Environmental Sustainability
The Roundtable on Sustainable Palm Oil (RSPO) has claimed that Palm oil output that does not cut down forests and harm wildlife may double to 3 million tonnes by the end of this year. The bulk of the output will come from Malaysian palm oil suppliers as they draw closer to ensuring their estates, mills and processors comply with commitments to ensure that the source of their palm oil is sustainable.
The latest declaration is part of an attempt of the RSPO to re-establish its presence after green activists groups have provided evidence damning the credibility of the organisation. For instance, Greenpeace claims that even though RSPO member companies are paying lip-service to forest and peatland protection, the reality is very different. The existing standards developed by the RSPO will not prevent forest and peatland destruction, and a number of RSPO members are taking no steps to avoid the worst practices of the palm oil industry. Some like palm oil processor Duta Palma, an RSPO member, are directly involved in deforestation. Worse still, at present the RSPO itself is creating the illusion of sustainable palm oil, justifying the expansion of the industry.
Environmental sustainability is a major public relations issue facing palm oil planters and producers. The industry has come under heavy fire of late for its deforestation practices that have taken a major environmental toll on rainforests and the natural habitat of many endangered species, including the orangutan.
Palm Oil Price News
Meanwhile, in other news, India's vegetable oil imports in February fell 8% to 700,769 tonne from a year ago as higher purchases in the previous months pushed up port stocks, according to the the Solvent Extractors Association of India (SEA).
Monthly imports were lower due to excessive imports in the first quarter and large stocks at ports, said BV Mehta, executive director of the trade body. Vegetable oil imports in February included 29,476 tonne of industrial oils, such as palm fatty acid distillate, down 9.2% from a year earlier.
India, the world's top vegetable oil importer, buys mainly palm oils from Indonesia and Malaysia and a small quantity of soyaoil from Argentina and Brazil. The country had bought 2.9 million tonnes during November-February a year earlier.
Tuesday, March 16, 2010
Sunday, March 14, 2010
SGX Listed Palm Oil Stocks - FY 2009 Balance Sheet Analysis
The following table is an ratio analysis of balance sheet numbers of the SGX listed Palm Oil stocks. The raw numbers are available in this post. It should be noted that Wilmar has significant downstream businesses as compared with the other stocks which may be primarily upstream. This difference is business does indeed show up in the analysis below.
In terms of ranking of balance sheet size, the 5 palm oil stocks have been listed from biggest to smallest, from left to right - the biggest being Wilmar International and the smallest being Kencana Agri.
The current ratio is mainly used to give an idea of the company's ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio, the more capable the company is of paying its obligations. As measured by this ratio, the ranking of financial strength from strongest to the weakest is as follows:
The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better the position of the company. As measured by this ratio, the ranking of financial strength from strongest to the weakest is as follows:
The Debt ratio indicates what proportion of debt a company has relative to its assets. The measure gives an idea to the leverage of the company along with the potential risks the company faces in terms of its debt-load. The lower this ratio, the better. As measured by this ratio, the ranking of financial strength from strongest to the weakest is as follows:It is interesting to note that First Resources consistently scores well throughout while Wilmar International is at the bottom of every ranking. This is despite the fact that Wilmar international is by far the largest in terms of total assets of all the 5 companies analysed here.
| Wilmar Int | Golden Agri | IndoFood Agri | First Res | Kencana Agri | |
|---|---|---|---|---|---|
| Current Ratio | 1.24 | 1.53 | 1.34 | 3.62 | 1.35 |
| Quick Ratio | 0.86 | 0.95 | 0.97 | 3.35 | 1.12 |
| Debt Ratio (Total Liabilities / Total Assets) | 51.3% | 30.0% | 45.2% | 41.3% | 44.8% |
| Equity Ratio (Equity / Total Assets) | 48.7% | 70.0% | 54.8% | 58.7% | 55.2% |
| Short term debt / Equity | 73.4% | 5.7% | 13.5% | 1.8% | 10.6% |
| Long term debt / Equity | 10.6% | 6.7% | 40.2% | 46.3% | 42.3% |
| Total Debt / Equity | 83.9% | 12.3% | 53.7% | 48.1% | 53.0% |
| Current Assets / Total Assets | 54.9% | 14.0% | 16.5% | 20.5% | 16.0% |
| Cash / Total Assets | 21.9% | 3.6% | 7.6% | 17.8% | 2.1% |
| Biological / Total Assets | 4.9% | 67.8% | 40.1% | 53.1% | 60.3% |
| Intangibles / Total Assets | 17.2% | 1.5% | 13.3% | 3.7% | 0.0% |
| PPE / Total Assets | 16.7% | 14.0% | 17.9% | 18.3% | 19.5% |
| Inventories / Total Assets | 16.8% | 5.3% | 4.6% | 1.5% | 2.7% |
| Receivables / Total Assets | 13.5% | 4.2% | 3.2% | 0.4% | 9.1% |
| Current Liabilities / Total Liabilities | 86.1% | 30.6% | 27.4% | 13.7% | 26.4% |
In terms of ranking of balance sheet size, the 5 palm oil stocks have been listed from biggest to smallest, from left to right - the biggest being Wilmar International and the smallest being Kencana Agri.
