Number of businesses folding rose in 2015-2016

Singapore

THE number of new business entities (comprising companies and businesses) formed in Singapore has remained healthy in recent years, but cessations have risen with the economic slowdown of 2015-2016 and ongoing economic restructuring.

The Economic Survey of Singapore for the second quarter released by the Ministry of Trade and Industry on Friday noted that much of the business cessation in the last two years happened in the retail trade and transportation and storage sectors.

The total stock of business entities here rose by a compounded annual growth rate (CAGR) of 4.3 per cent to hit 480,000 in December 2016.

The number of new companies grew by a CAGR of 4.1 per cent between 2010 and 2016; these were mainly in the business services, wholesale trade, and information and communications sectors. The figure rose to a record high of 38,480 in 2014, and then fell back in 2015 and 2016.

The number of new businesses, which comprise sole-proprietorships and partnerships, rose at a CAGR of 2.2 per cent over the same period, spiking in 2014 and moderating in 2015 and 2016. The average number of new businesses formed annually in the two years was 27,800 - higher than the annual average of 25,700 between 2010 and 2014.

The formation of companies and businesses is an important indicator of economic health; notably, their creation generate new jobs and investments.

The sharp rise in overall business formation in 2014 came mainly from new businesses being formed in retail trade (physical and online shops). By 2015 and 2016, sluggish sales and labour constraints led to a fall in overall business formations.

In contrast, the number of new businesses in the transportation and storage sector surged nearly 300 per cent in 2015 and 39 per cent in 2016, driven by new businesses entering the land transport segment - likely new business registrations by drivers providing private-car hire services via mobile apps.

The rate of company closures has edged up from 7.3 per cent in 2014 to 7.6 per cent in 2015 and 7.8 per cent in 2016. Business cessations rose considerably in the last two years to 22 per cent in 2016.

This suggests businesses may be more vulnerable to economic slowdowns than companies, as they are likely to have weaker balance sheets and may lack access to financing. Notably, most of the businesses that folded in 2015 and 2016 were under two years old and were broad-based.

Nevertheless, outlook for business entities in Singapore is expected to improve this year over last year, the survey noted.