An unprecedented surge in global semiconductor demand last year saw Singapore benefit from an inflow of electronics manufacturing projects, as the US-China chip war raged on and manufacturers sought to reduce concentration risks by setting up new facilities across various markets.
In 2022, Singapore attracted a record high $22.5 billion in fixed asset investment commitments, significantly surpassing the Economic Development Board’s (EDB) medium- to long-term targets of $8 billion to $10 billion. Singapore attracted $11.8 billion in investments in 2021, down from $17.2 billion committed in the previous year.
Fixed asset investment commitments refer to the incremental capital investment in facilities, equipment and machinery by companies.
When fully implemented in the coming years, these new projects are expected to create over 17,000 new jobs and contribute $20.6 billion to Singapore’s economy per year. Some 61% of the jobs created will be in hub and business services, while 27% will be in advanced manufacturing and 12% will be in innovation.
From a 43% share of total fixed asset investment commitments in 2021, the electronics sector accounted for two thirds of the total. “This outperformance relative to our goals was due to the exceptional influx of large manufacturing projects to meet the surge in global semiconductor demand, particularly during the first half of 2022,” says EDB managing director Jacqueline Poh at a media briefing.
For example, last February, Taiwanese foundry United Microelectronics Corp announced plans to spend $6.8 billion on a new facility, extending its already significant presence here. Later in August, Pall Corp, whose filtration and purification systems are used by foundries which require sterile environments, broke ground for a US$100 million ($132.5 million) facility in Jurong.
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However, with global macro-uncertainties, a sharp slowdown in demand and competing demand for similar investments, EDB cautions that the amount of fixed asset investment commitments this year will be lower. “We are now at the end of this semiconductor supercycle and we are seeing chip demand soften,” says Poh.
According to EDB Chairman Beh Swan Gin, the semiconductor “supercycle” was as a result of structural growth in demand, and a change in the behaviour of businesses building digitalisation capacity “just in case”, as opposed to “just in time” previously. “Compared to the past, [companies] are building more than they actually need, because they want to have that resilience,” he explains. “Some of the extra capacity that had been built did exacerbate the supply-demand imbalance.”
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Market signals were also “amplified” by the pandemic, which saw consumers lapping up more electronic devices and computers than they had done so previously. With pandemic restrictions eased — Singapore lowered its Dorscon level to green the same day the EDB briefing was held — end-demand for semiconductors will normalise accordingly, he says.
On top of this, Beh points out that over the last two years, many countries — and especially developed economies — have introduced “aggressive” policies to attract investments in areas such as the semiconductor industry or green technology. “The US, for instance, introduced the Chips Act and the Inflation Reduction Act, which are very attractive incentives that will compete for the same sorts of investments that Singapore would be interested in,” he says.
He notes that Singapore’s commitment to decarbonising its economy will require the EDB to be “more selective” in terms of the energy intensive activities it chooses to attract moving forward. Meanwhile, with capital now costlier due to higher interest rates, companies will be more “tentative” about moving ahead with sizeable investments.
Still, Beh believes Singapore maintains its competitive advantage, such as its reputation as a trusted hub for capital, talent, flows of goods and data. The country’s reliability and neutrality helped to capture “quality investments from diverse sources”, says the EDB, without referring directly to the ongoing tensions between US and China.
Last year, the US, the world’s largest economy, accounted for 50.6% of fixed asset investment commitments, followed by 21.2% from Europe. After Singapore’s own contribution of 8.8%, China came in at 8.5% of the total commitments.
“We continue to maintain that in the medium term, we will have our fair share of investments, and our investment targets remain the same,” he says. “We are in the middle of a growing region and it is a huge advantage to be in the middle of Southeast Asia.”
Singapore’s close economic links with India and with North Asian economies like China will also ensure that the city-state prospers, Beh adds.
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Homegrown firms go further afield
Singapore’s economic prosperity will also depend on the performance of its SMEs abroad, not just the billions that foreign companies bring in. With the reopening of economies in 2022, Enterprise Singapore (EnterpriseSG) set out to help businesses with their transformation efforts to adjust to the new normal and seize opportunities locally and abroad, says CEO Png Cheong Boon in a separate media briefing.
