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Singapore is now registering the full effects of the regional recession. The nation's economy contracted by 0.7 per cent in the third quarter of this year, with next year's performance likely to be minus 1.0 per cent. Unemployment has doubled, to 4.5 per cent of the workforce, with government figures showing that more than 20,000 workers have been retrenched so far this year. Trade volume is down, notably in the sensitive electronics sector, and the residential property market has declined - according to some estimates - by as much as 40 per cent.
In response, the government's Committee on Singapore's Competitiveness has released a report outlining measures to cut business costs by S$10 billion, in an attempt to restore the nation's competitiveness. Taxes and imposts will be reduced, transport and services costs will be cut, and land rentals will be brought back to 1994 levels.
In tandem, the National Wages Council has recommended a reduction in wages of 5-8 per cent. This is in addition to reductions already announced in the rate of CPF (Central Provident Fund) contributions by employers (to 10 per cent of wages from 20 per cent).
The objective, by trimming bonuses and other wage components, is to deliver a comparable 15 per cent reduction in the total cost of wages and salaries. Overall, the government seeks to restore a measure of competitiveness relating to all of the costs of doing business in Singapore.
But turbulence in the neighbourhood is bound to restrict the advantage that Singapore will derive from this package. Singapore's reliance upon trade makes any program of recovery dependent upon the external environment. While the government's stated objective is to turn the nation into the leading regional hub, cost cutting will not attract sufficient additional business if the regional economies remain in recession.
And the obstacles to new business are as much political as economic. After relations with Malaysia reached depths not seen in thirty years, the leaders of the two nations met to attempt to patch up differences. The abrupt banning of external trading in the Malaysian ringgit had disrupted lucrative business in Singapore, and Kuala Lumpur's decision to withdraw from Five Power Defence exercises had placed in question Singapore's formal security ties across the causeway.
However, Malaysia's need to borrow as much as RM60 billion (S$25 billion) to re-capitalise its banks and deal with accumulating bad debts forced Dr Mahathir to turn to the city-state for assistance in raising these funds. Meanwhile, instability in Indonesia looks bound not only to generate a further flight of ethnic Chinese to Singapore, but also to precipitate new uncertainties in global financial markets regarding Southeast Asia as a whole.
WATCHPOINT: Recession has forced unprecedented economies on the Singapore government, while it is posing new tests for regional cooperation.
About our company:
AFG Venture Group is an Asia and Australia based corporate advisory and consulting firm with over 20 years experience in creating alliances, relationships and transactions in Australia, South East Asia and India; including a 15 year history of corporate and equities advisory in Australia, undertaking merger, acquisition, divestment, fund raising and consulting for private and public companies.
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