Tag Archives: economy

Singapore energy transition II

Going beyond the energy system, there’s another important element to consider for Singapore as we are faced with a world in transition for the energy system. Singapore successfully built itself out to be a sort of energy hub even without domestic energy resources itself. In 2023, Singapore imported 145 Mtoe (million tonnes of oil equivalent) and exported 76 Mtoe. We basically re-exported more than what we consumed as a country for the entire year; and this is because we are largely importing petroleum products to be refined and then exported as more differentiated products. As an economy, Singapore earns the ‘cracking spreads’ from the refinery and drive the economy with that. Technically, it is the oil & gas companies running the refineries that earn that spread.

But more things happen after that, too. Because the refineries are left with a lot of heavy oils at the bottom of the barrel, we have lots of maritime fuels to spare, which coincides nicely with our large transhipment port facilities, together with our highly efficient port system that ensures a strong throughput. These advantages combine to allow Singapore to be the largest bunkering hub in the world. Bunkering refers to the refuelling of maritime fuel for the vessels calling at the port of Singapore. Storage terminals and other facilities will contribute to that.

With that scale, comes along a lot of other opportunities and economic activities that helps drive the economy. Vessels will call at the port to move the cargoes, which means that vessel services are required at the port. All sorts of cargo audit, verification services would be required. Engineering for vessel repair and overhaul could be added to the port city.

If we go back up stream to the refinery process, there are a lot of corresponding supply chain, derivative products that can all be based in Singapore, including some of the petrochemical production, wastewater treatment, waste oil recovery, centralised utilities services for the chemical plants. And it is not limited to manufacturing of course. There would have to be engineering firms, system integration firms, companies stocking up components for all of these plants including valves, flanges, and so on.

So while we can go on and on about the energy transition, when politicians and government think about their economies, there has to be some kind of rational and gradual shift rather than sudden evaporation of all of these activities. I don’t think we have clear solutions yet. For the past decade or so, government had left corporates to plan their own transitions, hoping to create friendly policies which will ‘help’ these corporates along their transition plan.

Now the issue is that the corporates tend to make big ambitious commitments when times are good only to realise they cannot be delivered as the resources they have is insufficient. Better yet, many of them set targets based on assumptions that simply does not hold in a low-carbon economy. So there is mostly empty talk, with no sticks or carrots to keep them in line. This is not just about discipline of executives and managers, but the ability of shareholders and other stakeholders to bear the costs of the changes necessary.

And then in 2020, Covid-19 struck and the government went full steam ahead with interventions, ushering an exceptional era where more expectations are piled on them to intervene directly and set regulations to push the world towards net zero. We all had hoped so through rounds and rounds of COP; but they really only started waking up a bit more during Covid-19. Yet the pandemic left us all weaker, with less resources to cope with the sustainability issues. When the funding and stimulus from the pandemic dries up, it seemed that a lot of plans for net zero had to take more of a backseat.

In Singapore we tried to ramp things up a bit more with the carbon taxes – despite how relaxed it actually is, there were still groans and moans – serious enough for the government to consider some kind of ‘rebates’. It seems to me that pricing carbon wasn’t really enough – just as setting up more tariffs was not going to cause manufacturing to magically re-shore back to America. There’s still a lot of coordination, capacity-building to do.

So let’s work together, and let’s devote some resources to consultants like my kind to help build that capacity and create that capability to moe into the next phase.

Asset prices & markets

I haven’t looked closely into the numbers, but one cannot help but realise that those markets that have grown well over the past few decades, but where stock exchanges or equity multiples have been relatively pathetic in performance, tend to have exceptional performance in the real estate market. Cases that come to mind include Singapore, China, Vietnam and perhaps more recently, Hong Kong.

This makes the proposal from Singapore government on trying to boost the stock exchange in Singapore through this ‘Equity Market Development Programme (EQDP)’ pretty interesting. The initial idea is to have funds that inject liquidity into companies in the SGX beyond just those represented in the broad market index. Mechanics aside, I don’t know how well the intentions are conveyed by the government. Maybe they think it is too sensitive to share or too controversial. I think it’s more interesting to consider the intent properly than the mechanics or the chances of success at this point.

The issue with wealth getting tied up with the real estate market in Singapore and especially for Singaporeans is that it is illiquid as an asset; the value growth can be quite uneven, and more significantly, housing is a necessity so when it becomes a way in which majority of the people store their wealth, it prevents the newcomers from entering the market. Across generations, it can lead to severe distortions in terms of affordability. Home ownership is seen as a cornerstone in the formation of community and Singapore society – owning a home gives us a physical stake, and more importantly, it leads us to take actions that are more long-term when it comes to caring for our surroundings.

