ANALYSIS

Singapore’s Budget 2021 will highlight the country’s economic direction during an important year of recovery

Technology and workforce are top of mind for Singapore’s budget watchers

The Big Four accounting firms weigh in on Singapore’s policy and financial direction, ahead of the Budget 2021 unveiling in the middle of this quarter.

On February 16, after this issue of Singapore Business Review has gone to print, Deputy Prime Minister, Coordinating Minister for Economic Policies, and Minister for Finance Heng Swee Keat, will deliver Singapore’s FY2021 Budget Statement to the Parliament.

This will be considered an important framework on the steps Singapore will take as it tackles an optimistic new year, after the height of the COVID-19 pandemic that greatly challenged every nation.

According to Soh Pui Ming, EY’s Head of Tax in Singapore, with the worst of the pandemic behind, there is now a need to focus on supporting businesses to help them strengthen and transform for the future.

This should be done while also ensuring that the most impacted individuals and households are given their own help to rebuild their lives and livelihoods.

That is a common suggestion from each of the Big Four accounting firms, in each of their annual previews of the Budget.

Transformation through tech

KPMG is also looking for Singapore to maintain a key focus on transformation throughout the year ahead. According to partner and head of tax at KPMG Ajay Kumar Sanganeria, the innovation of 5G will be the key driver, especially for data consumption. It will also create demand for innovation in the development of technological platforms.

“There is a need for more government support to enable faster 5G development and adoption on a larger scale, thus we propose tax depreciation for spectrum rights payments to offset costs to telcos. If left unaddressed, such costs may potentially be priced into products and services for consumers,” said Sanganeria.

He proposed that Singapore set up a 5G technology and innovation fund, to provide grants of up to 50% of expenditure for prototyping and innovation of 5G-enabled solutions. He also suggested extending the existing Market Readiness Assistance grant to provide funding for enterprises exploring solutions in 5G-ready markets.

Also integral to a 5G-ready nation, will be the transformation of industries to accommodate digitalisation. PwC has noted that local startup enterprises will have to incur additional expenditure (spanning from hardware infrastructure costs to labour costs of digitising data, information migration and staff

Transformation of industries to accommodate digitalisation will be an integral part of Singapore’s adoption 5G technology

The innovation of 5G will be the key driver, especially for data consumption

training). If the government stepped in with targeted reliefs and funding, this would help businesses alleviate the investment cost of “going digital”, whilst also encouraging them to digitise their data and modernise their processes. The relief for expenditure would encourage the adoption and use of data analytics.

But PwC warned that even by going digital, the importance of keeping up with cybersecurity should not be overlooked.

In Cisco’s 2021 Security Outcomes Study for Asia Pacific, at least seven out of 10 Singapore firms aren’t yet successful at dealing with cybersecurity challenges.

PwC pointed out although the SME Go Digital Programme supports SMEs with pre-approved solutions, medium-sized to larger corporations do not qualify for such aid and are more likely to require advanced or customised solutions.

“Data security at any level of business is necessary and should be encouraged to facilitate Singapore’s efforts to be a trusted digital economy as a whole, and to preserve that trust in a digitally connected world,” PwC noted in its Budget preview statement

It suggested that those companies who do not benefit from the programme should be allowed to claim enhanced tax deductions or enhanced capital allowances for costs incurred to safeguard against cyber security and data security risks.

Other companies that invest in cybersecurity systems should also be able to take advantage. They should be given the option to convert capital allowances on such expenditure into cash grants, PwC has recommended.

Workforce development

In June 2020, Senior Minister and Coordinating Minister for Social Policies Tharman Shanmugaratnam said that Singapore needed to strengthen its social compact by helping those who had lost jobs find work.

Deloitte has agreed with this sentiment, and says reskilling and upskilling workers should remain a priority for Singapore in 2021.

It proposed that the government extend the existing Jobs Growth Incentive. The incentive supported employers to accelerate hiring of local workforce, specifically during the period from September 2020 to February 2021. The support was 25% on the first $5,000 of gross monthly wages paid to all new local hires or 50% for mature local hires (ages 40 and up) and all persons with disabilities (PWDs).

But Deloitte has urged the government to extend the scheme until August 2021, based on its expectations that the job market will remain muted. To finance this, Deloitte has suggested tapering down the support to 20%, with 40% for mature local hires and PWDs.

