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Budget 2019: Services sector to face ‘challenge’ of tighter foreign worker quota, but adapting firms will benefit

Local start-up honestbee, for one, believes the impending quota changes will have “minimal impact” on its business.

Budget 2019: Services sector to face ‘challenge’ of tighter foreign worker quota, but adapting firms will benefit

Shoppers pass by luxury brand shops at Orchard Road. (Photo: AFP)

SINGAPORE: It will be a “challenge” for companies in the services sector to cope with the upcoming tightening of supply to foreign workers, but forward-looking companies will likely fare better, industry watchers said. Some also wondered if the measure was too blunt a tool to effect the change it was intended for.

They were commenting on one of the measures introduced by Finance Minister Heng Swee Keat in his Budget speech on Monday (Feb 18).

READ: 7 things you need to know about Budget 2019

The minister had revealed that the Dependency Ratio Ceiling (DRC), which sets out the maximum number of foreign workers allowed to be hired in relation to the company’s overall workforce, will be reduced for the services sector. This will take place over two years: The ratio will drop from 40 per cent to 38 per cent on Jan 1 next year, and to 35 per cent from 2021.

The services sector was targeted as growth in S Pass and work-permit holders there has picked up pace, and S Pass growth is the highest in five years, he said, adding that segments such as food and beverage (F&B) and retail remain very reliant on labour.

The services sector is broad, ranging from accommodation and food services and information and communications to business and transport and storage services.

To this, Singapore International Chamber of Commerce chief executive Victor Mills said the planned reductions “will not be welcomed” by the sector.

“While a reliance on foreign workers is not sustainable, some businesses like those in the retail sector will struggle to comprehend how to attract more Singaporeans and/or to automate,” Mr Mills said in a statement.

READ: Is Budget 2019 an election budget? 'I don't plan on that basis,' says Heng Swee Keat

The Singapore Business Federation (SBF) added the tightening of foreign worker quota was “unanticipated”, but is a “strong signal” from the Government of the importance of maintaining its current policy on foreign workers so Singaporeans can continue to enjoy meaningful and well-paying jobs in the future.

Chairman Teo Siong Seng told Channel NewsAsia in an email that the long hours and shift work associated with segments like F&B and retail “often make it challenging for establishments to hire local workers, resulting in them having to rely on foreign workers”.

“We hope companies that are most affected by the lowering can take the opportunity to examine closely how they can leverage technology to innovate and restructure or redesign the jobs to make them more meaningful and attractive for local workers,” Mr Teo added.

This was echoed by KPMG Singapore’s head of Consumer and Retail Jeya Poh Wan Suppiah, who said the industry will find it a “challenge” initially. He pointed out that demands of this sector, for instance the manning of retail floors, are causing the growth in foreign workers.

Elaborating, he said in the luxury segment of retail, companies are now focusing more on hiring English-speaking Chinese nationals to cater to the well-heeled shoppers from China.

“(However,) consumer and retail companies need to reinvent themselves to cater to the changing behaviour of consumers where digital-buying will be very pervasive over time,” the KPMG executive told Channel NewsAsia in an email. 

“In that instance, where digitisation and online purchase become more apparent, the approach of having lesser foreign worker reliance becomes more sustainable over a longer term.”


The SBF did note that the services sector is very diverse and adjusting the DRC “can be a blunt tool”, a point also picked up by lawyer Amarjit Kaur.

The partner at Withers KhattarWong, who has experience handling employment disputes said the services sector spans multiple industries and this “broad-brush measure” poses unique challenges to some sub-industry sectors that are heavily reliant on human capital and do not lend easy to automation and digitalisation such as child care and eldercare services.

“The challenge lies in whether the (one-year) grace period is sufficient to allow companies to reduce their reliance on foreign workers,” she said.

“In the services sector, where barriers to entry are generally low, and rates of failure are high, the impact of this policy change remains to be seen.”

One company Channel NewsAsia spoke to remains confident of growth despite the labour tightening measure.

Online grocery and food delivery service Honestbee said as its business evolved to include a physical retail element, this has also helped its workers pick up new skills. Its vice president of People Pauline Teo said it believes the measure will have “minimal impact” on the company as it has kept a good balance and adhered to government quotas over the years.

“We will continue to do so by adjusting our quotas accordingly. We continue to ensure everyone who works with us are given opportunities to grow within the company,” Ms Teo said.

On its end, the Government is committed to helping companies manage the transition.

READ: Government will help businesses transform, reduce reliance on foreign manpower, says Indranee Rajah

Second Minister for Finance and Education Indranee Rajah said during 938Now’s Talkback radio show that restructuring the F&B sector, for instance, is not easy but it wants to help businesses think through how they are operating and how this can be done in a more manpower-efficient manner.

Manpower Minister Josephine Teo had said on Facebook after the Budget speech that there are schemes to help employers affected by the measure, such as the Lean Enterprise Development (LED) scheme. This initiative makes businesses more manpower-lean and improves the quality of jobs, she added.

Source: CNA/kk


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