The current ratio is mainly used to give an idea of the company's ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio, the more capable the company is of paying its obligations. As measured by this ratio, the ranking of financial strength from strongest to the weakest is as follows:
- First Resources
- Golden Agri
- Kencana Agri
- Indofood Agri
- Wilmar International
The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better the position of the company. As measured by this ratio, the ranking of financial strength from strongest to the weakest is as follows:
- First Resources
- Kencana Agri
- Indofood Agri
- Golden Agri
- Wilmar International
The Debt ratio indicates what proportion of debt a company has relative to its assets. The measure gives an idea to the leverage of the company along with the potential risks the company faces in terms of its debt-load. The lower this ratio, the better. As measured by this ratio, the ranking of financial strength from strongest to the weakest is as follows:
- Golden Agri
- First Resources
- Kencana Agri
- Indofood Agri
- Wilmar International
Overall Balance Sheet Strength Rankings as indicated by the above rankings is as follows, using an inverse scoring system (1st = 5 points, 2nd = 4 points etc.):
- First Resources (14 points)
- Golden Agri (11 points)
- Kencana Agri (11 points)
- Indofood Agri (7 points)
- Wilmar International (3 points)
Biological assets are defined as living animals or plants. In an agricultural environment, biological assets are produced, sold or transformed into additional biological assets from controlled processes that manage their growth and maturation. Wilmar International has a surprisingly low % of total assets as biological assets at 4.9%. This is far lower than the other four companies, which have biological assets of between 40% and 70%.
Where, then do Wilmar's assets show up? Wilmar's assets appear to show up has abnormally high inventories and receivables as % of total assets. In contrast to its peers, Wilmar appears to have about 3-4 times the amount of inventories and receivables as a proportion of total assets. High levels of inventory and receivables may imply poor working capital efficiency. However, Wilmar's current ratio is the lowest of all the 5 companies. What this suggests is that Wilmar has amazing working capital management, especially since its short term longs and borrowings are very high!
More to come in later posts when we consider the balance sheet in conjunction with the income statement.
SGX Listed Palm Oil Stocks - FY 2009 Balance Sheet Numbers
| Wilmar Int | Golden Agri | IndoFood Agri | First Res | Kencana Agri | |
|---|---|---|---|---|---|
| US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | |
| Current Assets | 12,870,634 | 1,105,699 | 426,315 | 212,388 | 41,644 |
| Inventories | 3,939,699 | 420,125 | 117,999 | 15,778 | 7,092 |
| Trade and other Receivables | 3,173,753 | 332,200 | 82,045 | 3,951 | 23,602 |
| Cash and equivalents | 5,134,901 | 287,539 | 196,456 | 184,016 | 5,376 |
| Non-Current Assets | 10,578,153 | 6,794,781 | 2,151,300 | 822,874 | 218,878 |
| PPE | 3,919,302 | 1,102,608 | 460,357 | 189,470 | 50,736 |
| Biological Assets | 1,153,535 | 5,357,537 | 1,033,986 | 550,048 | 157,157 |
| Intangible Assets | 4,028,436 | 117,499 | 343,981 | 38,559 | 0 |
| Total Assets | 23,448,787 | 7,900,480 | 2,577,614 | 1,035,261 | 260,522 |
| Current Liabilities | 10,368,891 | 724,272 | 318,874 | 58,736 | 30,888 |
| Trade and other payables | 1,824,296 | 371,819 | 106,810 | 29,958 | 12,579 |
| Loans and borrowings | 8,374,106 | 314,008 | 190,365 | 11,198 | 15,281 |
| Non-Current Liabilities | 1,668,267 | 1,642,453 | 846,175 | 368,906 | 85,932 |
| Loans and borrowings | 1,205,626 | 369,074 | 568,219 | 281,121 | 60,810 |
| Total Liabilities | 12,037,158 | 2,366,725 | 1,165,049 | 427,642 | 116,820 |
| Equity | 11,411,629 | 5,533,755 | 1,412,565 | 607,620 | 143,702 |
Palm Oil News Roundup - Sun 14 March 2010
Palm Oil Price News
The price of palm oil looks to continue rising as analysts and news outlets report catalysts that will have a downside impact on the supply of the commodity.
