Rising competition from neighbouring countries is challenging Singapore’s attractiveness as a business destination and an entrepreneurial hub with a with a world class startup ecosystem.
Its reputation as a centre for multiple business clusters has generated significant benefits and synergies for the city-state. This and the fact that it still is the densest startup ecosystem in the world (with a world-class legal and other infrastructure, governance and reputation) has helped maintain its stature, despite certain deficits.
However, high living costs, restrictions on employing foreign talent and high business costs – largely associated with employing Singapore-based workers and renting office space – have throttled the growth of entrepreneurial ventures.
By extension, it has also affected the startup ecosystem, which is a part of the wider entrepreneurial ecosystem of the city-state and represents a significant and strategic investment by the state.
So over the next few years, Singapore’s technocrats might want to explore and innovate via policy entrepreneurship. To innovate and maintain its competitive advantages relative to the larger countries around it, the Singapore government might have to take this approach to keep the startup ecosystem as well as the political processes relevant.
Property Market & Rentals
Singapore’s property market has become a capital preservation market for investors, due to the long-term scarcity and perennial demand, property assets in the Singapore market is a good long-term investment that maintains its value. Another benefit that traditionally defined Singapore was its hawker culture, where good cuisine could be bought at affordable prices.
The escalation in business costs is rooted in the oligopolistic market structure, the action of real estate investment trusts (REITS) and GLC like JTC Group divesting their industrial properties, with the rationale being that more competition would facilitate greater benefits for customers.
While solutions like rent regulation for commercial and residential properties have been proposed, the fact is that in places like Singapore and Hong Kong, which have limited land, introducing REITS into the equation leads to higher rentals and prices. By their nature, they operate on generating the maximum returns for their shareholders, whether via profit or wealth maximisation.
With a limited land supply, it’s a seller’s market which favours those on the supply side of the equation, which many REITs, property developers and construction firms are. REITS are motivated to drive up property costs to benefit their investors, which drives up business costs for SMEs, MNCs and entrepreneurs. They in turn, pass these interests down to consumers. This is about the only time trickle-down economics works.
Irvin Seah, VP of group research at DBS, comments: “Right now, what we have is an oligolopolistic structure, with a small group of players in this market, which makes it prone to price rigging. It is not so much about bringing prices down, but about ensuring that we have a lever on certain scarce resources (i.e. land). The REIT model may work in big countries with ample land but less so for land-scarce Singapore.”
This rent-seeking behaviour is detrimental as a whole to a variety of business ecosystems, across an array of industry verticals. When the government lacks the ability to influence rental prices, this leads to rent-seeking behaviour that is counter-productive to the economy as a whole. One way to disrupt this is the creation of floating real estate – which would lead to a reduction in business costs via the increased real estate supply.
Urban Agriculture & Biofuels
Fish farms are forecast to produce close to two thirds of global fish supply by 2030, according to a World Bank report. Much of the consumption will be in Asia. Amidst rising competition for wild fisheries and food supply, as well as Singapore’s land scarcity, urban agriculture is an industry with intriguing prospects for entrepreneurs, given its crucial importance to the city-state.
Another area that will see increasing importance is biofuel production. According to Jonathan Trent, director of the OMEGA Global Initiative, floating algae pods, as envisioned by the OMEGA Project, can be used to make algal biofuels, using a combination of wastewater, algae, sunlight and CO2. The wave energy of the sea surface provides energy for mixing the algae, with the temperature controlled by the surrounding water temperature.
This would produce oxygen, biofuels, fertiliser and other algal byproducts in a modular system that – if damaged – would release wastewater already entering the coastal environment, with biodegradable freshwater algae leaking out into saltwater. Such a floating structure itself would provide a surface for seaweeds and other aquatic organisms, enhancing marine habitat to increase biodiversity.
Finally, as an offshore structure it could contribute to maritime, shipping and aquaculture activity offshore.
Also Read: Biotech startups: viable investment for VCs
An Israeli Block 71
With the opening of Block 71 San Francisco and the initiative to investing in Israeli startups, establishing a Block 71 cluster in Tel Aviv may also contribute towards linking the Singapore and Israeli ecosystems, which share many similarities and differences. Israel is known for being an ecosystem with high-value companies and intellectual capital, while Singapore is positioned to tap into the growth of the many emerging markets of the Asia Pacific (APAC).
While Israeli startups can conduct business in Europe with minimal concern, the presence of significant Muslim populations in APAC nations can pose challenges in market entry. Strategic markets like Malaysia and Indonesia, which do not recognise the state of Israel, also present significant opportunities denied to Israeli firms.
Creating such an ecosystem bridge via an institution like Block 71 would allow for capital flows between the two countries, expanded market opportunities for firms seeking to enter different region and the possibility for human capital flow that mutually benefit both nations. Singapore’s reputation as a neutral business hub would be beneficial to Israeli companies setting up an office in the city-state.
Singapore has strong fundamentals and has got the basic infrastructure right. The government is highly supportive, in general, of growing the startup ecosystem and maintaining innovation and economic policies that are favourable to businesses. It’s formulated an appropriate strategy, makes the right noise and recruits the right people.
But it needs to do more, in light of increasing competition from around the region. It’s emerging as a hub for fintech startups, enterprise software and cloud computing solutions. It needs to be open to greater risks and maybe even allowing companies to fail, rather than sustaining zombie firms and accelerators that lock up both venture capital and experienced startup professionals and entrepreneurs who could serve to pollinate the ecosystem with their experience and knowledge.