HEAD V - MINISTRY OF TRADE AND INDUSTRY

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**** Head V - Ministry of Trade and Industry

The Chairman: Head V - Ministry of Trade and Industry. Amendment No. (1), Mr Leong Horn Kee.

Vibrant Business Environment

Mr Leong Horn Kee (Bishan-Toa Payoh): Sir, I beg to move,

That the total sum to be allocated for Head V of the Main Estimates be reduced by $100.

On the Government's intent to create a vibrant business environment in Singapore, the three main ingredients to achieving this intention is PEP - P for People, E for Easy rules, and P for Physical infrastructure.

In last year's Committee of Supply debate, Minister George Yeo stated that Singapore can aim to be the "London of Asia". I thought this is a very exciting idea. However, not many people seem to be enthused by it. I wonder why.

To be a vibrant and lively city, to be the London of Asia, we need people.

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People create life and vitality. Hence, I fully agree with Dr Wang Kai Yuen that we should grow our population as quickly as possible to eight million people, maybe not in 15 years, but at least 25 years. We should also try to attract the rich and the famous, be the playground of the rich or super-rich, encourage them to spend in Singapore. I am glad to hear DPM Lee say yesterday that Sentosa Cove can be developed like the Palm Island of Dubai, or like Monte Carlo.

On rules and regulations, I am glad that DPM Lee agreed that the civil service would become more entrepreneurial. Rules that obstruct business will be lifted. There must be more flexibility in dealing with rules and regulations. A vibrant business climate needs flexible rules.

On infrastructure development, we already have excellent telecommunications, IT, local transport, education, medical and air connections. I would like to add that we should also push for high speed trans-national rail connections with Malaysia, Thailand, Indo-China and China. This will add another dimension to Singapore's strategic location. Rail transportation can be high speed, and can move large quantity of goods and people over long distances economically.

Finally, to make Singapore a vibrant metropolis plugged into the world grid, we have to find ways and means to differentiate ourselves. We cannot be too stereotype. We have to be creative and innovative, allowing more free play of new ideas. We can be a business hub for the region. Singapore should become a place where men and women of talent and ability will blossom and flourish.

Mr Inderjit Singh (Ang Mo Kio): Sir, I would like to ask the Minister whether he is happy with the rate of restructuring of the Singapore economy and whether there are areas that are moving too slowly. Also, what are the types of companies

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which are investing in Singapore? Although we are seeing big FDI numbers, the question is: are these investments creating a lot of value by way of spin-offs to, supporting industries and, more importantly, more jobs for Singaporeans? Instead of giving tremendous incentives for such companies, would it be more worthwhile to spend the money in supporting local companies?

As we try to restructure, our neighbours are also doing exactly the same. In fact, some of them are just copying what Singapore is doing. I see Thailand trying to become the healthcare hub, the manufacturing hub, the airline hub of Asia, in fact, more recently, the energy market hub too. Malaysia is trying to be an IT hub and a biomedical hub and they are even more aggressive by providing our local start-ups, based in Singapore, funding if they relocate from Singapore to Malaysia. This makes it very attractive for these local companies because they are finding difficulty in raising funds in Singapore. The question is: what are the threats to Singapore's economic restructuring plans with the aggressiveness of our neighbours?

Would the Government change its direction in phasing out some of the older industries? In many cases, while the Government concludes that some industries are no longer viable in Singapore, they in fact could still operate profitably here. If we could stretch some of these industries to remain in Singapore longer, we could lengthen the economic transition and therefore lessen the stresses our workers are facing. If they could keep their jobs while being trained with new skills, they can also help their industries become more competitive. Could the Government provide incentives for stretching the lives of certain traditional industries in Singapore?

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Finally, could the Minister address the business cost issues that I raised during the Budget debate?

Dr Tan Boon Wan (Ang Mo Kio): Sir, our less-skilled and less educated citizens also need work. The new high technology companies are unlikely to provide these jobs. Are there companies which are not high-tech but will provide jobs for these workers and can remain viable in Singapore with a little bit of help from the Government? An example that DPM spoke about a few days earlier is the textile industry. Our FTA with US and its provision has breathed a new life into the industry in Singapore. We should try to identify these companies and help them to stay in Singapore for our workers.

Mr Arthur Fong (West Coast): Sir, the wholesale and retail sector, mirroring our domestic economy, reported robust growth of 6.7% and recovered in the second half of 2003. Sir, this good tone on the growth figure, however, masks the still weak state of the domestic economy. There are about 33 million square feet of shop space in Singapore. The reported growth of 8.5% owed much to the motor industry but it masks the dire state of the retail industry. It is now a fact that Singapore can no longer claimed to be a shoppers' paradise. Our high cost has placed us out of competing against the cheaper destinations. The construction sector contracted by 11% and construction demand fell to a 12-year low. When the HDB stopped building a while back, it led, to what my Parliamentary colleague, Mr Leong Horn Kee, described as the "butterfly effect". It almost single-handedly led to the collapse of the home improvement industry.

In a poorer economic environment, Singaporeans' propensity to spend slowed down dramatically. Thus, it is no surprise that food and beverage industry saw a

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drop of 14% in revenue. Singaporeans are eating out less as a result. Sir, the point I wish to make is that, given that there is very little boost for the domestic market and the change in the general population's propensity to spend, I worry for the local businesses that spur the domestic economy here. Hence, I look forward to MTI's creative measures to rein in a slowing domestic economic.

Cost Competitiveness

Mr Inderjit Singh: Sir, I will pass this cut but I hope you will give me more time on entrepreneurship and SMEs later on.

The Chairman: We will come to that afterwards. Dr John Chen.

Dr John Chen Seow Phun (Hong Kah): Sir, one concern of many businesses in Singapore is the cost of land. It is very convenient for the Government to say "market price". However, the Government, being the largest landlord in land-scarce Singapore, wields great influence over the market price.

Back in the days of a Government monopoly for telecommunications, effort was made to make sure that our telecommunication charges were cost competitive. An international survey of call charges was made regularly, and the results determined what the then TAS charged for our IDD calls. Our prices were pegged to the three lowest charges from the survey results.

Even so, it can be argued that we were then over-charging, as evidenced from the sharp drop in IDD prices after liberalisation. Has a similar effort been made to benchmark our land costs? Has the Government a target occupancy rate for our land?

I fear that with the impending economic recovery, land costs may spiral out of hand again. The Government

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should take measures now to ensure that this does not, like in the early 80s and the mid-90s, happen again.

Such measures and policies will not only ensure our competitiveness and efficiency. The companies, which an affordable land cost attract, will provide employment for our people.

On top of policies to ensure competitive land cost, I would like to further suggest that the Government put aside a proportion of cheap land to attract industries which are more labour-intensive so as to provide employment for people displaced by our restructured economy.

Sir, not everyone can be retrained to write computer programmes or design IC chips. Our older, less skilled workers still need a job to feed themselves and their families. By creating a favourable condition for some of these lower tech companies to remain in Singapore, we can solve a future problem of structural unemployment and social displacement for these people who had, in the past, contributed in one way or another to our economic success today.

Extension of Rebates

Mr Leong Horn Kee: **** Sir, due to the recent poor economic climate, the Government has been extending the various rebates given to the business sector, such as rental rebates by JTC and other agencies. The question is, if these rebates have been on-going for a few years, it could mean that structurally, the costs of the fees and rents charged have intrinsically been high. If so, perhaps these rebates should be made permanent.

Currently, the rebates are renewed yearly or half yearly. The rebates given by JTC and other agencies are due to terminate on 30th June this year. Mid-year termination creates uncertainty. This arrangement is not satisfactory for

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companies as they cannot plan their annual budgets. If the rebates are not extended in mid-year, then the companies have to re-do their annual budgets.

In fact, as the domestic climate is still soft for many sectors like the retail trade, hotels, construction and local manufacturers, I would like to urge the Government to seriously consider extending the rebates, at least for the second half of this year.

SMEs do not want handouts. But they do welcome some help when in need. Rebates are one form. The other forms of assistance for SMEs include, and I can name five:

(1) To create a business-friendly environment.

(2) Lowering of Government charges, rates and fees which are not meant to be revenue generating, but imposed purely for bureaucratic administration. Such fees should be charged at a nominal or cost recovery basis only.

(3) Allow for easier accessibility of businessmen to civil servants. This way there can be better interactions and mutual appreciation of each other's difficulties.

(4) Better access to funds and financial support for viable projects. Many ideas have been given by my colleague, Mr Inderjit Singh, on how SMEs can be financed.

(5) An environment that does not frown upon failure. Enterprise, creativity and innovation should be honoured and praised.

If more interactions and dialogues can be held with the business sector, I am

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sure the Minister will gather more feedback and ideas.

[Mr Deputy Speaker (Mr Chew Heng Ching) in the Chair]

4.20 pm

Research and Development Expenditure

Ms Olivia Lum Ooi Lin (Nominated Member): Sir, the Government has spent much funds, time and resources on R&D work by public agencies such as A STAR. A STAR has the right people to tap on their R&D work and it remains the best centre for technological advancement. Some of these R&D works hold great potential for commercial viability. However, they remain largely untapped and our local enterprises who often lack fund for R&D work have found much difficulties in gaining access to technologies developed from the R&D work. There are several reasons for this. It seems that the administrators could not sort out the IP rights for the R&D work to facilitate a better use of technologies by the private sector. The researchers also lack the commitment and the business sense to work in partnership with the local enterprises to convert the R&D work into business ventures. Hence, no one is seriously looking into relaxing access rights to the R&D work.

In addition, projects selected for funding are usually decided solely by the public agencies or the research institutes and not championed or led by the private sector. This has resulted in a lot of wastage, not only in terms of funds, personnel and time, but also wastage in terms of investments in hardware, such as laboratory equipment, which are not fully utilised to maximise their value. Many of our local enterprises would love to be able to afford many of these equipment, but they can only hope that public agencies could share some of the

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results of their R&D work with them. I urge the Ministry to look into this as it is high time we reaped some returns from the billions we have sunk into public-funded R&D work.

Economic Policy

Mrs Lim Hwee Hua: Sir, I probably sound like a broken record even as I stand here to press home the one same point that the whole of Singapore must be alive to our increasing dependence on the external economy for sustained economic survival, and this must necessarily begin with the Government.

Sir, I have flipped through the tables in the Economic Survey 2003 publication to get an assessment of the size of our external economy but with very little success. The closest I came to was Table A1.10 wherein the Gross National Income was calculated. I had no feel of how big our external economy is, nor how we are faring. Sir, I am no economist and would need some guidance towards getting an answer, but my point is really a fundamental question on whether the Government is properly organised to execute what we believe to be the economic strategy for Singapore. In short, we talk GNP but we act GDP. Firstly, we say we operate in the global marketplace and that competition is not confined to geography. Next we exhort our local companies to expand abroad in view of the limited size of the domestic market. Yet, we do not talk about how big or how important the external economy is, or whether we are indeed making headway in the region. To add to that, we have only one dedicated statutory board, IE Singapore, to help expand the marketplace for Singapore enterprises.

During the discussion on the role of the public sector for economic growth, I have asked the Prime Minister if we have the appropriate human resources within

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the Government to help drive this strategy. But I believe the greatest challenge lies in the mindset of the ministries which appears to be more Singapore-centric. Between building a strong market place, that is Singapore, and nurturing viable locally grown market players, the whole Government machinery, except for IE Singapore, appears to be geared towards the strong marketplace position. Admittedly, Sir, sometimes the interests are not aligned between vibrant engines of growth and establishing a hub of activity in Singapore. Ultimately, a balance must be struck and our relatively small domestic economy must surely mean that we need to nurture external growth, whilst retaining a strong Singapore presence.

I would therefore like to ask the Minister if he would consciously urge all Ministries to enlarge their ambit, to include the building of expertise beyond Singapore as far as possible.

Free Trade Agreements

Mr Leong Horn Kee: **** Through the strong and concerted effort of MTI, led by Minister George Yeo, Singapore has signed many Free Trade Agreements with several countries. The most important one is the FTA with the USA. I am interested to know about the status of other FTAs under negotiation, eg, the China-ASEAN FTA or China-Singapore FTA. What about the status of India-Singapore FTA?

