Jun 25, 2013

    Impact may top 1997 costs

    SINGAPORE and Malaysia could face a bigger economic impact than that from the air-pollution crisis 16 years ago, if slash-and-burn fires in Indonesia continue to rage in the coming weeks, turning off tourists and raising business costs.

    Restaurants, tourist attractions and some other businesses are already feeling the pain as haze envelopes the South-east Asian neighbours, from Singapore's upscale shopping districts to Malaysia's popular beach resorts.

    The haze crisis in 1997 lasted about three months and cost South-east Asia an estimated US$9 billion in disruptions to air travel, health expenses and other business impacts.

    Brokerage CLSA has estimated that the damage to Singapore - a major financial centre, aviation hub and tourism destination - could add up to hundreds of millions of dollars.

    Mr Francis Tan, an economist at United Overseas Bank, said that if the smog in Singapore extends until September, with pollution rising to unhealthy levels from time to time, it could shave 0.3 to 0.5 percentage point off his growth forecast this year of 3 per cent. That would mean up to US$1.2 billion (S$1.5 billion) in economic losses.

    Singapore and its US$271-billion economy cannot afford a big hit from a prolonged pollution crisis or any loss of confidence.

    Economists and businesses said the costs are already mounting, about a week after air-pollution levels shot up to unhealthy and sometimes hazardous levels.

    Mr Goo Wai Chien, who sells pizza and pasta at a hawker centre in Singapore's business district, said: "The haze has definitely affected our business. Our sales fell around 40 per cent in the past week."

    Much depends on how long the haze lasts and which way the wind blows the smoke, coming mostly from fires set in oil-palm plantations on Indonesia's Sumatra island.

    Mr Irvin Seah, a DBS economist in Singapore, said if the haze drags on, the overall impact could be worse than that of the 1997 crisis.

    He said: "In 1997, the level of pollution was not this severe, and the tourism industry's contribution to the economy was relatively smaller back then."

    Tourism makes up 6.4 per cent of Malaysia's economy and about 5 to 6 per cent of Singapore's.

    Analysts see that sector taking an immediate knock, even if they cannot quantify the damage.

    Referring to Singapore, ANZ said in a research report: "The impact will be negative. Shopping, restaurants, bars and outdoor entertainment will all suffer during this hazy period."

    Hotels, restaurants and other hospitality businesses benefit from the country's prominence as a centre for industry meetings and trade shows.

    Perceptions on Singapore, which usually enjoys clear skies and relatively little pollution, could be the biggest casualty if the smoke hangs over the island till September.

    A conference this week on global nuclear issues - with dozens of high-profile experts, including former United States secretary of state George Shultz and former secretary of defence William Perry - was postponed "due to increasingly hazardous weather conditions in Singapore", the organisers said.

    Mr P. K. Basu, regional head of research and economics at Maybank Kim Eng, said: "It would create a very negative impression and deter tourist inflows. It would deter people thinking of moving to work in Singapore."

    Among the biggest costs that businesses face from the haze is that from illness.

    Malaysian hospitals and clinics in areas badly affected by haze in recent days have recorded a rise of more than 100 per cent in asthma cases, director-general of health Noor Hisham Abdullah was quoted as saying by the Bernama state news agency.

    The number of patients reporting other respiratory problems and conjunctivitis has also jumped, he said.

    Mr Cheah Tuck Wing, the executive director of the Malaysia-Australia Business Council, said companies in Johor - which has attracted growing investment from neighbouring Singapore - were already seeing a rise in worker sickness.

    "People are not well and it will definitely affect production. It has definitely impacted business, especially in factories where a huge number of people are working."