Middle East war exposes cash-flow risks for Singapore SMEs

UOI CEO says many businesses remain underinsured amid rising operating costs.

Singapore's small and medium enterprises (SME) risk a sharper squeeze on profits if disruptions from the Middle East continue to raise costs and strain cash flow, with many businesses still underestimating the financial risks they face, according to United Overseas Insurance Ltd. (UOI).

“With geopolitical uncertainty and constant disruption in the business environment, many SMEs will feel the impact through rising logistic costs, weaker customer demand, and mounting pressure on cash flow,” UOI CEO Andrew Lim told Insurance Asia.

His warning echoes findings from Oversea-Chinese Banking Corporation Ltd.’s (OCBC) SME Index, published on 21 April, which showed business activity continued to expand but confidence weakened as the Iran war drove up oil, energy, and freight costs and disrupted supply chains. The index rose to 51.6 in the first quarter from 50.8 in the previous quarter.

Based on transaction data from more than 100,000 OCBC SME customers, the bank said diverted shipping routes have lengthened delivery times, increased working-capital needs and could eventually weigh on consumer spending. It expects sentiment to weaken further if higher costs persist.

OCBC added that businesses operating vehicle and vessel fleets, including last-mile delivery firms, private bus operators, and shipping companies are particularly exposed to higher fuel prices.

Lim said expanding into other markets also exposes SMEs to unfamiliar regulations and operating risks.

He said many SME owners overestimate the protection offered by basic insurance policies, leaving businesses exposed to losses that might not be covered.

He added that many SME owners mistakenly think that a basic fire policy protects them against all business risks.

Lim said businesses should not prepare for risks one by one since war, market volatility, and cyberthreats could occur at the same time.

“The biggest challenge to me is cyber resiliency,” Lim said, adding that many SME owners underestimate their exposure to cyber risks as threats become more complex and interconnected.