Mr Heng Chiang Gnee
Chairman
Sembawang Shipyard Private Limited

Mr Ramasamy
President
Sembawang Shipyard Employees’ Union

Distinguished Guests

Mr Wong Kok Siew

Mr Lua Cheng Eng

Comrades and Friends

I am indeed very happy to join all of you this evening at this dinner to celebrate Singapore’s 38^th National Day as well as the 35^th Anniversary of Sembawang Shipyard and Sembawang Shipyard Employees’ Union. Let me first thank Sembawang Shipyard and Sembawang Shipyard Employees’ Union for very kindly inviting me to join you at this dinner.

Singapore is going through a traumatic period. Many Singaporeans are uncertain about the future. Some are demoralized. Workers worry about keeping their jobs, whether they will be retrenched if the company they work for decides to downsize operations. Some newspaper columnists have written about the end of the Singapore Dream and the prospect of lower living standards for Singaporeans in the years ahead.

Such sentiments are not surprising given the sluggishness of our economy and the jobs lost, particularly in the last three years. After a good year in 2000, our economy went into recession in 2001, contracting by 2% as a result of the decline in external demand due to the collapse of the technology and dot.com bubbles. We had a modest recovery of 2% in 2002. This year, our economic recovery has been disrupted by uncertainties arising from the war in Iraq, the outbreak of SARS and the continuing threat of terrorism in the region. This year’s second quarter saw the loss of 25,000 jobs, more than the total number of jobs lost in 2002. The latest estimate by MTI of Singapore’s economic growth for 2003 is 0 to 1%.

Against this backdrop and the prospect of even fiercer competition from low cost countries like China and India, it is not surprising that Singaporeans should wonder whether and when our economy will recover and our unemployment problem solved. Singaporeans ask : When will our economy get back its bounce? Will we ever see full employment again or will high unemployment be a permanent feature of Singapore’s economic landscape?

What do we need to do to get our economy going again? The most important factor is the resolve of Singaporeans to face the issue of enhanced competition squarely, and to unite in a determined effort to overcome our present economic difficulties. In this connection, the tripartite co-operation between the Government, Unions and employers is crucial not only to maintain industrial harmony and also to help our companies upgrade and expand so that more workers will be employed and existing workers will be rewarded for good performance.

The Government must take the lead to enhance our competitiveness and to restructure our economy to achieve high growth. The Economic Review Committee has identified four thrusts which we need to implement to re-make our economy :

1. Tap opportunities in international markets through Free Trade Agreements which have helped us to secure tariff-free access of our goods and services into major markets like Japan and the US;
2. Grow our service sector which has been the largest employer of workers in the last ten years by strengthening our traditional service industries like trading, financial services and logistics and growing new services like education and health care;
3. Upgrade manufacturing to enhance value-added and sophistication by incorporating more R&D and taking advantage of our skilled workers to move up the value chain; and
4. Encourage a climate of entrepreneurship so that small businesses can grow into big companies, providing employment and adding buzz and dynamism to our economy.

In addition to the above thrusts, Prime Minister Goh Chok Tong, in his National Day Rally speech on 17 August, stressed the need for wage reform to lower costs by implementing painful measures including lowering the rate of CPF contributions from the present 36% to possibly 30%.

Let me explain why I believe that lowering wage costs through a substantial cut in the CPF is urgent and essential to improve our competitiveness to make our companies viable, attract new companies to locate in Singapore and ease our unemployment problem.

In these days of razor sharp competition and rapidly changing business conditions, companies need to have the flexibility to adjust their operating costs rapidly in line with changes in business demand. To enable companies to operate successfully in a rapidly changing business environment, we need to remove rigidities in our economic structure so that companies will have as much flexibility as possible to adjust their operations in order to stay viable and to save jobs. Such rigidities include areas like taxes, land costs, Government charges and fees and most important of all, wage costs.

On taxes, the Government has accepted the recommendations of the Economic Review Committee to lower our corporate and income taxes to 20% by 2005. Managing land costs is a delicate and difficult matter for any country. One wrong policy decision and the whole edifice of wealth built on high property prices can come crashing down, sparking off a deflationary spiral as has happened in Japan and Hong Kong. So we have to be very careful when dealing with land or property prices. However, the Government will ensure that our land prices remain affordable and not priced beyond the capacity of companies and industries. On Government charges and fees, we have reduced or eliminated many of the charges and fees over the last few years. We will maintain Government charges and fees as low as possible without severely damaging our revenue base and incurring large budget deficits.

