By Chuang Peck Ming

RISING business costs are squeezing profit margins of small and medium enterprises in Singapore but these SMEs are keeping their heads above water, Trade and Industry Minister Lim Hng Kiang told Parliament yesterday.

'Loan default rates and rental arrears are stable,' he said in an oral answer to Arthur Fong (West Coast), who wanted to know how SMEs are doing in these trying times.

'Industry feedback is that SMEs' business expectations for the next six months are still moderately positive.'

Mr Lim said the services sector, made up largely of SMEs, put on a healthy 7 per cent gain in the second quarter this year.

Going forward, those in businesses such as medical technologies, oil & gas, environment and renewable energy, healthcare & wellness, education and lifestyle products and services are tipped to do well, according to him.

'Amidst the challenging global economic environment, business costs have indeed gone up,' Mr Lim said. 'But this is not unique to Singapore. SMEs in other countries are similarly affected.'

As prices of global commodities keep rising, he said it is unlikely the cost pressures on SMEs will ease. But SMEs can turn to the government for help in some key areas that have contributed to their increasing cost burdens - manpower, rentals and loans.

The credit crunch that hits businesses elsewhere seems to have spared SMEs in Singapore.

'There does not appear to be much credit tightening for SMEs,' Mr Lim said. 'For instance, the amount of outstanding LEFS and LIS loans to SMEs for the first seven months of 2008 has grown by more than 50 per cent over the same period last year.'

SMEs here continued to have access to credit through the Local Enterprise Finance Scheme (LEFS), Loan Insurance Scheme (LIS) and Microloan Programmes.

'The percentage of SME defaults on bank loans has remained stable,' Mr Lim said. 'We are monitoring these trends carefully and will increase government loans to SMEs if necessary.'

To ease manpower constraints for SMEs, he said his ministry is working with the Manpower Ministry to reach out to housewives and older workers to encourage them to join the workforce.

'We have also provided greater flexibility in our foreign worker policy since January 2008,' Mr Lim added. 'As a result, while we have been seeing some increase in labour costs in recent months, this is still at a reasonable level compared with labour costs in previous years.'

In seeking to ease rentals, he said the government has released more 'transitional' sites and vacant state properties for office use - and this will come on stream in about a year.

The government has similarly increased space available for industrial and retail developments, helping to temper the hikes in industrial and retail rentals.

'By next year, there would be more forward supply which will gradually be realised over the next few years to ease demand,' Mr Lim said. 'Nonetheless, we are already seeing a moderation in industrial rental growth rates.

Industrial rentals rose about 2.3 per cent in the second quarter, down from about 7.8 per cent in the fourth quarter of 2007.

This article was first published in The Business Times on September 16, 2008.