Dr Vivian Balakrishnan at the 18th Bluesky Evening

ADDRESS BY DR VIVIAN BALAKRISHNAN, MINISTER FOR COMMUNITY DEVELOPMENT, YOUTH AND SPORTS AND SECOND MINISTER FOR TRADE AND INDUSTRY AT THE 18TH BLUESKY EVENING, HELD AT INDOCHINE ON 24 JANUARY 2006 AT 7.00 PM

Mr Alain Vandenborre, Chairman, Singapore Venture Capital Association and Asia Pacific Venture Capital Association,

Mr Michael Ma, Chairman, Indochine Group,

Investors and entrepreneurs,

Ladies and gentlemen,

Economic and Entrepreneurship Performance

Thank you for joining us at this first Blue-sky Evening in 2006.This is an auspicious occasion as we celebrate the impending Lunar New Year. The Chinese believe that water symbolizes prosperity. By being here at the Indochine Waterfront tonight, we hope that the New Year will be a successful one for all of you.

2005 was a very good year. The economy grew by 5.7 per cent. Singapore's external trade increased by 14 %, reaching a record level of S$716 billion. The outlook for 2006 remains robust, and we are expecting between 3.0 to 5.0 % economic growth and 7.0 to 9.0 % trade growth.

We have also seen an improvement in entrepreneurship. The Global Entrepreneurship Monitor 2005 revealed a jump in Total Entrepreneurial Activity (TEA) from 5.0% in 2004 to 7.2% in 2005.The strong TEA rate reflects a progressive change of mindset towards entrepreneurship and affirms the society’s increasing support for entrepreneurs. It augurs well for us in our journey to nurture local enterprises with a global mindset and which are globally competitive.

The Action Community for Entrepreneurship (ACE) and our partners are pro-actively creating an environment that supports commercial activities so that more local enterprises can seed here and grow to become world players. This involves many aspects, like facilitating rule changes, smoothening access to information and finance and promoting platforms for entrepreneurs to connect to market.

This evening, I would like to focus and update you on enhancements to the financing environment. Over the past three years since ACE was formed, the Finance Action Crucible under Mr Inderjit Singh has consulted and worked with both government agencies and the private sector to develop more financing tools for local enterprises.

Access to Financing

Good progress has been achieved. The results of the SME Development Survey by DP Information Group in November 2005 revealed almost half of the 10,000 respondents felt that the financing scene in Singapore has improved. This contrasted with the results for the previous two years, where entrepreneurs and SMEs cited lack of access to funds as a dominant concern.

Local enterprises now have a wider choice of financing tools to choose from, which cater to different needs. Private players like, banks and financial institutions are also playing their part by focusing more on supporting SMEs.IE Singapore and Hong Leong Finance have just launched an Enterprise Fund which is targeted at asset light and non-high tech companies. This Fund will provide up to S$100 million for such companies to expand internationally if they have good growth potential and viable business plans.

Another example is the Variable Interest Loan Scheme implemented by SPRING in 2005 , to complement the fixed interest rate Local Enterprise Finance Loan scheme. After one year, the scheme has made possible the commitment of 175 new loans amounting to $10 million to local enterprises.

Another programme which smaller businesses, including new start ups find relevant is the Micro Loan Programme. Since the programme was launched by SPRING in November 2001, about 10,000 micro loans were approved. Some $320 million worth of loans were committed.

Growth of Venture Capital Market

The venture capital market is also growing. Singapore's first venture capital fund was established in 1983. Recognizing the catalytic role of venture capital in developing local entrepreneurship and innovation, the Economic Development Board (EDB), set up the EDB Venture Capital Programme in 1985 and introduced tax incentives to promote the growth of industry in Singapore. Since then, EDB has continued to develop the venture capital industry as an important means to promote innovation and enterprise development. In 1999, a US$1 billion co-investment fund was set up to attract local and foreign VC funds to establish operations in Singapore. This was topped by a second tranche of US$300 million in 2003.

As a result, the venture capital industry grew from S$48 million in 1983 to S$16.1 billion as at end 2004.These VC funds were managed out of Singapore by 157 VC and private equity (PE) firms. The number of VC-backed local enterprises also grew from 802 in 2003 to 856 in 2004.Besides the substantial increase in investment activities, more new VC players, both local and foreign, have set up offices here. In addition, several existing corporations have set up dedicated venture capital divisions.

To encourage a larger number of VCs and business angels to invest in start ups and to catalyze the formation of innovative and scalable start ups, The Startup Enterprise Development Scheme (SEEDS) was implemented in 2001.It is a S$50 million fund administered by the EDB. To date, the total number of SEEDS -funded enterprises is 150 with $36 million committed. In all, these SEEDS companies are projected to contribute more than $1 billion in value-added per annum to Singapore’s GDP and create more than 7,000 new jobs by 2007 when these projects are realized.

Third party investors have contributed immensely to the success of these startups. Not only do they provide the financial injection into the startup, but they also bring along valuable insights and networks to nurture and grow the enterprise. The SEEDS programme has been highly successful to date, thanks to 178 visionary, trailblazing investors who dared to dream. In view of this success, the Government announced in September last year that an additional $30 million was added to the initial pool of $50 million that had been allocated for SEEDS.

This $30 million injection will support the Business Angel Fund, mooted by ACE and implemented by EDB in September 2005.Through this scheme, self-formed and pre-qualified groups of business angels which have committed at least S$10 million for investment in start ups can be matched by an equivalent amount from EDB. Each investment in a start up will be matched dollar for solar, up to a maximum of $1 million per company. This scheme may be of interest to some of our business angels here. Please do check with EDB on the details.

Areas of Focus on Financing by ACE

Despite the healthy improvements, there are three areas that ACE will focus on in its continuous effort to improve financing access. The first is to explore financing options for international expansion. We understand that companies are still hampered in it globalization efforts due to limited avenues for financing overseas expansion. This is a question of risk appetite of financial institutes.

In the area of micro credit financing, we have also commissioned a study on the feasibility of implementing micro financing for start ups. We are exploring this, not for social reasons, but to understand if there is a need for smaller start up loans or credit for entrepreneurs which may be operated by credit co-operatives, for example.

ACE will also review the Deal Flow Connection which was created in 2003 to connect ideas with funds. Since implementation, some 845 deals have been facilitated. We will explore how we could enhance the portal to provide more value added services for entrepreneurs.

Conclusion

In conclusion, making Singapore an attractive place where ideas, talent and funds converge to create innovative and competitive enterprises requires a dynamic integrated effort by all key players. In this respect, the Singapore Venture Capital and Private Equity Association are important members of this enterprise mission. I applaud the SVCA’s and APVCA’s efforts to promote the local and regional VC industry. With their global networks, SCVA can also help spot and attract entrepreneurial talent to seed and grow enterprises here. Our local entrepreneurs can then link up with foreign entrepreneurs in a win-win partnership to tap opportunities in the region.

I understand that there will be no dialogue session tonight, but I believe that a fruitful exchange of ideas and contacts will still take place during the informal networking. Let me end now by thanking our host, Mr Michael Ma and Indochine, for taking time to host this event, as well as our co-organizers, SVCA and APVCA, for their support. I wish everyone a most successful year ahead.

Thank you.