Will costs erode Singapore's edge?

Will costs erode Singapore's edge?

LAST week, Singapore captured headlines at home and abroad for an unsettling reason: It was named the world's most expensive city by the Economist Intelligence Unit (EIU).

The EIU study aims to help companies calculate how much they should pay expatriates and business travellers, so it may not have been a good reflection of everyday costs for locals, as politicians and academics were quick to point out.

But it still crystallises what Singaporeans have known for a while: This country is becoming increasingly expensive to live and work in. Inflation averaged 3.1 per cent in the last five years, from 2.4 per cent in the five years before that.

The EIU's findings also underscored an intense discussion during the Budget debate in Parliament last week about rising costs for businesses here.

Several MPs rose to plead the cases of local firms, which have been buckling under the weight of soaring labour and rental expenses amid a manpower and space crunch.

Companies had asked for more cost cushions in this year's Budget. But no new aid was forthcoming as the Government had unveiled a three-year package just last year to help firms deal with rising costs through the Wage Credit Scheme, the Productivity and Innovation Credit Bonus and corporate tax rebates.

Local bosses are still struggling, though. A survey by the Singapore Business Federation ahead of the Budget found that three in four companies said their key challenge this year would be high labour costs.

Between the third quarter of 2009 and the first quarter of last year, unit business costs rose 19 per cent for the manufacturing sector and 25 per cent for the service sector, the Trade and Industry Ministry said recently. For the whole of last year, overall unit business costs rose 1.5 per cent across all sectors.

Singapore has long been an attractive destination for companies to set up shop. But as living and business costs head ever higher, is the Republic in danger of losing its economic competitiveness?

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