Singapore Budget 2018: Time to relook foreign manpower restrictions?

Singapore

FOREIGN labour restrictions have become part and parcel of doing business in Singapore. But in the run-up to Budget 2018, a segment of the business community is renewing calls to loosen manpower curbs in some fast-growing sectors.

Beyond short-term business needs there are also bigger issues at hand - including questions about Singapore's ability to remain a dynamic economy and sustain income growth for its citizens in the long term.

Is it time to relook Singapore's manpower policies? How should the country's approach to foreign manpower adapt to shifting economic realities?

Missing out on growth

After years of surging foreign manpower growth, the government moved to tighten the tap in 2009 as part of efforts to reduce reliance on low-skilled labour.

These measures pushed up labour costs here while also making it tougher for companies to find workers - especially for jobs which Singaporeans do not want to do.

The government has reassured businesses that the foreign labour tap will not be turned off.

Yet it has also repeatedly said there will be "no U-turn" in its efforts to slow foreign labour growth. The aim is to spur companies to invest in raising productivity so that wages and economic growth can go up in a sustainable way.

Most businesses have accepted this and taken steps to adapt over the years.

But calls for more flexible manpower policies are re-emerging - specifically with the aim of bringing in highly-skilled talent to help companies go digital.

Professional services firm KPMG's recommendations for Budget 2018 include a suggestion to allow firms to hire more foreigners, especially in fast-growing sectors such as cybersecurity and data analytics.

These suggestions come amid mounting concerns about a shortage of tech talent here, even as companies are being urged to ramp up their digital transformation efforts.

Singapore Business Federation chairman Teo Siong Seng and chief executive Ho Meng Kit have also said that having the right tech talent is essential to helping companies transform, but it will take time to build up such a pool here.

"Some of this manpower will have to be foreign. We should do a detailed study on skills shortages, and ... there should be some flexibility in manpower policy to bring in (foreigners) to train locals in a particular skill," Mr Ho said.

OCBC economist Selena Ling says companies are feeling confident enough to think about ramping up hiring again. "It's a reflection of the cyclical upturn in the economy," she notes.

This brighter outlook also means foreign manpower restrictions will become more of a constraint on growth this year, says Maybank Kim Eng economist Chua Hak Bin.

"Demand has broadened to services from manufacturing. Services is more dependent on manpower and cannot grow if firms cannot hire," he adds.

For the first half of this decade, the tightening in foreign worker inflows was offset by significant increases in local employment.

But this will not continue - older workers are retiring in greater numbers, even as new cohorts entering the workforce are smaller than before.

Singapore's labour force will start shrinking in 2020 without migration.

This will have a direct impact on economic growth, measured as the sum of productivity growth and labour force growth.

This means the only way to avoid a near-stagnant economy is for Singapore to make a breakthrough in productivity growth.

But the push to make companies more productive has been painful and fraught with its own set of challenges.

"It's a tall order to expect productivity growth to come to the rescue and come in year after year at 2 to 3 per cent," says Dr Chua.

"Those growth rates have been hard to come by in many economies around the world."

Hence there could be a risk of Singapore's economic growth sliding to as low as one per cent.

"The question is - are we content to live on one per cent growth? There will be implications - more companies could fail, Singapore could lose its stature as a leading financial centre centre, as well as its soft power," Dr Chua adds.

Room for policy tweaks?

Broad changes to foreign manpower policies would come at great political cost, economists say. Such changes would also not be in line with policymakers' long-term goals of raising labour productivity.

But there could be scope for tweaks in certain sectors and for specific job roles.

"The broad objective has to be in line with raising productivity and shifting away from low value-added jobs. This is particularly true for certain sectors like construction," notes OCBC's Ms Ling.

"Still, just because you want to penalise certain industries doesn't mean you cannot have some flexibility for the industries at the top which are growing, where Singapore's competitive advantage will be in future," she adds.

"The door was not completely shut (on foreign manpower). If the argument is that the angle of the door should be a bit more open than it was a few years ago, that's fair enough."

Dr Chua suggests loosening hiring restrictions on certain strategic or critical sectors, such as healthcare and technology.

"Any change would have to be very selective and targeted. We have to figure out which sectors are strategic and where the extra foreign manpower delivers the most bang for our buck and best complements local manpower," he adds.

Monetary Authority of Singapore managing director Ravi Menon said recently that while the share of foreigners in the workforce cannot keep rising, there must also be some flexibility in the local-to-foreigner ratio to match economic cycles, changing circumstances and opportunities.

"It is not about how many foreign workers industry wants or society can afford to have, but what number and kind of foreign workers we need to maximise the job and wage opportunities for Singaporeans," said Mr Menon, who was speaking at the Singapore Perspectives 2018 conference held by the Institute of Policy Studies.

Singapore University of Social Sciences economist Walter Theseira says a more formal skills-based system could be useful.

"Many countries implement such a system, which typically awards 'points' based on some combination of the foreign applicant's credentials and demographics, the skills needs of the job, and the relative supply of those skills from the native population," he notes.

But ultimately, "the paramount message is still about changing processes or business models to rely less on labour", says CIMB Private Bank economist Song Seng Wun.

"Companies will still have to prove that they tried to hire a Singaporean or PR first before hiring a foreigner. The priority is to make use of the resident labour pool as best as you can," he points out.

A knotty problem

Foreign manpower policy has long been a hot-button issue here and for good reason.

Not only does it have deep implications for Singapore's economic future, the country's approach to foreign workers also strikes at the heart of Singaporean identity - an already-nebulous concept which is becoming increasingly difficult to define.

There is also a question of how often policies should be changed in response to shifts in the economic landscape. If policymakers do not react quickly enough, Singapore might lose out on talent and growth.

But frequent adjustments would also be administratively costly and could confuse companies and workers.

Regardless of whether tweaks to manpower policy are in the works, the issue is worth re-visiting - if only to get a discussion going about the types and the number of foreign workers Singaporeans would be willing to accept.

Policymakers can facilitate this by being more open about research or data about manpower shortages in specific sectors, or the types of skills most in demand.

For more stories on Budget 2018, click here.