Singapore - The Lion City
A major financial hub in the Asia Pacific region, Singapore has long earned a reputation as one of the world’s most advanced economies. The 50-year economic transformation of Singapore is nothing short of a miracle. Starting as an undeveloped country, it progressed into one of the world’s richest, with a GDP per capita of USD 65,000.
Singapore gained its independence in 1965, just 76 years ago. At that point, their situation was less than promising: no natural resources; an unemployment rate of 10% to 12%; with poor infrastructure and bad sanitation; brimming with slums and squatter settlements. Its labour force was unskilled, with little education or training- a result of its exclusive specialization in trade in its former years as a colony.
Their best course of action was to create a program of industrialization, whereby they transform into an industrial society by re-organizing the economy to support manufacturing. However, to do this on their own would be impossible, as there was no experience or skill to share. The solution: connecting with developed countries in order to convince MNCs (multinational corporations) to invest in Singapore.
Unfortunately, Singapore wasn’t the only country seeking this course of action. Most of its neighbours had the same aim but had the advantages of natural resources. However, Singapore was fortunate in its location and established port and trading system, so there was competition aplenty.
Singapore had to distinguish itself, become the best candidate for investment by creating favourable conditions. Thus, the country undertook changes. The government imposed strict laws and regulations, with severe punishments of significant jail time and death sentence, seeking to create a safe, low-corruption, secure environment; something that its neighbours lacked. They introduced low taxes, even more so for foreign investors, and developed infrastructure. A housing development, first introduced in 1930, was persevering, alleviating some of the population’s housing struggles.
The stable, low tax, incorruptible Singapore was found very attractive by foreign investors and MNCs. Soon, through the growing industrialization, Singapore progressed in processing raw materials and manufacturing them into finished goods for export, increasing the country’s wealth. Infrastructure has been developed according to the needs of manufacturers, and education has been improved. By 1972 one quarter of manufacturing firms were foreign-owned, and the country’s GDP was growing by 10% or more.
A strategy has been created to increase the wages, where the country’s labour force was trained by large companies in fields like IT, petrochemicals and electronics, making workers more skilled so they would be able to perform more difficult jobs. More manufacturing shifted to the country, and a special tax for training has been passed by the government. A culture of innovation was sparked. Although in 1970 Singapore had been exporting textile, garments and basic electronics, by 1990 they partook in biotech, pharmaceuticals and aerospace engineering.
Despite its small domestic market and a lack of natural resources, Singapore successfully weathered through the financial crises of 1997 and 2008. Although Singapore was not directly hit by the Asian Financial Crisis of 1997-98, the state suffered the spill-over effects of the economic slowdown and fell into recession in the second half of 1998. Realising that stimulating domestic demand was not a viable option in a downturn caused by external circumstances, the Singapore government implemented various measures to help ease the cost burden on businesses and individuals. By early 1999, the state showed signs of recovery which sustained through the year, with the GDP growing by 7.2 per cent, much better than the government’s initial forecast of between -1 per cent and +1 per cent.
Singapore was the first East Asian country to slip into a recession due to the American Banking Crisis of 2008. This was the worst recession the country ever faced, evident by the fall of non-oil exports in manufactured goods, induced by the overall deterioration of economic conditions in Europe and the United States- Singapore’s leading export destinations. Singapore’s financial system experienced some initial strains but otherwise has proven resilient during the crisis. Banks and insurers maintained robust capital and liquidity buffers, and balance sheets were relatively strong. Their prudent risk management allowed them to weather the crisis well.
Today, trade continues to play a major role in Singapore’s economy, with the country being home to the busiest transhipment port in the world. It has a thriving tourism industry, with 10 million visitors each year; hosts a flourishing biotech industry, with drug makers like Pfizer having plants there; and can pride itself on the 3000 international companies operating there. The standards of living have gone through the roof, with the GDP being $300 billion, and a life expectancy growing up to 83 years.
Singapore’s banking sector is a key player in the country’s financial market segment, emerging as one of the strongest in the world. Factors such as a sound economic and political environment, conducive legal and tax policies, reputation for integrity, and strict enforcement against crime and money laundering, have contributed to Singapore’s status as an International Finance Centre – the third largest in Asia, after Japan and Hong Kong. Today there are as many as 117 foreign banks and 6 local banks that dominate the banking scene.
Continuing its century-old legacy as a pioneer of the oil industry, Singapore has grown to become a global giant in the petroleum trade. The oil industry makes up 5% of its GDP, with Singapore being one of the top three export refining centres in the world. In 2007, it exported 68.1 million tonnes of oil. The oil industry has led to the promotion of the chemical industry as well as oil and gas equipment manufacturing.
Like almost all nations, Singapore's economy has been affected by COVID19, having suffered its biggest recession since independence, with a contraction of 5.4 %. A consequence, no doubt, of the falling external demand and a decline in the tourism industry. However, the prospects of recovery are promising with an estimated 4-6% growth in 2021, and the vaccination program underway.
Written by Togzhan Batyrbekova and Zoyah Virani; Edited by Alexey Dudarev