The El Nino weather phenomenon may result in drier-than-usual weather which may in turn curb output in Malaysia and yields in Indonesia. The resulting supply crunch could drive prices to as much as 3,300 ringgit ($988) a metric ton, said Anne Frick, vice president for research at the New York-based commodities and financial derivatives broker Prudential Bache Commodities LLC. Malaysian output may not meet demand for local use and exports, Frick said in an interview.
Publisher of Hamburg-based "Oil World" magazine Thomas Mielke painted a nullish outlook for Palm Oil saying that Malaysia's crude palm oil will enjoy bullish prices this year with the golden crop breaching pass the RM3,000 per tonne level if production and stocks deplete.
Mielke warned that at the moment is that we are living with very tight stocks, and that if anything went wrong on the production side, the situation could turn critical and prices could surpass RM3,000 per tonne.
This report was corroborated by a Bloomberg BusinessWeek report that Palm oil production in Malaysia, the world’s second-largest grower, slumped to the lowest level in almost three years in February, draining stockpiles amid concerns that dry weather will limit supplies this year.
Biofuels News
Meanwhile, the use of palm oil as a biofuel has received a positive news that Neste Oil is growing palm oil for use in its biofuels refineries . The Biofuels company could buy 2.4 million to 2.5 million tonnes of vegetable oils for four biofuel plants, putting the Finnish refiner on par with consumer goods giant Unilever as a top vegetable oil buyer. The bulk of Neste Oil's vegetable oil purchases will come from palm oil, currently the cheapest in the world.
Industry News
Felda Vegetable Oil Products Sdn Bhd Chief Executive Officer Ismail Hasan has been reported as saying that Malaysian palm oil refineries should venture into more downstream value-added products to remain profitable. This means producing and exporting more value-added products to help increase margins for refineries, such as margerine, soaps and cosmetics.
Because the price of refined products do not move in tandem with the price of palm oil, this has put a strain on the profitability of refineries which have to absorb the higher cost of the heightened price of palm oil.
In other news, Tan Sri Dr Yusof Basiron, the Chief Executive Officer of the Malaysian Palm Oil Council (MPOC), says that Malaysia’s palm oil has attained a high level branding internationally, because of its status as a top quality edible oil and also due to Malaysia's reliability in supplying to a global market that continues to face a severe shortage of oil and fats, a top industry official said.
Wednesday, December 09, 2009
Crowded MRT Station in Singapore even during Off Peak periods
SMRT isn't running as many train services during off-peak hrs as it should. This was a picture I took of Jurong East MRT when I was on the way home on a friday evening at 7.24pm.
The trains were not arriving fast enough to pick up the passengers arriving at the station and the crowd just kept building.
This is what you get when the government pumps a ton of people into this little island, and the transportation companies try to cut costs by running as few trains as possible.
Looks like we need to do a proper review of our rail infrastructure operators.
The trains were not arriving fast enough to pick up the passengers arriving at the station and the crowd just kept building.
This is what you get when the government pumps a ton of people into this little island, and the transportation companies try to cut costs by running as few trains as possible.
Looks like we need to do a proper review of our rail infrastructure operators.
Singaporean Businesses Need to Buck Up - Innovate or Die!
Recently reported in the press is the news that SMEs in Singapore are complaining about the restrictions on foreign workers and want the government to loosen the restrictions that limit the hiring of foreign workers. A recent business survey indicates that these SMEs are quoting the same excuses that they have using all along - locals shun labour-intensive jobs, and the turnover rate for foreigners is lower. These business also want to hire foreigners because this reduces business costs, or, in other words, because foreign labour is cheap.