Food security

The panic buying and hoarding seen during the early parts of the pandemic could be traced back to disruptions in the supply chain, according to both PwC and KPMG. They have each argued that a resilient food supply chain is vital for Singapore’s continued stability.

The Singapore government is targeting to have 30% of food to be produced locally, by 2030.

To help achieve this and at the same time to strengthen the food supply chain, KPMG said Singapore should further encourage urban farming using existing real estate assets, maximiise current land usage for vertical farming, and boost diversification into sustainable sources of protein.

The firm encouraged the government to introduce a new incentive for agri-tech and aqua-tech industries, like tiered concessionary income tax rates.

Meanwhile, PwC suggested reducing the tax of construction for buildings used for food farming purposes. This could be done by extending the Land Intensification Allowance (LIA) to such relevant sectors and assets.

“The overall cost for this sector may be lowered further with subsidised land leases and GST suspension on the importation of specialised equipment and raw materials,” according to PwC.

Companies stand to benefit from Singapore’s wide and strong Free Trade Agreement FTA network during 2021

Manufacturing as a cornerstone

In its budget proposal, PwC highlighted that core manufacturing

Further workforce development will be Singapore’s leverage against turbulent times

Budget Recommendations from the Big Four

EY

• Cushion the economic impact of COVID-19 pandemic • Enhance productivity and innovation • Drive workforce transformation

KPMG

• Re-imagine: technology infrastructure, including the 5G network • Re-plan: to keep up with the changing talent landscape • Re-create: to sow the seeds of a green-led recovery

Deloitte

• Extend the existing Jobs

Growth Incentive while employment is muted • Technology and innovation remain key engines of development • Vaccine distribution to further boost confidence

PwC

• Introduce upskilling sabattical programmes • Initiate digital coach programmes for SMEs • Liberalise tax requirements for SMEs • Strengthen food security

Singapore should further maximise current land usage and boost diversification into sustainable sources

should be one of the focuses for Singapore policymakers in 2021. This industry has the capacity to support growth of the services industry and will attract whole ecosystems, it said.

PwC suggested giving priority focus to industries that are low on labour and overhead demands, but where final stage processing can economically and viably be carried out in Singapore. They cited finalstage food processing and advanced bioengineering as examples.

“At the same time, this processing should increase the ability of companies to benefit from Singapore’s wide and strong Free Trade Agreement (FTA) network which would offset the probably higher cost base (including land cost) perspective in overseas markets,” PwC said.

The enhanced use of FTAs can go through direct exports or support companies that are processing in Singapore and requiring small and medium-sized enterprises’ (SMEs) inputs.

PwC said involving SMEs through an industry-wide FTA approach based on technology would go a long way to achieving this goal.

Pandemic relief

Most of the proposals from the Big Four firms stem from one vital thing: to help relieve the negative impacts of the pandemic.

According to Panneer Selvam, partner and head of People Advisory Services – Mobility at EY, while the government has been supporting jobs and reskilling, there are limited direct reliefs for individuals. Existing reliefs range between $600 and $1,200, with additional payments available for parents and those over age 50.

“As the impact of COVID-19 may continue to be felt in the coming years, an additional rebate or one-off relief for the tax-paying population would be welcomed to help reduce the overall impact to individuals,” Selvam said.

Technological innovations and helping develop the workforce to better accommodate changes will be Singapore’s leverage against these turbulent times, Deloitte has advised.

“2020 could be seen as a year of reset—of how we envisage moving forward as a society and community. During this time of economic uncertainty, a lingering sense of job insecurity among workers is understandable. COVID-19 has sharpened and accelerated the need for change in almost every facet of our lives.”

Core manufacturing has the capacity to support growth of the services industry and will attract whole ecosystems

Digital-first approach crucial to customercentricity: AIA Singapore

Technology, data, and analytics, have become keys to personalisation of online and offline customer experiences.

Melita Teo, Chief Customer and Digital Officer at AIA Singapore

The coronavirus pandemic has turned the world on its head; and every industry on the planet has to innovate and come up with new ways of doing its business. Officebased workplaces have transitioned urgently into work-from-home arrangements; the retail sector has leveraged off of the global e-commerce ecosystem to continue getting goods to customers; and banks have ramped up their own innovations to stay connected with their stakeholders.

