Business
The real problem
Shortage of foreign workers doesn’t kill as many SMEs in Singapore as rising business costs, especially rentals. By Seah Chiang Nee
Feb 17, 2013

(Synopsis: In an apparent bid to push the government population White Paper, the press has ignored the real pain of many Singaporean enterprises.)

AS the government was pushing for a larger population of immigrants, the media launched a bid to persuade Singaporeans on the need for more foreign workers.

A spate of reports told of how local businesses were suffering as a result of a shortage of workers.

It was clearly to reinforce the official “open door” line to help Singapore’s small and medium enterprises (SMEs), an important segment of the economy.

It wasn’t something that serious journalists – East or West – would normally do: Leaving out important parts of a national story to slant its angle.

The reports said that some 40% of the 6,000 SMEs were suffering because of the shortage. No reference to the real threat of rising business costs

According to the reports, three in 10 SMEs (defined as having S$1-S$10mil turnover) were considering moving away from Singapore or closing down because of manpower shortage.

The government had reduced approval rates for imported workers in the wake of public anger that too many foreigners are taking away local jobs and over-crowdedness.

These reports were half the truth. The shortage was indeed a serious obstacle to SMEs but far from being the most threatening.

That was the climbing cost of doing business in Singapore, with factors including the following: -

** High property rents. These contracts are generally revised after two or three years and property prices in land-short Singapore had risen by 50% in the last four years;

** Cars. Singapore is also one of the most expensive places in the world to buy a car or truck. A certificate of entitlement (COE) – costing up to S$100,000 that lasts only 10 years – is necessary before buying a vehicle; a motorist is charged electronically-deducted road fees during peak hours.

** Levies, taxes. The employer is also hit with levies for workers whom he employs, not to mention indirect taxes for supplies like Goods and Services Tax (GST).

So indirectly, the biggest woes to the SME are inflicted not by worker shortage, but by government policies and Singapore’s rising affluence that has significantly raised the cost of doing business.

With a per capita GDP of US$56,500 the republic has become one of the richest cities in the world.

Last week the Economist Intelligence Unit reported that Singapore is now the sixth most expensive city in the world.

It climbed three places from a year ago, beating Zurich into seventh place. In Asia, the Republic ranks third – next to Tokyo and Osaka.

The high cost of living – and doing business – is one of the biggest sources of worry among Singaporeans.

Last year 61% of people said in a survey that this was their top worry. For businessmen, this, too, applies.

The recent media reports were not wrong in saying the SMEs suffer from the tight workers market.

Traditionally, they have been a big consumer of manpower, employing 70% of Singaporean workers.

The fact is that many SMEs, including restaurants, retailers and small contract firms, are marginal operators.

In the past decade many were forced out of business for reasons other than insufficient workers.

In my neighbourhood centre, nearly half the coffee shops have shut down in the past few years, forced out by high rentals and replaced by shops selling higher value products.

Two were re-rented out for higher rates to a bank and a mini-mart.

Increasingly some of Singaporeans’ favourite hawker foods have become extinct, including goreng pisang (fried bananas) and rojak.

A vendor has to sell a large amount of both in order to pay for current rents.

The “Mom-and-Pop” provision shop has long been driven out of existence by the arrival of large supermarkets which could afford today’s business costs.

Their disappearance had nothing to do with shortage of workers since most were operated by family members. The main culprits were high rents and changing tastes.

Not everyone may be sad to see them go provided these once-upon-a-time SMEs have found profitable alternative businesses.
The biggest spoiler is spiralling rents.

A friend of mine who operates a cake shop in the centre of Singapore has to fight frequent battles against rising rentals of his premises.

In 2010, a year after Singapore’s recession, his landlord served notice that rentals were to increase by 50%. After negotiations, the hike was reduced to one-third.

The uncertainty of rents is the biggest worry of small businessmen not any shortage of workers, he said.

“If the economy is good and rents are stabilised, we can survive the competition,” he told me.

Singapore had Asia’s most expensive hotels last year despite a 2% drop in room rates.

What is happening in Singapore had been anticipated more than 20 years ago.

As a journalist, I had attended numerous press conferences in which the government had talked about economic restructuring and business innovation to overcome worker shortage.

The former Prime Minister Lee Kuan Yew had talked frequently about how as Singapore became prosperous, their operational costs would increase and competitiveness drop.

Singapore was following the way of advanced economies like the US and Europe, which began moving their manufacturing to Asia.

Singapore does not have enough workers to compete with large countries like China and India, Lee often told us.

In the 70s and 80s, Singapore had an average of seven jobs to every Singaporean applicant.

But his stand was “Let’s bite the bullet. Persuade the investors to go to Batam and Johor, and we move up-market,” I remember him saying.

This was first published in The Star).

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