Singapore's Productivity Bottleneck: What can be Done to Arrest the Decline of Productivity Growth?


Singapore has transformed itself into a vibrant city-state with one of the highest gross domestic product (GDP) per capita in the world. However, real growth has slowed in recent years. Singapore fuelled its impressive economic growth primarily through factor accumulation — attracting foreign capital and importing foreign workers — and not increasing productivity. This strategy has now run into diminishing returns.

With a total fertility rate of 1.16, Singapore’s population is shrinking, forcing the country to import workers. In 2017, foreign workers constituted 38% of Singapore’s labour force. A ready supply of cheap foreign labour obviated the need for businesses to innovate or to invest in productivity enhancing technologies. Contribution of total factor productivity to GDP growth, a proxy for technological efficiency, ran into the negatives in the 2010s.

Singapore has to drastically reform into an innovation-driven economy if it is to sustain its economic standards. What can Singapore do to increase productivity levels?

A mindset shift to embrace lifelong learning is important for individuals and the economy as a whole to remain relevant.

  1. Cut foreign labour to reduce dependence
    The government sought to reduce dependence on foreign labour by introducing quotas and increasing levies. These policies have reduced the growth in foreign labour from 144,500 in 2007 to 5,700 in 2017.In recent years, there have been increased pleas to relax the foreign worker quota, particularly in industries perceived to be shunned by locals such as construction, marine shipyards and the food and beverage sector. Relaxing the dependency ratio would be undoing the government’s efforts to force businesses to find more efficient ways of operating. Higher productivity could increase real wages, which may attract Singaporeans back into these industries in the long run.
  2. Hire high-skilled foreign labour instead of low-skilled ones
    The government has created incentives for businesses to hire skilled foreign labour. Employers pay higher work permit levy for basic skilled workers compared to higher skilled ones.Similarly, there have been objections to the revised foreign worker levy system, with some arguing that the levies erode profit. The grouses signify that the levy system has served its intended purpose forcing businesses to recalibrate their strategies and increase productivity.
  3. Upskill existing labour force
    As a multi-pronged strategy to boost productivity, the government also needs to upskill its domestic labour force. Over S$1 billion is invested annually to support the SkillsFuture programme. Construction Registration of Tradesmen and the Multi-skilling Scheme were introduced to allow construction workers to specialise in a specific trade and to master multiple skills. The programme is structured to promote continuous renewal of skills and industrial knowledge.Short-term skill courses on its own is insufficient to enable mid-career transitions or to brace against the pace of jobs being disrupted. A mindset shift to embrace lifelong learning is important for individuals and the economy as a whole to remain relevant.
  4. Build businesses’ digital capabilities
    By supporting enterprises to adopt digital technologies, such as electronic payments and automations, businesses can enhance productivity and widen market opportunities.The government has introduced the SkillsFuture for Digital Workplace programme to enable the shift towards a digital economy. This programme equips Singaporeans with practical skills in emerging technologies such as social media management, online transactions and cloud-based collaborative tools. Tax benefits are provided for companies, especially small- and medium-sized enterprises, to upgrade their technology and procure productivity enhancing capital goods. Digital skills training programmes must be reviewed periodically to ensure its relevance in the future economy. The government must also anticipate and mitigate disruptions related to technological change to ease public adoption. Successful implementation of an interoperable cashless payment system for example, is contingent upon cooperation from different e-payment solution providers and buy-in from small merchants that have long relied on cash payments.
  5. Innovate and create commercially viable products
    Despite being tech-savvy, Singaporeans are not creators themselves. Singapore ranks 25th worldwide in its intellectual property filing activities. However, 85% of these patents were filed by non-residents. To remain competitive, Singapore must aim higher in the value chain and pioneer innovations instead. Cognizant of the potential gains in bolstering innovations, over S$19 billion will be invested over five years under the Research, Innovation and Enterprise 2016-2020 Plan (RIE 2020) to support four strategic domains: advanced manufacturing and engineering; health and biomedical sciences; urban solutions and sustainability; and services and digital economy. Leading universities in Singapore are already part of the RIE2020 plan. These institutions’ research interests must be aligned with the nation’s economic ambitions as well as industry demand.
  6. Rethinking what we teach in schools
    Of all strategies, spurring innovation is most elusive. The “migration” of foreign start-ups and scientists into Singapore indicates the strength of the regulatory environment and ecosystem to support innovation, commercialisation and scaling up. Creating and incubating domestic ideations on the other hand requires a culture of experimentation, risk-taking and the pursuit of entrepreneurship.

Is Singapore’s world-class education system nurturing creativity in young minds? That is a question to ponder.

Tham Yin Yee is a Li Ka Shing Scholar and recent Master in Public Administration graduate at the Lee Kuan Yew School of Public Policy. She is also a Teach for Malaysia alumna and member of the Teach for All Community of Practice for Education Policy.

The HEAD Foundation Commentary is a platform to provide timely and, where appropriate, policy-relevant commentary of topical issues and contemporary developments. The views expressed by the authors are solely their own and do not reflect opinions of The HEAD Foundation.

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