Manufacturing to remain key pillar of economy: MTI

Manufacturers suffered a torrid 2015 that dragged down economic growth to a six-year low - and their pain is unlikely to ease this year.

However, the Ministry of Trade and Industry (MTI) maintained yesterday that the sector will remain a key pillar of Singapore's economy.

"The manufacturing sector continues to be important in our view to the Singapore economy for various reasons, essentially for a diversified economic structure," Mrs Ow Foong Pheng, MTI permanent secretary, told reporters.

After posting deeper and deeper contractions each quarter last year, the manufacturing sector shrank by 5.2 per cent for all of 2015, reversing the 2.7 per cent growth in 2014.

Nearly half of the decline came from the transport engineering cluster, which built fewer oil rigs than it did in 2014 as dramatically lower oil prices crimped demand. Chemicals was the only cluster to post higher output in 2015 from a year earlier.

The outlook for manufacturing may be weak, Mrs Ow said, but foreign investors have still found the sector attractive. Manufacturing pulled in $8.3 billion in fixed asset investment commitments last year, up from $6.8 billion in 2014, noted MTI.

And while manufacturing's share of the economy has shrunk from 27.8 per cent of nominal gross domestic product in 2005 to 21.4 per cent in 2010, and just 19.8 per cent last year, the figure appears to be stabilising.

MTI pointed out the sector's GDP share has risen over the past two years, from 18.5 per cent in 2013.

"We are making significant moves to ensure that we remain relevant for the future," said Mrs Ow, adding that MTI is focused on growing advanced manufacturing and manufacturing-related services.

In 2013, the Economic Development Board said it would devote $500 million over the next five years to grow the "future of manufacturing". Mrs Ow said: "We are not changing course on that. We continue to make moves to sustain this on various fronts."

One trend that MTI highlighted was the rise of "factoryless" goods-producing companies such as fabless semiconductor firms. They could be involved in research and development or chip design, but outsource production to an overseas foundry instead of doing it themselves.

Such companies are recorded under the manufacturing umbrella if they own their material inputs, and under the service sector if they do not. This makes it difficult to track their contribution to GDP, said MTI economics director Yong Yik Wei.

"Our sense is that it is probably still quite small... but it is a trend that we think will grow," she said.

A version of this article appeared in the print edition of The Straits Times on February 25, 2016, with the headline 'Manufacturing 'to remain key pillar of economy''. Print Edition | Subscribe