In Singapore, maintaining the integrity of transactions as they rapidly take on digital forms has been a particular challenge. Fortunately, insurance provider AIA has implemented a new solution that it says is giving greater confidence and security to all of its customers.

“Integrating our digital platforms with GovTech’s Sign with SingPass and Kofax’s SignDoc advances our ability to provide fast and even more convenient customer experiences without compromising their data security, which is essential in an increasingly digital world,” says Melita Teo, Chief Customer and Digital Officer at AIA Singapore.

Sign with SingPass advantage Available to all AIA Singapore customers since November 2020, Sign with SingPass was an initiative spearheaded by the Government Technology Association (GovTech) in Singapore. One of the key features has been its integration with the existing SingPass system, so that users’ identities can be automatically verified with minimal hassle. Signatures made using Sign with SingPass are regarded as secured electronic signatures under Singapore’s Electronic Transactions customer platform. More than a simple app, this is a dedicated digital platform, with secured 24/7 access for AIA policy holders across multiple devices and operating systems. Users can make up to 28 different types of service-requests, making it the widest digital customer service coverage in the industry.

More than 50% of AIA policyholders are now utilising the ‘My AIA SG’ platform, which has helped to ensure some 90% of day-to-day service requests are submitted digitally, resulting in faster, and more effective resolutions that happen in real time at the policyholder’s convenience.

With the Claims EZ platform, AIA has also successfully transformed and digitalised the claims process from end-to-end. Built in partnership with AIDA Technologies, customers can submit their claims online, which are then auto-assessed by an Artificial Intelligence (AI) decision engine, and claims payout can be disbursed instantly and directly into the customers’ bank account by leveraging onto PayNow infrastructure. Today, 100% of AIA HealthShield claims are assessed by AI technology.

But it’s not just about the technology alone. Melita says the digital enhancements across all parts of AIA Singapore have been backed up by an equally important cultural transformation among its team.

“We view tech as an enabler, not a replacement to human touch, so our digitalisation strategy is people-first and customer-led,” she says. “We’re doubly committed to making sure that every product, campaign, and initiative we launch is developed with our customers’ needs in mind, while ensuring that our employees are able to benefit from technology.”

All of this goes back to how AIA is redefining the role an insurer plays in society, moving from a payer to a true partner, with that continuing transformation fuelled by digitalisation.

Act, which means customers can now sign legal documents virtually, without face to face meetings.

Previously, the majority of contracts – and almost all insurance contracts – needed to be signed in person to ensure validity in Singapore.

AIA is the first insurance provider to integrate Sign with SingPass with its distribution platform, which has helped to make customer experiences not only more convenient, but also with enhanced security as online transactions become the norm.

“As virtual interactions become the new norm, cybersecurity will form a core tenet of AIA’s ongoing digitalisation strategy,” Melita said. “Partnering with GovTech and automation software players such as Kofax is part of our long-term strategy to make the customer experience more seamless and secure.”

When integrated with Sign with SingPass, our distribution platform will: • Digitise the end-to-end signing process:

Simplifying and expediting the signing of insurance contracts and to be completely paperless, by replacing wet-ink signing with e-signatures. • Transform the customer experience:

Better engaging insurance customers by enabling them to use the communications channel of their choice to e-sign on any device—anytime, anywhere. • Reduce operational costs: Decrease the manual processing steps to issue a policy contract, and paper-related costs, such as routing and storage.

The full digital experience Sign with SingPass is just one of the comprehensive suite of tech-focused changes that AIA Singapore has rolled out in recent years, as part of its ongoing digital transformation. Melita says the aim is “to use Technology, Data, and Analytics to make AIA a simpler, faster, more connected organisation”.

“These changes are transforming the experiences of our people, and ultimately helping us to drive better customer outcomes.”

One of the most standout examples of these changes has been the ‘My AIA SG’

CYBERSECURITY FORMS A CORE TENET OF AIA’S DIGITALISATION STRATEGY TO MAKE CUSTOMER EXPERIENCE MORE SEAMLESS AND SECURE

Companies are gradually returning to their offices, but also reviewing their requirements

A mixed outlook for CBD office space

Investors will have to wait until the second half of 2021 for a recovery in the market for commercial property, including premium CBD office space, CBRE Research has found.

