The road to recovery

Alicia Lee, a sales representative at a beauty and wellness label with over 20 outlets in Singapore, says her company typically runs flash sales and storewide discounts of up to 30% in the days leading up to National Day.

“This is our way of celebrating Singapore’s birthday with our customers,” she tells The Edge Singapore. “We typically see more customers streaming into the store during the holiday. So, with the discounts many of them end up spending about $50 to $100 more on average in a single receipt,” she adds.

But with the current Covid-19 restrictions on dining-in, visitations and operations of mask-off services, this marketing strategy may not work.

“Across our outlets, we have seen daily customer footfall drop by around 50% after the Phase Two (Heightened Alert) measures were imposed,” notes Lee. For now, she is sceptical if her company can be as generous with its flash sale discounts, given the significant slowdown in its earnings.

Agreeing, restaurant operator Goh Yee Tat says he will not be able to run his usual “50% off special” over the National Day weekend this year. “Business has been slow and even with the option for takeaway or delivery, we are bleeding,” he notes.

Worse, Goh says he may be forced to shut down his business of 15 years to cut losses if the restrictions are extended yet again. “Yes, there is government support to defray the extent of our losses but it is not enough to offset the huge drop in our sales and heavy cost of delivery,” he explains.

Is there enough support?
Indeed, for close to six decades, Singaporeans have been used to hearing RSAF fighter jets roaring across the skies in the lead up to the nation’s big birthday bash on Aug 9. At the same time, familiar tunes such as Count on Me, Singapore and This is Home could be heard in shopping malls, schools and various community spaces.

But as the pandemic rages on, Singapore will have a very much quieter celebration this year. Aside from the postponement of the parade to Aug 21, it will also be scaled down and all performers and spectators — made up of Covid-19 frontline fighters, essential workers and volunteers from the community — will have to be vaccinated.

In a bid to help struggling businesses and individuals cope with the restrictions, the government announced on July 23 it will dole out $1.1 billion in support (see Additional support measures infographic). This includes the enhancement of the Jobs Support Scheme (JSS) from July 22 to August 18 to cover 60% of the wages paid out for sectors such as F&B, gyms and fitness studios, performing arts organisations and arts education centres.

Other sectors that have been significantly affected by the Covid-19 restrictions will receive JSS support for 40% of wages. Such sectors include retail, personal care services, tourist attractions, licensed hotels, cruise and regional ferry operators, MICE organisers, travel agents, museums, art galleries, cinema operators, and other family entertainment centres.

The JSS support will drop to 10% between Aug 19 and 31 after the Phase Two (Heightened Alert) measures ease.
Other support businesses can tap on include a four-week rental waiver for tenants of government-owned commercial properties or a two-week rental relief cash payout for tenants of privately-owned commercial properties.

Meanwhile, stallholders in food centres will receive one-off cash assistance of $500 under a new market and hawker centre relief fund. This is on top of the current one-month rental waiver and one-month subsidy for table-cleaning and dishwashing services.
These stallholders as well as other food operators can also tap on the food delivery booster package to defray the cost of deliveries during the Phase Two (Heightened Alert) restrictions. Under this, Enterprise Singapore (ESG) will fund five percentage points of the commission cost charged by food delivery platforms as well as 20% of the delivery fee imposed on orders made through third-party logistics partners.

The latest slew of measures — which are funded by reallocations — seems to be heftier than the support offered during the Phase Two (Heightened Alert) measures that were imposed between May and June. At that time, the JSS wage support was 50% for the worst-hit sectors, compared to the current 60%.

Touching on the support available, Kwee Wei-Lin, president of the Singapore Hotel Association, says the members are “very grateful and relieved by the government’s interim financial support,” especially since hotels have been among the worst-hit by the pandemic.

Latest figures from the Singapore Tourism Board (STB) show that hotel room revenue fell to $64.3 million in June compared to $67.9 million in May. For reference, the average room revenue was $221 between January and December 2019 before the pandemic hit.

June recorded the dip despite a rise in revenue per available room to $74.90 from $69.60 in May. The increase was due to an increase in the average room rate to $140.20 in June compared to $138.60 in May. Overall, average room occupancy inched up to 53% in June from 50% in May.

