ValueBuddies.com : Value Investing Forum - Singapore, Hong Kong, U.S.

http://www.businesstimes.com.sg/governme...wth-fronts

S'pore pays price of restructuring on inflation and growth fronts
Some economists lower full-year growth projections as Q3 expansion comes in flat at 2.4%; MAS keeps monetary policy unchanged

By
Kelly Taykellytay@sph.com.sg@KellyTayBT
JAMIEKOH32601303.jpg THE high price Singapore is paying for restructuring is coming to the fore, with the latest official data making stark the cost in terms of inflation and growth - ST PHOTO: JAMIE KOH
15 Oct5:50 AM
Singapore

THE high price Singapore is paying for restructuring is coming to the fore, with the latest official data making stark the cost in terms of inflation and growth.

For one thing, the widening gap between headline and core inflation is highlighting mounting cost pressures; from the growth perspective, labour-reliant sectors are being hemmed in by manpower restrictions.

On Tuesday, the Ministry of Trade and Industry (MTI) said that third-quarter GDP (gross domestic product) growth came in flat at 2.4 per cent year on year - disappointing private-sector economists who had hoped for a 2.7 per cent expansion.

The Monetary Authority of Singapore (MAS) also kept its monetary policy unchanged, just as the market had expected - keeping the Singapore dollar on an appreciating path to guard against inflation.

In response, some private-sector economists - including those from Citi, JPMorgan Chase, Mizuho, OCBC and UOB - downgraded their full-year GDP growth projections to around the 3 per cent mark, although their revised figures remain within the government's unchanged forecast range of 2.5-3.5 per cent.

While MAS said that a "broadly similar pace of expansion" is to be expected in 2015, it warned that growth performance will vary across industries, in part due to restructuring pains.

"Some manufacturing firms are facing supply-side constraints and falling product prices. As they reconfigure their operations in Singapore, output could be negatively impacted in the short term. The domestic-oriented healthcare and education sectors will stay resilient on the back of strong underlying demand, though other services industries that are reliant on labour and face greater competition could experience profit margin pressures," said the central bank.

Commenting on the MAS statement, HSBC economist Joseph Incalcaterra flagged how the government "clearly (stated) the prospect that certain industries will continue to see headwinds due to a mix of domestic restructuring and uneven external recovery", while OCBC economist Selena Ling believes the divergent sectoral growth trajectory is likely to remain, and that domestic restructuring "remains the main bugbear".

Added Bank of America Merrill Lynch's Chua Hak Bin: "Restructuring continues to weigh primarily on manufacturing. Weaker manufacturing is in turn hurting exports and trade-related services. Labour-intensive services segments are also feeling the pinch from stricter foreign labour policies."

In its twice-yearly monetary policy statement also released on Tuesday, MAS said it will keep the Singapore dollar appreciating along the same "modest and gradual" path that it has stuck to since April 2012. For the fifth review in a row, no change has been made to the policy band's midpoint, slope or width.

Economists told The Business Times that the prolonged period of "no change" makes sense, since core inflation is projected to "remain firm" amid economic restructuring.

Indeed, while MAS said headline inflation should stay "subdued", core inflation - which strips out private road transport and accommodation costs - is forecast to remain stubbornly above its historical average of 2 per cent. With the economy at full employment, higher wages are expected to continue filtering through to prices. Coupled with the possibility of higher regional food prices, the gap between headline and core inflation is projected to widen further.

Narrowing its core inflation forecast for 2014, MAS said: "On a year-ago basis, core inflation is projected to pick up gradually into early next year, before easing in the second half of 2015. Core inflation is forecast to average 2-2.5 per cent in 2014 (compared to 2-3 per cent previously) and 2-3 per cent in 2015."

Overall inflation, on the other hand, is expected to come in far below that. Given the recent weakness in car prices, the central bank lowered its headline inflation forecast to 1-1.5 per cent in 2014, from 1.5-2 per cent earlier. As for next year, MAS expects headline inflation to be at 0.5-1.5 per cent.

