You have asked me to talk about the work of the Economic Review Committee and in particular, that of the Entrepreneurship and Internationalisation Sub-committee that I head.

Our starting point is that we believe that we cannot create entrepreneurs but we can and must create the environment that allows, encourages and facilitates entrepreneurship.

That this is so, can be taken from the experiences of the Nordic countries. Take Finland for example. The country with a small population of 5mn people is also the birthplace of Nokia, the largest mobile phone producer in the world. Denmark with roughly a similar population size, boasts of the Medicon Valley and world class companies like Maersk and Novo Nordisk. Det Norske Veritas, the world leader in ship classification and quality management, is from Norway. Sweden produces many household company names like ABB, Volvo, and Erickson.

I do not think this impressive record is achieved by accident. Underlying these world class companies is fertile ground for entrepreneurship and innovation, which will help existing companies to grow and new players to sprout. This is made possible by a set of complex and interacting factors such as pro-business government policies, education system, history, culture and most importantly, the Nordic people’s strong determination to overcome some of the difficult realities they face.

If you mention Nordic countries, most Singaporeans will immediately be reminded of its cold dark winters and sparsely populated land. After all, the Nordic countries account for less than 10% of Europe’s population but about one-third its landmass. This create challenges for economic activities. Transport, communications and transmission of energy, are made doubly difficult.

But communications and energy transmission are precisely the core strengths of companies like Nokia, Ericsson and ABB. A similar phenomenon could be observed in Japan. Post war Japan is short of land, and people live and work in constricted places. So miniaturisation, whether in TV, computers or general electrical appliances, became the expertise of the Japanese.

One of the first economic concepts I learned in school is a nation’s comparative advantage. Usually, these advantages are endowed by nature in resources such as minerals, oil, abundant land, and suitable climate for certain agriculture activities. But as knowledge increasingly becomes the most valuable factor of production, this wisdom may need to be questioned. Sometimes, it is not nature’s endowment, but nature’s deprivation that drive an economy’s competency and comparative advantage. If this is not true, Singapore would not have existed.

When we first became independent, we had no natural resources, no hinterland, and were threatened by racial riots and the Communist movement. We are now a politically stable society. But the vulnerabilities that we had to confront in the early days of independence have not gone away. We are still only a city-state, with a small population of 3 mn and no natural resources. The largest lake in Sweden, Vanern, is about 5,600 sq km is over eight times the size of Singapore. We practically import all our food, and even buy water from our neighbour. These continue to be the realities of being Singapore.

But the sense of vulnerability due to these conditions also keeps us on our toes.

Because of our small domestic market, we reach out to the world. We wooed MNCs to invest in Singapore when it was not politically correct to do so at that time. We now play host to 10,000 global companies, of which 5,000 use Singapore as its Asia Pacific base. Our GDP to trade ratio is 3 to 1 – unmatched by any other country. Our port and airport are intricately connected to the rest of the world.

Because we are short of people, we welcome global talent with open arms. 40,000 babies are born in Singapore every year. A similar number of global talent is brought into Singapore annually. Outside of Norway, Singapore hosts the most number of Norwegians. The Norwegian community here even set up a Seaman’s church. On the diplomatic front, we strive to be friends to all, and hopefully enemies to none.

Because we have no resources, we strive to be a knowledge-based economy. We promote high value added industries such as high end electronics, chemicals, pharmaceuticals and life sciences. We protect Intellectual Property rights robustly.

Moving forward, the challenges will be equally challenging. We will continue to build competencies and capabilities and strengthen the foundation of our economy. It is the entreperneurial spirit of our first generation of leaders and people that brought us to where we are. Entrepreneurship is therefore in the blood of Singaporeans. The issue now is how to uncover them, and channel that energy not just to nation building, but developing businesses and enterprises that can create wealth and raise the standard of living for Singaporeans.

Members of my sub committee felt that the most desired outcome is to develop a vibrant enterprise ecosystem. This is a term coined by the Economic Development Board (EDB) after extensive consultations with the industry and the public. It is not a closed habitat, but one that that is closely connected with the larger global ecosystem. Like a natural ecosystem, it will be self-renewing and self-sustaining, where new businesses constantly move into Singapore and venture out of Singapore. Competition is keen and the fittest survive. Budding ideas can develop into viable enterprises, while obsolete companies will fall by the wayside. Many industries co-exists and leverage on each other’s strengths to form clusters that will grow and internationalise. Workers constantly renew their skills and can move from company to company.

We think there are a few important elements to the enterprise ecosystem:

First, Availability of Capital. Capital to an economy is like water to an ecosystem. There must be sufficient types of capital in the economy to cater to a spectrum of risk appetite to fund promising enterprises at all stages of their development.

There needs to be greater availability of capital in the economy. For instance, we are studying ways to further liberalise the CPF system so as to free up more capital including allowing HDB flats to be mortgaged. The ERC has also proposed that Government tax-exempts interest income and foreign source personal income remitted back to Singapore, which we fully support because this would help inject liquidity into our economy. Beyond that, we also need to encourage remittance of corporate income from overseas. Hong Kong has decided to waive all taxation on such income remitted from overseas to encourage capital to return to their economy. We may not be able to adopt a similar approach given that the revenue implications can be serious. But we should study the problem carefully to find other ways to serve our objective.

With capital available, we need to channel them towards developing enterprises and for companies to go international. To do so, we can provide a number of tax incentives. We have submitted our proposals to review share option schemes. We have proposed extending the current Technopreneur Investment Incentive to cover a wider group of entrepreneurs and not just those in the high technology sectors. Other proposals will follow shortly.

