WP calls for SME-driven economic growth; PAP says Singapore needs both local firms and MNCs

The debate centred on whether Singapore should rebalance its economic strategy to place greater emphasis on homegrown enterprises.

SINGAPORE: The Workers’ Party (WP) on Wednesday (Aug 5) urged the government to focus on smaller companies to drive economic growth, while the People's Action Party (PAP) said Singapore also needs multinational corporations to thrive.

The debate took place over a motion tabled by WP Members of Parliament (MPs) Kenneth Tiong (WP-Aljunied) and Jamus Lim (WP-Sengkang), who outlined the opposition party's vision for an economy more centred on small- and medium-size enterprises (SMEs).

Associate Professor Lim said Singapore should gradually reduce its dependence on foreign investments and MNCs, arguing that the government's recent Economic Strategy Review (ESR) still showed an "implicit bias" towards MNCs.

Responding to the motion, Second Minister for Finance and co-chair of the ESR Jeffrey Siow said Singapore's economy needs both MNCs and SMEs to thrive, arguing that the two reinforce rather than compete with each other.

“We are not in a zero-sum situation. In fact, the growth of our local companies and our MNCs mutually reinforce each other,” he said.

On the changes he believes are needed, Assoc Prof Lim called for a shift away from competing on low taxes, an undervalued exchange rate and “the wooing of footloose multinationals”. Instead, Singapore needs to focus on building stronger local enterprises and encouraging entrepreneurship.

“This means weaning our companies off a race-to-the-bottom focus on cost cutting as the only means to be competitive,” he said.

He noted that SMEs account for 99 per cent of registered businesses and employ 70 per cent of Singaporean workers, yet contribute only around half of the economy's value added.

“If our SMEs are stifled because business or funding opportunities are crowded out by the bigger players, we will never discover our own homegrown, globally competitive unicorn,” he added.

Mr Siow said Singapore must work harder to attract foreign investment amid a more challenging global environment while continuing to support local companies.

The government provides nearly S$2 billion (US$1.56 billion) in direct grants to local SMEs every year, said Mr Siow, who is also transport minister.

Not all of these schemes are fully utilised and the government can do more to help companies make full use of the available support. If demand for them grows, the Ministry of Finance is ready to provide more resources, he added.

“Of course, if this was just about spending more money, we would already have many more world-class companies,” said Mr Siow. “But many of us understand that building a company is very hard.”

PAP MPs and Nominated MPs who spoke on the motion echoed his position, noting the importance of staying open and the role of MNCs and SMEs in Singapore’s economy.

MP Edward Chia (PAP-Holland-Bukit Timah) said Singapore’s economic engine should be powered by both dynamic local companies and global enterprises.

“Dynamic local companies matter, but we should not frame local companies and global enterprises as competing choices. Singapore’s success has never been built on such a false choice,” he added.

Global companies bring investment, technology and international networks, while local firms contribute agility, innovation and specialised capabilities, he added.

“Together, they create an ecosystem that builds capabilities, accelerates innovation, and creates better jobs and opportunities for Singaporeans.”

STAYING OPEN

Several PAP MPs argued that Singapore's domestic market is too small to become the country's primary engine of growth.

While domestic demand is important in sustaining heartland businesses, Singapore companies must compete in bigger markets, said MP Mariam Jaafar (PAP-Sembawang).

Stronger domestic demand alone would not generate the growth, wages and opportunities Singapore aspires to, she added.

"Our response has to be to help our businesses compete differently also," she said.

NMP Mark Lee, chairman of the Singapore Business Federation, similarly argued that domestic demand can provide a buffer but not scale.

To grow, Singapore firms must venture abroad, find new customers, build new production capacity, acquire technology and participate in supply chains overseas, he said.

"The answer is not protection. It’s to help Singapore companies build the capabilities to venture abroad, anchor value here and become strong enough to compete," he added.

Mr Siow agreed, saying Singapore should deepen its engagement with overseas markets rather than retreat from them.

The answer is not to turn inward, he said. “It is the reverse. To strengthen our companies, to compete more effectively in more overseas markets, with greater resilience.”

