As companies brace for tougher 2020, targeted help to raise competitiveness will take 'centrestage'

Edmund Lee, managing director of business services provider TMF Singapore, observes that many incentives were meant to make Singapore a more attractive base for MNCs to set up shop. However, some of these schemes have been phased out, or will be. In the face of stiffer external competition, some of these schemes should be extended, he says.

To be sure, Singapore has built a business-friendly reputation over the years. It has attracted established names such as Google, Apple and Unilever to set up significant presences here, thanks to the ideal combination of strategic location, favourable policies and reliable infrastructure.

In a January report, property consultancy JLL Singapore says the city state is “a safe haven in a late cycle world... While many countries are grappling with unexpected political events and changes that may have culminated from decades of widening wealth gaps and environmental exploitation, Singapore is standing out as an oasis of safety.”

The annual Budget has helped to formulate this view. It has been known to dole out “goodies” for Singaporeans and Singapore-based companies alike. For individuals, they typically enjoy tax and utilities rebates while companies are presented with a buffet of incentives and grants to better equip them for the competitive business landscape and macroeconomic uncertainties.

For instance, 2019’s Budget saw some $1 billion worth of incentives and schemes made available to help SMEs and startups so that they can compete more effectively both at home and abroad.

Now, moving from 2019 to 2020, Singapore finds itself among one of the more exposed economies caught in the crossfire of the US-China trade war. Recent events such as the novel coronavirus outbreak are merely adding to the burden of companies grappling with softer consumer demands, rising costs and weakening business sentiment.

Forecast cut?

In light of the ongoing virus outbreak, OCBC sees a possible cut to its 2020 GDP growth forecast of 1-2% y-o-y if the duration and severity of the outbreak worsens further. “There are second-order spillover impact into business and consumer sentiments which in turn affect hiring intentions and discretionary spending, then we could potentially see a greater downside risk to the benign scenario,” says the bank’s head of research and strategy Selena Ling.

Credit Suisse lead analyst Gerald Wong, however, maintains his view of a modest GDP growth for Singapore this year, even with the external headwinds from its largest trading partner China. China’s GDP, for one, is now seen to grow at 5.5% this year. Following the outbreak of the coronanvirus first reported in Wuhan, Credit Suisse has trimmed 0.4 percentage point off its 2020 forecast.

“However, it is important to keep this in perspective, as the virus outbreak itself is a temporary shock and hence in the long run, the Chinese economy will recover from this outbreak with little impact on long term growth potential,” Wong tells The Edge Singapore.

“Singapore’s externally driven economy is most prone to negative growth surprises, but its huge fiscal surplus also provides the most headroom for stimulus,” he adds, referring to the $15.6 billion worth of surplus accumulated during the current term of the government that could be drawn on.

Bleak outlook

In any case, companies are already bracing themselves for a challenging 2020. In a survey of 1,018 companies by the Singapore Business Federation (SBF), half expect the business climate to worsen this year, while another 44% expect things to remain the same as 2019.

Some 64% of respondents were also concerned with rising business costs. In addition, 55% of the respondents ranked tax reduction and tax rebates as the two top priorities for the Budget.

In the upcoming Budget, businesses and market watchers expect the government to again introduce some relief measures. UOB economist Barnabas Gan envisions that with macroeconomic climate as a backdrop, the “centre stage” of this year’s Budget will be on bolstering Singapore’s competitiveness.

Sandeep Bhargava, managing director of Asia Pacific and Japan at cloud computing company Rackspace acknowledges that IT is one of the biggest cost items for many companies. These firms are also careful to not spend too much, he adds.

Yet, they know they can benefit from the new technologies to improve their efficiency and thereby gain a competitive advantage. “Local businesses need help with expediting digital skills and re-skilling the workforce,” he explains. “Research and development (R&D) efforts in technology can be encouraged further, and new businesses that offer advances on existing technology could also enjoy such funding as it will also be a way to promote the spirit of innovation and entrepreneurship in Singapore.”

However, analysts and experts caution that businesses should not get too comfortable with these perks and “rest on their laurels”. Low Hwee Chua, regional managing partner for tax at Deloitte Singapore and Southeast Asia, finds it “reassuring” that the government is ready to help workers and businesses tide through the potentially trying times. “However, this does not mean that businesses should rest on their laurels as Singapore continues with its economic transformation and adapts to global changes,” he adds.

Headlines in recent weeks have focused on Singapore’s ongoing fight to contain the coronavirus. The Government has warned of the knockon effect on related industries like tourism and hospitality but these will be addressed in the Budget. On Feb 1, Deputy Prime Minister Heng Swee Keat promised to introduce reliefs and schemes in the Budget to help industries and people most affected – hotels, taxi drivers and ride-hailing operators, for example.

It is, however, important not to get distracted from the longer term goal of transforming and boosting the competitiveness of the economy. “Other than short term measures to assist with the immediate impact of the coronavirus, the Budget should also take into consideration longer term factors such as encouraging innovation and digitisation, sustainable population growth measure, stable housing and cost of living,” says TMF’s Lee.

Manpower, innovation

Even for companies that have been enjoying healthy growth, more can be done. DenseLight’s Rajgopal, for example, laments that his industry has one constant, common problem: the lack of talent and manpower. “The government has put in place several measures from skills future program to productivity improvement grants, but the one area they should continue to focus on is manpower availability for the semiconductor industry,” he says.

Similarly, SBF CEO Ho Meng Kit acknowledges that the government has been proactive in providing broad-based support. Yet, he is also urging for more targeted measures. For example, there are many government schemes and support available, but they are administered by different government agencies. The key is to help local companies be better aware of where and who they can turn for help. “This can be done through outreach campaigns and collaboration with trade associations and chambers. More targeted and bespoke support can also be intensified to incentivise our local companies to innovate and transform,” Ho says.

Liew Li Mei, Deloitte Singapore’s international tax leader, says that innovation remains the key if companies want to maintain their competitive edge. Regional competitors, she notes, have been ramping up their own R&D tax incentive offerings in recent years. “We hope the government will consider enhancing the R&D regime by incentivising outsourced R&D activities carried out overseas, expanding the scope of qualifying R&D activities and varying the scope and support level of R&D activities according to the size of the corporations. This will level the playing field for Singapore and continue to attract big corporations to locate their R&D activities to Singapore,” Liew continues.

Auditing and consultancy firm EY notes how during the 2009 downturn, the government introduced various measures to help cope with the challenges. Although Singapore’s economy is not in a technical recession, it may be worth considering if similar measures should be looked into. In addition, there should be more measures to help SMEs stay relevant and competitive, says Soh Pui Ming, EY’s Singapore head of tax. For example, they can enjoy more tax rebates, as well as more support for their business transformational efforts.

Similarly, DBS senior economist Irvin Seah says SMEs know they need to raise their productivity in terms of deploying new technologies, but they also need help doing so. “Smaller companies are usually bogged down with day to day operations and have little resources to invest in their technology or capabilities. In addition, with fewer resources at their disposal, smaller companies may find it harder to access support grants or subsidies, despite added attention by the trade associations and government agencies to help them,” he adds.

With this year likely an election year, expectations are high that there will be plenty of “goodies” for individuals so that the ground can be “sweeter”. While such personal gains are beneficial, there will be bigger, more encompassing impact for the economy as a whole if local businesses enjoy a lift from the Budget.

“Businesses, big and small, are vital to the economy and their success is key to economic growth and prosperity,” says SBF’s Ho. “The impact of any macroeconomic factor on our businesses cannot be neglected as their performance has direct implications on our economy and the workforce.”