Speech By Mr Tharman Shanmugaratnam, Deputy Prime Minister & Minister For Finance At The Singapore Contractors Association (SCAL) 75th Anniversary Dinner

Dr Ho Nyok Yong
President, Singapore Contractors Association Limited

Dr John Keung
CEO, Building and Construction Authority

Ladies and gentlemen,

1. I am happy to join you this evening at SCAL’s 75th Anniversary dinner. It is indeed an impressive milestone for an organisation which started with only 30 members in 1937, and has grown to more than 2,000 today.  SCAL has stayed relevant to its members amidst the ups and downs of history, over three quarters of a century. 

2. The road ahead will continue to be challenging, as well as full of opportunity if we make determined efforts to upgrade the industry and adjust to a new labour market environment.

Economic Outlook

3. The global economy is likely to remain troubled for some years to come. The crisis in several European countries is structural, and the solutions require changes that cannot be achieved quickly. Growth in the US remains weak and well below the level needed to bring unemployment down. Emerging economies have also begun to slow down, as a result of both a weaker external environment and domestic challenges. Global growth is down this year, and could be sluggish for a few years.  

4. Singapore is exposed to these developments, but it helps that we are in Asia where economic prospects over the next decade remain relatively healthy. There are uncertainties and downside risks both globally as well as in Asia. But we have the advantage of being small, and if we stay nimble, and adapt quickly to the new conditions and find new opportunities and niches, we would do alright.

Outlook for Construction

5. The built environment sector is seeing no lack of demand. In fact, during the first half of this year, the sector registered 6% growth (year-on-year), the largest expansion among all the economic sectors in Singapore.  

6. We will continue to see strong construction demand as Singapore remains a vibrant business centre in Asia.  Private investments are still up, and public sector work has expanded - in public housing, healthcare and educational facilities and rail infrastructure.  The Building and Construction Authority (BCA) has projected the average construction demand in 2013 and 2014 to be between $19 billion and $27 billion each year.  This is comparable to the scale projected for this year, of $22 billion to $28 billion.

The Supply-side Challenge: Manpower, Technology and Productivity

7. The major challenges are not with regard to demand, but the supply-side:  manpower, technology and productivity.

8. More foreign construction workers will be needed to support the strong construction demand. However, we cannot grow our foreign workforce without limits, given our land, infrastructural and social constraints. Further, countries such as China, India and Bangladesh, which have been supplying foreign workers to work at our construction sites, are also accelerating their pace of development and increasing their own demand for workers.

9. The sector must therefore grow by raising productivity, not merely by adding on manpower.  While there are many solid examples of improvements and innovation in individual firms, productivity growth for the overall built environment sector has been too slow and has lagged behind that of the overall economy.

10. There is also great scope for us to use better technologies and project management processes, to catch up with the developed countries on productivity levels. The level of productivity in construction today is just over a third (35%) of the level seen in Japan, an international leader in this field.

11. There is therefore no choice but to upgrade and restructure the industry. We have to step up the pace of adoption of new technologies, adopt new work-flows up and down the sub-contracting chain, and raise skills amongst workers.

12. As in every industry, productivity improvement will also come about as the more efficient firms grow at the expense of others. Firms that use better technologies and management systems will find it easier to survive and do well in a tight labour market, and may take over other players. Amongst our SMEs themselves, the more dynamic and efficient players will grow at the expense of the rest. We have to encourage this process of industry restructuring.

13. Locals will not substitute for foreign construction workers on-site, on any significant scale. But we are strengthening the attractiveness of certain jobs for locals and providing them with rewarding careers in construction. Here too, we can do more. 

14. A greater effort is therefore needed all-round. BCA is enhancing the key thrusts under its Construction Productivity Roadmap, and has revised upward its productivity improvement target for the sector: we must achieve at least 20--30% productivity improvement in the sector by 2020. Anything less will only mean fewer opportunities for companies to grow.  

15. Let me outline three areas that we have to work on collectively, to achieve this major improvement in productivity. 
 
Experienced Manpower and Innovation as the Way Forward

16. First, we need experienced and skilled manpower and greater innovation. We cannot reduce the absolute number of foreign workers in construction anytime soon, but we must manage their growth and improve quality and skills. 

