The first half of 2023 was a litmus test for economies worldwide as it was arguably the first period where COVID-19 was not a factor. Singapore, although experiencing a dip in its manufacturing sector, managed to deftly avert a recession, thanks to its resilient service sector which exhibited a positive growth trajectory.
The services sector, a cornerstone of Singapore’s economy, has not only weathered the storm but continues to thrive, underpinning the nation’s economic resilience.
This article aims to delve into Singapore’s service sector, exploring how it continues to chart a successful path despite the moderate overall GDP growth in the first half of 2023.
We will unveil the factors contributing to the sector’s resilience, focusing on the government’s supportive stance through incentives like the Development and Expansion Incentive for Services (DEI(Svc)).
We will also discuss how international investors and business leaders can leverage such initiatives to capitalise on the promising prospects within Singapore’s service sector, to align their investment goals with the Lion City’s robust service-oriented economic ecosystem.
The Service Sector’s Economic Resilience Amid Global Uncertainties
The first half of 2023 showcased a modest but equitable performance in the global economic arena, marked by weak manufacturing output and moderated growth momentum.
Singapore’s second-quarter GDP for 2023 was revised to 0.5% year-on-year, compared to the more robust annual GDP growth of 3.6% in 2022. The slowdown was primarily driven by the weak manufacturing output which saw a decline of 7.3% year-on-year in Q2 2023.
This reduction was mainly due to reduced demand from the slowing economies of the United States, European Union (EU), and Mainland China
However, amidst the economic slowdown, the service sector emerged as a silver lining. The sector showcased a positive growth of 2.6% year-on-year in Q2 2023, supported by the easing of COVID-19 restrictions since April 2022 and improving tourism flows.
The accommodation segment, a subset of the service sector, recorded a buoyant growth of 13.0% year-on-year in Q2 2023, riding the wave of an international tourism rebound.
Tourism: A Catalyst for Growth
The resurgence of international tourism has been a windfall for Singapore’s service sector. The easing of travel restrictions saw monthly international visitor arrivals soar to 1.13 million in April 2023, maintaining a steady pace through June.
The robust tourism inflow, particularly from APAC nations like Indonesia, Malaysia, India, and Australia, has been instrumental in bolstering the service sector.
The Singapore Tourism Board’s target of attracting 12 million tourists in 2023 seems well within reach, marking a significant leap from the 6.3 million tourist arrivals in 2022.
The tourism rebound has not only revitalised the accommodation and food and beverage (F&B) segments but has also stimulated the broader service sector, including retail and entertainment, contributing to economic resilience amidst temporary modest growth.
Digital Transformation: A Pillar of Growth
The digital transformation wave has been instrumental in propelling the service sector forward. Singapore has embraced digitalisation, leveraging cutting-edge technologies to enhance service delivery, improve customer experience through digital payment services, and foster innovation.
The government’s Smart Nation initiative, coupled with various grants and incentives, has propelled businesses in the service sector to adopt digital solutions, enhancing productivity and competitiveness.
Additionally, the rise of fintech, e-commerce, and other digital-based services has opened up new avenues for growth, attracting investments and fostering a culture of innovation that positions Singapore’s service sector for sustained growth beyond 2023.
Sustainable Practices: A Vision for the Future
Singapore’s commitment to sustainable development is reflected in its approach towards fostering a greener service sector. The nation’s sustainability goals are aligned with the global agenda of reducing carbon emissions and promoting environmentally friendly practices.
The service sector is playing a pivotal role in this journey by adopting green technologies, promoting eco-tourism, and adhering to sustainable practices in operations.
The government’s support through grants and incentives for adopting sustainable practices further highlights the drive towards a greener service sector.
This contributes to Singapore’s sustainability agenda and presents a favourable narrative to socially responsible investors eyeing opportunities in a sector that aligns with global sustainability goals.
Governmental Support: The DEI(Svc) Incentive
The Singapore government’s proactive stance in fostering a conducive environment for the service sector is demonstrated in the Development and Expansion Incentive for Services (DEI(Svc)).
The incentive encourages companies to engage in high-value-added services or activities in Singapore, thus fostering a climate of innovation and business expansion.
Under the DEI(Svc), qualifying companies can enjoy a concessionary tax rate of 10% on incremental income derived from qualifying activities, promoting financial viability and encouraging investments in the service sector.
The incentive outlines specific criteria, such as engaging in at least one service activity and achieving certain employment and business expenditure benchmarks, ensuring a structured approach towards fostering growth within the sector.
Other Incentives and Benefits in Singapore
Apart from the DEI(Svc), there are other incentives and benefits that further bolster the service sector in Sinagpore:
- Productivity Solutions Grant (PSG): This grant supports businesses in the adoption of productivity solutions. Businesses can choose from a list of pre-scoped solutions and receive up to 50% funding support for eligible costs.
- Enterprise Development Grant (EDG): This grant helps businesses upgrade, innovate, grow, and transform their operations. It provides funding support for qualifying projects in areas such as market access, innovation, and productivity.
- Market Readiness Assistance (MRA) Grant: This grant provides support for business development, promotion, and set-up costs for new overseas market expansion.
- Technology for Enterprise Capability Upgrading (T-Up): This scheme provides businesses with access to talents from A*STAR’s Research Institutes and helps them build in-house R&D capabilities.
These initiatives collectively contribute to creating a fertile ground for businesses to thrive and innovate, underlining Singapore’s commitment to fostering a robust service sector.
Singapore’s investor-centric ecosystem, marked by a stable political environment, strong legal framework, and pro-business policies, creates a conducive environment for international investors and business leaders.
The ease of doing business, coupled with the availability of skilled manpower and strategic geographical location, makes Singapore an attractive hub for service sector enterprises.
Seize Your Opportunity with InCorp
In a world where economic certainties are few and far between, Singapore’s service sector stands out as a lighthouse of resilience and growth potential.
The concerted efforts of the government, through incentives like the Development and Expansion Incentive for Services (DEI(Svc)), have fortified this sector, making it a lucrative avenue for discerning investors and business leaders.
As the leading provider of corporate solutions in the region, InCorp is uniquely positioned to guide you on leveraging these incentives to establish and operate your business effortlessly and efficiently in Singapore’s thriving service sector.
Your journey towards capitalising on the robust prospects of Singapore’s service sector begins with a simple conversation. Contact InCorp today, and let’s navigate the promising landscape of opportunities together.
- The DEI(Svc) Incentive provides a concessionary tax rate to qualifying companies, encouraging them to engage in high-value-added services or activities in Singapore, fostering innovation and business expansion.
- Other incentives include the Productivity Solutions Grant, Enterprise Development Grant, Market Readiness Assistance Grant, and Technology for Enterprise Capability Upgrading, which collectively aid in business upgrade, innovation, market expansion, and R&D capabilities enhancement.
- The resurgence of international tourism has revitalised various segments within the service sector, including accommodation, food and beverage, retail, and entertainment, contributing to economic resilience and growth.