Singapore Exports Recovery Seen Limited as Worker Shortage Bites

Singapore Exports Recovery Seen Limited as Worker Shortage Bites

Alcotec Precision Engineering Pte. owner Colin Kua turned down nearly a third of his customers’ orders last year as he grappled with Singapore’s labor shortage. This year may be tougher.“In the future it may be worse — to venture out to other countries may be the only solution,” said Kua, who had to cut the number of foreign employees making items from sockets to semiconductors by half as the government tightened the inflow of overseas workers. “We don’t really dare to bring in more orders because the manpower isn’t enough.”

Singapore’s move to reduce its reliance on cheap overseas labor and boost productivity is crimping the ability of manufacturers like Kua to produce on the island. The fallout puts the Southeast Asian nation at risk of losing out as overseas demand strengthens this year, with recoveries in the U.S. and Europe spurring the International Monetary Fund to say it will raise its global growth forecast.

Prime Minister Lee Hsien Loong has over the past four years prodded companies to produce more with fewer workers as the island confronts an aging population and voter discontent with foreigners in the country. The impact of those policies, ranging from higher levies for overseas labor to tighter limits on non-Singaporeans in some industries, may become more apparent in 2014 as the economy loses some of the manufacturing capacity that helped boost exports and growth in past recoveries.

Export Decline

“This manufacturing recovery that we’re all hoping for seems to be sputtering again,” said Chua Hak Bin, a Singapore-based Bank of America Corp. economist who worked at the country’s central bank for six years. “Foreign-worker restrictions will be tightened further in July. We think Singapore may not be able to fully capitalize on a global demand upswing because of these constraints.”

Singapore in February said it will tighten rules for companies hiring foreign workers for a fourth straight year, with the next round of measures scheduled to take effect July 1. Firms including Western Digital Corp. have moved operations to other Southeast Asian nations as the restrictions raised costs and helped push unemployment to near a five-year low.

Singapore’s exports declined in nine out of 11 months last year, faring worse than neighbors from South Korea to Malaysia. (MAETEYOY) Manufacturing output shrank in the fourth quarter from the previous three months, and has grown at about 60 percent the pace of the services industry in the past two years as companies struggled to expand, data compiled by Bloomberg show.

“The restructuring has diluted our overall competitiveness,” said Irvin Seah, an economist at DBS Group Holdings Ltd. in Singapore. “It’s not just higher labor costs but it’s also the labor crunch, because when you don’t have enough workers, how are you going to meet that order?”

Manufacturing Lag

Manufacturing accounted for 19.9 percent of Singapore’s gross domestic product in the third quarter of 2013, down from nearly 21 percent in the same period two years earlier. The sector’s share was 27.3 percent in 2005, official data show.

The government said in a 2010 report that manufacturing should still account for about 20 percent to 25 percent of Singapore’s economy. Still, there is a lag as labor-intensive factories relocate and new industries the island is keen to attract — from aerospace to research and development — take time to replace them, according to Vishnu Varathan, a Singapore-based economist at Mizuho Bank Ltd.

“The pain is being felt by companies,” Acting Manpower Minister Tan Chuan-Jin said in a Bloomberg Television interview on Dec. 13. “Companies will restructure, some companies will have to close, it will release labor back into the market.”

Productivity Drive

Singapore in November said exports will contract in 2013, and the government predicts export growth will increase at a slower pace than GDP expansion in 2014.

The nation, which has grown an average of about 6.4 percent annually over the last three decades, expanded 3.7 percent last year and is estimated by the government to grow 2 percent to 4 percent in 2014.

“The government is trying to do what it can to help with productivity,” said Kurt Wee, president of the city’s Association of Small and Medium Enterprises. “This productivity drive takes time; I’m not so confident the companies can ramp up productivity so fast.”

Sigma Cable Co. Pte started using contract manufacturers to make about 30 percent of its products from early last year. Those who haven’t changed their strategy to account for fewer workers are suffering, according to Deputy General Manager Samuel Peh.

“The demand for our sector is improving because our neighboring countries are doing quite OK,” said Peh. “I can see my competitors, their hands are really tied.”

Best Performer

Compounding their woes is the Singapore dollar, which was the best performer last year among five major Southeast Asian currencies tracked by Bloomberg, weakening only about 3.3 percent against the U.S. dollar. The central bank, which guides the local dollar against a basket of currencies, said in October it would maintain a modest and gradual appreciation.

“They have accepted that in the next three to five years while they are trying to pursue productivity gains, they will see softer growth,” said Mizuho’s Varathan. “They’re not going to compensate for the manufacturing gaps and the restructuring issues by letting the Singapore dollar weaken and hence temporarily boost exports.”

For Alcotec’s Kua, who said he lost business last year after he told customers that orders which earlier took 10 days to fill would take up to five weeks, the government’s stance means the situation will only get worse.

“We are doing more overtime,” Kua said. “We’ve got to work Saturdays, Sundays, but we still can’t solve the problem.”

To contact the reporter on this story: Sharon Chen in Singapore at schen462@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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