Speech by Mr Lim Hng Kiang, Minister for Trade and Industry, During the Committee of Supply Debate Under Head V

SPEECH BY MR LIM HNG KIANG, MINISTER FOR TRADE AND INDUSTRY, DURING THE COMMITTEE OF SUPPLY DEBATE UNDER HEAD V (MINISTRY OF TRADE AND INDUSTRY) ON MONDAY, 11 MARCH 2013 

“STAYING OPEN TO OPPORTUNITIES; RESTRUCTURING FOR QUALITY GROWTH”

(A)           INTRODUCTION

1. Mdm Chairperson, let me first thank Members for their comments and suggestions.

(B)           ECONOMIC OUTLOOK AND THE NEED FOR RESTRUCTURING

2. Ms Jessica Tan asked about MTI’s strategies to grow the economy amidst global uncertainties and domestic constraints. Given the weak external environment and the tighter labour situation domestically, we expect a modest 1-3% growth for Singapore in 2013, and a 3-4% average growth for the rest of this decade. For a country that has enjoyed twice that rate of growth since 2003, this slowdown will be a significant change.

3. The slowdown would be most acutely felt in our workforce as our population ages and the citizen workforce shrinks over time. Foreign manpower as a complement to our Singaporean core must be managed judiciously. To deal with this slowdown, our companies must restructure and aim for higher productivity.  Restructuring is painful, but it is unavoidable.

4. Both Ms Jessica Tan and Ms Foo Mee Har asked whether we can stay globally competitive amidst our restructuring, and whether Singapore can retain its high-value activities. The outcome of our efforts will, in fact, have a major impact on our future – what the economy will look like, and what kinds of jobs Singaporeans will have. We are therefore restructuring to stay more competitive, not less. To do so successfully, we must carefully pace and calibrate the changes. While we accept a slower growth trajectory, we aim to create quality growth and higher-value jobs for Singaporeans.

5. MTI’s strategies for achieving quality growth are therefore twofold: first, to stay open and flexible to tap global and regional opportunities, and second, to restructure the economy so that our companies and workers can achieve higher productivity and sustainability.

(C)           STAYING OPEN TO OPPORTUNITIES

6. Let me first turn to our strategy to stay open. Ms Jessica Tan asked about our Global-Asia hub strategy, and in particular, specific high-growth sectors that Singapore companies could focus on here in Singapore and when internationalising. The good news is that the Asia growth story is largely intact, and our Global-Asia Hub strategy continues to resonate with global and regional investors1. We also see opportunities for Singapore companies seeking to tap Asia’s growth and the continuing economic integration of our region. Let me highlight 4 sectors as examples.

7. First, the high-value pharmaceutical industry offers high wages and employs more than 5,700 people, where 80% perform skilled jobs. In 2012, the pharmaceutical value-added grew by 14% to S$13 billion. Biologics is one niche area within the industry that has been gaining momentum. The first biologics facility was set up in 2007; we now have eight, including two first-in-Asia biologics manufacturing investments from Novartis and Amgen. Over the next 3 to 5 years, the biologics sector will create at least 500 jobs – highly skilled jobs for chemists, microbiologists, biotechnologists, engineers and technicians.

8. The second sector is baby nutrition and baby care. This is another growing segment, fuelled mainly by the population boom in Asia and the rising middle class. Singapore has become an established hub for commercial and innovative activities in baby nutrition and baby care. The world’s top infant nutrition players — Nestle Nutrition, Danone, Mead Johnson, Abbott Nutrition and Friesland Campina – have all located themselves here. Most recently, Proctor & Gamble (P&G) relocated its global HQ for baby care, including its Pampers brand, to Singapore.

9. At the other end of the spectrum from baby nutrition is the silver industry. This is a growth segment highlighted by Mr Chen Show Mao. We agree with him that Singapore can serve as a platform for us to test out products and then to replicate this wider afield in Asia. As we would know, Asia is ageing, and there is growing demand for these products. Singapore is well placed to tap this market. In fact, we have local entrepreneurs who are seeking to tap this growing market. Sofshell, for example, is a local spin-off from the Institute of Materials Research and Engineering. It has pioneered a responsive soft-shell armour that hardens upon sudden impact and dissipates force. Sofshell has obtained grant funding from A*STAR and SPRING to develop prototypes for elderly hip protectors. In the event of a fall, the armour will harden and protect the elderly from hip injury. Sofshell is also working with IE Singapore to establish its manufacturing supply chain and overseas distribution channels. Global companies too are using Singapore to innovate products and services for the silver industry. We have Siemens Medical Instruments’ manufacturing and R&D facility here, where it developed and launched its Ace hearing aid. This is the most discreet product in its hearing aid range.  Procter & Gamble (P&G) and the University of Cincinnati have also partnered Singapore Polytechnic to set up the Live Well Collaborative-Singapore project. This non-profit and independent innovation research centre uses consumer insights to co-create products and services with the industry players.

