DPM Heng Swee Keat at the 16th WELT Economic Summit

Dr Mathias Döpfner, CEO, Axel Springer SE, 

Good evening.  I am very happy to be here to address champions of the business community in Germany. 

I am particularly delighted to be here as we are celebrating the 60th year of diplomatic ties between Singapore and Germany this year. Our Leaders also recently elevated our bilateral relationship to a Strategic Partnership.

Tonight, allow me to share some thoughts about global developments, the profound challenges we face, and what we can do together. 

Challenges from 4Ds: deglobalisation, digitalisation, demographics, decarbonisation

The German economy has undergone significant transformation from the post-War period. 

Today, Germany is an industrial global powerhouse. Many of you and your companies are global champions. 

But the challenges facing businesses today are more intense – in Germany, Europe and around the world.

The churn rate among enterprises has risen sharply.

Of the DAX40 companies today, only 11 were in the original list from 1988. 

Let me highlight four challenges, which I will describe as the four ‘D’s.

First, the risk of Deglobalisation.

We have advanced from the global division of labour to a retreat from globalisation. Why? 

Post-war, globalisation thrived. There was a high degree of economic complementarity between different regions. Advanced economies had higher capabilities but higher costs, so they invested in developing economies with lower cost. Now this raised incomes on both sides, spurring productivity and consumption, and lifting growth all around.  Billions of people benefitted as global per capita GDP grew 11 times in the last 50 years.

But with their growth, developing economies are also growing in capability. They are now competing in advanced manufacturing and other high-tech sectors. China, for example, is a leader in global solar and battery technology, electric vehicles, and pharmaceuticals.

In short, the complementary relationship between advanced and developing economies is turning more competitive. This brings adverse impacts to both sides, including our workers.

In response, some advanced economies are raising tariffs and enacting national industrial policies. 

The second ‘D’ is Digitalisation and the rapid pace of technological advancement.

In the 1980s and 90s, Germany and Japan were leading industrial powerhouses. Their focus on engineering capabilities and strong execution, and attention to detail produced manufacturing excellence.

With the digital revolution around the year 2000, the US surged ahead.  Web 1.0, Web 2.0, and Web 3.0 unleashed new waves of innovation. The internet and e-commerce transformed the global marketplace. 

We are now in the era of Industry 4.0, where physical, digital and biological technologies combine. Artificial intelligence and advanced robotics are reshaping every sector, from manufacturing to financial and professional services. Biotechnologies, including the use of mRNA and gene editing techniques like CRISPR, are reshaping medicine. 

Economies are moving at different speeds to ride these new technological waves, which in turn affects their economic growth. The Digital Riser Report ranks Germany 6th among the G7 for digital competitiveness, and 17th among the G20. In the same vein, Germany has 1.9 AI startups per 100,000 residents, less than half compared to the US and UK.

The third D is Demography – in particular the combination of ageing populations and declining birth rates.

It is a blessing that better health care and improved medical technologies are extending our lifespans. In 50 years, life expectancy in Europe has increased from 71 years to 81 years.

But ageing societies face higher healthcare and pension costs. Health spans – or years spent in healthy life – have lagged behind. The average person spends his last 10 years in poor health. Policies to extend retirement ages by delaying pension benefits are politically difficult. We are also spending more years in retirement and policies that extend retirement ages or delay pension benefits are politically difficult.  And in turn, this decline in labour force adversely affects growth. 

The alternative is to augment the workforce with immigrants. But it is a tough balance to match immigrants with the right skills to the right jobs and complements and not displace the local workforce. Immigrant workers and new migrants often find it hard to assimilate, especially when they come from different religious and cultural backgrounds. The speed at which immigrants can be assimilated has its limits.

The fourth ‘D’ is Decarbonisation - we need to tackle climate change urgently.

But we need to calibrate our energy transition carefully. With geopolitical risks rising, the security of supply is critical. And if energy costs are too high, the competitiveness of many industries will suffer.  

So there are difficult trade-offs that require pragmatic and creative solutions. 

Global leadership vacuum to tackle the 4Ds

Each of these challenges is a wicked problem. But put together we face economic, social and political ripples that interact in unpredictable ways.

We urgently need a consensus both globally, and within societies, to tackle them head on.

Today, the global consensus is not there. There is a big trust deficit and strategic competition between the two largest economies, the US and China.

So instead of providing global leadership to tackle the 4Ds, we face the prospects of bifurcated and decoupled supply chains and technological networks. At the very least, everyone is thinking how do I have a more resilient supply chain?

Without this global leadership and with this bifurcation, we are going to face higher costs for business and this lowers the growth potential of the global economy. 

So we hope that the two major powers can find a modus vivendi, to accommodate each other’s concerns and to build strategic trust.

But in the meantime, the rest of the world must come together to drive growth, improve the lives of our peoples and protect our planet. 

