SMEs see brighter skies in the new year

Singapore

SMALL and medium-sized enterprises (SMEs) in Singapore are increasingly optimistic about future business prospects, as more of them anticipate improvements in the wider economy to filter through to them in the coming year.

In the latest Singapore Business Federation - DP Info (SBF-DP) SME Index, business sentiment for the next six months rose across all six industries, lifting the index from 50.6 to 51.2.

A score above 50 indicates an expectation of growth, while a score below 50 signals a possible contraction.

Among all the industries, business services recorded the highest level of optimism, with an index score of 52.1. This is likely buoyed by increased economic activity from other sectors, driving up demand. Business services support many other industries, providing a diverse range of functions such as real estate, engineering, management consultancy, legal and accounting.

The next two best performing industries were manufacturing and commerce/trading, with a score of 51.

The construction and engineering industry, which netted a score of 49.9 in the previous quarter, emerged with a positive score of 50.4, indicating that the industry's SMEs are expecting their tides to turn. The expectation of a stronger pipeline of public-sector projects and the launch of the Industry Transformation Map for the construction sector have contributed to the sector's positive outlook, said the report.

Ho Meng Kit, the chief executive officer of SBF, said: "SMEs' business sentiment has been deteriorating over the past three years, so this latest survey, showing that SMEs across all sectors are feeling positive about their outlook for next year, is welcome news."

The survey also presented a breakdown of different components of the index. Turnover expectations rose from 5.01 to 5.15 across all industries; profitability expectations went up from 4.86 to 5.1.

A score above five indicates sentiment that turnover and profits are expected to increase, while a score below that indicates possible declines.

Business expansion expectations continued to stay strong with a score of 5.55, with SMEs looking for new opportunities to grow their business and generate more value.

Financing, an issue widely discussed in the last month, became less of a problem for SMEs this quarter. Access to financing expectations went up from 5.01 to 5.13, with improvements observed across all industries.

The capacity utilisation score also rose, from 6.81 to 7.11. A score above 7 indicates that SMEs are operating at or near full capacity. The report said they are increasing their output and gearing up operations in anticipation of greater demand in the coming year.

Capital investment was the only component in the index which faltered, resulting in a decline from a score of 5.28 to 5.14. However, the report said many SMEs may be holding back new capital expenditure as they await next year's Singapore Budget.

In spite of the good news, Mr Ho urged SMEs to "ride on the tailwind of better times ahead to undertake serious effort to transform their companies".

"There is a long tail of SMEs which need to embrace digitalisation, improve their management so that they can be more innovative and competitive. Good times ahead have not eroded this urgent need for change," he added.

But while the outlook for 2018 is positive, it would not take much for the confidence of SMEs to be dented, warned Dev Dhiman, managing director, South-east Asia & Emerging Markets for Experian, the parent company of DP Info.

"A conflict on the Korean peninsula or the Middle East, or moves to wind back free trade and introduce protectionist measures all have the potential to push SMEs back into pessimism," he said.

More than 3,600 SMEs were surveyed during October and November on their outlook.