SM Teo Chee Hean at the Singapore Regional Business Forum (July 2024)

"Enhancing Resilience and Seizing New Opportunities in a Just-in-Case World"

Good morning
Mr Lim Ming Yan, Chairman of the Singapore Business Federation,
Excellencies,
Distinguished guests,
Ladies and gentlemen.

It has been five years since I last spoke at the Singapore Regional Business Forum, and the global business landscape has experienced many changes and upheavals between that speech and this one.

Acute disruptions to supply chains have turned many of our long-held economic assumptions on their heads. Supply chain disruptions caused by the COVID-19 pandemic led to an 8.9% fall in trade volumes in 2020. Although the pandemic is over, other disruptions persist, not least in the form of two brutal wars in Europe and the Middle East. The Singapore Business Federation's National Business Survey for 2023 and 2024 found that 43% of businesses in Singapore were negatively impacted by supply chain disruptions over the past year, and manufacturing was the most impacted.

Climate change caused by cumulative and current human activity is now apparent, not just to scientists who study the subject, but to ordinary people like you and me. We look around and we can see people in countries on all continents experiencing its effects. The International Monetary Fund estimates that natural disasters caused USD120 billion in direct damage globally in 2021. Climate change will continue to amplify the frequency and severity of natural disasters, disrupting economic activity at scale.

Finally, call it what you may, but the desire of countries to "de-couple", "de-risk", or "on-shore" or "friend-shore" for national security reasons or to simply protect their own industries has greatly intensified. The very countries that were the flag bearers of free trade now take the opposite view, and are themselves putting up barriers. The World Trade Organisation reports 153 new trade-restrictive measures implemented globally in 2022, and many of them were justified on national security grounds.

These trends have been apparent for a while, but they have accelerated greatly in the last few years. Governments and businesses affected by these moves are now doing their utmost to adapt.

The theme of this year's forum, is the "End of Business-As-Usual". The risks of a "just-in-time" approach to business have become clear. Businesses and governments are increasingly operating on a "just-in-case" basis, and not just simply lowest cost and highest efficiency but to simplify things as much as possible.

Foremost on the minds of many businesses is how to diversify your sources to create greater resilience to such shocks. The merits of diversification were underscored by the COVID-19 pandemic. Among other things, Singapore diversified our sources of eggs, which one of our source was Ukraine. So, it is good to diversify your sources as widely as possible. Companies with more diversified supply chains adjusted better and recovered more quickly during the pandemic. PwC's 2023 Global Crisis Survey found that 83% of global companies have initiated efforts to diversify their supply chains. Here in Singapore, the SBF's survey shows that 62%, of Singapore businesses are doing likewise.

But it is not just about sourcing. "Just-in-case" also means diversifying your entire business, including markets, products, the locations of your facilities, and even the people you hire. Expanding into new markets can mitigate localised economic downturns and sudden restrictions in market access. Establishing production facilities across different regions can help to reduce concentration risk and supply disruption. Diversifying your workforce by hiring global talent can help you to tap into a broader pool of skills, perspectives, and cultural insights, enabling you to better navigate complex international markets and adapt to shifting geopolitical dynamics in a more agile way.

There is even a case to be made for diversifying your transport routes and means. The stranding of the container ship Ever Given in the Suez Canal in 2021 showed the world how dependent we are on a few key routes and just how vulnerable these routes are to disruption. Just when the memory of the Ever Given began to fade away, the attacks on shipping by the Houthis has raised shipping insurance for the Red Sea route by as much as ten-fold. The detour around Africa adds ten days and US $1million in fuel for each one-way trip between Asia and Europe. We have also recently seen the pile-up effects with many shipping lines and ships using Singapore's port to try to optimise loads and loading.

Finally, "just-in-case" means future-proofing your companies, especially against climate change and sustainable regulatory requirements. It has become crucial for businesses to have a decarbonisation strategy, and to begin pricing carbon in their business decisions as a way to reflect carbon tax. All sectors of the global economy will be impacted in some way or other. You would have read the news a couple of weeks ago, that in Denmark, even cows and pigs are not spared from carbon tax. Businesses also need to consider how to maintain continuity when operations in various parts of the world are inevitably affected by some natural disaster or other. Some of them are also man-made, like the recent IT outage that affected all of us.

Does this mean a return to life before globalisation? Should businesses and countries strive for self-sufficiency and resilience in everything? So, what approach should we take?

The logic of free trade still applies.

Everyone will agree that within a country, if we start putting up trade barriers between different provinces and cities, customs inspections, and tariffs between neighbouring provinces, this would cause major inefficiencies, raising the cost of goods to the consumer within the country. Despite the obvious advantages of reducing friction within the country, some countries may still impose certain frictions because of their own domestic political considerations. Nevertheless, the overarching logic and principle is to strive for the least friction possible.

The logic of free trade applies to international trade. Hence the drive towards market integration and reduction of barriers in EU, regional trade pacts, and the WTO rounds. Unfortunately, nationalistic considerations loom ever larger, imposing ever greater friction in international trade and investment. It has become near-impossible to get any major agreement through the WTO, in spite the efforts of an extremely dynamic and capable WTO Director-General in Madam Ngozi.

But global networks are still needed. No country, no matter how big, can be completely self-sufficient in everything - materials, products, markets, talent, nor technology.

For businesses, this means pairing "just-in-time," wherever possible, with "just-in-case insurance" in areas of critical risk. Short term costs may go up for your company, but in the long run this is the more resilient strategy, and in a time of crisis, this may make the difference between survival and disaster. Assessing and striking the appropriate balance between "just-in-time" and "just-in-case" will be one of the new considerations in doing business, and this must be one of the many things that all of you must consider in many of your company boards and committees.