So in my mind, the EQDP is more about trying to activate and encourage overall movement of wealth towards the stock market rather than the housing market. After all, not everyone needs to hold a piece of stock but everyone needs a shelter above their heads. We’d rather have asset price inflation in the stock market than to have it in our housing market. Besides, the liquidity of Singaporeans has probably been contributing to the asset price inflation in the stock markets in the US. So why not keep them at home? This, I think is probably a more significant intent for EQDP than just thinking about financial markets development. And I think this social intent is probably more admirable than the calculative sense of how much more economic benefit or mileage we can get out of the markets in Singapore or the spill over financial services impact it can create.

Now whether the mechanisms proposed as part of the EQDP makes sense or not, I’ll perhaps comment some other day. And maybe when it is clearer what it would be.

Duty to vote

So it’s general elections season. It’s really interesting how this general election gives a great sense of a maturing democracy where more capable candidates are stepping forward, and emphasising the need to provide diversity of voices in the parliament. Peers of mine are stepping forward as candidates. I’m seeing even young independent candidates like Darryl Lo stepping forward.

The features of the Westminster Parliamentary system that Singapore inherited create a strong government because of the ‘first-past-the-post’ approach to voting. While the governing party can somehow gerrymander to optimise their support across constituencies, there is a natural limit to that as their vote share decreases.

The other feature is that the system calls non-ruling parties the ‘opposition’. It is perhaps a result of the typical debate terminology where they talk about proposition and opposition. As our democracy matures, we begin to see what it means more and more to be a loyal opposition, and not be misled by this somewhat ‘confrontational’ sense of the term.

Even as the country faces uncertainty from the global situation, this general election thus far fills me with a sense that Singapore is really ‘coming to age’ as a country that is learning to deal with challenges. Looking at the MPs coming from different walks of life and at a broader range of socio-economic backgrounds (at least from my perception), there is more a sense of ordinary people trying to make a difference in the society they live in, recognising it is no longer enough to slog for their own personal lives and expect the society to develop desirably.

What made Singapore’s economy?

One of the reasons I determined to study economics was because Singapore was a country labeled as an economic miracle, and I thought it’d be cool to figure out what was behind it. For decades, we’ve been told that it was the brilliance, hard work and sacrifice of our forefathers, strong leaders and a little bit of circumstances that made us what we are today.

It was a nice feel-good lesson but it wasn’t always easy to make clear of what it means for the future. There was limited strategies that we could adopt out of it. We did also learn that Singapore was a trading hub so it was vital that the world trading system went on and developed, because we facilitate that trade across west and the east, and we served those large vessels, and loads of containers, bulk goods that had to change hands in our location. So the port we had serviced these people and lots of local companies and industries grew to support that.

Even that wasn’t enough; it was thanks to the brilliance of our early leaders which attracted industrial players to set up shop in Singapore, provide employment, opportunities for skills, and provide an industrial core on which we could develop from. To accomplish all that, we need to have good and well-educated labour force, and a very stable environment. The strength of our government is delivering on all of that.

Today, our economy remains extremely reliant on trade, though one may argue that our original intent was to use trade to lift ourselves up enough to develop our own industrial giants and core. A couple of countries like Taiwan, Korea, Japan and even China sort of achieved that but Singapore remains much stronger in terms of the bringing in foreign direct investments, and providing services to parts of the economy that’s doing very well. We have yet to really build up strong giants, opt-ing instead to play the financial game which is heavily reliant on money as an asset.

I think it is clear that we had spotted an opportunity to bring ourselves out of poverty through the economic strategies but after it delivered good results previously. From now, we will need to figure out the way forward that does not merely involve repeating past actions, but improving upon those past actions more radically. Finally, we ought to recognise that our final goal is to create our own industrial champions that can secure a footing in the global stage.

60 years on, we have matured a lot as an economy but I think it’s only the beginning.

Economics and efficiencies

Dr Janeway’s article on False Economies highlights some of the philosophical underpinnings of the modern, capitalistic study of economics that drives the system to behave in ways that endangers the entire economy’s long term prospects at times.

There were so many different themes brought out in the article that is worth more investigation and appreciation. The point that Arrow-Debreu’s work points to the fact that our markets in reality would never be efficient is something that we do not embrace enough of – especially in public policy.

The lack of political courage and unwillingness to be accountable to policy decisions drives the notion that we must ‘leave things to the market’. And today, with the world facing the climate challenge, I do not believe that the market is the solution to deal with the challenge. The political will to align incentives, define standards and mobilise efforts is necessary.

