Significance of Singapore SMEs to the Economy

Did you know that Singapore has approximately 130,000 SMEs? Resident contributor, whysgentrepreneurssuck looks at the significance of the small-medium enterprises in Singapore to her economy.

By Spring Singapore‘s definition, SMEs are those with S$15M (~US$9.8M) or less in fixed asset investment and, for non-manufacturing enterprises, 200 or fewer employees.

According to an article by Xinhua, SMEs form ‘an important pillar of the city-state’s economy’, employing 56% of the workforce and contributing 42% of gross domestic product. Taking GDP figures of US$138B from SingStats, this translates into a total of ~$58B contributed by our SMEs to the GDP in 2006.

SMEs are seen to be shock absorbers, innovators and contributors to a country’s economic growth (through higher total factor productivity – TFP) SME Growth in East Asia – Contributing Factors, World Bank presentation. An economy with a higher proportion of SMEs is more likely to be able to adjust smoothly to external shocks or business cycles. Yet numbers alone won’t guarantee ‘success’. According to the World Bank presentation, SMEs in East Asia that survived the financial crisis were found to be mostly engaged in exports, with the necessary economies of scale and higher productivity. Taiwan was able to ride out the Financial Crisis of ’97 relatively unscathed thanks to its large proportion of SMEs, which comprise 97.8% of all companies. In comparison, Singapore was deemed to have made it through the crisis by relying on its strong macroeconomic ‘fundamentals’, sound macroeconomic policies and quick responses by our government Coping with the Asian Financial Crisis: The Singapore Experience, ISEAS.

Perhaps sensing the inability of our SMEs to cushion any external shocks, the Singapore government put in place blueprints at the turn of the 21st century, such as Industry 21, ICT 21 and Technopreneurship 21, in an attempt to beef up our SMEs’ ability to serve as shock absorbers, innovators and contributors to the economy. Fast forward several years, and in the 2007 Budget Speech, the Singapore government iterates its intention to make Singapore the best place for SMEs, local or foreign, to locate, grow and to globalise. On 1 April 2007, Mr. Invincible Mr. Philip Yeo switched portfolios to serve as Chairman of Spring Singapore, to drive the government’s efforts to develop Singapore’s SMEs for the future.

With his Midas touch, Singapore’s very own Mr. Invincible has been a lucky talisman to all the initiatives he’s steered since his entry into civil service. Will his efforts bring success in an area that has to date eluded the grasp of every other competent civil servant before him?

Only time will tell…