Decline in Singapore's Economic Competitiveness Ranking

Mr Seah Kian Peng asked the Minister for Trade and Industry given that Singapore has dropped further in the 2013 IMD World Competitiveness ranking over the previous year, what steps is the Ministry taking to arrest this slide and ensure that economic growth, job creation and wage growth for Singaporeans are not adversely impacted.

In the World Competitiveness Yearbook (WCY) 2013, Singapore slipped by one position to come in fifth, behind the USA, Switzerland, Hong Kong and Sweden. The fall in position was largely due to our weaker performance in two categories of the WCY competitiveness framework – Economic Performance and Business Efficiency.

In the Economic Performance category, our competitiveness ranking was adversely affected by our weak GDP growth last year, which was 1.3% compared to 5.2% in 2011. Our weak GDP growth was, in turn, mainly due to lacklustre global economic conditions which had dampened the growth of externally-oriented sectors. Other externally-oriented economies like Taiwan and Hong Kong similarly saw their competitiveness rankings in this category deteriorate in the latest WCY.

In the Business Efficiency category, our competitiveness ranking fell primarily because of three factors. First, our weak productivity performance in 2012, which was partly due to the slowdown in GDP growth last year. Second, the rise in unit labour cost (ULC) in the manufacturing sector. As the ULC is a ratio of total labour costs to real value-added (VA), this was largely due to the

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sharp pullback in the VA growth of the manufacturing sector last year, from 7.8% in 2011 to 0.1%, arising from weak global demand. However, rising remuneration costs in a tight labour market were also a contributor to the increase in ULC. Third, a less positive perception of the executives surveyed regarding the availability of skilled labour in Singapore, possibly because of the implementation of labour tightening measures.

In sum, Singapore's overall competitiveness position in the WCY had deteriorated in large part because of the weak growth we experienced last year, and also because of the tight domestic labour market. However, notwithstanding the fall in our position, indications are that Singapore remains an attractive place for business, while job creation for Singaporeans remains healthy. For instance, in the WCY, Singapore retained its strong rankings in the areas of institutional framework and business legislation, which are important areas of consideration for businesses deciding where to invest. A separate EIU competitiveness report also forecasts Singapore to be the most competitive city in Asia in 2025. Moreover, investor interest in Singapore has remained strong, with Fixed Asset Investments (FAI) commitments rising to S$16 billion in 2012, the highest level since the recession in 2009. More jobs were also created for Singaporeans in 2012, with the increase in resident employment accelerating from 37,900 in 2011 to 58,700.

To enhance Singapore's competitiveness over the longer term, the Government will press on with on-going efforts to restructure the economy to one that is productivity-driven. To-date, the Government has committed about $1 billion from the National Productivity Fund (NPF) to support the various sectoral plans and horizontal programmes endorsed by the National Productivity and Continuing Education Council (NPCEC).

In recognition of the difficulties that some firms may face during the restructuring process, the Government also introduced the Quality Growth Programme in Budget 2013 to help companies upgrade and cope with the costs of restructuring. The Programme includes a three-year $5.3 billion Transition Support Package which comprises the Wage Credit Scheme, Productivity and Innovation Credit bonuses and Corporate Income Tax rebates.

The Government stays fully committed to ensuring the success of our restructuring efforts. By working closely with businesses and unions, we will be able to transform our economy and improve productivity and competitiveness. This will, in turn, ensure healthy job creation and wage growth for

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Singaporeans over the long term.