Lawrence Wong and the Future of Singapore

Lawrence Wong, a US-trained economist, was sworn in as Singapore’s fourth Prime Minister on 15th
May 2024. He has big shoes to fill. Under long-time former PM Lee Hsien Loong, Singapore became a bona
fide growth miracle and is now one of the richest countries in the world. But Wong is also taking over at a
time of heightened uncertainty. As a small and open economy, Singapore is uniquely vulnerable to global
shocks like the Covid-19 pandemic and the subsequent spike in inflation. Right now, the city-state is
confronted with a de-globalizing world, heightened geopolitical tensions and a no-holds-barred trade war
between the US and China, two superpowers with whom it has close ties. Before diving into issues and
challenges facing Singapore, its key strengths should not be lost sight. The first is having strong institutions.
These include a strong legal system, a predictable regulatory environment, political stability, intolerance of
corruption, a long-term vision for the country, and a highly technocratic and skilled bureaucracy. In addition,
by virtue of its location and population composition, Singapore is a trading and logistics hub with close ties
to China and India. All the above are the sources of its competitive advantage, and Wong inherits these
fundamentals.
At the first glance, then, his challenges seem incremental rather than monumental. He primarily has to
handle with the following vulnerabilities of the economy;
(1) The Covid-19 crisis was a cautionary tale of Singapore’s vulnerability. But the country made a robust
recovery, thanks to substantial fiscal packages, effective use of reserves, and early vaccine deployment.
Although prolonged lockdowns and border closures adversely affected tourism and caused emotional hardship
for its sizeable foreign population, Singapore was one of the few countries that managed to safeguard both
lives and livelihoods.
(2) In the Post-Covid period, the most pressing concern for Singapore is geopolitical risk, particularly the
escalating trade tensions between China and the US, Singapore's two largest trading partners. The challenge
for Singapore is twofold. First, China is the country’s biggest trading partner while the US is its biggest
investor. American firms employ over 200,000 people in Singapore. On the other hand, Chinese family offices
and billionaires have flocked to Singapore since Chinese President Xi 's crackdown on the tech sector. Second,
76 percent of Singaporeans are ethnic Chinese and many have ties to China. This calls for a delicate balancing
act. Singapore will have to juggle not just two superpowers but also manage the tension between top-level
security ties to the US and people-to-people ties with China. Nevertheless, Singapore is well-positioned to act
as a bridge between the US and China due to its strong ties and insights into both nations. This balancing act
is crucial for Wong, who has to rise to the impossibly high standards set by Lee Hsien Loong and the late Lee
Kuan Yew, in foreign relations.
(3) Trade dependence and diversification: In trade, Singapore’s life blood, there are two significant trends.
First, the complexity of Singapore’s exports has increased, making them more vulnerable to supply chain
disruptions. Second, trade diversification has broadened the range of exported products, thereby enhancing
resilience. Services trade, mainly financial and transport services, now play a vital role in the economy. Goods
exports are valued at US$600 billion, while service exports have grown to US$400 billion. However, services
exports will be hit if there is a full-fledged conflict between China and the US over Taiwan, or if the US
weaponises the US dollar, or deploys sanctions as it did against Russia. Here, a way to resilience is to rely
more on domestic consumption and less on exports.
(4) Wealth inequality and its social consequences: Like all rich countries, Singapore has and will struggle in
balancing growth and equality. Rising inflation, especially in housing, food, transport and utilities, has hit
ordinary Singaporeans hard. Although median wages have risen in real terms, the rising prices of basic items
like food tend to hit poorer households the hardest. The influx of high-net-worth individuals and family offices
from China, following the security crackdown in Hong Kong, has accelerated this wealth inequality.
(5) Inflation problems: Wong’s ruling People's Action Party (PAP), which has been in power since
Singapore’s independence in 1965, is aware of the potential political impact of inflation which is hated so
widely that the PAP has cause to be nervous. The next generation of PAP leaders led by Wong may thus usher
in significant changes, not just in policies but the process by which policies are adopted and justified. They
are more attuned to the people’s hopes and aspirations and less focused on growing income and standards of
living at all costs. They are also more open to feedback, more accepting of a vibrant opposition, and even
more comfortable with dissent.
(6) Ageing population and workforce: Singapore faces demographic challenges with one of the world's lowest
total fertility rates. The ageing population presents a slow-burning problem, increasing the fiscal burden on
social safety nets and healthcare. To maintain fiscal sustainability, Singapore must consider tough choices,
including potential wealth, dividend or capital gains taxes. Addressing these demographic and healthcare
challenges will be crucial for Singapore's long-term stability.
(7) The AI impetus: Singapore is ahead of the curve in artificial intelligence (AI) development, having marked
S$1 billion to be invested in the sector over the next four years. The National AI Strategy is aimed at building
a comprehensive ecosystem through developing infrastructure, training talent and fostering research and
innovation. Major investments, such as Amazon Web Services' US$9 billion cloud investment, support this
strategy. Creative initiatives include dedicated AI spaces for creators, AI Centres of Excellence, a
dedicated LLM (large language model) tool within the government, and other AI tools that classifies and
facilitates feedback. However, lacking scale, Singapore faces competition from neighbouring countries
including Malaysia and Indonesia, along with India's push for semiconductor fabrication. Singapore will be
better placed focusing on the application part of the AI value chain. Still, it also lacks renewable energy
resources to meet the needs of the energy-intensive AI value chain. As a result, companies’ consciousness of
their carbon footprint may choose other locations.
Over the past 65 years, Singapore has defied doubters to become the "impossible nation,"
overachieving against formidable odds. To continue that trajectory, it will have to navigate geopolitical
tensions, diversify trade, leverage AI, address wealth inequality and manage an ageing population. At
Wong's inauguration, he acknowledged the challenges ahead and promised “to think boldly and to think far”.
Singapore will need nothing less for its future success.