10. The fourth area that I would like to highlight is high-end logistics services, to illustrate the big data which Ms Tan Su Shan talked about. High-end logistics services now expands beyond the physical flow of goods, it uses data analytics capabilities to add value to logistics services. Such services rely on strategic planning and solutions development to better manage the supply chain in the whole of Asia. The rise in demand for services in Asia has led top, global third-party logistics players (3PLs2), such as DHL, UPS and Nippon Express to establish their regional or global functions in Singapore. In particular, the world’s No. 1 air express and 3PL company DHL has established its global Services Logistics Centre of Excellence here to develop innovative and specialized logistics solutions for its clients worldwide.

11. Our Singapore logistics companies are also growing. Pacific Integrated Logistics (PIL) Pte Ltd started out as a traditional freight forwarder and is now a fully integrated logistics solutions provider. PIL first established its international presence in Shanghai and Suzhou. With IE Singapore’s help, PIL ventured into Chengdu, where rapid infrastructural investments have created a strong demand for logistics services. PIL is also well connected to the South East Asian market, and uses Singapore as its headquarters to serve their customers in Malaysia, Indonesia, Thailand, the Philippines and Vietnam. By the second half of this year, PIL will also be in Myanmar. Singapore will strengthen our value proposition as an open and connected economy, so that we can continue to attract companies like PIL to site their high value-added functions here and expand regionally.

12. Ms Jessica Tan asked about the types of assistance available to help our companies to internationalise. The Government offers a wide suite of initiatives to holistically support companies in this area. SMS Lee Yi Shyan will elaborate in greater detail, but let me touch on financing, something Ms Jessica Tan raised. Last year, IE Singapore launched the Political Risk Insurance Scheme (PRIS) to help Singapore-based companies protect their projects and investments from political risks when they internationalise. Political risk insurance is a useful risk mitigation tool and this scheme will help cover up to S$2 billion in overseas investments over the next 3 years.

13. This year, we will work with the Asian Development Bank (ADB) and private insurers to expand the ADB’s Trade Finance Programme to enhance trade flows for Singapore-based companies. Many companies already benefit from the programme which currently supports over US$1 billion of trade capacity. Given that our companies are exporting to Asia’s emerging markets, demand for such trade financing programmes will continue to be high. IE Singapore will release more details of this scheme later.

14. Mr Vikram Nair asked about our effectiveness in our use of our FTAs. As you know, over the years we have developed growing trade linkages through a successful network of Free Trade Agreements with all our major trading partners. These FTAs improve market access and reduce tariffs for our companies, particularly our SMEs, as they expand overseas. In 2012, more than 1,700 companies benefited from our FTAs, and we expect this number to increase as we expand our FTA networks and make them more user-friendly. IE Singapore tracks companies which can benefit from FTAs, and has outreach programmes to reach out to these companies, as a cluster or individually.

15. We recently concluded the FTA with the EU, our second largest trading partner and largest foreign investor. Once the EU-Singapore FTA (EUSFTA) enters into force, the EU will eliminate its tariffs for imports originating from Singapore, over a period of 5 years. Therefore, exporters of electronics, machinery or chemicals, including SMEs, will enjoy improved market access into the EU. As the EU has relatively high tariffs for processed foods, the elimination of tariffs under the EUSFTA will benefit our food manufacturing companies, many of whom are SMEs.

(D)           RESTRUCTURING FOR PRODUCTIVITY AND QUALITY GROWTH

16. Let me now turn to our second strategic thrust, and that is to restructure for productivity and quality growth. We recognize that there are certain downside risks to this strategy and we must be aware of this. For example, in a tight labour market with limited resources, there will be some opportunities we may have to forego. The second downside risk is the risk of structural inflation and rising business costs, given the tight labour market. We are very mindful of all these risks, especially not to allow runaway inflation or a wage-price spiral to gain traction. Therefore, the Wage Credit Scheme, which was announced during the Budget Statement, will help companies defray some of the wage increases, which should prevent them from being entirely passed on to the consumer. In addition, we expect the subdued state of the global economy to weigh on overall demand, and this may help contain inflation in the near term. Over the long term, productivity improvements arising from our current restructuring should help prevent higher costs from fuelling strong price increases. The Government has therefore adopted a multi-pronged approach to manage inflation and will continue to watch the developments very closely.

17. The key to managing the whole process is to make sure that we continue to pace and calibrate the changes carefully as we restructure. I acknowledge several Members’ observations that productivity changes need time, and this is precisely how we have structured our strategies.

18. Our restructuring strategies are also tailored for each sector, and we cannot have a one-size-fits-all model. We have developed sector plans together with the industry players. Over the last three years, the National Productivity and Continuing Education Council (NPCEC) has endorsed productivity roadmaps for 12 sectors, including retail, food manufacturing, electronics and precision engineering sectors. Roadmaps for the remaining four priority sectors will be endorsed soon. For each sector, we engaged the industry closely to study their productivity challenges before recommending specific initiatives and targets. We maintain regular reviews and continue to engage the industry players to ensure that the roadmaps stay relevant.

