Vital for Singapore to retain its commitment to manufacturing

AFTER seven months of contraction in manufacturing as measured by the purchasing managers' index (PMI), concerns are surfacing about the future of the sector. Should Singapore, despite having relatively high costs, and land and labour constraints, continue to emphasise and encourage manufacturing? Why should it do so?

International experience shows that as economies mature and incomes rise, the manufacturing sector tends to shrink as a proportion of GDP. In Hong Kong (which, as a city economy, is often compared with Singapore), the share of manufacturing in national income has dropped most dramatically - from around 24 per cent in 1980 to just 1.3 per cent today. In the US, UK and France, too, manufacturing has shrunk, to around 10 per cent from roughly double that proportion in 1980. However, some advanced countries have been able to retain a larger share of manufacturing. In Japan and Germany, manufacturing still accounts for around 20 per cent of GDP. Singapore's share of manufacturing has also come down from 28 per cent of GDP in 2005 - although it still remains significant, at around 20 per cent.

Moreover, as the Economic Development Board (EDB) announced on Tuesday, Singapore is still attracting high levels of investment in the sector. Last year, investments in fixed assets (which are mainly manufacturing-related) were S$11.5 billion, well above the target of S$8-10 billion. While some manufacturing-related investments can be footloose in the sense that factories can (and often do) move to cheaper locations, many of the investments Singapore has secured are not easily mobile. For instance, chemical and pharmaceutical plants, as well as semiconductor facilities, are high-value, long-term investments that typically remain for decades. For this reason alone, there is no chance that Singapore's manufacturing will go the way of Hong Kong's, which has almost totally migrated to southern China.