​SPEECH BY MR LIM HNG KIANG, MINISTER FOR TRADE AND INDUSTRY (TRADE), DURING THE COMMITTEE OF SUPPLY DEBATE UNDER HEAD V (MINISTRY OF TRADE AND INDUSTRY) ON FRIDAY, 3 MARCH 2017

“Staying open and connected, building a resilient economy for all”

INTRODUCTION

1.            Madam Chair, I thank Members for their comments and suggestions.

THE GLOBAL ECONOMIC OUTLOOK

2.            Mr Liang Eng Hwa and Ms Foo Mee Har asked about the global economic outlook and the implications for Singapore’s economy. We expect global growth to remain modest in 2017, with growth projected to pick up slightly to 3.4 per cent, from 3.1 per cent in 2016. The US economy is projected to grow at a faster pace, primarily supported by domestic demand. Growth in the Eurozone is likely to remain modest, while China’s economic growth is expected to ease on the back of its continued restructuring.

3.            The global outlook also remains clouded with uncertainties and downside risks. Upcoming elections in key Eurozone economies may pose uncertainties regarding the direction of the monetary union. If anti-globalisation sentiments and protectionism take root, global trade will be adversely affected. Political risks, and uncertainty in the new US administration’s policies have also led to greater economic uncertainties and financial market volatility. These factors could in turn weigh on business and consumer confidence, dampening investment and consumption. At the same time, technological change continues to gather pace, disrupting entire industries even as they create new opportunities. Many of these changes are still playing out, and it is difficult to know with certainty how things will develop.

OUR ECONOMY IS ON A STEADY PATH

4.            Against this backdrop, the Singapore economy as a whole is on a stable and steady growth trajectory. GDP growth came in at 2 per cent in 2016. Barring downside risks, we expect growth in 2017 to be similar to 2016. Mr Charles Chong observed that the growth rates have come down in recent years. As the Committee on the Future Economy had highlighted, we have to adapt to a lower, but more sustainable rate of 2 to 3 per cent growth, as our economy matures and undergoes structural adjustments.

5.            Mr Charles Chong asked about the outlook in the short to medium term. Let me try and summarise the key developments and trends. First, our restructuring efforts are gaining traction. We have narrowed our productivity gap with other advanced economies, although there is scope for improvement, especially for domestically-oriented sectors. Overall labour productivity grew at a modest pace of 1.5 per cent per annum from 2010 to 2016.[1] Over this period, the productivity of outward-oriented sectors, such as manufacturing, wholesale trade and finance & insurance, have increased by 2.7 per cent per annum, while that of domestically-oriented sectors, such as construction, retail and food & beverage, grew by 0.7 per cent per annum. As our restructuring efforts gather momentum, we can expect to see progress in achieving our productivity targets.

6.            Second, our labour market remains resilient. Wage growth has been comparable to or higher than many advanced economies, in part due to the tightness in our labour market. Between 2010 and 2016, real median gross monthly income of full-time employed residents grew by 3.1 per cent per annum. At the same time, the annual average resident unemployment rate has remained low, at 3 per cent or lower since 2011, while the resident labour force participation rate has remained high. Despite the difficult conditions that we are facing, our labour market is holding up.

7.            Third, despite an uncertain environment, we remain globally competitive. The World Economic Forum’s Global Competitiveness Report 2016-2017 ranked Singapore as the second most competitive economy in the world. We continue to attract a steady pipeline of investments, thus creating new job opportunities. Over the past five years, EDB’s investment commitments have brought in an average of S$12 billion in fixed asset investment and S$7 billion in total business expenditure annually. These investments are expected to create an average of 20,000 jobs annually when the projects are fully implemented.

8.            Ms Foo Mee Har observed that despite the 2 per cent growth in 2016, business sentiments remain weak. One reason for this is the uneven performance across different segments of our economy. Take manufacturing for example. Growth in the sector was led by the semiconductors segment, which grew by 31 per cent in 2016, and to a lesser extent, the machinery & systems segment, which grew by around 5 per cent. On the other hand, the marine & offshore engineering segment continued to contract. Similarly, the printing and the miscellaneous industries segments of the general manufacturing cluster saw a drop in their output last year. It is thus not surprising that while firms in the semiconductors and machinery & systems segments are positive about their business prospects, firms in the marine & offshore, printing and miscellaneous industries segments would feel pessimistic.