Explaining why headline inflation should stay subdued for the rest of this year and throughout 2015, MAS said: "Car prices and imputed rentals on owner-occupied accommodation will continue to dampen inflationary pressures, amid the expected increase in the supply of COEs and newly-completed housing units."

*Q3 GDP performance uneven across sectors

I didn't know this cost is unexpected. As per our discussion on 7m population white paper, we should see what is growth based on zero population growth as base case rather than target growth target and engineer the population growth for it

http://www.businesstimes.com.sg/sme/smes...ressures-0

SMEs remake themselves amid cost pressures
More want to venture abroad, 87% looking to boost productivity: DP survey

By
Mindy Tantanmindy@sph.com.sg@MindyTanBT
singsmeworkers2210.jpg Other major challenges faced by SMEs include difficulty in hiring staff (49 per cent) and high manpower costs (48 per cent) - PHOTO: SPH
22 Oct5:50 AM
Singapore

COST and manpower pressures are forcing small and medium enterprises (SMEs) to rethink how they do business, with the majority shying away from simply introducing new products and instead re-examining what they do, and doing more of what they can do well.

"SMEs are fighting back and making dramatic changes in order to reduce their reliance on manpower and keep ahead of their competition," noted Chen Yew Nah, managing director of DP Information Group, which conducted the annual survey. "With half of all SME business models being re-evaluated, the next few years will see many SMEs undergo major transformations in order to survive."

A record 2,836 SMEs took part in the survey this year. Of this, 51 per cent said they will be relooking their business model over the next 12 months. Meanwhile, 50 per cent said they plan to increase their production capacity. Notably, the proportion of SMEs planning to expand their range of products and services fell from 33 per cent in 2013 to 17 per cent this year.

More SMEs are also planning to expand overseas (from 14 per cent in 2013 to 20 per cent this year. This corresponded with a noticeable decline in companies pursuing expansion within the local market (17 per cent to 8 per cent) and brand awareness (15 per cent to 3 per cent).

Already, more SMEs are doing business overseas. The survey found that one in two companies are earning money from overseas, up from 46 per cent last year.

Malaysia, China and Indonesia remain the three most common countries where Singapore SMEs are doing business. Meanwhile, the US and Australia entered the top 10 list at the expense of Japan and Brunei.

"In the midst of a challenging domestic environment and intensifying global competition, SMEs expanding overseas need to be quick to seize opportunities in new markets and be prepared to adopt new strategies," said Jacelyn Teo, group director for planning, International Enterprise (IE) Singapore.

SMEs are also adopting different strategies as they venture into new markets. According to the survey, the number of SMEs whose main mode of overseas engagement is export of goods and services has fallen across most sectors. More SMEs in the retail sector now work through overseas distributors, an indication of the importance of local networks and localisation. On the other hand, those in the construction and IT sectors are now seeking overseas alliances as a mode of growth, added Ms Teo.

Even as more SMEs are venturing overseas, the proportion of international revenue they generate is falling. The percentage of SMEs generating less than 30 per cent of their revenue overseas rose to 53 per cent this year from 43 per cent a year ago, while those earning more than 70 per cent of their revenue overseas fell to 21 per cent from 26 per cent a year ago.

Changing market conditions continue to have a polarising effect on the creditworthiness of SMEs. Nearly a quarter (23 per cent) of SMEs have a DP1-4 Investment Grade credit rating, demonstrating they have the financial strength to take on new opportunities and the ability to expand and grow sustainably. But, there is an increase in high-risk companies (DP7-8), up from 43 per cent to 45 per cent.

SMEs with weak credit ratings can have a domino effect on the entire business ecosystem because if they fail to pay their vendors on time, this leads to other companies experiencing weaker cashflow. This can result in an increase in non-performing loans, which will restrict the ability of SMEs to access funding from lenders.

