MOS Lee Yi Shyan's oral reply on support programmes for SMEs and start-ups

Question No. 870 of Notice Paper No. 284 of 2008

Name and Constituency of Member of Parliament
Mdm Ho Geok Choo, Member for West Coast GRC

Question
To ask the Minister for Trade and Industry in view of this year’s global financial fallout (a) whether a shift towards self-employment, sub-contracting and consulting is likely to accelerate and, if so, what type of support programmes will be rendered to these groups; and (b) whether small businesses and start-ups can become sizeable enough to be a pillar of our economy and, if so, what kind of support programmes are available to the SMEs and the start-ups in this economic downturn.

Answer
Our unemployment rate was 2.2% in the 3rd quarter of 2008, up from 1.7% during the same period in 2007[1]. The unemployment rate is likely to deteriorate further as the global economy worsens.

Historically, we are unable to establish a clear relationship between the level of self-employment and economic conditions[2]. The proportion of self-unemployment in our economy increased in the 97 Asian financial crisis, but came down during the dotcom bubble bust in 2001. Self-employed individuals, especially entrepreneurs who leave the formal sector to incorporate new businesses, however, can become an important source of growth for the economy.

The number of start-ups in Singapore has grown steadily over the years. Start-ups, defined as companies employing at least one employee and less than 5 years old, have increased from 27,000 in 2002 to more than 36,000 today[3]. They now employ more than 300,000 workers and generate more than $166 billion in turnover[4].

Support for entrepreneurs

The process of starting up a business in Singapore is simple, fast and costs little. Incorporating a new company used to cost more than $1000 and take 5 days. Now with our one-stop BizFile e-services, incorporating a company costs only $300 and takes a mere 15 minutes. Starting a business is even cheaper, at a cost of $65. One can also seamlessly access comprehensive information on business licenses, regulations and Government support from the integrated online portal – Enterprise One[5].

Our start-up companies enjoy a conducive tax environment. They do not need to pay tax on the first $100,000 of the annual income for the first three years of their operations. On the next $200,000 of the annual income, they only need to pay half the amount of tax. In addition, technology start-ups enjoy special tax incentives for R&D investments[6].

Adopting a public-private partnership approach to promote entrepreneurship, we have vastly improved the business environment over the years to render it conducive for entrepreneurship and new firms formation. Our support for start-ups is elaborate and wide-ranging, and we have designed measures specially tailored to assist start-ups at different stages of their growth.

For instance, startups less than 3 years old with less than $500,000 paid up capital can apply for start-up capital of up to $1 million under SPRING’s Start-up Enterprise Development Scheme (or SEEDs in short). Start-ups can also apply for capital of up to $1.5 million under the Business Angels Scheme (BAS).

While some startups are open to receiving equity from business angels or Venture Capitals, others might prefer to finance their operations from loans. For these companies, they can access loans of up to $100,000 from SPRING’s Micro-Loan Program (MLP) to supplement their working capital.

In exploring the best financing solutions and growth models, some start-ups or SMEs might prefer to consult experts face-to-face. To facilitate this process, SPRING in partnership with the private sector has established a network of Enterprise Development Centers, or EDCs, to provide free consultation services. The 5 EDCs are conveniently located with the Chinese, Indian and Malay Chambers of Commerce, Association of Small to Medium Enterprises and Singapore Manufacturers’ Federation to serve their members and start-ups at large.

Singapore’s SME landscape

Mdm Ho also asked whether our small businesses and start-ups can be a sizeable part of our economy. Our SMEs and start-ups are already a significant part of our economy. They make up nearly half of our overall GDP, contributing 62% of our employment[7]. In fact, the growth of our SMEs has outpaced that of the overall economy in certain years.

Our SMEs, be they start-ups, small businesses or existing firms, can tap on a wide range of support measures to strengthen their capabilities in finance, operations, product development and manpower training needs. To ensure continued access to credit, SPRING has recently enhanced the Local Enterprise Financing Scheme (LEFS) and also the Micro Loan Programme (MLP) by increasing Government’s risk-sharing from 50% to 80%, widening eligibility to all local enterprises, increasing loan quantum and reducing interest rates by 1.25%. We also introduced a new Bridging Loan Programme (BLP) which offers up to $500,000 to address SMEs’ working capital needs.

To help our SMEs develop their capabilities, there are also a wide range of grants that support areas such as branding, equipment upgrading, IT development and manpower training needs. SMEs can also tap on the recently introduced SPUR program to re-train and up-skill their workers. Through IE Singapore, we also help our SMEs go abroad through internationalization initiatives such as trade missions and export assistance programmes. SMEs can refer to Enterprise One website to learn more about the 22 programmes under SPRING and the 13 programmes that IE Singapore have for them on overseas expansion.

Sir, we are not standing still. We are continually exploring further measures to help our SMEs, seize new opportunities so that they can weather this economic storm, remain competitive for the long term and emerge stronger, and more resilient.

[1] Based on MOM’s report on “Employment Situation in 3rd Quarter 2008” released on 31 Oct 08. Figures for the 4th quarter is only available at end Jan 2009.

[2] There has not been any significant rise or fall in self-employment during periods of economic uncertainties based on past data. In the late 1990s during the Asian financial crisis, the share of self-employed among employed residents showed an uptrend. In contrast, the share of self-employed declined from 15.4% in Jun 2001 to 14.9% in Jun 2003 during the economic slowdown then. The data on self-employment for this year will only be released in Jan next year.

[3] Based on latest 2006 figures from DOS. Employing start-ups refer to start-ups with at least 1 employee and are less then 5 years old since their formation.

[4] Based on latest 2006 figures from DOS. 300,000 is about 12.7% of our employment.

[5] The Enterprise One portal is located at www.business.gov.sg

[6] For R&D, start-ups can enjoy the R&D Incentive for Start-Up Enterprises (RISE) scheme. The scheme enables loss making start-ups spending annually at least $150,000 on R&D done in Singapore to convert up to $225,000 of tax losses arising from the R&D expenditure into cash grants of up to $20,250 from the Government. For stock options, start-ups can enjoy the Equity Remuneration Incentive Scheme (ERIS). This scheme allows employees of qualifying start-up companies to be exempted from personal income tax on 75% of the gains derived from equity-based remuneration granted by qualifying start-up companies.

[7] Based on estimates from DOS, SMEs contributed to 47.5% of overall GDP and 62.2% of overall employment in 2007. Turnover figure is based on 2005 data.