Singapore SME recovery continues in Q2 despite tighter COVID-19 measures: OCBC SME Index
Singapore’s small and medium-sized enterprises (SMEs) turned in a resilient performance in the second quarter of 2021 as their recovery from the Covid-19 pandemic continued to gain momentum despite the impact from the Heightened Alert measures in Singapore and prolonged Covid-19 disruptions to work across the region. The OCBC SME Index (OCBC SMEI) for 2Q 2021 rose sharply by 8.3 points to 59.5 from 51.2 in 1Q 2021, benefitting from the low base effect in 2Q 2020 when the Circuit Breaker was in full effect.
Notwithstanding the favourable base effect, in 2Q 2021 collections from sales across the 100,000 SMEs represented in the OCBC SMEI also grew by 6% quarter on quarter as a result of improving cross-border trade especially with Greater China and ASEAN, which offset the lower collections from F&B and other domestic services.
This was the second quarter that the index turned expansionary since the outbreak of the pandemic and the strong reading in 2Q 2021 was broad-based as all industries registered OCBC SMEI readings exceeding 50. Business Services, which had lagged the rebound in other industries due mainly to the constraints in travel-related events and exhibition services, was the last industry to turn expansionary, jumping to 56.7 from 49.1 in 1Q 2021. Notably, the green shoots first observed in Healthcare and Transport & Logistics in 2020 continued to extend the positive momentum, recording 4 and 3 consecutive quarters in expansionary territory respectively.
Please refer to the Appendix to learn more about the performance of other key industries.
As expected, the additional control measures imposed during the quarter had an impact on the 2Q 2021 reading of the OCBC SMEI. However, against the earlier forecast of 60.5 for 2Q 2021 made before the introduction of Phase 2 (Heightened Alert), the SMEI was only 1 point lower at 59.5. The impact was of course greater in F&B and Business Services, which registered OCBC SMEI readings that were lower than the Bank’s 2Q 2021 forecast by 2.5 and 1.3 points, at 55.1 and 56.7 respectively. Still, the impact was significantly less severe than during the Circuit Breaker period last year as SMEs in these industries were well prepared to cope with the changes, having already shifted to alternate business models with greater digitalisation and adoption of e-commerce and logistics solutions.
Mr Linus Goh, Head, Global Commercial Banking, OCBC Bank commented, “The pandemic has had a profound impact on SMEs in Singapore, forcing entrepreneurs to rapidly shift to new ways of doing business. The promising recovery in SMEs over the past year was supported by a rapid shift towards digitalisation and e-commerce. SMEs are also better poised to emerge from the crisis, building on the strength of Singapore as a growing hub in the post-pandemic time for services industry, the changing supply chains and the emerging green economy.”
Resilience in Healthcare Manufacturing and ICT Services Sub-Industries
Healthcare Manufacturing performed well due to continued demand for medical equipment and the rollout of vaccines. This sub-industry’s index score of 50.0 was higher than 1Q 2021’s index score of 48.1 and also higher than the 2Q 2021 forecast of 49.3.
ICT Services such as Data Processing and Software Development, and Web Portals and Hosting, showed resilience on the back of continued demand to support digitalisation efforts. Data Processing and Software Development recorded 22% growth in revenue collections in 2Q 2021 compared to 1Q 2021.
Mr Murphy Sim, Director of Hyper Communications, a B2B SME in the ICT industry, said, “Covid-19 was a game changer and served as a reminder that changes can occur very quickly, especially so in the technology field. To avoid being caught off guard, I think it is important to come up with a strategic plan, not just for the next 6 months but for the next 3-5 years. Even before Covid-19, we set up an online e-shop and adopted e-payments capabilities and that helped us to better withstand the pandemic. But it is also important to be able to adapt quickly. In the last year, we deepened our cloud-based and data capabilities and conducted training to upskill our staff, building on our traditional business of distributing hardware so that we can offer our customers a unified communications solution from end to end. This drive to innovate is necessary to thrive in today’s competitive environment.”
Hai Khim Engineering Pte Ltd is another SME that has adapted, seizing new opportunities in the electric vehicle (EV) space.
Mr Seet Kok Heng, Director of Hai Khim Engineering Pte Ltd, said, “When we were established in 2004, we were focused mainly on traditional construction but in 2015, I began to pivot the business towards the electric vehicle sector. I realised that this was going to be a growth industry and that we could contribute to the development of EV infrastructure in Singapore. Today, EV infrastructure projects make up about 70% of our business. Like other industries in construction, we have been impacted by Covid-19. Manpower can be tight, as some of our foreign workers who happened to be back home when the pandemic hit, have been unable to return. To manage this situation, we are looking to hire more locally and to train our subcontractors so that we will be able to take on more EV infrastructure projects.”