Leung Wai Ling, group director of capability and partnerships, Spring Singapore, said: "The average cash reserves of SMEs have declined steadily over the years from $1,374,000 in FY2010 to $718,310 in FY2013, a drop of 91 per cent. This may affect their ability to respond to emergency cash needs, to invest in the business, as well as their ability to secure new financing."

SMEs may choose to tap the Financial Management Toolkit, adopt bite-size improvements through the Innovation and Capability Voucher (ICV) or embark on a comprehensive project through the Capability Development Grant (CDG) to strengthen their cash-flow management and formulate sound financial strategies.

Other major challenges faced by SMEs include difficulty in hiring staff (49 per cent) and high manpower costs (48 per cent). Increasing competition was the third most common concern (45 per cent) followed by high rental costs (31 per cent).

Not that SMEs are sitting on their laurels, or simply giving up. The majority (87 per cent) are looking to improve productivity in 2014, up from 2013's 58 per cent.

Most are still looking at ways to optimise the use of manpower (54 per cent), but an increasing number are looking at introducing automation (up from 21 per cent in 2013 to 28 per cent in 2014).

http://www.businesstimes.com.sg/governme...uring-push

Doubts over S'pore's restructuring push
While the costs are clear, the benefits are still clouded; economists say policy fine-tuning is necessary

By
Teh Shi Ningtshining@sph.com.sg@TehShiNingBT
302519566.jpg It's an uncomfortable question that's being asked. With heightened costs and yet unclear benefits, whether Singapore's economic restructuring policy is working out is an issue that is increasingly coming to the fore. PHOTO: ST FILE
27 Oct5:50 AM
Singapore

IT'S an uncomfortable question that's being asked. With heightened costs and yet unclear benefits, whether Singapore's economic restructuring policy is working out is an issue that is increasingly coming to the fore.

The recent weeks have seen preliminary Q3 GDP growth estimates falling short of expectations, the unusual situation of core inflation surpassing headline inflation, and a pointed International Monetary Fund (IMF) report flagging the threat to Singapore's competitiveness. And still, the latest round of economic restructuring, with its stress on lifting productivity and curbing cheap foreign labour, is well into year five without yielding significant countable gains.

As the Monetary Authority of Singapore (MAS) issues its Macroeconomic Review - the central bank's bi-annual report on the economy - on Tuesday, policy watchers will be looking for answers to the conundrum.

The IMF's take on Singapore's "ambitious" restructuring plan is finding resonance with most private sector economists. The policy could usher in a "new era of sustainable growth", but how and when desired productivity gains materialise is unpredictable. For now, growth and competitiveness will fall below potential, with the prospect of higher costs with no productivity gains opening a Pandora's box of risks: business closures, layoffs and a rise in non-performing loans, should unemployment rise, cautioned IMF.

To some, the risks have to be taken. Mizuho Bank economist Vishnu Varathan can see why "anyone taking a hard-nosed finance view of this will argue that the expected present value may not be worth our while" but thinks that calculating "expected returns" applies only when there are options. "The reality of our situation is that of global economies, not just Singapore, running out of options to spur growth via monetary and fiscal policies. Circumventing restructuring is perhaps not an option, if one is serious about lifting growth potential," he says.

Singapore's rapidly ageing population demands a shift in gears, and necessarily one towards higher productivity because of the physical and resource constraints. "It would be short-sighted, if not delusional, to kick the can down the road. There will be precious little runway for productivity to take-off if we choose that path," he adds.

Other reasons put forward for slowing foreign worker inflow, such as reducing social tensions from the strain on public infrastructure, have economic impact too. "Populism certainly did not over-rule economic sense. Fact is, socio-economic factors are aligned with hard-nosed economic needs," says Mr Varathan.