These latest results show that Singaporean businesses are heavily dependent on lowering the cost of factor inputs in order to compete in the market, rather than improving factor productivity. The difference between the two is illustrated as follows.
Company A hires Singaporean worker Mr Chan at $15 an hour to produce 10 widgets per hour. Mr Chan manufactures the widgets using equipment Y, which depreciates at $25 per hour. The cost of production per widget is hence $4 per widget: ($15+$25)/10 = $4. Company A can lower the cost of production by either lowering the cost of the factor inputs (labour or capital equipment), or by improving the productivity of these inputs.
Company A chooses to lower the cost of production by reducing the cost of factor inputs. Company A fires Mr Chan and hires Mr Balakrishnan from India who is willing to work for $5 per hour. However, Mr Balakrishnan was previously a farmer and he has only started to learn how to operate the manufacturing equipment, and so he can only produce 8 widgets per hour. Company A's strategy lowers the cost of production from $4 per widget, to $3.75 per widget: ($5 + $25)/8 = $3.75. However the the productivity of Company A has declined. Its production per worker has fallen to 8 widgets per hour, compared to its previous output of 10 widgets per hour.
Company B chooses a different strategy. Company B starts out with the same equipment as Company A, and employs Mr Wong at the same wage as Mr Chan. Company B also invests in research & development to improve the technology of its manufacturing equipment. Because Company B has been investing in research & development, it has a new piece of equipment. This equipment costs more, and has a depreciation rate of $43 an hour,compared to $25 previously. Company B also trains Mr Wong to use this new piece of equipment. The result of this improved manufacturing process is that Mr Wong is now able to produce 16 widgets per hour, compared to 10 widgets previously. At the same time, because of Mr Wong's improved skillset, Company B increases Mr Wong's salary to $17 per hour.
The net result of this is that Company B's cost of production is now $3.75 per widget = ($17+$43)/16. This is the same as Company A's result. However, unlike Mr Chan, Mr Wong not only keeps his job, but also has received a pay raise. Mr Wong is also able to afford another child because of his higher income, and help improve to Singapore's poor fertility rate. Furthermore, the longer term impact of this strategy is that Company B is able to continue lowering the cost of production, because it can continue to invest in R&D. Company A, however, is unable to bring down its costs further, because it is unable to find workers who are willing to work for much less than $5 per hour. Furthermore, Company B is able to expand its production and hire the experienced Mr Chan, who was previously fired by Company A.
The difference between Company A and B is the difference between night and day. Company A has chosen the strategy of lowering the cost of factor inputs, but this strategy rarely results in sustainable competitive advantage. In most cases, this strategy results in price wars and intense competitive rivalry that ultimately kills profitability when such price wars are not accompanied with increases in productivity.
Company B, however, has a sustainable competitive advantage. Its R&D program will continue to produce better equipment and labour productivity gains, and will allow it to lower its cost of production even further. In contrast, Company A cannot reduce its factor costs much further and will soon be put out of business.
Two fundamentally different strategies, two fundamentally different results.
Singaporean businesses are thinking like company A. Instead of focusing on improving productivity, they have chosen to pursue lower factor input costs. They repeatedly complain that Singaporean workers are too expensive and want to hire cheap foreign labour instead. Eventually, like company A, these businesses will be outcompeted by their more innovative counterparts.
In view of these SMEs' mentality, is it surprising at all that Singapore's productivity growth has remained stagnant relative to the US since 1995, as the recent Singapore Competitiveness Report shows? Is it surprising at all that the standard of living for the average working Singaporean has hardly improved in recent years?
No.
Singaporean businesses need to buck up and start innovating. The government also needs to stop feeding this quick-fix mentality with its liberal immigration program.
Quick-fix is ultimately no-fix, and Singaporean businesses must innovate or die.
These latest results show that Singaporean businesses are heavily dependent on lowering the cost of factor inputs in order to compete in the market, rather than improving factor productivity. The difference between the two is illustrated as follows.
Company A hires Singaporean worker Mr Chan at $15 an hour to produce 10 widgets per hour. Mr Chan manufactures the widgets using equipment Y, which depreciates at $25 per hour. The cost of production per widget is hence $4 per widget: ($15+$25)/10 = $4. Company A can lower the cost of production by either lowering the cost of the factor inputs (labour or capital equipment), or by improving the productivity of these inputs.