Internationalisation and structural reforms to drive the next bound of growth

Fundamentally, we can grow the international economic pie in two ways. 

First, by sustaining the global division of labour, so that all economies gain from trade and exchange. 

This requires us to find new sources of complementarities, across the global economy.

Second, to harness competitive market forces to drive innovation, especially around new technologies. 

So let me suggest a two-pronged approach that advanced economies like Germany, and small open economies like Singapore, can pursue together.

First, to deploy existing strengths to new markets. This enables the diffusion of more productive processes and creates complementarities especially with emerging economies.

It is in the interests of advanced economies to champion free trade and economic integration. 

The EU Single Market has brought many benefits since it came into force in 1993, most certainly to export-oriented economies like Germany. I am told that among the DAX40 companies, 80% of your revenues come from overseas. 

Bilaterally, the EU-Singapore Free Trade Agreement, in force since 2019, has raised our trade in goods and services by more than 20%. 

I encourage the EU and Germany to remain strong advocates for free trade. Your recent FTA with MERCOSUR is a good step forward.

Many emerging economies in the Asian region still believe in the value of free trade and investment. So, besides the bilateral EUSFTA, the EU should consider a region-wide free trade agreement, an EU-ASEAN FTA.  ASEAN is a market of 677 million people with a rising middle class, and a combined GDP of around 3.6 trillion euros.

Led by young economies like Indonesia, Malaysia, the Philippines, Vietnam and Cambodia, the ASEAN 10 is expected to grow at 4 – 5% for the next decade, significantly higher than the global average. There is still a lot of catch-up growth in this part. And the EU-ASEAN FTA will support German businesses as you diversify into these markets. 

The second strategy is for advanced economies to undertake structural reforms and advance the frontiers of production.

This is absolutely necessary if we want to grow and remain competitive even as emerging economies catch up. 

Structural reforms in advanced economies will involve at least 4 key elements.

One, investments in R&D. Germany excels here, with 3.1% of GDP spent on R&D, with the public sector contributing about a third of this. You have a strong research ecosystem, with world-class universities and institutes, like the Technical Universities, Max Planck Institutes, and Fraunhofer Institutes. In fact, the Technical University of Munich has a very deep collaboration with Singapore. 

In Singapore, we spend about 1% of GDP on research and innovation. We have committed S$28 billion for the period 2021-25. We are investing in 4 key areas: advanced manufacturing, human health and potential, digitalisation (including AI and quantum computing), and sustainability and urban solutions. We are a small city state, but if we succeed, the solutions can be exported to thousands of cities around the world. Our investments in R&D have enabled two of our universities, NUS and NTU, to be among the top 5 in Asia. And we continue to support our researchers, with facilities like the National Supercomputing Centre with capabilities such as using AI for science and hybrid quantum computing. 

Two, companies need to translate R&D into new capabilities, products and services. German companies have deep strengths in engineering and physical systems, in both large corporates as well as in the Mittelstand. So I suggest investing more in digital capabilities, to develop integrated cyber-physical capabilities. A combination of hardware and software capabilities will be harder to beat. For example, Siemens with a 117-year presence in Singapore, is investing into digital factories which tap on the industrial metaverse. Many other companies are using Singapore’s R&D ecosystem to enhance their capabilities. For example, Continental and Schaeffler have set up corporate labs where researchers from the universities and companies work together on shared challenges. Other German companies have also set up regional R&D centres including multi-nationals like Bosch and Bayer, as well as innovative Mittelstands like Rohde & Schwarz, and Mann + Hummel. 

Third, build a regulatory system that facilities innovation and new business practices. Innovation brings new risks, which regulators are rightly concerned with. But we can do more to review rules and regulations, reduce red tape, and manage risks while promoting innovation. In Singapore we have used regulatory sandboxes to pilot new financial products and services, including the use of digital tokens for financial transactions. For the broader economy, we have implemented Alliances for Action, where the senior regulators and top business leaders work together to expand the boundaries to facilitate innovation.

Fourth, invest in education for our young, and lifelong learning for all workers. Our students are highly ranked in the OECD’s PISA tests and in collaborative problem solving, preparing them for jobs in an innovation ecosystem. We are grateful that for many years we have been learning from your dual system of apprenticeship. When I was Education Minister, I came to Germany as well as Switzerland to learn what upgrades we need to make to our education system.

We also started the SkillsFuture programme to help workers learn new skills and prepare for the future. This costs the Government around S$1 billion or $700 million euros every year, it is a large sum for a small country. But with rapid changes in industrial structure, we need to help workers upgrade and stay relevant. 

Partnerships between governments, companies and workers

These two strategies – internationalisation and structural reform – will require an economy-wide transformation. 

Government, businesses and unions must work together. 