Given the many benefits of FTAs, I would like to ask the Minister what are his future plans with regard to signing more FTAs with other countries. I am glad to hear that in the case of the Singapore-US FTA, it has enabled us to attract textile companies because of the new textile tariff preferences with the USA. Are there other such gems to be found in other FTAs signed? Can the Minister give more examples of benefits of FTAs? Has

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the FTA with Japan, for example, given any results so far?

On the converse, I wonder whether there are costs to Singapore for these FTAs. We have to open up our banking sector, for example, and allowing chewing gum to come to Singapore because of the US-Singapore FTA. More seriously, it may be useful if the Minister could enlighten the House what are the sacrifices we have to make or trade off with more FTAs.

Mr Inderjit Singh: Sir, I think we have done a great job in negotiating so many FTAs with a number of countries, but it does appear that the FTA is forcing us, particularly the one with USA, to do a few things that seem to go against the grain of the Government's desire. An example is the divestment of its stake in the Government-owned companies, which I think the USSFTA clearly stated. There are also a number of other requirements and changes that need to happen as a result of this FTA, eg, changes to the financial and legal sectors, as well as trivial things like the chewing gum import, which Mr Leong just brought up. While I generally agree that FTAs are good for Singapore in the long term, I would like to ask the Minister the following questions.

When we sign a FTA with large countries, like the USA, are we giving away too much, particularly in the changes in the way we do things here?

Secondly, our small companies have yet to see a clear role and advantage as a result of the FTAs that are already in place, particularly the USSFTA, other than the textile benefit that Mr Leong mentioned. Can the Minister elaborate the specific areas smaller companies can look forward to benefit from these FTAs?

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I also notice that the private sector seems to play quite a significant role to influence the USSFTA at the planning stages and also the Indian private sector in the planned FTA with India. Can the Minister assure us that the private sector in Singapore too will have a role to play in the very early stages, so that all future FTA discussions will involve them and also take the inputs of the private sector into consideration before we conclude any of these?

Mr Arthur Fong: Sir, when in a foreign country and we mention Singapore, many foreigners will sing praises on how we have built up our economy, how it has developed and how it continues to evolve. The urgency to remake our economy and to stay virile in the global economy has, and will continue to be, a focus of the Government and indeed for all Singaporeans.

We recognise that we are often-times at the mercy of situations that are beyond our control. The often-used phrase "synchronised recovery" is an example. Sure, as we are seeing a recovery, "synchronised decline" will happen again down the path, for instance, the real estate prices in Singapore have fallen since the Asian financial crisis. In this regard, it is a triumphant coup for us to have signed the Free Trade Agreement with New Zealand, a few European countries, Japan and, of course, the United States. Goods exported from Singapore to these FTA countries are tariff-free. This is an extremely good economic instrument that can be shared.

Friends I have in the ASEAN region, when I extol the virtues of their sending their exports through Singapore for value-added activities and, thereafter, exporting to these FTA countries, thus enjoying the benefits, think it is a good idea. Sir, it makes good economic sense to promote and share the benefits of the FTA with

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our ASEAN countries. Like the well-received road shows that MTI had arranged for local businesses, we can consider doing likewise for our ASEAN friends. The countries that we have signed the FTAs with are not worried about the backdoor dumping of cheaper goods because they are confident that Singapore would be promoting this idea within the rules and terms of the FTA. We could be more proactive in promoting this idea within the ASEAN community if we have not already done so. MTI could then make provisions for ASEAN companies to set up shop here with ease. Sir, it not only promotes good economic sense and possibly creating more jobs here, but also strengthens the bilateral relations with participating countries as well.

Mdm Halimah Yacob: Sir, our Government has been very far-sighted in promoting FTAs. This has helped us to overcome constraints of space and growth. Singapore companies could now establish a presence abroad, either through exporting more goods or setting up of overseas branches.

We have signed many FTAs, with the USA, New Zealand, Japan, as examples. And, we are in the process of signing other FTAs as well. I have three questions to ask of the Minister.

First, I would like to ask the Minister to give us an update. As a result of the various FTAs that we have signed, how many jobs have been created for Singaporeans and in which sectors of the economy?

Second, Sir, it was said that the US-Singapore FTA would create job opportunities for our young professionals as 5,400 new visas a year will be issued to allow them to work in the US. I would like to ask the Minister to give me an update from May 2002 till today. May

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2002 was the date when the USSFTA was signed. How many Singaporeans have benefited from this scheme and are working in the US? What steps have been taken to help Singaporeans avail of this opportunity?

Finally, Sir, among the concessions under the USSFTA, degrees from four selected law schools are recognised for admission to the Singapore Bar and it will be easier to create joint ventures with Singapore firms to practise law. Some in the legal profession were concerned over this. I just would like to ask the Minister, if there has been any follow up to assess the impact of this on the legal profession.

Dr Ahmad Mohd Magad: Sir, I just have one very brief point to make in addition to the many good points that have been raised by those who have spoken before me and, that is, the extent of the awareness created amongst our SMEs of the benefits that they can reap from FTAs. I think it would be beneficial if some kind of a programme could be packaged to disseminate this information to SMEs so that they can really take full advantage of the many FTAs that we have signed.

4.30 pm

Venturing Overseas

Mr Leong Horn Kee: Sir, we constantly say that Singapore has a very small domestic market. As it is getting more mature, the growth rate of our domestic economy will be limited. Our population is not growing. One means of expanding Singapore 's economic pie is to expand our external economy, or quaintly called the "External Wing" by Senior Minister. Singapore should not be our only market. We should make the world our market.

I think we need to have a concerted effort and an elaborate plan to grow the

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External Wing. We have the finances. Singapore has huge financial strengths. For people, we can employ both Singaporeans and expatriates. So this is not a limitation. For know-how and expertise, they can be acquired. The key then is just opportunities. We need to have enough tentacles and contacts out there to source, evaluate and work on business opportunities. This, I think, is the major constraint.

By investing overseas, I think we can grow our External Wing to be even multiples of the total revenues and profits that Singapore companies can earn in our domestic market. I do not think this is an idle dream. It can be made a reality if we are bold enough.

Currently, some locally listed companies are already earning a large proportion of their revenues and profits from overseas. By investing overseas, we are using external resources, not our own resources, to earn incomes for Singaporeans. I think we need a think-tank group to develop a bold and realisable plan. Is MTI ready to take up this challenge?

Companies from Japan , Korea and Taiwan regularly form consortia or business cooperation groups when they compete for overseas contracts. They share information and leverage on each other's contacts and abilities.

One suggestion I have is to request MTI to explore and persuade MOF to consider allowing some kind of "pioneer status incentive" for consortia formed by local companies going overseas. MTI and MOF can give five to 10 years of pioneer tax-free status for profits remitted back to Singapore by these approved consortia. This is the reverse of pioneer status for

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MNCs investing in Singapore . In this instance, the objective is to encourage local firms to form consortia to vie for overseas projects.

Another idea is to ask the Government to assist or take the lead with local companies to undertake very large projects overseas. Never mind if we are not so successful in Suzhou . Let us learn from our lessons there and start again. I think the proposed new blueprint for developing the External Wing must be comprehensive and involve both the Government, the local business sector, SMEs and the GLCs.

Free Trade Agreements

Mr Wee Siew Kim: Sir, Mr Leong Horn Kee has adequately covered the first part of my cut. I will jump to the second part.

On the back of the FTAs, we have scored early successes with the revitalising of the garment, furniture and food industries. At the risk of appearing to patronise our businessmen, I hope the Minister would step up measures to push the awareness of the full power of the provisions residing in each of the FTAs. I hope that in so doing, more of the participants in our traditional industries could be jolted to leverage on the FTAs and find new leases of life.

Sir, many of our citizenry who are skilful with limited formal education and who are in their late 40s and 50s had been retrenched. They have limited options. If more of the seemingly traditional and sunset industries can ride on the back of the FTAs' new leases of life, many in our population would have more to look forward to. Going forward, can I ask the Minister that in the new FTAs, additional attention be paid to revitalising our traditional industries?

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Globalisation

Mr Gan Kim Yong (Holland-Bukit Panjang): Sir, many years ago, when PCs were still a new thing, I purchased a system for my staff in the office. They were all very excited when it came and they went about setting it up. After a while, one of them ran to me and said, "It doesn't work." So I went over to check. Everything was set up all right, except that the power cable was not plugged in.

Sir, in this rapidly globalising world, we cannot afford not to be plugged into the world economy. Our economy cannot be limited to our physical boundaries alone. Only a few years ago, we were encouraging Singaporean companies to go overseas, to China and, more recently, India . Now, many Chinese companies are coming here to be listed. In India , many companies are also looking at expanding overseas into this region. Even China and India are rushing to get plugged into the world. So, if we do not transform ourselves and get plugged in quickly, we may be marginalised.

Sir, I am optimistic. We have a good start with the several FTAs signed with other countries. We have laid the foundation. We must now push our companies to take advantage of these FTAs and we must help them to do so. In particular, we must help our companies to invest overseas. But any company who wants to invest overseas for the first time will invariably face difficulties, I will just highlight a few.

Firstly, the lack of local knowledge. This is by far the greatest obstacle, and our various overseas representative offices can be more helpful in providing assistance to our companies with regard to local information, such as contact, market information, regulatory regimes, etc.

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Secondly, the lack of financing. It is very difficult to raise financing for overseas ventures, especially in view of the higher risk involved. There is therefore a need to look into the financing needs of companies going overseas.

Thirdly, staffing. It is always difficult and expensive to send Singaporeans overseas. Very often, companies need to take care of their children, their spouses, loss of income, etc. Perhaps the Government can consider providing some kind of tax relief, especially for the smaller companies, such as double tax deduction for expenses incurred in sending people overseas.

Sir, our companies must get plugged into the world quickly. However, many of them are not as big as the MNCs or the GLCs, and they do not have the resources on their own to venture out. I would therefore like to urge the Government to recognise these problems and provide the necessary assistance. Perhaps appointing a one-stop agency will provide better focus and accountability in our efforts to help our companies expand abroad.

Singaporeans Living Abroad

Mr Chiam See Tong (Potong Pasir): Sir, my cut is on Singaporeans living abroad.

Singapore is the seventh largest foreign investor in China in 2002. Singaporeans invested about US$2.33 billion in China in that year. And with that large sum of investment, so too the number of Singaporeans going to China has increased. Singaporean expatriates in China , if they have a choice, would like to bring their whole families there.

The common complaint is that there are insufficient facilities in respect of schooling for their children. For Singaporeans who do get a job package

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deal which includes their children's education, they have to be separated from their children or they pay heavily to get their children educated in China in the international school there. To avoid the separation, they hope that the Singapore Government can assist them.

Singaporeans working abroad also want the Ministry of Education to be more flexible. They say that sometimes when they return home to Singapore , their children just missed the deadline for enrolment, and their children cannot get into the school they want or may have to lose a year. They ask for more flexibility in enrolment of their children whose parents are working abroad.

Singaporeans working abroad have to make sacrifices. They often have to leave their children back home. They want to be together with the children. They have to fly home often to be with their children. In this respect, they ask the Government for tax exemption for money spent on flying home to see their children.

Mr Baharudin, the former NMP, was quoted as saying that "Singaporeans working abroad should be seen as ambassadors doing their bit for the economy."

Singaporeans working abroad also want their voting rights to be maintained. They want the system of overseas voting to be allowed for them.

The Minister for Trade and Industry (BG George Yong-Boon Yeo): Sir, I thank Members for their thoughtful comments about our economic development. Although the present growth momentum is strong, we must press on with our efforts to restructure our economy and expand the external space to grow our second wing, which many MPs talked about. We do not know how long this

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synchronised global expansion will last. We must quickly put out the sails while the wind is blowing and position ourselves to take full advantage of the rising tide in Asia . The growth of China and India , while also posing competitive challenges, will create huge opportunities for us.

The growth we are now seeing is of good quality. It is broad-based and in the sectors which will help secure our longer-term future. In the last few years, despite the regional downturn and SARS, EDB was able to attract large investments in knowledge-intensive sectors. Despite the attractiveness of China , companies like Seagate, HP, Agilent, STMicroelectronics, Matsushita, Sumitomo, Merck, Sharpe & Dohme, Schering-Plough, CIBA, Satyam and Motorola continue to expand their presence here .

