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 FRIDAY, 2 MARCH 2012

“RESTRUCTURING: WE WILL DO THIS TOGETHER”

 
(A) INTRODUCTION
 
Mr Chairman, I would like to thank Members for their comments and suggestions. Let me first outline Singapore’s economic challenges and explain why we need to restructure for growth. MOS Lee Yi Shyan and MOS Teo Ser Luck will then elaborate on our programmes for increasing productivity, securing new markets and assisting our SMEs.

 
(B) ECONOMIC OUTLOOK 
 
1. As Mr Ong Teng Koon has noted, we are facing a protracted slowdown in our traditional markets in the G3 economies. The rise of Asia, however, provides opportunities for growth, but that opportunities also mean more competition from major Asian cities. Beyond our traditional competitors like Hong Kong and Tokyo, as China and India grow rapidly, we will face new competitors from the major cities there. Going forward, therefore, Singapore competes not just with countries, but with cities as well, especially in the services sectors.

2. Beijing, for instance, has a city GDP that is larger than ours; 75 per cent of its GDP is in services; it is growing at more than 8 per cent per year and it has been moving into higher value-added activities. Its Zhongguancun (中关村) is commonly referred to as “China’s Silicon Valley”. Beijing hosts many headquarters of Chinese companies, as well as research centres of top MNCs like Microsoft and Intel. It is a formidable competitor for RHQs and OHQs, as well as a city for conventions and meetings. So although Singapore is still ranked amongst the top 5 global cities in the 2011 Mori Global Power City Index, Beijing is quickly closing the gap, leaping 10 spots from 28th position to 18th position in a short span of 4 years. Beijing is not the only city. In January, Shanghai’s municipal government unveiled a plan to develop the city into an international financial centre by 2020. And as you all know, Shanghai has already overtaken us as the number 1 container port. Other cities like Mumbai and Delhi will also have the potential to become credible competitors on the back of their fast-growing domestic markets. 
 
3.  On our domestic front, we will face more resource constraints, especially with the slower foreign labour inflows. Our companies also need to manage rising business costs. So taken all these together, we are indeed facing a different phase in our growth and these factors underscore why we need to restructure our economy and rely on productivity in order to achieve sustained growth over the long term. 

 
(C) RESTRUCTURING FOR GROWTH AND HIGHER PRODUCTIVITY
 
4. Ms Jessica Tan and Mr Ong Teng Koon asked about our growth strategy to address the tougher competition as well as domestic constraints that we are facing. 
 
5. To restructure our economy and raise productivity, we need to do so at four levels. First, for the economy as a whole, we need to expand promising clusters, and grow new ones that will take our economy to the next stage. Second, at the sectoral level, we must continue to move up the value chain to higher value-added activities. Third, at the firm level, companies must innovate and improve their work processes. And at the fourth level finally, workers must also continually upgrade and undergo retraining so that they can take on the better jobs that our investments and that our companies create. This is very important, because restructuring will inevitably involve phasing out activities that Singapore has become less competitive in.
 
6. We have a good pipeline of new investments to develop the new clusters as well as to upgrade existing clusters. In 2011, we had a record investment commitment of S$13.7 billion despite global uncertainties in the second half of the year. For 2012, EDB is optimistic that we can sustain such a strong level of investment.

7. To support these investments, as Ms Jessica Tan pointed out, we need the correct environment and the skills so that these promising sectors can grow. If we have the time to build this pipeline of people as we have done in the aerospace industry, we can train Singaporeans for the job. But in some areas we need to jumpstart the sector. Take for example our plan to grow data analytics. This is a promising new area that builds on our infocomm capabilities. We need to create the right environment and build up the talent. EDB has attracted global companies such as IBM and Deloitte to establish analytics research centres in Singapore. These centres are staffed with top talent that will drive Singapore’s thought leadership in this area. EDB is also working with our local tertiary institutions such as SMU to prepare a pipeline of Singaporeans to take up these good jobs. But Singapore must remain open so that we continue to use foreign talent to complement the Singaporean core.

8. Mr Chairman, Sir, our sectoral strategies are also gaining traction. Each sector has its unique set of challenges. Therefore, the extent of restructuring will vary with each sector. Our manufacturing sectors, for example, are largely export-driven and have restructured continuously over the years, moving up the value chain and building new competencies to remain competitive. They must continue to do so. Take the example of the marine and offshore cluster. Mrs Lina Chiam mentioned that we have been allowing our marine and offshore centre a huge quota of foreign workers. But this is how they were able to build a strong competitive sector, reinforcing our Singaporean core with the foreign workers. And today, Singapore is a global leader in this sector – our home-grown champions Keppel Offshore and Marine as well as Sembcorp Marine have 70% of the global market share in offshore drilling rigs and production vessels. However, offshore activities are increasingly operating in deeper waters and harsher operating environments. This means we need more advanced solutions to satisfy the stringent operating requirements. We will therefore allocate $150 million to help companies in this cluster conduct R&D so as to develop capabilities in deepwater offshore engineering and seize the opportunities in this new segment.
 
