More drastic steps needed to spur productivity

With all Asian economies growing, foreign labour supply is harder to come by

By Robin Chan, The Straits Times, 6 Oct 2012

FEW people have their finger on the pulse of business like Mr Ho Meng Kit. As chief executive of the Singapore Business Federation, he represents more than 18,000 companies in Singapore. The former civil servant pulls no punches when it comes to discussing the issues of foreign labour and productivity.

Recent statistics show that the number of foreign workers in Singapore is still increasing. What do you make of it?

Construction is driving it, with huge infrastructure programmes in terms of new homes and railway lines. The construction companies are happy because the volume of jobs has gone up. There is growth in the industry.

But beyond that, the economy is still operating almost at maximum capacity. Unemployment is 2 per cent. Tourism numbers have gone up, and the tourists stay here longer now, which adds to the demand for jobs in the service industry. So I'm not surprised to see that the (foreign manpower) numbers went up.

On the converse side, have the issues that kicked off this debate about foreigners been resolved? No. The capacity expansion to alleviate the space constraints will only come in much later.

Therefore, in the next few years, there will continue to be this tension between Singaporeans who want more space and businesses - particularly in the service industry - that are facing a more acute shortage of workers.

The number of S Pass holders rose by 14,200, or 12 per cent, in the first half of the year, the fastest among all foreign worker segments. What do you think is driving this?

My sense is that this is a result of substitution, because the Government tightened the (higher-level) Employment Pass criteria this year (by raising the income floor from $2,800 to $3,000 and making qualifications stricter).

I think we need to look at the details, to find out what sort of industries or sectors have a higher demand for these S Passes, so that we can address the question of why these sectors are not recruiting Singaporeans for these jobs. It is not logical to me that Singaporeans do not want to take up these jobs with wages of between $2,000 and $3,000 a month.

Productivity has declined in each of the last three quarters. The productivity drive started as far back as 2010. Why do we not seem to be making progress?

We are not making progress because it is a deep issue that will take more than two years to be settled.

The business community will not be happy to hear me say this, but I think a lot of our companies over the last few years have grown used to a paradigm of cheap foreign workers. The availability of cheaper labour makes the decision very easy for small businesses to substitute capital and investments in machines with people.

But we cannot generalise. There are many companies that are prepared to pay higher for Singaporeans. But there are also other companies that, if they can get away with paying less, will pay less.

The other factor is business costs. The Urban Redevelopment Authority's multiple-user factory index (a measure of factory rental costs) has gone up 7.3 per cent a year from 2007 to last year. That is huge.

So if rentals are going up at those kinds of numbers, and you are a small business, you will have to squeeze wages, because your profit is already so thin. It cannot just be tackled on the productivity side. It must be tackled holistically.

So what needs to be done to address business costs?

There is a segment of small businesses, and they form an important part of the ecosystem, that you also need to keep alive.

They tell me: I just need a basic facility to do my business in, like a garage. But in Singapore there are no garages to find! So some amount of government intervention and accommodation is needed, particularly in support of business costs, through a cheaper, no-frills allocation of space.

Going forward, what more do you think needs to be done to boost productivity and cut the dependence on foreign labour?

We need more drastic measures. The message we got from the Government is that there is no U-turn. Businesses need to hear that message loud and clear, because some in the community are waiting for a U-turn. They believe that if they sit out long enough, maybe the Government will reconsider this policy. But our companies need to bite the bullet. This is not sustainable over the long run.

There is also a constraint to how long we can continue to rely on cheap labour. We are operating on borrowed time. How much longer will the workers from China or Myanmar continue to want to come here? They have better prospects now (in their home countries). So that easy supply of foreign workers won't be there forever. All our Asian economies, which are the sources of our labour, are themselves growing.

But rather than cutting the supply of workers, we need to look at the productivity initiatives... to see if what they are doing is really helping companies, and why companies are not taking up those schemes.

The way we measure productivity is based on output per worker, where every worker is treated as a cost.

But the knowledge worker has to be treated as an asset, not a cost. So we need to change the mindset. As our industry moves towards more knowledge-based jobs, then the way we incentivise companies to be productive will also have to be fundamentally different. There is a lot of work ahead for us to do.