Although jobs are still a major concern, a point raised by Mr Inderjit Singh, Madam Halimah Yacob and Dr Tan Boon Wan, the employment situation will improve in the coming months. While the manufacturing sector will not generate very much additional direct employment, the jobs will be good jobs. The indirect benefits will also be considerable. Many manufacturing-related services jobs will be created. Jobs will also be created in the other services sectors, both in existing ones like in trade and tourism and in new ones like healthcare, education and the creative services. There will be more opportunities for our SMEs. However, many of the opportunities will be in new areas. As entrepreneurs and employees, we must be prepared to move into these new areas which are often out of our comfort zones. Economic agencies like IE Singapore, SPRING, EDB and WDA will facilitate this restructuring process.

Our external space is growing. ASEAN is integrating faster than we could have expected. Our links to China and India are growing rapidly. The FTAs mentioned by Mr Leong Horn Kee, Mr

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Inderjit Singh, Mr Arthur Fong, Madam Halimah Yacob, Dr Ahmad Magad and Mr Wee Siew Kim have opened up all kinds of new opportunities for our businesses and strengthened our hub position for both manufacturing and services.

Our external wing has been growing steadily. From 1992 to end 2002, our direct investment overseas has increased from $22 billion to $146 billion. This is not trivial. We are now a significant investor in all the ASEAN countries and in China , India and Australia . We must encourage more of our companies, especially our SMEs and more of our young people, to venture overseas. Yes, there are risks, but the rewards can be correspondingly great.

To answer Mrs Lim Hwee Hua, if we are able to make this breakthrough in our mindset and fan out from Singapore in larger numbers - and there will be many problems to be solved in the process - our GNP in 10 years' time will be significantly greater than our GDP. Then, like what the Dutch and the Swiss were able to do in US in an earlier era, we will be able to bequeath to future generations of Singaporeans a nice portfolio of investments in China , India and other countries. In the process, we will have to improve our statistics and provide Members, like Mrs Lim, data which she has asked for, and we have got to solve problems of education, taxation and so on. This is a huge enterprise but it is an enterprise which has only just begun and which should lead to quite a different future for us in Singapore .

Cost Competitiveness

But Singapore will always be our home base, our mother ship, and we must always look after it well. Many Members asked about our cost competitiveness. As DPM Lee addressed this issue at length yesterday, I shall concentrate on the points raised by Dr John Chen and a

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few others on our approach and what JTC can do for its clients. I assure Dr John Chen that when we monitor our land costs, we measure them against international benchmarks to ensure that we do not become uncompetitive as a result. Since the Asian financial crisis in 1997, industrial rentals have fallen by almost half. In the last year alone, industrial rentals have come down by over 8%.

As DPM Lee said our objective must be to adjust to the market as it moves up and down with international conditions. MTI will do a review in a few months' time to determine if the circumstances warrant a further extension of the rebates that we have been giving.

JTC is constantly looking for new ways to help its clients by relaxing regulations and planning rules, and by allowing tenants to better optimise the value of their space. JTC is also working on new ideas like shared facilities for its clients in the food industry. This will help companies in the food industry reduce the investment on overheads . A good example is the Food Incubator at Kampong Ampat Foodlink. Its shared facilities include a fully equipped kitchen that is certified to international standards. This enables start-ups to get into the business

without having to incur the cost of higher overheads.

4.45 pm

Mr Inderjit Singh asked if I was happy with the momentum of economic restructuring. On the whole, we are making good progress as can be seen in the quality of investments that are coming in, but we must not slacken in these efforts. The weather has improved but what we are adjusting to is not just changes in the weather, but to climate change. And this is a long-term process, we must persist in our efforts.

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Adding New Value

However much we lower our costs, our objective cannot be to come down to the level of China and India . That will be a fool's game for us. Singapore 's value proposition to investors must be different. We have strengths which others cannot easily replicate such as a public administration that is clean and utterly rational, good tripartite industrial relations, tip-top infrastructure, protection of intellectual property, rule of law, expeditious resolution of conflicts, personal safety, high-quality education and healthcare, and most of all, system efficiency, which you do not find in many countries. All this enables Singaporeans to command a premium in the international marketplace. It is a finite premium but one which enables a worker or an engineer in Singapore to earn a higher salary here than he can in Guangzhou or in Calcutta . By the same token, we want a hectare of land in Singapore to be worth considerably more and command a higher rental than most other countries in Asia . That must be our objective. But of course we must be very careful not to price ourselves out of the market.

While we should watch costs, we must also find new ways to add value. Let me talk about the retail industry which was raised by some MPs. It has gone through many rough years because tariffs had come down in other countries, such as there being no more luxury tax in Japan . And because of all this, Singapore has lost its position as a cheap place to shop. Indeed, many Singaporeans instead do a lot of their shopping overseas. But the industry is fighting back. The key here is to differentiate. If you do not differentiate in the sector which is in over-supply, then it is going to be a long grinding slog. At the high end, shopping is about lifestyle and Singapore is holding

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its position as the place to shop if you want the latest or the best, or if you desire the range. Borders, Kinokuniya, Takashimaya, and Hermes here, as well as the Heeren, Pan West, Hourglass, Eu Yan Sang, Robinson's and Tang's, these are all names which are well known among the upper middle classes in the region. They know that what they buy in these establishments are the genuine articles and not fakes.

But even on cost, we can be competitive if we fully exploit the advantages of our hub position. You take Mustafa as an example. It is a name which is well-known across the length and breadth of India . The store is open 24 hours. It offers more variety than Harrod's, without the service, of course, and the prices are super competitive. You can speak in almost any language and you can use almost any currency that you may have. Last year, I hosted to lunch my old tutor from Cambridge and his wife. They are Tamils who left Sri Lanka in the 60s. He was here to interview students. He said he had just come from Mustafa because his wife had heard so much about it. She wanted to see it and dragged the husband along.

Mustafa exploits the system efficiency of Singapore to maximum advantage. I spoke to Mustaq Ahmad, the CEO. There are many Indians from India now living here and they are a little suspicious about the milk that we get from Australia and New Zealand because of what goes into the feed. They prefer to get milk from India where the cows are sacred and fed on hay and grass. So, he said, every week, several containers of fresh milk arrive from India , and he is the sole supplier and, therefore his Indian milk commands good prices. He can do that because we are a transportation hub. In the same way, we must think of other ways to make use of our hub position to lower the cost of retail in Singapore . And one obvious sector to look at is in

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warehouse sales. Companies like IKEA are very interested. And MTI is now looking at how we can review the rules which presently inhibit the establishment of warehouse outlets in Singapore . We should aim to become the warehouse outlet of South East Asia .

Manufacturing

In manufacturing, many Members asked whether we are succeeding in moving up the value chain. We are making steady progress. Let me just cite two examples. In electronics, we have been able to move into new technologies, like Organic Light Emitting Diodes (OLEDs). Organic Light Emitting Diodes will enable screens to be flexible one day. Ness Display, a South Korean start-up, has announced a S$123 million investment to manufacture Organic Light Emitting Diodes for the global market. It expects to produce 18 million OLEDs by 2006, and the factory will employ 300 people. Another example is Hitachi 's Global Storage Technologies which has decided to make Singapore its only server hard disk drive manufacturing site in the world. So we are holding our own in electronics.

The biomedical sector continues to show impressive growth, accounting for 19% of the total value added in the manufacturing sector last year. We are beginning to attract investments in biomedical research. An unexpected benefit of SARS last year was the boost it gave to this sector. Because of the excellent work done by our research institutes and our hospitals, our international reputation went up many notches. The US Center for Disease Control (CDC) is partnering MOH to set up the Regional Emerging Diseases Intervention (REDI) Centre to make Singapore a key node in the global disease surveillance network. Roche Diagnostics formed a collaboration with the Genome Institute of Singapore to develop a SARS

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diagnostic kit. ISIS Singapore, a wholly-owned subsidiary of Isis Pharmaceuticals, announced its intention to broaden its micro-RNA and anti-sense drug discovery programmes to target the coronavirus associated with SARS.

And because of the good progress we made, we are now looking at the next phase for the Biopolis. While the direct employment in the biomedical sector is not high, it will enhance the healthcare sector which employs many Singaporeans. It will also create jobs in supporting industries. For example, in the Biopolis, we have built a complex for three hundred thousand mice. There are mice and mice, but these are special ones. Many companies will locate research activities in Singapore in order to have access to this mice facility. And we are one of the few countries in Asia which can run such a facility to international scientific and ethical standards. While in other countries, mice are vermin to be rid of, in Singapore , our mice constitute valuable intellectual property. And this is because of the integrity of the system which we operate.

_R &D _

Ms Olivia Lum asked how our research and development strategies benefit the private sector. She is right to point out that the private sector must take the lead in developing technology and A _STAR must work with the private sector. They are not doing too badly. Our gross expenditure in R &D, which is the supply side measure, is now 2.2% of GDP which is close to the OECD average of 2.3%. And A_STAR's 12 research institutes strengthen our key industries by conducting research in cutting-edge niche areas. And without A*STAR our biomedical sector could never have taken off.

A*STAR has also created an innovative programme to help promising

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local companies upgrade their capabilities through a programme called GET-Up (Growing Enterprises with Technology Upgrade). Since its launch early last year, many companies have benefited.

I agree with Ms Olivia Lum that our research institutes should encourage the commercialisation of the technology that is developed. But as the research institutes use taxpayers' money for their research, they must balance the commercial interest of the company they helped with the overall national interest. As to whom the benefits of IP generated should accrue, it is a subject for negotiation. If there are good reasons why a particular IP arrangement is not suitable, A STAR is prepared to vary on a case-by-case basis. But I think we got to look at a particular case in mind before we can settle on what particular structure is suitable. But A STAR will be flexible.

SMEs and traditional industries

Dr Tan Boon Wan and Mr Arthur Fong were concerned about the prospects for SMEs and traditional industries. We have got to help them adjust to changing trends; but we should not be helping them to stay put. Because when the tide of globalisation is coming in, staying put can be disastrous. We will of course consult them, stay in touch with them to know how they can be helped.

Let me just cite the textiles and apparel industry of an industry which we have helped and which will now see a new spring because of the US-Singapore FTA. It was once the mainstay of manufacturing in Singapore when we were industrialising. But since then, many of our companies have gone overseas, in order to take advantage of quotas granted to developing countries. But come next year, the quota system will end, and this

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will transform the global industry. Textiles and apparel exports to developed country markets will then be subject to tariffs. So this has opened up an opportunity for us because under the US-Singapore FTA, we can export a specified volume of textiles and apparel products to the US tariff-free. The industry now contributes about $260 million to GDP and employs 10,000 workers. It moves quickly, and if we help them to move quickly, they can preserve for themselves a valuable niche for many years to come.

And EDB will help them upgrade their technology and to grow the higher end fashion and merchandising industry in order to strengthen the overall performance of the cluster. The industry is also working closely with WDA to train locals for the many jobs that are available. And it is an industry which is constantly short of workers, despite the fact that for years and years, we have been saying that it is a declining industry.

Services

Let me now talk a little about services, because services will generate a lot of the jobs that we need to have in Singapore and which concern many of us. Members have tabled cuts on tourism which will be taken up later by MOS Vivian Balakrishnan. But tourism is one area which has shown great resilience last year, despite the disaster of SARS. The industry pulled together and, together with STB, responded brilliantly. In one month, the market plunged by over 70%. We introduced an assistance package in April, got everybody together, set standards, took temperatures, applied stickers and when the crisis passed, we launched a campaign called Singapore Roars! And by the fourth quarter, visitor arrivals were back to normal, in some cases, exceeding last year. And this year, we expect visitor arrivals to grow by 24%, of course, barring unforeseen circumstances.

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In healthcare, despite increasing competition from regional countries, we are holding our own as a recognised centre for quality healthcare. Last year, we launched the Singapore Medicine initiative and attracted more than 200,000 foreign patients. We are targeting to serve one million patients by 2012.

In education, Singapore already has 10 world-class universities based here. But the demand for good education in the region across a wide range is simply insatiable. So many members of the middle classes in China , in India , in Vietnam, wanting something better for their children. We must get into this industry which is worth hundreds of billions of dollars. EDB has launched a multi-agency initiative called the Global Schoolhouse. And our target is to attract by 2012 an additional 100,000 full-fee paying foreign students and 100,000 regional executives here for executive training.

