2019 was a big year for several businesses around the world. On one side, Aramco became the world’s largest company to be ever listed, while on others, Singapore was busy making the country the best place to be.
Singapore introduced many measures to boost the growth of SME in 2019. For example, the extension of the Enterprise Development Grant, which helps SMEs in adapting to technology and expanding their business overseas. The grant has helped several start-ups in the past, and it will continue to do so in the future. But, did Singapore proved to be a haven for start-ups in 2019? What do the numbers say? Here is a review of the last year for SMEs in Singapore.
Let’s start from the beginning
The budget for 2019, as announced by the honorable finance minister, focused much on the importance of collaborations and partnerships. Several major programs and plans got inaugurated to help the Singaporean companies reach out to external parties and establish themselves overseas. The biggest of them were Global Innovative Alliance (GIA) and Singapore Week of Innovation and Technology.
A joint venture between Enterprise Singapore and the Singapore Economic Development Board, GIA is a network of Singaporean and foreign parties deployed in growing and key markets that focus on innovation, creativity, and modern technology. The program meant to make it easier for the SMEs and start-ups of Singapore to venture abroad, and for the foreign start-ups to use Singapore as their headquarters and expand in Asia.
Singapore Week of Innovation and Technology was an event organized by the authorities in November 2019 that focused on converting the latest discoveries and concepts into workable solutions that could change the way we live. The event provided a platform for SMEs to showcase their groundbreaking products and gain exposure in the market. The event generated a footfall from 60,000 people from 140 countries, making it a huge success.
Apart from forging the thought process of collaboration, Singapore also focused on ensuring that SMEs in the country receive enough financial support. As a result, several packages and programs got enhanced and extended for the upcoming years. However, the focus of all these packages was the inclusion of technology in the business processes. The government maintains the viewpoint that technology has to play a major role in creating the Singapore of tomorrow (the Smart Nation initiative), and the policies and regulations reflect this ideology.
Moving onto things that changed the landscape in Singapore, there were some big decisions taken by the government to enhance the security and safety of the people. However, some of these changes affected business operations. While many SMEs adopted to the change pretty quickly, the others were left with no option but to either look for new markets for their products or revise their product catalog.
One of the most momentous changes introduced in 2019 was the ban of e-scooters on sidewalks. The government enforced the law after several incidents of collisions between e-scooter riders and pedestrians surfaced, the last resulting in the death of an 80-year old. The e-scooters had been employed by several start-ups like Grab and Deliveroo to enable quick delivery of food, groceries, and other consumables. It forced the start-ups to look for alternate means of enabling fast delivery or shutting down the ‘quick’ delivery model for the good. The impact felt by scooter operators like Beam Mobility, which called the decision “frustrating.” Several companies thought that the ban removed an essential part of the ‘last-mile delivery’ without providing an alternative solution. The ban also led to shutting down a few major retailers and downsizing in other companies whose business model heavily relied on the popularity of e-scooters in Singapore.
Another significant change was the reduction in the Dependency Ratio Ceiling (DRC) for the service sector. Up until 2019, the government of Singapore allowed up to 40% of foreign workers. However, the government also announced that the ratio of foreign to domestic workers would get reduced in the coming years to 35%. This change announced to ensure a higher quality of life for the citizens of Singapore. However, for SMEs, this move by the government resulted in re-shuffling and re-assessing the manpower needs. Also, scouting, hiring, and training the local talent comes at a cost that will have to be born by the companies. Thankfully, the government has extended the validity of Productivity Solutions Grant, which will enable the SMEs to reclaim up to 70% of the money spent on training the local talent.
The Professional Conversion Programmes (PCPs) that aimed at assisting Professionals, Managers, Executives, and Technicians (PMETs) to undergo skill conversion and switch into higher-paying industries now include more areas. The newer technologies like blockchain, embedded software, and prefabrication are now a part of the PCPs. For SMEs, this inclusion means that they will have access to a larger talent pool as compared to last year.
Growth in Numbers
A survey conducted by SME Magazine portrayed a rather productive picture of the SME sector in Singapore for the year 2019. Amidst the financial crisis around the world, the Singapore SME sector shows growth and posted an average revenue of 109% as compared to last year. Interestingly, younger SMEs (less than 3 years old) posted revenue as much as 6 times more than the previous year, which is a new sign for the start-ups in Singapore. Apart from the growth, the survey states that while the start-ups in the country are optimistic about the future, but at the same time, the companies are cautious and keeping a check on the worldwide economic trend to ensure minimum failure rate.
