Singapore’s move to reduce its reliance on cheap overseas labour and boost productivity is hampering the ability of manufacturers to produce goods, according to bdlive.co.za. This policy is expected to put the nation at risk of losing out as overseas demand strengthens this year, with recoveries in the US and Europe spurring the IMF to discuss raising its global growth forecast.

Prime Minister Lee Hsien Loong has, over the past four years, encouraged companies to produce more with fewer workers, as the island confronts an aging population and rising public discontent. The effects of these policies, which range from higher levies for overseas labour to tighter limits on non-Singaporeans in some industries, may become more apparent this year as the economy loses some of the manufacturing capacity that helped to boost exports and growth in past recoveries.

Chua Hak Bin, a Singapore-based economist for the Bank of America, commented: “This manufacturing recovery that we’re all hoping for seems to be sputtering again. Foreign workers restrictions will be tightened further in July. We think Singapore may not be able to fully capitalise on a global demand upswing because of these constraints.”

The proposed tightening of the recruitment of foreign workers is scheduled to take effect from 1 July 2014 and is the fourth successive year that such a policy has been implemented.

In response, manufacturers have moved their operations to other Southeast Asian countries, as employers on the island grapple with the restrictions that have raised costs but helped push unemployment to a five-year low in Q4 2012. Singapore reported declining exports in nine out of 11 months last year, faring worse than neighbouring South Korea and Malaysia.     

Irvin Seah, an economist at DBS Group Holdings in Singapore, commented: “The restructuring has diluted our overall competitiveness. It’s not just higher labour costs, but it’s also the labour crunch, because when you don’t have enough workers, how are you going to meet [client orders]?”