9.            Similarly, even though services sectors on the whole saw subdued growth in 2016, there continues to be bright spots, such as in IT services, education, health and social services. On the other hand, the retail trade segment will continue to face structural challenges as it adapts to e-commerce and weak consumer demand.

10.         Even within the same sector, the performance of firms was also uneven. For example, within the logistics sector, firms with major contracts from the marine & offshore engineering segment were harder hit. Conversely, firms that had a diverse portfolio of clients from different industries, especially those that provided more integrated and specialised value-added services, did better than the industry average.

11.         This uneven performance across our economy and the uncertain economic outlook explain the weak business sentiments and the sense of insecurity among our workers. Recognising that there are different opportunities and challenges for each sector, the Industry Transformation Maps or the ITMs are the right approach to address the specific needs of each industry. This is why we focus on the ITMs.

SUPPORTING BUSINESSES THROUGH CHALLENGES

12.         The Government will continue working with businesses and our unions to overcome the challenges that we are facing.

13.         First, we introduced several initiatives at Budget 2016 to support our companies. They are still relevant and effective in dealing with the current situation.

a.    One initiative is the SME Working Capital Loan, which allows SMEs to access unsecured working capital of up to S$300,000 and complements existing financing schemes to support our SMEs. As at end of 2016, more than S$700 million and 4,800 loans have been catalysed, benefitting around 4,300 SMEs. With the improved credit availability under this scheme, our SMEs can better address their cash flow concerns and growth financing needs.

b.    Another initiative is the Automation Support Package or the ASP, which complements SPRING's existing Capability Development Grant in helping companies achieve productivity improvements. In 2016, these two schemes collectively supported 226 automation projects. An example of a company that has benefited from this scheme is Commonwealth Culinary Creations Pte Ltd or CCC. This is a food supplier. Through the use of automation, CCC improved the quality, consistency and range of their confections. Their output per shift doubled, even though they used less manpower than before. This allowed CCC to scale up and take on larger business opportunities, as well as supported its long term goal to expand regionally and to the Middle East.

14.         Second, the Government closely monitors our economy, and stands ready to take decisive action if needed. In November last year, we introduced the Marine & Offshore Engineering (M&OE) Bridging Loan and enhanced the Marine & Offshore Engineering (M&OE) Internationalisation Finance Scheme to facilitate M&OE companies’ access to working capital and financing. Both aim to stabilise the Marine & Offshore Engineering sector as it copes with prolonged weakness in oil prices.

15.         Dr Tan Wu Meng asked if the support measures have been successful. The measures are expected to catalyse about S$1.6 billion in loans over one year. As of February 2017, applications amounting to more than S$90 million of loans have been approved. Based on feedback from participating financial institutions, we expect the pipeline demand to be strong, with more than 100 companies already indicating interest in the scheme. The access to financing will help companies finance their operations, bridge short-term cash flow gaps and take on new projects. Stabilising the industry will help to preserve Singapore’s core capabilities in the sector and save jobs. With the stabilisation of oil prices, we are beginning to see some upstream and mid-stream activities taking place in the oil and gas sector.  There is of course a certain amount of lag in the sector so some of the suppliers and the stockists may not feel the impact as yet. The Government continues to monitor the sector closely and we track indicators such as order books and output levels in the sector, and we continue to evaluate the feedback from industry players.

16.         Third, we will continue to keep a close eye on business costs to ensure that they do not rise excessively. The unit business cost (UBC) index for the manufacturing sector fell 8.5 per cent from 2015 to 2016. For the services sector, the unit business cost index increased at a more moderate 0.1 per cent year-on-year for the first three quarters of 2016, compared to the average 0.5 per cent increase per annum of the four years before. Mr Henry Kwek, Ms Cheng Li Hui, Mr Chen Show Mao, and Mr Dennis Tan spoke about rental costs, which are a component of the unit business cost. Let me try to address the issues in the following way.

a.    First, we have to understand the contribution of rental costs for the different sectors. We do acknowledge that for SMEs in the retail sector and the food and beverage sector, rental cost as a share of the total business cost is around 30 per cent and is therefore significant. For the other sectors, rental cost is not so significant. For example in the manufacturing sector, rental cost is a small share of total business cost, at between 0.7 and 4.8 per cent. Similarly, for most services sectors, rental cost constitutes around 5 per cent of business costs.

b.    Secondly, in the recent quarters, the rentals of industrial, commercial, retail and office spaces have been declining, so the problem has not been so severe.

