Foreign worker crunch hits firms
The foreign workers in Singapore’s services sector face the heightened risk of losing their jobs after finance minister Heng Swee Keat announced in his budget address that the government will be reducing the dependency ratio ceiling (DRC) for the services sector from the current 40% to 38% by January 1, 2020 and to 35% in January 1, 2021. The S Pass sub-drc for the services sector has also been tightened from the current 15% to 13% on Jan 1, 2020, and to 10% from Jan 1, 2021.
According to a Bloomberg analysis, when the DRC was at 45% in 2013, a business with 20 full-time locals could employ 16 foreigners. In 2015, the ratio was reduced to 40%, so for the same 20 locals, three foreigners had to be cut. With the recent move to further lower the ratio to 35% by January 2021, two more foreigners need to be let go whilst keeping the same 20 locals in employment, and adding more locals to make up for the difference.
What it means for businesses
The move didn’t come as a surprise to analysts, which have observed that the government’s call for a firmer foreign worker policy is motivated by economic restructuring amidst a moderating GDP growth.
The rapidly ageing city has long tried to plug its thinning workforce with foreign employees who in turn were eager to seek career and social mobility opportunities in sleek Singapore. The total foreign workforce has inched up steadily from 1.32 million in 2013 to 1.37 million in June 2018, data from the Ministry of Manpower show.
The services sector has been the key driver of net employment adds over the last three years, according to Jefferies Singapore. S-pass and work permit holders have risen 3% annually over the period versus 0.6% annual growth for the total labour force.
The stricter rules of foreign workers would also deal a blow to labourintensive service companies like Sheng Siong, Jumbo, Raffles Medical, SMG, HMI, Comfortdelgro, Singapore
Post, and SATS where labour cost is a major expense, accounting for around 20-50% of their total revenue, according to UOB Kay Hian. “[The] tightening of foreign manpower policy will increase labour costs,” the firm said. “our back of the envelope calculation indicates that labour costs for the companies under our coverage could increase by 0.4% in 2020 and 0.6% in 2021. This is based on the key assumption that the total expenses of a local worker is around 20% more than a foreign worker.”
With this in mind, Singapore is actively expanding the use of technology to plug the chronic talent shortage as Minister Heng also announced the planned extension of the Automation Support Package (ASP) by two years in an effort to help firms deploy robotics and IOT technologies amongst other initiatives to upskill the local workforce.
In this scenario, however, foreign workers like Jean lose out as they remain in limbo about how longer they can still stay in Singapore. After applying for permanent residency twice and being rejected on both counts, she expresses hope that the government can start to value the contributions of foreign workers like herself to Singapore’s prosperity. “I am very grateful to Singapore as the host country but I hope that they will do more for the foreign workers who help build Singapore. We are not just workers but we are humans who have families to support. What will become of us after the host country cuts our jobs after we have served for 10 to 20 years? We can go home, but then who will hire us when we are already in our late 30s and 40s?”