To strengthen the strong reputation of a Singapore education, SPRING is working on an accreditation system for educational institutions. This additional boost to tourism from healthcare and education will help the retail sector and benefit SMEs, meeting some of Mr Arthur Fong's and Mdm Halimah's concerns.

5.00 pm

Mr Inderjit Singh asked how Singapore will respond to some of the new challenges posed by our neighbours. He cited Thailand announcing that it has every intention to take oil trading sector away from Singapore. Thailand's value proposition, eg, its land bridge across the Kra Isthmus, is, in part, driven by the desire of Japan, China and Korea for energy security. They get most of their oil from the Middle East. But oil trading, bunkering and refining are traditional strengths of Singapore, going back a long

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time. Ships have called on Singapore for bunkering since the days of the steamship. Over the years, we have built Singapore to be the third biggest oil-trading centre in the world after London and New York. Oil is such a strategic resource and the investments are so huge, companies like ExxonMobil and Shell recruit very bright minds to analyse trends in politics, economics and technology. Having been based here for so long, I do not think they are going to move away quickly just because new incentives have been announced. This is an area where we have deep expertise, and we have no intention at all to cede our lead in this sector. Nevertheless, we must watch the competition very closely, watch our costs, and continue to provide a business-friendly, family-friendly and safe environment for international companies. We are studying Thailand's moves closely and, where necessary, we will respond to those moves in a timely manner.

We are also breaking new grounds in the creative services. A younger generation of Singaporean creative talent is emerging, sometimes not well understood by their parents. In fact, the contribution of Singaporeans can increasingly be seen in many world-class productions. Take National Geographic Channel, which now screens globally 10 original documentaries, of which six were produced by Singapore firms. This series was commissioned by the Documentary Production Fund, jointly launched by National Geographic and EDB. This partnership will provide more opportunities for Singapore-based production talents to work with and learn from the best in the business. **** We are also attracting investments by top-notch creative companies. Weta Workshop, the producer of "Lord of the Rings", plans to co-produce an animated TV series with Singapore Technologies' subsidiary, IV Labs. It is training up to six Singapore professionals who will form a core production team here. Koei, a Japanese

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company better known for its blockbuster games "Romance of The Three Kingdoms" and "Dynasty Warriors", will be establishing a 21-man games development studio here in October.

Mr Leong Horn Kee asked if we were doing enough to build a vibrant business environment so that we can be the London of Asia. We have already done many things, and we will do many more. On Wednesday, DPM Lee spoke about bungees and home breweries. We are liberalising in a deliberate and controlled manner, sometimes experimenting along the way. Take One North, our new integrated science park at Buona Vista. It is going to be a test bed for us. Earlier I talked about the mice city, which we would not have allowed it elsewhere, and which would have unsettled many Members of Parliament. We are going to introduce personal transporters like the Segway at One North. Under existing regulations, the Segway will have no market in Singapore. If it uses the roads, it needs a COE. So, it is a non-starter. And because it is motorised, it is not allowed for use on our jogging and cycling tracks. So, the only place you can use it in Singapore is in your own private compound. And it costs too much for you to keep it as a toy back home. We are going to allow it at One North. We will allow personal transporters on pedestrian walkways and certain designated roads

,: and then let us watch what happens. If there are problems, then we may tighten the rules. If there are no problems, then maybe we can relax the rules for other parts of Singapore. And there will be other experiments that we will conduct at One North.

On Sentosa Cove and the Southern Islands, we will turn a part of Singapore into an iconic international resort and residential development. On Wednesday, DPM Lee announced that we will allow

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the sale of landed properties at Sentosa Cove to foreigners. Sentosa Cove is a distinctive waterfront residential development, complete with marinas and clubhouses. In the coming months, we will proceed with the sale of more land at Sentosa Cove. We intend to integrate the development of the Southern Islands with Sentosa Cove and the rest of Sentosa. The Islands will be linked to Sentosa either by boat or by a bridge. For Members who are not familiar with the Southern Islands, I have circulated two maps. As you can see, the Southern Islands have already been enlarged by reclamation.

We will create on Sentosa and the Southern Islands a world-class resort and residential development of over 500 hectares. There will be a comprehensive range of facilities, including beautiful beaches, hotels, private residential homes, marinas, sports complexes, convention centres, health spas, retail and F&B outlets, venues for international shows and theme attractions. We are keeping an open mind on what to have in this development, including the possibility of having a casino. Of course, if we decide to have a casino, we will need to put in place control measures to limit its access by Singaporeans and to make sure that there is no organised crime.

We will engage international consultants to help us map out the possibilities. An illustration of what is possible can be found at Atlantis on Paradise Island in the Bahamas. This is only an illustration, and what we create eventually will probably not look anything at all like Paradise Island. It will be, and it will have to be, uniquely Singapore. What we envisage is an international facility separate from Singapore but accessible to all Singaporeans, with more relaxed rules to attract international talent, visitors and investments. It will help us maintain our position among the front rank of cities in 21st century Asia.

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FTAs

Many Members talked about our Free Trade Agreements. To-date, we have signed FTAs with the US, Japan, Australia, New Zealand and the European Free Trade Association consisting of Switzerland, Norway, Liechtenstein and Iceland. Together, they account for over 27% of our domestic exports. We are also deepening our economic ties with China and India and working on stronger links to the EU. With India, we hope to conclude our FTA later this year. We will begin negotiations with China later this year once the goods chapter of the ASEAN-China FTA has been concluded in the middle of this year. We are in the course of negotiating or launching new negotiations with many countries, eg, Canada, Mexico - although that has slowed down - with Chile, Sri Lanka, Bahrain, Jordan and Panama. Pakistan and the Ukraine have expressed interest.

We did not set out to be an FTA hub, but we are fast becoming one. To our pleasant surprise, a number of countries have indicated strong interest in having FTAs with us, because they feel that this will enhance their ability to attract trade and investment. But, really, we are the ones who benefit, because they have tariffs while we have none. Therefore, we welcome their requests because, as an international hub for many businesses, the more FTAs we have, the better. This is not to say that we are not committed to the WTO and the multilateral system. But we know that whatever WTO can achieve, we need much more. Nevertheless, we are one of the most ardent supporters of the WTO.

Mr Leong Horn Kee, Mr Inderjit Singh and Mdm Halimah asked whether we were giving away too much in our FTAs when we negotiate with large countries like the US. I do not believe so. For goods, we have nothing to give away because we have no tariffs, except beer.

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The opening up of our financial markets is consistent with our own liberalisation plans. Selectively opening up the legal sector helps us make Singapore a legal hub, which is good for Singapore's competitiveness. To answer Mdm Halimah's point, it is for Singapore law firms to decide whether or not to enter into JVs with foreign law firms. So, the market will work itself out. The implementation of a more rigorous Intellectual Property Regime, which is an important aspect of our FTA with the US, enhances Singapore's attractiveness as a place to invest and do business and, in fact, following that FTA, we have attracted more interest from companies wanting to manage their IP out of Singapore.

On issues which are of fundamental importance to us, we have stood our ground. For example, we would not agree on giving up our right to control the movement of capital in a crisis although we were prepared to limit the circumstances under which this right could be exercised. On chewing gum, we have made some minor concessions, but the basic position, as you know, has not changed at all.

Mr Leong Horn Kee and Mr Inderjit Singh have asked how we have benefited from our FTAs, and others have asked how we should help our SMEs benefit from FTAs. Trade volumes have increased as a result. Domestic exports to Japan, New Zealand and EFTA have all gone up. With this growth come job opportunities. For example, plastics exports to Japan have increased by a whopping 75% since our FTA with Japan came into force in November 2002. Processed food exports to New Zealand have gone up by more than 60% since the FTA with New Zealand came into force in January 2001.

Our FTAs not only create new jobs. In some cases, they also help us keep jobs in

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traditional industries, like the textiles and apparel industry. We have no industrial policy to phase out particular industries, except for non-economic reasons, like our policy not to have pig farming in Singapore. Otherwise, we stand ready to be surprised by the market. As I mentioned earlier, for years we predicted the demise of the textile industry. Now, it is having a second lease of life. Where there are opportunities in our FTAs to help traditional industries stay competitive, we will, of course, seize them. We are not able to estimate the actual number of jobs created, which was what Mdm Halimah asked, because there are so many factors involved and it is not easy to isolate the FTA effect.

But we know that our FTAs do benefit SMEs, a point raised by Dr Ahmad Magad and Mr Wee Siew Kim. How do we know? For our FTAs with Japan and Australia, companies have to apply to Singapore Customs for certificates of origin before they can enjoy the preferential tariffs. Although this applies only to the export of goods, it gives us an indicator of the extent to which SMEs are exploiting the FTAs. 15% of the applications were from SMEs. Of course, this figure is still low and should be improved, but it is encouraging that more SMEs now are learning new tricks.

Our FTAs also bind our partners to keep their markets open. This protects us from certain kinds of policy changes and it is a benefit which we do not realise until something happens. For example, when Singapore signed the FTA with the US, the US was granting 195,000 H1B visas worldwide a year for professionals. In October last year, because of political pressure against outsourcing, this was sharply reduced to 65,000. We are protected because, under the FTA, we are guaranteed 5,400 visas, which is not a small percentage of the total. But I do

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not have information on how many of these visas have actually been issued to Singaporeans because this is done by the US Government, not by us.

Another example of how the FTA with the US has benefited us is the outsourcing of US government procurement. Recently, the US Senate passed a Bill banning the subcontracting of government jobs to foreign companies. When I was in India recently, one businessman who heard that our FTA protected companies here against such restrictions, he immediately wondered whether he should not transfer more of his operations to Singapore so that he can qualify to be an Indian company in Singapore with substantial interest in Singapore.

So, you see, in ways direct and indirect, these Free Trade Agreements help us maintain our international competitiveness. And we negotiate these FTAs precisely

to benefit our businesses. I agree with Mr Leong, Dr Ahmad Magad and Mr Wee Siew Kim on the importance of educating our business community. This is top priority for MTI and its agencies. The reason why we move legislation to create the SBF is because we needed a counterpart apex organisation for consultations on trade policies and trade negotiations.

5.15 pm

For all FTAs initiated since January last year, we have conducted intensive pre-negotiation consultations with SBF and various business associations. We also conduct, on a continuing basis, technical briefings tailored to particular business sectors because the money is in the details. We are organising a FTA Day next month to inaugurate a series of hands-on workshops and take companies by their hands, as it were through the rules of origin, compliance and qualification. To ensure easy access to information on FTAs, MTI created a

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comprehensive FTA website which includes an interactive tariff savings calculator.

A number of MPs spoke about the importance of creating the external space for the expansion of our second wing. We talked about ASEAN, India, China and other countries. ASEAN will always be our inner circle. For this reason, we have been very active in promoting the integration of the ASEAN economies. When we started with our FTA policy, many of our neighbours were unsettled, thinking that we are breaking ranks. They did not believe our assurances. But having watched our moves and having watched all the initiatives that we have taken to strengthen ASEAN, they have come to the conclusion that we meant well. Indeed, we have started a cascade of FTA initiatives in ASEAN and beyond. Thailand was an early convert and even Malaysia now has joined the bandwagon. I would say that, on the whole, ASEAN countries realise the importance of FTAs and how the bilateral FTAs that Singapore has can also benefit them. In fact, the Vietnamese probe us all the time about our FTA initiatives and ask us how they can benefit from them. So does Indonesia.

With Malaysia under PM Abdullah Badawi, we are hopeful of a fresh start. Officials are now studying how we can enhance the Malaysia-Singapore Third Country Fund so that companies from both sides can work together to explore opportunities in third countries. But as to whether we will ever have a high speed rail link up the Peninsular to Thailand, Indo-China and China, a point raised by Mr Leong Horn Kee, I think that depends on whether there is sufficient political will in ASEAN to work together. If there is, this will happen. It makes a lot of economic sense.

Our links with Thailand are also growing. Our links with Vietnam are

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blossoming. Vietnam is important to us because Vietnam's economy and our economy are complementary. Our Vietnam-Singapore Industrial Park in Ho Chi Minh City is going to phase three. We lifted visa requirements late last year and opened a tourism information centre in Ho Chi Minh City to attract middle class Vietnamese to come to Singapore for entertainment, healthcare and education.