9. As Ms Jessica Tan mentioned, our bigger challenge lies in the services sectors. We do have externally-oriented services activities that are globally competitive. For example, the financial services and business services sectors are globally competitive. The trading of commodities is also competitive. Due to our excellent connectivity and our trade links, Singapore has become Asia’s oil trading hub and is home to many of the world’s largest players in agri-commodities as well as in metals and minerals trading. Some of our local trading companies have also successfully upgraded from being merely local wholesalers to competing on the global arena. We need more models like these companies. We can do more to enhance our status as an international trading hub by anchoring new, high value-added trading clusters. For example, with the rise of Asia, there is now strong demand for investment-grade gold. IE Singapore will seize this window of opportunity and work with other agencies to grow a new precious metals trading cluster. 
 
10. However, at the other end of the services spectrum, we have some domestically-oriented activities in logistics, in retail and food services that may not be as globally competitive. There is tremendous scope to raise productivity in these sectors, and restructuring to improve this productivity is therefore very critical. 
 
11. Dr Chia Shi-Lu asked for an update on our productivity efforts. As you know, we have been working closely with companies and business associations to develop detailed productivity roadmaps in each of the 16 priority sectors identified by the National Productivity and Continuing Education Council, or NPCEC. The NPCEC has already endorsed roadmaps for 11 of these sectors. Many of these plans were just announced last year, and are in the process of being rolled out. This year, we will commit $42 million to drive productivity improvements in the Logistics and Transportation sector. Increasing productivity in the logistics sector will generate positive spillovers to other sectors because many companies depend on logistics to remain competitive. MOS Lee Yi Shyan, later, will elaborate on our productivity efforts across the economy as well as in the logistics sector. 
 
12. Ms Tan Su Shan asked how we can measure productivity gains more accurately. The metric we use, as you know, is value-added per worker. This is used internationally, allows us to make international comparisons but we recognise that it can be affected by cyclical swings of the economy.
 
13. We therefore complement the macro-level measurements with sector-specific indicators because we know that this is the best metric at the sectoral level to allow us to measure and detect the changes in each sector. For example, for the Retail and Food Services sectors, the suitable productivity indicators would include sales per employee and sales per square foot. So these are more directed sectors-specific indicators. They will then give us the relevant data to evaluate our progress in restructuring each sector and will allow the companies to benchmark themselves across other companies and also across international comparisons. But we all do recognise that structural changes in productivity will take time and therefore we will continue to monitor our productivity levels over a longer time horizon, especially over economic cycles and not take it just over individual years.
 
14. Dr Chia Shi-Lu asked about how Singaporeans will benefit from our productivity efforts. As you know, we pursue economic growth in an inclusive manner, by generating a spectrum of jobs, not just top jobs, but also good jobs at all income levels. Broad-based wage increases can only be sustained if we are able to achieve productivity at all levels. Therefore our focus is on retraining and upskilling our workers so that they can take on these better jobs that the economy is creating.

 
(D) SUPPORTING OUR COMPANIES
 
15. Let me now turn to the issue of how we can support our companies in this productivity drive. Mdm Foo Mee Har asked how we can help our companies cope with rising business costs. I think DPM Tharman answered that yesterday. Our main thrust is through economic growth and through productivity improvements. We recognise that Singapore cannot be a low-cost location and we have to accept pricing costs because of our limitation in space and more importantly, our shortage of labour. Our best approach is really productivity. More specifically, Mr Inderjit Singh and Mr Yee Jenn Jong asked how we can help our SMEs manage rental increases and also how JTC can play a more appropriate role.

16. Let me use this occasion to explain the role of JTC. The industrial property market comprises 4 main sectors – land, specialised facilities, standard factories, and generic multi-storey multiple-user factory space. So in the first segment, JTC allocates industrial land to companies to build their special purpose facilities, provided these companies meet our criteria in terms of value-added, linkages to other sectors of our economy as well as jobs creation. In the second segment, JTC provides innovative industrial facilities such as the Jurong Rock Caverns, the Very Large Floating Structure (VLFS), Offshore Marine Centre, Seletar Aerospace Park, Clean Tech Park, Med Tech Hub etc. This is to meet the specialised needs of these key clusters. The third segment is standard factories where the investors need a quick start-up and can fit their operations in JTC’s standard factories. In all these three segments, JTC has a very important role to play and will continue to do so. For such premises, JTC will price the industrial land judiciously. We cannot price industrial land cheaply in Singapore because land is at a premium. But at the same time, we cannot price ourselves out of the competition. We do benchmark our industrial land price against regional alternatives. By and large, I think JTC’s industrial land prices are set at a fair and competitive level for these three segments. 

