Businesses in Singapore are bracing for higher costs in a country that’s already among the world’s most expensive to live in.
From a 30 percent increase in water prices to higher diesel costs to a looming carbon tax, manufacturers are being forced to adjust their operations to remain competitive in an economy that’s only recently recovering from an export slump. It also signals a pick-up in inflation, an outcome the central bank flagged in its monetary policy statement last week.
Of the measures announced by Finance Minister Heng Swee Keat in his February budget, higher water tariffs have generated the most debate and anxiety among Singaporeans. Having kept the cost steady since 2000, Prime Minister Lee Hsien Loong is clear why the government needs to adjust prices: as an island nation that’s water-stressed, the state needs to pay for expensive desalination plants. Higher prices will also make consumers more aware of their usage of the scarce resource.
For Lee Soon Kiat, director of government relations at semiconductor maker Globalfoundries Inc., higher water tariffs”•to be implemented in two phases beginning in July”•means extra costs of as much as S$5 million ($3.6 million) a year at plants producing electrical circuits.
“It’s clear that it will add to our operating costs,” said Lee, who is also a member of the executive committee of Singapore’s Semiconductor Industry Association. “It’s an issue that our industry will have to adapt to, and continue to pursue water saving or recycling measures in our processes.”
Singapore is routinely ranked among the top when it comes to global competitiveness, mainly because of its low company tax rates, good infrastructure and easy procedures to open a business, rather than cost effectiveness. It was placed fourth out of 61 countries in last year’s world competitiveness index”•compiled by the Swiss business school IMD”•but ranked among the lowest, at 57, on scores for cost of living.
Song Seng Wun, a regional economist at CIMB Private Bank in Singapore, said the government is banking on companies accepting higher costs in exchange for the city state’s other advantages: its reliable power and water supply, business-friendly framework, stable legal and political system and competitive tax rates.
“Singapore has never been the cheapest place to do business,” he said. “Other factors have to be strong enough to keep Singapore as a very competitive place.” Having a green and healthy environment is “also a competitive advantage,” he said.
The moves fit into the government’s broader goal of forcing businesses to innovate in order to boost productivity, from encouraging companies to adopt digital technologies to re-skilling workers to keep pace with global change.