This is an important part of German business culture, with co-determination laws which provide for worker representatives on Supervisory Boards.

In Singapore, we too have a tripartite system. The tripartite partners set national guidelines together for annual wage increases, which are appropriate to the economic conditions. Our Union leaders have also taken a progressive approach. A union leader recently told me, “We will work with companies to cut costs to save jobs, than for companies to cut jobs to save costs”.  They are quite serious about this. At the height of the COVID-19 pandemic, the Government partnered with the Union and employers to subsidise up to 75% of a workers’ wages, and our unions helped to disburse income relief for self-employed workers. These help save companies from closure, and save jobs for workers. The economy rebound strongly when pandemic restrictions were lifted. 

In recent years, our National Trades Union Congress has established Company Training Committees to encourage workers to upgrade their skills to stay competitive. I provided a S$100m grant funding for the Company Training Committees as Finance Minister, and the rationale was that companies and unions were better placed to upgrade workers than the Government! I am glad that many companies have embraced this, including German corporates like Leica and TÜV-SÜD.

To meet the structural challenges, we have been working on the transformation of the Singapore economy over the last 8 years. 

The results have been encouraging. Between 2016 and 2023, Singapore achieved growth of 2.8% per annum, ahead of many small advanced economies, and labour productivity grew by 2.1% across the economy with some sectors achieving higher than this, and workers also enjoyed better wages, as real incomes grew by 1.5% per annum.

How Singapore may be useful to German Corporates

Before I end my remarks, let me say a few words about how Singapore can serve as a good partner for German companies.

We are grateful that many of you have played an important role to support our development over the years. 

In fact, more than 2,300 German companies, including more than 75% of the DAX40, are present in Singapore. Many also use Singapore as a regional hub for ASEAN and Asia.

Including SAP, BASF, Evonik, Infineon, Porsche, BMW, DHL and DB Schenker, and Mittelstands like Heraeus and Merck.

In the next bound of growth, I hope Singapore can play a few roles for German companies. First, to serve as a gateway for you to expand to ASEAN and Asia.

I spoke about ASEAN’s growth prospects earlier. India is forecasted to grow robustly at 6.7% per annum until 2030. And China, the second largest economy in the world but with a per-capita GDP that is only one sixth of the US’s, will continue to have good potential, when it gets over its current challenges. 

Singapore, itself has a network of 27 Free Trade Agreements with partners like ASEAN, Japan, Korea, India, China, the EU and the US. And also, the Regional Comprehensive Economic Partnership (RCEP) – the largest free trade bloc in the world with 15 countries, 10 in ASEAN, plus China, Japan, Korea, Australia and New Zealand. 

The second role that Singapore can play is to serve as an Asian innovation node. for technology innovation and enterprise. 

The rule of law and respect for intellectual property is well enforced, and our legal system serves the world in mediation, arbitration, and through the Singapore International Commercial Court.

Tax rates are competitive for both corporate and individuals, with a simple tax code that complies with international rules. 

Singapore can also serve as a city-scale laboratory of new ideas. For example, the Hyundai Motor Group Innovation Centre was set up in Singapore to test new production technologies for Hyundai’s factories globally. I never expected that Singapore will produce cars! 

Third, Singapore can serve as a centre for capital in M&A activities, as a funding system and to promote innovation in digital and sustainable finance. German banks like Deutsche, LBBW, DZ and Commerzbank all have a significant presence in Singapore. 

Conclusion

So let me summarise. Companies today operate in a difficult environment, contending with the 4Ds – deglobalisation, digitalisation, demography and decarbonisation.

To continue growing, Singapore and Germany must continue to tap on global opportunities, while pursuing structural reforms

The mood today, as many of you have told me is pessimistic, but I believe there are deep strengths in German companies, including in engineering and execution. By building on these strengths and building new capabilities in digital and green technologies, new competitive strengths will emerge. 

Germany and Singapore can deepen our partnership, to build on our respective strengths. Our government agencies like Enterprise Singapore and the Singapore Economic Development Board will be happy to support. The Singapore-German Chamber of Commerce and the German Centre in Singapore will be useful for companies venturing out.

I hope that start-ups and innovators can experience the Singapore Week of Innovation and Technology (SWITCH), the Singapore Fintech Festival, and the Industrial Transformation Asia Pacific (ITAP) trade show co-organised by Deutsche Messe. 

Lastly, let me wish everyone a happy Lunar New Year. 

It is the Chinese tradition to have a reunion dinner with our families on the eve of the New Year. 

But this year, I am welcoming the Year of the Snake with you. 

The Snake in Chinese tradition symbolises wisdom, transformation, and renewal. 

So next year, I hope to see many of you in Singapore, with a wise transformational plan to tap on the opportunities in Asia, and make use of Singapore as a gateway to find renewed growth! 

Thank you very much and have a good dinner! 

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