Economic Analysis - Digital Development Plans To Be Positive For LT Economic Growth - JAN 2018


BMI View: The Singapore government ' s plans to develop digital capabilities in the city are likely to see mixed results with 5G likely to take off faster than data analytics. The plans also demonstrate the government ' s forward planning ability as it seeks to shift the country into new sectors in search of new growth engines. We expect the plans to take time to bear fruit due to its long-term nature, but expect them to be beneficial for the economy and we therefore maintain our long-term forecast for real GDP to average 3.1% over the next decade.

In its report, the Committee on the Future Economy (CFE) recommended that the Singapore government build and expand its Smart Nation initiative to strengthen the city-state's digital capabilities. We highlight that the Singapore government has long sought to implement digital solutions in the city-state as a way of increasing productivity and that the government has accepted the CFE's recommendations. However, we note that the Smart Nation plans are likely to see mixed results, with initiatives to develop 5G capabilities and improve the digital capabilities of small and medium enterprises (SMEs) likely to be the first to see results. Programmes that are aimed at developing data analytics capabilities and cybersecurity as well as efforts to harness data to improve productivity are longer term goals that will take Singapore time to develop due to the lack of trained human capital. Overall, we view the gradual shift towards increasing digitisation as indicative of the Singapore government's forward planning ability as it seeks to develop new growth engines and believe that this will bode well for long-term growth. We thus maintain our long-term forecast for Singapore's real GDP growth to average 3.1% over the next decade.

Initiatives Aimed At Strengthening Digitisation

The CFE noted that Singapore can 'tap on the economic opportunities offered by the digital economy' as part of the Smart Nation initiative by promoting 'the adoption of digital technologies across all sectors of the economy'. The report highlighted three main areas of focus: (1) to help SMEs adopt digital technologies, (2) build deep capabilities in data analytics and cybersecurity, and (3) harness data as an asset. The ability to harness more data would also aid the government's ongoing efforts to shift the country away from one that is reliant on cheap foreign labour towards a productivity driven one. The CFE also noted that their broader aim is to 'catalyse the development of the digital economy in Singapore, so that Singapore can be a strong base from which to create and commercialise digital solutions and businesses for the region and the world'.

Strong Mobile Penetration Positive For Digitisation Plans
Singapore - 3G/4G Market
f=BMI forecast. Source: National Sources/BMI

Remaining Focussed On Improving IoT Capabilities

We have long argued that Singapore has significant potential to develop 5G networks and the Internet of Things (IoT) due to the city-state's strong fundamentals (see ' Singapore To Be A Frontrunner On 5G ' , May 30). In addition, the government has been actively working with the private sector to support the development of the fintech sector, particularly in the mobile e-payments sector. As such, we believe that efforts to implement 5G as well as help SMEs adopt digital technologies are likely to be the first to bear fruit as much of the infrastructure has already been established. As part of its recommendations, the CFE highlighted that the government should seek to 'make Singapore an electronics payment society' and we note that some progress has been made in this aspect with the launch of NetsPay in October (see ' Efforts To Consolidate E-Payments Market Positive For Fintech ' , November 2).

Other Plans To Be Limited By Existing Capabilities

In contrast, we believe that the government will face more difficulties in developing capabilities in data analytics and cybersecurity as well as harnessing data due to the lack of expertise and infrastructure. The CFE recommended that Singapore build and root advanced data analytics and cybersecurity as these industries would not only provide core capabilities to support digitisation in other industries, but are also growth industries in their own right. However, the republic currently lacks the skilled labour to undertake such projects. During Prime Minister Lee Hsien Loong's national day rally speech in August, he noted that there was a worldwide shortage of engineers, programmers, data analysts, and technicians, and he spoke of the need to build up Singapore's talent pool. While we do not doubt that the government will undertake the necessary actions to develop a home-grown talent pool while seeking to attract foreign talent, developing the necessary skills will take time.

Trailing Behind
Developed Asia - Financial And Cybercrime Risks, Out Of 100
BMI

Singapore remains vulnerable to cybercrime due to its status as a financial hub and attractive investment destination which serve as a magnet for high profile hackers. This is reflected in its middling score of 83.5 out of 100 in our Financial and Cybercrime sub-index in our operation risk index (with the developed Asia average being 83.4). Singapore's economy relies heavily on internet-based interactions and security and stability are therefore highly important for the country to continue to function as a financial and technology hub, which is likely to act as an impetus for the government to strengthen its cybersecurity capabilities further.

Furthermore, Singapore currently lacks the necessary infrastructure to harness the requisite big data. The country is just starting to build its own network of sensors and CCTVs to enable the more efficient collection of big data, and we believe that there is more work to be done before the government can achieve its objectives. However, given the government's commitment to shifting the country towards productivity-driven growth, we believe that Singapore will likely continue to develop its digital infrastructure capabilities, boding well for longer term growth.

Macroeconomic Forecasts (Singapore 2013-2019)
Indicator 2013 2014 2015 2016e 2017f 2018f 2019f
e/f = BMI estimate/forecast. Source: National sources, BMI
Population, mn 5.36 5.45 5.54 5.62 5.71 5.79 5.87
Nominal GDP, USDbn 299.4 292.8 278.0 277.4 309.3 329.8 353.9
GDP per capita, USD 55,858 53,749 50,216 49,339 54,177 56,947 60,304
Real GDP growth, % y-o-y 5.0 3.6 1.9 2.0 3.2 3.0 2.8
Industrial production, % y-o-y, ave 1.7 2.7 -10.0 9.9 1.3 1.8 2.3
Consumer price inflation, % y-o-y, ave 2.4 1.0 -0.4 -0.2 0.8 1.3 2.0
Consumer price inflation, % y-o-y, eop 2.3 -0.1 -0.6 0.2 1.0 1.5 2.5
Central bank policy rate, % eop 0.00 0.00 0.25 0.50 1.00 1.50 2.00
Exchange rate SGD/USD, ave 1.25 1.27 1.37 1.38 1.38 1.34 1.32
Exchange rate SGD/USD, eop 1.26 1.33 1.42 1.45 1.35 1.32 1.29
Budget balance, SGDbn 4.7 5.2 -2.6 4.0 3.4 2.6 2.4
Budget balance, % of GDP 1.2 1.3 -0.7 1.0 0.8 0.6 0.5
Goods and services exports, USDbn 579.0 577.6 516.7 511.4 524.9 561.6 599.5
Goods and services imports, USDbn 508.8 502.4 438.1 434.6 443.6 474.5 508.6
Current account balance, USDbn 54.1 58.8 57.6 56.5 59.8 63.5 65.6
Current account balance, % of GDP 18.1 20.1 20.7 20.4 19.3 19.2 18.5
Foreign reserves ex gold, USDbn 273.1 256.9 247.7 246.6 258.9 271.8 285.4
Import cover, months 6.4 6.1 6.8 6.8 7.0 6.9 6.7
Total external debt stock, USDbn 1,182.8 1,179.6 1,106.8 1,094.7 1,083.3 1,078.0 1,075.5
Total external debt stock, % of GDP 395.0 402.8 398.2 394.6 350.3 326.8 303.9
Crude, NGPL & other liquids prod, 000b/d 0.5 0.5 0.5 0.5 0.5 0.5 0.5
Total net oil exports (crude & products), 000b/d -1,215.1 -1,267.1 -1,280.0 -1,286.6 -1,293.1 -1,295.8 -1,298.4
Dry natural gas production, bcm 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Dry natural gas consumption, bcm 9.4 11.1 11.1 11.2 11.5 12.0 12.0