19. Let me illustrate this comprehensive process using the Marine and Offshore sector. As you know, Singapore is a global leader in this sector, and our shipyards command 70% of the global market share in offshore drilling rigs and conversion of tankers to production vessels. However, we believe there is still room to improve, particularly in the land and labour productivity, as well as to move the sector up the value chain.  

20. Transforming this sector will take place in several ways. First, we will improve land and labour productivity through automation and enhancing process workflows. An example is Sembcorp Marine’s Integrated New Yard, which will ready by the second half of this year. With improved logistics, redesigned workflows and process automation, manpower requirements of this new yard will be reduced in the long term.

21. At the same time, we will work with the shipyards to strengthen their supplier base. ST Marine, for instance, is one of the largest local shipyards involved in shipbuilding and ship repair, and it procures ship repair services from many of its subcontractors. With SPRING’s support, ST Marine partnered two of its subcontractors, Glenn Marine Services and Comila Marine Services, to adopt a new method of using wet abrasives to remove paint or rust from a ship’s surface. This increased efficiency has resulted in time savings of 5-10%.

22. Third, companies are also encouraged to enhance their design and engineering capabilities, which will allow them to differentiate themselves from their global competitors in the long term. Keppel Offshore & Marine Technology Centre presently has a team of 86 researchers who do upstream R&D on new product designs to augment Keppel’s design and engineering capabilities.

23. Finally, we are also tightening the Dependency Ratio Ceiling (DRC) but will phase these changes over 5 years. This ensures companies have time to adjust. This will also allow shipyards to ride the current upturn in the offshore sector and undertake the necessary changes to maintain their leadership position in the long run.

24. Collectively, these restructuring efforts will result in a 4% to 6% Compounded Annual Growth Rate (CAGR) in Value Added per worker from 2011 to 2020. We will continue to monitor the sector’s progress, because we believe that the Marine and Offshore sector can continue to play a key role in Singapore’s economy.

25. What has been done in the Marine and Offshore Sector is also systemically done for the other sectors. Beyond each sector, we will also find cross-cutting methods to strengthen linkages between our existing sectors

26. Members have raised concerns about how SMEs could cope with the restructuring. We pay particular attention to our SMEs, as they are an important part of our economy and they provide good jobs for some 1.3 million Singaporeans.

27. The Government is committed to help SMEs through this difficult transition period, and many of the assistance measures introduced this year have been weighted to benefit SMEs more. This was done consciously and deliberately because we want to help them. MOS Teo Ser Luck will elaborate on the measures that will be implemented to help SMEs.

28. Let me now address Mr Teo Siong Seng’s concerns about the high cost of industrial property. As I have mentioned several times in this House, JTC remains committed to provide industrial land at competitive prices. The PEP suggestion is a useful one; it has been effective so far, and we will continue to cut red tape and reduce compliance cost. Mr Teo Siong Seng also asked us to adopt a more flexible approach in each sector, which I have illustrated through the earlier Marine and Offshore example.

29. Let me elaborate on our measures to help SMEs. Last April, MOS Teo Ser Luck led a committee of representatives from MTI, SPRING, IE Singapore and key industry partners to comprehensively review our schemes for SMEs. Arising from this review are eight strategies to help SMEs. MOS Teo will elaborate on them, but I will highlight one of the schemes.

30. The SME Talent Programme, which was earlier announced at Budget, will create a pipeline of local talent for SMEs. Under the programme, SPRING will match over 3,000 promising polytechnic and ITE students with SMEs over the next five years. Upon graduation, these students will start their careers with SMEs that can offer them good jobs and training. We will work through the trade associations and chambers (TACs) for this programme, since they know the industry best and will be able to identify progressive SMEs to work with. We hope that this will attract more local talent to join SMEs and encourage the entrepreneurial spirit in Singapore. The Government will co-fund the programme, which will amount to more than $70 mil over five years.

(E)           CONCLUSION

31. Mdm Chairperson, let me summarise the key thrusts of our work ahead: first, we must stay open and flexible in order to tap global and regional opportunities that are still opening up around us, and second, we must persevere in our restructuring to achieve higher productivity and quality growth for all Singaporeans.

32. We all know there are no quick fixes in addressing our challenges. The path of restructuring will not be easy but the Government is committed to help our companies face the challenges ahead.

33. Thank you.  

¹ A survey by the Frontier Strategy Group found that 44% of MNCs that have Asia-Pacific Headquarters chose to site their headquarters in Singapore, ahead of Hong Kong (17%) and Shanghai (13%).

² A 3PL company is one which provides services to the customers of outsourced logistics services for part of, or all of their supply chain management functions.