“We supported more than 2,000 companies in their internationalisation activities [last year]. This was 25% higher than in 2021, reflecting both our efforts to help enterprises ramp up their overseas expansion efforts, and their interest to do so,” Png adds.
While EDB draws in foreign investment into Singapore, EnterpriseSG encourages local companies to go international. Both agencies are under the Ministry of Trade and Industry.
Png notes that the majority of the enterprises were starting or restarting their internationalisation efforts, going into new markets for the first time after three years. “They tapped our Market Readiness Assistance (MRA) grant to develop overseas market insights, generate business leads and sales channels, and establish an initial in-market presence,” he explains.
Png points out that some of these compa- nies were “first-timers”, and that he was encouraged to see them taking their first steps overseas, even while the Covid-19 pandemic was still ongoing.
For Singaporean SMEs, Southeast Asia remained the top destination market, while EnterpriseSG also saw more companies venturing further into the US, Europe, Latin America, the Middle East and Africa.
EnterpriseSG also helped 450 Singapore enterprises secure new business opportunities in 2022, which are expected to generate some
$3.5 billion of overseas sales and $1.4 billion of overseas investments. Over a third of these were in China by Singapore enterprises already operating there, despite the strict Covid-19 restrictions that were in place then.
According to Png, internationalisation alone is not enough and must be done in tandem with innovation. “This is key to developing differentiated offerings, which is critical if companies want to maintain their edge in the global arena,” he says. “Last year, we supported 700 enterprises on their innovation projects to develop new products and solutions.”
With three Centres of Innovation (COIs) established last year to support the built environment, beauty and personal care, and urban agriculture sectors, EnterpriseSG now has 11 COIs supporting the innovation efforts of SMEs across various industries.
As part of the Singapore Economy 2030 plan announced last year, the Enterprise and Trade 2030 strategies aim to grow promising Singapore enterprises to develop global traders and strengthen the country’s position as a leading global trading hub.
Sustainability the way forward
Looking ahead, EnterpriseSG expects internationalisation and sustainability to drive enterprise growth in 2023. According to EnterpriseSG chairman Peter Ong, many Singapore companies are only just starting out on their sustainability journey — but given that sustainability is now front and centre in many global conversations, and a dominant force driving industry trends, he believes there is an increasing urgency for companies to “expedite” the acquisition of such capabilities.
“Countries all over the world are looking to ride the sustainability movement,” says Ong. “Our companies will need to build up their green credentials in order to stay on the MNCs’ supplier lists or risk being dropped. This area is therefore both a real threat, and also an opportunity for growth and transformation.
“2023 is an excellent opportunity for our companies to act. But we recognise that the green transition is not always straightforward. Many enterprises find it difficult to start, as they do not know what they lack or where the opportunities lie.”
Launched in 2021, EnterpriseSG’s Enterprise Sustainability Programme (ESP) introduced the Enterprise Financing Scheme — Green (EFS-Green) programme last year to help enterprises access green financing. So far, the EFS-Green has catalysed close to $120 million of green loans for over 30 SMEs spanning areas in solar energy, energy storage, energy efficiency technologies and electric vehicle technologies, among others.
“In the coming year, we will expand efforts to drive such awareness. But beyond awareness, we will look at building new capabilities in areas such as sustainability standards and carbon accounting. We will also be diving deeper into sustainability initiatives at a sectoral level to tailor them for the unique needs of the industry,” says Ong.
Meanwhile, Poh says that EDB has partnered firms to create climate technology solutions that range from energy efficiency to carbon capture and utilisation, to low carbon field and green materials. This is complemented by efforts to attract companies with promising technologies in emissions-reduction and renewable energy, as well as agrifood, the circular economy and carbon services.
Together, EnterpriseSG and EDB have also been developing a growing ecosystem of over 70 companies in the carbon services sector today. According to Poh, demand for voluntary carbon offsets could grow an estimated 15-fold by 2030, making the market for carbon credits worth upwards of US$50 billion by that year. “Singapore is leveraging its status as a professional and financial services hub by build- ing up local capabilities for carbon services,” she says.