and technological advancements which are the drivers of the growth we see in Asia are also the factors that are causing a growing wedge between the haves and the have-nots. While the creation of a global market that all countries and talent can tap has benefitted those whose expertise and skills command high premiums, globalisation poses competitive challenges for the less-educated and less-skilled.
The challenge is to tackle inequality without stunting growth to be able to help a larger segment of the population without dampening the incentives to create wealth and value for those who are able to do so. How do we, as governments, corporate and people-sector leaders, better address our peoples’ demands for opportunity, social mobility and prosperity?
I want to share with you what we have done in Singapore to engender growth that is inclusive and sustainable. On the one hand, we have sought to build an economy that is competitive and efficient, with a skilled and productive workforce. On the other hand, because we want the benefits of growth to reach all Singaporeans, we want to continue to assure people of social mobility and we have invested heavily in education, as well as provided targeted assistance through fiscally-sustainable transfers for the aged, lower income and in general, for the segments of society who may not be able to fully participate in the growth we see around us. I highlight this not because Singapore has found a solution to the problem but it is a challenge that we continue to address as a city that is growing in this region and facing these challenges.
Addressing income inequality is not the sole responsibility of the government. Businesses too will have to play their part, by balancing their commercial objectives with their responsibilities to their employees, and contributions to their communities. Already, some businesses have responded, by reporting the “triple-bottom-line”, they talk about economic value they create as well as the impact of their operations on the community and on the environment. This is but one form of corporate social responsibility – but there are many more models we can explore. And explore them we must, for today’s emerging markets don’t just represent economic promise, but also the opportunity to realise that promise through different models of the compact between governments, businesses and the people sector.
Conclusion
I have touched on a few areas, specifically on urbanisation, the rise of the middle class and also the trends on income inequality, which are some aspects of the transitions that we are seeing in Asia. I think that can be generalised to many other emerging markets in the world. There are still further issues, demographic trends, aging issues and immigration. Today, you will have many opportunities to share your ideas and visions for Asia and Latin America. I want to urge you to think about these issues in a deep way because they are going to be with us for some time to come. We need honest discussions and continual efforts to address them in order to bear results for the people. At this Forum we have a potent mix of youthful energy and diverse cultures which can yield powerful outcomes. You are in an excellent position to participate in and shape the growth of your respective regions and, by extension, the world. Your views and approaches can provide thought leadership, and novel and practical solutions to the challenges and opportunities we face. I wish all of you a very fruitful and enjoyable time at this Forum. Thank you for coming and thank you for inviting me.