17. Since July 2010 therefore, the Government has been progressively reducing the Man-Year-Entitlement (MYE) and raising the foreign worker levy.  In doing so, we have allowed an alternative avenue for builders to gain access to foreign workers through the MYE-waiver route, but at higher levy rates. With these measures, the more productive firms will have lower manpower costs than others, and gain competitiveness.

18. We are more than halfway through the schedule of tightening that began in 2010. (There will be two more levy increases in January and July next year, and an additional 15% MYE reduction in July.) We are watching the foreign worker numbers closely, and will consider further steps if necessary.

19. But at the same time, we are extending generous support to firms to help them upgrade. I will talk about some enhancements to our initiatives later.

20. This approach of step-by-step tightening of manpower policies, over a period of four years in the first instance, coupled with generous subsidies for companies to innovate and upgrade, is a practical and fair strategy for productivity improvements.  Overall, the approach will bring both pain and gain for companies. But some companies will get more gain than pain, as they respond to new realities and invest in innovations. Entrepreneurs will have to decide how to get more gain and less pain. SCAL will I am sure help as many of its members see more gain than pain.

21. To help the quality of the construction workforce, BCA and MOM are encouraging the retention and upgrading of existing workers, instead of replacing them with new workers with little or no experience.  Experienced workers will have acquired more skills and are more familiar with our processes, including safety req uirements.  This is one of the principles we will keep closely in mind.

22. Reducing our dependence on foreign labour has to be accompanied by innovation.  This can come in the form of improving our building designs, using more efficient construction methods, and leveraging on new technology.

23. The Government will also enhance the Building Information Modelling (BIM) Fund to encourage wider adoption of the BIM tool. Firms will receive greater support through the removal of the per project funding cap of $210,000, and the doubling of the total per firm funding cap to $220,000 for single-discipline firms and to $440,000 for multi-discipline firms.  I hope the industry will work hand in hand with BCA to promote these technologies.

24. BCA will also be strengthening the Buildability Framework, to focus on industry-wide standardisation, and require projects with complex designs to be more buildable and constructable, while balancing this with the demand for distinctive architectural forms. BCA will announce the changes to the buildability framework next year.

25. A key technology that BCA is making a major push for is the adoption of drywalls. It is one of the most productive ways to construct a wall, as drywalls can be built up twice as fast as brick walls, which means productivity gains of 150%-200%.  Currently only 10-15% of all residential projects have adopted drywalls. There is therefore scope for significantly wider use of drywalls, with major impact on the sector. Through regulatory requirements in the Buildability Framework, BCA targets to at least double the adoption rate for dry walls in Singapore by 2015.

Government Support for Smaller Firms

26. Second, we will do more to help our SMEs in particular. They employ the bulk of the construction workforce. They are also the ones most severely affected by our foreign worker measures as well as rising business costs.

27. We are undertaking a review of strategies for helping SMEs, taking into account the changes in our global and domestic environment since the Economic Strategies Committee recommendations put forth in 2010. For a start, we are streamlining and simplifying the application process for government assistance schemes for SMEs. Further recommendations will be announced in early 2013.

28. In the built environment sector, BCA, SCAL and other industry associations have stepped up efforts to reach out to smaller contractors and help them tap on the $250 million Construction Productivity and Capability Fund (CPCF) to raise productivity. To date, $63 million has been committed and two-thirds of the companies which have benefited are small firms.

29. Aside from the CPCF, firms can also tap on the Productivity and Innovation Credit (PIC). The PIC scheme was enhanced this year to help SMEs in particular. It offers a 400% tax deduction on productivity and innovation-related expenditures. For firms which are not making much taxable profits and need cash support for their investments, the cash payout option under the PIC has been increased to 60%, for up to $100,000 of expenditure - in other words up to $60,000 of the investment is paid for in cash by the Government.

30. To finetune the PIC to make it more relevant to the built environment sector, I am pleased to see that SCAL has worked with BCA to identify additional construction equipment to be eligible for PIC.  MOF agrees with this move, so that more players especially our SMEs will get support and consider switching from labour-intensive works to labour-saving technology. BCA and IRAS will release more details on the qualifying equipment soon.

