Effectiveness of Government's Productivity Measures

Mr Gan Thiam Poh asked  the Minister for Trade and Industry whether the slower economic growth and rising labour costs as a result of tightening the rules on employment of foreign workers contributed to the decline in our national productivity this year and, if not, what are the major factors contributing to this decline.

Ms Foo Mee Har asked  the Minister for Trade and Industry whether he can provide an update on how SMEs have benefited from the broad range of productivity improvement initiatives by the Government, in terms of their participation rate and the amount disbursed to date.

Ms Mary Liew asked  the Minister for Trade and Industry (a) what are the causes for the lower national productivity this year; (b) what can be done to reverse this trend; and (c) what is his Ministry's assessment of the pace of innovation and investment in productivity improvements that are currently undertaken by enterprises.

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I thank the Members for their questions on our productivity improvements. Achieving sustained productivity growth is an important national goal. In 2010, the Government set out to achieve a stretch target of 2% to 3% productivity growth per annum over the next decade. We are fully committed to this effort.

But our measures of productivity are sensitive to economic cycles, and can fluctuate substantially over the short term. From 2009 to 2011, we achieved a productivity Compounded Annual Growth Rate (CAGR) of 5.9%. However, this figure was over a relatively short period of time and includes a period of high productivity growth in 2010, as the economy recovered strongly from the downturn in 2009.

This year, Singapore's GDP is expected to grow by 1.5% to 2.5%, slower than the 4.9% seen last year. However, even as business activities slow, companies tend not to adjust their workforce immediately, given the costs involved in hiring and firing workers. Hence, we are seeing a productivity decline, mainly reflective of the slowing economy.

This is why we must see beyond the short-term fluctuations, but press on with our productivity drive for the long term. We must continue to boost productivity at all levels − we need to restructure our economy to move up the productivity chain; companies need to also reduce their reliance on manpower; and workers need to upgrade themselves continuously to take on higher value-added jobs.

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Since its inception in 2010, the National Productivity and Continuing Education Council (NPCEC) has endorsed a comprehensive range of measures to drive productivity improvements at the sector, firm and worker level. The NPCEC is pushing out both broad-based schemes as well as sectoral roadmaps to better meet the unique needs and challenges of every sector. Sixteen priority sectors have been identified, based on their contribution to GDP, employment size and potential for productivity gains.

The development of sectoral roadmaps has taken some time. But most have been completed and we are working to help companies take them up. There is some early progress on the ground. For example, in the construction sector, $67 million has been committed from the Construction Productivity and Capability Fund (CPCF) that helps over 1,600 companies adopt new technologies, build capabilities and train workers. Another example is in the retail sector. Launched in April 2011, the retail productivity roadmap has supported various productivity and services upgrading projects from over 200 retailers. And 185 CEOs and managers have been trained under the various projects and 14,000 workers were trained in collaboration with WDA. We will continually refine the respective roadmaps to meet changing needs on the ground as well as closely track their implementation progress.

We have also introduced broad-based schemes to complement the sectoral approach. For example, SPRING administers the Innovation and Capability Voucher (ICV) programme, which provides eligible SMEs with $5,000 vouchers to upgrade and strengthen their business operations, and this includes in the area of productivity and this also applies to all the micro enterprises in the market. Since its launch in June 2012, 800 SMEs have benefited from this scheme.

Separately, under the Productivity and Innovation (PIC) scheme, companies can also claim a 400% tax deduction on up to $400,000 spent on a broad range of related expenses, such as training or investment in equipment. The take-up has been good, and companies have enjoyed substantial tax savings overall. The Minister for Finance will elaborate in his answer to Mr Alvin Yeo later. Innovation and growing our top line are an essential part of our productivity drive, and these schemes will incentivise enterprises to make investments in this area.

