The Singapore government has recently acknowledged that Singapore is no longer a low-cost business location due to an overall increase in business costs. Rikvin foresees that the new reality will not diminish the republic’s reputation as the esteemed business location in Asia.
The acknowledgement came in a written reply to Parliament by Singapore’s Trade and Industry Minister Mr. Lim Hng Kiang who added that between 2007 and 2011, the nominal average monthly earnings, as a proxy for labor costs, increased at a compound annual growth rate (CAGR) of 3.5%, while the rentals of factory space increased at a CAGR of 7.3%.
In response to suggestions whether this trend has created problems for SME sector’s sustainability and profit margins, the minister noted that firms have nonetheless coped through restructuring and improving their productivity.
Over the same period, the unit labor cost (ULC), which measures the labor cost required to produce one unit of output, for the overall economy grew at a more moderate pace of 1.5% (CAGR), while the ULC for the manufacturing sector declined 2.9% (CAGR).”
Furthermore, the government has put in place broad-based and sector-specific programs to help businesses remain competitive through upgrading their capabilities and moving up the value chain, thereby moderating cost concerns.
Analysis by Rikvin reveals that in the near term, the higher foreign workers levy and tighter dependency ratio ceilings will put additional pressure on business costs. “Looking at the medium-term demographic trends in Singapore, we find an shrinking, ageing and highly-educated local workforce in 20-years time. The need of the hour is to strike a balance between meeting domestic concerns on nationhood and allowing foreign investors wanting to form a Singapore company or high-skilled professionals wanting to obtain the Singapore work visa,” said Mr. Satish Bakhda, Head of Rikvin Operations.
The solution entails both local and foreigners playing a greater role in developing Singapore’s economy. Apart from boosting productivity and upgrading the quality of the labor force, raising the labor force participation rate (LFPR) is also important. This can be done by encouraging flexible work arrangements and introducing the Retirement and Re-Employment Act to help certain groups such as stay-at-home mums and older workers.
With programs such as PIC Scheme Guide (PIC) and iSPRINT, small enterprises already have enough reasons to go for a productivity-boosting drive. Moreover, by next year, two training campuses will be set up as hubs where integrated career coaching will be conducted by clusters of trainers.
Also, to provide guidance and opportunities to new startups, Singapore hosts a plethora of annual events such as Techventure, TechInnovation, FailCon Singapore and Lean Startup Machine (LSM) Singapore.
While raising LFPR and productivity are important, there are limits to these efforts. An increase of 1 percentage point in LFPR adds about 30,000 resident workers to Singapore’s labor force of around 3 million. The government is aiming for 2 – 3% productivity growth annually, which is ambitious given the fact that Singapore’s average annual productivity growth was 1.8% during the last decade.
“Hence judiciously employing foreign manpower to bolster Singapore’s economy is important, especially in sectors such as construction and healthcare services, which may not appeal to locals. The solution lies in the judicious augmentation of local workforce with foreign manpower in order to fuel growth and opportunities for Singaporeans,” concluded Mr. Bakhda.