Global foreign direct investment (FDI) inflows fell by nearly half (49%) in the first half of 2020 compared to 2019 due to the economic fallout from the Covid-19 pandemic as lockdowns around the world caused MNCs, the major sources of such funds, to slow or pause to re- assess their projects says the United Nations Conference on Trade and Developments (UNCTAD) in a recent report.
The organisation now expects full-year FDI flows to fall by between 30% and 40% from the pre- vious year. Singapore, however, had a different story to tell. “We had a good momentum coming into 2020 from 2019,” says Beh Swan Gin, chairman of the Economic Development Board (EDB) at the agency’s annual year-
in-review briefing on Jan 20. Companies continued with their investment plans here as Singapore is seen as a “trusted and attractive business location for transformation, innovation and growth”, he adds.
The city state secured some $17.2 billion in fixed asset investments (FAI) in 2020, far exceeding its medium to long-term target range of between $8 billion and $10 billion, says EDB, the government
agency that focuses on attracting investments to Singapore. This is up from the $15.2 billion in FAIs secured in 2020 and, interestingly, is the highest since the $18 billion netted in 2008.
The sectors attracting the biggest FAI are electronics and chemicals, which raked in $6.5 billion and $4.1 billion, respectively (See Chart 1). Beh attributes this to an upcycle in investments that typically occur once every eight to 10 years due to stronger performance of the semi-conductors, energy and chemicals sectors. Overall, FAI numbers would have been higher had it not been for the project delays caused by the Covid-19 movement restrictions.
On a geographical basis, the highest investments came from the US (53.4%), Singapore (17.3%) and Europe (17.1%), Contributions also came from other countries such as Japan (6.3%) and China (1.4%).
Meanwhile, total business expenditure (TBE) per annum, which refers to companies’ incremental operating expenditure such as wages and rental, hit $6.8 billion in 2020, compared to $9 billion recorded the year before. The number is also well between the $5 billion and $7 billion long-term target range set by the EDB. Of this, EDB notes that transport engineering (23.7%), headquarters & professional services (17.6%), and info-communications & media (11.3%), had the highest expenditure com- mitments (See Chart 2).
Collectively, projects tied to investments and expenditures made last year are expected to create 19,352 jobs over the next five years upon completion and contribute $31.2 billion in value-added per year. In contrast, some 32,814 jobs with a value-added per annum of $29.4 billion were estimated to have been created at the end of 2019.
Nearly half or 45% of the upcoming jobs will be in production, with roles coming specifically from the manufacturing, engineering, supply chain and logistics sectors. Another 24% of the roles will be digital-related, EDB’s report shows.
Tapered target
For 2021 which is coming off an exceptional year, EDB is tapering its targeted FAI at between $8 billion and $10 billion, and between $5 billion and $7 billion for TBE. These are collectively expected to create around 16,000 to 18,000 jobs in the medium- to long-term.
“We are approaching the first half of 2021 with some caution. But if the Covid-19 situation stabi- lises in the coming months, there could be grounds for guarded optimism in the second half of 2021," says Beh.
His sentiments were shared by Trade and Industry Minister Chan Chun Sing who expressed “cautious optimism” over the economic prospects for 2021, adding that one “should not think that the road ahead will be a walk in the park”.
“Companies will take a much longer time to decide upon their investments over the next one to two years because of the uncertainties at the local and global levels. Countries will compete even harder for their investment dollars and jobs," says Chan, referring to the uncertainties ahead.
In addition, EDB warns there may be delays in project implementation by companies as the decision-making process may take longer due to changes in the environment where the companies operate.
When asked if EDB’s goal is too conservative against the investment figures for 2019 and 2020, Chan says the target is a “fair reflection” of medium-term trends given the multi-year approach taken by authorities.
“We should not be overly focused on the year-to-year fluctuation. There will be some up and down in the course of the short term, especially in a situation where the pandemic is raging,” says Chan. Instead, he stresses the need to look beyond the investment figures to focus on the number and type of jobs created as well as the “criticality” of these investments in the global production chain.
“It is also important for us to look at how we can entrench ourselves in the global production and supply chains, so that we cannot be easily displaced by cheaper sources or by people who might be able to compete on the basis of less rigorous intellectual property protection regimes,” he adds.
This year, Singapore plans to tackle different challenges using four key economic strategies. These involve strengthening Singapore’s position as a critical node in the global value chain and forging new trade rules in forward-looking areas such as data, finance and technology, says Chan.
In addition, Singapore should pursue an innovation-led and sustainable economy and also help firms and workers transform for a “Covid world”. “For companies, our support will progressively move from stabilisation to helping them pivot to new areas of opportunities,” Chan adds.
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Sidebar: Budget 2021 to be smaller, more calibrated but jobs still key
All eyes are now on Budget 2021 which Deputy Prime Minister and Finance Minister Heng Swee Keat will present to Parliament on Feb 16. While many measures in the five budgets in 2020 totalling nearly $100 billion were “broad-based”, UOB economist Barnabas Gan expects Budget 2021 to be more calibrated while continuing to provide assistance to sectors which were hard hit by the pandemic, including travel and hospitality.
Maybank Kim Eng’s senior economist Chua Hak Bin agrees that the upcoming measures will be more targeted and “modest”. Apart from the two sectors named by Gan, he reckons that catering services may also be in need of support due to the caps on large-scale gatherings.
Meanwhile, Irvin Seah, senior economist at DBS Bank, reckons that more resources could go towards an Enhanced Aviation Support Package. This may come together with the lapse or tapering off of measures doled out to the other industries that have outperformed, he adds. This means many of the temporary measures such as rental waivers, tax rebates, loan deferments and foreign worker levy waivers “are unlikely to be extended”, he says.
One of the schemes that could see an extension is the Temporary Bridging Loan Programme that provides working capital for companies, says Seah. Such a move is also in line with Budget recommendations put forth by the Singapore Business Federation (SBF). The organisation has called for the scheme to
be extended to March 2022 from its current September 2021 expiry.
According to Selena Ling, head of treasury research and strategy at OCBC Bank, in spite of the anticipated cutback in aid, resources will still need to go towards “jobs and tackling skill mismatches given the recognition that the labour market may remain soft for longer,” she says.
Both Seah and Chua expect the extension of fiscal support to retrain and re-skill retrenched workers in growth sectors. Seah also foresees a shift towards saving rather than creating jobs. This entails the possible enhancement of the Jobs Growth Incentive to up to 75% for low-wage workers. At present, the scheme provides salary support ranging from 25% to 50% for new local hires.
The Jobs Support Scheme, a key and popular feature of Budget 2020, is set to expire in March. Seah of DBS believes only the most affected sectors will continue to receive this form of government wage subsidy.
For businesses that do not qualify for the subsidy, their main focus will be to stay in business and claw back growth. After all, the aim is not just to generate earnings, but to uphold employment. “Managers want to be double sure about future earnings before increasing headcount,” says Seah.
