SMEs are 'a central focus in transforming our economy'

An edited extract of Minister for Trade and Industry (Industry) S.Iswaran's speech in Parliament yesterday

After the Committee on the Future Economy (CFE) report and last week's Budget statement, there has been much discussion on the economy in the lead-up to this debate. The central questions are where are the opportunities, how do we position ourselves to seize them, and what can we do to deal with short-term challenges. These involved policy decisions and trade-offs. These sentiments have also been echoed by some members today.

THERE ARE SIGNIFICANT OPPORTUNITIES FOR SINGAPORE COMPANIES IN THE REGION

Last year our economy grew at 2 per cent, with growth picking up in the final quarter. Between 2011 and 2016, we averaged 3.1 per cent, which is comparable to other advanced and regional economies. The CFE expects annual growth of 2 to 3 per cent over the next decade. This may be less than what we were accustomed to in the past, but it is consistent with our stage of economic development, our demographic profile, so we need to ensure that within the context of where we are today, we continue to emphasise productivity and innovation as part of the basis for continued growth. This is because with this standard of economic growth, which is not insignificant by international comparisons, it will allow us to continue to create opportunities for our businesses and good jobs for our people.

We are also situated at the heart of a region that is an important driver of global economic growth. Asean, China and India are bright spots, with the Asean-5 countries expected to grow at 4.9 per cent in 2017, China at 6.7 per cent and India at 6.6 per cent. Their growth emanates not just from the key regions and main cities, but increasingly from the next tier of cities and regions with which we might be less familiar. We need to go beyond traditional spaces and deepen our knowledge and acquire a more nuanced understanding of these new markets.

In tandem with this growth in the region, we see rapid urbanisation and the rise of the Asian middle class with greater disposable incomes and sophisticated demand in sectors like retail, lifestyle, F&B, education and healthcare.

These emerging opportunities play to strengths that we have developed over the years. One example is in infrastructure and urban solutions. McKinsey estimates that the demand for infrastructure in emerging Asian markets, particularly China, South-east Asia and South Asia, will grow by US$20 trillion (S$28 trillion) between 2016 and 2030.

China's One Belt, One Road initiative has heightened interest in regional infrastructure projects (road, rail, ports, airports). India's plan to build 100 smart cities needs adaptable and high-quality urban solutions. Our infrastructure and urban solutions companies are held in high regard and can participate in these opportunities, in partnership with their Chinese, Indian and regional counterparts. This is just not an opportunity for big players. In fact, it extends to SMEs like Memiontec and WaterTech Private, which tap into the demand for small-scale water and energy solutions in the region. In this Budget, the key initiative is really the extension of our Internationalisation Finance Scheme (IFS) for non-recourse financing. It is aimed at helping our smaller businesses go regional and seek opportunities.


Mr Iswaran checking out the robotics technology of one of Meiban's partners at the Meiban Innovation Centre in Ang Mo Kio Industrial Park last year. The Meiban Group has begun to digitalise its factory operations through what it calls the iSmart Factory project. PHOTO: LIANHE ZAOBAO

The digital economy also presents unprecedented opportunities. The smallest company can now seek customers in the furthest markets as long as there is digital access. Companies, regardless of size, can reach out to customers anywhere through digital channels, transact with business partners and seek out payment solutions. Literally transformative. It is transforming industries and offering new ways to overcome our constraints and seek out new opportunities. That is why the CFE has emphasised the importance of enabling our companies to harness digital technologies and platforms. Some companies have already made the move. HipVan, a popular furniture and home decor store, has primarily used e-commerce platforms to build its business. Its customers make their purchases online; their manufacturing is distributed; and they work with logistics partners on delivery. It also deploys data analytics and digital marketing tools to spot trends and expand their reach internationally. HipVan has reinvented the traditional furniture business model through digitalisation. We have also seen initiatives from larger companies to establish digital platforms for the benefit of SMEs. Just today, Singtel, a co-founder of the 99% SME movement along with DBS, announced a partnership with Lazada to set up an SME e-marketplace, and help SMEs tap into a wider online customer base.

HELPING SMES SEIZE THESE OPPORTUNITIES

These are just some examples of the opportunities that lie before us. Our challenge is to ensure that our companies are geared up for the longer term so that they can seize these opportunities. This is especially important to sustain our competitiveness and growth as others are also similarly adapting themselves. Hence, this is a key focus of the Government's economic efforts. The Industry Transformation Maps are a key modality with sector specific strategies that will cover three broad areas:

First, to grow top line and scale, we support companies in internationalisation and financing.

