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SPEECH BY MR HENG CHEE HOW, MINISTER OF STATE FOR TRADE AND INDUSTRY DURING THE COMMITTEE OF SUPPLY DEBATE (MINISTRY OF TRADE AND INDUSTRY) ON TUESDAY, 8 MARCH 2005 ENTERPRISE DEVELOPMENT 1. I would like to thank members for their comments. Minister Lim Hng Kiang has earlier talked about the broad strategies behind enterprise development. I will now share more details. 2. Ms Penny Low asked for an update on the SME 21 plan launched in the year 2000. The vision of SME 21 was to create vibrant and resilient SMEs that will enhance Singapore’s competitiveness and economic growth. Three goals were set for the year 2010. First, we wanted to treble the number of SMEs with sales turnover exceeding $10 million from the figure of 2,000 to 6,000 by the year 2010. According to the plan, we should have 4,000 such SMEs exceeding the $10 million mark by the year 2005. I am pleased to report that we achieved that milestone in early 2004, with more than 4,200 SMEs generating turnover in excess of $10 million. 3. Second, we wanted to quadruple the number of local SMEs with e- commerce transactions from 8,000 of them to 32,000 of them by the year 2010. This target was surpassed by end March 2002 with 33,000 SMEs having done so. 4. Third, we wanted to double the productivity of the retail sector from $28,000 to $56,000 by the year 2010. In 2002, the value-added per worker in the retail sector was $30,600. Preliminary figures for 2003 have indicated only slight improvement, due to SARS and other reasons. We will continue to address the key challenges of the retail scene and monitor the progress. 5. Dr Tan Boon Wan asked about government assistance to HDB retail shops. Both the Prime Minister as well as the Minister for National Development had addressed the situation in this sector of HDB retailers, particularly those in the older estates, and the challenges that they face. With the change in consumer demography and emergence of suburban malls, such retailers cannot continue to operate their business as they have done in the past and they need to look for new ways to improve. 6. For example, Tampines Street 11 is one HDB neighbourhood where the Hawkers and Merchants’ Association have decided to collectively do something to address their common problems. With the help of SPRING and grassroots organisations there, they will be forming a management company that will oversee the overall marketing strategies for their neighbourhood. They aim to improve the trade mix, boost traffic flow into the neighbourhood and upgrade the latest retail skills of their members. These include training on financial management and selection of products that appeal to customers. 7. These activities are 50 per cent co-funded by SPRING under the Domestic Sector Productivity Fund Scheme. I welcome fellow Members to encourage and help the Merchants' Associations in your respective 1 constituencies to participate in this program, and you may apply to SPRING for assistance. 8. Most of the initiatives under the SME21 Plan, such as the Singapore Quality Class (or SQC) programme and the Technology Incubator Programme (or TIP), have been implemented. Other programmes have since evolved. In particular, we have stepped up efforts to promote entrepreneurship through the Action Community for Entrepreneurship (ACE). We have also intensified efforts to help our companies internationalise through the formation of IE Singapore. Entrepreneurship – Access to Financing 9. Let me now move on to another aspect of entrepreneurship, namely access to financing. And here, I would like to mention the role of ACE. ACE is a private-public sector partnership to champion entrepreneurship in Singapore. We have members like Mr Inderjit Singh and Dr Loo Choon Yong amongst others in this movement. 10. One key area that ACE has been focussing on is to improve the access of start-ups and SMEs to financing. This is an issue that Dr Tan Boon Wan and others have raised. Over the past few years, the Government has worked with ACE and the private sector to enhance existing schemes and to launch new ones to make funding more accessible. I agree with Mr Inderjit Singh that it is timely to review and simplify the schemes to make it easier for local enterprises. We will support ACE in the exercise to redesign and simplify the schemes. 11. Basically, the various schemes fall into two broad categories; namely, equity financing and debt financing. (i) Equity Financing 12. In the area of equity financing, the Government has two schemes to co- invest with third party investors. The Start-Up Enterprise Development Scheme, or SEEDS, was introduced for innovative technology start-ups in the year 2001, and was extended to non-technology companies last year. The Growth Financing Programme was started in October 2003 as a follow-up investment scheme after SEEDS. It provides equity financing for the development of products, processes and applications. 