Company A chooses to lower the cost of production by reducing the cost of factor inputs. Company A fires Mr Chan and hires Mr Balakrishnan from India who is willing to work for $5 per hour. However, Mr Balakrishnan was previously a farmer and he has only started to learn how to operate the manufacturing equipment, and so he can only produce 8 widgets per hour. Company A's strategy lowers the cost of production from $4 per widget, to $3.75 per widget: ($5 + $25)/8 = $3.75. However the the productivity of Company A has declined. Its production per worker has fallen to 8 widgets per hour, compared to its previous output of 10 widgets per hour.
Company B chooses a different strategy. Company B starts out with the same equipment as Company A, and employs Mr Wong at the same wage as Mr Chan. Company B also invests in research & development to improve the technology of its manufacturing equipment. Because Company B has been investing in research & development, it has a new piece of equipment. This equipment costs more, and has a depreciation rate of $43 an hour,compared to $25 previously. Company B also trains Mr Wong to use this new piece of equipment. The result of this improved manufacturing process is that Mr Wong is now able to produce 16 widgets per hour, compared to 10 widgets previously. At the same time, because of Mr Wong's improved skillset, Company B increases Mr Wong's salary to $17 per hour.
The net result of this is that Company B's cost of production is now $3.75 per widget = ($17+$43)/16. This is the same as Company A's result. However, unlike Mr Chan, Mr Wong not only keeps his job, but also has received a pay raise. Mr Wong is also able to afford another child because of his higher income, and help improve to Singapore's poor fertility rate. Furthermore, the longer term impact of this strategy is that Company B is able to continue lowering the cost of production, because it can continue to invest in R&D. Company A, however, is unable to bring down its costs further, because it is unable to find workers who are willing to work for much less than $5 per hour. Furthermore, Company B is able to expand its production and hire the experienced Mr Chan, who was previously fired by Company A.
The difference between Company A and B is the difference between night and day. Company A has chosen the strategy of lowering the cost of factor inputs, but this strategy rarely results in sustainable competitive advantage. In most cases, this strategy results in price wars and intense competitive rivalry that ultimately kills profitability when such price wars are not accompanied with increases in productivity.
Company B, however, has a sustainable competitive advantage. Its R&D program will continue to produce better equipment and labour productivity gains, and will allow it to lower its cost of production even further. In contrast, Company A cannot reduce its factor costs much further and will soon be put out of business.
Two fundamentally different strategies, two fundamentally different results.
Singaporean businesses are thinking like company A. Instead of focusing on improving productivity, they have chosen to pursue lower factor input costs. They repeatedly complain that Singaporean workers are too expensive and want to hire cheap foreign labour instead. Eventually, like company A, these businesses will be outcompeted by their more innovative counterparts.
In view of these SMEs' mentality, is it surprising at all that Singapore's productivity growth has remained stagnant relative to the US since 1995, as the recent Singapore Competitiveness Report shows? Is it surprising at all that the standard of living for the average working Singaporean has hardly improved in recent years?
No.
Singaporean businesses need to buck up and start innovating. The government also needs to stop feeding this quick-fix mentality with its liberal immigration program.
Quick-fix is ultimately no-fix, and Singaporean businesses must innovate or die.
Tuesday, December 01, 2009
PAP's Quick-Fix Mentality will Exacerbate Singapore's Economic Challenges
Earlier this decade, PM Lee Hsien Loong & the PAP faced a problem with Singapore's population economics. With the country's fertility rate way below the replacement rate of 2.1, Singaporeans were not making enough babies to replace themselves. The potential burden of this phenomenon was obvious - amongst other issues, the cost of supporting an aging population would have to be borne by a smaller workforce, and the government did not want to have to sustain this liability in the future.
In order to arrest the problems presented by a resident population failing to replace itself, the PAP has resorted to the quick-fix policy of opening the country's shores to foreigners. A massive influx of immigrants and foreigners has resulted in the rapid increase of Singapore's population. Between 2003 and June 2009, the population increased from an estimated 4.2m to 5m, or an increase of 19 per cent in less than a decade.
While this has, in the short-term, drastically expanded the productive work force, the longer-term impact of the PAP's immigration policy has been to exacerbate the already challenging living conditions which have discouraged Singaporeans from having children. Directly attributable to the Government's immigration policy, are two major side-effects which have made it more difficult for Singaporeans to have children.
