Costs in Singapore is too high

23 October 2013 – Reuters
By Kevin Lim and Eveline Danubrata
SINGAPORE (Reuters) – When Tastyfood Industries decided to boost production to meet demand in Africa and the Middle East, the maker of Mr Cafe instant coffee and Vitamax cereal did not expand its Singapore factory or another one it owns in Xiamen, China.
Instead, it plans to close its Singapore plant next year and move up the road to Malaysia’s Iskandar economic zone, where it will set up a factory three times the size on low-cost freehold land and hire willing workers as cheaply as it can in China.
“New generation Singaporeans do not like production positions as they are more educated now,” Tastyfood founder and managing director Joseph Lim, a Singaporean, told Reuters.
“It’s not easy to manage a manufacturing company in Singapore unless you are in high-tech, high value-added businesses like pharmaceuticals.”
Singapore companies dominate the firms setting up factories in Iskandar, accounting for around 15 percent of the 32.7 billion ringgit committed as of June, according to the Iskandar Regional Development Authority (IRDA).
Firms from Spain, Japan, the Netherlands and Germany are other large manufacturers in the zone in Malaysia’s southern state of Johor, while companies from the United Arab Emirates are involved in housing and other property projects.
Lim, who will keep Tastyfood’s marketing and product development operations in Singapore, said an average factory worker in Malaysia and China earns S$400-500 per month, less than half the wage in the wealthy city-state.
Proximity is also key. The new Iskandar factory is just a 30-minute drive from Tastyfood’s home base and major market, he said, against the four-hour flight from Xiamen.
“Doing business in China also carries a lot of risks, although things have been improving there,” Lim said.
Singapore manufacturers are not the only ones heading to Iskandar.
Theme park Legoland and Britain’s Marlborough College chose Iskandar for their first forays into Asia. U.S.-based Simon Property Group Inc (SPG.N) set up its first Premium Outlets shopping centre in Southeast Asia there through a joint venture with Malaysia’s Genting Group (GENT.KL), eyeing Singapore’s affluent customers.
“We consider Johor and Singapore our resident markets,” said Siegfried Boerst, general manager of Legoland Malaysia. “We are really convinced that the whole development of Iskandar will help to create major tourist destinations in southern Malaysia.”
Being cheaper, and yet close by, is making Iskandar and nearby areas popular among bakeries, dry cleaners and other small and medium-sized firms that have shop-fronts in Singapore but do much of the work just across the border.
Awfully Chocolate – a Singapore cake and ice-cream retailer that has expanded into China, Taiwan and Indonesia – makes some of the items for the 10 stores in its home market at a facility near the state capital of Johor Bahru.
MUTUAL BENEFITS
In recent years, Singapore has begun to focus on banking, wealth management and other services, moving on from the manufacturing boom of the 1970s and 1980s that first brought prosperity to the city.
Iskandar, a 2,200 square km (850 square mile) zone three times the size of Singapore, is just across a narrow strip of water and Malaysia is pushing its many advantages for factories looking to relocate.
Land prices are far lower and electricity costs are about half of Singapore’s rates. Tax incentives are also on offer.
Tastyfood paid 6.5 million ringgit for its freehold site in Iskandar that is the size of two soccer fields – about $15 per square foot. Singapore prices industrial sites by the potential built-up area and the cost could have been up to 30 times more.
Many see the budding relationship between Iskandar and Singapore as similar to the role that Shenzhen, once home to fishing villages and now a vibrant manufacturing centre, played in the growth of Hong Kong.
The Hong Kong Trade Development Council says the territory’s companies now employ about 11 million people in Shenzhen and other parts of the Pearl River Delta, but still use Hong Kong for logistics, marketing, banking and other services.
But the shared history of the two Southeast Asian states may give some investors pause. Singapore was once part of Malaysia but was expelled in 1965 amid tensions between its Malay-dominated government and the city-state’s ethnic Chinese rulers.
Fifteen years ago, former Singapore Prime Minister Lee Kuan Yew derided Johor as “notorious for shootings, muggings and carjackings” – reflecting the still testy relationship as much as the rough-and-tumble realities of the Malaysian state.
LUKEWARM
Singapore firms were initially lukewarm about Iskandar and interest picked up only after the two countries signed a broad agreement in 2010 to address longstanding issues.
Both countries are discussing shared immigration check-points to speed up traffic on the two bridges across the causeway, along with ferry and water services. Subway operator SMRT Corp (SMRT.SI) will build a rapid rail transit link to connect Johor to Singapore by 2018.
A number of Singapore residents have already bought homes in Iskandar, including Templeton fund manager Mark Mobius, who has a bungalow for weekend getaways.
Malaysia’s IHH Healthcare Bhd is building a 300-bed hospital that will provide medical treatment to Singaporeans at half the cost.
The many changes “gave us the extra encouragement”, said Singapore businessman Ricky Tan, whose Kinderworld group is building a private school with boarding facilities in Iskandar.
Ismail Ibrahim, head of the IRDA, said the Singapore companies in Iskandar are mostly small and medium enterprises but he is confident the larger firms will follow.
“We have the space, we have the geographical position and we have all the necessary infrastructure,” he said. “With the right signals from both governments, big players from Singapore will be definitely coming in.”
One of them could be engineering and property conglomerate Keppel Corp (KPLM.SI), which is in talks to buy a 30 percent stake in a power plant that will supply electricity to Singapore, according to media reports.
Singapore state investor Temasek Holdings is involved in two large property developments in Iskandar that will cost an estimated 3 billion ringgit.
Still, some analysts warn that improved Singapore-Malaysia relations could hit a few speed bumps in the medium term. Ties could sour if there are changes to the political leadership in either country, said Chan Chong Beng, president of Singapore’s Association of Small and Medium Enterprises.
The association recently surveyed members to gauge their interest in Iskandar and found that several had concerns about crime and the potential for costs to rise rapidly due to the zone’s proximity to Singapore.
Many analysts and businessmen say there is a mutual interest in having Iskandar flourish.
“In the past, relations between Singapore and Malaysia were a bit chaotic,” said Kinderworld’s Tan. “But I think the economic benefits will drive the politicians in the future.”
(Additional reporting by Charmian Kok in SINGAPORE and Siva Sithraputhran in KUALA LUMPUR; Editing by John O’Callaghan and Raju Gopalakrishnan)
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I guess MAS has not a clue how to handle Singapore’s Inflation risks, which will exceed 6% this month, COE has risen, including HDB flat prices with increases in food and drinks, but how has Singapore fared with a corresponding rise in incomes? FAIL MISERABLY. It does not ev
en have a minimum wage policy and some of the policy implementation is loop sided which will not help to absorb the increase in costs. ANY SOLUTIONS?

