D.1. In order to reorient our economy towards higher value-added activities, we must support rapidly growing companies. More Singapore companies are emerging with significant competitive strengths of their own and are now expanding into international markets.
D.2. Even our SMEs are internationalising. Amongst our top 500 SMEs, overseas revenues have grown by 60% over the last two years and they now account for 57% of their total revenues.
D.3. A major part of global growth in the next decade will come from emerging markets, and especially in Asia. Rapid urbanisation and an increasing demand for higher-value services will give Singapore companies opportunities to expand in these markets – in sectors like clean energy, water and waste management, healthcare, education and transport management. However, given the intensifying competition from companies both in Asia and around the world, we must move decisively in the next decade to establish significant presence in these high-growth markets.
D.4. The G3 markets – US, Europe and Japan – will also remain major sources of demand for Singapore companies. As a relatively small player, we still have significant growth potential even if the overall growth of these advanced markets is constrained.
D.5. Take the furniture industry. Last month, at the Cologne furniture fair, Singapore furniture companies secured on the spot sales of $14 million and, potentially, some $230 million worth of follow-up sales. Likewise in the services sector, CSE Global, a home-grown IT systems integrator, earns about 70% of its revenues from the advanced economies. In 2006, it won a bid to develop a fully-integrated and paperless healthcare records system for the UK National Health Service, serving 50,000 clinicians and support staff.
D.6. There is therefore a world of opportunities for our companies – in Asia and the emerging markets, and in the G3 economies. SPRING, IE Singapore and EDB are providing them with valuable support, in areas such as capability development, internationalisation and financing. We will further boost our efforts to help local players grow into globally-competitive companies. These efforts will comprise three major thrusts, which I will elaborate on in turn.
D.7. We must build and maximise the synergies amongst companies in Singapore, both local and foreign. The MNCs, as well as smaller global enterprises, are growing their base in Singapore and expanding out from here into Asia. They are valuable potential partners to our local firms, helping them to plug into world markets and thereby scale up their operations, while collaborating with them to develop new, cutting-edge competencies.
Partnerships for Capability Transformation (PACT)
D.8. EDB operates the Local Industry Upgrading Programme (LIUP) to strengthen procurement linkages between MNCs and local companies. It has worked well, encouraging more than 200 MNCs to procure from over 1,000 local suppliers.
D.9. We will now build on this collaborative approach by focusing not only on procurement, but also on the development of new capabilities for our local enterprises. This will include helping local companies develop the competencies needed to meet stringent manufacturing quality and certification requirements. This will be under a new programme called Partnerships for Capability Transformation, or PACT for short, which will subsume the existing LIUP. We are setting aside $250 million over five years to defray part of the qualifying expenses for such partnerships.
Business associations as growth champions
D.10. Our business associations, including both our trade associations and chambers of commerce, can be powerful change agents in strengthening capabilities and internationalisation. The furniture industry example that I gave earlier illustrates how businesses banding together can reinvent traditional sectors. The Singapore Furniture Industries Council has run more than 120 courses over the last six years. They also created a brand for the furniture cluster – Singapore Mozaic – which is now earning recognition in the global marketplace. In fact, some of Singapore’s furniture companies use the Mozaic brand rather than their own brand when they go overseas.
D.11. SPRING and IE Singapore work closely with business associations through several initiatives such as the Local Enterprise and Association Development programme, LEAD for short, and the Enterprise Development Centres (EDCs). We will commit $100 million over five years to scale up our support for business associations to drive productivity at the industry level, and to facilitate international market access for their members.
Nurturing future business leaders
D.12. Next, we have to nurture the next generation of business leaders. Our universities and polytechnics are putting more effort into exposing their students to industry. More than half of their students now go on at least one industry attachment by the time they graduate.
D.13. We have a generation of SME leaders who have built up successful businesses from scratch. Ensuring that SMEs have a continued pipeline of talent is therefore a critical priority, so as to grow the value that is embedded in these firms.
D.14. The Government cannot direct leadership succession in SMEs, but we can help to support the flow of talent to SMEs. We will commit $45 million over five years to enhance SPRING’s Business Leaders Initiative. This is an umbrella programme to attract young talent into SMEs, and groom a future generation of SME managers and entrepreneurs.
Gaining dividends from our R&D investments
D.15. Over the last 10 years, we have transformed Singapore’s R&D landscape. A vibrant ecosystem is emerging, comprising a diverse range of research facilities, both in the private and public sectors. In the next decade, we must build on our initial investments, especially by expanding private sector R&D, and move decisively to commercialise R&D so as to maximise returns from these investments.
