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