SINGAPORE (Oct 23): This month, a local news organisation shone a spotlight on homelessness in Singapore. Volunteers and staff from social welfare groups found 180 people sleeping in public places in one night.

A good number of them have jobs and flats, yet were spending the nights at 24-hour fast food outlets and back alleys.

Yet, the Ministry of Trade and Industry (MTI) has just put out advance economic growth estimates showing that the Singapore economy grew at its fastest quarterly rate in three years, surpassing expectations.

During the three months to Sept 30, GDP was up 4.6% y-o-y, driven by the manufacturing industry — specifically, electronics, biomedical manufacturing and precision engineering.

In fact, the economy could have actually performed even better; the ministry will be updating these figures in November and the broad expectation is that they would be revised higher.

Meanwhile, it is unclear whether employment trends will correspond to such robust figures. The jobless rate, as at 2Q2017, was 2.2%, the highest level in 6½ years.

According to the latest data available from the Ministry of Manpower, total employment, excluding foreign domestic workers, was down by 7,900 from the year before.

And, there has been discouraging data out on retail mall and office vacancies, as well as businesses going bust. According to government data, the cessation rate of companies and businesses has risen significantly over the last two years.

This was especially evident in the retail trade sector. Businesses, especially sole proprietorships and partnerships, have found it more difficult; one of the reasons cited is the lack of access to financing to tide over tough times.

Last year, some 23,000 companies and 36,000 businesses folded. Those figures were roughly 50% higher than in 2010.

The recovery is clearly export-driven and trade-led, given the nature of Singapore’s economy.

But are the “trickle-down” effects still there? “It’s interesting that we have a globally synchronised recovery, but the tide doesn’t quite raise all boats,” observes Song Seng Wun, an economist at CIMB Private Bank.

Does Singapore have a “two-speed” economy of sorts?

At the very least, it is a disrupted one. “Tech disruption can explain a lot of what’s happening, including to retail, taxis, media, telecommunications and SMEs [small and medium-sized enterprises] trapped in the traditional mode,” says Chua Hak Bin, an economist at Maybank Kim Eng.

Essentially, technology has caused structural changes in how the economy functions — from how industries such as manufacturing work, to labour market dynamics, consumption patterns and even demographics.

“As Jack Ma says, manufacturing doesn’t create jobs,” Song says, referring to the Alibaba Group Holding chief’s recent comments that robots and artificial intelligence have meant that “manufacturing is no longer the main engine for jobs”.

Song notes that employment in the manufacturing sector has declined to the lowest levels in a long time, even as the industry still accounts for roughly 20% of GDP.

In the first six months of this year, the number of workers in the sector shrank by 8,000 compared with a year ago. In June, there were just 491,600 manufacturing workers compared with 466,100 in construction and more than 2.4 million in the services industry.

The manufacturing workforce is minimal, compared with what the industry supported before. “So, the growth driver is the technology that creates the economic activity, which adds to the headline GDP,” Song says.

Take, for example, a precision component manufacturer such as Sunningdale Tech. It makes plastic parts for the consumer electronics, automotive and healthcare industries. Its products are exported to customers in the US, Europe and China, where demand for cars and such remains strong.

Over the last few years, business has been brisk. Core earnings in FY2016 increased 34% y-o-y to $31.7 million, on the back of record revenue of $684.5 million. For 1HFY2017 ended June, the company reported a 6.6% y-o-y rise in revenue to $349.4 million, while earnings more than doubled from the year before to $15.9 million.

“We were able to ride the wave of [consumption-led growth] in China and the US,” says CEO Khoo Boo Hor.

Yet, Sunningdale’s growth is not necessarily supported by an expanding workforce.

Rather, it is driven by the company’s initiatives to improve operational efficiency and deliver more complex and higher-value products, the management says.

Indeed, a study by MTI found that manufacturers that ceased operations between 2009 and 2013 were less productive on average.

In other words, the strong headline GDP growth that Singapore is experiencing is driven by industries that have a lean workforce.

Song argues that for the man in the street to really feel his lot improving, what is needed is for the services sector to really pick up.

To be sure, economists note that growth in recent quarters is showing up as more broadbased, and includes domestic-oriented and consumer-related sectors.

MTI’s advance estimates for 3Q2017 show the services sector expanding 2.6% from the previous year, supported by the finance and insurance, wholesale and retail trade, and transport and storage sectors.

Employment in the services sector has also been growing, rising by 7,000 in 1H2017, compared with a year ago. The increase comes from community, health and social services, financial and insurance services, as well as administrative and support roles.

But within the services sector, there are still many challenges. In contrast to the manufacturers producing for export markets, the local F&B businesses have been among those struggling for growth.

Take local restaurant operator Sakae Holdings, which has suffered from a combination of stiff competition, rising costs and weak patronage.

For FY2016, losses widened to $13.1 million from $4.6 million the year before. Turnover was down 10% y-o-y to $86.5 million. For the first six months of the year, turnover was down 22% y-o-y to $33.9 million. Excluding non-operating income, the company recorded a net operating loss after tax of $1.8 million.

“For Singapore, it’s never going to be domestic consumption that can be significant on an overall country level. It’s always going to be export-led growth,” says Song. “How [domestic-oriented] businesses can continue to thrive depends on the four-million-strong labour force — what they spend on and how much they spend on.”

He adds that Singapore’s future depends on participating in what drives growth globally, whether it is in the manufacture or delivery of goods and services, “in whatever form”.

And, tech disruption in the economy is not necessarily a bad thing, Chua says. Technology empowers consumers. “Consumers may extract gains that were previously going to monopolistic companies and the middleman,” he points out.

At the same time, at the state level, newer drivers of economic growth have begun to take shape. The Edge Singapore highlighted in August how the city state is establishing its position as an arbitration hub.

“Singapore may not feature so prominently in China’s One Belt, One Road plans, but if anyone has a quarrel, come to Singapore and sort it out,” Song quips. On a more serious note, he adds: “These [growth drivers] depend less on the population size but more on the quality of the population.”

Nevertheless, manufacturing is still going to be a major contributor to Singapore’s economy.

But the difference today is that the industry is churning higher-value goods with leaner resources. Ultimately, with Singapore’s economy projected to grow at 2.5% annually, growth is not going to be driven by sheer numbers in the workforce, as it was in the 1980s.

The new economy has to find ways to ensure that jobs continue to be created, for the benefits of growth to flow through.

This article appears in Issue 802 (Oct 23) of The Edge Singapore. Subscribe now at