Singapore: 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 — to venture out to other countries may be the only solution," said 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 Kua to produce on the island. The fallout puts the Southeast Asian nation 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. Prime Minister Lee Hsien Loong has over the past four years prodded companies to produce more with fewer workers as the island confronts an ageing population and voter discontent with foreigners in the country. The impact of those policies, ranging from higher levies for overseas labuor to tighter limits on non-Singaporeans in some industries, may become more apparent in 2014 as the economy loses some of the manufacturing capacity that helped boost exports and growth in past recoveries. Export decline "This manufacturing recovery that we're all hoping for seems to be sputtering again," said Chua Hak Bin , a Singapore-based Bank of America economist who worked at the country's central bank for six years. "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." Singapore in February said it will tighten rules for companies hiring foreign workers for a fourth straight year, with the next round of measures scheduled to take effect on July 1 . Manufacturers including Western Digital have moved operations to other Southeast 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 show. "The restructuring has diluted our overall competitiveness," said Irvin Seah , an economist at DBS Group Holdings Ltd. in Singapore. "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 lag Manufacturing accounted for 19.9 per cent of Singapore's gross domestic product in the third quarter of 2013, 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 show. 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 Vishnu Varathan , a Singapore-based economist at Mizuho Bank . "The pain is being felt by companies," Acting Manpower Minister Tan Chuan-Jin said in a Bloomberg Television interview on December 13 . "Companies will restructure, some companies will have to close, it will release labor back into the market." Productivity drive Singapore in November said exports will contract in 2013, and the government predicts export growth will increase at a slower pace than GDP expansion in 2014. The nation's economy, which has grown an average of about 6.4 per cent annually over the last three decades, expanded 3.7 per cent last year and is estimated by the government to grow 2 per cent to 4 per cent in 2014. Sigma Cable began using contract manufacturers to make about 30 per cent of its products from early last year. Those who haven't changed their strategy to account for fewer workers are suffering, according to deputy general manager Samuel Peh . Compounding their woes is the Singapore dollar, which was the best performer last year among five major Southeast Asian currencies, weakening only about 3.3 per cent against the US dollar. The central bank said it would maintain a modest and gradual appreciation. "They have accepted that in the next three to five years while they are trying to pursue productivity gains," said Mizuho's Varathan.
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