There are many things that governments can do to help shape a more resilient business environment, regionally and globally, and we hope that this will help keep "just-in-case" costs for businesses in check.

Let me outline three ways we are doing this in Singapore.

First, we continue to encourage regional and global collaborations towards a more integrated world. We do so by complementing the global trading system with regional and cross-regional agreements. For example, we were a key player in the 11-member CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership), and we look forward to the UK's membership as the 12th party coming into force soon. With our ASEAN partners, we are part of the 15-member RCEP (Regional Comprehensive Economic Partnership) which includes China, Japan, South Korea, Australia, and New Zealand, constituting some 30% of global GDP. Singapore is also part of IPEF (Indo-Pacific Economic Framework for Prosperity), and various ASEAN-level FTAs with other countries and regions. These regional agreements complement our existing network of 27 bilateral free trade agreements. They are designed from the outset to be inclusive and open. This is one of the key things that we do when we negotiate FTAs and agreements bilaterally with other countries and with various regional groupings - we want them to be inclusive and open, rather than exclusive and keeping others out. We hope to build stronger links between countries and regions, even in the face of geopolitical challenges.

Second, we are creating partnerships in new domains that represent the future of business, such as the digital and green economies.

The digital economy has tremendous potential for growth. In Singapore, the digital economy was 17.3% of our GDP in 2022, and this is up from 13% in 2017, with its growth outpacing that of the overall economy. To facilitate trade and investment in this sector, Singapore is pursuing Digital Economy Agreements (DEAs) with like-minded partners that will align cross-border data policies and establish common digital trade rules. We have deepened strategic digital economy partnerships with countries and regions like the UK and EU.

The green economy is another area poised for growth. Singapore has signed agreements and MOUs with countries like Australia, the UK, Chile, and Japan that support economic growth and create jobs in green sectors, while also encouraging the decarbonisation of economic activities. These agreements cover a wide variety of areas, including green transport, low carbon energy and technology, high-integrity carbon markets, and sustainable finance. As you know, Minister Grace Fu played a major role in getting the carbon market negotiations in the United Nations Framework Convention on Climate Change (UNFCCC) negotiations moving forward. On carbon markets alone, Singapore has ongoing collaborations and discussions to trade carbon credits with 19 countries, and of these, five countries have formally signed or substantively concluded negotiations on implementing agreements. So we are on the verge of being able to trade carbon to facilitate a more global market in carbon mitigation. This is particularly important for Singapore, because if you are a large country, it is within your own accounting domain between the city and the countryside and you have an internal carbon market. But we are a city and a state at the same time, and if we want to tap on global carbon mitigation efforts, whether they are nature-based or otherwise, then we need international collaboration, international rules in place, and international carbon markets which we are trying to move this forward.

Third, we are helping to lay the foundation for critical new infrastructure that will support regional trading and resilience. Let me highlight two examples.

We are establishing the building blocks for an ASEAN power grid. This will improve regional resilience in power supply, especially green power, which is abundant in the region, but not necessarily in the areas where demand is highest. Different countries, at different times of the year may have a surplus or a deficit of green power, because of the weather and the seasons. So, an ASEAN grid will be most useful in balancing the power needs of all the ASEAN countries. The Singapore Government has granted conditional approval for 4.2 GW of low-carbon electricity imports. We are already importing power via the Lao PDR-Thailand-Malaysia-Singapore Power Integration Project, which is the first multilateral cross-border electricity trade involving four ASEAN countries. 100 MW of hydropower is traded from Laos to Singapore via Thailand and Malaysia. But these projects are still in their infancy in our region, and are sui generis, so we can expect to face hurdles from time to time, even as progress is made.

We are also expanding cross-border digital payment infrastructure, and I think this will become much more important in the future. We had established cross-border QR and real-time payment systems with Thailand, Malaysia, Indonesia, and India over the past three years. I am sure many members present today would have used and benefitted from the convenience of these cross-border QR linkages. However, these are bilateral linkages. We are now working on a single common system with India, Malaysia, Thailand, and the Philippines. This will make it easier for more countries to come on board since they only need to make one connection to the common system, rather than having to negotiate bilateral connections to each individual country. We hope that with this, we will have more countries coming on board, and when you do business in our region, you will enjoy more convenience and probably create more business opportunities as well.

I share these examples to help paint a broader picture of what is happening on the regional and international stage, which I hope will provide a sense of the many business opportunities there are that can be captured in these and other fields.

There is one other important factor that you as members of the SBF and Singapore businesses can count on. Singapore continues to be a reliable and efficient hub for business - in transportation and connectivity, ability to draw on the talented people you need, in touch with the pulse of the latest developments in the region and the world. We maintain links and build ties with everyone. So in this time of turmoil and uncertainty both within countries, and between countries and regions, we remain an oasis of calm and stability, consistency and reliability. This is a huge asset for Singapore, and for businesses that operate out of Singapore. These attributes are at a premium when businesses are looking for a place where they can find safe harbour and reduce their risks. We provide a secure base from which to venture forth into more troubled waters. So, do remember to protect, preserve, strengthen our base, and never take it for granted, and never put it at risk.

I am glad that the Singapore Business Federation and HSBC will be jointly launching a series of internationalisation activities to support over 150 Singaporean companies to gain market insights and establish market connections in the Middle East and South Asia. This is a welcome initiative and just one of many by the Singapore Business Federation to help businesses thrive. I read the recent survey that many companies in Singapore, are now aware of and benefit from the many FTAs that we have signed with various countries and regions.

I trust that today's panels and discussions on trends shaping the global business landscape will help you strengthen your business needs in today's more complex world.

So I wish all of you new insights, new ideas, new friendships during this conference, and thank you very much.

Topics: Economy, Trade