January 21, 2017


by Ryan Ong

AIRLINE ticket prices work like a Singaporean driver’s turn signals: random, or based on rules that only make sense to them. That explains the rise of airline ticket comparison sites. But before you start booking that trip to Syria (or whatever’s a popular holiday destination these days; I don’t keep up with tourism trends), you should know a few things about how flight comparison websites work.

by Ryan Ong

SINGAPORE’S wealth-per-adult is up 1.4 per cent so we’re still one of the richest countries in the world despite recent slowdowns. The source comes from a report by Credit Suisse which will shortly be puzzled why a third of our population now hates their guts.

I wouldn’t have done it if I were you, Credit Suisse.

See, praising Singaporeans about our wealth is like congratulating your buddy on his million dollar insurance payout. A payout that came after he lost most of his face in a horrific bus accident. You don’t know if you’ll get a smile or a punch in the mouth. Singaporeans are wealthy by comparison to many countries, but there’s a price to it that not all of us have agreed to pay.

by Ryan Ong

TWO hundred and forty per cent interest. That’s what was charged to a local business owner, who just managed to dodge the moneylender’s attempt to have him declared bankrupt.

Licensed moneylenders, who provide “short term loans” or “payday” loans, are not a plague unique to Singapore. They’re everywhere in the world, because sooner or later every criminal learns it’s easier to wear a tie, and use contracts instead of guns. And as for laws and regulations, our moneylenders are geniuses at finding loopholes.

by Ryan Ong

FINANCIAL technology (Fintech) is really catching on, and last week, Singapore just hosted the biggest Fintech convention in the world. Amid the expected rah-rah, there were a fair number of banking executives who were walking around with shark-eyes.

Despite their “we should look for venues to work together” speeches, I doubt anyone was fooled as to why the banks were really there: they were scoping out the competition. They were likely working out whether they were going to kill it, or kill it and then eat it afterwards. Here are the Fintech ideas that banks are already “stealing”:

by Ryan Ong

THERE is a slight schizophrenia regarding Fintech in Singapore. On the one hand, we’re the sort of people who will walk three blocks to throw a candy wrapper. We like well-defined rules, and Fintech is inherently disruptive to the rules. On the other, we like to complain we’re not innovative enough, and really want to do something about it. So the regulatory sandbox proposed by the Monetary Authority of Singapore (MAS) is a nice compromise between these two conflicting impulses. Now, new Fintech companies will be allowed to disrupt as much as they like – within a fixed space:

by Ryan Ong

INSURANCE is like the spleen, or the pineal gland. No one except a handful of specialists can explain in detail how it works, but we all know it’s important. For the longest time, insurance was a thing you bought because everyone said it was important, and you kind of hoped the payout would be there when you need it. It’s also a huge, clunky industry burdened by middlemen, paperwork, and asymmetric knowledge (more on that below). Industries like that invite disruption from the Internet:

by Ryan Ong

CONTRACT workers and freelancers have been called “the new pioneer generation“. But at the same time, Deputy Prime Minister Tharman Shanmugaratnam has expressed misgivings about the “gig” economy, in which contractors rather than employees fill often temporary roles.

While it’s clear there’s no winding back the clock (it’s largely impossible to just remove the gig economy, without setting Singapore back by decades), the gig economy is set to cause a split. Some will see it as a form of progress that should be mainly left alone, while others will demand greater government intervention.

by Eugene Toh

THIS time, the problem isn’t the same as what happened in the global financial crisis of 2008.

That crisis was a “sudden shock” to the economy. The economy was doing well – until it wasn’t. High growth was seen in the two years that preceded it, in 2006 and 2007. Inflation was at an all-time high.

What about today? Latest figures show that the economy contracted in Q3 this year – by 4.1 per cent compared to the previous quarter. It will be a technical recession if we have two consecutive quarters of negative growth, but we don’t need the next quarter’s data to tell us that the economy is doing badly.

The difference is, we are not facing a sudden shock this time.

Growth has been slow since 2014 and has only continued trending downwards. The problem has been eating away at us but we don’t feel that bad since it is progressive. Unemployment has been slowly rising, with resident unemployment hitting 3 per cent in June, the highest in five years.

The economy is facing multiple problems and there are no quick fixes. Which means it may be time for some drastic action to be taken.


How did we get here?

The first problem lies with the weak global growth affecting our trade. On a year-on-year basis, our non-oil domestic exports had fallen by 4.8 per cent in September.

This problem was likely made worse from the recent events in European Union and the United States. Brexit derailed the financial markets because investors were not certain about the negative repercussions on the economy from UK’s withdrawal from the EU.

The US presidential elections may have the same impact on financial markets, especially if investors do not take it favourably that the economic climate will likely remain stable in the hands of either candidate.

Both candidates have actually stated that they were not in favour of the Trans-Pacific Partnership (TPP) which could affect Singapore’s trade prospects if the deal does not follow through.

A major difference this time, however, is that China is slowing down as well.

China’s slow-down and its move away from exports-led growth has pulled down regional economies like Malaysia and Australia, because it doesn’t need their commodities as much as before. Without China motoring at full speed ahead, there is little else to “counter-balance” the weaker advanced economies.

