SINGAPORE — Fewer companies were established in Singapore last year, with investors and entrepreneurs turning cautious as global demand slowed in an uncertain economic environment. But business formation activity is expected to pick up by the second quarter of this year, according to a report issued yesterday.

A total of 64,825 new businesses were formed in Singapore last year, down 16.1 per cent from the 77,337 firms set up in 2014, according to the latest Singapore Business Formation Statistics Report by corporate services provider Hawksford Singapore.

Between October and December last year, 16,612 new businesses were formed, dropping by 19.1 per cent against the 20,540 companies set up in the corresponding quarter in 2014 and down 5.7 per cent from 17,608 firms in the preceding quarter.

“The final quarter of 2014 was an anomaly, with a record number of business formations. Business confidence remained high even amid the economic restructuring initiatives because the federal rate hike was deferred and the global economy appeared to be headed towards a steady recovery,” noted Hawksford in its report.

“But in 2015, the last quarter was shrouded in uncertainties and the federal rate was indeed hiked amidst slowing global demand and a fragile and uneven global economic recover. So investors, entrepreneurs and enterprises are taking a cautious approach in their business plans.”

Last year, Singapore’s economy grew by 2.1 per cent, the weakest pace since the global financial crisis, according to advance estimates released by the Ministry of Trade and Industry (MTI) last month.

Globally, China’s stuttering economy, a higher interest-rate regime in the United States, economic weakness in emerging nations, and sinking commodity prices causing jobs cuts and routs in financial markets have also affected business sentiment.

“When the economy isn’t good, people are generally more risk averse and might not want to take the risk to open up companies,” UOB economist Francis Tan told TODAY.

Hawksford, however, pointed out that despite the anaemic global economic conditions last year, “the fact that the business formation numbers are within the standard range observed for fourth quarters … endorses the integral strength of Singapore”.

In line with the trend that has prevailed for years, the industry with the largest number of business formations was wholesale trade, followed by financial services, head offices and management consultancies, said Hawksford. Meanwhile, the report also showed that private limited companies continued to be the dominant type, with a 48.8 per cent share of the total business formation.

The majority of businesses formed in the final quarter of last year continued to be locally owned, with 65 per cent fully owned by Singapore resident shareholders. Foreigners wholly owned 24 per cent of the entities, while 11 per cent were owned by a combination of local and foreign shareholders. These figures are unchanged from the previous quarter.

Singapore allows for 100 per cent foreign shareholding and has established extensive avoidance of double taxation treaties with countries around the world. It also allows free repatriation of profits and there is no tax on capital gains.

Ms Jacqueline Low, chief operating officer of Hawksford Singapore, said: “Singapore continued to attract foreign companies, investors and entrepreneurs because of its strong business fundamentals and its strength as a financial and trade hub. However ... it is not insulated from the global economic conditions.”