At the onset of the COVID-19 outbreak, safe distancing and circuit breaker measures led to telecommuting as the default working arrangement. This trend is expected to continue in 2021, with many firms announcing plans to allow workers to work from home till mid-2021. As companies gradually phase their return to offices, some occupiers are reviewing their specific locational preferences and ongoing working models.

Tech enabling a hybrid workforce

With the acceleration of digitalisation, the workforce is evolving into two practices – office-based and remote working. Key sectors that belong to the latter are the information & communications, finance & insurance, and professional services. According to MTI’s advance estimates, these three sectors were the only sectors that displayed growth collectively in Q4, 2020.

Incidentally, the technology and non-bank financial services firms were the top office demand drivers in 2020, and accounted for at least 50% of leasing volume.

Leasing demand in 2021 is expected to be led by these sectors as there is high demand for their services across the economy.

Cost efficiency was the top priority for firms in 2020. Across an array of industries, firms were either renewing or relocating, with a reduction in footprint. For the first time since 2015, island-wide net absorption was negative and tallied -0.56 mil sq. ft. in 2020. In 2021, the focus will be on portfolio agility as companies take into account of remote working in their daily working arrangements.

Based on the recent ‘The Future of Office Survey’, more firms have indicated a shift in attitude towards having remote working as an option for the workforce. However, companies still expect employees to gradually return to the office. The survey findings show that around 66% of survey respondents intend to allow remote working for no more than one or two days per week. This is likely to steer towards a hybrid workforce in future. Nevertheless, the office still remains essential for team productivity and engagement amongst employees.

Investor flight to quality

The office market is a two-tier market; occupiers are showing stronger preference for prime office buildings with tech-enabled specifications vis-à-vis the ageing office stock with older specifications. In 2020, most of the negative net absorption stemmed from the Grade B market, which tallied -0.79 mil sq. ft. Some occupiers downsized, while others decided to capitalise on the current economic downturn to take “flight to quality”.

Conversely, the Grade A (Core CBD) market registered 0.51 mil sq. ft. of positive net absorption in 2020. This was largely supported by the strong take-up in 79 Robinson Road – the sole Grade A comple-

Across an array of industries, firms were either renewing or relocating in 2021, with an overall reduction in footprint

LEASING DEMAND BY SECTOR IN 2020

Source: CBRE Research

tion in 2020.

The resilience in the Grade A office market was also reflected in its vacancy rate, which kept stable y-o-y at 3.9%. This tight vacancy limited the availability of prime space for occupiers with upcoming lease expiries. Nevertheless, opportunities lay within the pool of secondary space that is emerging from the cutback in large occupiers’ footprints. Given that some of these secondary spaces are located in quality developments, there has been some positive take-up of these spaces by opportunistic tenants.

Out with the old…

The composition of office stock is gradually changing. Some developers have recognised the need to spruce their ageing office portfolio and are leveraging on the Central Business District (CBD) Incentive Scheme to rejuvenate these older assets. Several office buildings such as AXA Tower and Fuji Xerox Towers are expected to commence redevelopment in 2021.

Instead, the next three years will welcome new developments with agile space solutions and digitally enabled specifications.

Over the next three years (2021 – 2023), total new supply is estimated at 3.40 mil sq. ft. This is equivalent to an annual average supply of 1.13 mil sq. ft., which is 32.2% lower than the historical 10-year annual average new supply. In 2021, there will be an introduction of 1.24 mil sq. ft. of new office stock. Of which, the only Grade A building that is slated to complete in 2021 is CapitaSpring. Overall, the construction delays have augured well for the office market as more than half of this anticipated supply in 2021 have been pre-committed.

Healthy fundamentals

Amid the challenging business climate, tenant retention was a key priority in 2020. Firms were downsizing and this impacted occupancy. To maintain occupancy, landlords with emerging vacancies in their portfolios began to adjust their rental expectations at a larger magnitude. This led to a full-year rental correction of 10.0% y-o-y in 2020. Notably, this rental decline was less prominent than the moderation witnessed during the Global Financial Crisis period.

