Who Will Benefit From The Recent Tweak In Singapore’s Foreign Workers’ Policy?

The government has spoken. In Singapore’s latest annual budget speech, Finance Minister Tharman Shanmugaratnam commented that “the government will refine the pace of increase in foreign-worker levies since foreign-worker inflows have slowed down markedly”.

This means that the government might be relaxing its control on the inflow of foreign workers into Singapore going forward. This would come as great news for many companies which are affected by the tightening labour market. Let’s take a look at the firms which might be the greatest beneficiaries from this possible policy tweak.

The construction players

It seems to me that the most obvious benefactors might be those in the construction industry.

Construction plays like Chip Eng Seng Corporation Ltd (SGX: C29) and Wee Hur Holdings Ltd. (SGX: E3B) require a large number of foreign workers for their projects.

The control of the inflow of foreign workers has put some pressure on the operating margins of construction businesses. Partly in response to this dynamic, many construction companies have started buying over land to develop real estate on their own (Chip Eng Seng and Wee Hur are examples) as developers typically see higher operating margins than construction outfits.

With a possible relaxation on the foreign workers’ levies, construction companies might be able to have more breathing space for their businesses going forward.

The food industry

Another industry that requires a large foreign workforce has to be F&B (food & beverage) retail.

Companies in that space – like Breadtalk Group Limited (SGX: 5DA)Neo Group Ltd (SGX: 5UJ) and Old Chang Kee Ltd (SGX: 5ML) – will be able to benefit from a slower increase in levies.

For many of these companies, staff cost is considered one of the largest expenses in their businesses. As an example, Neo Group’s staff costs have more than tripled from S$4.88 million in FY2010 (financial year ended 31 January 2010) to S$15.8 million in FY2014; the company’s staff cost in FY2014 is 30% of its annual revenue.

It’s hard to see how F&B retail outfits would not be welcoming the new tweak to the foreign worker policy.

Foolish Summary

It should be noted that Mr. Tharman’s announcement is not enforced yet as the proposals given in the budget still have to be debated in parliament before they can be approved.

I think it’s likely though that the companies mentioned above would be rooting for the change to be made official.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim doesn’t own shares in any companies mentioned.