During this period, visitor arrivals slipped to 10,030 in June from 14,190 in May. While this is a fourfold increase from the mere 2,170 visitors a year ago during the stricter Covid-19 curbs, it is still far from the 1.6 million seen in December 2019. The bulk of arrivals in June were from China (6,980 arrivals), Indonesia (519 arrivals) and Malaysia (410 arrivals).

As a result, Kwee says that the hotel industry’s recovery “will depend on more domestic revenue streams such as bigger social events and larger dining capacity before the return of vaccinated international travellers”.
Gym owner Viknesh Kumar is similarly looking for alternative revenue streams to diversify his earnings. “The relief measures are good but it doesn’t come anywhere close to covering our losses,” he says. In a bid to stay relevant and in touch with his patrons, Kumar has been offering virtual personal training lessons at a discount. “It is not the same as working out in the gym with different kinds of equipment but at least it makes sure that customers don’t forget us and we also get some income coming in,” he says.

Marginal economic slowdown
Advance estimates released by the Ministry of Trade and Industry (MTI) reported a 14.3% y-o-y growth in Singapore’s GDP in 2Q2021. However, the strong growth was largely due to the low base in the previous year which cut across the “circuit breaker” measures that were in place between April 7, 2020, and June 1, 2020.

The growth was uneven too with construction up 98.8% y-o-y due to large-scale stoppages this time last year whereas manufacturing was up 18.5%, thanks to healthier than expected external demand. Other sectors such as wholesale & retail trade and transportation & storage grew by 9.3% while the information & communications, finance & insurance and professional services sectors expanded by 7.8%. The remaining group of services sectors, comprising accommodation & food services, real estate, administrative & support services and other services sectors, expanded by 13.4%.

MTI expects Singapore’s full-year GDP to come in between 4% and 6%, particularly due to the low base of 2020, which also marked the country’s worst economic recession on record.

Khoon Goh, who heads the Asia research division at ANZ, is of the view that the enhanced support measures “will help to mitigate some of the impact on affected businesses and workers but will not completely offset the loss of activity or income”.
Selena Ling, head of treasury research and strategy at OCBC Bank, notes that the latest round of measures accounts for around 0.2% of Singapore’s GDP. She believes that the latest slew of measures “is relatively calibrated compared to the unprecedented size of aid packages” doled out in 2020 and that policymakers would be open to giving out more support if needed “given the economic fragility and the twists and turns in the Covid pandemic”.

Agreeing, Barclays economist Brian Tan points out that even as the fiscal policies are generous, they only cover a portion and not all the costs that businesses face. “Many businesses will likely remain under substantial pressure, especially as they had already undergone weeks of these tighter measures just recently,” he adds.

Looking back, Tan notes that the Phase Two (Heightened Alert) restrictions caused a “relatively modest” 2% contraction in Singapore’s 2Q2021 GDP. The four-week-long restrictions between July and August will “likely limit the extent of any sequential expansion in 3Q2021 GDP and backload the recovery to 4Q2021”, he mulls.

Against this backdrop, Tan has cut his full-year GDP forecast for Singapore to 6.5% from 7%. Ling meanwhile says that the measures could shave 0.3 percentage points off her full-year GDP growth forecast, which now stands at 7%.

Mohamed Faiz Nagutha, economist at BofA Securities, is leaving his forecast of 7.5% unchanged for now but says that risks are skewed to a downside of around 0.5 percentage points. This is as the downturn to the consumer-facing sectors could be “compensated by stronger contributions from the manufacturing and modern services cluster”, he explains.

Barnabas Gan, Nagutha’s counterpart at UOB, notes that the republic’s external-facing sectors should remain “unscathed”. For one, industrial production logged a 30% y-o-y expansion in May, its fastest pace of growth since November 2010. Non-oil domestic exports (NODX) similarly surged 15.9% on year in June, making this its “fastest 1H growth since 2010”. With this, Gan says the sectors are poised to reap stronger growth going forward.

Given this performance and the strong vaccination rates in Singapore, Gan is also maintaining his GDP growth outlook of 6.5% for the republic “until there is further clarity on how Covid-19 evolves in the foreseeable future”.

A roadmap for growth
For the past 18 months, Singapore’s policymakers have been trying to not just cushion the impact of the pandemic on the economy but also create one that is pandemic-resilient. Unfortunately, given how it may take a while longer before the world is free from Covid-19, preparing for the long haul is critical but also more difficult than the pump-priming unleashed as an immediate response. Close to 90% of over 100 immunologists, virologists and infectious diseases experts polled by UK-based science journal Nature said they did not think the coronavirus could be eradicated.