Our national Research and Development (R&D) agencies are also helping SMEs to enhance their technological capabilities, competitiveness and productivity through technology transfer. For example, A*STAR's Manufacturing Productivity Technology Centre (MPTC) assists companies to raise manufacturing processes and productivity through automation and harnessing technology in their processes and systems. Currently, A*STAR and the polytechnic research centres have numerous projects ongoing with SMEs, and they have worked on over 700 projects in FY 2011.

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At the worker level, we are investing significantly in Continuing Education and Training (CET) to upskill our workforce and enhance workers' competitiveness. The CET programmes also support the NPCEC's sectoral productivity strategies. The Workforce Development Agency (WDA), for example, has developed about 50 productivity-related training programmes under the Productivity Initiatives in Services and Manufacturing (PRISM) scheme. Over 4,000 employer-sponsored workers have gone through these programmes.

The overall take-up of the various initiatives has thus far been encouraging. To date, about 7,000 companies have benefited from these initiatives, of which 86% are SMEs. About $950 million has also been committed from the National Productivity Fund (NPF) to support the slew of productivity initiatives. We will continue to keep our programmes relevant and effective for companies, as well as introduce new initiatives where required. We will, in particular, help SMEs through the Enterprise Development Centres (EDCs) to navigate the schemes and apply for those that best fit their needs. I urge more companies to enrol in these schemes.

I would like to thank the Minister of State for a very productive and comprehensive answer. I have a supplementary question. We are aware that we need to improve productivity in order to sustain income levels for our workers. I would like to ask the Minister of State what is impeding the effort of increasing productivity of the workers in the long run.

There are many different scenarios that affect the transformation of companies or SMEs in increasing the productivity of their workers. For some, the process redesign takes time. For others, it is industry related. There will be companies where the nature of business takes a longer time to change or to automate for productivity increases. What is more important is, in this process of transition where we are driving productivity, to educate and even provide guidance for both employers and employees about the possible changes within a company and the operating processes to increase its productivity. More importantly, these companies will have to find new markets as well. As you know, productivity is, in some ways, affected by economic growth and also the size of the market companies are in.

There are many schemes and programmes that we have implemented through the sectoral approach and these different sectoral approaches would, hopefully, be customised to the needs of the different companies within the industries. It is not going to be easy, as in any changes that are needed. It takes time, just like in any other country that has been successful in its productivity drive − for example, Germany. It took years for them but it has shown certain effects. So, I believe that in the medium to long term, we should be able to achieve the productivity growth that is necessary to help the workers in general.

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Sir, I thank the Minister of State for his comprehensive answer on productivity, and I appreciate the many schemes we have in Singapore to support the productivity initiative. I have two supplementary questions. One relates to whether the Ministry will consider consolidating and simplifying the many assistance schemes under the productivity improvement efforts to make them more accessible. This is in relation to the feedback that many SMEs have given that they actually feel lost in the sea of complexity of schemes and the paper work. The second supplementary question is whether the Ministry will consider doing more to proactively reach out, especially to the SMEs with tailored sector level intervention and support, and help them replicate best practices quickly, just like what we have seen recently in the food manufacturing sector.

We are currently reviewing all the schemes that are related to the SMEs when it comes to productivity, in terms of its applications and ease of access and understanding of the different programmes and schemes. It is definitely our objective also to simplify them so as to make them more accessible. That is exactly why at a certain milestone, we came up with the Innovation and Capability Voucher (ICV) scheme. The $5,000 makes it easier for SMEs and even the smaller SMEs, which we call micro enterprises. It is definitely our objective to be able to reach out to them as well, and we are doing that through the Enterprise Development Centres. Today, with the trade associations, there are some centres that are already being set up at the heartlands to help the micro enterprises. It is a journey. We hope to work together with all the federations, associations and the Chambers, including the Merchant Federations. A good example is like what we had done for food manufacturing, by helping them, expanding the market and customising their approaches to what is necessary, because every single sector is different. We have just started this productivity drive. It will take time to see the effect. But, definitely, along the way, we are going to refine and customise as much as we can.

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