Impact of Decline in Private Investments on Job Creation and Business Competitiveness

7 Mr Saktiandi Supaat asked the Minister for Trade and Industry (Industry) (a) how is the Government addressing the sharp fall in private investments which have been contracting for the past two and a half years; (b) what is the Government doing to check the rising number of firm closures this year; and (c) how will falling private investments and economic restructuring affect job creation in the medium term.

8 Er Dr Lee Bee Wah asked the Minister for Trade and Industry (Industry) (a) how is the Government helping companies to remain competitive in the global market; (b) whether there are improvements in productivity across various sectors; and (c) whether the Ministry has looked into how local price increases – from labour, materials, transport to a stronger Singapore dollar – are impacting on the overall business cost.

9 Assoc Prof Randolph Tan asked the Minister for Trade and Industry (Industry) (a) what has been the achievement rates of expected jobs creation from investment commitments made in the last five years; (b) whether an under-supply of suitable manpower was a factor affecting investment commitments at any point during that period; and (c) whether the Ministry anticipates challenges in the supply of manpower to fill the 16,800 jobs that EDB has reported that its 2015 investment commitments are expected to create.

The Minister for Trade and Industry (Industry) (Mr S Iswaran): Mdm Speaker, may I have your permission to take Question Nos 7, 8 and 9 together, please?

Mdm Speaker: Yes, please.

Mr S Iswaran: Madam, Singapore, like the rest of the world, faces a challenging and uncertain economic environment. However, the impact on our industries has been uneven. Minister Lim Hng Kiang has just spoken on the external headwinds that are affecting industries, such as wholesale trade and marine and offshore engineering, as well as the weakness in industries, such as food services and real estate. Nonetheless, there are other industries, such as information and communications, education, and health and social services, where demand remains resilient.

Er Dr Lee Bee Wah has asked about business costs. There are several components to this. Let me just speak on a few of them. The cost of utilities is expected to remain subdued, given sustained low oil prices. One reference point is the regulated tariffs that households pay because they are in a non-contestable market, and that have declined by 24% from the beginning of last year to the second quarter of 2016. And there are similar trends for those in the industry, especially because they have greater flexibility in negotiating contracts.

Industrial rental index has decreased by 6.8% over the past five quarters. For commercial rents, the office rental index in the central region fell by 12.2%, while the retail rental index also in the central region declined by 9.3% over the same period. And the strong pipeline supply of industrial and commercial space coming on-stream in 2016 should continue to ease rental cost pressures. For labour costs, there are variations across sectors. In the manufacturing sector, unit labour cost (ULC) fell by 0.7%. This is in Q2 on a year-on-year basis on the back of productivity improvements. In contrast, the ULC in the services sector rose by 4.5%. These trends, and their differential impact on our industries, underscore the need to redouble our efforts to improve productivity and to adopt industry-specific strategies to sustain competitiveness.

Against this challenging economic backdrop, the Government seeks to help companies manage immediate pressures but also importantly to adapt to stay competitive in the medium to long term. So, SPRINGSingapore launched the Working Capital Loan (WCL) this year to help address Small and Medium Enterprises' (SMEs) near-term cash flow concerns and growth financing needs. The WCL is expected to catalyse more than S$2 billion of loans over the next three years, and complements existing loan schemes. This year, there has been a strong take-up of SPRINGSingapore's various loan schemes, with over S$1.2 billion worth of loans given to SMEs so far.

Notwithstanding these cyclical headwinds, there remain good market opportunities for our companies. If I can illustrate, the annual growth for the ASEAN region is expected to average 5.2% from 2016 to 2020. In fact, for Asia, it is meant to be even higher. And this is significantly higher, compared to the projected global growth for the same period. To seize these opportunities, our industries, enterprises and workers must transform.

Structurally, Singapore is entering a new mode of growth. Rather than increasing manpower, we must anchor Singapore's competitiveness and growth in increased productivity and greater innovation. So, in April this year, the Government announced a grant budget of over S$2.3 billion under the Enterprise Development Fund (EDF) for the development of local companies. This will support the efforts that are undertaken at the enterprise level to upgrade capabilities, automate processes and internationalise.

In addition, as part of the S$4.5 billion Industry Transformation Programme announced in Budget 2016, the Government will develop customised roadmaps for key industries. This is really what the Industry Transformation Maps are about. Each roadmap will comprise a growth and competitiveness plan, supported by strategies to upgrade productivity, develop skills, promote technology adoption and innovation, and help our companies expand overseas.

