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. Dr Ahmad Magad.

Small and Medium Enterprises

Dr Ahmad Mohd Magad (Pasir Ris-Punggol): Sir, I beg to move,

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

I would like to reiterate what I said during my Budget Statement speech, that the Government should give due consideration for a slice of its outsourced activities to be set aside for our local SMEs. They should also apply to the general provision of goods and services to the Government.

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6.00 pm

Sir, I know Prime Minister Lee has explained, at length, about the important need to pursue market-based policies and not unduly

protect our SMEs from competition. I have no disagreement with such a policy. I agree that the principle of providing a level playing field for all companies should be upheld. But is there truly such a level playing field? We have many capable and competent SMEs, but they lack the clout and branding that the MNCs and GLCs have and, as a result, tend to often lose out to these players when it comes to bidding for Government jobs. There are just too many stories where SMEs just do not have a glimmer of hope in getting through a tender process involving many Government agencies.

Sir, the practice of ensuring that small businesses get a fair share of Government procurement is not isolated. In the United States, the world's largest economy, the Small Business Act provides that all small businesses have the maximum practical opportunity to participate in providing goods and services to the Government. The US Small Business Administration (SBA) negotiates annual procurement preference goals with each federal agency and reviews each agency's results, and also has the responsibility for ensuring that the statutory government-wide goals are met in the aggregate. Among others, the statutory goals include setting aside 23% of prime contracts for small businesses, 5% of prime and subcontracts for small disadvantaged businesses, 5% of prime and subcontracts for women-owned businesses, and 3% of prime and subcontracts for service-disabled veteran-owned small businesses.

In Taiwan, Articles 37 and 38 of the Small and Medium Enterprise Development Statute state that where the government at any level or a state-owned

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enterprise undertakes publicly-announced procurement, public construction or commissioning of R&D work, they shall assist SMEs to obtain the business opportunities created by this.

Sir, the success of entrepreneurship and of SMEs in these two countries needs no further elaboration. I believe we can learn from what these countries have done as we move forward in fine-tuning our policies, if we are truly earnest about creating a thriving entrepreneurial and successful SME environment in our country.

Mr Gan Kim Yong: Sir, the small and medium-sized enterprises in Singapore play an important role in our economy. I would like to make three suggestions on how we can help some of our SMEs to grow.

Firstly, we need to help open the gateway to the region and to the world. We have established many FTAs, and more are on the way. But FTAs are only the first step. To take advantage of these FTAs and to go regional or international require a lot more effort. I would like to reiterate my view that the GLCs which have succeeded in breaking into regional and international markets should help the SMEs by holding their hands through partnership and joint ventures.

Secondly, we need to focus our resources. While I can understand the Government's reluctance to set up a new agency to promote SMEs, I would like to suggest that, at least, a present and existing agency should be nominated, whether it is SPRING or IE Singapore, to take on the promotion of SMEs as its primary mission. For our efforts to be effective, we need to have someone to champion the cause. He must think about nothing except SMEs and must be passionate and visionary about the SMEs. We need focus and accountability, the equivalent of Philip Yeo in the early years

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of the EDB perhaps. Maybe Mr Inderjit Singh would have been a good choice for this post, and I hope the Government can consider this.

Thirdly, we need to help SMEs with financing. Yes, there are financial schemes. But are they effective? Maybe it would be useful to review some of these schemes to see whether they have been effective, and to see whether more needs to be done.

Sir, while the MNCs will continue to be a key engine of our economy, there is a pressing need to develop our SMEs. Now would be a good time to launch new initiatives to help them grow.

Dr Tan Boon Wan: Sir, local small businesses, such as our neighbourhood shops and stores, have many problems. Our SMEs find access to finance limited and difficult. Most use their personal savings and borrowings from relatives and friends to start their businesses. It is extremely difficult to borrow from banks and financial institutions. Many of these businesses will fail when they run out of liquidity, even if there is a good chance that their businesses would have succeeded had their pockets been deeper. Can the Government help to increase their access to finance and let them know of these sources?

