S'pore walks the labour restructuring tightrope

SINGAPORE - Singapore is determined to restructure its labour market, raise productivity and tighten the foreign labour tap.

The government does not deny that this could mean less investment, job losses and slower growth.

The big question is whether these costs will occur at the margins - an accepted policy risk - or undermine Singapore's economic future, as some in the business community warn.

Over the weekend, Trade and Industry Minister Lim Hng Kiang acknowledged that Singapore will have to forgo some investments as it transforms its economy to rely less on foreign workers.

But he said Singapore remains attractive to investors and has to be more stringent about which investments it accepts.

Multinational companies BT spoke to had differing takes on the issue.

For Rolls-Royce - a major investor that accounts for over 15 per cent of Singapore's aerospace output and employs more than 2,000 people here - one concern is ensuring a pipeline of talent.

"Care does need to be taken to ensure that essential skills that will build Singapore's future economy are either homegrown or continue to be available in the reduced but continuing access to foreign talent," said its Southeast Asia regional director Jonathan Asherson.

Of the 630 employees on Rolls-Royce's $700 million Seletar Campus, opened earlier this year, 85 per cent are Singaporean.

Meanwhile, SDV Logistics, a French group with 30,000 employees worldwide and 850 in Singapore, has been "tremendously" affected by the cut in the foreign worker quotas.

"This will affect SDV's investment in Singapore in the long run," said SDV Logistics (Singapore)'s senior human resource manager, Phyllis Liew. "Right from now, when we have been supported by EDB to build and open a green warehouse, we are already facing insufficient manpower to run the warehouse."

Trade associations and business chambers, which have been vocal about the plight of local SMEs suffering labour shortages and higher labour costs, now say bigger members are being hit too.

"We have heard of MNCs which cannot get SMEs to quote for jobs, because the SMEs cannot estimate their labour costs," said Teo Siong Seng, president of the Singapore Chinese Chamber of Commerce.

Then there is the matter of forgone economic growth. Widely publicised estimates from a report by Bank of America Merrill Lynch economist Chua Hak Bin say Singapore might have grown 3 per cent this year, if not for foreign labour constraints.

This is double the 1.5 per cent growth that the Ministry of Trade and Industry (MTI) is now expecting for 2012.

But MTI's permanent secretary Ow Foong Pheng said at a media briefing last Friday that Singapore's growth slowdown is due to weak external demand rather than a tighter foreign manpower policy.

Singapore Business Federation chief operating officer Victor Tay thinks it ironic that given Asia's growth, Singapore's businesses have been unable to acquire resources and are experiencing an "accelerated demise".

Feedback from members is that a lack of resources is preventing them from fulfilling contracts.

And forgone business opportunities extend beyond the retail, hospitality, F&B and manufacturing sectors - which recruiters say have been worst hit by the policy tightening.

Mr Tay cites the example of a global bank whose operations here, which include the provision of infocomm services to the region, have been affected by the changes.

"MNCs' inability to acquire resources at an affordable rate will affect their global costs and relocation decisions too," he said.

Despite the growing protests from businesses, Nanyang Business School professor of strategy Neo Boon Siong thinks the government is right to stay the course.

"Land and labour are Singapore's two greatest constraints. We cannot afford to continue to tie up land and labour in low-value-added activities. If at the margins companies have to close down, merge or move out, that may not be bad," said Prof Neo, who co-authored a report on Singapore's competitiveness in 2009 that highlighted low labour productivity.

The government will watch growth closely.

While the political will was driven by several factors, the primary objective of restructuring was still economic.

"Ultimately, if the economy tanks, it will complicate all the other issues. We cannot afford for the economy to tank," said Prof Neo.

Barclays economist Leong Wai Ho thinks that signalling from the government may have been stronger than actual policy implementation, and could lead to unnecessary alarm among investors and businesses.

The government needed to signal that it could be flexible if times were hard, he said.

For instance, recent comments from officials suggesting further changes to the S-pass regime for mid-skilled workers appear to have been made in response to businesses' requests for "ample warning".

"But the flip side is that companies . . . may overreact and hold off capex and investment to be cautious," Mr Leong added.

The need for clarity was also raised by Singapore International Chamber of Commerce and Industry chief executive Phillip Overmyer. "What companies are saying is that they wish the government would decide, so that they can decide what to do. They don't want to leave but they need to know if they should prepare to downsize. The changes are now coming in small pieces, making it hard for each company to figure it out."

The government appears conscious of the need to strike the right balance.

In a written reply to a parliamentary question last week, Acting Manpower Minister Tan Chuan-Jin said: "In reality, when companies move elsewhere, the jobs will also move and it would ultimately impact on our people and the opportunities available for them. It is a fair and valid concern as to how this balance is struck."

He remained firm on why the changes were needed. "Businesses are here in Singapore because there are advantages, relative to being elsewhere," he said.

Painting the changes as ones to ensure that businesses too can continue to grow in Singapore and remain globally competitive, Mr Tan stressed: "There will be competition for jobs, but ultimately our main objective is that good jobs are created for Singaporeans."