For now though, the pain is showing but not the gains. Labour productivity growth averaged just 0.1 per cent from 2011 to Q2 2014, and 0.4 per cent if construction - often cited as a productivity laggard - is excluded. The target announced in 2010 was for productivity growth of 2-3 per cent a year.

Meanwhile, unit labour costs are still on the rise - no surprise, given the tight foreign labour policy - and have shown up in higher core inflation. In fact, the MAS said in its recent monetary policy statement that some food and other services firms are not done passing on cost increases, so core inflation will keep rising till the second half of 2015.

Then, there was the disappointing Q3 GDP growth performance, which was attributed by the MAS to weaker external demand but has raised questions over whether self-inflicted restructuring pain is compounding external challenges to crimp Singapore's growth further. The central bank noted that manufacturing firms face supply-side constraints and falling product prices, while services firms reliant on labour could see profit margins squeezed.

At a forum last month, Prime Minister Lee Hsien Loong said that achieving 2-3 per cent growth annually over the next decade would be "not bad" for Singapore.

This is under the 3-5 per cent annual growth rate from 2010-2020 set out by the Economic Strategies Committee in 2010 and, assuming labour force growth is kept constant, implies labour productivity growth of less than the 2-3 per cent target, noted UOB economist Francis Tan. The government's aim therefore seems to be to "shape the type of growth - inclusive, productivity-driven - rather than to hit a target number", he says.

Bank of America Merrill Lynch economist Chua Hak Bin, who said in August that restructuring is failing and that "a pause may be in order", welcomed the Prime Minister's comments earlier this month that he does not expect "any further measures to tighten foreign worker numbers".

"We think the pause, and re-assessment of the impact so far from the restructuring, is timely," Mr Chua says, especially since the macro indicators still do not speak of restructuring success.

Even with no further tightening, the schedule of foreign worker levy hikes and stricter Singaporean-foreign worker ratios will continue till next year. These are unlikely to be reversed. The IMF report noted that Singapore's authorities would consider recalibrating macroeconomic policies as part of their normal decision-making processes - for instance, if a rise in G3 demand pushes core inflation out of their comfort zone - but "would be more guarded in reconsidering the implementation pace of the restructuring plans".

To Mr Varathan, the key question is whether there are benefits from slowing the pace of restructuring. He thinks not, given that global demand remains tepid. "In a demand constrained world, the benefits of slower restructuring may not be that compelling. So pressing on with targeted fine-tuning may be a superior alternative, in terms of consistency of messages and medium-term economic outcomes."

Where there is broad agreement is that policy fine-tuning is necessary.

DBS economist Irvin Seah thinks that finer measurements of productivity gains are needed. While the government has pointed out that certain sectors have enjoyed higher productivity figures, these are not immune to the effect of cyclical demand pulling output higher too.

"Perhaps we should develop industry-specific productivity indices, based on indicators relevant to industries, such as table turnover for the F&B sector and man-hours per square foot for the construction industry," he says.

From the business sector too, initial emotive pleas for a reversal or slowdown of foreign manpower policies have been replaced with calls for continual calibration.

Says Singapore Business Federation (SBF) chief executive Ho Meng Kit: "With more feedback, after almost five years of restructuring, on how SMEs in different sectors are responding to restructuring, policies can be more sector-specific."

For instance, Singapore can consider allowing start-ups to hire foreign talent without penalising them through the existing framework which uses salary levels as a criteria for foreign work-pass eligibility. "Start-ups are important shoots of our entrepreneurship and their employees are not remunerated by salary alone," he says.

One encouraging sign is that more companies are tapping on grants to upgrade productivity and improve processes, going by industry surveys. Some 17,000 companies have benefited from productivity initiatives, with 7,000 companies participating in 2013 alone, according to government data. The Productivity and Innovation Credit scheme was tapped on by 40 per cent of all companies in Singapore last year.

