Wednesday, January 31, 2007

Will Singapore reach S$9bn manufacturing investment target?

Will 2007 be another record year for foreign manufacturing investments into Singapore? Last year, manufacturing investments hit a four-year record high of $8.8 billion with contributions from companies such as Intel, Micron Technology and Royal Shell Dutch. The Singapore government aims to attract as much as S$9 billion (US$5.8 billion) of manufacturing investment to spur growth and increase job creation in 2007.

The island-nation's Economic Development Board also aims to attract up to S$2.9 billion in business spending from service industries including information, communications and media, education and health care.

But what about the competition? “The competition is intense in all areas,” said Ko Kheng Hwa, the board's managing director. “We see developing countries, developed countries, newly-industrialized economies competing to get investments.” These lower-cost countries include China and neighbours Malaysia and Thailand.

But Singapore still has the edge over its competition. Economists are convinced that Singapore's plan to reduce corporate taxes will enhance the city-state's ability to attract new investments. The Southeast Asian island-nation will cut its company tax rate by at least 1 percentage point from 20 percent, the Sunday Times on Jan. 21 reported Minister Mentor Lee Kuan Yew as saying. The government, which is expected to announce the corporate tax cut in its Feb. 15 budget, has shaved six percentage points off the rate since 2000 to the current 20 percent.

Increased investment this year should help generate an additional 20,000 to 25,000 new jobs and add S$11.5 billion to gross domestic product annually when completed, the EDB’s report said. About 26,800 jobs were generated from the 450 projects that were committed last year, and the investments will add S$13.4 billion to GDP yearly.

Singapore's $134 billion economy expanded 7.7 percent in 2006, accelerating from the year before. Growth in Southeast Asia's fourth-largest economy is forecast to be between 4 percent and 6 percent this year.

But there are dark clouds on the horizon. Slowing growth in the US and Japan are damping sales of chips and electronic gadgets. This has put additional pressure on the local economy to reduce dependence on the electronics manufacturing sector, which accounts for more than one-third of Singapore's industrial output.

Will Singapore succeed in attracting $9bn worth of factory investments? Who can give Singapore a run for its (investors’) money?

Let us know what you think.