Election outcome may lift 'animal spirits', prompt closer reading of opposition policy ideas

SINGAPORE politics isn't a topic I usually write about, but the outcome of the General Election is almost certainly going to be a hot topic of discussion among investors and people in the corporate sector this week.

For one thing, the result was a surprise. With the fight to contain Covid-19 ongoing and efforts to salve the economic pain that many are feeling still unfolding, it seemed very likely that voters would favour the incumbent party.

Yet, the People's Action Party (PAP) won only 61.24 per cent of the votes, a sharp decline from the 69.9 per cent it achieved in 2015, and only slightly better than the 60.1 per cent it obtained in 2011. It also unexpectedly lost control of a second GRC to the opposition Workers' Party (WP).

More importantly, it isn't entirely clear what the ruling PAP can do to win back the ground it has lost, raising the possibility that we are witnessing a secular change in the political landscape.

Back in 2011, the hot button issues of housing costs, transport infrastructure and excessive foreign labour were obvious. After being admonished by voters that year, the government quickly set about putting things right. By 2015, which was also the year Singapore celebrated its 50th anniversary and mourned the passing of founding prime minister Lee Kuan Yew, those thorny issues seemed to have been solved.

This time around, a good part of the disaffection seems to revolve around Covid-19. Despite the government implementing tough measures to curb the virus, and pledging almost S$93 billion to offset the economic fallout, many voters were not convinced that it really had all the answers.

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There also seemed to be unhappiness with the PAP's style of politics, and a general sense that Singapore would be better off with more diversity of views in Parliament.

The PAP itself seemed to acknowledge the shifting political winds. Prime Minister Lee Hsien Loong said immediately after the election that he had congratulated WP's leader Pritam Singh and told him that he would be formally designated as Leader of the Opposition and provided with staff support and resources to perform his duties.

Could Singapore now be at the early stages of a two-party system of politics? What would that mean for the corporate sector and investors?

Alternative perspectives

One consequence is that the WP's policy proposals might end up being read more closely by everyone, and begin to influence sentiment in the market.

Some of the WP's best-known policy proposals are ultimately about boosting social welfare, sometimes at the expense of growth and corporate profitability.

Among other things, the WP is proposing a national minimum wage and redundancy insurance programme, tightening employment pass approvals, allowing Singaporeans earlier access to their CPF monies, and stopping the planned GST hike to 9 per cent.

Yet, the WP does offer useful alternative perspectives on some business issues. For instance, its manifesto includes an intriguing proposal to form an EXIM (or export-import) Bank to help finance the internationalisation of Singapore's SMEs.

Acknowledging that the idea was mooted by the Economic Strategies Committee of 2010, the WP said that its proposed EXIM Bank would be mandated to focus on providing credit for exports and promoting foreign direct investment for promising SMEs. The EXIM Bank could also provide financing for digitisation and Industry 4.0 projects by local firms, the WP added.

The government, of course, has solutions of its own to tackle the issue of ensuring that SMEs have access to funding. In the wake of the Covid-19 pandemic, SMEs are being provided with funding support under schemes where the government assumes 90 per cent of the risk. Banks have also been provided with funding for such loans at just 0.1 per cent through a facility unveiled by the Monetary Authority of Singapore and Enterprise Singapore in April.

But which solution is better? And, for whom? Would an EXIM Bank provide more effective support for SMEs than pushing subsidised loans through commercial banks?

Would shareholders of the banks be better off if they did not have to be involved in efforts to subsidise the SMEs? Why are Singapore's SMEs so un-bankable in the first place?

Delving into such questions would not be a bad thing for businesses and investors.

Animal spirits awakening?

More generally, one shouldn't underestimate the potential for the current political climate to foster a sense of confidence and optimism that promotes consumption spending and risk-taking - or what economists sometimes refer to as "animal spirits".

This past weekend, I found it remarkable how the outcome of the election, and the prospect of the more engaged citizenry that it might engender, seemed to instantly lift the national mood.

A friend of mine declared without any prompting that it is time to go long on Singapore assets. Meanwhile, some acquaintances were full of advice on how I should invest in another property.

Two weeks ago, this column asserted that it might be the right time to begin accumulating Singapore stocks, given the unfolding improvement in global economic activity. With a more positive mood on the ground, that seems to make even more sense now.

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