A bigger problem is the lack of management knowledge and skills. Their accounting is often poor. They often do not know whether they are making or losing until they run out of money. They do not carry out promotion, or often no customer service, which could have been a competitive advantage for them. Their limitations are compounded by competition from bigger retailers like NTUC Fairprice, Shop & Save, regional malls and the likes of Orchard Road. Travel is so convenient today that anyone

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in any part of Singapore can easily hop on to the buses and then on to the trains to be anywhere in Singapore in no time at all. Unfortunately, for the neighbourhood shops, these mega malls are also very nice places to visit. There should be no surprise that while the neighbourhood shops are deprived of customers, Orchard Road and the malls are teeming with people.

If they improved their management skills, their chances of survival and success will increase. How can the Government assist them to do so? What else can be done to assist our small local businesses? Can the Government help to improve the ambience of the neighbourhood shops and centres so that residents will find it equally interesting to shop there instead of going afar?

Mr Lawrence Leow Chin Hin: Sir, under this cut, I would be raising three questions. But before that, let me first take this opportunity to put on record in this House the good job done by SPRING and ACE in helping the cause of SMEs. Despite its rather short history, ACE has done a creditable job in promoting entrepreneurship and enterprise here. In the case of SPRING, it is the de facto champion of the SMEs' cause in Singapore, and it has implemented many good programmes and initiatives that have benefited many SMEs. One such recent initiative is the Enterprise Development Centre (EDC) which serves to benefit both SMEs and new start-ups.

For the benefit of Members of this House who may not be aware of this new setup, the EDC is a one-stop information and advisory centre that will serve as a facilitator and promoter for the development of local businesses. It offers a broad range of programmes and services spanning from assistance on new business start-ups to helping businesses enhance their competitiveness in the global marketplace.

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SPRING, Sir, has certainly played an important role in championing the cause of SMEs in Singapore. Earlier in this House, Mr Inderjit Singh had called for the setting up of a specialised board dedicated to the development of SMEs in Singapore. I support the idea. But rather than set up a separate board, I would think that we should let SPRING perform this role. At present, SPRING is already championing the cause of SMEs in Singapore, and what is needed is an expansion of its scope and a realignment of its focus, and SPRING would be on course to perform the role of a development board for SMEs, similar to what EDB does for foreign businesses and MNCs.

Sir, I would therefore ask the Minister to review the functions of SPRING, expand its scope, allocate it more resources, and entrust it with more power and authority to act out its new role as the development board for SMEs. Following up on this, I would also ask the Minister to consider renaming SPRING to better reflect its role as the development board of SMEs in Singapore.

Sir, my second question relates to helping SMEs venture abroad. We have enjoyed decades of strong economic growth under an export-led growth strategy, built on attracting FDIs and growing the GLCs. But with the awakening of the giant economies, like China and India, and competition from lower cost regional economies in recent years, we have to review our economic strategies in the face of these new challenges. SMEs, which form the indigenous part of our economy, would undoubtedly feature prominently in these economic strategies.

Sir, the emphasis on SMEs has accentuated in recent times and, given the constraints of a small domestic economy, helping SMEs venture abroad

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must make up an important part of our plan formulated to help SMEs grow and develop. I am aware that the Government has promoted the concept of venturing abroad in a pack. IE Singapore has initiated an International Partners Programme (IPP) that encourages greater collaboration amongst Singapore-based companies venturing abroad. There have been some cases of success where Singapore companies from the same industries went in a pack to a particular market and successfully clinched deals and initiated projects. I think this is a good initiative, and I applaud IE for that effort. However, apart from promoting Singapore companies to venture overseas in a pack, it is important to promote co-location of Singapore companies in strategic markets to create a cluster effect.

The benefits of cluster in overseas ventures have been clearly demonstrated by Taiwanese businessmen in China, particularly in the cities of Kunshan and Dongguan. I have shared this in this House, in my speech on the President's Address during the opening of this Parliament, how the Taiwanese were able to swing many things in their favour in their negotiations with the local governments in these cities through leveraging on their strength of a cluster. I would not elaborate on this further, but suffice to say that a cluster can be powerful because small individual parts, when combined together, can be a force to be reckoned with. This is therefore a model that suits well the SMEs. Each SME is typically small by nature and would not have the bargaining power of an MNC, a GLC or a TLC. The best way to strengthen them is to encourage them to co-locate to form a cluster.