The recent Oxfam study about the rich getting richer faster than the poor being uplifted shows that, indeed, we have enough money to deal with the world’s problems. But far too often, it is either in the wrong hands or working towards the wrong goals. Economics assumes the market would direct resources to the ‘right goals’ but this goal-selection process at present is dysfunctional.

Fast followers

Being a fast follower is a good strategy; it allows you to take in the lessons from those who have tried and failed first. It is even a strategy that enables you to become a leader from public’s eyes.

But the challenge for the fast follower who gained leadership status is falling into the trap of thinking they are the leader. Their skills in curating what they learnt from the mavericks, scaling what was small and bringing things to market fast, are not going to be suited for what is required to take real leadership: influencing the market, uncovering innovation from their own values and principles.

They may have to pivot at some point when they’ve outcompeted all those whom they were fast-following.

Who foots the bill?

You bought an expensive foie gras meal and paid for it but can’t finish it. So who foots the bill?

If you finish it and get sick as a result? Is the doctor’s fee part of your foie gras bill?

If you don’t finish, and it goes into a food waste heap that requires public subsidy to manage and clean up, are the taxpayers footing your bill?

Would knowing all that change your decision to buy that foie gras meal?

What if you knew the future path of your choices? Who would you allow to foot the bill? How far ahead would you care about the consequences of your actions?

This is a story about externalities, cost and consequences. Who should care? Who should we care for? How much should we care? No one teaches us all these? We have to work them out and make decisions.

What stays the same

Interesting how just when I was thinking about pivot points for change, I chanced upon this Farnam Street article on Bezos and Buffett’s thinking on the impacts of the new on the financial markets. The focus is not so much what will change but what stays the same.

Governments around the world would benefit from the same way of approaching problems – not so much by considering what will change but rather, what is going to stay the same. It is more important to consider what are the new elements that can build upon the existing than to go wild with considering what could throw things off the current course (why, everything and anything, of course!)

Transition economics

What happens in economics when technological innovation happens? There’s a bit of dilemma between technological progress and economics because technology needs to progress to a stage when it upend the economics of an established technology – yet the incumbent is often enjoying scale economies as well as other effects such as network economies that can make it incredibly difficult for the new comer even if it is superior to existing technology at the scale that the incumbent operates.

In the Innovators’ Dilemma, that was being described and the strategy as well as the market approach is always for the new technology to chip away at the market of the incumbent technology by being appealing enough to a small group in the market to help it grow its scale and challenge the incumbent on more fronts gradually. Can the new technologies that we are trying to cross over towards make their way through this path in order to break the dominance of the incumbent technologies?

They probably won’t be able to move fast enough. And that is probably the justification for government to intervene and encourage developments. Yet governments do not want to be seen as favouring particular technologies. There is also a concern about creating inefficiencies in the market by distorting prices or forcing the taxpayers to shoulder the wrong costs.

Yet in reality, for the world to create a better future, there’s no real ways around it. The modern world was not built by shielding taxpayers from the wrong technological investments nor from carefully betting on the right technologies to take off. The complex problems around climate issues today are not so different from the public infrastructure challenges that people faced in the time before government had the kind of powers they have today. They are more complex, and we probably need more talented people working on them, both in the private sector as well as in government. In fact more so in government than ever.

The challenge remains the cost-benefit paradigms and all the free-market type principles to government and what intervention should be like. Without more mission-oriented policy-making principles and a system that is properly leveraging talents and passion, it will be difficult for governments around the world to assume the kind of role and leadership it needs to lead the transition.

Con-tinuing

Despite the bad press for EY in Germany and PwC in Australia; the big four and their sprawling professional services activities continues to grow. Accounting and audit services aside, advisory services appears to be in demand across the international business world. Overall across the economy, as best practices across the industry spreads, companies becomes more competitive and efficiency goes beyond just market prices and matching of customer demands. Innovation takes place as well.

Consultants, through advisory services helps information and knowledge work themselves out in the market. Mariana’s Big Con argument about economic rents however, might still somehow stand in the sense that the fees they attain may be somewhat outsized compared to the value created. And I’m referring more to generic type of business consulting as compared to technical advice or consulting that augments capacity of businesses during special situations such as a transaction or some kind of innovation project.

Yet I would say that the bigger con that is present in the market is the financialisation of our economy and everything that the financial industry abd banking does to generate rents. The issue is that the labour of financial industry keeps serving capital, and capital, with its sustained bargaining power (as pointed out by Thomas Piketty), continues to direct rents towards the financial industry.

The main force that can change this will be the government and regulators; there has to be more research and thinking around the manner we are setting up our economies.