Mr Saktiandi Supaat asked about falling private investments. Attracting investments remains a key part of our strategy to grow the Singapore economy. The investment commitments that EDB has secured for fixed asset investments (FAI) have moderated from S$12.1 billion in 2013 to S$11.5 billion in 2015. This is partly due to the uncertain global economic conditions, but it is also a reflection of our targeted approach towards attracting projects that are more consistent with our stage of economic development, manpower policies and international commitments on carbon emissions.

Companies generally understand and accept these constraints, which are by no means unique to Singapore, and have been supportive of our push towards productivity-driven growth. Re-investments from the existing base of companies have focused on increasing productivity through the adoption of automation technologies and upskilling of the workforce. In addition, EDB continues to harness investor interest in the growth markets of Asia and ASEAN to establish "Homes", that is, headquarters that comprise top decision-makers and differentiating competencies. These initiatives do not always entail large FAIs but they create good jobs for Singaporeans.

Assoc Prof Randolph Tan asked if there have been difficulties filling jobs created via EDB's investment commitments. At the project level, EDB works closely with the companies to meet their projected job commitments. And this includes partnering our academic institutions and industry to ensure that Singaporeans are equipped with the appropriate skillsets to take up the diverse range of jobs that are on offer. Specific interventions include curriculum development for pre-employment training (PET), continuing education and training (CET) with local Institutes of Higher Learning (IHLs), as well as partnerships with companies to provide apprenticeships and other applied learning opportunities for our students. These manpower efforts are aligned with our national SkillsFuture movement, which aims to prepare Singaporeans for jobs of the future, with a judicious complement of foreign manpower to address any skills gaps in the short to medium term.

Madam, the Singapore economy will continue to create and generate good job opportunities for Singaporeans who are willing to upgrade their skills and work in growth sectors. For 2016, EDB expects investment commitments to create 20,000 to 22,000 jobs. This represents an increase in job commitments, compared to 16,800 in 2015 and 18,600 in 2014. At the same time, our industry transformation efforts, which I have described, will also support sustainable job creation in the medium term in both new and existing industries.

Many of these jobs, and others in sectors like education and healthcare, are suitable not just for new entrants to the job market but also for mature workers seeking a new career. The Minister for Manpower will be elaborating on our efforts and measures to help workers adapt and secure these job opportunities.

Madam, successful economic transformation will require the collective effort of our workers, unions, companies, industry associations and the Government. It is critical that our companies stand ready to embrace new technologies and business models and that our workers stay open to learning new skills and capabilities in order to take on new or redesigned jobs. On its part, the Government is firmly committed to supporting our workers and companies through this transformation.

Mr Saktiandi Supaat (Bishan-Toa Payoh): Mdm Speaker, I would like to thank the Minister for the answer and the data that he shared about the drop by about $10 billion in terms of EDB's commitments over the past two years. And he explained that the targeted approach actually led to the decline. In light of the economic transformation and the cyclical headwinds, the data show also, in terms of declining foreign manufacturing investments over the past two and half years or so, I am a bit concerned on that part and I am wondering what the Government's view is in terms of declining foreign manufacturing investments, particularly because the job creation in the manufacturing side would probably create a bit more volume than that on the services side. And what would be the Government's strategy in terms of the declining foreign manufacturing investments in light of the decline in EDB's foreign investment commitments over the next five to 10 years?

Mr S Iswaran: Madam, I thank the Member for his questions. First, a point of clarification. It is not a decline of $10 billion. I said $12.1 billion in 2013 and $11.5 billion in 2015. So, it is a different order of magnitude.

Secondly, when talking about manufacturing investments in Singapore, let me talk in general and also specific terms. First, manufacturing is changing. So, it is no longer just about investing in fixed assets, plants, equipment and doing manufacturing in the conventional sense that we understand. In fact, manufacturing has got a very significant complementary aspect. Some call it the "servitisation" of manufacturing. What it basically means is that traditional manufacturers are also embarking on very different service-oriented models.

One example is Rolls Royce. We understand Rolls Royce to be a company that sells engines for aircraft. But Rolls Royce is increasingly moving towards a model where they sell power by the hour. In other words, I do not sell you the engine but I sell you the power that drives the aircraft by the hour. And that means the business model changes. It may not always be reflected as an investment in manufacturing in our context, but, in terms of its impact on the economy and in terms of what we are doing for job creation, it remains absolutely valid. So, in a very general sense, manufacturing is changing.

Having said that, even at the more traditional understanding of manufacturing, we continue to attract good investments. In recent times, Members would have read about the commitment by Micron, which has a substantial investment in semi-conductor manufacturing in the wafer fabrication sector, which is an important part of our electronics cluster in Singapore. Also about AbbVie in bio-pharmaceutical manufacturing.

