A reduction in the service sector’s dependence on foreign workers is a major goal for this year’s budget in Singapore. The Budget announced last week also laid thrust on building new capabilities for Singaporean workers. The move came in the wake of a slowdown in Singapore's manpower growth. However, the reduction in the Dependency Ratio Ceiling (DRC) as announced by Singapore’s Finance Minister Heng Swee Keat in favor of Singaporean nationals sparked mixed responses.

One of the challenges for the employers would be finding enough locals who have the skill sets and are willing to do the jobs. Currently, there are 1.1 million foreigners who make up about a third of Singapore's workforce of 3.4 million. “Redesigning jobs and reskilling our people are central to this year’s Budget. A nice sweetener would have been an additional SkillsFuture credit top-up – this could have further accelerated our lifelong learning culture,” says Samir Bedi, Partner, People Advisory Services, Ernst & Young.

“While we upgrade our Singaporean workers and build deep enterprise capabilities in these sectors, we must enhance the complementarities of our local and foreign workers,” the finance minister said. Chris Woo, Tax Leader at PwC Singapore lauded the move saying “the reduction to the DRC is the necessary medicine in the medium term. It will force enterprises to further invest in new technology, re-skill their existing workforce, and reduce the reliance on cheaper foreign labor.”

To find out more on the cut-back regulation and its impact on foreign workers, we connected with Lee Quane, Regional Director – Asia, ECA International in a freewheeling discussion.

Do you think the continued investment into upskilling workers will support not just their employability, but also give Singaporeans a competitive edge necessary for navigating the future economy?

Yes, appropriately allocated investment plays an important role in the development of people and their skillsets. While companies spend time, effort and financial resources training and developing staff, their decision to invest in a particular country will often depend on the caliber of talent available in that country. One of the reasons why Singapore is successful in attracting foreign investment even though its workforce is more expensive than nearby locations is because Singapore’s workforce is better educated, better skilled and more productive. Government initiatives which enable the continued development of skills among the local workforce should ensure that this comparative advantage is maintained.

How will Singapore’s Budget announcements and new foreign manpower policies affect expatriate management?

Some of the announcements in the recent Singapore Budget initially look like they will significantly impact expatriate management, and how multinational companies approach business in Singapore. The reduction in the proportion of foreign workers a firm can employ is set to drop by 5% by 2021. This means that some firms may possibly think twice about sending expatriate workers to Singapore in the future.

However, expatriate workers will always remain an important part of the workforce, as companies continue to report that they struggle to fill their vacancies. Although the new government regulations will look to cut back on the proportion of international employees, much of the legislation seems directed at lower levels of seniority. We expect little impact on the number of senior-level expatriates employed in Singapore.

For Singapore to develop as a Global-Asia node, Singapore needs talents with broad global experience. What will this mean for global companies, especially in developed countries?

We believe that changes announced in the Budget will mainly impact the employment of foreign workers in more junior and semi-skilled roles. For senior-level talent, Singapore needs to attract people from competing locations such as London, New York, San Francisco, Dubai, and Hong Kong. We foresee that Singapore will continue to remain one of the most liveable and attractive locations in the world for expatriate workers, due to factors such as great facilities, low crime rates, good quality healthcare, and education, as well as a large expat population already living in Singapore.

How will the new developments affect Singapore’s attractiveness to expatriates and businesses?

Although the announcements may not be ideal for companies that already have a large number of expatriates within their workforce, we believe Singapore will still remain a desirable and attractive location for businesses and overseas workers.

Singapore has consistently topped our liveability rankings for Asian expats, and despite the budget announcements, this looks unlikely to change in the near future. This is because Singapore offers a range of incentives for expatriate workers such as low crime rates, excellent infrastructure, and good quality healthcare, as well as many more.

These factors will not worsen as a result of the Budget announcements. Although many cities in Asia offer similar benefits to overseas workers, Singapore remains an important strategic location for many companies. We expect Singapore to remain one of the more attractive locations for overseas workers for years to come.

What are the top factors companies consider when making mobility decisions – foreign manpower policies of the country, liveability ranking, and cost of living?

There are a number of different factors that companies should consider when forming their mobility policy, such as:

• Liveability of a location,
• The cost of living,
• Short-term and long-term economic and currency issues,
• Salary trends,
• Employment policy and issues,
• Tax policies

Singapore performs favorably in all of these areas, for both expatriates and the companies that have overseas assignees in Singapore. This is why the new policies enacted in the recent budget look unlikely to have too much of a negative effect on business in Singapore, or on the desirability of the nation to overseas workers and businesses.

How do you see the likely impact of the government's investment in building the digital capabilities of SMEs through the launch and extension of initiatives like Scale-up SG programme and ASP?

This is outside of the scope of our expertise, unfortunately. However, it is logical that the Automation Support Package (ASP) was being announced at the same time as the increased caps on foreign workers. While Singapore’s productivity levels are high relative to neighboring locations, they are lower than that seen in other developed economies. This is partly due to the slower rate at which companies have replaced labour for capital, preferring to employ people in relatively unproductive roles instead of investing in machinery. The ASP will, hopefully, encourage more companies to adopt technologies and reduce their need to employ people in less productive roles and occupations.