The linchpin in the 2015 Singapore Budget has got to be the SkillsFuture initiative.

It is an ambitious programme: the Government is setting aside a billion dollars each year for the next five years to help Singaporeans gain deeper skills valued by industries.

This initiative is good reason for the manufacturing sector to cheer. Amidst lacklustre productivity growth, SkillsFuture tackles the labour part of the productivity equation.

While the Productivity and Innovation Credit Scheme and other productivity programmes target capital productivity, SkillsFuture seeks to increase labour productivity by developing our workforce so that the skills of employees are more aligned to what employers need.

Such investment in skills upgrading is what will truly sustain real wage growth, even as global competition heats up and technological advances pose increasing risk to existing jobs.

In addition, long-term investment in people and their capabilities is what will help the manufacturing sector shift from value-adding to value-creating.

Under SkillsFuture, the Government has also displayed its commitment to boost industry collaboration.

Besides strengthening collaboration among training institutions, unions, trade associations and employers, a shared pool of SkillsFuture Mentors will be developed.

This pool will comprise specialists with deep industry-relevant skills. Small & medium enterprises (SMEs) – including our manufacturers – can tap on this shared resource to overcome constraints in training capabilities and capacity.

Industry collaboration is especially vital to SMEs so they can build skills in their people and benefit from industry-wide innovation.

Beyond training, manufacturers here can share best practices, the use of new technologies and explore partnerships with overseas manufacturers to bring their brand beyond Singapore’s shores.

After all, as this Budget noted, externally-oriented companies and sectors seem markedly more productive compared to domestic-oriented ones.

Productivity growth rates averaged five percent a year for the former, as opposed to under one percent for the latter.

Against the backdrop of slowing output, the manufacturing sector should consider taking advantage of initiatives in this year’s Budget which encourage internationalisation.

All activities supported under IE Singapore’s grant schemes will be raised from 50 per cent to 70 per cent for three years. Double tax deduction for internationalisation will also be extended to cover salaries incurred for Singaporeans posted overseas.

Given the formation of the ASEAN Economic Community later this year, the new International Growth Scheme – which provides concessionary tax rates to help Singapore businesses internationalise – is extremely timely.

As for levy rates, the Finance Minister announced that the Government will keep the current levy rates for two more years, 2015 and 2016, for Work Permit holders in the manufacturing sector.

This freeze in levies is welcomed, buying more time for manufacturing companies to restructure.

Singapore’s manufacturing sector likely shrank for a third straight month in February, according to the latest Purchasing Managers’ Index, an early indicator of factory activity. Moving forward, our manufacturing businesses must focus on innovation, internationalisation and collaboration to boost competitiveness. Singapore Budget 2015 has set the stage for them to do just that.

The article is contributed by Chiu Wu Hong, Head of Enterprise Incentive Advisory, KPMG in Singapore. The views expressed are his own.