17. For the fourth segment, the generic multi-storey multiple-user factory space, or what is commonly known as flatted factories, the Government decided in 2005 that JTC should exit this segment. There is already a competitive market for flatted factory space in the private sector. JTC’s market share was only 18% at that time. JTC’s tenants were enjoying lower rentals than the others. This was inequitable. JTC should be concentrating on the first three segments which are more challenging rather than undercutting the flatted factory private sector players with JTC’s lower rentals. That is why JTC divested their flatted factories in order to ensure a level playing field in this segment. It is also in line with the “yellow pages” rule where government would exit from market segments where there are already active private sector players.
 
18. I would also like to address Members’ concerns, especially Mr Yee Jenn Yong’s concern, about the impact of Real Estate Investment Trusts, or REITs, on rentals. Today, the 7 industrial REITs compete with the other property developers and landlords. Like any other landlord, they have to compete in the rental market to attract tenants. REITs are part of the competitive rental market where no single player should have the market power to influence rentals significantly. I would like to assure Members that we will not hesitate to intervene if we see evidence of collusion or abuse of market dominance by the REITs. 
 
19. While JTC may have exited from the flatted factory market segment, we continue to monitor it vigilantly. Rentals have indeed gone up, in tandem with our economic recovery in 2010. 
 
20. To keep industrial space affordable, we have increased the supply of industrial land to meet the demand. In 2010 and 2011, under the Industrial Government Land Sales (IGLS) programme, about 20 hectares of land was released for every half of the year. This is about 30% higher than in 2008 and 2009. To ensure a more timely supply of space, we have also shortened the project completion period for the IGLS sites from 8 years to between 5 and 7 years.
 
21. Mr Chairman, we recognise that restructuring is a difficult exercise, particularly for our SMEs, but we are serious about helping them to overcome these difficulties. The Minister for Finance has announced a slew of Budget measures – a one-off cash grant of up to $5,000 to offset higher business costs, enhancements to the Productivity and Innovation Credit, and so on. 

22. Beyond these short-term measures, SPRING and IE Singapore have a comprehensive suite of schemes to help our companies build capabilities, improve their competitiveness and expand abroad. We have distributed the brochure summarizing the numerous schemes that are available to support our SMEs. How do we reach out to the SMEs? First, we have the Enterprise Development Centre, or EDC, a one-stop-centre for SMEs. An officer will be assigned to each company to understand their needs, and to give them customised advice on which of our schemes can best assist them. We are also working with 30 industry associations under the Local Enterprise and Association Development, or LEAD programme, to upgrade each sector. This programme reaches out to more than 20,000 SMEs. In addition, SPRING and IE Singapore have a range of programmes to help SMEs upgrade their capabilities as well as to internationalise. Last year, SPRING assisted some 3,900 SMEs, while IE Singapore supported some 5,500 companies, largely on a one-to-one basis. This shows that between SPRING and IE Singapore working together, they are reaching out to some 20% of our SMEs. This is not a small number and we will continue to do more.  
 
In addition, we will commit $200 million over the next 3 years to increase the support levels for the companies under the SPRING and IE Singapore’s capability development schemes. On an annual basis, this is about 40% more than our expenditures in previous years. 
 

(E) CONCLUSION
 
23. Mr Chairman, Sir, in the years ahead, we face a slower global economy – more uncertainties and stiffer competition from Asian cities. We also face domestic resource constraints. In this context, we must urgently restructure our economy so that growth is anchored in productivity and innovation. We are serious about helping our companies cope with rising business costs and to restructure for growth. The Government is not expecting instant results but we are restructuring for sustained growth over the long term. We will put in place the right measures and incentives to encourage our businesses to upgrade. We are working with our companies to adjust over this transition period, but it is important that companies also do their part and restructure for a better future. 
 
24. There are reasons to be quietly confident. There are growth opportunities in Asia and we are well-placed to capture these opportunities. Foreign investors continue to see us as a Global-Asia hub to manage and drive pan-Asian business growth. If I may borrow a terminology used in the durian trade, the growth opportunities are there, but this is not “bao jiak” . We have to work hard, we have to restructure to seize these opportunities but we are confident that we can do so because we have the resources to help our companies and our workers to restructure and to upgrade. Our secret weapon, as Lim Swee Say keep mentioning to us, is our tripartite cooperation. We are in this together, we have overcome previous challenges by working together and I’m confident we can do it again.

Thank you.