Who’s buying anything? Hanjin shipping, one of the world’s largest shipping companies has already gone bust. This has partially to do with the slow-down in demand for shipping services. The crash in oil prices tell a similar story of the global economic slow-down.


Labour pains

The other problem we have is a tight labour market since unemployment is only 2.1 per cent. The tight labour market is a demographics problem. Singapore faces an ageing population and there are three ways to address this. We could (1) increase birth rates, (2) import more foreign labour, or (3) try to increase our productivity.

We have been trying to increase birth rates, but our Total Fertility Rate (TFR) is still nowhere near replacement levels. Since we are no longer amenable to bringing in vast numbers of foreign workers to supplement the workforce, that leaves growth in labour productivity.

“Productivity” has been a buzz word since 2010 but it is not easy to increase labour productivity. It is a long and painful process which may not always yield results all the time.

In some years, we actually see negative labour productivity growth in spite of the policies implemented. The negative productivity growth in some years could be due to the pains from restructuring.

This is a painful process because restructuring is neither straightforward or quick. Firms can possibly take quite some time to do so, and this could lead to fall in labour productivity during experimentation.

But even with the slow productivity growth, we’ve had increases in median wages at a rate higher than recent economic growth. So firms have to absorb these higher costs without being able to pass them on due to the weak economy. This makes doing business here more challenging and makes us less competitive.

Singapore has always been very opportunistic in “riding the wave”. We have been able to achieve phenomenal growth like we did in 2010 because of our swift ability to attract investments and expand production when the economy recovers.

If we continue to tighten the foreign labour inflow, however, firms may not be in a position to maximise the benefits from an economic recovery. It is no longer an acute infection which we can cure with a Resilience package, like we did in 2009 which had policies like the Jobs Credit Scheme.

As Prime Minister Lee Hsien Loong said on Tuesday in a closed-door dialogue with 300 labour movement leaders: “It’s not an infection that can be cured with one course of antibiotics, but something that we have to work at over the long term.”

Indeed, this has been a slow acting disease and we will soon start to feel the painful effects. The G has been propping up demand with public infrastructural projects, which has helped with growth in the construction sector, but this alone is not enough.

We cannot possibly keep throwing money at the problem. Perhaps some bitter medicine is in order.

Foreign labour force growth largely powered Singapore’s economic growth over the last decade. Could we perhaps loosen this tap a little and allow for some flexibility and let firms capture the opportunity when the economy starts to recover?

Could we take the same approach with foreign labour? Ease the tap for a two- to three-year period, with an intention to tighten it again at a later stage?

Our problem with the inflow of foreign labour was that it was too fast, too furious. We could approach the foreign labour issue the same way the G approaches the budget. The G is allowed to within its four- to five-year term in office, utilise surpluses generated within the term to finance deficits that happens within the same term.

Could we take the same approach with foreign labour? Ease the tap for a two- to three-year period, with an intention to tighten it again at a later stage?


A cold solution

If not, another option would be to increase productivity growth to match wage growth. But can productivity growth play catch up? We know that economic restructuring can’t be rushed. If the drive to boost productivity growth doesn’t pan out the way we expect it to, then it leaves us with the only last option: freeze wages.

The National Wage Council last recommended a wage freeze in 2009. That was probably not too hard for workers to accept since there was the crisis in 2008. With this “special disease”, however, is the fear and pain enough for people to be willing to accept a wage freeze?

Another place to look at in terms of wages would be to reduce employers’ CPF contribution rates.

Historically, Singapore has always been willing to take very drastic measures to cut employer CPF contribution rates – like when we cut employers’ CPF contribution rates in 1985 by 15 per cent. That could be considered as a stop-gap measure to maintain competitiveness, but for it to be useful, this has to be in place until productivity growth can fully catch up with wage and economic growth.

The reduction in CPF contribution rates should not be an arbitrary number, but the difference between labour productivity growth and economic growth rates. This, of course, will not an easy pill to swallow either.


Bitter but better

Will the G, the nation’s doctor, prescribe such bitter medicine for its people? And will the people understand why such medicine is necessary?
The G can choose. It can present the solutions to the public and insist that the bitter medicine has to be taken. It may even prescribe other “medications”, such as its multi-billion dollar Industry Transformation Programme launched this year, for short-term pain relief.
But to cure the economy of its current disease, it will need something stronger.
Eugene Toh is a Singapore Management University student completing a Masters of Science in Applied Economics. He can be reached at his websites, www.tuitiongenius.com and eugenetoh.sg.


Featured image by Sean Chong.

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by Ryan Ong

ARE you sick and tired of money? Do you think employment sucks? If so, I have great news for you. On the other hand, readers who have made unfortunate life choices – such as being an adult with responsibilities, a mortgage, and a preference to feed their offspring – might want to get a paper bag and some anxiety medication. You see, Singapore’s shipyards have started to grow quiet. And when a port city’s shipyards grow quiet, that’s a sign that the next import is a whole bunch of layoffs.

Singapore’s quieter shipyards: what’s the deal?