Many local companies grow and succeed because of their relationships with MNCs, not in spite of them, said Mr Siow.

These global companies also create high-skilled and high-paying jobs – more than two-thirds of senior management positions in MNCs in Singapore are held by Singaporeans, he added.

The resources Singapore commits to attracting investments do not come at the expense of supporting local enterprises, said Mr Siow, warning that reducing these efforts would risk driving both MNCs and local companies elsewhere.

“At a time when countries are spending more than ever to attract and reshore strategic investments, our response surely cannot be to do less. Giving up these investments would mean fewer high-quality jobs and fewer opportunities for Singaporeans.”

WP REJECTS "FALSE DICHOTOMY"

Towards the end of the debate, Assoc Prof Lim said the party was not advocating reducing support for MNCs or government-linked companies, nor suggesting that SMEs and MNCs were competing for the same resources.

He reiterated that Singapore should not sideline its MNCs or government-linked companies.

“What Mr Siow attributes to the Workers’ Party, I’m afraid, is a false dichotomy that we did not draw. It's a convenient strawman argument, perhaps to win, had we actually made it,” said the WP MP.

Assoc Prof Lim also stressed that the WP does not believe domestic demand alone can power Singapore's economy.

“Rather, what we want to urge is the growth of consumer demand that historically has been weaker here than in other advanced economies of our level of development,” he said.

Mr Tiong said Mr Siow mischaracterised WP's position by suggesting the party wanted to rely on the domestic market as a primary source.

"That is, of course, a non-starter to anyone who spends more than two seconds thinking about it," he said. "The WP is saying that domestic demand is necessary, not that domestic demand is sufficient."

Mr Siow acknowledged that the WP MPs were not arguing for a zero-sum pivot and that they recognised both SMEs and global companies are important – and that a comprehensive economic strategy needs both.

He said his impression of WP’s stance originated from the wording of the opposition party’s motion, which included no mention of global enterprises and the global economy.

Assoc Prof Lim also said in his speech that Singapore should pivot towards SMEs, said Mr Siow.

“When we say pivot I’m assuming there is an impression of a zero-sum arrangement that he had in mind,” he said, adding that this was why the PAP introduced amendments to the motion.

“But if I was mistaken, I’m very happy that he has clarified that the WP is certainly aligned with our economic strategy.”

What the WP has proposed has a lot in common with the ESR, said the minister.

“Actually, in today’s speeches, I have also not heard a great big idea that would replace the ESR. And in fact, I see it very much as the WP building on what the ESR has recommended,” he added.

COST PRESSURES

Assoc Prof Lim urged the government to support SMEs “indirectly” by easing cost pressures, particularly in rents and manpower.

He proposed capping annual rent increases at around the historical average of 3 per cent, adding that this would give businesses time to adjust to increases in fixed costs.

“This is a limit on the rate, not the level. Market rents will still prevail in the long run,” he said.

Many countries have similar restrictions in place, and even limiting this measure to government or agency landlords would be a major step forward, said Assoc Prof Lim.

He also suggested reviewing the foreign manpower dependency ratio ceilings in sectors such as food and beverage, where employers struggle to fill vacancies.

MP Saktiandi Supaat (PAP-Bishan-Toa Payoh) agreed that SMEs face significant cost pressures but urged MPs to be explicit about the policy trade-offs involved.

“If labour costs are the principal concern, are members suggesting that significantly relax foreign manpower policies? If rental costs are a concern, are members proposing some form of rent regulation or greater intervention in commercial leasing? If energy costs are the issue? Are members suggesting energy price controls or longer-term subsidies?”

Measures to reduce one cost can have consequences elsewhere, Mr Saktiandi said.

Senior Minister of State for Trade and Industry Low Yen Ling acknowledged the challenges facing F&B businesses, heartland enterprises and heritage businesses.

The government’s objective is not simply to help businesses cope with higher costs, but to help them operate differently and compete more effectively, she said.

She added that attracting MNC investments and the support provided to local businesses are complementary strategies.

“A robust economy needs the contributions of both MNCs and SMEs,” she said.