Hence, I would like to ask the Minister whether his Ministry has looked into implementing any scheme or programme that will promote strategic sites to local businesses and encourage Singapore

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companies to co-locate in these sites so that, over time, we can see clusters of Singapore companies forming. The Taiwanese model has proven that the benefits of a cluster go beyond enhancing negotiation powers with the local government. It also provides greater synergy among companies operating within the cluster. I would urge the Government to set up a team to study these successful cluster models and to carve out similar schemes to help our SMEs.

Once, I had a fortuitous meeting with some government officials in Kunshan and they generally felt that Singapore companies were too scattered in China. Based on what I have learnt from them, to start the ball rolling on this cluster initiative, the Government may work on a government-to-government level to help identify strategic investment sites where preferential terms can be negotiated and agreed upon for Singapore-based companies investing in these sites. The Government can then promote these identified sites to local businesses and offer incentives and inducements to encourage local companies to set up operations there.

Inevitably, there will be some businesses that will find these sites unsuitable or prefer, for their own reasons, to be located elsewhere. That is all right. But the majority of the local companies will be encouraged to locate in these selected sites. Through such a coordinated effort, over time, we can create clusters of Singapore companies and businesses in these strategic markets and will be in a position to reap the benefits, much like what the Taiwanese have achieved in China.

Sir, my third question is somewhat related to my second question. I would like to ask the Minister whether there are

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any schemes initiated by the Government that provide financing to SMEs to support them in setting up new overseas operations, besides the LIS 2 loan scheme that only caters to financing working capital needs. Indeed, if we are committed to building a strong external economy, and if we wish to see our SMEs play an instrumental part in this build-up, then the Government must be prepared to offer greater financial assistance to SMEs, including offering loans to finance setting up of overseas operations and capital investment on plant and machinery. To be helpful to the SMEs, financial assistance from the Government must go beyond just working capital financing. Perhaps, the Ministry may wish to consider extending the scope of the LEF Scheme to also include overseas lending to SMEs venturing abroad.

6.15 pm

Building Global Brands

Dr John Chen Seow Phun (Hong Kah): Sir, a major consequence of our industrialisation programme in the 1960s and 1970s is that we have, by and large, turned into a nation of subcontractors and employees, serving the large

MNCs who came to use Singapore as a manufacturing base and later as a service base.

This effort drew our best and brightest to become their employees and our businesses to focus on supply and serving these MNCs. In the earlier days of our nationhood, in troubled and difficult times, this was probably the best thing to do - a quick ticket out from our other developments and into the first world. However, the side effect of this, which we must now address, is a lack of our own significant global brands and companies.

A quick scan through the Table of Billion Dollar Club companies published

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very recently in the Business Times would reveal that there is a distinct lack of Singapore companies amongst them. Even companies, like SingTel, can at best be described as regional companies. What then does it take to become global? How do we build global brands? The Government today is already helping. We have the double taxation relief for global marketing campaigns as well as IE Singapore which spearheads our trade efforts abroad. However, I feel that much more needs to be done, and can be done. Let me elaborate further.

First, building global brands is like creating a global intellectual property. Can the Government provide tax incentives to brand-building efforts similar to what we give to intellectual property rights owners? Second, in many mega trade shows, like Hanover Fair, Comex and SIBEC, we notice that the Korean, Taiwanese and Japanese companies filled the whole hall. Lately, we even see an increasing presence of Hong Kong companies. On the other hand, at best, we get one Singapore pavilion with a dozen or so companies, and that is about it.

If we are really serious with our globalisation effort, our Government agencies must put in more resources to encourage more companies to participate in such events. They could take the lead to book the whole hall and then find the participants to fill them, subsidising them if needed. Only then would Singapore be able to mount serious efforts to attract international attention, leading to globalisation for products and services.