To a certain extent, this correction was cushioned by the additional fiscal and job support measures provided by the government, which include rental relief and property tax rebates. In addition, the Grade A (Core CBD) office market was underpinned by a relatively tight vacancy rate of 3.9% as at end 2020.

Looking ahead to H2

2021 is envisaged to be a year of two halves. While the first half of 2021 is expected to still be under some pressure, the latter half is likely to witness some improvement. The overall office market is poised to benefit from the gradual economic recovery in 2021, as well as the gains in employment. Arguably, the underlying strength of the office market is also attributed to the diversified occupier profile seen today.

Other than the traditional sectors of banks, legal and accounting firms which may be reviewing their occupier strategies, office demand will be supported by growing sectors such as the technology, financial services and professional services sectors. With continued demand for office space, coupled with the limited Grade A supply in the pipeline, this would support office rental growth in the second half of 2021. That said, it will not be an even, uniform recovery in rents across all office buildings. The prime office buildings are expected to benefit first, as occupiers leverage on the current downturn to ride on the “flight to quality” strategy. However, this would lead to an increasing vacancy in the older office stock, and prompt landlords to be more flexible in incentives and negotiations.

Across an array of industries, firms were either renewing or relocating in 2021, with an overall reduction in footprint

PERCENTAGE OF WORKFORCE THAT CAN WORK REMOTELY

Most Singapore finance leaders agree that successful digital innovation should not focus solely on the technology deployed

Going digital: finance leaders still far off the pace

A new study has found significant gaps in the digital readiness of finance teams across Singapore, as EY’s Ronald Wong explains.

Astudy, Is digital culture the key to unlocking finance transformation?, by EY and ACCA in Singapore, found that despite the importance of a digital culture in the finance function, more than half of the finance leaders surveyed recognize that there is still a considerable gap between their current digital culture state and the desired one for driving digital innovation. Finance leaders should therefore take a structured and balanced approach to bridge this gap and improve the digital culture in their finance function by driving change in the four elements that constitute culture.

The COVID-19 pandemic has changed how finance functions operate. While new technologies bring new opportunities, not all finance digital transformations succeed.

Many organizations do not fully recognize that digital success is not just about technology, which is merely an enabler. When it comes to adopting digital transformation, the organization’s digital culture — which encompasses the abovementioned elements of organizational structure; people; strategy, processes and policies; and technology — is the critical precursor to a successful digital transformation. Seventy-eight percent of respondents in the ACCA-EY survey agreed that successful digital innovation should not focus solely on the technology deployed. <subhead> Why a strong digital culture is important

Research by Gartner found that over 70% of finance transformation initiatives fail to deliver the expected benefits.1 A key factor is the leadership’s inability to foster a culture that supports the organization’s digital strategy and aligns that with the overall corporate strategy. Building and sustaining a culture is an enduring and continuous endeavor, and it takes time to shift an existing value system toward a new or improved one.

The ACCA-EY survey found that 94% of finance leaders agreed that having a strong digital culture with clear strategies is what sets successful digital transformations apart from failed ones. This reflects their awareness that a strong digital culture is instrumental in unlocking and protecting the value of innovation and transformation.

In addition, 93% of respondents agreed that a digital transformation strategy without a strong culture to support it is a significant threat to the value of the transformation strategy.

Addressing the challenges of fostering a digital culture

While finance leaders in the ACCAEY survey agreed that culture plays an imperative role in encouraging innovation and driving digital transformation, having a strong digital culture within finance teams is currently not the norm.

Seventy-eight percent of the respondents agreed that the culture of their finance teams needs to change for them to continually engage in digital innovation and consistently seek process improvements through technology.

More than half of the respondents saw a digital culture gap between their finance teams and those of other organizations with very mature digital technologies and capabilities. The lack of a strong digital culture can be attributed to a resistance to change within finance teams that prefer the predictability of the status quo as well as a low risk appetite and fear of failure.

A full shift in culture will also require changes to mindsets, attitudes, values and behaviors. The survey affirms this, with more than 90% of respondents agreeing that all the elements of digital culture need to be considered when embarking on new digital initiatives. Among the four, people as well as strategy, processes and policies are viewed to be more important in enabling their success.

Respondents also cited the existence of too many competing priorities as the top barrier to building a strong digital culture, as shown in the following diagram. This impacts all elements of the culture as finance leaders struggle to divert the necessary resources, efforts and time to nurture the right culture holistically.

