Record $8b worth of govt tenders up for grabs

April 15, 2008
Record $8b worth of govt tenders up for grabs
Lion's share goes to building projects but boom could add to cost
pressure
By LYNETTE KHOO

(SINGAPORE) 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.'

EastLiving.com.sg

Contact Stuart Chng: (65) 9691 9907
Email: stuart.chng@eastliving.com.sg

EastLiving - Singapore Property and Real Estate DB