Finally, Sir, the Government could help our companies with more competitive export credit and insurance. Many countries have EXIM banks, even Japanese companies selling good Japanese brands in other countries. They have the support of the Government. Unfortunately, in Singapore, our

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companies lack such an advantage, especially our SMEs. I hope the Government would consider this as it would give our companies much needed financing to globalise and build global brands.

Promoting Local Enterprises

Mr Inderjit Singh (Ang Mo Kio): Sir, while I am disappointed that the Prime Minister has rejected our request for the formation of a Local Enterprise Development Board, I still do not want to give up this pursuit of trying to do more for local enterprises, and I echo the call made Mr Gan Kim Yong and Mr Lawrence Leow.

While SPRING is trying to do this role, and sitting on the SPRING Board, I do notice that there is a greater effort to do more for SMEs. While it was a secondary role in the past, it is starting to look more like a primary role. But I would like to ask the Minister not to handicap SPRING by not giving it the type of resources that it will need, either the organisation structure that Mr Gan talked about or the one I talked about during the Budget debate, or giving it more people or more funds, just the way that we give to EDB. If we really want to be successful in this area, we have to do much more than just getting SPRING to just refocus. It needs all the resources if we want it to succeed.

I am worried about the EDC scheme that Mr Lawrence Leow talked about. I remember we had a similar scheme called the EPC scheme that was supposed to do the same. It failed and now, we are trying to revive it by trying to farm out some of these things. I hope it can work, but it is not sufficient unless we have someone who primarily drives the development of local enterprises.

Sir, the other area our local companies suffer from is something that, again, Mr Lawrence Leow talked about. It is a two-

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pronged problem. First is the equal system. I talked about the infrastructure, the local enterprise development and whether it is providing infrastructure cost, competitiveness and so on. We have done a good job in this area.

The second problem is one of demand. MNCs have relocated. With globalisation, competition is eating the pie of our local companies and, therefore, the demand part of the equation has dropped significantly for our local companies. We need to do quite a lot to try to redevelop this new demand. The FTAs are an excellent idea. The problem is that this has not translated to real businesses for our smaller companies. It may have worked for the larger GLCs, but the smaller companies do not know how to take advantage of these FTAs. It would be good if the Minister can operationalise the FTAs that we have put in place to show these smaller companies how they can take advantage and increase the demand side.

Sir, finally, the issue of the many incentive schemes that we have in place. We always talk about the 60-plus incentive schemes, and many of us have brought up this issue of smaller companies actually not successfully applying and benefiting from these schemes as opposed to MNCs or GLCs benefiting from them. The ACE Action Crucible for Financing, which I am heading, intends to look at all of these schemes and try to settle this issue once and for all - whether it is really very difficult, and whether it is achieving the intended objective. And if it is not, we need to modify this scheme so that our local enterprises would finally benefit from them as intended.

I hope to take up this effort. I see some resistance at the civil servants' level. I ask the Minister to give us this

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support, a few months of effort, so that we can try to solve this problem once and for all.

SME 21

Miss Penny Low (Pasir Ris-Punggol): Sir, SMEs produce some 30% of our GDP, employ more than half of our workforce and comprise some 90% of the total establishments in Singapore. In other words, by helping SMEs to upgrade and become more competitive, the income of more than 50% of our workforce can be improved. Would the Minister agree that this is a worthy enough cause to invest heavily in our SMEs? Unlike MNCs with big muscles, the ups and downs of SMEs can be quickly felt by Singaporeans, whether as towkays , workers or clients.

SMEs' challenges are multi-fold. Will there be a one-stop centre, both virtual and real, not just virtual, for business enquiries and facilitation? Again, what about an integrated approach to help SMEs unleash its potential? This House has heard that the special EDB-like agencies for SMEs are not feasible due to the variety and sheer numbers of SMEs in Singapore. But, Sir, I am not convinced. Is it not precisely because there are so many SMEs that a robust and SME-centric agency is urgently needed to look after these geese that are still laying the eggs, albeit much labour pain? If SPRING is indeed the agency, then let it be known as the champion of SMEs and not a Swiss knife that serves multiple masters. Of course, I echo the need to give more robust resources to SPRING.