13. Dr Tan Sze Wee asked about the performance of SEEDS. Since its inception, SEEDS has supported 124 technology start-ups. To date, 13 of these start-ups indicated that they have posted profits, and 12 start-ups managed to secure a second round of private sector funding. 14. SEEDS was extended to non-technology companies last year. It has already helped two innovative start-ups. One of them is this company called Fuzzy Billies, which is an F&B outlet specialising in bread-based products that come in different shapes, flavours and colours. The other is Play! Entertainment, which rents out movie DVDs through automated dispensers 2 that are equipped with biometric fingerprint authentication for member registration and identification. 15. Dr Tan raised the concern that SEEDS is inadequate for most bio- technology companies. So far, seven bio-technology companies have obtained more than $1.8m worth of SEEDS equity funding. Admittedly, this amounts to a small portion of funds that bio-tech companies may need. SEEDS is a broad-based scheme to support innovative start-ups in general, and is not meant for the development of specific industry clusters. For bio- tech companies, they may also tap on other grant and financing schemes, and I will talk a little bit more about that later in my speech. 16. Mr Inderjit Singh suggested reviving the Business Angel Fund or equivalent, in order to encourage and enlarge angel investments. The BAF, that particular programme, was discontinued at the end of 2001, shortly after the SEEDS programme was implemented. The reason for that was the feedback from the third party business angel investors and entrepreneurs at that point, that they found SEEDS to be more attractive. But notwithstanding that, in the overall area of trying to improve access to financing and the role of angel investors, if not under the precise conditions of the old BAF, we would still encourage discussions. 17. Besides co-investing directly into companies, we also seek to encourage investments in start-ups and SMEs through tax incentives and facilitation. 18. The Enterprise Investment Incentive Scheme (or EII) allows investors to offset their investment loss against their taxable income. The scheme, which was formerly known as the Technopreneur Investment Incentive (TII), was renamed and extended to non-technology areas in 2004. In total, 75 companies have been granted either EII or TII status. 19. ACE is also facilitating the setting-up of an Over-The-Counter (or OTC) private-equity exchange. The OTC market will create a platform where shares of unlisted SMEs can be traded, thus allowing SMEs more access to equity financing. Some private sector companies have come up with proposals and we understand that they are in the final stages of consultations with MAS. (ii) Debt Financing 20. Moving on to the second category of assistance, which is debt financing. Much has been done on this front. For example, the Local Enterprise Financing Scheme (or LEFS) and the Micro Loan Scheme have provided more than $3 billion worth of loans to 10,000 SMEs since the year 2000. 21. We have also in recent times introduced the Loan Insurance Scheme, the Variable Interest Loan Scheme (or V-Loan) and the Loan Securitization Scheme. These are other avenues of loan financing for SMEs. At the backend, they are structured differently, with a common purpose to increase the amount of loan financing in the market. ACE has been very proactive in 3 offering proposals to address gaps in the financing landscape – and we will continue to work very closely with ACE to look into these and other suggestions. 22. Mr Lawrence Leow suggested that LEFS adopts a flexible risk-sharing ratio between the government and the financial institutions, with corresponding sharing of loan budget and interest earnings. As Mr Leow mentioned, the 80/20 risk-sharing ratio was part of a temporary enhancement to LEFS made during the economic downturn from 2001 to 2004, to encourage the financial institutions to continue lending to SMEs. As the economy rebounded, the ratio was reverted to 50/50 from 1st January 2005, to ensure financial prudence on the part of the financial institutions in approving LEFS loans. Mr Leow has suggested a variable risk-sharing loan scheme for LEFS. My Ministry will look into this together with the overall review on access to financing. Non-profit Organisations 23. Mr Inderjit Singh asked about government support for private sector volunteer groups that help to promote entrepreneurship. Currently, we fund and provide secretariat support for ACE. ACE involves private-public sector partnership, and is an effective umbrella body through which to engage other entrepreneurship interest groups.

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