By Faizal Yahya
Business sentiment among SMEs in the first half of 2020 plunged to its lowest due to the uncertainty caused by the Covid-19 pandemic. The Singapore Business Federation (SBF) – Experian SME Index for business sentiment, recorded its lowest level at 46.3 points since its inception in 2009. Highly dependent on trade, the need for social distancing measures internally and the closure of borders externally, adversely impacted different economic sectors to varying degrees.
At the height of the pandemic in the second half of 2020, there were 3000 to 4000 company closures monthly. The government and various financial institutions devised financial aids for companies to arrest their decline further. The main Budget of 2020 that was aimed at unifying the population amidst the pandemic was supplemented by three additional budgets. In particular, the decline of the tourism industry affected the hospitality, air transport, arts, entertainment and recreation sectors. In relation, the land transport, food services and retail industry were also affected. In the recent Budget 2021 that was delivered on 16th February, firms, to assist firms, the Jobs Support Scheme (JSS) was extended. The most affected sectors in Tier 1, like aviation and tourism will receive 30 percent of support for wages. Firms in Tier 2 such as retail, arts & culture and food services will receive 10 percent of wage support. The least affected firms in Tier 3A will receive lesser support as they are recovering.
The aviation sector is critical for Singapore because of the need to sustain its core and strategic capabilities which are directly linked to the air connectivity and viability of Singapore’s Changi Airport as a critical hub. IATA has highlighted that global air traffic will not fully recover until 2024. In this regard, for Singapore as at the end January 2021, the total passenger movements at Changi Airport was about 2 percent of pre-Covid-19 levels. Nonetheless, Budget 2021 allocated S$870 million to the aviation sector to sustain and upgrade capabilities to prepare for the recovery in global air traffic. However, the speed of technological advances and a re-alignment of global supply chains will impact Singapore’s competitive advantages. As a historical maritime trading hub, Singapore is still a key trading hub for the global economy through its ports and airport. The pandemic has disrupted supply chains, and the realignment of global supply chains will have a huge impact on local businesses and the Singapore economy. Some of the factors that will drive the realignment of the global supply chains include: First, the building of resilience in supply chains through a “China plus One” strategy, nearshoring or in shoring of producers. Second, global warming has opened up new maritime trading routes that would save costs for the transport and logistics industry. Third, the rise of Industry 4.0 and smart factories would reduce dependency on stockpiling and inventory.
The post-Covid 19 economy will result in at least two shifts to the global value chain. First, there will be a shift from physical to digital modes of transactions across national borders. Second, in value creation, there will be a shift from tangible to intangible assets. These intangible assets comprised of the networks, data and knowledge that businesses can utilize to innovate and develop new technologies. Singapore has to think and behave as a platform nation and transform from a traditional or linear trading hub into a digital trading hub. The creation of a digital trading hub requires innovative approaches to facilitate the growth and development of the digital economy.
In order to prepare its ecosystem for the digital economy, the Infocomm and Media Development Authority (IMDA) is the point agency tasked to lead the digitalisation of the economy. The IMDA has provided schemes and grants for companies including small and medium enterprises (SMEs) to transform their business models using digital tools. For example, E-payments has been accelerated to not only reduce the problems of credit crunch for SMEs but to enable them to leverage opportunities in E-commerce.
In support of businesses, the government will invest in three platforms. First, the Corporate Venture Launchpad will undergo a trial run as a pilot project for a year to drive new innovative ventures. The aim of the Launchpad will be to provide co-funding schemes to develop new ventures through pre-approved venture studious. The hope is that larger and more established businesses would want to create a “start-up” mindset within their organisations. The second platform is the Open Innovation Platform (OIP) which aims to connect companies and public agencies that encounter problems with solution providers and then to co-fund possible prototype solutions for deployment. The third platform is the Global Innovation Alliance (GIA) which is constructed to serve as a catalyst for cross-border collaboration between Singapore and global innovation hubs.
In this context, Singapore has moved to deepen its global and regional partnerships with neighbouring Southeast Asian economies who are among its major trading partners. In 2019, collectively, the ASEAN region has a GDP of US$3.2 trillion, ranking the region as the world’s fifth largest economy. In 2020, the ASEAN region became China’s largest trading partner. China, Indonesia and Malaysia are among Singapore’s largest trading partners. A further move towards integrating the ASEAN region economically is through common frameworks to facilitate cross border trade. For example, ASEAN economies have developed the ASEAN Payment Policy Framework to encourage retail payment linkages between ASEAN countries.
Digital connectivity and cyber security remain key objectives for Singapore as it collaborates with other ASEAN members. Singapore has stepped up its investments in the ASEAN region. For example, in manufacturing, Singapore’s Sembcorp and Indonesia’s PT Jababeka have jointly invested in the Kendal Industrial Park to increase capacity in food processing, building materials and medical equipment. One of the key objectives is to create industry clusters around these sectors as demand rises for these products. To facilitate these manufacturing efforts, the Southeast Asia Manufacturing Alliance was launched to promote the network of industrial parks to manufacturers who are interested in investing in Singapore and the ASEAN region.
Singapore is also working with its Indonesian partners to develop the Nongsa Digital Park to facilitate collaboration between Singapore companies and tech talent in Indonesia. In turn, these tech talents will also be mobile to circulate in the ASEAN region and this is critical if the region is to meet the digital challenges of Industry 4.0 for a post-Covid-19 world.
About the Author
Faizal Yahya is Senior Research Fellow in the Governance and Economy Department at the Institute of Policy Studies. Prior to joining IPS, he was an Assistant Professor in the South Asian Studies Programme, Faculty of Arts & Social Sciences, National University of Singapore. Concurrently, he was a Visiting Research Fellow at the Institute of Southeast Asian Studies from 2008 to 2009 (ISEAS). He has also served in the Ministry of the Environment and Water Resources (International Policy) and the Ministry of Foreign Affairs (MFA) as a Foreign Service Officer. He was a member of the Singapore Delegation to the United Nations General Assembly (UNGA) in 1998 and was also involved in multilateral meetings dealing with environmental issues such as climate change and transboundary hazardous wastes. He was appointed as a Board Member to the Competition and Consumer Commission of Singapore (CCCS) in 2019. Faizal received his PhD in Economics in 2000 from the University of Sydney, Australia and was an Australian Overseas Postgraduate Research Scholar from 1994 to 1998.