Rising demand for resources driving up business costs

SINGAPORE — Over the past five years, the net number of new firms set up each year was 20,000 on average, after deducting those that folded. This figure is more than twice that of the preceding five years.

In the food and accommodation sector, in particular, the net addition was around 700 firms a year on average over the past five years, which was 50 per cent higher than in the preceding five years.

Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam trotted out these statistics yesterday to explain the fundamental reason business costs are rising: An ever-growing demand for resources in a supply-constrained economy.

“During these five years, when we sought to restructure our economy and come to grips with shortages in labour ... we have seen a very significant increase in the number of firms being formed across every sector,” said Mr Tharman.

He added: “So it’s a question of (business) revenue growth not being unusually buoyant but business demand for resources growing. And in that situation of demand exceeding supply, business costs have invariably gone up.”

Over the past three days of the Budget debate, several Members of Parliament had spoken on the plight of companies, especially small and medium enterprises (SMEs). Some called for more drastic measures to help SMEs, given that there is little to show from efforts to help them restructure over the past few years.

Elaborating on the Government’s approach, Mr Tharman said it has taken the middle path between subsiding business costs across the board and leaving companies at the mercy of market forces. “Shock treatment doesn’t just weed out of the weakest players … It has a way of weeding out good businesses as well,” he said.

The Government has adopted a phased tightening of foreign worker inflows. Funds collected from foreign worker levies are channelled back to firms that have put in place initiatives to upgrade, invest and boost productivity.

He also noted that there has been a significant spike in labour force participation among women and older workers. “When workers who have been out of the workforce for some time … it takes time to train people. That’s another reason why productivity growth has been low, but it’s a matter of time,” he said.

Mr Tharman said the Government is sparing no resources in helping businesses upgrade. The list of schemes available is more generous than any economy that he knows of, he said.

On the SkillsFuture initiatives, Mr Tharman agreed with suggestions by several MPs for the Government to work with various groups of Singaporeans — be it mid-career PMEs (professionals, managers and executives), homemakers, low-income workers or those aspiring to leadership positions — and develop training that meets their needs.

During the debate yesterday, Workers’ Party chief Low Thia Khiang said he hoped the SkillsFuture initiatives will support Singaporeans to play a bigger leadership role in companies. He noted that many heads of departments or those in senior management here are foreigners, while Singaporeans take up positions in middle management. Welcoming the measures, he said Singapore’s economic transformation cannot depend only on the use of automation. It is also about the development of human resources, he said.

CORRECTION: An earlier version of this report said there was a net addition to the food and accomodation section of 1,000 firms a year on average over the past five years. The Ministry of Finance has clarified that it is a net addition of around 700 firms.