A closer look at how your local businesses are faring
We’ve all heard about the slowdown in the economy recently—usually paired with concerns over global macroeconomic uncertainty and technological disruption. While recent GDP results served as a boost of optimism, it seems ineffectual in lifting the sentiment amongst local companies.
KPMG’s pre-Singapore budget survey showed that business sentiment is near an all-time low, showing a poorer outlook than when 2008 financial crisis hit. A total of 123 companies participated in the survey, with an equal mix of SMEs, MNCs and larger companies.
Cause for concern
With Asian stocks dipping low, the inauguration of President-elect Trump looming in, and uncertainties from within the region, specifically China and ASEAN, pessimism is understandable at this point. 70% of companies cited global economic volatility as their top business concern. This is a large spike compared to last year where only half of them rated it as the biggest worry.
The services sectors were less affected than construction and manufacturing while growing sectors like IT and Education faced new challenges mostly in employment (mismatch and lack of specific skills needed).
Similarly, as a result of potential upcoming (and extremely volatile) interest rate hikes, there is immense cost pressure on companies. 48% of respondents mentioned the grave combination of rising rentals and manpower costs as a major point of concern. High costs would deter foreign firms from investing in the local scope.
Previously, despite poor sentiments, there were semblances of rebounding back up within 9-12 months. This time however, there is a significant loss of demand and lack of recovery or stimulus.
Innovation is vital for growth
The survey was to complement the plans for the upcoming Budget 2017 and answer questions like “How can Budget 2017 help address these concerns?” 68% of the companies reflected the need for the government to aid their developments both on the local and international stage. The only way to thrive in the Fourth Technological Revolution is to innovate and keep up with the increasingly diverse needs. KPMG pointed out the tremendous improvement as a result of the Productivity and Innovation Credit (PIC) scheme and hence included it in their Budget 2017 wishlist.
The PIC scheme was introduced back in 2010 to encourage local companies to invest in productivity by offering them cash and tax deductions for costs like worker training and automation. This proved to be highly relevant today and can be further enhanced through these schemes to encourage research and development or internationalisation.
Mr Harvey Koenig, a tax partner at KPMG pointed out that some companies have only realised the need to invest in R&D recently, causing them to be at loss.
Nonetheless…
As grim as the situation seems, there is still some form of resilience thanks to globalisation. 45% of companies said they are looking for internationalization. These figures are backed by comforting case studies of companies venturing overseas in the past few years. Many are restructuring their business models to adapt adequately as well, dealing with ongoing short-term pressures while preparing for long-term growth.