The SME 21 plan itself was a strategic plan launched in 2000. It was a 10-year plan with various objectives. I wonder who is responsible for the SME 21 plan. Or is it just another exercise that would be dated and forgotten in due course? At the half-way mark in 2005, could the Minister also give an update of the SME 21 plan and inform the House if the

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missions are still relevant, and what would it take to set up a SME one-stop centre to build robust SMEs?

Similarly, on the demand side of the equation, would there also be some effort to encourage a "Buy Singapore" on a B2B and B2C basis?

The Chairman: Miss Penny Low, your time is up.

Local Enterprise Finance Scheme

Mr Lawrence Leow Chin Hin: Sir, the Government has lowered its risk share under the Local Enterprise Finance Scheme (LEFS) back to 50% from 80% towards the end of last year because economic conditions had improved.

Sir, I feel that the LEFS should be administered independent of economic conditions and assessed primarily on the nature and risk of the project and the company applying for the loan. Further, the loan is a tenure that typically extends beyond the difficult times. Hence, a big part of the actual performance of obligations and repayment of the loan would take place during improved conditions and not during bad times. Hence, regulating the share of risk under LEFS by the Government in accordance with economic conditions may actually be superfluous.

Recently, a new scheme under LEFS, called V-Loan, was introduced where interest rates may be varied from case to case by the participating financial institution processing the loan. While still working on the same risk-sharing principle of 50%, the participating financial institutions may now charge higher interest rate above the base rates.

Sir, while I am not against the principle of matching risks to interest rates charged, in the case of V-Loan, it may not necessarily enhance SMEs'

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access to such loans. The participating financial institutions are unlikely to just approve loans that are risky for higher interest rates. What I fear about this scheme is that it could bring about a higher interest rate for SMEs without improving SMEs' access to such loans.

Sir, I would like to ask the Minister to consider a variation to this existing scheme. Instead of using interest rate to measure risks, it would be more appropriate to use the quantum or, more specifically, the relative quantum of loan between the participating financial institutions and the Government as a means to gauge risk involved in the lending. This would require some changes to the present scheme. Instead of the Government providing the full sum of the loan under the present scheme, I would suggest that both the Government and the participating financial institutions provide the loan in accordance with their respective share of risks. This means, unlike the present scheme, where the participating financial institution only needs to put up its share of the loan when it turns bad, the participating financial institution would have to put forth funds for the lending in accordance with its share of the loan at the outset.

I would propose that all loans by default be set at 80:20, ie, the Government provides 80% and the participating financial institutions 20% of the loan. However, if the banks are prepared to lend more for any specific cases, they should be allowed to do so and, depending on their risk appetite, it can be anything from 20% up to 50% of the loan.

Sir, if we are committed to developing our SMEs and wish to encourage risk-taking among our citizenry, the Government must show the way by undertaking more risk. After all, the 80% risk quantum is not something new, as the Government had actually adopted it

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during the difficult times in the last few years.

Sir, I would like to sum up by setting out the merits of the proposed scheme. First, it is more flexible than the present scheme and allows the participating banks to participate more if they feel comfortable and so desire. Since SMEs come in all shapes and sizes and have varying needs, a more flexible scheme, which provides for adjustment in the risk-sharing quantum, will serve the SME community better than the present one-size-fits-all approach that works on a fixed risk-sharing formula of 50:50 between the Government and the banks.

Second, because part of the funds is provided by and disbursed to the borrowing SMEs from the participating banks in accordance with their share of the loans, the Government would have more funds available to lend to more SMEs, thereby improving access to financing under the scheme.

Third, I would also propose the share of the returns from interests charged to be in the same proportion as the lender's respective share of the loan. This is a more equitable way of sharing the returns than the present arrangement where the participating banks take a fixed spread of 2.25% and also share with the Government whatever that is charged above the base interest rate.

Sir, I would urge the Ministry to review this scheme. I think it would be good and helpful to the SMEs' access to financing.

