Chart of the Day: Singapore losing export competitiveness versus regional peers

No thanks to government rates and fees in the manufacturing sector.

Beyond hiring difficulties, higher employment costs are another challenge confronting businesses. It is not just about wages per se.

According to DBS, the increase in government rates and fees has been the fastest rising cost component in the manufacturing sector. The spike-up in this cost component coincides with the hikes in the Foreign Worker Levies (FWLs) in terms of the timing and degree. 

DBS adds that for example, the levies for work permits for the manufacturing sector rose on average by about 65% since 2010. While the actual wage cost component hasn’t increased much since the tightening, the levy, which is essentially a form of taxation on hiring foreign workers, adds to the overall costs of employment. 

To this one must add the effects of the tightening in the foreign worker Dependency Ratio Ceiling (DRC), which has also constrained the hiring of foreign workers and increased labor costs for companies.

Here’s more from DBS:

Where possible, businesses will pass these costs to consumers, thus raising the cost structure of the economy overall. Combined with high rental and transportation costs, Singapore’s CPI inflation has exceeded 8 other Asian economies since 2011. 

With higher inflation and a strengthening SGD, Singapore’s real exchange rate (REER) has appreciated vis-a-vis the average REER of these eight Asian economies as well. The appreciation in Singapore’s REER implies a deterioration in export competitiveness, with medium-term implications for growth.