Budget support should target businesses key to Singapore’s long-term strategy

American investor Warren Buffett’s famous quote “only when the tide goes out do you discover who has been swimming naked” aptly describes what businesses face in the Covid-19 crisis.

Suddenly, revenues are gone, but costs stubbornly remain. The truth is that some businesses are already on the decline and the pandemic has merely accelerated the inevitable.

The Government has announced three Budgets worth billions of dollars to support businesses and save jobs, but these are not the panacea.

Deputy Prime Minister Heng Swee Keat will announce more measures on Tuesday (May 26). 

Any further support from the Government should be targeted at helping businesses that are crucial to Singapore’s long-term economic strategy and comparative advantages such as advanced manufacturing, biomedical research and aerospace engineering, while letting others that are no longer competitive go away by attrition.

Some companies are still reluctant to board the technological bandwagon, despite the Government’s hefty subsidies. Hence their high reliance on foreign workers, when automation, artificial intelligence, digitalisation or technology might have generated higher productivity with fewer workers.

Some industries such as cleaning and security services, landscaping, small-scale manufacturing and construction should have gone through consolidation, so that economies of scale would justify the capital investment needed to generate value instead of having too many smaller companies that rely on foreign workers.

During this pandemic, cash flow is paramount for businesses to survive.

The Government has set aside billions of dollars under the Jobs Support Scheme to help companies retain and retrain their workers during the crisis.

In turn, companies should conserve cash and scrutinise all non-essential payments, especially share buybacks and dividends.

It is shameful if companies receiving government wage subsidies and other cost waivers are still paying dividends to their shareholders. It is tantamount to using taxpayers’ money to fund dividend payments.

It is heartening to read that many companies have returned or declined the wage subsidies provided by the Government. These companies have shown a high level of social responsibility and should serve as role models for others.

Companies should be encouraged to review their strategic focuses and rebuild their capabilities. If capital investment is called for, it must be to build a more resilient company once the crisis is over.

Over the past decade, many companies have overleveraged because of ample liquidity and ultra-low interest rates.

When Covid-19 struck, borrowers were hit by severe cash flow and liquidity problems. Financial prudence should be a lesson for all.

If we are going to dig into our reserves once again to help businesses and households, I hope the Government can be more selective and targeted in the next round.

We do not know when the crisis will end and how much more lifeline reserves we need to pump into it.

Hence, we should help companies that are important to Singapore’s future and ensure that taxpayers’ money does not end up in shareholders’ pockets.

Have views on this issue or a news topic you care about? Send your letter to voices [at] mediacorp.com.sg with your full name, address and phone number.