SINGAPORE'S RELATIVE BUSINESS COST MEDIUM TERM PROJECTIONS

Abstract

A common gripe among investors in Singapore is the high costs of conducting business, allied with the high US dollar exchange rate. Yet this has not put off global industrialists from basing their operations here. Singapore has had a history of receiving one of the world's largest Foreign Direct Investment Flow per capita. This would mean that either we have been providing significant alternative (non-monetary) benefits or that the financial costs are in reality far from overwhelming. Given that there is an obvious limit to the amount of intangible perks that we can provide in relation to other countries, we would like to think that the second hypothesis holds true. This thesis seeks to test this hypothesis. Using labor costs as a proxy to total business costs, we traced the relative cost trends of Singapore as an investment site. It turns out that we have been getting more expensive compared to counties like Malaysia, Thailand, Indonesia and China. Against the Newly Industrialized Economies (Hong Kong, Taiwan and South Korea) however, Singapore experienced a definite gain (looking at growth rates) in cost competitiveness. Fortunately, it is the latter group that constitutes our main rivals. Furthermore, we observed that the chief contributing factor to whatever loss in our relative cost position is the strength of the Sing Dollar.