We are working with Vietnam on two-legged investments. In other words, what we are trying to do is to encourage MNCs, who want alternatives to China and Latin America, to consider Singapore and Vietnam as one economic entity - put something here and put something there - but only one virtual investment agency to service them, ie, EDB working with its counterpart and resolving internal difficulties. Recently, when Prime Minister Phan Van Khai was in Singapore, the Vietnamese gave in-principle approval to four companies. We hope that if this works, we can increase the number.

With Indonesia, we have been doing something similar for Batam and Bintan. Once elections are over, we will do more with those islands. Even with what we have done so far, we have helped to create 180,000 industrial jobs and help Indonesia greatly increased its export earnings.

Many provinces of Sumatra are now seeking direct economic links to Singapore because under the new dispensation, with power and authority devolved to the provinces, they want to have their own direct outlets. To my surprise last year, I was invited to join the nine governors of Sumatra for their regular meetings. I have attended two so far. We are training their officials and a number of them, like Jambi, South Sumatra, have set up offices in Singapore. Just last week, the Governor of West Sumatra told me that he will also open an office here. But our interest goes beyond Sumatra. We

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welcome direct links with all the provinces of Indonesia.

This evening the Esplanade will be premiering a threatre production of the epic history of the Sulawesi people, I La Galligo . It is a world-class production which will start here and travel to London, Europe and New York. I wrote a note to Pak Yusuf Kalla, Coordinating Minister for People's Welfare, I said, "Look, I know you are in the middle of elections, but, if by chance, you have a few hours to spare, come, and bring your friends along." He is coming. He is flying here at about 5 o'clock this afternoon, seeing the show which will last four hours, and at midnight, he is flying to Sulawesi for his election campaign. This really touched my heart because when I invited him, I did not really expect him to come. He is coming because firstly, it is a good production. But, secondly, I believe that some of the leaders in Sulawesi are coming here because they want links with Singapore. We should welcome them and help them. So long as these links are economic and not political, Jakarta will not object. But we have to manage this carefully.

Let me for the next few minutes talk a little about China and India which we will continue to talk about in this House for years to come because these are two realities which are growing and should become more and more important to us.

In China now, we already have a huge account and it is growing strongly. At the end of 2002, our cumulative investments in China reached $17 billion. Our trade with China grew by 31% last year with non-oil domestic exports growing by 34%. As has happened again and again in history, the growth of China will bring prosperity to Southeast Asia. We must position ourselves for this future.

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This year marks the 10th anniversary of the Suzhou Industrial Park. I disagree with Mr Leong Horn Kee that it was all an unhappy experience and we should move on. There were difficulties, but the Chinese now see SIP as an icon of our good political and economic relations. Suzhou today attracts more investments than Pudong. When we speak to the leaders of Suzhou, they said one reason is because of SIP. SIP's strong performance today is a fruit of great efforts put in by both sides. The original 70 square kilometres allocated for the project is now nearly fully developed and the Chinese are proposing to enlarge it. The Consortium intends to list a joint venture company next year.

Apart from Jiangsu, we have strong links with other provinces. Last year, we set up new business councils with Liaoning and Zhejiang. We are beginning to reap the benefits of China's externalisation strategy which was a proposal by Hu Jintao when he visited us last year when he said that Chinese companies should use Singapore as a base for their internationalisation. Last year, a record of 13 Chinese companies launched their IPOs at the Singapore Exchange. We expect more this year. We encourage Chinese companies to make use of Singapore as a base for regionalisation and internationalisation. When PM Goh met PM Wen Jiabao in November last year, they agreed to the establishment of a Joint Council for Bilateral Cooperation (JCBC) to be chaired by DPM Lee and Chinese Vice Premier Wu Yi. The inaugural meeting will be held in May. The two PMs also agreed to a full programme of cooperation, including the establishment of a China Business Centre, a Chinese Cultural and Media Centre and a Centre for Chinese Medicine in Singapore.

Now turning to India. India is another country on the move. Last year, the

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growth rate was over 7%, maybe even 8%. The BJP Government is now planning on the basis of India growing at 8% a year, which is quite remarkable, considering that even 10 years ago, people were talking about the Hindu growth rate of 3-4%.

India is increasingly looking eastwards. We have become an important partner of India and we expect the negotiations for our Comprehensive Economic Cooperation Agreement to be concluded later this year. India is also negotiating an FTA with ASEAN.

Even as Singapore companies are looking at trade and investment opportunities in India, Indian companies are looking at Singapore as a regional base for East and Southeast Asia. All the top 20 Indian software companies have offices here. An increasing number of Indian companies are showing up in EDB's client list. They are beginning to invest in manufacturing in Singapore. Think about it - we, with our high cost, are attracting Indian investments in manufacturing. Let me just give one example. There are not many examples yet, but let me provide one interesting example. Next week, an Indian drug packaging company called Bilcare will invest $20 million to set up a factory here with both manufacturing and R&D facilities. It will provide world-class pharma packaging components. Bilcare will use its plant to roll out some of its latest technologies for markets in Indonesia, Malaysia, Vietnam and China.

We have, in the last two years, devoted considerable efforts to enlarge Singapore's external space and to help Singapore companies take advantage of this external space. I would like to assure Mrs Lim Hwee Hua that it is not just IE Singapore. Yes, IE Singapore should provide a one-stop service centre but the whole Ministry is involved and all the economic agencies are involved in this effort. The world is changing. There are

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new opportunities and there are new dangers, and our radar must be spinning 360 degrees.

We are helping our companies to form consortiums. This is not in the business culture here. But overseas, each is too small to compete, often times. So we have given incentives - we give grants, and urge them to combine. Mr Leong Horn Kee proposed that we also confer them tax advantages. I am not sure whether these are needed with our new territorial tax regime. But we will look at what the practical problems are. If we need to improve the incentives, we will do so. But getting our companies to go overseas is a very important part of our future. And even more important is getting our young people to broaden their mindset and to go overseas and take their chances. There are many problems that we got to solve to facilitate this. In the end, it is whether they have the spirit and that drive.

Yes, we must look after their children's education, enable them to plug out of the Singapore system and plug back in when they come back. I believe some of the changes taking place in the Education Ministry will facilitate this portability. There are more and more private Singapore-type schools being established all over Asia. This is a tribute to the Singapore education system. They also provide a good facility for Singaporean parents who work in those countries.

5.30 pm

Entrepreneurship

Mr Inderjit Singh (Ang Mo Kio): Sir, entrepreneurship has indeed become an important agenda for all of us and we need to address a few issues. At the policy level, I have very little to say because I am really pleased at the rate at which things have changed. One of the

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most significant things that happened for us was the creation of the position of the Minister-in-charge of Entrepreneurship. As a result of those changes, we have seen many things happening, both at the policy level and also in the details. This year, I would like to commend Mr Raymond Lim, Minister-in-charge of Entrepreneurship, as well as the Chairman of ACE, for the many initiatives that are making entrepreneurship now a buzzword in Singapore. For this year's cut on entrepreneurship, instead of talking about the philosophical level, I have reduced it to a number of details that I think need to be addressed.

First of all, in the area of legislation and infrastructure changes, one of the issues that we see today is that banks are quick to react to cases where companies default in the loans, and banks actually would rather make the directors of the companies go bankrupt very quickly. I am asking whether we should look at a regime of changes in the bankruptcy laws where there are some protection and some scheme of arrangement that become compulsory before we allow any bankruptcy procedures to take place.

Sir, there are also many volunteer groups that have come out in Singapore recently, eg, TiE, The Chinese Entrepreneurs, which I am heading, Monte Jade which is a Taiwanese-based group, and The Chinese Entrepreneurs, which is a grouping of entrepreneurs of Chinese origin. Many of them are volunteers, like I am. One of the problems we face is that we do not have the resources or the financial sources and time to do many of the details and planning. So I am asking whether the Minister could actually provide for an Enterprise Centre, kind of a secretariat and resource support, for organisations like these.

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Sir, in the area of introduction of new legislation, can I ask whether the Government can make it a requirement, and I have asked this before, where the civil servants make a study of the cost of compliance of new legislation before the laws are passed? Parliament should actually look at these things before we approve any Bill.

In the area of unfair competition, we have seen many start-ups failing too early because they are being suppressed by bigger companies here in Singapore. In this respect, I would like to get an update from the Minister on whether the competition law that we are planning to enact will help smaller companies, at least, survive the initial stages before they get suppressed too early.

Mr Ang Mong Seng: ( In Mandarin ): Sir, the Government is encouraging more entrepreneurs in Singapore to set up new companies. It gives them incentives and hope to attract young people to create their own businesses and enterprises under the various schemes available to them. In so doing, the Government should also educate and guide the civil servants so that they would accept new technology and new technological product.

I have a friend who uses some new technology to compress timber to produce boards in his factory. This is a value-added process. When his company applied for a permit to sell this new kind of product, it was turned down because there was no record of sales of such compressed timber board in the market. When I visited him at his factory and asked him whether his business was good, he replied, with a great sigh, that the Government was stifling his business with all kinds of red tape, and his improved product could not be sold in the market because of "eye-shut" attitude of the civil servants. So, what is the use of creativity?

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Our civil servants are an important bridge between the people and the Government. They must be practical and down-to-earth to serve the people. They should not be too rigid and stick to the old rules in performing their duties, thus creating inconvenience to the entrepreneurs and stifling our creativity and development in this area. So I believe that in implementing the Government's push for creativity, the civil servant must be very flexible to serve the people so that creativity and the entrepreneurial spirit of the people would not be suppressed.

I would like to suggest to the Government that in evaluating and assessing the civil servants, it should not assess them on what they have done, but how well they have served the people and how many opportunities they have created for the SMEs. They should be assessed on the efforts they have made to assist the industries to flourish, and should not be punished for genuine mistakes which they have made, lest they become too reserved and refrain from taking risk for fear of committing mistakes. We should rid our civil servants of the established attitude of "the less you do, the less mistake you make".

Small and Medium Enterprises

Mr Inderjit Singh: Sir, on SME support, many of us in this House and also many industry groups and people from the private sector have been asking for a clear champion agency to support companies at the start-up stage, growth and expansion stage, and the stage where they globalise, ie, companies that actually initiate out of Singapore. The voice is getting louder and the need is a real one. However, the Government's response is that all the support is already in place at different agencies. Their argument is that no one agency can play the role being requested of the champion agency. On the surface, this appears to be true, but,

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in reality, things are falling into cracks, as handover from one agency to another takes place when these agencies try to support the companies at the various stages of their growth.

Sir, in a dialogue session I had with SMEs, both local and foreign SMEs were there. One owner of an American SME told me that he felt little pity for Singapore SMEs. His observation was that foreign SMEs are getting preferential treatment, while local SMEs are being given the run-around by the Government agencies. This was his own observation. He was referring to the EDB support that he got very easily. I have personally experienced a difference in treatment when I applied for a number of Government grants, when I was in a multi-national and when I tried to do it as a local company. I was not given the kind of help that the American multinational gets. I had lots of resources when I started United Test and Assembly Centre, which is a listed company today, but I gave it up although I could have proceeded because the incentives that I was going to get were not attractive enough as I could have got if I had applied as a multinational. I have many more examples, but in the interest of time, I will go straight to the request that I have.

We really need a champion agency for SMEs, not a first stop agency, but a first and last stop agency. Perhaps we can think of the modus operandi of such an agency as an account manager, who can hand-hold the companies through their various stages of growth, including navigating through the many agencies which may provide different types of support and needs. So I am not suggesting that we move all the assistance schemes into one agency, but have an agency that can hand-hold SMEs through the various agencies. While SPRING can help, and they have played a good role in helping SMEs, but I think SPRING does not have the type of

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resources EDB or A*STAR has in terms of people and funding. I think maybe there is a need to relook into this area, if SPRING is to be the champion agency.

Sir, secondly, mergers and acquisitions are going to be a significant thing and a way out for our local companies. We have a poor track record of this happening, and I think we need to look at either having incentives or buyout funds to be set up in Singapore and a change of legislation. In particular, I would like to highlight section 76 of the Companies Act which makes it very difficult for companies to merge. There is a clause that talks about financial assistance. I personally have seen this as a problem where companies run the risk of contravening this regulation in trying to do mergers. I hope that the Minister can look into this particular legislation.