D.16. Finland illustrates how a sustained R&D policy can move a small economy to the innovation forefront. In the early 1990s, Finland’s gross expenditure on R&D stood at 2% of GDP, which was at the time below the OECD average. In the mid-1990s, the Finnish government dramatically increased funding for research and scientific education to bring their gross R&D investments to 3.4% of GDP by the end of that decade. Now, 20 years later and with close public-private collaboration, Finland has created an innovation economy that consistently tops the ranks in global indicators of scientific productivity and new-to-market product innovations.
D.17. For Singapore, our Gross Expenditure on R&D stood at 1.9% of GDP in 1990 and has grown to 2.8% in 2008, on track to achieving 3.0% this year. The ESC has recommended that we raise this further to 3.5% of GDP over the next five years, and that it be achieved through increased private sector R&D expenditure.
Sustain commitment to public sector R&D
D.18. The Government agrees with this target. First, we will sustain our commitment to public sector basic- and mission-oriented research at 1% of GDP. We have thus far provided $2.2 billion to the National Research Fund. We will add substantially to this amount by putting another $1.5 billion into the Fund this year to support this continuous commitment.
D.19. We have to maximise the linkages between public and private sector R&D. Closer interaction between corporate labs and research centres can support commercial innovation across a diverse range of industries, from clean energy to digital media. We have already started this process. One example is A*STAR’s aerospace consortium with 18 companies, comprising local SMEs as well as world-class aviation players. At the recent Singapore Airshow, the consortium showcased cutting-edge technologies co-developed by A*STAR research institutes and industry experts.
D.20. Talent flow from the public sector research institutes to private corporate labs is part of the synergy that these linkages can create. In the last three years, 650 research engineers and scientists have moved from the public sector to private corporate labs, including 100 seconded to local enterprises, as part of a joint SPRING-A*STAR initiative to upgrade enterprises’ technological capabilities.
However, private sector R&D must grow
D.21. While we will maintain public sector support for R&D at 1% of GDP, we should grow private sector R&D from 2% of GDP currently to 2.5% over the next five years.
D.22. The new Productivity and Innovation Credit scheme that I described earlier will provide significant incentive for companies to invest in R&D. It will provide a tax deduction of 250% on the first $300,000 of R&D expenditures, and 150% on the remaining R&D costs. Together with the innovation vouchers that SPRING provides to SMEs, and potential partnerships that companies can form with public sector research institutes, Singapore will be one of the most compelling locations in Asia for private sector R&D.
D.23. We will also be one of the most conducive locations in which companies, local and foreign, can commercialise R&D – translating ideas and inventions from anywhere in the world into prototypes and commercially-viable products and marketing them anywhere in the world.
Public-Private Co-Innovation Partnership
D.24. The Government, as a significant consumer of products and services, can itself play a larger role to help innovation-driven companies turn their R&D into marketable solutions. This has taken place on an ad-hoc basis in the past. We will now do it proactively and systematically. We need many more examples like Hyflux, whose engagement with PUB opened up the opportunity to develop its capabilities and the track record to help it grow internationally.
D.25. We will commit $450 million over five years to start a Public-Private Co-Innovation Partnership for government agencies to work with private sector companies in co-developing innovative solutions for medium- to long-term needs, in areas such as urban mobility, environmental sustainability and energy security. This could include small and untested companies. Key government agencies will share their technology roadmaps and future needs publicly, and provide grants to help companies test-bed innovative solutions to meet these needs.
D.26. Companies aspiring to grow and eventually become significant players in markets abroad need capital at various stages of their development. Existing schemes like SPRING’s Local Enterprise Finance Scheme are working well. Following the ESC’s recommendations, we will strengthen the availability of both growth capital to young companies and financing for companies’ expansion overseas, including to emerging markets.
D.27. One of the hurdles companies face – not only in Singapore, but in many countries – is in securing finance at a very early stage of their growth. In recent years, there has been a shift in the venture capital industry towards later stage companies, especially towards those at the mezzanine stage, in other words, pre-IPO. To bridge the gap, we will help strengthen the availability of early-stage and more patient financing.
Attracting investors to nurture start-ups
D.28. We want to encourage greater angel investment, by incentivising private individuals with appropriate investment and business expertise to provide financing to start-ups. Angel investing is at the higher end of the risk spectrum, with less assurance of returns. Successful angel investors nurture start-ups not just by contributing funds, but also by providing mentorship, and access to business networks and markets. We have a few well-known angel investors in Singapore, and we want to encourage more investors who can add value to start-ups.
