Firms' energy costs to continue upwards spiral in 2022; utilities main cost component to have risen in 2021

SINGAPORE manufacturers' utilities costs went up in 2021, and energy costs for businesses will likely keep climbing in 2022, according to a report from the Ministry of Trade and Industry (MTI) on Thursday (Feb 17).

Utilities expenses contributed a 0.9-point increase to the manufacturing unit business cost (UBC) in 2021. This was the main cost component to post an increase, although unit non-labour production taxes were also up.

Fortunately for manufacturers, utilities increases were offset by cost declines for royalties, work given out, and "others", which includes professional fees, advertising and sundry expenses. Overall UBC thus fell by 3.3 per cent in the manufacturing sector for the full year.

The cost of utilities had surged when the average wholesale electricity price jumped by 179 per cent year on year in 2021 on higher energy prices - compounded by volatility in Singapore's wholesale market in the second half of 2021 when the piped natural gas supply was disrupted.

Meanwhile, services UBC rose by 1.5 per cent in the first 9 months of 2021 - the latest period on record - mainly on the back of higher labour expenses.

The UBC increase in the services sector, where detailed cost component breakdowns are not available, was fuelled by a 1.4-point contribution from higher unit labour cost (ULC), as well as a 0.2-point contribution in other services costs, such as "a steep increase in freight and transport charges faced by services firms, in part due to global supply bottlenecks".

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Overall ULC increased by 4.2 per cent in 2021, reversing the 8.9 per cent decline in 2020, as growth in wages and total labour costs outpaced labour productivity.

The increase in labour cost in 2021 was attributed to higher pay, and the winding-down of government wage subsidies under measures like the Jobs Support Scheme.

The ULC for the manufacturing sector shrank by 1.3 per cent, on faster productivity growth.

But construction ULC rose by 0.9 per cent, while services ULC spiked by 5.5 per cent, led by food and beverage (17.1 per cent) and administrative and support services (16.6 per cent).

"Nonetheless, the ULC for the overall economy remained 5.1 per cent below its pre-Covid level in 2019," MTI economist Tan Yen Ling reported. The ULC had risen by 2 per cent that year.

Utilities, fuel and transport costs "are expected to increase due to higher global oil prices" further in 2022, Tan has now warned in her report.

Still, she noted that upward pressures could ease over the course of the year on anticipated increase in global supply, unless there is a drastic escalation in geopolitical tensions.

Overall ULC is also tipped to rise in 2022 as the economic rebound fuels wage growth, while commercial rents could increase gradually, with industrial rents "relatively stable".

UBC is the total business cost divided by gross real value-added, or the expense incurred to produce one unit of output, and ULC is the average cost of labour per unit of real output.