Lion's share goes to building projects but boom could add to cost pressure
It may have pushed back building projects worth $3 billion to ease the crunch, but the government is still calling for tenders to the tune of a record $5.8 billion in the construction sector this fiscal year.
In all, its tenders for FY2008 will touch $8 billion - surpassing the previous record set in FY2006 when it called for some $7.5 billion worth of tenders.
The bulk, this year, will be splashed out on building and construction projects. This includes moves to improve traffic on the Central Expressway and the Gardens by the Bay project that will keep the Marina Bay area development on schedule, the Ministry of Finance (MOF) said yesterday.
The bumper $6.4 billion budget surplus has allowed the government to spend generously, economists said.
'We had a very healthy budget surplus last year and essentially, that provides some deep pockets for the government to embark on a more robust expansion policy,' said DBS economist Irvin Seah.
Economists also noted that the record amount of tenders involving building and construction projects reinforces the government's long-term goal to beef up its infrastructure to boost the country's competitiveness.
'I tend to see this building and construction project as a long-term effort to improve the competitiveness of our economy,' Citi economist Kit Wei Zheng said, pointing to the strains that the rising population and growing economy have imposed on infrastructure.
'In terms of construction, it's all well and good because it supports our thesis that demand remains very healthy,' he added.
Of the government tenders announced yesterday by MOF, some $1.2 billion will go towards the purchase of goods and services, such as the supply of equipment, appliances and the operation of the automated toll system at the checkpoints.
Tenders in information and communications technology (ICT) projects are also expected to be worth at least $1 billion. The Infocomm Development Authority of Singapore (IDA) will be announcing further details on the upcoming ICT projects during their annual industry briefing next month.
The plan for public sector procurement was first introduced in 2003 by MOF to inform suppliers about the public sector's indicative purchasing plan for the financial year between April and March. Its objective is to make the government marketplace more attractive and transparent to suppliers and purchases exceeding $200,000 are listed in the plan.
While economists believe that the large government tenders for building and construction projects are generally good for the industry, some felt there was still a need to address tightness in construction resources and rising costs.
'The growth is still there for the construction sector but it has to be measured against rising building costs,' Standard Chartered economist Alvin Liew said. 'Although we see that the $3 billion of deferred projects will mitigate some of the building costs pressures, a lot of the demand is global, whether it is steel or cement and construction workers. These are all globally priced.'
Mr Kit of Citi noted that the industry has already been squeezed by supply-side tightness in the first quarter, when the construction sector grew at an easier pace of 14.6 per cent year-on-year after growing by 24.3 per cent in the preceding quarter.
'It does suggest that supply-side constraints are already beginning to bite into construction growth,' he added. 'Growth would have been faster if not for the supply-side constraints.'
MOF said yesterday that it will continue to monitor the construction industry closely with BCA and other relevant agencies and make appropriate adjustments when necessary.
The timing of the large government tenders against the backdrop of a global demand slowdown could also alleviate any potential shortfall of investments in the private sector.
In response to a BT query on this, MOF said these government tenders are only based on the actual requirements of the government agencies.
Said Mr Kit from Citi: 'This move is probably quite timely but how effective it will be in boosting the economy is a question mark.
'I think the government will have to do more to ease the supply-side constraints if they want this to contribute fully to GDP growth... and prevent prices from spiralling upwards,' he added.
On a more positive note, Mr Seah of DBS said a bigger outlay from the government 'will certainly be helpful to businesses, especially when external demand is weakening.'
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