The other thing is in the area of clustering. That is a great way to go out, but, as the Minister mentioned, the culture is not there yet. We really need to do a lot more. I think an account manager who will hand-hold a cluster out to Singapore would be a way out for us.

Dr John Chen Seow Phun: Sir, besides problems obtaining finance and capital, our SMEs often face the problem of finding markets for their products and services, whether locally or in the international arena. Without markets they will not survive, let alone grow, no matter how much financial assistance the Government gives them. Without the economies of scale, SMEs will find it tough to compete with MNCs and GLCs, even when they may own a superior process or technology.

I would like to ask the Minister, in what way can the Government help SMEs to find market opportunities, here and abroad. Mr Inderjit Singh has mentioned

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that one way is to help them to merge, to form bigger companies. Therefore, I would like to ask whether incentives such as pioneer status, be given to encourage SMEs to merge and form bigger companies, so that with economies of scale they can better compete.

Dr Ahmad Mohd Magad: Sir, the gist of my cut is on SME innovations. I have covered this topic on innovation at length during the Budget Statement debate, but would like to reiterate some points with specific reference to SMEs.

I am particularly heartened to note what the Minister has just said about our kids doing creative things which even their parents sometimes wonder about. These are our future innovators and, we should, therefore, lay the groundwork to encourage and enable those ideas to blossom and, subsequently, successfully commercialise them.

I would like to ask the Minister to consider:

(a) the speeding of the process of reducing red tape so as to enable our technopreneurs to more easily take advantage of Government assistance schemes, particularly those administered by A STAR. Many have, in fact, sounded out to me that the forms that they have to fill up for A STAR schemes seem to be quite cumbersome;

(b) creation of a platform to harness ideas and nurture promising start-ups with innovative products or services. This should also include assistance in creating markets for commercialisation of their creation; and

(c) make the process of protecting intellectual property less cumbersome and affordable to start-ups.

Dr Gan See Khem (Nominated Member): Sir, I am a Council Member of the

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Singapore Business Federation and I will be citing a case of a company who is also a member of the Singapore Business Federation.

In line with the Government's continued effort to grow the local SMEs as an engine for growth, I would like to urge the Government to give further consideration to review and, if necessary, appraise the provision of financing support and grants to promote enterprises. The efforts made by the Government towards the provision of grants, eg, LETAS, and financial support, eg, LABS, are commendable. Just SPRING alone has more than 60 schemes to promote local enterprise. Given all that is available to the private sector, why are SMEs still calling for more Government support and understanding? In this very short 2½ minutes, I would like to give my take on it.

Let me cite an example of a local company who was rejected by SPRING for the LETAS and LEF Scheme. The company in question is United Texmac. This is a company which is a joint venture started five years ago between a Singapore entrepreneur and a big Japanese firm Itochu. The company manufactures textile machinery and has exported successfully these products to India, Pakistan, Bangladesh, China and other countries. In these markets, equipment financing is not readily available to the purchasers, and United Texmac sometimes provides credit to buyers in order to clinch the sales. The locals hold 76% of the shares and four out of the five local Singaporean investors also work in the company to grow the company. Itochu holds 24% of the shares and its primary role is to share the technology, as well as the market knowledge and management systems. The paid-up capital of the company is $1 million and in its five years of operations, the company now manages to achieve $25 million in sales a year. The

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understanding with the Japanese company is that the local partners are responsible to raise capital to further grow the company, whether through bank loans or other Government grants or financing support. United Texmac's application for LEFS and LETAS funding was rejected. The grants that were rejected were the computerisation and implementation grant of $26,000, machinery loan of $25,000, strategic business plan of $36,000, consultancy for conversion of ISO 9000 1994 to ISO 2002 standard for $15,000 was also rejected. The reasons for the rejection were because they failed to meet the fixed asset criterion of not more than $15 million and the employment size of not more than 200 workers when computed on a group basis. This company's shareholding is made up of 74% local and 26% foreign. The foreign shareholder, Itochu, is a very large Japanese corporation

who owns 26% of the local company. However, the criterion applied as if the holding company is the whole company and not a division of a large foreign holding company. I have another example, but in view of time constraint, I will not cite it.

5.45 pm

The Chairman: Please sum up now, Dr Gan.

Dr Gan See Khem: What I would like to propose is for the Government to review the definition of SME. In today's environment, the definition of SME, with less than $15 million of net assets and not hiring more than 200 employees, is outdated. Given the capital intensity needed in many industries, enterprises are continuously needing to raise funds to invest and improve operations. The price of land, buildings and even JTC properties are high. Many local enterprises need further injection of land and machinery, and it easily exceeds the $15 million cap. So, I would like to urge the Government to redefine SME in the Singapore context,

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so that more and more viable and growing local enterprises can qualify to benefit from the myriad of support schemes rendered by the Government.

I would also like to propose for SPRING to relook at the criterion of using group basis to compute the eligibility criterion. In the case of this company, when an overseas company invests in a local company, they would invest once and not continuously, and local companies need to raise funds.

The Chairman: Dr Gan, you have far exceeded the time given to you.

Dr Gan See Khem: I will just end off here. I ask the Government to help redefine the SMEs as well as the eligibility criteria for the LETAS and LEF

Scheme.

Financing Schemes

Mr Inderjit Singh: Sir, in the example mentioned earlier, I think if the foreign ownership had been 75%, they would probably have got the grant that she was talking about.

Sir, I have been working on this issue of financing of SMEs and start-ups for the past two years. Many people have been involved in this process. And now as part of the ACE, the Action Crucible for Finance, we are working on implementing a number of initiatives in this booklet called Report on Financing for SMEs . There are a number of initiatives down here. And the reason I raise this issue here is that while the Government has been very proactive in helping us implement the detailed list of recommendations, there are a number of areas which I hope the Minister will help us facilitate the implementation.

The first is in the area of loan or asset securitisation. I brought this up under

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MOF. I wanted to hedge my bet down here that there is enough attention. Therefore, I again raise this issue of help that we need from the Government. I think this will be a very exciting area, an alternative for fund raising for SMEs and small companies. And I foresee a number of areas that we will need Government's help particularly in the area of helping take some of the risks in subscribing to some of the tranches of the bonds that may be issued as a result. This is one area.

The second area is in the area of Local Enterprise Financing Scheme. It is a very successful scheme. But we have left the interest rate requirement at a fixed rate for the banks to charge. The problem here is that because it is a fixed interest rate that the banks can charge the SMEs, the banks therefore select a narrow category of companies that they are willing to lend to. If we can make the interest rate chargeable flexible, maybe a minimum and a maximum, I think banks will be willing to lend to riskier companies and charge a higher interest rate, because of the nature of the risk that they will have to absorb, and still perhaps lend companies that they would not normally lend under the current scheme.

Sir, the other area is that the LEFS has been very useful for manufacturing companies, but the traders in Singapore , unfortunately, do not have the support. I would like to ask the Minister to consider extending the LEFS to traders. The argument here by the agency that is administering this scheme is that trading is a non-value added activity. The impression is that the traders just sit next to the telephone and goods just cross over without reaching Singapore . I think this is wrong. Many traders do a lot of value-added activities in Singapore and LEFS could be very useful for them by way of financing.

Sir, the next area is one of SEEDS. Currently, we have the SEEDS scheme

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which is administered by EDB and SPRING. It has been very successful but I would like the scheme to be enhanced to take into consideration the money that has been put in by the entrepreneurs themselves. Currently, the matching grant by EDB comes only as a result of third party financing. I would like to ask the Minister whether he will be willing to consider extending this scheme to recognise investments made by the founders and the entrepreneurs themselves.

Finally, Sir, in deploying future funds like the $1 billion Technopreneurship Promotion Fund that we have, I think the funds went mainly to the right places, but I propose that some of these funds could be deployed a bit differently. For example, I would like to mention the Small Business Investment Company (SBIC) model in the USA where small funds were being set up for the purpose of a whole range of financing, not just equity, but debt and equity. Perhaps, if we could do this, instead of giving all the funds to agencies like EDB, A*STAR and Temasek for these purposes, I think we will enhance the vibrancy of financing in this area.

Private Equity Exchange

Sir, one of the recommendations of the Action Crucible for Financing made in this recommendation list was the setting up of a Private Equity Exchange. I have brought up this issue many times in this House about its implementation in Singapore . I thought we had a good response but things are not moving as fast as we desire.

In the past few years, we have seen a track record of companies which the SGX is not willing to consider for listing on our local stock exchange, but these companies finally got listed in exchanges in other parts of the world. At the same time, we are seeing companies getting

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listed on the Singapore Stock Exchange raising very small amounts - $1 million-$2 million - and spending much money just to raise that amount of money, and then having the burden of high cost of maintaining a listing on the Stock Exchange. I think there is now a need for a Private Equity Exchange to be set up. With the encouragement of the Action Crucible for Financing, there are a number of private sector companies that are ready to run this Exchange. The Government's argument is that it is not viable. I would like to ask the Government to reconsider this. If the private sector players feel that it is a viable thing to do, let them take that risk. Because I know that a number of them are interested but things are moving just too slowly. Perhaps the Minister can help us facilitate this. And I hope that before the end of this year, we can see the emergence of a Private Equity Exchange in Singapore .

Financing Schemes

Mr Arthur Fong: Sir, I am raising the issue of SMEs' financing, in particular, accessibility to the Government assistance programmes managed through the participating financial institutions.

I would describe it as painful and even difficult for those 40,000 or so SMEs to receive the assistance set up by the Government and managed through SPRING Singapore , in particular the micro loans. Some retailers I spoke to are sceptical of the Government's assistance programmes and they told me why. A confectionery had applied for a grant in 2001 and is still waiting for the grant to be processed. In the meantime, the scheme had lapsed and he had closed down his business, but the needed cash flow assistance may have actually helped him tide over to a better time.

Another local designer house with a retail outlet in a posh Orchard Road locale had his micro loan application rejected

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because he had bad banking record. Over the last six months, he had two cheques that bounced and hence his business was deemed unviable. Sir, again, this micro loan is supposed, among others, to help companies with their cash flow problems. I am happy to report that after nine months, his business is still going at a rental of $20,000 a month.

Sir, I am convinced that the schemes are well intended, well meaning and even well conceptualised. But the execution is anything but desirable on the down end. The commercial institutions partnered with to approve and process such loans are not in sync with the intention and the purpose of the Government for granting such loans. The very reason the schemes are put in place is to help the viable businesses through a rough patch. In a rough patch, even for a viable business, a cheque or two will bounce. Does it make it then unviable for the loan to be rejected?

Sir, the GPC for MTI and Ministry of Finance, chaired by Mr Leong Horn Kee, had a very good meeting with the resource panel. There were good suggestions and, among them, was actually to have experts from, say, the retail sector or the SMEs, to contribute their inputs to the approving units. Perhaps even a rotation of the ACE members can be in the review committee for such loans. I think this will ensure that the spirit of the scheme will filter through to the small businesses that truly need the breath of life. This will stem the doubts and rebut the sceptics of the scheme.

Sir, I call on MTI not to remove the crucial micro loan to the SMEs and to ensure that while the banks apply the market mechanism, they do not lose sight of the objectives of the schemes that have been set up for.

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Credit Cooperatives

Mr Sin Boon Ann (Tampines): Sir, this subject of funding the SMEs is not new. I have heard the comments of my colleagues earlier about how difficult it is to get support for the SMEs in relation to their funding needs. The perception still remains that it is quite difficult to navigate through the maze of the bureaucratic rules in order to get some support from the Government. Rightly or wrongly, the perception remains that it is easier to move a mountain than to try and qualify for the scheme. This may have been an exaggeration but I think there is an element of truth in this.

Many SMEs find the paperwork and the compliance requirements to be rather overwhelming. On top of that, I think many will agree with me that the recent merger of local banks did not help to expand the choices available for our SMEs to choose from. In fact, many SMEs find themselves squeezed with credit lines withdrawn as a result.

One of the problems with lending to SMEs has to do with the inability to properly assess the credit risk of the SME applicant. I believe this problem can be easily overcome if we can bridge the information gap. In this regard, I would propose that the Government continues to work with the SMEs to set up a credit cooperative to help the small enterprises that would have difficulty with the local financial institutions to raise funds.