With competing priorities, technology investments tend to be focused on other functions that have a direct impact on growth and revenue. Finance leaders should articulate how middle and back-end digitalization initiatives are needed to execute a coherent strategy.

Digital culture, which encompasses elements of organizational structure; people; strategy, processes and policies; is the critical precursor to a successful digital transformation

With more frequent disruption from digital innovation, data proliferation, a volatile risk environment, increasing regulations, and growing stakeholder expectations, organizations will look to finance leaders — who have a unique vantage point over the whole business — to provide strategic advice and innovative solutions. This also offers finance leaders an opportunity to position themselves as a strategic advisor.

There may also be competing priorities within finance itself. Occupied with their daily work, finance teams may not have the additional time, capacity and impetus to explore innovative digital solutions and take the necessary risks.

Overcoming barriers to a digital culture

Overcoming the barriers to a digital culture requires multipronged, consistent and concerted efforts. The most common initiative undertaken by the respondents is clear communication from the top management on the importance of innovation, including the definition of a digital vision, which will provide a common ambition and focus for efforts and investment decisions. When communicating the digital transformation strategy to other stakeholders, finance leaders should help them to understand its significance and impact on them to secure their buy-in and commitment.

Other steps taken by finance leaders include conducting workshops and training sessions to raise awareness and enhance the digital skills of finance staff so that they can take on more proactive roles in the organization and contribute to key business decisions.

The lack of frameworks and metrics to assess the digital culture is a key barrier cited — and not comprehensively addressed — by the respondents. This is likely due to various challenges that stand in the way of producing relevant, credible and trusted culture reporting.

Building a strong digital culture

The four elements of a digital culture: organizational structure; people; strategy, processes and policies; and technology are not only individually important but also interdependent. Finance leaders seeking to build a strong digital culture need to understand each element, assess current gaps in their organization and consider the following ways to strengthen each element.

#1 Organizational structure

How organizations are structured can enable or hinder collaboration, agility and innovation. To be adaptable, people across different functions need to be empowered in decision-making to quickly execute change. This starts with inclusive leadership, which delegates rather than controls, actively invites inputs from all organizational levels and changes accordingly. It is also important for business units to share data to provide a complete view of information for sound decisionmaking.

#2 Anchor the finance function’s influence

Finance leaders are ideally positioned to define a role for themselves and a finance function that goes beyond pure compliance and reporting of finance-related data. In many cases, the CFO acts as a superconnector, drawing together the strands of activities across the entity. Financial and other data are key inputs to many other processes that require business decisions, such as procurement, supply chain, operations or risk management. Finance leaders should take a holistic view of transformation beyond finance by helping to drive digital technologies in other business processes. They should also demonstrate their value as a business partner and in turn, secure the resources and buy-in to drive a stronger digital finance function.

#3 Simplify structure for agility

To promote agility, finance leaders can consider flattening the finance function’s hierarchy to facilitate more direct and faster feedback from employees on ways to innovate and enhance finance processes. A flatter structure and a collaborative mindset will help to foster a stronger digital culture.

#4 People

Finance leaders need to recruit, harness and retain talent with the skills and motivation to complement technological innovations as well as the agility to embrace rapid change, evolving roles and new approaches.

Design a future-fit operating model

The finance function of the future is expected to evolve into a data-driven decision center. Finance professionals should focus less on generating reports and information, and more on using the available data to help support decision-making. The ideal future finance operating model should be smarter, better aligned to the business and more forward-looking and resilient. To realize its promise, finance leaders will need to rethink their talent management strategy and establish the right people management approach.

The ability to leverage data as a strategic asset is key to driving better insights for the organization. Data gurus, such as statisticians, data scientists and even behavioral scientists, will be invaluable in helping the finance function of the future to turn data into fresh perspectives and strategic insights. So is talent steeped in finance knowledge and literate in technologies, such as blockchain, artificial intelligence (AI) and predictive analytics, with prior experience in using or implementing them. To be effective business partners, finance talent must have the communication skills to convey pertinent insights to other internal stakeholders and help address strategic challenges faced by the business.

The finance function of the future is expected to evolve into a data-driven decision centre

Barriers to fostering a conducive digital culture within the finance team