Reducing wage costs is the area which we must now focus on in order to make sure that our labour costs are not out of line with labour costs in other countries, given the premium that investors will pay for Singapore’s stability, good governance, strong legal framework and a safe and secure working and living environment.

It is not necessary, neither it is possible, to bring our labour costs to as low as the labour costs in China and India which are a fraction of labour costs in Singapore. With the skills that our workers have, we need not even match the labour costs in our neighbouring countries which have large populations, plentiful land and low cost of living. But it is crucial that we do not price ourselves ahead of developed countries which are also our competitors in the global market today.

The consulting firm, Political and Economic Risk Consultancy Limited (PERC), reports regularly on business matters in the region including business costs and how the level of costs affect the operations of companies and the thinking of managements. In their recent report dated July 2^nd, PERC compared the average labour costs in a number of countries in the Asia Pacific region, rating countries from zero to ten, with zero being the lowest labour cost country and ten the highest labour cost country. As expected, China was a clear winner in the lowest labour cost category with a grade of 2 followed by the Philippines with a grade of 2.67 and India with a grade of 2.80. Singapore was rated the fourth highest labour cost country with a grade of 5.50. What is alarming is that our grade of 5.50 was higher than that of the US with 5.07 and Australia with 4.90. This simple statistic is profoundly important. When, according to PERC’s calculations, it is more expensive to hire a worker in Singapore as compared to hiring a similar worker in the US or Australia, we have a major economic problem.

Our economic fundamentals are sound but we have simply priced our labour out of the market. We must overcome this problem if we want to slow down the rate of companies relocating to other countries and if we want to attract more companies to locate in Singapore. In this respect, a high rate of CPF contribution is a major rigidity in our wage structure. From the point of view of companies, income tax is a tax on the profits which the company makes but CPF contribution is a tax on the company’s cash flow. A lower rate of CPF contributions immediately makes more money available to the company to finance its operations and keep it viable, thus saving jobs. We have no choice but to reduce our CPF contributions substantially and quickly if we want to save jobs.

While lower CPF contributions will be welcomed by employers and companies, the Government is aware that a lower rate of CPF contributions is painful for workers as it will reduce the amount of money which workers can put aside to save for their old age and meet their medical expenses. Workers who have taken loans from banks or HDB to buy their homes will have difficulty with their mortgage payments.

Prime Minister Goh has therefore stressed that the Government is very concerned with these issues and will take steps to help Singaporeans to meet their financial needs arising from a CPF cut. No Singaporean will lose his or her home or be denied medical care because of the cut in CPF contributions. We will help Singaporeans to meet their mortgage payments. We will provide financial assistance to families who need additional funds to meet their daily requirements. We have a responsibility to workers and we will discharge our responsibility to help workers eg. through schemes such as the Financial Assistance Schemes currently administered by the Community Development Councils.

For the reduction in CPF contribution to make a significant impact on our chances of economic recovery, unions have a crucial role to explain to workers why such cuts are necessary, and why, despite the temporary pain, the changes will benefit workers in the long run.

Here, I would like to commend NTUC and our Trade Unions for taking a responsible attitude to wage reform including the prospect of lower CPF contributions. It cannot be easy for Union leaders and Industrial Relation Officers to convey unpleasant news to the ground and to explain patiently why such painful measures are necessary to help companies remain viable and therefore save jobs. A positive reception by Unions and workers to the proposal to lower wage costs by cutting CPF contributions will be a powerful signal to investors and managements that they can rely on a sensible and pre-business workforce when they establish or expand operations in Singapore.

The cut in CPF contribution facilitates but does not reduce the need for further wage reform eg. the need to build a variable component into monthly or annual wages so that wage costs can be quickly adjusted according to changing business conditions. The work put in the NTUC Secretary-General Lim Boon Heng and his colleagues in the NTUC leadership and in the Trade Unions will help to phase in this difficult adjustment without upsetting the harmonious industrial relation which is a key attraction for companies to operate in Singapore.

