Chart of the Day: Foreign workers make up a fifth of the services sector

The tighter manpower rules will hit consumer and healthcare bottomlines by less than 4% by FY20.

Foreign workers make up 22.3% of employees in Singapore’s services sector in 2018 which is a result of tighter manpower policies implemented by the government after a sharp spike in 2015 which saw the ratio hit 20.6%, according to UOB Kay Hian. 

The two-step reduction of the Dependency Ratio Ceiling (DRC) announced in the budget address from the current 40% to 35%, however, will hit the labour-intensive consumer and healthcare sectors like Jumbo Group, Sheng Siong and Raffles Medical Group. 

“Whilst the companies under our coverage will be impacted, we think the drag on bottom-line may be marginal at less than 4% for FY20,” analyst Hai Wei Yeo said in a report.

Also read: Singapore's foreign workers left in limbo amidst tighter manpower rules 

The move is tipped to further aggravate the oft-cited manpower cost pressures on vendors although companies can apply for new permits as a short-term solution before the implementation of the new manpower policies and extend the period before the announcement kicks into effect by another two years.

UOB Kay Hian noted in a separate report that the tightening of foreign manpower policy is expected to increase labour costs. It added, "Our back of the envelope calculation indicates that labour costs for the companies under our coverage could increase by 0.4% in 2020 and 0.6% in 2021. This is based on the key assumption that the total expenses of a local worker is around 20% more than a foreign worker." 

Under the assumption that the local workforce will cost 20% higher than the foreign workforce, Yeo expects that companies in the line of fire are well-placed to weather the tighter manpower rules.  Sheng Siong, for instance, has been working to reduce cashier manpower needs by 20% in each store through a self-payment system. Similarly, Yeo notes the track record of Raffles Medical Group in maintaining costs although it employs approximately 900 staff in the nursing segment.