Friday, August 17, 2012

S'pore richest in the world? Not quite

It even predicted that Singapore will continue to top the rich league table in 2050.
The Wealth Report 2012, conducted by real estate firm Knight Frank and Citi Private Bank, said Singapore's gross domestic product (GDP) per capita - its economic output divided by its population - was US$56,532 ($70,450) in 2010.
This placed it higher than Norway, with GDP per capita of US$51,226, and third-placed the United States on US$45,511, US$10,000 less than Singapore.
Similar reports that track GDP per capita, however, do not place Singapore right at the top. For instance, the World Bank and the International Monetary Fund, which has a far wider sample size of about 180 countries, have not placed Singapore at the top.
The World Bank placed Singapore fourth in its 2010 rankings while the IMF placed it third, below Qatar and Luxembourg, which were absent from the Knight Frank Wealth Report, which surveyed just 58 countries.
Similarly, Singapore, while a country in itself, is really a city.
As Prime Minister Lee Hsien Loong pointed out in June, Singapore is not even in the top 20 of the world's wealthiest cities, according to an index study from the Brookings Institute in the US.
The Knight Frank-Citi study also predicted that Singapore will have a GDP per capita of US$137,710 in 2050, and so retain the top spot on the wealthy list.
This projection assumes Singapore will grow by an average of 2.25 per cent a year from 2010 to 2050 - not an outlandish estimate by any means.
Economists estimate that the underlying growth potential is between 3 per cent and 5 per cent, so 2.25 per cent a year seems achievable.
But while the report reflects business confidence in Singapore's future, as the centre of a rising Asian region, it is also questionable how reliable such forecasts might be. It takes a lot of confidence for an economist to project 10 years down the road, much less 40.
OCBC economist Selena Ling said: "To assume Singapore will just be able to grow without interruption and still be at the top in 40 years' time - I wouldn't bet on it."
As it is, the past few years have shown a remarkable period of volatile growth, with Singapore sinking into recession in 2009 and then bouncing back with a record 14.8 per cent growth the following year.
The next few years will be marked by painful restructuring aimed at lifting productivity while reducing reliance on foreign workers. This will be a major challenge for policymakers, so expect growth to be choppy as productivity catches up.
And whether Singapore can then resume growing steadily will be determined more by the external economy and less by its own efforts.
But perhaps the biggest criticism against such studies is that GDP per capita is essentially an average number, which can be skewed by extremes. There is also a perception that GDP per capita is equal to incomes - it is a measure of wealth but is not a wholly accurate one.
Given that there is a wide income gap in Singapore, this means that, for the average man on the street, the high GDP per capita is probably not the most significant indicator.
Singapore's Gini coefficient - a measure of inequality - was 0.473 last year, one of the highest among developed countries.
Lee Kuan Yew School of Public Policy Associate Professor Tan Khee Giap noted that the average figure is not representative for economies with income disparity.
"For Singapore, do you think that the average worker earns $70,000 a year? That sounds more like an upper-middle class professional," said Prof Tan.
The monthly median income in Singapore in 2010 was $2,710, or about $32,520 a year, half the GDP per capita figure in the report.
Focusing on the high GDP per capita number is missing the forest for the trees. Singapore has not "made it" economically, and there remain many challenges ahead, such as an ageing and shrinking population, as well as the need to maintain economic competitiveness and social cohesion.
If the rosy forecast of Singapore staying at the top of the rich league is to be a reality, these challenges, and many as yet unforeseen, will have to be tackled successfully. And that, is not a given.