Singapore 2.0: Lee Seeks Smart City Revamp as Old Model Ebbs

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Roads filled with driverless cars, every home linked with fiber-optic cable, gardens in the sky, shining towers of scientists creating the future. Singapore is at it again, trying to plan the next leap up the development ladder.

For 50 years, Singapore has punched above its weight class, thanks to a run of political stability, long-term planning, transparency and openness to investment. Along the way, the tiny Southeast Asian nation turned from a center of colonial administration and trading into a major container port, an oil-refining hub, an electronics manufacturer, and a banking center.

Now as the nation passes the half-century mark on Aug. 9, Singapore’s challenges have evolved. Its founding father, Lee Kuan Yew, died this year, and his son, Prime Minister Lee Hsien Loong, is betting billions of dollars on a “Smart Nation” plan to take the city state to the next level. His task is to take a nation where more than 45 percent of the resident labor still do non-professional jobs like cleaning and staffing assembly lines, and turn it into a global center for research and innovation.

If he succeeds, the country could become a model for other advanced nations that share similar problems -- rapid immigration, reliance on imported low-cost labor, an aging population, lackluster productivity, and rising social and health care costs.

“This is ultimately a long-term vision, there is still a significant proportion of the local labor force that may not have the necessary skill set,” said Irvin Seah, a Singapore-based economist at DBS Group Holdings Ltd. who was part of a government-wide economic review in 2001. “We have often been a test-bed for many interesting economic development policies.”

Speed of Development

A glimpse of that vision can be seen in Jurong Lake District, a 360-hectare development area in the island’s west where the government has installed more than 1,000 sensors to monitor and control everything from vehicles to trash cans. The sleepy fringe of the city is being transformed into a second central business district, with shiny waterfront condominiums, a new Science Centre and the terminal for a planned high-speed railway to Kuala Lumpur.

“Singapore has changed completely, the government does things very quickly,” said Ho Soon Chye, a 60-year-old security officer who earns S$7 ($5) an hour guarding a Chinese temple in the city’s financial district. “But things are so much more expensive. It’s hard for those who don’t earn a lot, and there are more foreigners taking our jobs.”

Ho’s generation grew up in a nation where people’s lives visibly improved under the iron control of a government that made policy for almost every major industry and venture in the state. To make the transition, Lee needs to make the island’s workers more efficient and more innovative and that may mean relaxing that control.

Growth Model

“The Singapore growth model will have to move beyond the institutional strength of the government to human capital,” said Deyi Tan, a Singapore-based economist at Morgan Stanley. “Although the high level of government involvement has been an important feature of the growth model, it increases the economy’s vulnerability to potential policy group think and erroneous sector bets.”

Recent attempts that focused on attracting capital, rather than investment, have had mixed results. The nation has become a regional center for wealth management. The opening of two casinos after ending a four-decade ban boosted growth to a record in 2010.

At the same time, the influx of wealthy foreigners helped widen the nation’s income gap to among the biggest in developed countries, while casino gaming revenue from high-end players have tumbled after a crackdown on corruption in China.

Smarter Organization

Meanwhile, Singapore’s traditional pillars of growth are cracking. Electronics exports have repeatedly declined in recent years, labor productivity fell for a fourth quarter in the first three months of the year and the economy contracted the most since 2012 in the quarter ended June 30.

The latest economic restructuring began in 2010 and has focused on slowing the inflow of cheap foreign labor and urging companies to produce more with fewer workers.

“We will stop talking about productivity and start talking about efficiency,” said Wai Ho Leong, a Singapore-based economist at Barclays Plc. “It’s about smarter organization of the existing resources. The economy is now diverse enough to support pushing into more interesting areas.”

Tech Parks

In Singapore, those areas have gleaming tech parks with names that announce their focus -- Mediapolis, Biopolis, Fusionopolis -- which have lured entrepreneurs from overseas to help turn the city into a cauldron of innovation.

“I was a huge critic of Singapore, I felt there was no freedom of expression and in innovation that’s very important,” said Saibal Chowdhury, an Indian national who decided not to move to Singapore 16 years ago while working for Hewlett-Packard Co. in the city. “I see the opportunity now and that’s the difference Singapore has made.”

His startup, Urbanetic, gives city planners in poorer municipalities access to 3D-imaging for urban planning, and is awaiting approval on a S$500,000 convertible loan from the Singapore government. In many cases, the government is trying to step back and become a facilitator and investor, rather than trying to drive the innovation.

Maturing Investors

“In the 90s they may have wanted to do the investment themselves,” said Kay-Mok Ku, a partner at venture capital firm Gobi Partners who helped manage a S$500 million interactive digital media fund in 2006. “Today we see them more maturing as an ecosystem builder.”

Venture capital deals in the nation increased to $454 million in 2013 from $12 million in 2007, according to Morgan Stanley.

Lee’s administration committed S$16.1 billion to research and development from 2011 to 2015, a 20 percent increase over the previous period. Vertex Venture Holdings Ltd., a unit of state-owned investment company Temasek Holdings, has spent more than $1.2 billion investing in more than 350 startups as well as venture capital and private equity funds globally. Temasek in July announced a joint $200 million venture debt financing fund with United Overseas Bank Ltd.

Growth Sectors

“Our future will depend not only on adapting and perfecting what has been done elsewhere, but more and more on creating value in Singapore -- through new skills and technologies, original business solutions and a spirit of experimentation in society,” Finance Minister Tharman Shanmugaratnam said in a speech on Monday.

Advanced manufacturing, applied health sciences, smart and sustainable urban solutions, logistics and aerospace, as well as Asian and global financial services can help drive the city’s growth in the coming years, the Singapore Economic Development Board said in an e-mailed response to questions. Its corporate investment arm, EDBI, is pursuing opportunities in sectors including digital health, energy efficiency, the Internet of Things and Robotics, the unit said.

“We are starting from a position of strength with global leaderships in multiple sectors,” the EDB said. “To take us to the next stage, we will have to grow our innovation capacity by leveraging the capabilities of our local small and medium enterprises and forging deeper collaborations between local and international companies.”

Great Experiment

To bring its Smart City ambitions to fruition, the government partnered with Dassault Systemes as part of a S$73 million project to create a virtual 3D copy of Singapore so government agencies, citizens and businesses can develop urban technologies. The company is banking on Singapore to prove Smart Cities can be a reality.

“People don’t believe, they have to see,” Dassault Systemes Chief Executive Bernard Charles told reporters on July 16. “Many countries and cities of the world are looking at Singapore as a great experimentation.”

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