You need to bring down the costs of public housing by introducing Micro and Shoebox homes in all areas, merging with the demands of new HDB flats, to relieve demand for resale especially for singles and divorcees. Next increase the supply of COE for Good Vehicles to drive it below $20K so that it should not be higher than $40K, forcing those who wants to save costs to engage in small business activity. Next increase the supply of industrial land for multi-faceted type mix of as many designs to lower the costs of doing business especially the costs of rental, allocating a similar concept for new towns for shopping belts near new MRT stations, driving the rental of HDB shops down. Keep inflation to record lows between 2-3% instead of the present 5.5% by managing hot money by distributing across a Timeframe instead of allowing it to ramp up costs of everything. 
– Contributed by Oogle. 
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23rd October 2012
By Kevin Lim
SINGAPORE, Oct 23 (Reuters) – Singapore’s inflation quickened in September as car prices and rents soared from a year ago, increasing the pressure on the government for a more aggressive stance including further measures to cool the property market.
The city-state’s consumer price index rose 4.7 percent in September from a year ago, up from August’s 3.9 percent increase. Economists polled by Reuters had expected a reading of 4.2 percent.
Private road transport was the biggest contributor to September inflation, gaining 10.8 percent year-on-year following a 6.3 percent increase in August, but economists noted price pressures building up in other areas.
“Looking across the spectrum we’re starting to see persistent price increases in services cost, namely healthcare. It shows there’s an underlying force, an upward bias led by wages, which is impacting more of the services component,” said Barclays regional economist Leong Wai Ho.
Francis Tan, an economist at United Overseas Bank, said the government will have to introduce measures to complement steps taken by the central bank, as Singapore’s use of an appreciating currency to manage monetary policy is of limited value against domestic price pressures.
“The recent October policy is not going to be of much help. It’s not imported inflation that we are looking at right now but cars and rents. The tight labour market and wage pressures are going to raise business costs and trickle to expected inflation,” he added.
The Monetary Authority of Singapore earlier this month defied forecasts by keeping monetary policy tight and allowing the local dollar to appreciate at its current pace, bucking the regional trend as it warned of persistent inflationary pressures in a slowing economy.
But while the stronger currency has helped keep a lid on prices of imports, domestic pressures within Singapore have continued to keep inflation well above historic levels.
Inflation averaged 5.2 percent last year, above the official forecast of around 5 percent and the 30-year average of 2.2 percent.
The monetary authority now expects inflation to slightly exceed its most recent forecast of 4.0 to 4.5 percent for 2012, which is much higher than the 2.5 to 3.5 percent outlook it gave at the start of the year.
The Singapore dollar rose slightly to around 1.2203 against the dollar from 1.2212 before the inflation data.
Malaysia last week reported annual inflation of 1.3 percent in September, the lowest in two years, while Indonesia’s year-on-year inflation dipped to 4.31 percent in September from 4.58 percent in August.
MONETARY POLICY, CARS
Singapore car prices have soared over the past year mainly due to government measures to control the number of cars in the city-state via certificates of entitlement (COEs) that motorists need before buying a new car.
Due to a jump in COE prices, the asking price for a new Toyota Vios is around S$120,000, up from around S$74,000 at the start of the year, according to prices tracked by motoring website sgcarmart.com.
Tim Condon of ING Financial Markets said Singapore’s inability to keep inflation is check is partly due to its exchange rate policy that ties short-term interest rates to U.S. rates. The city-state
“You’ve got conditions that short-term interest rates will remain zero for an extended period. That is stoking expectation of property price inflation, which then feeds into consumer price index expectations,” he said. (Reporting by Kevin Lim; Additional reporting by Saeed Azhar, Charmian Kok and Anshuman Daga; Editing by Sanjeev Miglani)

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