Singapore Budget 2016: In drab year, SMEs warm to innovation and bristle on costs

Singapore

A FRESH study from a key trade body here suggests a marked decline in business sentiment for 2016, as business leaders outlined not just clear cost pressures, but also mounting pressures from domestic competition and the evolving labour market.

Against this backdrop, businesses polled by the Singapore Chinese Chamber of Commerce and Industry (SCCCI) have made calls for the government to take on a more comprehensive review of rising costs.

They have also extended beyond a routine call for breathing room in foreign-worker quotas in Budget 2016, to push more strongly for greater subsidies to boost innovation, and in hiring older workers.

"With the support of government funding, business has made strong effort in their transformation either at company level or at sector level. However, the transformation has reached a stage (where) government needs to align their policy and collaborate even more broadly with business, especially via the trade associations," said SCCCI president Thomas Chua in a media statement.

"This will ensure that business cost can be managed and government programmes can be integrated with the business needs."

SCCCI's study, released over the weekend, showed that more businesses - or 35 per cent - are pessimistic about the business outlook this year, compared to just over a quarter who are hopeful, with a significant number expecting lower revenue in 2016.

This mood, as registered by the poll of 331 respondents, is a reversal from 2015, when more were upbeat than downcast. Most of the polled businesses are small and medium enterprises (SMEs) in Singapore.

Critically, 44 per cent of those polled expect a drop in profit margin, up from 30 per cent a year ago - with a clear majority having already factored in rising business costs in 2015, and SMEs still ranking costs as the top challenge ahead.

As it is, buying prices for exporters here have been rising in the past six months - with the rate of increase in December 2015 the strongest since January that year - the latest Nikkei Singapore Purchasing Managers' Index separately showed. But cooling demand means businesses cannot pass on these higher costs to customers. This crimps margins.

More businesses this year are now worried about stiff competition in the Singapore market alone, with six in 10 citing it as a business challenge, compared with five in 10 in 2015.

SCCCI recommended that the government sets up a committee to look closely at major rising costs faced by businesses, such as rental, manpower, utilities, transport cost and government fees. "This also includes easing compliance costs through a coordinating government agency, and rental cap on government properties," the trade body said.

The most popular wishlist from the participants for Budget 2016 is now to extend the Productivity and Innovation Credit (PIC) scheme - a call that did not feature in SCCCI's wishlist for Budget 2015.

This comes after a notable jump in the number of businesses taking up the government grant meant to boost efficiency and encourage the use of technology. Nearly 70 per cent of those polled by SCCCI made use of PIC credit in 2015. This is up from about 40 per cent in 2013.

More participants this year compared with 2015 also asked the government to speed up the administrative process of government schemes, so as to ease cashflows of SMEs.

SMEs remain steadfastly concerned about foreign-worker policies, and do not want a further lift in foreign-worker levies. But there is a small shift in tone. Business leaders are now calling, as a key priority, for the government to adjust quotas based on each sector's needs - a more nuanced view that was not offered on 2015's wishlist. That year, the call for no quota tightening ranked as top of the wishlist for Budget 2015.

SCCCI, on its part, has reiterated to businesses there is "no U-turn in government's foreign manpower policy", and that companies here must go beyond current business models and seek out collaborations, as well as international markets, to thrive.

There is a gap in the understanding of SkillsFuture, with 56 per cent of SMEs not aware of what this movement means for businesses. But many of them are keen to participate, especially as more than half of those polled are interested in tapping a trained senior workforce.

Among the top wishes from SMEs is for subsidies such as coverage in medical and insurance costs for Singaporean workers aged above 55. The proportion of SMEs calling for more subsidies in this area has gone up by 5 percentage points, a check with last year's SCCCI study showed.

As it is, the CPF contribution rates for workers aged above 50 years to 65 years have increased from Jan 1. The rates for those aged above 50 have gone up by between 0.5 percentage point and 2 percentage points.

The government doles out subsidies to companies that re-hire older workers beyond the stipulated retirement age of 65. These are meant to partly offset the wage bill.