Singapore’s exports recovery is slowing down to a crawl thanks to government legislation limiting cheap foreign manpower.
In the last quarter of 2012, Singapore’s government expressed their plans on reducing foreign manpower. This is due to an immense increase in the number of foreign workers across all sectors. The said foreign worker tariffs will take effect from this year until 2015.
Last year, Work Permit holders were reduced by 45% to 40%, while S Pass holders decreased by 20% to 15%. These were made possible by stricter guidelines on acquiring these permits.
Lower Production, Higher Cost, Fewer Investors
The services sector will shoulder the brunt of the impact of this new foreign policy and, inevitably, this will later on affect Singapore exports and the city state’s income and overall economy. Increasing local labour will mean more overall labour cost to companies. This domino effect will highly influence the profitability of the business, and will less likely attract investors.
Investors in the local food and beverage sector are worried about this new policy because most of these companies see majority of their profits from overseas and other segments. In general, companies with strong profit margins dependent directly or indirectly on foreign labour will gradually suffer.
Singapore Needs Immigrants, Says Jim Rogers
According to Jim Rogers, co-founder of the Quantum Fund, “One of the reasons why Singapore has been successful is because it encouraged immigration.” Foreign workers have been part of its solid economy through the years. He also said that almost everyone in the country is an immigrant or family of an immigrant; even Lee Kuan Yew, Singapore’s founding PM, is a second-gen immigrant.
To keep up productivity, local companies need to put in a lot of good work. Aside from the lack of cheap foreign labor, the technological infrastructure needs a lot of tweaking, and it cannot be done in a snap.
Steady Economy for SG Despite Changes
Despite all these, experts say that it’s not necessary to be overly concerned about anything. Singapore is still attractive as a hub for investors. Investors and capitalists stay at Singapore not only because of costs, but also because of security, connectivity, intellectual property rights protection, and the full range of technical skill, which is highly advanced in the workers of Merlion city. It is noticeable that a lot of big companies have put up their regional headquarters in SG because of various reasons aside from costs.
Local companies have considered the changing environment since 2009: “Singapore continues to remain attractive to investors due to its strong economic fundamentals including a stable business environment and good connectivity to other markets in the region and around the world. We remain confident that companies with an active interest in tapping the growth of the pan-Asian market will continue to put Singapore on their radar screen,” according to Damien Wong, general manager for Asean at Red Hat.
Last November, the government predicted export growth will increase but at a slower pace compared to the last few years. Singapore’s economy has grown an average of 6.4% annually over the last three decades, but expanded only 3.7% last year. This year, the government predicted a 2 to 4% growth.
This guest post is written by Israel Defeo. He is the writer and online promoter of the leading financial comparison website in Hong Kong, Money Hero. The online portal presents up-to-date and unbiased information about insurance companies, credit cards, loans, deposit accounts and broadband and mobile plans.