c.    Third, the government believes in letting market forces set the rent, and we allow the private sector to provide the responses in supplying the demand. Where we intervene is where we recognise some possible market failures. For example in startups where it is not so commercially viable to provide the space, the government will step in, and indeed we have. JTC set up LaunchPad@one-north in 2015, and plans to build a network of LaunchPads around Singapore. The next one will be completed in the Jurong Innovation District this year. JTC has also been developing industrial facilities with shared services for SMEs in order to reduce their capital expenditure and operational costs in such specialised facilities.

d.    Mr Henry Kwek suggested reducing property tax for retail real-estate. This will not help most of the retailers because the landlords benefit directly and it is very difficult for the Government to instruct landlords to pass on the tax savings to tenants. We cannot compel them to do so in return for the rebate, as such a condition would not be enforceable operationally. Therefore, the Government has other ways to support our businesses, including schemes like the Capability Development Grant which encourages businesses to build business capabilities by defraying up to 70 per cent of qualifying project costs. This is a more sustainable way to manage business costs rather than through direct intervention through rental rebates.

STAYING OPEN AND CONNECTED

17.         Mr Chair, let me now turn to the medium and long term challenges. We are confident that Singapore is well positioned to seize opportunities of the future. The Committee on the Future Economy (CFE) has identified two key thrusts – first, remaining open and connected, and second, building deep capabilities. Let me elaborate on the first thrust, and Minister Iswaran will speak more on the second.

18.         Mr Liang Eng Hwa asked how our strategy of remaining open and connected will serve us, given the rise of anti-globalisation sentiments globally. Trade and external demand are key drivers of our economy, accounting for two-thirds of our GDP. Small and open economies like Singapore are especially vulnerable to global developments, but our external linkages can also make us more resilient.

19.         Our trade connections across the world have enabled our companies to access new markets and cutting-edge technology, and have created good jobs for Singaporeans.

a.    IE Singapore’s 2016 Internationalisation Survey shows that our companies’ overseas revenue grew 4.2 per cent year-on-year, compared to the total revenue growth of 1.3 per cent year-on-year. Going overseas allows us to tap into the higher growth potential of Asia.

b.    When companies internationalise, about 60 per cent of jobs created are Professional, Managerial, Executive and Technician jobs. Internationalisation also helps us create jobs for Singaporeans.

20.         Ms Cheryl Chan and Mr Saktiandi Supaat asked how we will support our companies to tap on overseas opportunities. We will do so in four ways.

21.         First, we must continue to leverage our trade agreements. We have a network of 21 Free Trade Agreements (FTAs) and Economic Partnership Agreements with 32 trading partners in multiple regions. These agreements helped our companies benefit from tariff savings of over S$900 million in 2015.

22.         Our trade agreements also lower other barriers to trade. Under the Gulf Cooperation Council or GCC-Singapore FTA, there is mutual recognition of Halal standards. This means that a product that is halal-certified by MUIS[2] does not have to go through additional halal certification processes when it enters the GCC countries. This provides added certainty for companies which export products to the GCC countries.

23.         Ms Cheryl Chan and Mr Lee Yi Shyan asked what is next for our trade agreements and Dr Tan Wu Meng asked how we are working with our regional partners to deepen cooperation on standards. Under the ASEAN Economic Community, ASEAN Member States are looking at the harmonisation and mutual recognition of standards across a wide range of sectors – including automotives, cosmetics and medical devices – and aligning them to international standards wherever possible. We are also working with ASEAN member states to improve trade facilitation through the ASEAN-wide Self-Certification regime and the ASEAN Single Window (ASW). These initiatives will also reduce the administrative burden and cost to our traders. We will also press on with our efforts for greater regional connectivity through the Regional Comprehensive Economic Partnership or the RCEP.

24.         We will ensure that our agreements meet changing business needs especially in the digital economy. Common trade rules governing e-commerce will promote greater digital connectivity in the region by reducing barriers to e-commerce and improving security of electronic transactions. All these will be introduced and incorporated in our new trade agreements.

25.         The second way we can support our companies is by deepening our linkages at the provincial, states and cities level.

26.         We can do so through bilateral platforms and government-to-government or G2G projects. In China, Singapore companies have made inroads through our seven provincial business councils. Our third G2G project, the Chongqing Connectivity Initiative (CCI), will also enable us to engage the provinces in Western China.