Our Government can help kick start this process by helping to seed the initial fund. Our strong financial control system will help to ensure that the money is properly applied. However, the SMEs can help to run it. The reason is clear. The cooperative will help to overcome the information gap that exists presently because the lending institutions are not in a position to fully comprehend the business of the SMEs. And I think the

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association will be in a better position to properly assess the credit risk.

This does not mean that the cooperative must necessarily be loss making. The interest charged may be higher, and I am told that this is not an issue with the SMEs who are members of the association. Sir, I think that such an approach may well work, and it may well obviate the need for an SME bank, because banks operate a wider scope of functions than that which is required for SMEs. For instance, banks provide deposit taking and treasury services which, for the moment, I do not think SMEs require.

I therefore would like to ask the Minister whether the Government will seriously consider supporting the call for a credit cooperative for SMEs in Singapore .

Talent Management

Dr Ahmad Mohd Magad: Sir, as our economic activity becomes more and more knowledge and technology intensive, the need to manage and retain talent in organisations becomes increasingly critical. Knowledge and expertise will reside in the heads of individuals or in a small team, especially in our SMEs. I believe many SMEs lack the understanding of the importance of talent management and retention.

I know of quite a number of SMEs which have run into difficulties when their key technical people leave, more often than not due to small internal issues. When the dust finally settles, they find themselves stranded not knowing where to pick up the pieces and, in many cases, take a long time to recover. Some even go out of business.

In view of this scenario, I would like to ask the Minister to consider the setting up of a talent retention and management centre for SMEs, whose primary function

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is to provide advisory and consultancy services on managing talent. In browsing the Internet, I found a large number of such centres in many countries in Europe , the United States and Australia . I believe this will go a long way in alleviating the loss of productivity arising from the loss of talent, especially in our small businesses.

Retail Business

Mr Arthur Fong: Sir, the retail sector represents a significant business sector in Singapore . There are about 20,000 retailers who employ about 90,000 people. I strongly feel that given the current retail climate and despite an improving economy, their livelihood is still difficult. My concern stems from the fact that given the highly competitive nature of the retail sector, our retailers are not making ends meet. Recent data suggests that the average Singaporean spent $5,702 in 2002, down by about 11% since 1997. Things do not look good for the retail industry this year. With higher GST, the lack of income tax, rental and other rebates, the retailing business will continue to languish. What can the MTI do to help the retail sector?

6.00 pm

I was very happy to hear from the Minister just now that the JTC will actually be looking at possibly extending some of the rebates. I was also alarmed when I heard about how difficult it was for the retailers to conduct

any shopping promotion event. If my Clementi town merchants want to organise any event to spur sales, they would have to obtain support or approval from the grassroots organisations, the LTA, NEA, HDB and FSB. If any of these agencies do not give the necessary approval, the promotional event cannot be carried out. It is difficult to do business already and we do not need some more red tape. It is important to revitalise the retail sector, especially in

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the heartlands. It is better to have a one-stop agency for these applications. I recommend that perhaps MTI could be the coordinating body to streamline all the necessary approval.

Customer Service

Ms Irene Ng Phek Hoong (Tampines): Sir, Singapore is trying to position itself as a shopping paradise. This cannot succeed fully if it is not matched by an equal reputation for customer service. As we all know, if you got a bad experience, it would be more like a shopping hell. Recently, I have to buy some furniture for my study. I thought it was an easy thing to do. So I rushed into a store, found a wooden chair with a cushion on it. But when it was delivered to me in my home, it came without the cushion. I thought it was an oversight. But I was told that the chair came without the cushion and if I wanted the cushion, I had to go to the store and buy it. It would have never occurred to me, looking at it in the store, that it would have come without the cushion because it is a hard chair with wooden planks for seat. So I asked, "Can you take back the chair?", since I do not have time to go back and buy the cushion. "No, you cannot.", they said. So now, I am stuck with the chair which cannot be sat upon, and I am using it as a shelf.

The other occasion was that I had to buy a proper book shelf for my books. I did not have much time to shop. And as usual, I drove to a popular giant furniture store, which is quite well known, and I chose one quickly. It was a regular book shelf, not on sale. So I asked if it could be delivered a month later, because I was doing quite a bit of travelling that period, and the reply was no. It has to be delivered within the next two weeks. If it is not, then I have to pay $5 per day for storage. I said, "But, you know, this is

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going to be in your warehouse anyway. It is a regular item." They said, "No, no. You have to come back two weeks later if you want it to be delivered a month later." So I said, "But I will be away." They said, "No." They were just inflexible. So I left without a book shelf. At least, I have a chair for a shelf.

I tell these anecdotes to make the point that our retailers and their staff are too rules bound. Their mindset is not customer first. I think Singaporeans, in general, lack the service mentality. They cannot make adjustments that would earn the company more money. If you ask them to do 1, 3, 5 or 1, 3, 2, they will just think that it cannot be done. It has to be 1, maybe 1 ½, then 2, 2 ½, then 3.

Good customer service means putting the needs of the customers first, and organisations should stress this. This should be the main aim of all staff. They are still too few, too rare, in Singapore . This should be dealt with especially since we are growing the service industry in Singapore . I would like to ask the Minister what can be done to instill good customer service at all levels, especially in the retail and restaurant industry in Singapore .

Dr Tan Boon Wan: Sir, I agree with Ms Irene Ng in her observation. I think Government sees the service sector as the major employer of our people in the future. We also want to attract more tourists to our shores. Over the past few years, I could see the marked improvements in the quality of public service. But I cannot see the same for the services provided by the private sector, in particular, in the area of customer service. The service personnel usually lack the knowledge, as Ms Irene Ng has said, and provide poor, inattentive services. What can we do to improve the quality of customer service in the private sector? How can we build a more service-oriented society?

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The Minister of State for Trade and Industry (Mr Raymond Lim Siang Keat): Sir, many Members have highlighted the need to help our small and medium enterprises (SMEs) to better compete. We agree with them, as our aim is to build a creative and entrepreneurial economy, where companies, whether foreign or local, large or small, can grow and flourish. Going forward, we want more start-ups and SMEs to inject vitality and buzz into our economy. We want them to develop new ideas and businesses, tap new export markets and broaden our economic base.

Thus, there has been a slew of initiatives to promote entrepreneurship. In May last year, we kicked off the Action Community for Entrepreneurship (ACE). This is a joint public-private sector movement aimed at creating a more entrepreneurial environment in Singapore .

ACE has focused its efforts on three areas that I highlighted in this House last year, one, to promote a more entrepreneurial culture in Singapore , two, a pro-enterprise regulatory environment, and, three, better access to financing.

Entrepreneurship culture: for everyone, every age

Let me start with culture. We hope to develop a Singapore , where our people are quick to seize opportunities, willing to take calculated risks to create something new and blaze different paths to success. Society will welcome those who dare to be different, and celebrate those who succeed brilliantly. But it will also accept those who meet setbacks and encourage them to pick themselves up and try again. It is a vision for everyone, of every age.

Changing culture, however, is a long-term effort. To start, we need to foster these values in our young. Our schools are doing their part. They have initiated interesting entrepreneurship programmes that have led to students operating online

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auctions, selling hydroponic vegetables and running used bookstores and cafes in school premises. I am considerably cheered by the enthusiasm that the students have shown for these programmes. In Rosyth Primary School , for instance, four nine-year olds took eight months to create a new board game, called the Poster Game. I understand that it is quite successful. This was launched in last November, funding by City Development, and whatever money they earned they gave it back to charity.

ACE has also started the ACE Speakers' Circuit. This involves more than 50 entrepreneurs, who have volunteered to share their experiences at public engagements, targeted principally at students. We expect about 200 speaking engagements to be held this year alone, reaching out to about 40,000 people.

Now, part of building an entrepreneurial culture is equipping our budding entrepreneurs with the skills to take their innovative ideas to the market. Beyond just having brilliant ideas or innovative technology, successful entrepreneurship includes how to pitch products and secure customers, how to assemble and motivate a team of people, even something as basic as how to manage cash flow. Our Institutes of Higher Learning (IHLs) are doing this but one constraint that they tell me that they face is funding to help students start their businesses, and learn by doing.

We will therefore be launching the Entrepreneurial Talent Development Fund (ETDF). With $25 million set aside over five years, it will provide matching funding to IHLs to help seed their students' business ventures. We hope to fund some 100 ventures per year, and provide at least 200 students with on-the-ground start-up experience. While we hope that some will succeed, equally important is that those who do not

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succeed the first time will be wiser when they take on their next venture. MTI and SPRING have already been working closely with the IHLs, and ETDF will be rolled out in May.

We hope that by doing this, we will have more people like Ms Huang Aiting. I met her at the Shell LiveWIRE Young Business Start-up awards in October last year. And she impressed me. An alumnus of the LaSalle-SIA College of the Arts, she is the creative talent behind WOMB Wardrobe. Her creations - clothes and fashion accessories - have a certain primal energy about them. Not surprisingly, she won the top award. She spoke to me after the awards, and she said that when she started, she simply did it out of 'guts and passion'. We want more young people like that, gutsy and passionate.

Later this year, we will be holding the inaugural ACE BlueSky Festival, to celebrate entrepreneurship. This is likely the first time that most of the entrepreneurship groups in Singapore are coming together, and the Festival will cover all aspects of entrepreneurship, including social entrepreneurship. ACE will work closely with other private sector organisations, such as the Young Entrepreneurs' Organisation, the Association of Small and Medium Enterprises, and many others on this. I hope that the Festival will also provide a platform for these groups to come together in the future to share resources and work on collaborative projects.

Regulatory environment - pro-enterprise mindset

Let me now turn to our efforts to promote a pro-enterprise regulatory environment. Dr Ahmad Magad has spoken on this, that we need to cut the red tape. Mr Ang Mong Seng has said that the civil servants need to have a pro-

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enterprise mindset. I agree. I think the most significant measure here is DPM Lee's announcement in his Budget speech that henceforth, the default key for the regulatory agencies will be set at "Yes", as long as the entrepreneurial activity in question does not cause unmanageable problems or harm to others. This must be so, if we want Singaporeans to discover new frontiers. Mr Inderjit Singh suggests that Government agencies consider the cost impact on businesses when new laws are formulated. He would be pleased to know that this is indeed what is being done now. This is something that is looked into every time we are formulating a new law.

To give greater impetus to the existing review mechanisms, the Rules Action Crucible of ACE, led by Patrick Daniel, will be commissioning an annual pro-enterprise ranking of Government regulatory agencies. The survey of businesses will measure regulatory agencies in terms of compliance costs, regulatory obstacles, transparency, customer responsiveness, rules review and pro-enterprise orientation. The top ranking agencies will be announced at the ACE BlueSky Festival. By doing so, we seek to recognise those who have effectively adopted a pro-enterprise mindset and encourage other agencies to do likewise.

SME financing made easy - in a market based way

Many Members have spoken on access to financing. It is an important area. It is a critical area. Dr Gan See Khem, Mr Inderjit Singh and Mr Arthur Fong have spoken on the need to improve access to financing. I agree.

The ACE Finance Action Crucible, led by Mr Inderjit Singh, has been pro-active in exploring different financing avenues and introducing a number of initiatives last year. They have done a lot of work, and they ought to be commended. They

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launched the Deal Flow Connection last July, to serve as a platform to link investors with companies that require financing. Since then, it has facilitated over 370 matches between entrepreneurs and financiers.

Over the past year, equity financing for start-ups has also improved. The Government's approach is to make financing for start-ups and SMEs easier, in a market based way. An example of this is the Start-up EnterprisE Development Scheme (SEEDS). Instead of civil servants making the venture investment decisions where they have no expertise, the Government relies on third-party funding to provide market validation of the company's investment viability. Such independent party validation is valuable and this is why I am reluctant to modify this to include money invested by the firm's founders, as some have suggested.

Now, SEEDS has been successful, investing in over 100 companies since its launch in October 2001. One SEEDS company, RADIXS Pte Ltd, was founded in 1999 by two 21-year olds, R Chandrasekar (Chandra) and Sam Hon Kong Lum. Last year, the company launched the world's first universal mobile operating system, known as the Motion eXperience Interface (MXI). MXI has the capability to deliver desktop content and applications written for other operating systems to handheld devices, without any redevelopment or porting. The technology is currently being tested by SingTel and Sun Microsystems, and has captured the interest of major global mobile operators, Fortune 500 technology vendors and enterprises. Following the success of SEEDS, the scheme has now been extended to innovative start-ups in non-technology industries.