But if the restructuring push continues to yield no outcomes, will manpower policies be tightened further, or will more incentives be dished out, asks DBS' Mr Seah. "There is some leakage in giving out incentives. In looking at how to help companies improve productivity, it can't just be about higher utilisation of the PIC. That can be exploited and not actually put to good use."

"From the start, this was a 'short-term pain before long-term gain' kind of policy," he says. "But in this instance, long-term gain is still a question mark. We need to cast aside the mindset that this is about 'no pain, no gain'. If we push the economy over the edge, then whatever gain you get going forward may not justify the short-term pain."

*Adjustment pains for construction sector

IMO,

Singapore is paying the price for taking steroids during the just past glory period of post IR. The beneficiaries are largely super rich that has little vested in the tiny red hot while vested interests are suffering on the other end. The lack of interest rate policies due to historical legacy of exchange rate policies made economic management even tougher.

Exchange rate policy in the name of keeping import prices down is questionable as many have and are still experiencing soaring costs of living (function of asset and nominal inflation) while hot money parked here benefited from soaring asset prices and stably appreciating S$.

GG

http://www.businesstimes.com.sg/governme...re-economy

MAS's sobering take on S'pore economy
GDP and productivity growth to remain constrained; core inflation to stay above historical average

By
Kelly Taykellytay@sph.com.sg@KellyTayBT
st2366219633444444.jpg The Monetary Authority of Singapore (MAS) has presented a sobering prognosis of the Singapore economy - GDP expansion will continue to be muted, productivity growth will remain constrained, and core inflation will stay above its historical average on the back of labour cost pressures. PHOTO: ST FILE

29 Oct5:50 AM
Singapore

THE Monetary Authority of Singapore (MAS) has presented a sobering prognosis of the Singapore economy - GDP expansion will continue to be muted, productivity growth will remain constrained, and core inflation will stay above its historical average on the back of labour cost pressures. The manufacturing sector, too, continues to face difficulties from land and labour constraints, although one positive is that companies have been moving up the value creation chain successfully.

In reiterating its 2014 GDP growth forecast of 2.5-3.5 per cent in its twice-yearly Macroeconomic Review on Tuesday, the central bank also sought to put it in perspective: "This should be seen in the context of the domestic economy settling down to a slower, but more sustainable growth path. With Singapore's relatively high real GDP per capita of US$61,000 (S$77,723) and labour productivity of US$99,700 on a purchasing power parity-adjusted basis (as at 2013), the moderation in the medium-term growth rate is in line with global experience."

In response, UOB economist Francis Tan said: "I see this as the MAS trying to temper growth expectations, to remind people to be more realistic. An abundance of labour is no longer part of the equation, so we won't be seeing growth of 6 or 7 per cent any longer."

Looking ahead, the MAS said that a "broadly similar" pace of growth is expected in 2015, and that the Singapore economy is "on track for moderate growth" despite some external and domestic headwinds. It qualified, however, that the performance across sectors will be uneven. "Sectors that cater to final demand in the US will fare relatively favourably, while those that are tied to the eurozone and China could be weighed down by the sluggish performance in these economies. Concomitantly, some of these external-facing industries will continue to grapple with resource constraints and falling product prices.

"Meanwhile, domestic-oriented sectors will remain resilient on the back of firm underlying demand, although those segments that are more reliant on labour input, or face greater competition, could experience profit margin pressure," said the central bank.

Still, beyond 2015, Mizuho economist Vishnu Varathan isn't ruling out a growth performance better than 2.5-3.5 per cent: "Apart from the external crosswinds highlighted by the MAS, we also have a domestic economy still undergoing restructuring, which is a major change. So you can't really decide how you're going to look when you're still in the changing room ... As we innovate with our regional services, we could very well see a significantly higher pace of growth in the next few years."

As for the manufacturing sector, the MAS noted the industry's "continuous evolution", with the most recent phase of change marking a shift from mass production, to higher-margin niche production and services. It is particularly optimistic about the prospects of the electronics and information & communication sectors, expecting "a healthy pipeline of investments" to boost output in the near to medium term.

