Singapore has enjoyed faster growth than we had thought possible in 1986. Then, the Ministry of Trade and Industry had projected our long-term indigenous growth rate to be 4-6 per cent. This 4-6 per cent represented the supply-side growth potential for the Singapore economy in the next 30-40 years if no more new foreign workers were allowed.

In reality, growth has averaged 8.5 per cent in the last 10 years. This is due to two important developments, one external and one domestic. Since the late 1970s, there has been a wave of economic reform and liberalisation in Asia. China's economic reform programme in 1978 led first to a boom in trade via Hong Kong and then to an upsurge in foreign direct investments into China. 1993 was a record year when China saw foreign direct investment approvals reach US$110 billion. The transformation in ASEAN was no less dramatic. Indonesia liberalis foreign investment in 1983, Malaysia and Thailand in 1986. India, after years of pursuing economic self-reliance, opened up in 1991.

The liberalisation has made the region as a whole more attractive to foreign investors. Furthermore, ASEAN's move to liberalise and deregulate their economies coincided with rising cost pressures in Japan and the NIEs and hence increased the outflow of foreign direct investment from these countries. Foreign direct investment into the ASEAN countries, China and India rose dramatically, from US$20 billion in 1988 to US$160 billion in 1995.

Exports by Asian countries (excluding Japan) also saw dramatic growth. Between 1985 and 1995, exports grew by 17 per cent per annum, compared with 14 per cent per annum between 1975 and 1985.

The increase in trade and investment linkages has resulted in closer economic integration of the Asian economies. For Singapore, regional growth has given an added boost to the economy and cushioned us against slower growth in the OECD countries over the last 5 years.

Domestically, we have expanded our supply-side growth potential due to three factors. First, the female labour participation rate has increased from 45 per cent in 1985 to 50 per cent in 1995. Second, the workforce has expanded faster than we had anticipated, partly because of higher immigration and partly because we have allowed in more foreign workers who now account for about 1 in 5 workers. Third, our years of investments in education, training and infrastructure are now paying off in higher productivity growth. Productivity growth during 1985-95 averaged 4.7 per cent per annum, higher than the 4.0 per cent per annum recorded in the preceding 10 years.

The better labour productivity performance has been accompanied by a trend of improving Total Factor Productivity (TFP) growth. Since the recovery from recession in 1986, TFP growth has averaged 2.8 per cent per annum compared with the -1.4 per cent during 1974-86.

MTI's projection is for growth potential to be about 7 per cent per annum for the next 5 years. In good years, we may do better but with consequences like rising costs and a tight labour market. In weaker years, growth may fall below 7 per cent.

Because Singapore is so heavily dependent on external demand, we must adapt to changes in the environment.