Singapore SMEs keen on capital investment despite expectations of lower turnover, profits: poll

LOCAL small and medium-sized enterprises (SMEs) in Singapore are looking to invest in their businesses despite expectations of a weaker economic environment and financial performance in the next six months, a survey found.

The SBF-DP SME Index has edged down from 50.7 to 50.4 this quarter - declining for the fourth consecutive quarter - in a nod to softening business sentiment and increased wariness among SMEs. The index – a joint initiative of the Singapore Business Federation (SBF) and DP Information Group – measures the business sentiment of SMEs for April to September, surveying over 3,600 SMEs between Jan 14 and March 1.

Along with a neutral sentiment reading, the latest index reading shows lower expectations for turnover (from 5.13 to 5.03) and for profitability (from 5.07 to 4.94). This is the first time in six quarters that profitability expectations has dropped below a reading of 5.0, indicating uncertainty. 

However, the index also shows an increase in capital investment expectations across all sectors, except business services. The overall figure increased marginally from 5.16 last quarter to 5.18 this quarter. 

SBF & DP said in a joint statement: "This could be reflective of initial reactions to SME-related funding initiatives announced during the Singapore Budget 2019 on Feb 18 this year. This could also indicate a growing focus on business transformation with a view on investing for the long-term success." 

Manufacturing saw the biggest rise in capital investment expectations of the sectors, going up 2.15 per cent from 5.12 to 5.23, which suggests "manufacturing companies are taking necessary steps to transform their business as they expect the near-term moderation in turnover and profit to thin".

Similarly, the score for the retail/F&B (food and beverage) sector increased 1.71 per cent to 5.35 "potentially due to SMEs in the sector continuing to embrace technology innovation and digital solutions, such as e-payment methods, to improve customer experience and service". 

Meanwhile, the manufacturing sector saw a 1.2 per cent quarter-on-quarter decline in sentiment from 50.3 to 49.7 in January 2019, which is the first time sentiment has gone below the 50 reading in the last two years. This was a result of a decline in five out of seven expectations - turnover, profitability, business expansion, capacity utilisation and access to financing. In particular, turnover and profitability expectations saw the largest drop in sentiment, likely on the back of lower factory output. 

James Gothard, general manager (credit services and strategy South-east Asia) of DP Info's parent Experian, said of the manufacturing sector reading: “Though we do believe that this is temporary, in the longer horizon, we may see (SMEs) bearing fruits due to their investments in business transformation.”

Ho Meng Kit, chief executive of SBF, added: “The unresolved geoeconomic and geopolitical conflicts continue to weigh on the confidence of SMEs, but we urge our companies to keep their eyes focused on the longer term and persist with their business transformation efforts to sharpen quality and improve productivity. This will help them stay ahead of increasing global competition and keep pace with industry changes."

He also said despite the more challenging environment for exports and the manufacturing sector, there are still opportunities overseas for growth.

Mr Ho added: "SBF continues to actively engage our companies to make effective use of Singapore’s extensive network of Free Trade Agreements (FTAs) and will keep up our momentum of business transformation activities such as training and providing members with overseas business opportunities through business missions and global trade fairs.”