The Next Engine of Growth For Our Little Red Dot : Challenges and Opportunities for Singapore Companies

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The Next Engine of Growth For Our Little Red Dot : Challenges and Opportunities for Singapore Companies

Better days ahead?

As of February 2017, Singapore’s total trade had experienced an increase by 14.6% over the year despite the uncertain economic conditions looming around the world. Based on the monthly trade report from International Enterprise (IE) Singapore, we also witnessed a positive growth for the first time since early 2014. This improvement was supported by both total export and import growth, which grew by 22.1% and 6.8% respectively in February 2017. In absolute figures, this bullish trend set Singapore’s total trade at SGD78.8 billion in February 2017, which is above the overall average in 2016 (SGD72.3 billion).

Figure 1: Singapore’s Total Trade

(Source: IE Singapore)

In terms of GDP growth, Singapore’s economy expanded by 2% in 2016 as compared to 1.9% in 2015, based on the announcement of the Ministry of Trade and Industry (MTI) in February. As can be seen in figures 2 and 3 below, manufacturing remains a key sector of growth for Singapore’s economy with 3.6% increasing in 2016. In other words, it was the largest contributor to overall GDP growth with the percentage-points being recorded at 0.6%. This was achieved by the great expansion in the electronics and biomedical manufacturing clusters in recent years. This improvement is expected to maintain with the continual recovery in the global demand for semiconductors in 2017.

Meanwhile, being supported strongly by the education, health and social services segment, “Other services industries” rose significantly by 3.1% in 2016. In contrast, the business services sector suffered a reduction of 0.9%. This was mainly contributed by weakness in the real estate and professional services segments.

Figure 2:

GDP and Sectoral Growth Rates in 2016

Figure 3:

Percentage-Point Contribution to Growth in Real GDP in 2016 (By Industries)

Notwithstanding the increased optimism in Singapore’s growth, the uncertainties and risks in the global economy still remain, which may result in the downward fluctuation in Singapore economy. In particular, the uncertainties that should be considered may stem from the political risks, the upcoming elections in key Eurozone economies in 2017, or the lack of clarity on the policies of the new US administration.

A quick look at 2017 Budget for businesses

In the recent 2017 budget presented by Singapore’s Ministry of Finance, it is clear that the government has reiterated their focus to assist local enterprises to be competent for the future economy. Enterprises are encouraged to embrace innovation and digitize their businesses to be aligned with the country’s effort in becoming a Smart Nation. Supports such as International Partnership Funds are also introduced to help enterprises scale globally.

The Committee on the Future Economy (CFE) also emphasized on the importance of building capabilities in enterprises and enhancing people’s skillsets in order to better position enterprises for the new economy. With the assistance of public agencies such as Spring Singapore and Info-communication Media Development Authority (IMDA), more than SGD80 million will be spent on helping small and medium enterprises (SMEs) in Singapore to digitize their businesses. SMEs can also participate in the “SME Go Digital” programme by contacting the various SME Centres in Singapore. In addition, by 3rd quarter of this year, SME Digital Tech Hub will be opened to help SMEs build stronger digital capabilities.

To enhance skillsets, it is important to develop new skills that can be applicable for overseas opportunities and also be able to deepen existing skillsets to stay relevant in this new economy. To achieve this, Global Innovation Alliance will be set up for Singaporeans to gain overseas experience and capabilities. Modular courses and training programmes will also be introduced to help Singaporeans upskill.

For enterprises that need to scale up globally, a sum of SGD600 million has been set aside for the International Partnership programme. Through SkillsFuture Leadership Development Initiative, enterprises can also groom Singaporean leaders for overseas expansion. In total, SGD100 million will be set aside for this development and setting up of this Global Innovation Alliance.

To support innovation initiatives and industry transformation, National Research Fund will be topped up by SGD500 million and National Productivity Fund by another SGD1 billion. In total, SGD2.4 billion will be invested over the next 4 years to drive CFE’s mission to help develop Singapore’s economy for the future.

SMEs vs Economy

While the economic crisis affects all companies, SMEs are affected more adversely. With nearly 190,000 SMEs in Singapore, they account for 99% of Singapore’s Enterprises, contributing almost half of the country’s GDP and employ 70% of the workforce. The slow growth and uncertainties in the economy have posed challenges to Singapore’s SMEs. According to the 2016 SME Development (SMED) Survey conducted by DP Information Group (DP Info) with 2,513 SMEs taking part, most SMEs are encountering difficulties in increasing their revenue with lower cost and greater productivity.

Along with three main cost issues that SMEs need to tackle now are: manpower, materials, rental; cost of financing is another major concern for SMEs. Specifically, there was an increase in the number of SMEs with financing issue from 6% to 22% in 2016 (see Figure 4):

With regard to SME’s financing issues, there are several major reasons behind this. In particular, the higher interest rate is considered the biggest obstacle, followed by the tighter access to supplier credit and delayed payment from customers. Mr. Lincoln Teo, Chief Operating Officer of DP Information Group, stated that: “A lack of access to affordable financing can trap SMEs in a downward spiral where they cannot grow without more funds, but cannot get funds without more growth”.

In our next article, we will look at the dynamic effects of trade financing that play an important role in today’s business. With various trade products in the market, which is the best instrument to achieve your business and working capital requirements?

 

References:

Economic Survey of Singapore 2016, Ministry of Trade and Industry Singapore https://www.iesingapore.gov.sg/-/media/IE-Singapore/Files/Publications/Singapore-Trade-Statistics/Monthly-Trade-Statistics/2017/Monthly_Trade_Report_Feb2017.ashx?la=en Retrieved 03 April 2017

Singapore Budget 2017 http://www.singaporebudget.gov.sg/budget_2017/budgetspeech/pb.aspx#s3 Retrieved 06 April 2017

SPRING Singapore https://www.spring.gov.sg/ Retrieved 03 April 2017

IE Singapore https://www.iesingapore.gov.sg/ Retrieved 03 April 2017

By | 2017-04-08T05:28:15+00:00 April 7th, 2017|Articles|0 Comments

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