On the productivity front, overall labour productivity fell by 0.3 per cent year-on-year in the first half of 2014, after rising by 0.8 per cent in the second half of 2013, due to the weak performances of the services and construction sectors.

As such, Singapore's unit labour cost (ULC) rose more significantly by 3.1 per cent in H12014, compared to 1.2 per cent in H22013.

Said the MAS: "Productivity growth will be constrained in the short term, given the lack of a strong cyclical rebound. It will also take time for firms to reduce their reliance on workers, especially in construction and services. Accordingly, ULC is expected to rise moderately in the near term, even with government subsidies, such as the Wage Credit Scheme."

The MAS added that strong labour demand will continue to butt up against labour supply constraints, keeping wage growth firm; the economy-wide resident wage growth is expected to be around its 10-year historical average of 3.7 per cent in 2014 and 2015. Therefore, domestic cost pressures - mainly stemming from the tight labour market - will remain the "primary source" of inflation.

Summing up its outlook on the Singapore economy, the central bank said: "Resource constraints amid intermittent external headwinds will temper growth, but as firms leverage more intensively on capital and skills, the transitional costs during the adjustment phase will ebb. Higher productivity and more capital-intensive modes of production will provide a firmer basis for Singapore's future growth prospects."

*Labour market remains chief source of inflation

*Challenges push manufacturers to higher value

V convincing message by our leader... Singaporeans not hardworking enough meh...productivity is a very grey term... Singaporeans started working in over-drive mode when they start their pre-school education till they enter work force and even have to keep going post retirement years... Salute...

GG

http://www.businesstimes.com.sg/governme...ng-term-pm

Productivity must rise in long term: PM
Ways to boost productivity include educating the population well, providing good training for workers and bringing in sunrise businesses

By
Lee U-Wenleeuwen@sph.com.sg@LeeUwenBT
BT_20141029_UWPMLEE29_1341330.jpg Mr Lee at the dialogue at the annual Forbes Global CEO Conference on Tuesday, moderated by Mr Forbes and attended by some 450 business leaders. PHOTO: NG SOR LUAN/THE STRAITS TIMES
29 Oct5:50 AM
Singapore

WHILE Singapore wants to help its people earn more, wages cannot go up indefinitely and it is the country's productivity that must improve over the longer term.

Speaking at a dialogue on Tuesday, Prime Minister Lee Hsien Loong cited several ways of boosting productivity,

If Productive is by being Hardworking, then we ll get it wrong. Is about efficiency, let say increase work done with same amount of Effort.

GG, the word productivity is grey for a good reason - it means different thing to people in different industry.

In manufacturing, it is straight forward - if you can make 105 widgets this year compared to only 100 last year, you get 5% improvement (assuming costs the same). How about for retail? Achieving higher sales? Better customer satisfaction? How to measure? Perhaps by cost reduction? How about for teachers? Etc.

Perhaps it would be more interesting for each of us to share our thoughts on how to improve productivity in our individual context?

think by and large, it is do more for the same cost or same output, lower cost.
the role each person do, do not really matters.
Eg Sales, 1 person closing more sales. Even in customer satisfaction, say a call centre setup, attend more calls, or closing more calls.

As I shared my views with my friends, productivity is the one thing that the government has consistently failed to improve on.

Tons of money have been thrown at retraining, education, PIC scheme. The latter has been abused by some companies to design webpages for a hefty fee, to be charged back to the initiative. Manpower productivity is low - we are producing more, but with more manhours spent ay work.

I think targeted support for technology improvements will be better. For example, Japanfood is acutely aware of labor cost, they use ipads to reduce labor costs and hence improve their shop productivity rate.

I am an admirer of japan food stalls where vending, dishwashing machines allow just 2 workers to tend to a shop of 20 seats. That to me, is long term efficiency in action.

Sent from my D5503 using Tapatalk