Finally, employers must also play their part. Employers cannot expect their employees to suffer hardship and continue to be loyal to their companies if the companies themselves do not appreciate the sacrifice of their workers and show concern for them. Some newspaper columnists have written that loyalty to company is a thing of the past. In today’s harsh business conditions, the columnists expressed their view that companies cannot afford to be loyal to their employees and therefore there is no reason for the employees to be loyal to their companies. Nothing is further from the truth.

In their March issue, Fortune magazine published their Annual list of the world ‘s Top 50 Most Admired and Successful Companies as compiled by the Hay Group, a management consultancy firm which surveyed more than 10,000 Directors, Executives and Managers at 345 companies around the world to compile the list.

Fortune also published their analysis of how these companies made it to the Top 50 list. The analysis shows that three attributes of these successful companies stand out. First, the company focused on selecting, developing and rewarding talent. Second, the company encouraged teamwork, loyalty and collaboration. Third, the company refused to compromise their long-term objectives in response to short term demands.

Among the 50 Most Admired Companies, an overwhelming number feel that their employees are as loyal or have become even more loyal to their companies in spite of the difficulties encountered in the last two years. Most significantly, the executives at these Top 50 Most Admired Companies say that the success of their enterprises, made possible by the loyalty and commitment of their employees, is achieved only by constant attention to the needs of their customers and employees.

As to be expected, the Top 50 list includes well-known names like General Electric, Microsoft, IBM, Toyota Motor, BMW and Nokia. At the top of the Top 50 list, the number one company is not any of these well-known high-tech names but a grocery chain, Wal-Mart Stores, the largest and most successful retailer of everyday goods in the world.

Wal-Mart is big by any standards. The company has over 4,600 stores, three quarters in the US and one quarter outside the US. Over 1.3 million people work for Wal-Mart, more than half of Singapore’s total workforce. Wal-Mart sales are estimated to count for more than 2% of America’s GDP, similar to the role SIA plays in the Singapore economy. Wal-Mart’s turnover last year at US$244 billion was larger than Singapore’s GDP and the company’s profits in the last financial year, at over US$8 billion, would be more than sufficient to cover Singapore’s budget deficit.

Wal-Mart achieved astounding success in business because of the company’s adherence to two basic principles:

First - serve the customers.

Second - motivate the employees.

Indeed, Wal-Mart’s commitment to its workers is so strong that the company does not have employees. Everyone who works at Wal-Mart is an Associate not an employee and shares in the prosperity of the company. If there are hallmarks which the company is famous for, it is for the plain, indeed spartan, furnishings at the company’s headquarters at Bentonville Arkansas, the company’s relentless pursuit of low prices for sales to its customers and the strong commitment and loyalty of Wal-Mart’s staff to the company. The lesson for Singapore companies is : if you want to achieve long-term success in business, think long-term, avoid short-term fixes, and aim for pre-emptive motivation of your staff rather than pre-emptive retrenchment.

The joint presence this evening of Mr Heng Chiang Gnee, Managing Director of Sembawang Shipyard and Mr Ramasamy, President of Sembawang Shipyard Employees’ Union, is testimony to the good employer-union relation which has played a major role in the success of Sembawang Shipyard. In the area of wage reform, Sembawang Shipyard Employees’ Union has worked with Sembawang Shipyard to convert 10% of wages to be a monthly variable component for all employees since July this year. As Shipyard operations involve some risk, strong union co-operation with the company has made safety a priority in the business operations of Sembawang Shipyard. This has significantly contributed to more efficient workers and better business performance.

Like all companies in Singapore, Sembawang Shipyard is not immune to competition. With the emergence of new capabilities in lower cost locations in China, Vietnam, Eastern Europe and South America, competition in the shipyard field is getting fiercer, even in niche areas such as the repair and conversion of Tankers and Floating Production, Storage and Offloading vessels where Sembawang Shipyard has traditionally excelled. I am confident that with good co-operation and understanding between the company and the Union, Sembawang Shipyard will rise to the challenge and continue to play an important role in Singapore’s marine industry.

Let me conclude by saying that we have no reason to be despondent. Yes, we are facing strong competition. Yes, we have to work harder and smarter to provide a good living for ourselves and our families. But with good tripartite co-operation between the Government, Unions and employers and implementing the necessary changes to our economic structure, we can overcome the challenges which face Singapore. Together, we beat SARS. Together, we will revitalize our economy and solve our unemployment problem.

I wish all of you a Happy National Day and Happy Anniversary.

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