The experts say that Covid-19 will continue to circulate in pockets of the global economy in years to come. Thus, “locking down large portions of the economy or closing borders in an effort to bring infections down to zero is futile,” says Ravi Menon, managing director of the Monetary Authority of Singapore (MAS).

As such, countries that learn and adapt to live in an endemic Covid world will perform better than those who do not, said Menon in a recent guest lecture series at the Institute of Policy Studies.

Even as Singapore deals with new clusters and spikes in Covid-19 infections, the government already has a plan for re-opening. Some of these include easing curbs to allow vaccinated individuals to dine-in sometime in August or even travel without having to fully serve the 14-day stay home notice by early September. (See Roadmap of Singapore’s reopening)

To business owners, this spells good news, even as there is much uncertainty on whether the Phase Two (Heightened Alert) restrictions will be extended beyond August 18. “Once I saw the plan to reopen, the pain in my heart lessened,” says Simon Han, the owner of Han Thye Huat trading, a small engineering firm. “A lot of my business is in China, Indonesia and Malaysia. For the past two years, I was unable to travel so there was no business. Now, at least I can plan and get started with my work,” he tells The Edge Singapore.

Like Han, several business owners say the reopening roadmap has provided “greater certainty for their operations and allows them to better plan their resources,” remarks Singapore Business Federation CEO Lam Yi Young. Victor Mills, CEO at Singapore International Chamber of Commerce, agrees, saying the business community cannot wait “to get back to predictability”.

Market watchers say that businesses have also been more positive of the economic climate going forward. Findings from the recent Department of Statistics (Singstat) business expectations survey showed that 11% of firms in the services sector expect a more favourable business outlook between July and December.

A similar survey conducted by Singapore’s Economic Development Board (EDB) shows that a net weighted balance of 20% of manufacturing firms anticipate a favourable business solution environment in 2H2021. The findings are based on the responses of 415 manufacturing firms.

The republic is already a regional hub for low-end manufacturing for companies that have operations in regional nations like Indonesia, Malaysia, the Philippines and Vietnam. It also leads in high-end manufacturing such as high-tech, industrial automation and biotech.

Interestingly, Singapore has a plan for its manufacturing sector to contribute 50% of its GDP by 2030. This involves three factors: attracting frontier investments, developing and transforming local enterprises in advanced manufacturing, and developing talent in the field. The country has been making some headway in its quest to be a manufacturing hub with companies like US-based semiconductor manufacturer GlobalFoundries setting aside US$4 billion ($5.4 billion) to expand and upgrade its chip-making facilities here.

For the sector to be competitive, Marvin Lee, vice-president for semiconductors at EDB, stressed the need for firms to push through the frontiers of production, evolve new products, services and business models and compress time cycles. Agreeing, Rakesh Agarwal, partner advisory at KPMG, says the republic should also consider diversification, digital transformation and periodic supply chain risk assessments.

Stronger digitalisation across all other sectors will also be key for Singapore to remain competitive. The city-state appears to have a forte for this, having clinched the top spot in professional service firm KPMG’s global ranking of leading technology innovation hubs outside of Silicon Valley/San Francisco for the second year running.

Going forward, market watchers say the republic can reap opportunities as a neutral third party for manufacturing and the listing of companies. This comes amid closer regulatory scrutiny that Chinese tech firms have been coming under since the clampdown on ride-hailing app Didi around 10 days after its listing in New York.

Other opportunities for the republic lie in the areas of aerospace and sustainability. Albeit battered by the pandemic, Finance Minister Lawrence Wong says there are opportunities for the sector to pivot into such as sustainable aviation fuels and the possible emergence of hydrogen-powered aircraft. The rise of digital services also allows for better fuel optimisation and aircraft health monitoring, adds Wong.

While Singapore is punching over its “Little Red Dot” status and creating opportunities for itself, uncertainties from the pandemic will continue to weigh it down in the near term. The title of this year’s National Parade theme song, Road Ahead, could not be more apt to capture the trials and tribulations ahead. One of the verses says, it is always “darkest just before dawn”.
Perhaps the uncertainty the republic is facing is the darkness, just before the stronger economic growth it will experience in its 56th year.

Cover image: Albert Chua/The Edge Singapore