Policy challenge—supporting small and
medium-sized enterprises ----------
Small and medium-sized enterprises (SMEs)—businesses with annual
sales of up to S$100 million or up to 200 employees—ar...
e an integral
part of the Singapore economy. SMEs account for 99% of all enterprises,
more than 50% of output, and 70% of employment. Recent years have
been particularly challenging for SMEs in Singapore. In addition to weak demand in the protracted global recession, SMEs face a labor supply
squeeze and rising domestic costs, which are largely induced by the
government’s economic restructuring policy. SMEs feel the consequences
of these shocks more strongly because of their limited access to finance
and their less-developed financial and management capabilities. Recent
surveys indicate that profits margins have narrowed, the number of SMEs
reporting losses has risen, and enterprises are less optimistic regarding
sales, profits, hiring, and capital investment in the coming months.
Recognizing SMEs’ predicament, the FY2013 budget introduces a
3-year package worth S$5.35 billion to help businesses cope with rising
costs (Table 3.29.2). It provides incentives for firms to invest in raising
productivity and pay correspondingly competitive wages. Other programs
specifically for SMEs are being implemented by a government agency
facilitating the development and growth of indigenous firms. While these
incentives will not fully offset costs in the short run, they provide a buffer
for firms adjusting to the economic restructuring program.
The recent economic situation in Singapore, though not as severe as
during the 2008–2009 global financial crisis, calls for more attention to
the complex challenges that SMEs face. In the short term, SMEs must
be willing to trim their margins and pay more for labor while building
new business models. The measures announced in FY2013 will be helpful,
but more needs to be done. Going forward, the government’s policy of
pushing firms toward less reliance on foreign labor, capital deepening,
knowledge and systems upgrades, and innovation could be taxing for
SMEs. Any shrinkage of the sector would have important unemployment
and inequality consequences.
The challenge is to get the right balance such that restructuring
toward higher productivity and sustainable growth does not happen at
a very high social cost, while ensuring that policies do not encourage
long-term dependency. This objective warrants well-targeted and
incentive-compatible transfers to the most vulnerable firms, especially
micro enterprises. Rigorous evaluations of government support are
necessary to assess actual impact on SMEs as a guide to policy makers.
With a comfortable fiscal cushion, the government is well positioned,
despite the sluggish global economy, to push for reforms toward a more
sustainable and inclusive growth path that takes SMEs’ requirements
Source: Standards, Productivity, and Innovation Board of Singapore - http://www.spring.gov.sg/Pages/homepage.aspx
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