Entrepreneurship

Mr Inderjit Singh: Sir, first of all, I would like to commend the two Ministers who have been in charge of enterpreneurship - first, Mr Raymond Lim and then Dr Vivian Balakrishnan - for helping to make ood progress in the

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promotion of entrepreneurship in Singapore. Until ACE was formed, it was lip-service. But through ACE and because of the champions that we have now who promote this in Cabinet, we have been able to make a lot of progress. This private sector endowment partnership has created a buzz. As you go around getting the feedback from entrepreneurs and from people participating in business, they do sense things are moving. As we all know, the momentum is there but we still have a long way to go. I hope that the support will continue.

Sir, one area I would like to focus on is in the area of early stage investments. One of the things that the Global Enterprise Monitor (GEM) looks at is the level of informal angel investment in economies around the world. And the conclusion is that the angel investment contributes significantly to the entrepreneurial development and the subsequent employment growth and economic vibrancy of most economies. In fact, the amount of angel investment money in this kind of economies is as much as five times that spent by venture capitalists in investing in companies.

Further, if you look at the business angel prevalence rate, which is one of the measures that GEM measures, in 2003, Singapore was ranked 19 out of 23 countries, with Iceland, China, Hong Kong, Australia and USA ranking among the top few countries. This is a measure of the rate of participation by citizens in informal investing or angel investing. It is not surprising, if you talk to entrepreneurs and start-up companies,

we always hear the complaint that there are not enough people who are supporting them in the angel stages. It may be too early for them to seek venture capital financing or bank financing, but there are not enough angel investors in Singapore. So, in this respect, I would ask the Minister and ACE to look at how we could develop this important area.

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6.30 pm

Now, if we want to create many big successful companies of the future, we need many more small companies to start. Many, of course, will fail, but the only way we could support these companies is by developing the angel investment communities. I believe that in 1999 there was such a scheme. It was called the Business Angel Fund, I believe, driven by the then NSPB, where the Government participated together with angel investors, and the Government was willing to give up part of the gain that it would have made to the angel investors, but absorb the risk of failure. I thought that was a good scheme. It was discontinued sometime in 2001. This is one potential scheme, but I think we could think of many others where we could try to create a more vibrant angel investment community in Singapore.

Sir, the other area of entrepreneurship promotion is done by many volunteer groups. We have many groups that have sprouted, and ACE is focusing in this area. While we try to build partnerships with these groups, I think we also need to see how we could provide them with resource support, particularly secretariat support. Many of these are volunteer groups, and they may not have much funds, whereas ACE has got good Government support. I would ask the Minister in-charge-of Entrepreneurship to think how we could further support these groups, so that they could go about doing their work in promoting entrepreneurship and developing a wider network and, at the same time, not handicapped by the resource limitations that they have.

At the same time, I also ask for support of the development of the financing environment. I have talked about the OTC, the mezzanine financing. Also, there have been lots of talk by Members about micro-financing or micro-

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credit schemes. I think many of us have dispelled this for now. Again, my committee intends to take it up, to study how this has been successful in developed economies. We know that this is very successful in developing economies, but the question is: could it be successful in developed economies like Singapore? We would need some support there too, and I hope to get the support from the Government.

Start-up Enterprise Development Scheme

Dr Tan Sze Wee (Nominated Member): Sir, SEEDS, or the Start-up Enterprise Development Scheme under EDB and SPRING Singapore, is an equity financing scheme which provides matching funding for start-ups with a third party investor. Under this scheme, EDB and SPRING will match every dollar raised by a start-up from a third party investor up to a maximum of $300,000. The third party investor must put in at least $75,000 as a requirement.

Since SEEDS started, I would like to ask the Minister on the number of companies that has successfully secured funding under the SEEDS programme, both under EDB and SPRING, for technology and non-technology companies in the period since it started to 2004, and the total funds raised.

Could the Minister also provide information on whether these companies have managed to become profitable or managed to secure additional funding after the initial seed funding period is over? Sir, the reason why I asked this is that the President in his message mentioned that "the Government will exploit promising technologies like bio-technology to enhance our industry clusters or develop new growth areas", and this was illustrated by a newspaper article as well.