Firstly, the cost of living for the majority of Singaporeans has risen. In particular, the escalating cost of housing to unaffordable levels is acting as an obvious hurdle towards family formation. A couple which is unable to afford a roof over their heads will obviously find it very difficult to start a family. After all, the most basic thing parents must provide to their children is a roof over their heads. Yet, instead of bringing down the cost of housing, the combination of a spike in housing demand and stagnation in supply has sent property prices to record levels. (ref. 'PAP MP blames young couples who cannot get flats for not “planning ahead”')
Secondly, labour productivity has declined. Singapore's labour productivity levels have been falling for six consecutive quarters starting in the fourth quarter of 2007. The decline has been worsening each quarter, with the first three months of 2009 seeing the largest drop so far at minus 14.7 percent. (ref. "National focus needed on efforts to boost labour productivity", CNA). Singaporeans are working harder and longer and with less to show for it. Naturally, they have less time and money to spend on their children.
The benefits of productivity on family formation are obvious. Workers who accomplish the same amount of work in shorter periods of time will have more time to spend on their family. Similarly, workers who accomplish more work in the same period of time will be able to earn higher incomes and thus be better able to afford a family. Instead of improving productivity, however, the PAP has chosen an immigration policy which has had a direct impact on this key economic statistic. The large influx of foreign workers in recent years means that each worker doesn’t have to work as hard. It also means that positions are constantly being filled by newbies without experience. (ref. 'Declining productivity here a problem')
The combined effect of housing price inflation and the decline in labour productivity has been to make the real cost of bringing up a child even more expensive, and thus further discourage couples from having children. Meanwhile, little attention is being paid to initiatives which can make a genuine impact on the standard of living.
The solution to the housing affordability problem is simple. Either supply more flats or decrease the demand. The lack of proper planning by the PAP on this issue is quite perplexing, but this issue has been dealt with by other writers and I will not repeat their arguments here. (ref. "Immigration and public housing: Should the govt or the people plan ahead?")
The deeper problem is that of labour productivity.
An improvement in labour productivity does not only require the education & upgrading of the workforce, but a fundamental change in mentality of employers from a low-cost of labour mentality to a higher value-added mentality. Meanwhile, it seems that the only solution that the PAP has to throw at the productivity problem is to point the finger at workers for not upgrading themselves.
While skills upgrading is part of the solution, it is only one side of the productivity equation. Just as important is paying attention to improving the working conditions of employees and protecting workers' rights. Employers in Singapore blame Singaporeans for shunning so-called 'menial' or ‘unskilled’ jobs, yet the only solution they seem to have is to throw cheap foreign labour into these jobs such as construction or frontline retail services. The tougher but more rewarding option of professionalising and dignifying such jobs is thrown to the wayside.
Contrary to what some may think, a career in construction can be a meaningful, dignified one. A construction worker who takes pride in his technical work and who has accumulated experience will certainly be much more productive than a cheap foreign import. When given the right tools and proper working conditions, his higher productivity will also justify a much more respectable salary than the pittance that is currently paid in the industry. Yet, keeping wages low and working conditions poor is a surefire way to make the job disrespectable, and for companies to lose their top performers. (ref. “TOC Special Feature: Is Singapore really slum-free?”, TOC)
Similarly, frontline sales staff in retail can make a significant difference to the bottom line if they are well trained, respectably paid, and given good working conditions. Conversely, untrained foreigners who do not even speak the language of business, are obviously unable to add significant value to a retail operation and sometimes even turn away prospective sales. (ref. “Australian tourist complains about PRC workers in Singapore who cannot speak English!”)
In spite of this simple logic, the government's immigration policy continues to foster a low-cost mentality rather than a value-added mentality by allowing local businesses to import cheap labour, which only serves to keep wages depressed and working conditions lousy. To be fair, enterprises are also to blame for perpetuating their low-cost mentality. But if nobody makes an effort, how will things ever improve?
Labour productivity also improves with innovation & entrepreneurship. A significant improvement in manufacturing techniques can allow a factory to dramatically increase its output given the same number of workers. Meanwhile, technological innovations in engineering or computing allow the formations of new enterprises and the creation of value-added jobs. Yet, the government continues to pursue policies which encourage an iron-rice bowl mentality rather than bold enterprise.