So, we continue to attract good quality manufacturing investments. But the key is really to make sure that the investments that we attract are consistent with, first, as I have said earlier, our stage of development, because it is no point shoe-horning a manufacturer into our environment if it is not something that is sustainable in the medium to long-term. Far better for us to target the sectors or the part of the value chain that can continue to operate in Singapore in a sustainable way and that will then drive economic growth and job creation.

Er Dr Lee Bee Wah (Nee Soon): Mdm Speaker, I would like to ask the Minister two supplementary questions. Just a few days ago, there was a pharmaceutical research company that pulled out of Singapore. I would like to ask the Minister whether is that a concern and what is the real reason. Will there be more companies pulling out of Singapore? The second question is that, on the ground, there are quite a lot of retrenchments as well as pay cuts. Is the Minister concerned with these and are there any measures to be taken soon?

Mr S Iswaran: Madam, I thank the Member for her questions. I think she is referring to the announcement about Novartis moving out their tropical disease research facility. I do not want to go into the details of a specific company or what drives their decisions, but let me make a more general point.

First of all, one should not read too much into individual cases because individual companies make decisions for a variety of reasons. It could be because of internal restructuring; sometimes, it could be something as prosaic as a person in charge of that particular line of business deciding they want to run things in a different way. And all these things have got knock-on effects in the way that business is restructured. So, I would not want to extrapolate from that and draw broader conclusions about the viability, for example, in this case, of our pharmaceutical space.

As I have said, just a couple of weeks back, I opened a facility by AbbVie, a bio-pharmaceutical company producing state-of-the-art biological treatments for cancers and various other disease conditions.

So, in the context of Singapore, we continue to attract good investments in this space. We should not be complacent, but it is not something that should cause great alarm because it is in the context of one particular company making a decision on one particular aspect of its activity in Singapore.

The other point was about retrenchments, pay cuts and so on. I think the Minister for Manpower will be addressing several of these points later. But let me just make a more general point. If you look at the job creation data that I have shared, we continue to create jobs and there are adequate jobs in many ways to meet the needs and aspirations of Singaporeans. The real challenge for us is in ensuring that Singaporeans have the right skillsets in order to be able to take those jobs and run with it and develop new careers with it, in the case of those who are switching careers. So, that is really a summary of the situation, and the Minister for Manpower will be able to give a far more detailed explanation.

Assoc Prof Randolph Tan (Nominated Member): Madam, I thank the Minister for this very good news, which is that job creation is actually increasing. But I think that is a challenge because we all know about the slack in the labour market. My question, if I may, goes back to the last point that the Minister made, which is, with increasing job creation and the slack in the labour market, what are the challenges? Have we seen what had happened in the last five years, for instance, where we had either been able to or not able to find a match between supply and demand of certain types of skilled manpower?

Mr S Iswaran: If I may clarify, the Member's question is whether we have been able to find appropriate manpower to fill the jobs, is that correct?

Assoc Prof Randolph Tan: That is right.

Mr S Iswaran: First, I want to just restate the point I made earlier, Mdm Speaker, which is that EDB's efforts continue to generate jobs. There are some sectors, other sectors where also there are jobs being created, for example, in education and healthcare. There are also sectors which are taking a bit of a hit because of external headwinds and, therefore, there is job decline there.

So, you have to look at the economy as a whole. It is uneven, there are pockets where the opportunities exist for companies, for individuals. There are pockets where the environment and the circumstances are more challenging. The point about whether we are able to find appropriate people, Singaporeans, to take up the jobs, this continues to be the key challenge because we are seeing major changes in the way various industries are running, because there is a lot more emphasis, and if I can just take one or two cases in point. In the whole digital economy space, the importance of site security and having people who understand digital space and are able to work with data and do analytics and inform a company's business and marketing strategies, these are very essential skillsets in the new economy. There is a global shortage of people in this sort of space. We are not unique in this. So, we are creating opportunities and there are other sectors I can talk about.

There is always this issue of a skills mismatch, which is why we need to work on this on a few levels. The first is securing the investments and the opportunities so that we actually have a pipeline that Singaporeans can benefit from. The second is to work upstream with our Universities and Institutions of Higher Learning to make sure that the skillsets that are needed are being provided, not just through three-year degree programmes or diploma programmes but even, if necessary, doing some targeted modular programmes which is what we do collectively between MTI and MOM, and our agencies like EDB working with WDA, MOE and the institutions.

That is on the one side; this is more pre-employment for new entrants. But on the other side is really for the mature workers who are looking to switch careers. Harder to do, but it is something that is very important and that is why I have made the point that many of the jobs can actually be taken up by mature workers. But they need to make the move, adapt, take up the relevant skills training and adjustment in order to be able to participate in the new business. And we have seen examples of people doing that.