27.         As provinces and cities within a country will differ in strengths and challenges, we also adapt accordingly. For example, the Vietnam Singapore Industrial Park or the VSIP projects are spread across six provinces in Vietnam and cater to the priorities of each province, taking into account the locals’ skillsets as well as investors’ demand. Singapore food companies have set up in VSIP 1 in Binh Duong province, in southern Vietnam to cater to the growing middle class and the expanding demand for premium food products. Meanwhile, companies in the electronics manufacturing and logistics services have set up in VSIP 3 in Bac Ninh province, in northern Vietnam, to support the increased presence of consumer electronics multi-national companies.

28.         We should also deepen our engagements at the city-level. For instance, in Indonesia, Bandung and Makassar are keen to incorporate digital solutions in their city development. With IE Singapore’s assistance, a Singapore e-government solutions company, Ecquaria, set up a software development centre in Bandung and is in discussion with the Bandung city administration on the provision of e-government services. IE Singapore also signed a Memorandum of Understanding with Makassar to facilitate Singapore companies in providing Smart City solutions and technology.

29.         There are also opportunities to be seized in developed markets. Singapore has hosted delegations from the US states like Texas, Alabama and Washington, all of whom have been eager to find new markets for their exports and welcome new investments. At the same time, there is interest from Singapore companies to invest in the US. For example, AC Global Energy acquired technology from their US partner to convert pine wood to green diesel, biochar, and wood vinegar. They currently operate a biodiesel plant in Tennessee and are looking to build another plant in Alabama. Working closely with our economic agencies, we will identify mutually beneficially partnerships at the state-level.

30.         The third way we will support our companies is by strengthening our internationalisation efforts.

31.            The digital economy presents opportunities for SMEs to access new markets. Kino Biotech, an SME which sells healthcare products such as collagen drinks, is using e-commerce to augment its internationalisation efforts to enter the Chinese market. With IE Singapore’s assistance, Kino Biotech began listing their products on Alibaba’s Tmall Singapore Shop in 2016 and found e-commerce to be an effective sales channel. They have now developed their own e-commerce platform, Kinofy, to serve as a marketplace for health and beauty products targeted at the Chinese market, and this platform will soon be supporting products from other companies as well.

32.         In addition, Singapore companies can partner larger companies to venture abroad. InvitroCue, a home grown biotechnology firm that was spun-off from A*STAR, provides cell-based models for global pharmaceutical companies to test drug and medical devices. Since August last year, InvitroCue has collaborated with Qiagen Suzhou, a joint venture between Dutch MNC Qiagen and Suzhou Industrial Park Biotechnology Development, to jointly develop, brand and market new technologies.

33.         Singapore companies enjoy greater economies of scale by going abroad together. Trade Associations and Chambers play a unique role in such collaborations. Last year, the Singapore Manufacturing Federation (SMF) and IE Singapore partnered our companies to help them collectively obtain lower product listing fees and better shelf displays, as well as organise promotional activities. The Singapore Manufacturing Federation also helped to oversee the consolidation of our companies’ exports, shipping them to the supermarkets in shared container. Through this collaboration, our companies were able to bring their products overseas at a lower cost compared to if they had done so themselves.

34.         The final way which we will support our companies is through the Global Innovation Alliance, as announced by the Minister for Finance. The future economy will be characterised by a global network of innovation and talent. Cities which are plugged into this network will have a strong advantage. By linking our enterprises and students with overseas partners in major innovation hubs and key demand markets, our companies and people will benefit from the opportunities as well as the overseas exposure. Similarly, Singapore can also tap on the best global talent and ideas to stay at the forefront of innovation.

35.         The Global Innovation Alliance focus in each city will be tailored according to its strengths. In cities like San Francisco and Beijing, where there are thriving, world class innovation ecosystems, we want our students and companies to be immersed in the environment and to be able to interact with them. In cities like Jakarta, innovation ecosystems are just rapidly taking shape and our companies should therefore be participating in these developments. Minister Iswaran and Minister of State Dr Koh Poh Koon will explain how our SMEs and startups can benefit from this initiative.

CONCLUSION

36.         Mr Chair, over the years, Singapore has adopted a consistent and deliberate strategy to remain open and connected. This has opened up new opportunities for our businesses and people, even during challenging times. Amidst the uncertain operating environment, we are convinced that staying the course remains the right thing to do. An open and connected Singapore will be better placed to tap on the opportunities of the future economy.

37.         Thank you.

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