Second, to remain competitive, we support capability development, both to innovate and raise productivity.

Third, we support the development of deep skills in our workers.

In all of these assistance and development efforts, the primary focus and beneficiaries are our SMEs. And for good reasons. First, SMEs are a significant part of our economy. They account for about half of our GDP growth and two-thirds of employment. To effect change and transformation in the economy, they have to accept the reality, embrace the change and be change agents. Second, individually, they often lack the scale to make the investments necessary to cope with the changes taking place and to benefit fully from the opportunities. Finally, they are the key engine of our future growth and integral to the competitiveness of our economic clusters. As SMEs scale, they will create more opportunities and jobs for Singaporeans.

Therefore, the Government is resolute in our commitment to help our SMEs make this transformation successfully. Large companies do not necessary need this breadth of support. It is the small companies that need them. Let me briefly outline five areas in which we support SMEs.

GROWING TOP LINE AND SCALING UP: INTERNATIONALISATION AND FINANCING

First, internationalisation. If you are a company taking the first step towards internationalisation, you can tap on IE's Market Readiness Assistance and the Global Company Partnership Scheme to study and understand the market before growing your international footprint. We have set aside $400 million in grants to support internationalisation. The Government can be an enabler but we cannot make the decision for the companies. In this Budget, we have set up the $600 million International Partnership Fund to co-invest with firms to help them expand overseas.

Second, financing. The Government has a suite of loan programmes which will collectively catalyse $5 billion in loans up to 2020. This includes the SME Equipment Loan and the SME Factory Loan. The Monetary Authority of Singapore has also recently reviewed our regulations to enhance the ability of finance companies to provide financing to SMEs.

Earlier, I mentioned that the infrastructure sector in particular afforded significant growth opportunities for Singapore companies. At this Budget, we also introduced the IFS for Non-Recourse Financing to help SMEs participate in these opportunities. This scheme is designed to encourage financial institutions to provide non-recourse loans to SMEs once projects move into the post-construction stage, so that SMEs can free up their balance sheets to take on new projects. The constraint today is that small businesses tie up their resources through personal or corporate guarantees and it limits their ability to take on new projects.

This scheme is targeted at helping businesses in an effective way. Over the next five years, we expect to catalyse $600 million dollars in loans, which will correspond to approximately $1 billion in infrastructure projects.

HELPING SMES STAY COMPETITIVE: INNOVATION AND CAPABILITY DEVELOPMENT

Third, innovation. Our SMEs want to create new products and services that can differentiate them in the market but they are constrained by resources available for R&D. Hence, we have a range of schemes ($100 million) to help SMEs commercialise intellectual property (IP) through our network of Centres of Innovation; and to help SMEs build up their innovation capabilities through the secondment of public sector researchers to our SMEs ($36 million Technology Adoption Programme and $45 million Get-Up scheme). At this Budget, we announced the A*Star Tech Access Initiative, to help SMEs gain access to costly specialised equipment, user training and advice; and extended the A*Star Headstart Programme, which lets SMEs enjoy royalty-free and exclusive IP licences for 36 months, up from 18 months.

Fourth, capability development. SMEs can tap on the Capability Development Grant (CDG) for larger-scale projects, including automation under the Automation Support Package. CDG also supports projects to raise productivity and develop new competencies. SMEs can also utilise the Innovation and Capability Voucher to flexibly take on smaller upgrading projects. We also have Pact, the Partnership for Capability Transformation scheme, where SMEs collaborate with larger companies to develop new capabilities.

Further, at this Budget, we announced the SMEs Go Digital Programme, which will help SMEs digitalise their products, services and processes. Overall, we have set aside $1.5 billion of grant support for such capability development in SMEs.

HELPING SMES DEVELOP THEIR WORKERS' SKILLS

Finally, skills. We are making a significant investment in developing the skills of our people through SkillsFuture. To help SMEs tap on SkillsFuture, we have put in place initiatives such as the SME Talent Programme, the SkillsFuture Mentors Scheme and the SkillsFuture Earn and Learn programme.

In each of these areas, there are continual efforts to make Government support more accessible to SMEs, through initiatives such as the Business Grants Portal, the SME Digital Technology Hub, as well as the new IP Master Agreement. SMEs can approach the SME centres or go to our SME portal or economic agencies to find out more. There is no wrong door, and they will help you navigate. They key is we have this plethora of support.

Fundamentally, we are in a more uncertain environment. Therefore the emphasis is on a broad range of measures and schemes that are the key platforms to raise the industries as a whole. Companies that are prepared to go further and faster will receive more support. But that does not mean that we are picking winners. The winners are picking themselves and adapting to our schemes.

