How Budget 2024 elevates Singapore's advanced manufacturing cluster

How Budget 2024 elevates Singapore’s advanced manufacturing cluster

Photographic Portrait of Johanes Candra
Johanes Candra

Partner, Business Incentives Advisory, Ernst & Young Solutions LLP

5 minute read 25 Apr 2024
Related topics
Tax
Tax planning
Workforce
CEO agenda
Advanced Manufacturing

With the opportunities and challenges ahead, how can companies in advanced manufacturing secure the next phase of growth?

In brief

  • New support measures announced in Budget 2024 aim to help Singapore become a global business innovation and talent hub for the advanced manufacturing cluster.
  • These address the four key areas of investment and innovation promotion, energy transition, financing for growth, and workforce transformation.
  • Such measures can help enhance the advanced manufacturing cluster’s competitiveness as the business landscape becomes more competitive.

The manufacturing sector is a key pillar of Singapore’s economy, contributing 18.6% of the country’s gross domestic product in 2023.1

In 2021, against the backdrop of growing global demand for manufacturing, the Singapore government launched the Manufacturing 2030 initiative to enhance the value-add of the sector by 50% between 2020 and 2030. It also envisioned Singapore becoming a global business innovation and talent hub for the advanced manufacturing cluster, which consists of electronics, precision engineering, energy and chemicals, aerospace, and logistics.

In Budget 2024, the Singapore government doubled down on its efforts to realize this vision, addressing the four key areas of investment and innovation promotion, energy transition, financing for growth, and workforce transformation, which are underpinned by tax and fiscal measures.

How EY can Help

Promoting investments and R&D

More than 140 countries have committed to implementing a 15% global minimum tax rate for large multinational enterprises (MNEs) between now and 2025. Singapore will also be implementing the 15% global minimum effective tax rate next year. Understandably, many large MNEs will be re-evaluating business plans, reorganizing operations and considering the implications for global supply chains and financing arrangements to ensure compliance and maintain tax efficiency.

With BEPS 2.0 Pillar Two, Singapore’s ability to use tax incentives to attract foreign direct investments from large MNEs may be diluted. In response, a new fiscal scheme, Refundable Investment Credit (RIC), was introduced in Budget 2024 to enhance the nation’s investment promotion tool kit. The RIC scheme will offer up to 50% support on each qualifying expenditure category for up to 10 years.

For the advanced manufacturing cluster, the RIC scheme seeks to encourage players to pursue R&D and innovation projects. For example, chemical companies can tap into the incentive to support investment in new production facilities, research and innovation, and decarbonization projects that reduce industrial carbon emission.

Companies in the electronics industry can leverage the RIC scheme to support investments in semiconductor manufacturing, electronics assembly and related technologies to enhance productivity and improve products and services through innovation and R&D.

Supplementing the RIC scheme is the additional S$3 billion injection into the Research, Innovation and Enterprise 2025 initiative, which will focus on deep tech R&D and critical and novel technologies. For the advanced manufacturing cluster, the relevant initiatives include the National Semiconductor Translation and Innovation Centre and the National Robotics Programme, which are expected to play critical roles in diversifying and creating new economic opportunities within the cluster.

How EY can Help

Making the energy transition

Concerns over environmental sustainability is driving the energy transition. This means companies in the advanced manufacturing cluster need to consider adopting energy-efficient equipment and energy-saving practices, which require significant investments. 

The Energy Efficiency Grant (EEG) was introduced in 2022 to assist enterprises in offsetting rising energy costs. Since its launch, nearly 2,000 companies have utilized the EEG. The grant supports businesses across various industries by offering enhanced support of up to 70% for qualifying companies to adopt preapproved energy-efficient equipment for small and medium enterprises (SMEs) and 30% support for non-SMEs. In Budget 2024, the grant was enhanced and extended to more sectors, including manufacturing.

The EEG complements other sustainability-oriented schemes like the Enterprise Sustainability Programme (ESP). Businesses can leverage the ESP for consultancy support to identify areas for efficiency gains before purchasing energy-efficient equipment with the help of the EEG. This integrated approach aims to provide holistic support for Singapore’s businesses on their sustainability journey.

Accessing financing for growth

Financing is a key challenge, especially for smaller businesses. Further, the escalating cost of doing business is putting pressure on companies as some balance survival against growth.

To address this, the government enhanced the Enterprise Financing Scheme (EFS) to help Singapore enterprises — including those in advanced manufacturing — access financing more readily across all stages of growth. Three enhancements were made. The maximum loan quantum under the EFS-SME Working Capital Loan will be enhanced from S$300,000 to S$500,000 to help qualifying enterprises meet their increased working capital and operational cash flow needs. The enhanced maximum loan quantum under the EFS — Trade Loan of S$10 million will also be extended till 31 March 2025 to support businesses’ trade needs, including inventory or stock financing. Lastly, advanced manufacturing companies that seek to expand overseas may consider the EFS — Project Loan, which supports internationalization efforts through financing fulfillment of overseas projects.

How EY can Help

Transforming talent and skills

Singapore’s skilled and adaptable workforce is one of the key factors that attract global investors to set up business in the country. For the advanced manufacturing cluster, having a strong pool of skilled talent to support the business is critical. With the accelerating pace of technological advancement, including the rise of artificial intelligence (AI), the need to continually upskill and review workforce capabilities to tap into opportunities to drive innovation and productivity has further intensified. 

For example, companies will need to equip their workforce with skills for working effectively with AI-enhanced processes and systems. To this end, they can tap into the SkillsFuture Enterprise Credit that is geared toward encouraging employers to undertake enterprise and workforce transformation. 

The SkillsFuture Enterprise Credit can help companies seeking to undertake enterprise and workforce transformation, such as equipping the workforce with skills for working effectively with AI-enhanced processes and systems.  

As the business landscape becomes more competitive, Singapore’s companies must stay hungry for growth. Seizing opportunities and leveraging the suite of support measures announced in Budget 2024 can help bolster the competitiveness of companies in the advanced manufacturing cluster, and by extension, further anchor Singapore’s bid to be a global front-runner in this arena.

This article was first featured in The Business Times on 13 March 2024.


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    Summary

    To help realize its vision of Singapore as a global business innovation and talent hub for the advanced manufacturing cluster, the government announced support measures in Budget 2024 to address four key areas. These include investment and innovation promotion, energy transition, financing for growth, and workforce transformation. Such measures can help companies in this cluster enhance their competitiveness in an increasingly challenging business landscape.

    About this article

    Photographic Portrait of Johanes Candra
    Johanes Candra
    Partner, Business Incentives Advisory, Ernst & Young Solutions LLP
    Enjoys learning. Passionate about playing a key role in building and transforming businesses, government policies and teams. Proud father of two.
    Related topics
    Tax
    Tax planning
    Workforce
    CEO agenda
    Advanced Manufacturing

    EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.