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Speaking from experience as a "bio-entrepreneur" of sorts, and has faced funding difficulty as a start-up, and on behalf of the local private bio-tech community, the current SEEDS' limit of $600,000 is not really sufficient for bio-tech start-ups. The current ceiling, perhaps, requires review. This is because $600,000 would only be enough to (1) set up the research facility, and (2) purchase the laboratory equipment. This hardly covers much needed working capital to start the research work. It costs up to US$800 million and 10 years to take a drug from the laboratory to the marketplace. The next level of funding, which is the Growth Financing Programme, is not within reach of the local bio-tech firms because their products are likely in the R&D phase, and not approved for market sale yet.

Hollowing out of Manufacturing

Mr Alexander Chan Meng Wah (Nominated Member): Mr Chairman, Sir, manufacturing is a very big sector in Singapore. At the end of 2003, it employed 420,000 people, of which 259,000 were Singaporeans. But I look at the years from 1993 to 2003, the total manufacturing employment declined in six out of 11 years; in nine out of 11, the local or the Singaporean employment base actually declined.

Now, if I use the electronics sector as a very big part of it, investments in electronics totalled US$4.2 billion in 2003 and it comprised 56% of the total amount of all local and foreign investments. The stock of FDI was $20 billion by 2000 and that was 50% of the total manufacturing FDI. So, clearly electronics not only dominated the FDI, it also dominated R&D expenditure, and 30% of total US$1.8 billion in 2001, whereas bio-medical was only forming 9%.

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Now I think that we are used to the diurnal rhythm of the tides. When we get used to it, our formula for success is very much the same. If you lose one firm, then you find another firm to replace it. I think we are suffering a little bit with this syndrome. I worry that this diurnal rhythm is going to be substituted later on by a tide that does not come back, unless it comes back with a very big tsunami.

Now, if I look at the changes which I see, we grew, as Dr John Chen put out earlier on, based on the back of MNC growth. The MNCs did a lot of good. They taught local companies how to do many things and functions. I think when the MNCs begin to pull out of Singapore, the next generation of Singapore firms is not going to have these tutors. We are going to find that the Singapore firms would have to learn very much by themselves and at the time when we are asking them to do good product development and become good product marketeers as well. So I think that we need to rethink and to restructure our thinking on how to support this industry. My question to the Minister is: has the Ministry studied the deep structural dynamics in this very inter-related manufacturing sector, between the MNCs, the local enterprises and the SMEs? And what strategies the Government has in mind to keep the manufacturer as a viable employer and contributing to the value-added output?

Economic Development Assistance Schemes

Prof. Ivan Png Paak Liang: Sir, the Ministry's development budget includes $2.77 billion and $2.12 billion for Phases III and IV of the Economic Development Assistance Scheme. Would the Ministry please report to this House the rate of return on investment from these schemes?

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Expensive Natural Gas

Mr Chiam See Tong (Potong Pasir): Sir, Singapore is overpaying for its natural gas. The Business Times article of 17th February 2005 reports that Singapore buys natural gas from Malaysia and Indonesia at prices which make our purchases of natural gas from our neighbours the most expensive in the world. It states:

"Given a proliferation of new liquefied natural gas (LNG) suppliers world-wide and that, Korea Gas is the world's biggest LNG importer, it has squeezed a good deal. The price paid for the gas - to be shipped from Russia, Malaysia and Yemen - is more than a third cheaper than the natural gas piped into Singapore from next-door Malaysia and Indonesia. ... Taking advantage of rival bids from Iran and Australia's North-West Shelf, Korea Gas secured the LNG at 40% below current prices. ... The Korean LNG price is 35-45% lower than the price of natural gas Singapore buys from its neighbours."

The Business Times report further states that according to consultancy Facts Incorporated, Singapore buys gas from Malaysia and Indonesia based on high prices, making it among the world's most expensive gas. It was reported in the local press of 4th March 2005 that the Minister plans to liberalise the gas market to encourage more sources of gas supply into the energy system. The resulting competitive pressure should spur players to do better on both prices and reliability. The Minister also pointed out that last year's June power failure highlighted the question of whether Singapore Gas was relying too much on one source of fuel to generate electricity and whether it should diversify its fuel types and sources. He suggested that one measure is for generation companies to be fed by gas from two sources. Two of the three major power stations are already supported by two sources of gas and the

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third power station plans to have its second pipeline by the middle of this year.