The impact of such programmes is amplified when the trade associations and chambers come on board to take the lead and get firms in their sector to act together. One good example is the logistics industry - where associations such as the Container Depot Association (Singapore) (CDAS) and the Singapore Logistics Association (SLA) play important roles.

The logistics industry is a traditional strength of ours, and is poised to tap on Asia's rising middle class and the growth of e-commerce. It will harness emerging technologies such as data analytics to improve service delivery. For example, CDAS has launched the electronic container trucking system (with help from Spring) to streamline container logistics operations and improve container supply chain visibility. To go international, SLA has worked with IE to help its members better understand growing markets, including a study mission to understand the investment and business opportunities arising from China's One Belt, One Road initiative.

To help train workers for the new jobs being created, the SLA also plays an active role in attracting and training talent for the industry through its training arm, The Logistics Academy.

As evident, there is no lack of Government resolve or resources available to help our companies, especially SMEs, successfully transform. But we are aware that there is significant variation across sectors and some are facing significant headwinds. For example, the electronics sector grew by more than 15 per cent in 2016, while the transport and storage sector grew by 2.3 per cent. On the other hand, the marine and offshore engineering segment has contracted for nine successive quarters.

These variations exist because sectors face different cyclical and structural conditions. For example, lower oil prices have severely affected demand in the marine and offshore industry.

The retail industry is coping with disruptive technological changes such as e-commerce which threatens to disintermediate some retailers, while creating new opportunities for others. These disruptive forces are playing out in other sectors too. At the start of this decade, Uber and Grab did not exist. Rapid developments in fintech and artificial intelligence (AI) are also disrupting the financial services, manufacturing and other services industries.

HELPING SMES OVERCOME SHORT-TERM DIFFICULTIES

The Government recognises these immediate challenges that our SMEs are facing. We will continue to provide short-term relief where necessary through the system of broad-based support we have built up over the years.

  • To help with wage costs, we had introduced the Wage Credit Scheme and the Special Employment Credit (SEC) scheme. We also extended the additional SEC at this Budget until end-2019. Together, these amount to about $1 billion in cash pay-outs to businesses in March 2017.

  • To help SMEs with liquidity, we had introduced the SME Working Capital Loan in 2016, which has catalysed more than $700 million dollars in loans to about 4,300 SMEs. We have also extended the corporate tax rebate and raised the rebate cap to $25,000, at 50 per cent of tax payable for year of assessment 2017.

We also closely monitor rental and other business costs. In 2016, industrial, retail and office rentals all fell. We will continue to maintain a steady pipeline of industrial land and space to ensure that there is competitive pressure in the market and rents remain affordable.

We have not introduced further broad-based measures, but we have put in place customised support for specific industries due to their varied circumstances. For example,

  • For the marine and offshore engineering sector, we introduced the M&OE Engineering Bridging Loan and the M&OE Internationalisation Finance Scheme in November last year. Not a panacea, but some consolidation is inevitable. The the aim is to preserve the core capabilities that we have built up over the years by helping some M&OE companies to meet short-term cash flow needs, and secure new loans to continue to take up projects. We expect these two schemes to catalyse approximately $1.6 billion in loans over one year.
  • •For the marine and process sectors, we have deferred levy hikes for work permit holders.
  • •To support the construction sector, which has been weighed down by the property market slowdown and economic uncertainties, we are bringing forward $700 million of public sector infrastructure projects to start in FY17 and FY18.

These measures are an illustration of a more targeted response and support for SMEs and other businesses from Government, complementing the broad-based measures we already have in place, in response to the varied needs in the economy.

In summary, the opportunities before us are significant. To seize them, we must invest in the capabilities of our economy, people and enterprises, especially our SMEs. The most durable solution lies in moving up the value curve, innovating, offering products and services that others are not offering, and adopting management methods and techniques that will close the big gaps in productivity in some sectors compared to international best practices. The Government is resolute in our support, through broad-based and targeted programmes, to help our SMEs make this transformation successfully. We do not pick winners, but will support companies that are prepared to make these important transitions. And in all of these efforts, SMEs are our central focus.

Ultimately, creating vibrant, competitive industries with strong capabilities is the surest way to ensure the success of all our businesses, including the SMEs. The Government looks forward to working closely with trade associations and chambers, and unions to ensure a diverse enterprise eco-system, a thriving SME community and a strong economy rich with opportunities.

A version of this article appeared in the print edition of The Straits Times on March 01, 2017, with the headline 'SMEs are 'a central focus in transforming our economy''. Print Edition | Subscribe