31. A complementary initiative is the new Sub-Committee on Enhancing Productivity for Sub-Contractors, set up by BCA and the Association of Small and Medium Enterprises (ASME) to find targeted ways to address the obstacles faced by smaller construction firms in enhancing productivity.    

32.  Our main contractors can play a more significant role to help their sub-contractors upgrade. Some main contractors are taking the initiative to introduce their sub-contractors to the latest technologies.  For example, Tiong Seng and its subcontractors Hwa Yang Engineering and Hwa Tong Engineering are now working together to use an advanced formwork system, to produce high quality finishes without additional plastering work needed.

33. Many small firms are in fact succeeding in their productivity and innovation journey. Several have in fact been winners of the Construction Productivity Awards (CPA).  Let me share the example of a small, local firm, Arbeit Sicher. In 2011, they won a CPA for devising a new system for lift installation, which saved them both time and manpower. They continued to upgrade the system, and the new set of improvements won them a second CPA this year.  I encourage more SMEs to join in this journey, invest in innovations that are relevant to their operations and overcome the challenges of size.   

Attracting and Grooming Local Talent

34. Third, we have to place greater emphasis on attracting and grooming local talent for the built environment sector.  Singaporeans must remain at the core of the sector’s workforce especially at the Professional, Managerial and Executive (PME) level.  Building a strong local core will allow the built environment sector to keep its managerial and technological skills rooted here.  These PME personnel can lead the continuing transformation of the sector.

35. There are many good jobs in the built environment sector, and more examples of locals who are taking them up and doing well. But collectively we have to work harder at job re-design, enhanced career progression and remuneration. 

36. New technologies such as those for green buildings, and the Building Information Modelling (BIM) tool, will I am sure help improve the image of built environment jobs among the young.

37. Scholarship and sponsorship programmes can also play a role in reinforcing these broader job re-design and industry re-branding efforts. They help shape how students and young people perceive the sector. The setting up of the SCAL Scholarship fund is a great example of the industry coming together to tackle a common challenge. 

38. In addition, BCA’s built environment scholarship and sponsorship programmes are very good platforms for talent attraction and development. This year, BCA, in partnership with 38 industry firms and associations, awarded a record number of 162 built environment scholarships and sponsorships to students in local tertiary institutions.  These students have exciting careers ahead of them, and some are already being groomed as specialists.  Lim Tian Bao, a local undergraduate scholar with Woh Hup, was able to join the company’s project team for the distinctive high-rise condominium, the D’Leedon, upon graduation. He did well, so Woh Hup has decided to groom him to become a geotechnical specialist and sponsor him for a Masters programme in Sydney, Australia.

39. The Government will therefore enhance its scholarship and sponsorship programmes and make a major push to attract young, local talent to the sector. The value of BCA’s full-time scholarships will be raised from the current $14,000 pe r year to $18,000. In addition, to provide an upgrading pathway for diploma holders and working PMEs, BCA will partner industry firms to sponsor to their local employees who are keen to enrol in part-time built environment degree courses.  For its part, the Government will co-fund up to 70% of the course fees.  We target to offer up to 150 scholarships and sponsorships per year for degree courses (compared to about 55 given out in 2011). We will also progressively award more diploma scholarships and sponsorships.  Adding these together, we target to double the number of awards each year.

40. Besides scholarships and sponsorships, firms can also look forward to higher funding support for local PMEs to develop skills and mastery that can contribute to revamping productivity. These include courses in precast and prefabrication design and construction, BIM, and construction and productivity management.  The Government will be raising its funding support level for these course fees from the current 50% to 70%. We target to support up to 4,000 PMEs in the sector by 2015 to develop mastery in these critical areas.

41. I hope that these initiatives will encourage the sector to continue to attract and groom a core of local talent.

Conclusion

42. The built environment sector is at the crossroads. As its stakeholders, you have to consider the future we want to see for the sector. I see great potential for SCAL to play a leading role in transforming the sector and taking it forward, and am confident that you will all rally around the challenge. The Government will continue to work closely with SCAL and support our companies, especially our SMEs, to raise productivity and enable the sector to grow on a sustained basis in a tighter labour market.
 
43. Let me conclude by once again thanking SCAL and all of you for your contributions to the built environment sector and Singapore’s development.   I wish you a happy 75th anniversary and many more good years to come.