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Restructuring key to manufacturing sector's revival, say experts

Recent weakness in GDP growth numbers has raised concerns over the health of Singapore's manufacturing economy, which needs to restructure to survive. 

SINGAPORE: Recent weakness in GDP growth numbers has raised concerns over the health of Singapore's manufacturing economy. As restructuring gets underway and costs rise, there are fears more firms may move out of Singapore.

"We do expect that more firms will start moving abroad,” said Mr Vaninder Singh, an economist at RBS. “But this is a trend that has been expected for some time, and is a part of the Government's policy framework as well."

Singapore is barely half way through its decade-long economic restructuring plan, launched in 2010. Besides giving firms incentives to raise productivity, the Government has also been focused on attracting higher value-added manufacturing firms such as those in biotechnology and pharmaceuticals.

The global semiconductor sector may be in the doldrums, but some companies like Aldon Technologies are surviving, and even thriving, thanks to the use of automation, and a focus on niche and customised products that are of a higher value.

Higher-value-added services like plasma spray coating, which protects machine parts and tools, are much sought after within the semiconductor industry. Aldon has an 80 per cent share of the plasma coating market in Singapore, and says Singapore's higher cost base - both in terms of wages and rents - means that semiconductor firms here will not be able to compete with their regional peers on mass production.

“Now, if we look at Taiwan and Korea, their chip-making industry is ‘complete’ - meaning, they make chips, they make handphones, they make PCs, they make tablets, they make smart devices,” said Mr Allen Ang, Aldon’s Group Managing Director. “But we’re not so ‘complete’ in Singapore. (And) probably this is the reason why we say we are lower in the value chain, and of a secondary supplier (status)."

Recent data showed Singapore's economy contracting by 0.8 per cent in the second quarter of this year, compared with the previous three months. The decline was partly driven by a sharp drop in manufacturing - which in turn was due to the closure of an electronics plant.

"We're seeing a transformation of the Singapore economy, where probably we will see manufacturing ebb going forward,” said RBS’ Mr Singh. “But that does not mean that the entire economy is supposed to slow down. We will still see services improvements, we will still see firms setting up regional headquarters in Singapore, and all of that, put together, means that Singapore's economy will stay in a stable and reasonable growth path going forward."

Economists say that this transition to a higher-value-added and more productive economy will take another few years. In the meantime, companies will just have to ride out the short-term restructuring pain.

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