Along with Hong Kong, South Korea and Taiwan, Singapore is one of the original “Asian tigers.” It is also one of the smallest countries in Southeast Asia: The 270-square-mile island state lies off the southern Malay Peninsula between Malaysia and Indonesia and between the Indian Ocean and the South China Sea. It shares some similarities with the Virgin Islands: a small size; a small population (around 5.4 million); resource scarcity; English as its official language; a Westminster-style unicameral legislature; a sizeable expatriate workforce; water challenges; and an island geography. A British colony from 1819-1963, it is also the 14th largest importer in the world.
Nonetheless, even though Singapore and the VI share some similarities, Singapore’s economy is head and shoulders above the VI’s. Singapore is a key global economic player with a highly developed, advanced, technologically driven and diversified economy despite its small size and dearth of natural resources. How did Singapore’s economy progress so quickly in such a short time? To understand, we need to take a peek at its history and beginning as an independent country.
Pre-independence
Singapore, colonised by the British in 1819, gained self-government in June 1959; seceded from the Crown in August 1963, joining with Malaysia to form the Federation of Malaysia; and attained independence as the Republic of Singapore in August 1965, remaining within the Commonwealth. During its 100-plus years under British rule and its short stay within the Malaysian Federation, Singapore had a weak economy with no industrial base and no assets save for a strategic deepwater port. Its economy was undeveloped and composed mostly of entrepot trading; importing raw material and processing it for re-export; supporting the largest British naval base in the region; port operations that facilitated trade between England, India and China; and dry dock operations. Additionally, it was beset with high unemployment, an undereducated population and workforce, and high poverty, and it imported most of its food, energy and water. Moreover, its gross domestic product per capita was a meagre $400.
Independence
Faced with high unemployment, poor education, lack of natural resources, high poverty, poor infrastructure, an underperforming economy, ethnic strife, unfriendly neighbours, and the shock of the closing of the British naval base, Singapore stumbled and staggered into independence highly stressed and with an uncertain future. Consequently, saddled with myriad economic and social woes, Singapore leaders faced an urgency to find solutions. The outlook was bleak. Moreover, due to its small size, small population and lack of internal resources to develop an economy, it cast a gaze beyond its borders for solutions to growing and improving its anaemic, sluggish economy. Led by Lee Kuan Yew, the first prime minister (1959-1990) and founding father of modern Singapore, the nation embarked on an aggressive, comprehensive programme of industrialisation and economic reform by experimenting with and embracing globalisation.
Further, encouraged and influenced by Israel’s success in boycotting its unfriendly neighbours to engage in trade with Europe and America, Singapore embarked on an aggressive, robust and persistent initiative to persuade and recruit multinational corporations to establish manufacturing industry in Singapore. It focused on building an export-oriented economy. But to attract multinationals, the country had to create an environment that was safe, corruption-free, politically stable, business friendly, and low-tax. Additionally, it also aggressively pursued foreign direct invest.
Sectors
Did this plan pay dividends? Well, today, Singapore is a globalised economic hub, leaning heavily on trade, primarily manufacturing for export, which was 27 percent of GDP in 2010. However, to soften the effect of any economic downturns experienced by its key trading partners (the United States, Malaysia, Japan, China, the European Union and Hong Kong), it recognised it had to develop a diversified economy. As such, it has a myriad of economic sectors, including electronics, petroleum refining, chemicals, petrochemicals, biomedical sciences, biotech research, pharmaceuticals, finance, banking, logistics, shipping, transportation, tourism and so on. Additionally, it embraced the approach to grow as fast as possible when conditions are favourable so as to soften the blow to weather any economic storms.
Moreover, Singapore has a GDP of about $350 billion (greater than three quarters of the rest of the world). The country also is rated highly in several economic categories: It boasts one of the fastest growing economies in the world; one of the lowest unemployment rates in the world; one of the highest GDPs per capita at about $60,000; the highest trade-to-GDP ratio in the world at about 408; and one of freest economies in the world, according to the Index of Economic Freedom 2011. It also is ranked one of the best and friendliest places to do business, and it is the 14th largest importer and 15th largest exporter in the world. Moreover, it is a major exporter of oil, though it has no proven oil reserve, and it is one of the largest oil refineries in the world. It has one of the busiest ports in the world; the third highest industrial production growth rate as of 2010; the eighth largest current account balance at about $49 billion; and so on. And more than 3,000 multinationals have set up shop in Singapore.
Services
Besides manufacturing, Singapore also has a strong, robust and growing service industry, including finance, banking and tourism. For example, it has a AAA credit rating from Standard & Poor’s and Moody’s and Fitch; the fourth largest foreign exchange market in the world after London, New York and Tokyo; and the only Asian market other than Japan to be part of Citigroup World Bond Index. The tourism industry is also surging and thriving: It averages 10 million tourist arrivals annually. Singapore is also diversifying into niche markets such as medical tourism, gaming, conferencing and exhibitions. It is a major logistics and transport hub. So how did Singapore, a small speck in the South China Sea, transform itself from probably a fourth or third world country to first world in 50 years?
To be continued next week.
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