Short-term pains to plague Singapore as it restructures economy

Rising costs are making firms pack up to go overseas.

Singapore's data centre market is expected to more than double to $550 million (337.18 million British pound) by 2017 from $223 million in 2010, according to consultancy Frost and Sullivan, despite challenges such as an equatorial climate and limited land.

 A report by Reuters reveals that as Singapore's prosperity leaves its manufacturing base vulnerable to cheaper neighbours, it is banking on a business-friendly environment, advanced infrastructure, and its status as an Asian hub to attract high-value investments and businesses.

 But the transition, which is getting added impetus from the government's push to increase the economy's productivity while reducing reliance on foreign workers, will not be smooth or immediate.

 "Some of these companies which find the rising costs in Singapore too hard to bear, I think we'll increasingly see them move to lower-cost locations," said Michael Wan, an economist for Credit Suisse.

 "There will definitely be some short-term pain, where you'll see some relocation of some companies, but I think the more important thing to note is that there are also other companies shifting up the value chain," Wan said.

   Here’s more from Reuters:

 Services, including data centres and the financial industry, accounted for 70.3 percent of Singapore's gross domestic product in 2013, up from 64.4 percent in 2003, while manufacturing's share fell to 18.8 percent from 26.0 percent.

 The Economic Development Board said 21,400 new skilled jobs were created in 2013 from projects it brought in, led by gains in headquarter location and professional services.

 The transition could hit some industries more than others.

 "Restructuring is impacting manufacturing disproportionately and accelerating the shift towards a services-based economy," said Bank of America Merrill Lynch economist Chua Hak Bin.

 Output of electronics rose 1.6 percent in January-July from a year ago, lagging the 5.2 percent rise in total manufacturing output. Data on Friday is expected to show that industrial production was up 5.0 percent in August from a year ago, largely from increased biomedical output.

 Domestic electronics exports slid 11.8 percent in January-August from a year ago, a drop that economists say may be in part a result of some electronics production moving to lower-cost countries.