D.29. I will therefore introduce a new incentive for angel investors. Under this incentive, an eligible angel investor who commits a minimum of $100,000 of equity investment in a qualifying start-up in a given year can claim 50% tax deduction on his investment at the end of a two-year holding period. This deduction is subject to a cap of $500,000 of investments in each Year of Assessment. SPRING will administer the scheme for eligible angel investors and qualifying start-ups. The scheme will be available for the next five years and is expected to cost the Government $60 million over the period.
Catalysing growth capital for SMEs
D.30. Companies also need growth capital beyond the start-up phase. The Government will help catalyse financing for companies that have achieved initial success and are looking to scale up. However, the Government cannot pick winners. Our role will be that of the co-investor, relying primarily on the expertise and business networks of private fund managers. This is also essential to ensure commercial discipline in investments.
D.31. We will mobilise up to $1.5 billion of growth capital by seeding a range of funds over 10 years, for which the Government will contribute up to half the capital.
D.32. We will implement the new co-investment programme in phases. We cannot hope to find good companies simply by pouring in liquidity. We will grow the programme in tandem with the appetite of the investing community and with the number of companies they find attractive.
D.33. The first phase will be launched this year, with the Government providing up to $250 million to match private sector investments. This will allow for a few funds to be established, with a combined total of $500 million of growth capital for Singapore-based enterprises.
Government’s role in cross-border financing
D.34. Next, we will also strengthen the market for cross-border finance, which has been one of the key hurdles faced by Singapore companies. The ESC has studied the issue, and obtained feedback from both banks and the corporate sector. The Government agrees that we should find ways to plug existing gaps in the financial markets arising out of structural constraints.
D.35. These gaps are not unique to Singapore. Most other markets face the same difficulties, with commercial banks on their own being unable to fully meet the needs of internationalising companies. Most other markets – including in the mature financial centres – have specialist financial institutions for cross-border financing, whether Export-Import Banks (EXIM Banks) or Export Credit Agencies (ECAs). The ESC has recommended that a specialised institution in Singapore along similar lines can help plug market gaps in cross-border financing.
D.36. We recognise that Government support may be required for such an institution to insure long-term risk. However, we agree with the ESC’s view that any such institution must be commercially-managed, with the discipline to generate a fair return commensurate with the risks. Its business model must also involve collaboration with other financial institutions to catalyse cross-border funding.
D.37. The Government is studying various models and evaluating how best we can realise the development of a market-based institution to support and catalyse the growth of cross-border financing for Singapore-based companies.
D.38. I will also introduce additional incentives to encourage the expansion of specific economic activities with high growth potential.
Grow international legal services
D.39. I will extend the Development and Expansion Incentive scheme to law practices providing international legal services so as to enhance our position as an arbitration hub. Under this incentive, approved law practices will enjoy a 10% concessionary tax rate on incremental income derived from performing international legal services.
Promote financial services and transport hub
D.40. We will continue to update our tax incentives for the financial services sector to ensure that they remain relevant, and encourage institutions to build up high value activities and expand their professional teams in Singapore.
D.41. I will also introduce a tax incentive to grow shipbroking and extend that for maritime financing activities. In addition, I will expand the scope of GST zero-rating for the marine industry.
D.42. The Maintenance, Repair and Overhaul (MRO) business is a growing opportunity for Singapore. To further enhance our competitiveness, I will renew the Investment Allowance scheme which grants an additional 50% allowance for aircraft rotables for another five years. The rules for claiming the allowance will also be liberalised.
Other tax measures
D.43. To encourage test-bedding of clean technologies, I will enhance the Transport Technology Innovation Development Scheme (TIDES) for new green vehicles. I will also expand the scope of the Green Vehicle Rebate scheme to include imported used green vehicles.
D.44. Singapore’s entertainment scene is emerging as an important part of our appeal as a global city. To attract more internationally-rated acts and performances, I will reduce the withholding tax rate of non-resident public entertainers from 15% to 10% for five years.
D.45. I will also introduce flexibility for travellers to purchase an additional litre of duty-free wine or beer in lieu of one litre of duty-free spirits. So, travellers who prefer wine or beer to spirits can now enjoy duty-free allowance on two litres of wine and one litre of beer, or two litres of beer and one litre of wine. I will also introduce several GST-related changes to reduce compliance costs for businesses.