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    Jan 14, 2014

    Labour crunch here crimps export recovery

    ALCOTEC Precision Engineering owner Colin Kua turned down almost a third of his customers' orders last year as he grappled with Singapore's labour shortage. This year may be tougher.

    "In the future, it may be worse - venturing out to other countries may be the only solution," said Mr Kua, who had to cut the number of foreign employees making items from sockets to semiconductors by half as the Government tightened the inflow of overseas workers.

    "We don't really dare to bring in more orders, because the manpower isn't enough."

    Singapore's move to reduce its reliance on cheap overseas labour and boost productivity is crimping the ability of manufacturers like Mr Kua to produce on the island.

    The fallout puts Singapore at risk of losing out as overseas demand strengthens this year, with recoveries in the United States and Europe spurring the International Monetary Fund to say it will raise its global growth forecast.

    Dr Chua Hak Bin, a Bank of America economist who worked at the Monetary Authority of Singapore for six years, said: "This manufacturing recovery that we're all hoping for seems to be sputtering again.

    "Foreign-worker 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."

    Manufacturers including Western Digital have moved operations to other South-east Asian nations, as employers on the island grappled with the restrictions that raised costs and helped push unemployment to a five-year low in the fourth quarter of 2012.

    Singapore's exports declined in nine out of 11 months last year, faring worse than neighbours from South Korea to Malaysia.

    Manufacturing output shrank in the fourth quarter from the previous three months, and has grown at about 60 per cent the pace of the services industry in the past two years, as companies struggled to expand, data compiled by Bloomberg show.

    DBS Group Holdings economist Irvin Seah said: "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 that order?"

    Manufacturing accounted for 19.9 per cent of Singapore's gross domestic product (GDP) in the third quarter of last year, down from nearly 21 per cent in the same period two years earlier. The sector's share was 27.3 per cent in 2005, official data shows.

    The Government said in a 2010 report that manufacturing should still account for about 20 per cent to 25 per cent of Singapore's economy.

    Still, there is a lag as labour-intensive factories relocate and new industries the island is keen to attract - from aerospace to research and development - take time to replace them, according to Mr Vishnu Varathan, a Singapore-based economist at Mizuho Bank.

    Singapore in November said exports would contract last year, and the Government predicts export growth will increase at a slower pace than GDP expansion this year.

    For Mr Kua, who said he lost business last year after he told customers that orders which earlier took 10 days to fill would take up to five weeks, the Government's stance means the situation will only get worse.

    "We are doing more overtime," he said. "We've got to work Saturdays, Sundays, but we still can't solve the problem."