Businesses point to one risk that rules them all

SINGAPORE - The biggest risk to the population scenario presented by the government is that Singapore's companies fail to raise productivity swiftly enough to make up for the projected slowdown in workforce growth.

Business associations, whose members already feel the pinch of tightened foreign manpower policies, were not surprised by the direction of the Population White Paper released by the government on Tuesday. But productivity remains the weak link, they said.

"While people are reacting negatively to the 6.9 million number (that overall population is expected to be in 2030), for businesses, the slowdown that implies is already quite drastic," said Ho Meng Kit, chief executive of the Singapore Business Federation, which represents more than 18,000 companies here.

After expanding 3.3 per cent a year over the past 30 years, the workforce is expected to slow to grow just 1-2 per cent a year from now until 2020, and an even slower 1 per cent a year from 2020 to 2030.

Even to achieve slower GDP growth of 3-5 per cent a year from now till 2020, productivity would have to grow by 2-3 per cent a year, the paper estimates. In the subsequent decade, GDP is expected to grow a more subdued 2-3 per cent on the back of productivity growth of 1-2 per cent.

"The government has said that 2-3 per cent productivity growth is an 'ambitious stretch target'. We think so too. We think a more realistic target is 1-2 per cent because what has been done so far hasn't borne fruit," said Mr Ho.

Singapore Manufacturing Federation secretary- general Lam Joon Khoi shared similar concerns. "We are uncertain at this stage how our ongoing efforts in raising productivity across the economy will bear out in the future. We hope to see more government support for productivity measures," he said.

Also, the paper did not spell out the potential trade-offs of curbing workforce growth and banking on productivity growth, Mr Ho said. "If we cannot achieve that productivity growth, the trade-offs will be our competitiveness, access to good jobs, higher wages."

He thinks the productivity drive must yield results in the next two to three years. "If by 2015, productivity growth is still very weak, then clearly something different needs to be done," said Mr Ho.

Chan Chong Beng, president of the Association of Small and Medium Enterprises (ASME), remains hopeful. "Everyone wants to give it a try, businessmen won't give up so easily," he said.

There has been a change in the mindset of SME bosses over the past year. "We've got people coming to us not to complain about the lack of workers, they know they won't get more, but to seek grants to help them relook their business model. People are also more receptive to engaging older workers now," said Mr Chan.

Mr Ho points out, however, that businesses relying heavily on older non-PMET (professionals, managers, executives and technicians) Singaporeans now, such as food manufacturers, ought to think about the shape of the local workforce of the future too.

As their older workers retire, such firms may find it harder to find replacements. Only a third of Singaporean workers will hold non-PMET jobs by 2030, down from half currently.

"For them the writing is on the wall - either automate, merge or relocate. But it'll be very tough for these companies," he said.

Commenting on whether Singapore can afford to let smaller companies fall by the wayside, Mizuho Corporate Bank senior economist Vishnu Varathan said the alternative may be grimmer.

"We fully appreciate how harsh business conditions are but equally, Singapore, given its position as an externally focused 'price taker', is not really in a position to defend its industries indefinitely. Surely the fiscal costs will become unbearable," he said. "But even more importantly, the longer-term damage to the intrinsic competitiveness of the economy may be even more damning."

Barclays Capital economist Leong Wai Ho noted that lower GDP growth may not necessarily be bad, assuming the quality of growth improves by then and the extraction rate is increased to ensure there is a greater trickle-down to Singaporean households.

And while the instinctive reaction may be to baulk at the idea of Singapore's population swelling further, it will also mean a more vibrant economy with a wider pool of customers - not exactly a terrible outcome for businesses.

"The message is really that if you want to see your business through to 2020, 2030, you'll need to tap on the vibrancy of an increased population, and really make effort to make changes," said ASME's Mr Chan. "Childcare, healthcare, construction, interior design - these will definitely benefit in future."

Costs are also only one half of the equation, which can be balanced if efforts are made to boost revenue and create alternate revenue streams.

The tourism industry, for instance, has grown by leaps and bounds in recent years, with annual tourism receipts nearly doubling from $12.4 billion in 2009 to $22.3 billion in 2011 as new offerings such as the Marina Bay Sands resort and Universal Studios Singapore were added to the mix. The evolution of the tourism landscape has also fuelled the increasing number of visitors making their way to Singapore's shores each year.