INVESTMENT IN AND OUTFLOW FROM SINGAPORE

Mr Steve Chia Kiah Hong asked the Minister for Trade and Industry since 1997 (a) how many companies have migrated from Singapore to lower cost countries each year; (b) what is the amount of investment outflow from Singapore to these countries; and (c) what will be the estimated investment in and outflow from Singapore if the employer CPF contribution rate is cut by 6%.

The Minister of State for Trade and Industry (Mr Raymond Lim Siang Keat) (for the Minister for Trade and Industry): Mr Speaker, Sir, the Government does not survey companies that are set up overseas without a presence in Singapore. As companies cease operations for many different reasons, the number of companies that have left Singapore for lower cost countries is not tracked.

However, information on relocations is obtained from survey data in the Labour Market Survey, which covers private sector establishments with at least 25 workers. According to this survey, between 1998 and 2002, an average of 66 establishments each year had retrenched workers due to relocation. However, most of these companies retained a presence in Singapore.

Singapore Companies' Investments in Lower-Cost Countries

Mr Steve Chia asked for the amount of investment outflow from Singapore to lower-cost countries. The stock of total direct investment by Singapore-based companies in China stood at $16.5 billion in 2001, an increase of $6.1 billion from that in 1997. For ASEAN countries, Singapore companies' total stock of direct investment was $26.8 billion in 2001, an increase of $8.1 billion from that in 1997.

However, I would like to highlight that Singapore-based companies invest overseas for a variety of reasons, with cost-saving being one of them. A recent survey by IE Singapore suggests that, in addition to cost saving, much of the outward investment by Singapore-based companies is to increase sales by serving the growing customer base in these markets.

Hence, investment outflows do not necessarily reflect `hollowing out' due to high costs. Often, it reflects the drive of our companies to internationalise. This drive will benefit Singapore firms in many ways - to expand into overseas market, to diversify their risk and revenue, and to upgrade their offerings of services and products.

While some companies have scaled back operations in Singapore, there have also been investment inflows. For example, between 1997 and 2002, EDB managed to attract net investment commitments in the manufacturing sector worth $51.7 billion, of which $38.3 billion was foreign investment. Total business spending by foreign services firms was $7.4 billion over this period. As a result of these inflows, there has been a rise in the stock of net inward foreign direct investment.

Mr Steve Chia, however, has raised a very important issue of the competition from lower-cost economies. Indeed, many new emerging economies, such as China and India, have improved their capabilities and the skills of their workers. Although our workers have better capabilities in many instances, if our costs are uncompetitive, many companies will relocate operations to lower-cost countries, and new investments would not come into Singapore. We would then eventually see a hollowing out of the Singapore economy. Jobs would be lost, and new jobs would not be created. It is therefore vital that we restructure our economy to meet these challenges.

Impact of CPF Cut on Investments

Mr Chia asked what the estimated investment in and outflow from Singapore would be if the employer CPF contribution rate is cut by 6%. A CPF cut alone will not ensure that Singapore stays competitive. Nor can we quantify the impact of a cut in CPF rates in isolation from other measures to boost investments.

The Economic Review Committee has addressed a wide range of issues that impinge on Singapore's competitiveness. These measures include external measures to enlarge our economic space, as well as internal measures to build new capabilities, invest in our people through education and training, and to ensure that our overall costs are competitive.

Several measures have already been taken to lower costs. These include cuts in corporate and personal income tax rates, competition in the energy market and a programme of industrial land sales to ensure that our land costs are kept internationally competitive. The corporate tax rate has been cut to 22%, and will be brought down to 20% by 2005. Last year, the price of industrial space fell by 8%, while industrial space rentals fell by 7%.

Wages constitute, on average, over a quarter of total business costs excluding the cost of materials and purchases. A reduction in CPF would lower the cost of doing business here. It would be an integral part of the comprehensive strategy to attract and retain investments in Singapore. More importantly, it would make our wage system more flexible, thereby making it easier for employers to hire workers when conditions improve. Taken together, these measures will enhance Singapore's attractiveness to investors. This will lead to more and better jobs for Singaporeans.