SINGAPORE, May 16 -- As the Singapore government seeks to raise productivity by implementing painful structural reforms aimed at reducing reliance on manpower, other Asian economies are also looking for ways to improve their slowing productivity growth.
For the past three years, the Singapore government had poured in massive funds to help businesses restructure, setting target to achieve a 2 to 3 percent productivity growth annually by 2020.
According to the Ministry of Trade and Industry, Singapore's labor productivity registered zero growth in 2013, an improvement from the preceding year which had witnessed a negative growth.
The Singapore case highlights the urgent need for Asian economies to implement reforms to arrest the problem of slowing productivity growth.
While 2001 to 2011 was a good decade for productivity growth in Asia, during which productivity contributed about 10 percent to 40 percent of each economy's gross domestic product growth, Standard Chartered Global Research said.
Recent productivity growth has been softer, mainly due to the lack of reforms in the aftermath of the global financial crisis, as market pressure for reforms was muted by indiscriminate investor inflows to emerging markets.
Demographics in most part of the region will become less supportive or even a drag on productivity growth in some markets. For China, South Korea, Hong Kong, Thailand and Singapore, demographics are set to reverse from being a positive growth driver to a drag over the next decade.
Smaller and more open economies may be able to counter this problem by importing labor, but this is much harder to do for larger economies, most notably China given that it has the world' s largest population.
Standard Chartered suggested that increased urbanization and industrialization could become more important drivers of growth for economies with unfavorable demography.
Despite facing contraction in the working-age population, China still has a long way to go for the urbanization process, which may keep labor productivity growth strong until the next decade. This could also be complemented by improving the quality of human capital.
But the success of boosting productivity very much hinge on how reforms in two areas -- infrastructure and the labor market -- will pan out in most Asian economies. For economies such as India, Indonesia and the Philippines, the onus remains on building up infrastructure and logistics networks. In the Philippines, this will mean implementing energy-market reforms and more private- public partnership projects, whereas in Indonesia, this will require drastic cut of bureaucratic red tape and transparent tendering process.
As Standard Chartered aptly pointed out, the biggest challenge is to create the necessary competitive environment to move these economies up the value chain across the manufacturing and services sectors, as Hong Kong, South Korea, Singapore and China's Taiwan did from 1970 to 2000.
Even relatively developed Asian economies still need reforms such as allowing competitive pressure in the industry to improve productivity. For instance, South Korea now faces the challenge of boosting its services sector productivity growth, which is negative. The reforms are necessary because the majority of the country's new jobs are already being created in services as baby boomers age and join the sector.