In particular, the scholarship system encourages Singapore's brightest students to pursue a safe (bonded) career in government rather than one in the private sector. It systematically sucks out the brightest minds from innovating in the marketplace, into the ranks of the public service. Instead of finding solutions to scientific problems, bringing new products to market or searching for a cure for cancer, Singapore's top young brains are writing policy papers and goodness knows what else, in 'silent resentment and ultimate dissatisfaction' (ref. the late Dr Allan Ooi).
The PAP argues that the government needs top brains in order to run efficiently and effectively. Yet, the stark reality is that entrepreneurs and innovators such as Olivia Lum, Sim Wong Hoo and Ron Sim have individually created many more jobs for Singaporeans than any government scholar or bureaucrat. Is it no wonder, then, that leaders such as S. Dhanabalan and DPM Jayakumar (ref. "Jayakumar wants Singapore top students to study in local varsities") have recently lamented that allowing top students to go overseas is a bad thing? And, while it may appear that the government is unrolling campaigns encouraging entrepreneurship in schools, such campaigns are but lip service when millions of dollars continue to be thrown at scholarships designed to suck youngsters into government ranks.
The recent housing pains and productivity drops are symptomatic of a quick-fix mentality that can ultimately only exacerbate Singapore's population and economic problems, rather than alleviate them. Until fundamental, structural issues in Singapore's economy are tackled head-on, Singapore will continue to see its fertility rate remain low and its productivity (and competitiveness) slide. At the end of the day, the PAP cannot continue to pump more and more immigrants onto this little island. Sooner or later, Singaporeans need to find a way to return their fertility rate to replacement levels, and make the cost of family formation affordable. Singapore will need to find a way to foster genuine innovation and entrepreneurship and to improve worker productivity.
So far, the PAP doesn't seem to be doing very well in coming up with the right solutions.
In order to arrest the problems presented by a resident population failing to replace itself, the PAP has resorted to the quick-fix policy of opening the country's shores to foreigners. A massive influx of immigrants and foreigners has resulted in the rapid increase of Singapore's population. Between 2003 and June 2009, the population increased from an estimated 4.2m to 5m, or an increase of 19 per cent in less than a decade.
While this has, in the short-term, drastically expanded the productive work force, the longer-term impact of the PAP's immigration policy has been to exacerbate the already challenging living conditions which have discouraged Singaporeans from having children. Directly attributable to the Government's immigration policy, are two major side-effects which have made it more difficult for Singaporeans to have children.
Firstly, the cost of living for the majority of Singaporeans has risen. In particular, the escalating cost of housing to unaffordable levels is acting as an obvious hurdle towards family formation. A couple which is unable to afford a roof over their heads will obviously find it very difficult to start a family. After all, the most basic thing parents must provide to their children is a roof over their heads. Yet, instead of bringing down the cost of housing, the combination of a spike in housing demand and stagnation in supply has sent property prices to record levels. (ref. 'PAP MP blames young couples who cannot get flats for not “planning ahead”')
Secondly, labour productivity has declined. Singapore's labour productivity levels have been falling for six consecutive quarters starting in the fourth quarter of 2007. The decline has been worsening each quarter, with the first three months of 2009 seeing the largest drop so far at minus 14.7 percent. (ref. "National focus needed on efforts to boost labour productivity", CNA). Singaporeans are working harder and longer and with less to show for it. Naturally, they have less time and money to spend on their children.
The benefits of productivity on family formation are obvious. Workers who accomplish the same amount of work in shorter periods of time will have more time to spend on their family. Similarly, workers who accomplish more work in the same period of time will be able to earn higher incomes and thus be better able to afford a family. Instead of improving productivity, however, the PAP has chosen an immigration policy which has had a direct impact on this key economic statistic. The large influx of foreign workers in recent years means that each worker doesn’t have to work as hard. It also means that positions are constantly being filled by newbies without experience. (ref. 'Declining productivity here a problem')
The combined effect of housing price inflation and the decline in labour productivity has been to make the real cost of bringing up a child even more expensive, and thus further discourage couples from having children. Meanwhile, little attention is being paid to initiatives which can make a genuine impact on the standard of living.
