Commentary: Companies and workers, forget life before COVID-19. Budget 2021 will help us prepare for life after it
While the Budgets in 2020 were cumulatively about preservation and adaptation during an emergency, Budget 2021 is about necessary structural changes, says OCBC’s Selena Ling.
SINGAPORE: Despite a record recession and unprecedented fiscal and other policy assistance last year, Singapore policymakers are not afraid to put their money where their mouth is.
Singapore will run another year of budget deficit estimated at 2.2 per cent of GDP, after the record budget deficit of 13.9 per cent of GDP in 2020, requiring a second straight year of a draw on past reserves to the tune of S$11 billion.
This brings the total draw on past reserves from 2020-2021 to a massive S$53.7 billion.
Total expenditures are still estimated to rise 8.8 per cent even without the special transfers, but the staggering increase of 21.1 per cent year-on-year rise is in development expenditure.
This tells you that the priority has shifted from short-term COVID-19-related assistance to preparation for future growth and competitiveness.
ADDRESSING STRUCTURAL CHANGES
As Deputy Prime Minister Heng Swee Keat put it, the four Budgets in 2020 were cumulatively about preservation and adaptation during an emergency, but Budget 2021 is about structural changes.
So what are the changes that need to be met head-on?
These are the all-too-familiar accelerating pace of technological and digital change, the need for sustained innovation and enterprise, the early adoption of 5G products and solutions, artificial intelligence (AI), machine learning, the Internet of Things, big data and advanced analytics, and the evergreen need for firms and workers to constantly upgrade and re-invent themselves to stay relevant.
The journey started back in 2016 when the Industry Transformation Maps were introduced to enable companies, especially SMEs, to stay ahead of the curve by focusing on productivity, jobs and skills, innovation, trade and internationalisation.
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The subsequent Budgets did not stinge on moves to make going digital simple for SMEs, since such firms employ two-thirds of the workforce and contribute nearly half of Singapore’s GDP.
HELPING SMES TRANSFORM
These schemes include the SMEs Go Digital programme, Start Digital Solutions, Productivity Solutions Grant, and the SkillsFuture Enterprise Credit, just to name a few.
Nevertheless, the pandemic has dampened SME’s digital transformation and overseas expansion plans.
According to a 2020 SME Digital Transformation Study by the Association of Small and Medium Enterprises and Microsoft Singapore, while 83 per cent of SMEs in Singapore now have digital transformation strategies in place, over half also reported COVID-induced delays and only two out of five SMEs perceive their efforts as successful.
So what is holding back the transformation? Cost is one factor: The pandemic sharply hit demand and hence cash flows, so many SMEs were simply trying to stay afloat and digital transformation efforts may have taken a backseat.
The other hindrances could be the lack of a mindset shift, difficulties in implementation, lack of digitally-skilled workforce, trouble finding appropriate technology partners and mentors, and, of course, the still uncertain economic environment.
THE NEW NORMAL
The wish to revert to our pre-COVID normal could be what is blinding businesses and workers from true transformation.
The hope is to return to “business as usual” pre-pandemic. But the reality is that those “brick and mortar” business models are facing an existential threat from the accelerating shift from physical to digital, from tangible to intangible, from borders to a cyber-world.
Thankfully, the 2021 Budget’s laser focus on transformation and frontier tech should dispel discussions over whether Singapore is out of the woods and clearly cast the lens to the future in a post-COVID era instead.
With the Singapore Government’s pledge of S$24 billion, at 22 per cent by far the most significant chunk of the total S$107.2 billion expenditure, to transform businesses and workers over the next three years, the message and intent should be clear.
These include the Enterprise Financing Scheme-Venture Debt programme aimed at start-ups, the S$1 billion set aside to extend existing schemes such as the Productivity Solutions Grant and Enterprise Development Grant to end-March 2022.
There are also plans to launch new schemes such as a chief technology officer or CTO-as-a-Service initiative, a Digital Leaders Programme to help firms hire a core digital team, and an Emerging Technology Programme that will co-fund the costs of testing and adopting new technologies like 5G and artificial intelligence.
All these initiatives should help catalyse the adoption of frontier technologies, stimulate necessary investments in digital solutions, enhance digital connectivity and reliability in a world facing global supply chain disruptions and resurgent virus outbreaks.
They should ultimately expand the markets for local enterprises beyond the domestic shores as part of reinforcing economic resilience.
For workers, the transformation of workforce skills is pivotal to aiding and empowering Singapore firms to embrace the digital economy.
Of note is the S$5.4 billion allocated for the second tranche of the SGUnited Jobs and Skills Package, of which S$5.2 billion is to extend the Jobs Growth Initiative (JGI) till September 2021 in addition to the S$3 billion allocated last year.
The JGI is expected to help support the hiring of up to another 200,000 workers and provide up to 35,000 traineeships this year, building on the strong momentum seen with 110,000 local workers hired in the first two months of the JGI scheme last year, with more than half of that being mature workers aged 40 and above.
The imperative is on Singaporeans to be agile, reskill, upskill or acquire new skills and remain employable come what may in a rapidly evolving labour market.
In turn, this would bridge the gap for vulnerable lower-skilled workers, contribute to a more inclusive economy and mitigate income inequality.
Mature workers should also see continued assistance in embarking on skills upgrading, career conversion programmes and transiting into jobs in new growth areas. Job redesign can also allow for more flexibility and bring more job opportunities to the heartland.
Competition is here to stay, but complementarity of local and foreign manpower is key.
The message on the foreign worker policy remains clear - the way forward is neither to have few or no foreign workers, nor to have a big inflow.
Foreign workers with the needed skills and expertise will complement the Singaporean workforce where there are specific skill shortages.
But tough decisions like the one to tighten the Manufacturing S Pass Sub-Dependency Ratio Ceiling are also not be shied away from.
With these exciting initiatives in the Emerging Stronger Together Budget 2021, Singapore businesses and workers should not look to the pre-COVID past but prepare for the post-COVID future to harness the coming growth opportunities.
In every crisis comes opportunities and it behoves the brave to grab the bull by its horns in the Year of the Ox.
Selena Ling is Chief Economist and Head of Treasury Research & Strategy at OCBC Bank.