This makes sense given global headwinds in trade mean domestic consumption will be Singapore’s economic back-stop over the short-term.
But pleasingly, the Budget also shone a light on SMEs and their importance to the Republic in building a more internationally connected economy.
SMEs – businesses with S$100m turnover and 200 employees - are the bedrock of an economy. With more than 220,0001 SMEs in Singapore, their presence is significant2. So clearly, this Budget spoke directly to the heart of the Republic’s commercial nervous system.
With ASEAN’s increasing interconnectedness and growth prospects, Singapore – with its established regulatory and financial frameworks - is becoming a hub for Singapore-based SMEs to access opportunities in new territories.
Singapore-based SMEs are not travelling far. A HSBC-commissioned report in July 2018 revealed that the majority focused on capturing the opportunities in Southeast Asia, with over three quarters of SMEs in Singapore have plans to expand.3
Among these companies, 77% indicated that they were very keen to expand into ASEAN. The growth potential and opportunities for new market access are the biggest motivating factors for expanding into ASEAN.4
Similar to Singapore, other ASEAN markets could face export headwinds in 2019 – particularly in commodities and electronics – so driving domestic demand will be crucial for these economies.
Thankfully, domestic consumption is likely to remain strong across Indonesia, Philippines, Vietnam, Malaysia and Thailand particularly in basic consumer goods, services and transportation such as motor vehicles.
Developing Singapore-based SMEs’ ability to scale up and improve productivity will be crucial in capturing this intra-regional opportunity.
A key enabler is financing so the Budget’s additional $100 million within the SME Co-Investment Fund will be a strong shot in the arm for SMEs who may not have the ability to tap on the traditional debt financing from banks, due to a lack of capital, financial performance track record or unstable revenue streams.
Moreover, feedback from our SME clients has been that they have historically found it difficult to apply for this funding so the measure to merge various funding schemes - whether it be trade, working capital, fixed assets, venture debt, mergers and acquisitions, and project financing - under Enterprise Singapore is a very welcome development.
With the Government increasing its willingness to share credit risk to 70%, banks are likely to change how they assess their risk appetite towards SMEs. Ultimately, this signal of reassurance is an encouraging sign for SMEs of increased bank financing to come.
The expansion of the Go Digital programme is clearly good news for SMEs, but is also a marker of Singapore’s confidence in its ability to lead the way in the region both on the digital and trade front.
This will not only help SMEs build stronger digital capabilities to better seize the opportunities for growth in Southeast Asia’s burgeoning digital economy, but will also go a long way to helping these companies eliminate manual processes so that they can be more productive and efficient, ultimately leading to an improved bottom line.
For such programs to succeed, SMEs have to better understand the importance of going digital. For example, how digital solutions are relevant to their business and the positive impact it can create in terms of scale and reduction in cost. SME owners have very diverse profiles, they range from tech savvy millennials to baby boomers with no technological background at all. And we need to educate all owners and provide support to them to digitalise.
Extending the Go Digital initiative to include accountancy, sea transportation and construction sectors will have long-lasting benefits. These are particularly labour-intensive sectors which will benefit if some of its processes are digitalised. For example, the adoption of software or an app to record the working hours of construction workers can help automate calculation of payroll and annual leave with accuracy. And business owners can also tap on this information to better deploy its manpower efficiently.
The measures to streamline and digitise the Government’s trade processes by leveraging digital ledger technology are also a boon for SMEs.
By simplifying not only the communication channels of trade documentation, but also the government touch points for governmental support and communication, businesses can focus more on their clients and providing goods and services to them, ultimately saving time and money.
Initiatives such as the Networked Trade Platform are already connecting industry players by enabling the freer flow of data. As one-stop trade and logistics platform for companies, the platform aims to digitise all paper-based processes. The NTP also sets the scene for how trade is approached across the 10-member ASEAN countries, providing further guidance for businesses to achieve regional ambitions.
Innovation is a door that Singapore needs to open if it wants to attract more multinational investment in the future. This will benefit businesses of all sizes.
The Budget further cements Singapore’s Smart Nation ambitions through its focus on driving better innovation collaboration with universities and the desire to lift the skills of its domestic and international talent.
Encouraging international expertise and also broad-based domestic up-skilling programmes shows that the Government is taking a holistic approach to innovation.
Moreover, the continued investment in R&D (as well as the focus on the actual application of technologies already in play) means that the current and future state are being jointly considered. Our international clients are telling us this is a prerequisite for further investment.
Clearly, the Budget is geared to buttress any potential softening in the economy, through its various nation-building measures, whilst lining up longer range targets that will improve Singapore businesses’ productivity and international connectivity.
Yet the focus on SMEs is a significant opportunity, and one which should not be overlooked. The question now is how businesses will respond. Navigating through the detail is now the challenge for SMEs, but directionally, we believe the Budget will deliver positive outcomes – both in the near and medium term.
A contribution piece by Li Lian Ng, Head of Business Banking, HSBC Singapore, first published in The Business Times on 26th February 2019.