The solution to the housing affordability problem is simple. Either supply more flats or decrease the demand. The lack of proper planning by the PAP on this issue is quite perplexing, but this issue has been dealt with by other writers and I will not repeat their arguments here. (ref. "Immigration and public housing: Should the govt or the people plan ahead?")
The deeper problem is that of labour productivity.
An improvement in labour productivity does not only require the education & upgrading of the workforce, but a fundamental change in mentality of employers from a low-cost of labour mentality to a higher value-added mentality. Meanwhile, it seems that the only solution that the PAP has to throw at the productivity problem is to point the finger at workers for not upgrading themselves.
While skills upgrading is part of the solution, it is only one side of the productivity equation. Just as important is paying attention to improving the working conditions of employees and protecting workers' rights. Employers in Singapore blame Singaporeans for shunning so-called 'menial' or ‘unskilled’ jobs, yet the only solution they seem to have is to throw cheap foreign labour into these jobs such as construction or frontline retail services. The tougher but more rewarding option of professionalising and dignifying such jobs is thrown to the wayside.
Contrary to what some may think, a career in construction can be a meaningful, dignified one. A construction worker who takes pride in his technical work and who has accumulated experience will certainly be much more productive than a cheap foreign import. When given the right tools and proper working conditions, his higher productivity will also justify a much more respectable salary than the pittance that is currently paid in the industry. Yet, keeping wages low and working conditions poor is a surefire way to make the job disrespectable, and for companies to lose their top performers. (ref. “TOC Special Feature: Is Singapore really slum-free?”, TOC)
Similarly, frontline sales staff in retail can make a significant difference to the bottom line if they are well trained, respectably paid, and given good working conditions. Conversely, untrained foreigners who do not even speak the language of business, are obviously unable to add significant value to a retail operation and sometimes even turn away prospective sales. (ref. “Australian tourist complains about PRC workers in Singapore who cannot speak English!”)
In spite of this simple logic, the government's immigration policy continues to foster a low-cost mentality rather than a value-added mentality by allowing local businesses to import cheap labour, which only serves to keep wages depressed and working conditions lousy. To be fair, enterprises are also to blame for perpetuating their low-cost mentality. But if nobody makes an effort, how will things ever improve?
Labour productivity also improves with innovation & entrepreneurship. A significant improvement in manufacturing techniques can allow a factory to dramatically increase its output given the same number of workers. Meanwhile, technological innovations in engineering or computing allow the formations of new enterprises and the creation of value-added jobs. Yet, the government continues to pursue policies which encourage an iron-rice bowl mentality rather than bold enterprise.
In particular, the scholarship system encourages Singapore's brightest students to pursue a safe (bonded) career in government rather than one in the private sector. It systematically sucks out the brightest minds from innovating in the marketplace, into the ranks of the public service. Instead of finding solutions to scientific problems, bringing new products to market or searching for a cure for cancer, Singapore's top young brains are writing policy papers and goodness knows what else, in 'silent resentment and ultimate dissatisfaction' (ref. the late Dr Allan Ooi).
The PAP argues that the government needs top brains in order to run efficiently and effectively. Yet, the stark reality is that entrepreneurs and innovators such as Olivia Lum, Sim Wong Hoo and Ron Sim have individually created many more jobs for Singaporeans than any government scholar or bureaucrat. Is it no wonder, then, that leaders such as S. Dhanabalan and DPM Jayakumar (ref. "Jayakumar wants Singapore top students to study in local varsities") have recently lamented that allowing top students to go overseas is a bad thing? And, while it may appear that the government is unrolling campaigns encouraging entrepreneurship in schools, such campaigns are but lip service when millions of dollars continue to be thrown at scholarships designed to suck youngsters into government ranks.
The recent housing pains and productivity drops are symptomatic of a quick-fix mentality that can ultimately only exacerbate Singapore's population and economic problems, rather than alleviate them. Until fundamental, structural issues in Singapore's economy are tackled head-on, Singapore will continue to see its fertility rate remain low and its productivity (and competitiveness) slide. At the end of the day, the PAP cannot continue to pump more and more immigrants onto this little island. Sooner or later, Singaporeans need to find a way to return their fertility rate to replacement levels, and make the cost of family formation affordable. Singapore will need to find a way to foster genuine innovation and entrepreneurship and to improve worker productivity.
So far, the PAP doesn't seem to be doing very well in coming up with the right solutions.
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