Highlights of Singapore’s 2017 Budget – what it means for SMEs
21/02/2017
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How is Singapore’s slowing growth affecting SE Asia?

Singapore is known worldwide as an entrepreneurial centre because of its strategic tax exemption scheme, solid financing options, friendly business regulations, and growth-driven programmes provided by the government for business owners. However, in recent times, Singapore’s economy has slowed and this has affected it’s SE Asian neighbours.

Why has Singapore’s economy slowed down?
China is adjusting to its new lower rate of growth and reduction in imports by Chinese companies have seen its biggest hit on Singapore’s export numbers to China in seven years. Another contributing factor is the US Federal Reserve’s announcement on the end of quantitative easing which resulted in a hike in interest rates. The US and China are two economies that heavily influence the outlook of Singapore companies, and the news from both are negative. SMEs are adopting a wait-and-see approach and SME owners are inclined to pull back on their business outlook as they anticipate the upcoming plans.

The uncertain economic environment has been one of the challenges for many business owners in Singapore last year, according to the National Business Survey by the Singapore Business Federation (SBF). Other concerns are high costs and slowing sales growth. “Although the economy has ended 2015 with a fairly healthy growth pace in the fourth quarter, overall GDP growth is still the slowest in six years,” one senior economist commented. Another economist warned that Chinese import demand is also declining, partly because of the weak yuan, and this would be felt by China’s trading partners and suppliers in Asia, particularly Singapore factories.

With export slowdowns the biggest barrier to growth in the region, Indonesia’s exports have seen continual, incremental decline with Thailand experiencing larger falls. Decreases in coal, natural rubber and other shipments due to weaker demand in China also took their toll. With many economies in the region dependent on foreign demand, this has led to a wide slowdown in production. In April 2015, Singapore’s manufacturing output contracted 8.7% on the year.

Slowed exports are hurting consumption as well. In Malaysia, the index for consumer sentiment fell to the lowest in six years in 2015. Worsening of Indonesia’s current-account balance linked to the export slowdown has softened the rupiah, raising import costs. With consumers’ purchasing power weakening, new-auto sales also dropped significantly. In Thailand, mounting household debts are weighing down consumption, after tax breaks under the previous government spurred car and home purchases.

SMEs in Singapore
Some of the most pressing business concerns faced by entrepreneurs in Singapore in 2015 are shown by the results of the 2015 SME Development (SMED) Survey released by DP Information Group in November 2015.

The good thing about these figures is businesses are taking action with SME owners modifying business models, increasing innovation, technology, international expansion and improving services.

“What separates strategy from tactics in business is really the concept of differentiation. We need to be clear which we are applying. Increasing productivity through technology is not a strategy because it can be copied very quickly by our competitors. Think Grabtaxi, Uber, Airbnb, and Amazon. These are examples of the strategic use of technology where they render their traditional competitors obsolete by becoming different.”

A Supportive Government
Despite setbacks last year and the challenges ahead, the Singapore government remains one of the most efficient governments in the world. This environment is evident in the programmes designed to encourage those who are starting a business in Singapore and those who are into business expansions to consistently thrive regardless of the country’s economic condition.

The government also supports start-ups and businesses in the technology sector. The Technology Enterprise Commercialisation Scheme (TECS) provides early-stage funding to start-ups with developmental efforts towards the commercialisation of proprietary technology solutions.

In September 2015, the National Research Foundation (NRF) announced that it is allocating S$40 million fund to growing high-tech startups in Singapore.

There is a call from the Singapore Business Federation for the education system to foster an entrepreneurial mindset and culture in students. The organization proposes the introduction of programming, engineering, and robotics much earlier in primary and secondary schools.

Why should start-ups and SME business owners be optimistic?
Heng Swee Keat, Minister for Finance, explained the implications of regional and global economic trends on Singapore’s performance in his opening remarks at the UBS Wealth Insights Conference on January 12, 2016. He said that the performance of Singapore’s externally-oriented industries will be subdued amid the modest growth of the global economy.  He remains optimistic that Singapore can stay “outward-oriented” and explore various opportunities, including:

  • Niche-production activities will prevail, particularly in the IT industry where manufacturers focus on high-value creation segments and services-related activities, like chip design, delivery of IT services and innovative solutions
  • Expanding population and increasing income will propel consumption especially on discretionary services such as insurance, air transport, and restaurants.
  • Diversity continues to be critical in consumption, spawning great potential for intra-regional trade in final goods and services
  • Demand for modern services surges more than proportionately with income growth, as compared to traditional services.
  • Singapore as “an attractive regional base for many global financial institutions due to [its] stable political and economic environment, robust regulatory and corporate governance framework, and liquid and vibrant capital market”
  • Technology as a potential game-changer for businesses and finance with the establishment of FinTech & Innovation Group (FTIG)

Here are some of the highlights of Budget 2017 by the Singapore Government that are relevant to SMEs:

  • Employers will continue to receive support for hiring older workers, to the tune of S$300 million in 2017, benefiting about 370,000 workers, under the Special Employment Credit
  • More than S$600 million is expected to be given to businesses next month, of which roughly 70% of this to SMEs under the Wage Credit Scheme
  • The Additional Special Employment Credit’s re-employment age will be increased from 65 to 67 years old with effect from 1st July 2017
  • The Corporate Income Tax Rebate will be enhanced by raising the cap S$20,000 to S$25,000 for YA2017
  • Government will co-share 50% of the default risk for loans of up to S$300,000 per SME, available for the next 2 years under the SME Working Capital Loan
  • The “Adaptive and Grow” initiative launched last year will be enhanced to help workers take on new jobs
  • More than S$80 million will be made available to help SMEs go digital, which will significantly improve productivity. The Retail and Food Services will be the first sectors to benefit from the SME Go Digital Programme
  • About S$600 million under the International Partnership Fund will be made available to help companies scale-up and internationalise.
  • Singapore Business Leaders will be able to tap on the Skills Future Leadership Development Initiative to develop their leadership skills through specialised courses and overseas postings.

The effect of China’s slowdown on Singapore has impacted SMEs throughout SE Asia but the action of the Government of Singapore to address and reverse these trends is a cause for optimism in the near future.

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Choong Eu Lum
Choong Eu Lum
Lum's role as Country Manager is to maintain ABSS as the company SMEs will turn to for solutions to manage their day to day running of their businesses and also to take ABSS to the next stage with new cloud based financial, e-commerce, business intelligence and payments solutions.

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