Sir, many Singaporeans are complaining of the high electricity prices in Singapore. Singapore's electricity tariffs are twice as costly as that of Malaysia. This high electricity cost will further burden even more poor Singaporeans who already could not afford to pay their utility bills and have to suffer termination of their electricity supply. I hope the Minister shall expedite all efforts to liberalise the gas market and take all other steps which could soon lower electricity prices to the consumers.

Research and Development Plan

Prof. Ivan Png Paak Liang: Sir, this refers to the National Science and Technology Plan 2000 and the Science and Technology Plan 2005. Would the Minister please report to this House the 2000 Plan and its outcomes, and also the 2005 Plan and its desired outcomes? Further, in future, would the Minister please share with this House the Science and Technology Plans, the mid-term reviews and end-of-term reviews?

Research and Development Expenditure

Dr Tan Sze Wee: Sir, I have outlined in my speech in the debate on the Budget Statement that I find Singapore still has a long way to go in developing R&D capabilities. In the United States, about US$57 billion is spent annually on medical and health research. This represents about 0.6% of the US GDP. In comparison, Singapore's expenditure on health R&D was 0.2% of GDP in the years 2000-2001.

In the United States, both local and foreign companies, private and public alike, could apply for the biomedical research funding through the United States National Institute of Health. There are two known research grant bodies in Singapore, that is, the Biomedical Research Council through A*STAR, and

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the National Medical Research Council through the Ministry of Health. They provide grants for biomedical and clinical research conducted within public research institutes in Singapore. Presently, it may appear that private local companies do not qualify for grants from either one of these bodies for research work conducted in Singapore, which also results in IPs that reside in Singapore as well. Why is this so? In this light, if we intend to create a world-class biomedical hub in Singapore, we would need to increase the funding grants available for biomedical research, that is less restrained by regulations that hamper the research process.

Broadly speaking, Singapore still lags behind Sweden, Finland, Japan and Switzerland in the expenditure allocated to healthcare R&D. I would like to ask the Minister for Trade and Industry for the breakdown for the R&D expenditure for FY 2003 and 2004 in both the private and public sectors and, in particular, the expenditure on the biomedical industry.

The Chairman: Dr John Chen, you have only two minutes.

Dr John Chen Seow Phun: Could I have my full three minutes?

The Chairman: No, I can only give you two minutes.

Commercialisation of Research and Development

Dr John Chen Seow Phun: Sir, in our effort to upgrade our economy to the first world status, the Government has spent billions of dollars on our national R&D effort through agencies like A*STAR. The universities, research institutes and

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research centres, which are funded by the Government, have over the years produced many interesting scientific results and discoveries and many patents have been filed. However, Sir, I would like to ask the Government whether there has been a corresponding effort to commercialise our R&D results. Patents are all perishable commodities. The longer they sit in the cupboard, collecting dust, the less valuable they are likely to become. After 20 years, they become worthless because the patent protection ceases.

One way to exploit such R&D results is through start-up companies. The effort to set up a start-up company to commercialise R&D results is not easy. Finding sufficient funding is often a big hurdle. In Singapore, this problem is compounded by our extremely kiasu venture capitalists. This stems from the fact that most have a trader's mentality, going for such short-term gains. I wonder if Mr Sim of Creative Technology would have made it if he had remained in Singapore in the formative stage of the company. I suspect the answer is no.

Sir, I just want to ask what plans MTI has to increase the volume of patent exploitation and commercialisation in Singapore. In particular, what is the Ministry doing with the patents filed by the universities, research institutes and research centres, supported by A*STAR? This is simply because it would be such a waste if after spending so much in R&D, having so many patents and papers, and even start-up companies, we do not nurture these start-up companies. If Government does not take a lead in supporting these companies, then all the research spending would go to waste.

The Chairman: Order. It is 6.45 pm.

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

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Dr Lee Boon Yang: Sir, I beg to report that the Committee of Supply has made further progress on the Estimates of Expenditure for the financial year 2005/2006, and ask leave to sit again tomorrow.

Mr Deputy Speaker: So be it.