Singapore Consumer – ‘New York’ of ASEAN
‘New York’ of ASEAN
Within a booming ASEAN, Singapore represents a very attractive base for businesses, especially multinational corporations. The Republic has one of the best infrastructures in the region and is known for its conducive environment for doing business, winning several accolades such as World’s Best Airport. Tourism will continue to flourish as the city-state reinvents itself as a service-dependent economy.
Ultimately, Singapore is a “multiplier” economy, thriving on trade. As a result, the nation is likely to be a big winner of ASEAN integration and the overall lowering of trade tariffs and non-tariff barriers, according to several academic studies. All these will likely have a positive impact on domestic consumption.
Population will continue to grow
Supporting domestic consumption will be population growth, with the government setting a goal of 6.7m by 2030 from 5.3m currently. This represents 1.3% CAGR from now and the incremental will likely be from non-citizens. Singapore remains an attractive place for work and stay.
With the current emphasis on improving infrastructure such as public transport, this population target is likely achievable and will be supportive of consumption growth.
Singapore companies have regional expertise
Given the limited domestic market size, many listed Singapore-based consumer companies have already embraced regional expansion prior to any AEC discussions. This experience should prove invaluable going forward in the face of regional competition.
While not all the consumer companies under our coverage have succeeded in achieving regional expansion, we argue that most have proven themselves in a bid to survive in a highly competitive environment. It should also be noted that several consumer companies listed in Singapore are actually based in other ASEAN countries
Singapore – key risks
Cost of operations going up
Businesses in Singapore face the challenge of rising costs on several fronts, which is further aggravated by a strong SGD. On the retail front, the rental index has risen by 22% since the 2008-2009 Global Financial Crisis and currently stands at a record high since 2000. We believe the index is just part of the story. As more people favour modern shopping malls over traditional outlets, suitable retail space therefore becomes more expensive. Landlords (which are increasingly REITs) are also setting more demanding terms.
On the government front, there has been a conscious decision to reduce the country’s reliance on foreign workers, especially non-professionals. This means higher labour costs for consumer firms, especially retail companies which rely significantly on foreign workers. The higher cost stems from the increase in foreign worker levy and indirectly, from the rise in local workers’ pay.
Political pressure may reduce attractiveness
The People’s Action Party (PAP), the incumbent ruling party, suffered a setback in the 2011 General Election, registering the lowest vote share of a little over 60% since independence in 1965. With a groundswell of unhappiness, the government has had to reverse several unpopular policies such as influx of foreign workers. These measures may represent a trade-off against overall GDP growth trajectory, and perhaps make Singapore a less attractive destination for foreign investment and talents.