Our shipyards have lost the flood of foreign workers that totally non-racist Singaporeans like to complain about. That tends to happen when major oil companies cut back on projects, which has happened due to the slump in oil prices.

Due to a global oversupply of oil and shrinking profits, oil companies are no longer interested in activities like exploration drilling.  Their scale-back started as early as mid-2014, but the sheer amount of cost-cutting only started to hit home in January 2015. At the time, Royal Dutch Shell raised eyebrows when it cancelled the Al Karaana project, a multi-billion dollar oil effort with Qatar Petroleum.

As oil prices continued to stay low, more companies followed suit. British Petroleum (BP), for example, has abandoned its $1.06 billion exploration of the Great Australian Bight, which is just one “L” short of an appropriate name had BP gone ahead.

This is bad news for Singapore’s shipyards.

Singapore is big on building equipment for oil and gas companies. In fact, Keppel is widely recognised as the world’s largest builder of offshore rigs. Singapore is especially noted for the construction of the jack-up rig, which is used to drill for oil in shallow oceanic waters. In July this year, Sembcorp Marine even delivered the world’s largest jack-up rig (that’s not a sign of recovery, the rig was ordered and put into construction long before the plunging oil prices).

So to be clear, we’re major players in an industry that’s taken a massive hit. Sembcorp Marine for example, delivered eight rigs in 2014 and reported a profit of $560 million. But in 2015, this had fallen to just one rig delivered, with a reported loss of $290 million. Keppel, which has seen its revenue fall by 37 per cent year-on-year, was expected to deliver 15 rigs in 2015. However, only seven were delivered, as Keppel’s customers requested delays.

In addition to the low demand for rigs, Sembcorp and Keppel both also produce drill ships and semi-submersibles, which are used in exploration drilling. With their major client Sete Brasil, facing financial difficulties, it could lead to defaulted payments of over $10 billion.

But this is where the money problem only starts, and it’s begun to spread.


From the shipyards to the banks

Overseas Chinese Banking Corporation (OCBC), United Overseas Bank (UOB), and the Development Bank of Singapore (DBS) are the three largest local banks. All three of them are the main lenders to the oil and gas industry, and all of them are starting to suffer from the oil industry’s problems.

The latest incident was the default of Swiber, an oil company formerly valued at $50 million. Swiber is now in liquidation, and DBS may only recover half of the $700 million owed to it by Swiber. But DBS is not the only bank sweating about the oil and gas situation.

According to the Financial Times, UOB’s loans to oil and gas related companies are around $9.3 billion, or about four per cent of its loan book (the loan book refers to the record of all the loans owed to the bank). DBS has loans of about $17 billion to oil and gas companies, or about six per cent of its loan book.

Those percentages may seem small, but they’re not insubstantial – most of the assets banks have come in the form of money owed to them (banks only retain a small fraction of all the money deposited in them), so defaults in the billion dollar range are a serious issue. On top of that, we’re likely to see further defaults in the coming year, unless oil prices can climb significantly.

In addition, the worry is not just about Non-Performing Loans (NPLs). There’s also the issue of the banks being able to make money, by issuing new loans. With the oil and gas industry scaling back, there is less demand for bank loans, and hence less opportunities for banks to earn off the interest.


From the banks to your pockets

Singapore’s other main business, besides oil and gas, is its finance sector. Now it’s unlikely that our finance sector is going to collapse on the basis of oil and gas industry issues alone – the situation is worrying, but not yet critical. It’s like that moment when you bend your ankle in a funny way, and it’s sore but you’re not entirely sure it’s broken yet.

But it does mean that the finance sector can’t expand, and that aggressive downsizing may be on the horizon. This has certainly been the case worldwide, due to a weak global economic outlook (oil prices are only one part of the problems facing us, next to economic slowdowns in China, Brexit, and rising political tensions). Singaporeans in the finance sector have already voiced worries about potential layoffs.

Should mass retrenchments occur in banking, it will contribute to the glut of older Professionals, Managers, Executives and Technicians (PMETs) who have been laid off. In 2015, Singapore had over 15,000 layoffs, a number not seen since the financial crisis in 2008/9, and PMETs made up the bulk of these.

Looking beyond the banks, we also need to consider how insurers are affected. Singaporeans who depend on Investment Linked Policies (ILPs) for their long term retirement, for example, may find their sub-fund sinking in light of the oil and gas situation. Banks are not the only entities to purchase bonds issued by oil and gas companies – insurers may also have done so.

Likewise, Singaporeans with mutual funds, or accredited investors who have been convinced to purchase bonds in oil and gas companies, will be impacted. For example, relationship managers in private banking convinced some Singaporeans to buy Swiber bonds, potentially wiping out a few retirement funds.

What we’re seeing are the beginnings of a serious financial problem. The oil price slump is not recovering fast enough, and as a country we’ve found ourselves heavily invested in two sectors (oil and gas, and finance) that are facing difficulties.

At the very least, the average Singaporean will now have a harder time planning for retirement: it’s hard to decide where to put your money, when interest rates are low yet markets are volatile. The woes already visible in our shipyards may soon be creeping further inland.


Featured image by Sean Chong.

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