6.15 pm

In the same vein, the Technopreneur Investment Incentive has been expanded

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to non-tech sectors, and renamed the Enterprise Investment Incentive. Mr Singh also asked the Government to consider deploying future technopreneurship promotion funds to many small funds managed by the private sector. This is already being done. The US$1.3 billion Technopreneurship Investment Fund (TIF) is a fund-of-funds, which invests in private venture capital firms. So far, more than US$230 million from the TIF has been invested in Singapore start-ups and companies.

In the coming year, there will be a number of new initiatives to improve debt financing. In September 2002, we started the pilot Loan Insurance Scheme (LIS). This has proven to be helpful in meeting the short-term financing needs of SMEs. We will, therefore, be looking to expand the LIS, to provide about $500 million of loans over five years. The range of indemnity, facilities and PFIs will also be increased. In particular, we have taken in feedback, and will include loans for internationalisation. Once these details are confirmed with the PFIs and insurance underwriters, we will be launching the expanded LIS in the next few months.

In response to a recommendation by the ERC Subcommittee on Entrepreneurship and Internationalisation, a new scheme, the Technology Credit Programme, will be piloted later this year. EDB is exploring and working with specialist lenders to provide loans to technology start-ups under this scheme. Unlike conventional lenders that rely on collateral to make loans, these specialist lenders will rely on their understanding of underlying business models, intellectual capital and their potential. As this scheme develops, we will look to extend it to non-technology companies, as we have done with the other financing schemes.

The Government will also be embarking on the SME Loan Securitisation

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project this year, which Mr Inderjit Singh mentioned just now. It will leverage on the bond markets to reduce the credit risks for lending banks. In the process, we hope to open up financing to potentially under-served SMEs, such as start-ups without established track records and SMEs that lack collateral. The Government has already been in extensive discussions with banks on this. It is anticipated that the securitisation issue will be in the size of at least $300 million. This will be launched by the end of this year.

We continue to welcome new suggestions on how we can improve access to financing. Mr Sin Boon Ann has mentioned the possibility of setting up credit co-operatives. I will ask the Finance Action Crucible, headed by Mr Inderjit Singh, to work with SPRING to look into this.

Mr Inderjit Singh has also suggested that the interest rates for LEFS loans be determined by the PFIs, instead of being fixed by SPRING, and that LEFS be made available for trading loans. The expanded LIS will cater for trading loans. We will also study further if LEFS can accommodate such loans, and if variable interest rates can be introduced for LEFS. This should be completed within the next few months.

Concern was also raised by Mr Inderjit Singh about the need for a Chapter 11 type regime in Singapore to help companies restructure, and avoid the situation where banks go for winding up at the first sign of problems in the SMEs. Our insolvency laws already provide for corporate re-organisation, such as schemes of arrangement and judicial management, and they have been used by creditors. The Government is also reviewing the merits of a US Chapter 11 process, a follow up to the Company

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Legislation and Regulatory Framework Committee Report. There have also been calls for the setting up of a private equity exchange. We are supportive of this. Some private sector parties are already exploring this, and we will work with the relevant Government agency to facilitate this effort, where necessary.

Dr Gan See Khem and Mr Arthur Fong brought up some difficulties which some SMEs had in financing. We need to draw a distinction here. If there is a systemic market failure in terms of financing, the Government will intervene. However, at any moment in time, a particular firm might fail to receive financing in the market. This is not a failure of the market. This is a normal working of the market, that some companies will not get financing.

Mr Arthur Fong mentioned micro loans. The success rate in terms of approval is about 70%. So, it is not true that it has not been successful. About 70% received that. In terms of LEFS, about 80-85% gets approval. But we will constantly review and ensure that these schemes are relevant and effective. We will take note of what he has said because we want to constantly improve on this. But we need to bear in mind that, in the normal working of the market, definitely some firms will not get funding, and that is not the sign of a market failure.

Mr Ang Mong Seng brought up the difficulties of some companies which have insufficient track record or turnover, and that they cannot register. He will be pleased to know that, currently, companies with insufficient track record or turnover can register as a Government supplier to participate in Government tenders, as long as they have the requisite paid-up capital. When Government agencies process tender applications by start-ups, we will look at the entrepreneur's track record, if the

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company he heads is too new to have a track record.

However, the Government can only lead by example here. It cannot mandate that bigger companies consider smaller companies when issuing contracts. These are commercial decisions. The competition law will not address this. Nor is it meant for cases where bigger companies take ideas from smaller companies when they negotiate. The proper protection for that is through the use of confidentiality agreements and intellectual property law. What the competition law can and will do is to target anti-competitive agreements and conduct of companies, such as abuse of dominance, that have significant adverse impact on competition in the market.

The issue of incentives to encourage mergers was raised by Dr John Chen. This was discussed in the ERC. The tax accountants we consulted agreed that the cost of M&A between local SMEs is about 2-4% of the transaction value, and that it is not prohibitively high. More importantly, successful integration depends very much on finding the right partners, rather than tax incentives. Otherwise, value would be lost, not added, in the merger. Thus, we feel that mergers are ultimately commercial decisions that should be best left to the private sector. However, a strong buy-out fund industry can help facilitate this. In this regard, there are tax incentives to set up private equity funds, including buy-out funds. Section 13(H) of the Income Tax Act provides exemption on gains from the fund, while the Pioneer Incentive provides exemptions on income derived by the fund manager.

To successfully penetrate overseas markets, our SMEs will need to differentiate themselves. Thus, I agree with Dr Ahmad Magad that we need to promote innovation among SMEs. This was the impetus behind the Growing

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Enterprises Technology Upgrading (GET-Up) programme, which Minister George Yeo mentioned earlier.

Dr Ahmad Magad also mentioned it is important that we retain talent, if the SMEs are to grow. I agree with him. SPRING has been helping SMEs to improve their HR practices through the People Developer Standard. This offers companies a systemic process to review their people practices, develop staff and improve training effectiveness. The results have been encouraging, as SMEs make up about 50% of the 2,000 organisations participating in the People Developer programme.

Mr Inderjit Singh has asked for a one-stop shop to serve SMEs even better. We have also received similar feedback from groups, such as the Feedback Groups on Economic Development and SMEs. We agree that we should constantly seek to improve our service delivery to SMEs. To this end, we will strengthen SPRING, which will work together with Government agencies, such as EDB and IE Singapore, to develop an SME One Stop. This will help SMEs find the right information and assistance, reduce the time and resources needed to carry out Government transactions, and get closure with the other agencies.

This, however, will be a challenge. There are about 110,000 SMEs in Singapore at different stages of development, with very diverse needs. And we have to work with finite resources. So, the SME One Stop will be primarily web-based, and supplemented with a call centre and face-to-face consultation services. The web portal will enable SMEs to obtain all the information they need, as well as apply for licences and Government assistance schemes without having to go to different agencies. The portal will be designed with SMEs in mind. It will be simple to navigate and easy to understand and use.

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To develop this customised portal for SMEs, SPRING will conduct a pilot study with a group of between 300 and 400 SMEs to better understand their needs. But we recognise that, for some SMEs, they will still prefer to make a call or have face-to-face consultations. But because more resources are needed to provide that sort of service, we might need to levy a fee when it comes to those services.

Quality service - a way of life

One sector dominated by SMEs is the retail sector, which Mr Arthur Fong brought up just now. The retail sector was badly affected by SARS last year, but it is now showing signs of recovery. However, more fundamental issues remain to be tackled. The retail sector suffers from a lack of innovation and product differentiation, insufficient customer segmentation, as well as increasing regional competition. Smaller HDB retailers, in particular, are handicapped by the lack of economies of scale.

How can we help them? The Retail Academy of Singapore, which is co-funded by the Government and the private sector, provides training for retailers to upgrade their skills and improve retailing standards. The Retail Promotion Centre provides skills workshops for HDB retailers, for example, on creating better retail ambience, as well as projects, such as the Heartland Shopping Surprise, which involved 2,000 retailers at about 20 town centres island-wide.

Some HDB retailers have already seized the initiative to upgrade. One example is Mr Seow Hong Kheng of Tong Seng Huat in Toa Payoh. After becoming a franchisee of I-Econ last November, his outlet has been able to attract more customers, especially young working adults. The store layout is now less

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congested, which enables customers to easily locate what they want to buy. This new look has improved sales by between 10% and 20%.

Ms Irene Ng and Dr Tan Boon Wan brought up questions on the quality of service, and that we need to upgrade it. I agree with Ms Irene Ng that this problem, like entrepreneurship, is one that actually involves mindsets and societal values. Our workers must want to provide good service and, as customers, we must appreciate and value the good service that we receive.

In this respect, STB's Art of Service programme aims to engender an attitude of passion, vocational pride and creativity in the delivery of service among workers. We also seek to recognise outstanding service through awards, such as the Retail Courtesy Gold Award and the Excellent Service Award. One good example of this is a SuperStar winner at the 2003 Excellent Service Awards. Mr Eric Yeong is a taxi driver with TIBS. One day, he picked up a passenger from Gleneagles. She was just discharged and had a newborn baby with her, and Eric Yeong drove very carefully through all the road humps, to ensure that she had a safe journey home. The passenger was so impressed with Eric Yeong that when she wanted to deliver the celebration cakes at the first month, she engaged Eric Yeong again. Again, Eric Yeong was very solicitous, very careful, very pleasant, that even her friends thought that Eric Yeong was actually her relative.

Sir, in service quality, as in entrepreneurship, the Government can facilitate but, ultimately, it will be our people, service workers such as Eric Yeong, and entrepreneurs such as Aiting, Chandra and Sam, who will make a difference and take us to the next level. On our part, we will continue to lay the foundation, so that our people can sense and seize opportunities, and realise our

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collective vision of a more open, creative and cosmopolitan Singapore.

Tourism

Ms Irene Ng Phek Hoong: Sir, the latest tourism tagline for Singapore is "Uniquely Singapore". One of the uniquely Singapore advertisement posters boasts of bar-top dancing, beachfront foam parties and thrills like reverse bungee jumping and exciting cabaret acts. As a Singaporean would say: "Wah, since when all these are Singaporean things, huh?"

Sir, I am not sure what is unique about bar-top dancing or the exciting cabaret acts, much less what is so Singaporean about them, especially when I understand that one of the cabaret acts that the Singapore Tourism Board plans to bring in is the Crazy Horse, a somewhat erotic cabaret show in Paris. The Crazy Horse features topless and nude women jiggling around and engaging in somewhat suggestive dance moves, although I suppose from a certain angle, especially the male one, it can be quite artistic! According to the 3rd February issue of the Business Times , the STB believes that this could liven up the night life here and attract more tourists. If true, then Singapore must be really desperate for the tourist dollar and must have run out of ideas. The Crazy Horse is uniquely Parisian.

I would be more proud of Singapore if it is able to boast its inherent strengths and unique attributes to visitors and, when tourists come, they would see this side of us and remember Singapore for that. Some of our HDB estates and activities are quite unique. For instance, in my constituency Tampines-Changkat, we have the monthly Sunday market which draws quite a crowd. It sells locally made handicrafts, interesting items and, at the last Sunday market, we

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featured the work of our local artists for sale at a more affordable price than you would get if they are exhibited at the private galleries. The Sunday market surrounds a hawker centre, so the visitors can also taste local food. And we often have very long queues for some of the popular stalls in our hawker centre, such as for Hokkien mee and carrot cakes. There is a lot of local colour. Why not the STB look at how to market such quality and interesting local events in HDB estates to tourists? It is certainly more uniquely Singaporean than Crazy Horse or reverse bungee jumping.

Sir, another aspect of Singapore that we can highlight is our ---

The Chairman: Order. It is 6.30 pm.

Ms Irene Ng Phek Hoong: Can I continue tomorrow?

The Chairman: Yes.

Thereupon, Mr Deputy Speaker left the Chair of the Committee and took the Chair of the House.

Mr Raymond Lim Siang Keat: Mr Deputy Speaker, Sir, I beg to report that the Committee of Supply has made further progress on the Estimates of Expenditure for the financial year 2004/2005, and ask leave to sit again tomorrow.

Mr Deputy Speaker: So be it.