Did Budget 2017 do enough to help SMEs prepare for the future?

By Chia Yan Min, Economics Correspondent, The Straits Times, 3 Apr 2017

Companies across all industries have had to grapple with the onslaught of disruptive technologies, but small and medium-sized enterprises (SMEs) have probably been hit the hardest.

Sandwiched between established multimillion-dollar companies and nimbler, more innovative start-ups, SMEs often lack the resources or know-how to take advantage of new technologies or the digital economy.

In addition, many Singapore SMEs are already struggling to stay afloat amid a slowing economy, which has been weighing on sales and profit margins even as high costs continue to bite.

Amid these challenges, did Budget 2017 do enough to help SMEs?

WHY DO SMALLER FIRMS NEED HELP?

SMEs - defined by the Ministry of Trade and Industry as companies with annual sales turnover under $100 million, or employing fewer than 200 workers - are the beating heart of Singapore's economy.

There are nearly 190,000 local SMEs, making up 99 per cent of enterprises here and contributing nearly half of the gross domestic product.

SMEs also employ about 70 per cent of Singapore's workforce, making them crucial to the functioning of Singapore's economy and a key driving force behind growth.

This is why the bulk of government efforts to raise productivity and encourage companies to adopt new technologies are targeted at SMEs.

In recent years, SMEs have been hard-hit by the lacklustre pace of economic growth amid a broader global slowdown. The Singapore economy spent much of 2016 in an extended funk, gradually picking up speed only in the last three months of the year.

The economy expanded a modest 2 per cent last year, which also saw the highest number of retrenchments since the global financial crisis in 2009.

The gloomy outlook weighed heavily on SMEs - a quarterly index released in December by the Singapore Business Federation and DP Information Group showed that SMEs were pessimistic about the first six months of 2017 and expected a reduction in both turnover and profitability.

This comes on top of rising business costs such as rent, and a tight labour market which makes it tough for companies to hire and retain talent.

These short-term woes often leave cash- and resource-strapped SMEs with little time to consider long-term strategies. But it is becoming increasingly imperative for companies in all industries to restructure and transform to keep up with the rapid pace of technological change.

Innovation cycles are now shorter and new technologies can supersede entire industries even as they create new opportunities.

WHAT DID THE BUDGET DO TO HELP SMALLER FIRMS?

Budget 2017 sought to ease immediate pain points for sectors struggling against economic headwinds, without losing sight of the longer-term need to help businesses transform.

Foreign worker levy increases for the marine and process sectors - hit by an extended global oil price slump - were deferred by one more year, in view of the continued weakness in these industries.

The construction sector was also given a boost - the start dates for about $700 million worth of public-sector infrastructure projects were brought forward to this year and 2018.

"Given the uneven performance across different sectors, we need to go beyond general stimulus, and target the specific issues faced by different sectors," said Finance Minister Heng Swee Keat in his Budget speech.

The Budget also contained other measures to support businesses, including a move to enhance and extend the corporate income tax rebate. Existing schemes - such as the Wage Credit Scheme and Special Employment Credit - will also continue to help companies manage wage costs and cash flow.

The SME Working Capital Loan, where the Government co-shares 50 per cent of the default risk for loans of up to $300,000 for each SME, will also remain available for the next two years. Besides noting these short-term measures, Mr Heng also devoted a significant portion of his speech to the importance of preparing SMEs for the future economy.

The Government will spend more than $80 million on programmes to help SMEs go digital and to boost Singapore's capabilities in data and cyber security, he said.

There are plans for a new SME Technology Hub for companies to get advice on both off-the-shelf and customised tech solutions.

They will also get step-by-step advice on the technologies they can use through industry digital plans for specific sectors such as retail, food services, cleaning and security.

DID THE BUDGET DO ENOUGH TO HELP SMALLER FIRMS?

Many companies and business associations said they were underwhelmed by the measures for businesses unveiled in this year's Budget. SMEs, in particular, had been hoping for more help amid the tough economic outlook.

In a statement released after the Budget, the Singapore Business Federation said it was "disappointed" with the lack of short-term measures for companies this year, given that rising business costs have been a persistent concern.

"For example, the deferment of foreign worker levy (increases) by one year for only the marine and process sectors should have been extended across other sectors that are still experiencing cost challenges," it said.

"There is also an absence of measures on rental rebates for businesses in general."

During the Budget debate in Parliament, several MPs lamented the lack of financial relief for struggling SMEs.

In response, Minister for Trade and Industry (Industry) S. Iswaran said the Budget contained short-term relief measures for the hardest-hit industries, such as the marine and process sectors.

Singapore's maturing economy is adjusting to a slower pace of growth, but there are still significant opportunities available for companies keen on innovating and expanding abroad, he added.

This means companies need to gear up for the long term and be prepared to take advantage of emerging opportunities in key sectors.

Singapore's long-term prosperity hinges on it being able to nurture and grow innovative companies, especially SMEs, the minister said.

He listed a plethora of schemes to help companies expand overseas, innovate and deepen their capabilities. These include:

• $400 million in grants to companies going international

• The $36 million Technology Adoption Programme and the $45 million Get-Up scheme to build up innovation capabilities by seconding public-sector researchers to SMEs

• A suite of loan programmes that will collectively catalyse $5 billion in loans up to 2020.

Mr Iswaran said: "The Government is resolute in our commitment to help our SMEs (transform) successfully. Large companies do not necessarily need this breadth of support. It is the small companies that need them."

In addition, road maps for the development of each sector, called Industry Transformation Maps, are being rolled out. They will chart strategies for 23 industries, covering over four-fifths of the nation's gross domestic product.

Six sector maps have been launched, for the logistics, hotels, precision engineering, food manufacturing, food services and retail industries.

SHOULD COMPANIES DO MORE TO HELP THEMSELVES?

However, there is only so much the Government can do to help companies.

Ultimately, SMEs which want to remain viable have to chart their own course for long-term growth.

There are myriad schemes available for companies but they have to be the ones to take that first step.

Trade associations and chambers (TACs) also have a role to play and can act as multipliers to drive change in their sectors.

For instance, they can encourage companies in their industry to collaborate with each other - large players venturing abroad can bring along smaller ones as part of a consortium. Companies can also work together to come up with new technologies.

In addition, TACs can develop industry-specific resources or training tools that can be shared by companies in the sector.

This would be especially useful for SMEs, which tend to have limited access to market resources and expertise, compared with large companies.


This is the second of 12 primers on current affairs issues that are part of the outreach programme for The Straits Times-Ministry of Education National Current Affairs Quiz.