Business Costs in Singapore and Measures to Help Businesses Remain Competitive

Mr Speaker, a confluence of external and domestic factors have contributed to higher costs for businesses in Singapore. Notably, the global prices of energy and other intermediate inputs have risen sharply from a year ago and are expected to remain elevated amidst the ongoing Russia-Ukraine war and protracted global supply disruptions.

This has, in turn, raised the cost of utilities, fuel and transportation, amongst other costs, for Singaporean businesses. Domestically, the tight labour market will continue to exert upward pressure on labour cost. Reflecting these cost pressures, the unit business cost (UBC), which refers to the business cost incurred to produce a unit of output in each sector, has risen for the manufacturing and service sectors.

Specifically, the unit business cost of the manufacturing sector rose by 5.2% on a year-on-year basis in the second quarter of 2022, extending the 4% increase of the previous quarter. This is a reversal of the 7% per annum decline in the five years between 2017 and 2021. Similarly, the UBC of the overall services sector rose by 7.2% year-on-year in the first quarter of 2022, following the 7.9% increase in the previous quarter.

This was faster than the 1.9% per annum increase between 2017 and 2021. Nonetheless, businesses have remained profitable, with their gross profits increasing by 9.8% year-on-year on average in the second quarter of 2022, extending the 10.1% rise in the first quarter.

The Government is monitoring business costs closely and will continue to provide targeted support to businesses where needed. For example, under the Small Business Recovery Grant (SBRG), over 40,000 businesses in the sectors most badly affected by COVID-19 restrictions were eligible for a total of about $132 million in payouts. We are also helping businesses cope with higher electricity prices through the Energy Efficiency Grant (EEG) and alleviating their cashflow challenges through the Enterprise Financing Scheme (EFS).

In terms of labour costs, the Government will co-fund the wage increases of lower-wage workers for five years from the year 2022 to the year 2026 under the Progressive Wage Credit Scheme (PWCS). As part of the $1.5 billion support package announced in June, the Government's co-funding share for 2022 PWCS support was enhanced from 50% to 75% for wages up to $2,500, and from 30% to 45% for wages above $2,500 and up to $3,000. In addition, the Government has extended the Jobs Growth Incentive (JGI) until March 2023 to support employers that hire vulnerable workers.

As we provide short-term relief to help businesses cope with rising costs, we will also not let up on our long-term efforts to raise productivity, build capabilities and transform our businesses to seize new opportunities. This is really because the only sustainable way for businesses to cope with cost pressures over the long run is to become more productive and more competitive.

The Government will continue to provide support to businesses seeking to strengthen their capabilities and scale new heights through schemes, such as the Enterprise Development Grant (EDG) and the Productivity Solutions Grant (PSG).

I would like to thank the Minister of State for the update. Just one supplementary question. As we transition to a higher cost economy, how do we intend to balance between supporting companies in the short run and maintaining our competitiveness in the longer run? And would being a higher cost economy make us more vulnerable to external shocks, causing disruptions to the local workforce?

Mr Speaker, I want to thank the Member Mr Desmond Choo for his two supplementary questions. This has been a very atypical year, where a confluence of external and domestic factors has contributed to higher costs for businesses in Singapore. Notwithstanding that, businesses have remained profitable. The gross profit increased by 9.8% year-on-year, on average, in the second quarter and this extends the 10.1% rise in the first quarter.

I just read that Minister Josephine Teo graced a Singapore Chinese Chamber of Commerce & Industry (SCCCI) conference this morning and, if I remember correctly, the conference is a two-day conference that is organised by SCCCI.

It released findings from a survey. It is very heartening. The SCCCI survey polled SMEs. The survey findings indicate that most businesses expect to be profitable; that is one. And the second takeaway from that survey is that the SMEs in Singapore that SCCCI polled said they will embrace digitalisation efforts to overcome manpower constraints.

Therein lies, in a way, the answer to the Member's supplementary questions, the key to supporting our businesses, not just in the near term, but also medium term and long-term.

In the near term, as I have mentioned earlier, not just MTI and our economic agencies, but we work very closely with MCI, IMDA, especially in terms of supporting our SMEs with digitalisation initiatives. We will take a whole-of-Government effort to support our companies, to make sure they are well-placed to seize the opportunities in the digital economy and also in the sustainability space. And, for example, the various schemes that I have talked about, just taking the example of EDG and PSG.

A few years back, the support level for EDG and PSG was pegged at 50%. We increased it to 70%. But because the two sectors, the retail and food services sectors, were hit hard by the pandemic, this year in March, we announced that under the Food Services and Retail Business Revitalisation Package, we would increase the support level to 80% for companies in these two sectors.

We will keep our eyes and ears very close to the ground to continue to see how we need to improve and refine our existing initiatives or even roll out new initiatives. For example, we have improved and refined the Enterprise Financing Scheme – Trade Loan. We have increased it from $5 million to $10 million, from 1 July this year to 31 March next year, because we heard feedback from SMEs that some of the raw material costs have increased since the first quarter of this year.

Similarly, we have also increased the SME Working Capital loan from $300,000 to $500,000. This increase would take effect from 1 October this year to 31 March 2023. To help our companies address utility costs, we have also just rolled out EEG, targeting the companies in the three sectors that are most affected, that is, the food services, food manufacturing and also the retail sector. The support level is at 70%. In a way, the Government is co-funding the investment in energy-efficient equipment to help them bring down the cost of electricity and utilities.

So, I want to assure Mr Desmond Choo that all hands are on deck, not just from MTI, but the whole-of-Government, to support our companies to tide through this challenging period and to ensure their long-term competitiveness.