Lawmakers raise flag on rising business costs

[SINGAPORE] Singapore needs to watch its high and rising business costs, if small and medium-sized enterprises are to thrive and if it hopes to stay attractive to multinational companies, several Members of Parliament warned on day two of the Budget debate.

"The government has underestimated the impact of high business costs on our future economy," said Inderjit Singh (Ang Mo Kio), urging the government to set up a cost competitiveness committee to tackle the root causes of soaring costs before SMEs and MNCs relocate with jobs in tow. He also asked the government to reverse its land divestment policy, which he deems a key reason behind high industrial rents.

Companies are facing a "triple whammy" of rising rents and utility bills, growing wage costs, and a shortage of workers, said Mr Singh, himself a businessman. And this "chronic" cost issue does not affect SMEs alone. "The top management of some large MNCs here ... have expressed their serious concerns about the unrelenting increases of the cost of doing business coupled with the unavailability of workers," he said.

Iskandar's industrial parks are a "huge threat", he said. If Singapore's SMEs are forced to move to Johor, MNCs may follow their SME suppliers and subcontractors. "The exodus may be larger than we imagine ... We risk hollowing out our economy in the future, and I would like to sound an alarm that we are close to the tipping point."

His response to the Budget was more strongly worded than that of business associations, most of whom were relieved at the absence of additional across-the-board foreign manpower curbs and glad at the extension of the Productivity and Innovation Credit. Though he acknowledged that PIC and PIC+ would help with topline revenues growth, Mr Singh said: "We are just trying to do too many things too fast, and this is hurting many companies."

Both he and nominated MP R Dhinakaran, who is also managing director of Jay Gee Group, pointed to rising industrial and commercial rents as a key culprit of the high costs of doing business in Singapore.

Citing Association of Small and Medium Enterprises president Kurt Wee's comment at BT's Budget Roundtable that rents rise as much as three-fold when leases are renewed, Mr Dhinakaran said: "In this economic climate, rental increases of this magnitude will be fatal for a large number of SMEs."

Both Mr Singh and Mr Dhinakaran also linked the high rental costs to the government's land divestment policy. "JTC was a landlord for 18 per cent of industrial property some 10 years ago, but today manages only 3 per cent of the market. This is a huge shift, and the government lost the ability to influence rental prices resulting in developers and investors making the money," said Mr Singh.

"We have to reverse this policy, even if it means the government having to buy back some of the Reits. In any case, the biggest Reit players are government-linked entities like Mapletree and CapitaLand," he added.

Denise Phua (Moulmein-Kallang) felt that certain cost increases - the restoration of CPF contribution rates for older workers, higher progressive wages for low-income earners and cost hikes due to tighter low-skilled foreign manpower policies - are justified, with "strong rationale".

But she also said that business rents need "the touch of the State", and asked the government to consider "cooling measures, especially for business rents".

Rents are a challenge for micro-enterprises in the creative industries too, said nominated MP Janice Koh. "Their operations are often too small or too labour-intensive to benefit from automation, and they rarely have sufficient upfront capital or cashflow to upgrade and expand," she added, citing how an independent boutique, stocking designed-in-Singapore fashion and accessories, closed down due to a steep rise in rents.

"A dollar spent on a local product goes further than one spent on an import," Ms Koh added, proposing "cluster" housing for creative enterprises in unused government buildings or conserved spaces at affordable or low rents.

Zaqy Mohamad (Chua Chu Kang) suggested that productivity transformation for micro-enterprises can be done in clusters too, for instance, by connecting retail shops and food centres with shared services, or e-payment service providers. "One retail shop on its own may not find automation useful without scale. But a business community put together may find automation or shared services useful in lowering their business costs and enhancing customer experience," he said.

Citing evidence of the business community's struggles - cleaning contractors unable to hire workers and restaurants closing down or downsizing because of the same - Arthur Fong (West Coast) urged the government to stay vigilant over Singapore's global competitiveness.

Cleaning and F&B are examples, however, of Singapore's less productive sectors. These and sectors such as construction, security and retail have been hiring more workers and thus continue to pull down Singapore's overall labour productivity growth, said Minister in the Prime Minister's Office Lim Swee Say.

This is why Singapore's labour productivity was flat last year, a cautionary sign that despite "healthy signs that the economy is shifting to a new trend ... we are not full steam ahead yet", said Mr Lim. Singapore thus needs a "greater and broader sense of urgency" in its productivity efforts, he said.