Second, Pro-Enterprise regulations. Some argue that a natural ecosystem has no rules, and plants and animals find their own way to survive and evolve to suit circumstances. But as a society and a country, we do need rules and regulations to maintain law and order, safety and prudential standards, amongst others. But we need to regulate with a light touch if we do not want to stifle creativity and innovation.

Our emphasis on clear rules has been instrumental in building up a clean and transparent bureaucracy. If the regulations say something cannot be done, chances are it could never be done and your competitor cannot bribe their way to get an advantage over you. This is a considerable strength we have in the past that should continue into the future.

But we should also be careful not to be burdened by rules that are too rigid. We are living in fast changing times and many government rules will fall behind the curve of change. There is also scope for rules to be streamlined. We often hear horror stories about businesses running from agency to agency to apply for licences. While each licence may not difficult or expensive to apply, collectively they can inflict death by a thousand cuts.

Fortunately, we have put in place a good framework called PS21. In Sep 2000, we also set up the Pro-Enterprise Panel (PEP), chaired by the Head of Civil Service, to look into removing and amending rules that impede businesses in Singapore. The PEP has slashed away many obsolete rules. For example, in the past, one needs a licence to reproduce images of the Singapore currency, including on the Internet. From Oct 2000, application for licences is no longer required provided some terms and conditions are adhered to. In the past, one ministry requires lifts to be tested once a year, while another ministry requires lifts to be tested every six months. This duplication has been rationalised.

Third, enterprise capabilities. Talent is like sunlight that energises an ecosystem. We need a critical mass of talent to inject vibrancy and zest into our economy. There must be a conscious effort to equip more Singaporeans with the right attitude and skills for entrepreneurship, and attract global talent to bolster our pool of entrepreneurs. My committee will study the public sector scholarship and deployment systems and see if we can release more talent into the private sector. We should find ways to expose students to the concept of entrepreneurship at an early stage of their education.

Global Connections. Finally, no ecosystem is totally cut off from the rest of the world. In the natural environment, there is seasonal migration from one habitat to another. New species get introduced into the environment, artificially or otherwise, which will result in temporary disruptions until a new equilibrium is reached. But overall, such diversity keeps the system sustainable and vibrant.

This underscores the importance of Singapore’s connection to the outside world. Our economic policies must continue to be outward oriented; we must continue to welcome global talent; and encourage Singaporeans to study and work abroad and learn new experiences that could help them contribute back in Singapore.

This is the reason why Singapore will continue to support the WTO, and be an ardent supporter of regional fora like ASEAN, ASEM and APEC. It explains our effort to try to forge as many Free Trade Agreements (FTAs) as possible.

Hence, the last point of my speech today is to make a pitch for Free Trade Agreements (FTAs), particular, an EU-Singapore FTA.

Singapore has concluded FTA negotiations with the European Free Trade Area. Once the agreement is signed, we will be free trade partners with Norway and Iceland. Our agreements with New Zealand and Japan have come in effect. We are also negotiating with the US, Australia, Canada and Mexico.

The EU also has free trade or special customs agreements with 27 countries, and is proceeding with 15 more, including Chile and MERCOSUR. Unfortunately, none is with an Asian country. This absence neither good for Asia nor Europe. It is a reflection of the weaker institutional linkages between Europe and Asia, compared to transatlantic and transpacific linkages.

Within 50 years, the size of the combined East Asian economy may be larger than that of the US and EU combined. Growth of China will be a primary driver of that growth, but we cannot ignore Southeast Asia either. With 500mn people and an abundance of natural resources and skilled workers, Southeast Asia can be an important alternate production base for multinational companies that do not want to put all their eggs in the Chinese basket.

The ASEAN FTA has strengthened Southeast Asia’s attraction as a manufacturing base. From 1 Jan 2002, practically all manufactured products can be transported within ASEAN with 0-5% tariff. This greatly facilitates investors to distribute their production facilities around the region to leverage on the comparative advantages of each ASEAN country. It explains why trade in manufactured components account for over 70% of trade between Japan and Indonesia, Malaysia, Singapore and Thailand.

In view of the potential of Southeast Asia, the US, China and Japan are all staking out strategic positions for themselves, through free trade agreements. ASEAN is working with China to realise an FTA in 10 years. It does not make sense for Europe to leave itself out. By waiting, Europe will be disadvantaged as was the experience with Mexico when NAFTA was established.

Singapore can be the EU’s first foothold in Southeast Asia. We account for 30% of EU-Southeast Asia trade, and 40% of EU’s investment in Southeast Asia. Our economies are complementary. Singapore does not have strong agriculture, textiles or steel sectors. We are therefore a natural starting point for deeper EU engagement in Southeast Asia.

It is also wrong to think that Singapore has nothing to offer in an FTA. Liberalisation of our services sectors lags behind that for goods. But through our various FTAs, Singapore is progressively opening up our services sectors An EU-Singapore FTA will enable the EU to make major inroads into Singapore’s services sectors. The details are of course to be negotiated.

In the longer term, we should aim for the EU-Singapore FTA to blossom into an EU-ASEAN FTA. This is not a far-fetched goal. Since the launch of the US-Singapore FTA, there have been suggestions for other trans-Pacific FTAs between the US and Australia, Thailand and the Philippines. An EU-Singapore FTA, designed properly, can have a similar impact on other Southeast Asian countries. When PM Koizumi was in Singapore in Jan 2002 to sign the Japan-Singapore Economic Partnership Agreement, he announced that Japan would like to see a Comprehensive Economic Partnership between Japan and ASEAN.

Over time, our FTAs should help to integrate our economies and dissolve our borders. In the minds of Singaporeans, they should see Southeast Asia, China, Japan, Europe and the US as part of our hinterland. If we become more broad minded, and realise that potential out there, we will be able to uncover more entrepreneurial spirit in our society.

Thank you.