The cautious approach by the businesses in Singapore is due to the trade war between the USA and China. Singapore, as a country, has been in a friendly relationship with both countries. On the one hand, America has helped Singapore with many things, including military technology and pumping much investment in the country. At the same time, on the other, Singapore has developed an all-round strategic and economic partnership with China on all fronts. If a situation arrives where Singapore has to select sides, even Prime Minister of Singapore Lee Hsien Loong believes that the country is going to find itself in a sticky situation. Businesses are going to feel even more heat.
The trade war also resulted in a fall of 1.95% (year-on-year) in the Singapore SME Index, which also happens to be the worst 3Q – 4Q reading in the last six years.
Talking of impact, the commerce and trading sector in Singapore had a rough time in 2019. The profits were low, and most of it can get attributed to the decreasing demand in the external markets. The dip in demand resulted in a fall of appetite of the investors, which closed at 5.09%. To make things worse, the lenders too hesitated in extending assistance to the commerce and trading sector (down by 2.74% to 4.96%), which left a bad taste in the mouth of the business owners. Nevertheless, the companies are focused on expanding while consuming any and every little investment that they can find.
The food and beverage sector grew impressively in the first half of 2019 (up by 1.81% to 5.63). However, by the year-end, the rate reduced a tad bit to close at 5.30%. Most of the expansion happened in the online delivery and outlet setup spheres. Also, with an MOU signed by the ASEAN restaurant association, Singapore may soon witness newer and improved dining experience, bringing in more money into the sector. The MOU expected to help the F&B sectors in Singapore and other regional countries to expand into ASEAN markets, along with promoting best practice sharing.
Another business that showed positive sentiments was that of construction. The sector posted highly on the profitability index at 5.09%, 1.80% higher than last year. The industry also generated more jobs during 2019 as compared to the previous few years, and the overall performance of the sector was more than expected. The success of the construction sector was primarily due to the substantial public sector building activities. The Building and Construction Authority expected 60% of construction demand in 2019 to come from the public sector. The major construction projects of 2019 included: Tuas mega port, the Jurong Lake District, the expansion of the two integrated resorts, and completion of the municipal infrastructure projects started by the Singapore government in 2017.
Other Things That Improved
The government of Singapore offers a total of 25 different grants to the SME sector in the country. However, since all the grants focus on different areas of operations, and each area is governed by a different government body, a business has to run to as many as 14 outlets to apply for grants. To make it easier for the start-ups to interact and transact with the government, the Government Technology Agency of Singapore (GovTech) has developed a dedicated portal. This portal, called Business Grants Portal (BGP), allows the start-ups to understand the requirements of all the grants and also apply for them. Since everything is available at the same place, the reduction in time is going to boost confidence in the SMEs. A pilot test ran in the third quarter of 2019 for the food industry, and the sector admired it.
Businesses who contributed to institutions of a Public Charterer (IPCs) in the form of donations enjoyed a 250% tax deduction. The companies benefitted from another 250% tax deduction for every hour spent by their employees in taking care of the society by providing volunteering services to IPCs, under the Business and IPC Partnership Scheme.
Prepare for the Future
The US-China war is not going to end any sooner. It means that the ‘sticky situation’ is a possible scenario that can cause disruptions in the world without warning. However, since Singapore is a highly pro-active country, the Start-ups can expect the government to take strategic measures to safeguard the country’s interest and stay practical in the new world where headwinds are loud and messy.
The commerce and trading sector that largely depends on the export of goods expected to take the most casualties due to its high dependency on world economics. But, with expansion in the right direction, even the commerce industry is hopeful of a brighter future. As of now, the sector is merely looking for some time and investment to bounce back.
The government is already discussing ways to boost the economy. Massive demand in the construction sector is one such initiative in disguise to bring growth into the country. Other areas can soon hope for a rise in demand once the government, along with more prominent and more influential companies, finds out the right way to enhance the growth in the economy. It would be wise on the part of SMEs to focus on improving their quality and investing in programs that reduce the cost in the long term. The downturn can be used as a time when SMEs regain their ground, transform and optimize their operations and prepare for a jump when the opportunity arrives.