Singapore firms cautiously optimistic

SINGAPORE - Food and beverage chain Thai Express Concepts had over $100 million in sales last year, but increasing rental and labour costs have been making it harder for the chain to attain growth in its profits.

Its chief executive, Mr Dellen Soh, estimated that he had to fork out between 10 and 20 per cent more for rentals in the last two years, while labour costs shot up by about 15 per cent last year.

"If we are able to hit the same amount of sales this year as we did last year, I would be very happy," he said, adding that he hoped the Government would address rising business costs in the upcoming Budget.

Mr Soh's sentiments echoed the findings of business-outlook surveys released yesterday by the Singapore Business Federation (SBF) and DP Information Group.

They highlighted that sustained concerns over high business costs and the global economy have led companies here to be less optimistic about business prospects this year than last year.

Most sectors are expecting weaker turnover and profits in the next six months, although they remain confident that they will still attain growth and reap profits.

One poll - the latest SBF-DP small and medium-sized enterprise (SME) index survey, which involved 3,000 SMEs across five sectors - found that firms in only the construction and engineering industry are expecting higher turnover in the next six months.

This is mainly due to them having projects in the pipeline. But such firms also said that they are seeing profit margins weighed down by higher operating costs, so they are not foreseeing higher profits.

Firms from the commerce and trading sector are the only ones expecting higher profits. They cited high regional demand and the strong Singapore dollar as reasons.

Given this cautiously optimistic outlook, more SMEs said that they are looking to increase capital investments to boost productivity, instead of increasing headcount, in the next six months.

In line with this, a separate National Business Survey, also released by SBF and DP yesterday, showed that 74 per cent of the 1,006 companies they polled said that they will focus on increasing cost efficiency and productivity as their key business strategy this year.

Most said that they will still continue to hire this year, as well as maintain their current number of foreign workers.

However, 45 per cent of the firms polled said that, in the face of a tighter foreign-worker policy introduced in last year's Budget, profit margins dropped between 10 and 20 per cent.

Another 9 per cent said their margins have plunged by more than 30 per cent, while 1 per cent said they have ceased operations.

Given this, it is no surprise that addressing higher business costs and employment issues emerged as the top two concerns of the firms surveyed.

Some 35 per cent polled said they hoped this year's Budget would focus on reducing rental costs. Another 44 per cent said they would like to see an adjustment in foreign-worker quotas, while 20 per cent wanted easing of foreign-worker levies.

A survey by the Institute of Certified Public Accountants of Singapore, presented at a pre- Budget roundtable yesterday, also showed that rising business costs, uncertain global demand and increasing regulation resulted in a gloomy economic outlook for this year.

But many panellists at the roundtable said that this was only a short-term issue.

UOB economist Jimmy Koh said that Singapore is no longer in the crisis mode that it was in for the last two years but, rather, it is experiencing a "recalibration of growth".

OCBC Bank economist Selena Ling said that the current climate makes it a "wonderful time to target emerging markets", such as Turkey and Myanmar.