In the bio-pharmaceutical company that I visited, I saw an individual who was in his late 40s, worked in China in the electronics sector and came back because the company terminated his employment. He came back, he decided he wanted to make a switch, he got into the biopharmaceutical space, he got the training through WDA – and I think it is the Professional Conversion Programme – and now heads the unit there or certain aspects of production.

It is a good example. Individual stories, but demonstrating that the larger strategy can work and we need the individuals to step up and benefit fully from our programmes.

Mr Liang Eng Hwa (Holland-Bukit Timah): Madam, I am not sure if the Minister has addressed the question by Mr Saktiandi on the number of firms failing and closing but I would like to ask again whether the Minister sees increasing numbers of companies running into serious problems and not surviving.

And related to that, whether as these companies fail, are we at risk of permanently losing these capabilities – engineering and economic capabilities, for example, for the oil and gas sector – the contracting capabilities. And whether the Government will come up with sector-specific measures to help these industries and sectors. For example, the Industry Transformation Map, whether you want to activate this early to help these companies.

Mr S Iswaran: I thank the Member for the questions. Let me first clarify, I think the earlier question was working off data provided by ACRA. And I think the data the Member looked at was for September. I understand, because I did a check. ACRA has actually updated the data. In fact, in the first and second quarters of this year, there was net enterprise formation, positive. It was actually not an insignificant number, it was 2,001 for the first quarter and 9,000 in the second quarter. And I think this has got something also to do and there is some explanation there about some technical treatment. So, I would urge Members to check it out and maybe file a PQ to get further clarification.

But the first point I am making is that in the first two quarters of this year, rather than negative, there has actually been positive enterprise formation, at least based on the data we get from ACRA. I think the more important point the Member is raising is really whether we have a concern in terms of what is happening on the ground, in terms of companies. Enterprise formation, we know some companies form SPVs, there is restructuring, these things happen all the time. They do not necessarily reflect or affect what is happening on the ground in terms of actual business and jobs.

So, I would say that, if I go back to the point I made earlier, there is a diversity; if you look at the landscape, it is variegated. Some sectors are doing well or reasonably well, others are having a hard time. Even within the sectors that are challenged, there are companies that are thriving because they have been able to adapt, or they have been able to find a niche and they are doing well.

The fact of the matter is that it is an uneven terrain. It is not so much about having a broad-brush general programme or strategy because that is just going to be wasteful and some would argue that the natural business cycle should be allowed to take its course so that there is some appropriate consolidation and re-channelling of resources at the economy level.

We are mindful there are certain sectors or industries where we do need to be very careful, that we do not, in the process, lose core capabilities that have been built up over a long period of time. Therefore, in those sorts of very specific areas, we are tracking it and we are working on ideas as to how we can do this in a way that does not become so interventionist that it distorts the market, but it minimises the loss of capabilities, which we need to preserve in order to sustain the competitiveness of our companies in those sectors, especially when the situation improves.

Mr Zaqy Mohamad (Chua Chu Kang): The Minister spoke about transformations of the various industries. One feedback I often get from the industries is: how do they align with some of these strategies and sub-strategies because a lot of times the Ministry talks about strategies in very broad terms? From a sector-specific agenda, would the Ministry be sharing specific sector strategies, whether certain sectors will be defocused and others ramped up. I think what the industry is looking for is guidance so that that also helps in terms of manpower deployment and transformation, for example, where do they align to? Would the Ministry be sharing its sub-strategies in a more detailed manner?

Mr S Iswaran: The Member raises an important point. First, the Industry Transformation Maps are being developed for 23 sectors which we have talked about. It is a process. We have already announced a couple of them. One is in food services and another is for retail. There will be progressively more of these programmes that will be announced and shared. These programmes go into a great deal of detail in terms of the productivity, innovation, internationalisation and manpower aspects.

Many of the programmes that we have are being, at the backend, integrated and channelled along these lines. For the businesses, in order to understand and navigate the space, the first thing I would say is we will definitely be communicating this not just through major announcements but it will be percolated down through the industry associations and various other channels.

Second, even if the larger transformation plan may not be entirely relevant for a particular business, what they need to do – I am talking about the SMEs in particular – is to get in touch with one of our SME Centres, quite a number of which are now on the ground, through our various chambers and trade associations, or through the trade association and industry association members, or directly with SPRINGSingapore. Then, the dialogue can start on what is appropriate in terms of the companies' own plans and strategies, and how some of the programmes that we have can assist them.