Sustainability of the Growth momentum

We are gradually recovering, more robustly than expected, from the triple trade shocks or the terms of trade shocks that dipped the national income by around 4-5% cumulatively since 2003. After a reasonable economic performance of a real GDP growth rate of 5 % in 2006, the country is looking forward to another year of growth of about 5.3 % powered mostly by the EPZ (6%) and the tourism sectors (7.5%).
The main macroeconomic parameters are showing marked improvements, namely - the investment rate , inclusive of work in progress, peaking at 26.5 %, FDI inflows reaching a high of 4.7 % of GDP, a double-digit goods export growth ,one of the highest since 2001, higher labour productivity growth, a lower budget deficit and debt ratio of 4.3 % and 55% of GDP respectively. Building on some the earlier measures and policies and supported by a comprehensive reform program structured around these four pillars - Fiscal Consolidation and Improved Public Sector efficiency, Improving the Investment Climate, Improving trade competitiveness, and Democratising the Economy through participation, social inclusion and sustainability- the economy  is poised to realize a new phase of growth of  around 5-6 % in the medium term and move to a still higher plateau of growth in the long term. Should we already be talking about a new phase in the economic cycle - of higher growth, of booms ?

 In today’s integrated global economy, the international propagation of economic cycles or global trade swings and exogenous shocks is much faster and they will invariably impinge on our economy which was till recently still well-cocooned and where the economic agents had yet to learn all the tricks of competitive trade and business practices. And in between those bright spots that have caused some to raise  early cheers,  a persistent patchy but advancing blizzard of negative indicators is marring the economic scene- A high current account deficit of around 10 % of GDP, a savings rate of below 17%  , 52,000 unemployed or a historically high unemployment rate of 9.3 %  and  an inflation rate of 10.7 % that leaves us with the difficult  policy choice of trying to shake off  inflationary pressures and entrenched inflation expectations without stealing momentum from the recovery.

Growth will have to be more broad-based to achieve those desired above-avearge rates and the continuing over reliance on few traditional pillars  - like tourism and textiles – leaves us still vulnerable to current changes in the world trade regime and to exogenous shocks. The local tourist sector has been swept by the exponential growth in international tourism. With world growth of tourist arrivals expected at almost 6.3 % for 2007, it would be the fourth consecutive year of growth above the long-term average.  Many regions have witnessed an explosion in tourist arrivals. - South Africa realising 13.% in 2006, Malaysia 7% , Italy 12.4 %, Africa 9.8% and Sub-Saharan Africa 11.2 %. Much of this is due to the continuing world prosperity, the rapidly growing numbers of Chinese and Indian tourists, the expansion of low- cost airlines services around the world, including the emergence of long-haul low cost airlines making it increasingly accessible to a constantly rising share of the world’s population. Make hay while the sun shines!!! How long will it last given the new wave of protectionism and wild market swings in oil and asset prices?  Stock values have fallen sharply in the United States and around the world and an economic downturn appears to have supplanted inflation as the Fed's greatest worry.

In the  textile sector, it seems that we have benefited from fortuitous circumstances. In June 2005, the EU and China agreed to quotas on imports of 10 categories of clothing lasting until 2008. These are: pullovers, men's trousers, blouses, T-shirts, dresses, bras, flax yarn, cotton fabrics, bed linen, table and kitchen linen. Under the agreement, growth in these exports is limited to 8-12.5% per year in 2005, 2006 and 2007.  The quota fill rates remaining at low levels in 2006. Fear of new embargoes disappeared and much larger orders were received by Chinese exporters. As a result, EU's imports began rising sharply by the end of last year. Quota fill rates finally exceeded 80% by the end of 2006 in no less than six categories, including pullovers (5), women/girls shirts (7), or women/girls dresses (26). Statistics covering the use of licences in China confirm that EU's quotas were nearly filled by the end of the year in categories 5 (pullovers), 6 (trousers), 7 (W/G shirts) and 115 (flax yarns). Reflecting the larger demand, quota prices were significantly higher by the end of 2006.  As long as the quotas against China were underutilised, it was not to our advantage. But once the quotas were filled and prices increasing, importers started tapping their traditional reliable sources reputed for their quality and quick response for product delivery and thus our textile sector received a salutary boost. And more so in 2007 as Chinese products  face the new 'green wall' of EU: REACH (Registration, Evaluation and Authorization of Chemicals) law .

So we cannot ascertain that the recovery will not be dented by unexpected shocks .  No, not yet; we have to be cautiously optimistic about the future economic direction, much more needs to be done, and much more needs to be achieved, before we can say that the economy has really taken off. We have focussed most of the radical reform effort on short term macro-stabilization that have redressed to some extent the economic situation and brought back the economy on track. But that will not be enough for establishing a solid base for sustained economic growth and  get the economy going again at full blast ; To anchor the growth dynamics in more solid stuff, now the medium to long term strategies and measures have to fall in line. In each of the pillars of the reform programme, the short-term measures that are being implemented will have to be supported by appropriate sector strategies. The Chairman of the Steering Committee on the Empowerment programme did hit the mark when he referred to the programme as a palliative, for it had to transcend short-termism and be supplemented by appropriate reforms in the education sector. Allow me to share some views on the need for flexibilty and a learning environment that equips us with the necessary tools to be meaningful contributors to the development of our country.  Even Lee Kwan Yew acknowledged that they have been somewhat off-track on the education system; Singapore has claimed that its economic success was built on the high quality of its bureaucrats with the brightest of each generation encouraged to join the civil service; this tradition seems to have sapped Singaporean’s appetite for risk-taking; - too much concentration on rote-learning without enough of emphasis on innovation and creativity. The result is that Singapore lacks a class of entrepreneurs who want to start their own small, and  medium sized businesses- like most education systems they have yet to transform the exam- oriented system to a quality-oriented one and  stop turning out morons, mere multiple-degree holders and  bureaucrats, that are mere “bags of wind”; The biggest weakness in Singapore’s education system is that it overlooks non-academically tuned kids who would make good entrepreneurs; some top schools and universities recently acknowledged that they would reduce the importance of results in selecting applicants and apply greater weight to activities such as application of knowledge, problems-solving skills, sports and the arts. Is it too odd to think in this way in the present prevailing mood of certainties, be it on elitism, poverty, ZEP, identity, language or  you name it ?  

We  will need to take up such similar issues ( like Tianli , the energy gamble, the sugar strategy) ,another time, in our  elaboration of the different strategies within the overall conceptual framework or vision ( the four pillars of the reform programme) that provides the direction, consistency, and focus essential to sustain any long-term process of growth or boom.