More intervention, support needed for Singapore infrastructure sector: report

Singapore

FOR Singapore's infrastructure sector to grow at home and succeed overseas, more intervention and support are needed, a joint report by the Singapore Business Federation (SBF) Infrastructure Committee and KPMG has recommended.

"Local companies are mostly participating in infrastructure projects at the sub-con level and are being crowded out by foreign entrants," said the report. "Intervention is required to allow local companies room to scale up."

It also suggests support such as subsidised access to shared services, help in forming consortiums, and an export-import (EXIM) bank.

The Infrastructure Committee Sectorial Research 2020 report observed that large infrastructure projects in Singapore tend to go to foreign firms.

"With lower margins as a sub-contractor, it becomes difficult for smaller local firms to grow and participate in overseas markets in the future."

One key recommendation is to set up a national infrastructure development unit, to take the lead in implementing other recommendations.

For instance, the unit could introduce public procurement guidelines to boost local participation: "Bonus points during tender evaluation can be provided to bidders who include local companies as lead contractors or use local hires in strategic roles."

Kori Holdings chief executive Hooi Yu Koh noted the ongoing efforts to provide for local participation in infrastructure packages.

Yet while local contractors may have a better understanding of details such as soil conditions, it remains hard to compete with larger foreign firms with in-depth technical knowledge, especially for mega projects needing such expertise, he added.

Joint ventures between foreign and local firms are a good medium for knowledge transfer and building the capabilities of local firms, he said.

"Singapore is not big enough of a market to build huge construction companies," said Scott Dunn, infrastructure consulting firm AECOM's chief strategy officer for Asia. "You just don't have enough pipeline."

In thinking about developing the local infrastructure ecosystem, the focus could instead be on capabilities and talent, he said: high-value skill sets such as project management.

The SBF and KPMG report includes recommendations on developing local talent, such as certification programmes with overseas institutions, structured training programmes within the industry, and working with overseas infrastructure agencies.

It also proposes that to help local firms focus on key business activities rather than areas such as IT, human resources, and administration, the government could build a consolidated shared services team to serve these firms - particularly smaller ones - at a competitive rate.

TSMP Law Corporation partner Derek Loh suggests that rather than mega projects, local firms could focus on specialist complex mid- to large-scale projects requiring greater engineering solutions and input, such as desalination plants, waste-to-energy and renewable or green energy projects.

Another set of recommendations in the report are about capturing global market share in such strategic sectors.

Building on existing capabilities, Singapore can identify and groom champions in niches such as green infrastructure solutions, and prepare them to go abroad, said the report.

Grants can be provided for research and development, with longer windows of about three years rather than the usual 12 months for assessing returns on investment.

For venturing overseas in general, the report recommends that the government identify and seed a pipeline of overseas projects which Singapore firms might try for, and "create opportunities proactively through government-to-government interactions".

The government can also help to orchestrate consortiums that include public sector agencies, government-linked companies, or foreign firms.

Mr Hooi noted, however, that competition is even fiercer overseas. Even if local firms are willing to tender, being able to win is a different matter.

Instead of direct loans, agencies could have a public-private investment programme, investing in selected local firms to groom them as global champions, said the report.

"This will provide local companies with the ability to focus on innovating the business, without having to take on more debt in the current Covid-19 period."

The report also suggests setting up a Singapore EXIM bank to provide added financial backing, as had been considered back in 2010.

"EXIM banks can provide attractive financing to help companies and developers bridge financing gaps and attract better-quality partners, which is particularly important when moving into a new foreign market for the first time," said the report.

It noted that while South Korea, Japan, and China provide subsidised financing to national consortiums to help them win overseas projects, "there is currently no entity in Singapore's infrastructure scene that is playing this role".

Mr Loh suggests that tax incentives should be given to local construction firms who are able to export their services outside of Singapore.

The report drew upon industry research, international benchmarking, feedback from the SBF Infrastructure Committee, and focus group discussions with 17 companies.