SINGAPORE (Aug 6): Singapore’s success as a developed economy can be traced to its ability to leverage different economic drivers over the years. From a regional trading port, the country went into light manufacturing, and then developed one of the world’s largest petrochemical hubs on Jurong Island. It subsequently morphed into a regional financial hub, offering a multitude of banking and financial services. All of these, in one way or another, are still supporting the country’s growth.

But Singapore’s next economic driver is not likely to come in the form of another industry. Rather, it will be the widespread adoption of disruptive technologies — such as artificial intelligence, robots, additive manufacturing and the Internet of Things — that will drive growth.

“These developments have the characteristics of what are called general purpose technologies. The invention of the steam engine and electrification are earlier examples of GPT. Because there is scope for widespread adoption over a whole range of economic activities, [these technologies] have the potential to serve as Singapore’s new economic drivers,” says Hoon Hian Teck, professor of economics and associate dean (faculty matters and research) at Singapore Management University.

Boston Consulting Group (BCG) managing director and partner Michael Tan points out that the traditional view of industries as economic drivers is now less helpful when thinking about future growth. New types of businesses such as Grab are disrupting and blurring boundaries between industries, he says. “The technologies are not restricted to the online world, but increasingly fusing the online and offline worlds together.”

In fact, adopting disruptive technologies could bring about a positive multiplier effect. Tan sees a virtuous cycle that will enable Singapore’s industries and companies to scale and be globally competitive. “The economic benefits are more widespread and [adopting disruptive technologies] encourages more business formation, creativity and energy in the economy,” he says.

The risk now is that Singapore could lose its competitiveness if it fails to adopt and adapt to disruptive technologies. While the country’s economic performance over the past few decades has been exceptional, DBS Group Research warns that the city state now sits at the income frontier. GDP growth rates are lower than in the past decades, consistent with those of other small advanced economies, it says.

Further, the economic impact of Singapore’s unfavourable demographic trends will be more apparent in the next decade. DBS estimates that the country’s workforce will shrink from 2025, owing to declining domestic and foreign labour numbers.

At the same time, the trade war between the US and China could also lead to a more fragmented, multi-polar global trade and economic system in the future. This would reduce the intensity of cross-border trade and investment flows, and make the environment more challenging for small economies such as Singapore, says DBS.

“If Singapore does not get ahead of this curve, there is a real possibility that it could become irrelevant over time, flounder into middling growth or even stagnate, and then it could even fade into oblivion,” says Richard Skinner, Asia-Pacific deals strategy and  operations leader at PwC Singapore. Larger countries might be able to get by with natural resources, but not Singapore, he warns. “Its vibrancy and relevance to the world is in large part due to its economic relevance as a hub in this region.”

So, what should Singapore do now in preparation for the future? For one, industries and companies need to change their outdated business processes and models to reap the full benefits of disruptive technologies. “Oftentimes, these business and organisational changes are underestimated and underinvested [in], thus the full potential is not realised,” Tan of BCG says.

In terms of Singapore’s workforce, Tan says it is crucial for workers to be trained and educated ahead of technological changes. Having a positive view of technology as an enabler, instead of a competitor, is also helpful. “If the workforce has the mindset that technology is replacing them and not augmenting them, they will not get on board with the critical changes needed to be successful ahead,” Tan points out.

And, clearly, innovation is a necessary trait for the future workforce, says Kevyn Yong, professor and dean of ESSEC Business School Asia-Pacific. This involves having the necessary knowledge and expertise, problem-solving skills and a desire to go beyond extrinsic motives, such as rewards and surveillance.

Ultimately, Tan of BCG says Singapore needs to experiment more and predict less. The country needs to encourage more entrepreneurship, be open to new ideas and support R&D efforts. This is in contrast to the traditional top-down approach in economic planning and direction.

Indeed, Singapore has much to lose if it does not evolve its economy. But if it does, the rewards are great. “This is a good chapter in Singapore’s history to initiate exciting new changes,” says Skinner of PwC. “The future belongs to the bold, and Singapore will not be bold if it doesn’t dare to risk.”

This article first appeared in issue of The Edge Singapore (Issue 842, week of Aug 6)