Among various alternative countries selected, the Singapore has been chosen by our group in this economic study. This is because it is interesting to study Singapore economics. It is well known with highly developed and successful free market economy in despite of they have small geographic size of the nation and resources scarcity problems. Their strategic location on major sea lanes and its industrious population has given them an economic importance. On the other hand, Singaporean response toward the global crisis but still can recover faster than other countries at Sounth Asia countries. Its effective response and policies can be a good teaching material for other countries. The other reason to choose this industrial country is because of the data and information is available.
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It joined and became one of the new state of Malaysian Federation in 1963 but separated two years later and became democratic and independent. It subsequently became one of the world’s most prosperous countries with strong international trading links where its port is one of the worlds’ busiest in terms of tonnage handled. The Port of Singapore is not a mere economic boon, but an economic necessity because Singapore is lacking in land and natural resources.
With the adverse geographical conditions, Singapore still enjoys a notable open and corruption-free environment, stable prices, and a per capita GDP higher than that of most western developed countries. Its economic structure is controlled by it manufacturing and service sector by which the manufacturing is dominated by electronic and chemicals. At the same time, Singapore practices an extended concept of ‘entrepot’ trade; it purchases raw goods and refines them for re-export. It can be proven from itsexport-import scenario.
Its economy depends heavily on exports, especially in consumer electronics, information technology products, pharmaceuticals, and on a growing financial services sector (The World Factbook, 2011). Export is the main source of revenue for the Singapore’s economy. It also imports crude oil, electronic components, industrial machinery, motor vehicles, food and beverages, and iron and steel.
The Singapore government hasrecently promoting higher value-added activities in manufacturing and service sectors to maintain the economy’s competitive position. Besides that, they alsogradually open several sectors to foreign investors, including telecommunications, power generation, financial services and retail. Singapore government has also pursued several cost-reduction measures, such as tax cuts and rent deductions to lower the cost of business administration in Singapore.
In this study, the trend of economic indicator in Singapore will be identify and analyzed.An economic indicator is simply any economic statistics, which indicate how well the economy is doing and how well the economy is going to do in the future. The indicators that will include are GDP growth, export-import, FDI, unemployment rate, labor force and inflation.
GDP Trend in Singapore
Source: Singapore department of statistic
Singapore is lack of recourse and small local market because of small populations. Thus, Singapore government more focus on business, foreign investment and export oriented. Graph showing the GDP trend of Singapore in years 1980 until 2009. Singapore GDP trend is show increasing from year 1980 until 1997. This is because of increases in other economic indicator which lead increases of GDP, such as increase in export, investment, and increasing contributions of others economic sector at Singapore.
However, GDP flow goes down on the year of 1997 until 1998 due to the effect from Asia financial crisis which give vital impact toward Singapore economic activities especially export and import activities. Singapore has experienced very slow export growth rate which is only 1.5 percent in 1998 if compare to 8.9 percent in 2007. Export is badly affected as a result of their currencies collapse. Their export was also become less competitive against these economies in third-country market. The same as the import growth rate, it show negative growth rate in 1998 which is 11.8 percent if compare to 8.8 percent growth rate in 1997. Since Singapore is an entrepot country, the hit on the export and import because of global financial crisis has decrease the GDP from the US$ 99296.5 million in 1997 to US$ 85013.2 million in 1998 or which is negative growth rate of 14.4 percent in 1998. (Singapore Department of Statistics, 2011)
The outbreak of the crisis in July 1997 has followed by the MAS’s steps to ease Singapore monetary policy to cushion the rapidly decelerating Singapore economy. However, three of its service industries such as wholesale and retail trade, hotels and restaurants, and financial services were severely affected by the crisis since Singapore act as the business hub of Southeast Asia. The manufacturing sector was also hit by the crisis where it experienced negative growth for three consecutive quarters starting in the second quarter of 1998. (Jin, 2000)
The Singapore government has implemented a host of measures in 1998 to counter the effects of the financial crisis. Singapore government has announced a package to reduce the cost for businesses. A major component was a 10 percent point cut in the employer’s central provident Fund contribution rate. Other key measures included a 10 percent corporate tax debate, and five to eight percent wage reduction. At the same time, a wide range of government rentals, rates and fees has been cut. Government has flexible in both exchange rate and. By adopting a managed exchange rate system, it was able to prevent an over-valuation (or under-valuation) of the Singapore dollar. By early 1999, the Singapore economy was shown the recovering signs. The positive growth returned in the first quarter of 1999. This is powered rebound in the manufacturing sector. By those policies, Singapore was success to increase their GDP growth at the year of 1999 until 2008.(Chew, 2009)
However, in 2008, the GDP growth shows increasing in lower rate because of the global financial crisis. Thus, this impact has brought to 2009 and the Singapore’s GDP experiences slow grow. Singapore improved economic conditions and lower interest rates led the housing market quickly recover the big impact on GDP (Global Property Guide , 2009 ). Then, the economy expanded by 12.5% in the fourth quarter of 2010 due to a 28.2% growth in the manufacturing sector. After those effects, GDP of Singapore experience fastest growing among Asian economy in 2010 from US$ 183,333.9 million to US$ 222,700.6 million which is increase 21.4 percent. (BBC, 2011)
One of the factors that determine Singapore GDP is foreign investment. Singapore government encourage outside investor to invest in Singapore. There are more than 7,000 multinational corporations from the United States, Japan, and Europe. Also present are 1,500 companies from China and another 1,500 from India. Foreign firms are found in almost all sectors of the economy.
Next, support from other economic sectors such as manufacturing and service sector respectively contribute about 26.3% and 69.1% for Singapore gross domestic product on year 2009. Service sectors contribute more for Singapore GDP that why Singapore government tried to focus more on that with develop a casino and resort such as Marina Bay Sands Resort and Genting International’s Resort World Sentosa. (Singapore Department of Statistics., 2011)
The increase of Singapore GDP growth also affects from integration between Singapore with other country especially in trade such as became a member of the Association of Southeast Asian Nations (ASEAN). Singapore tried to maintain its economic position and become part of the ASEAN Free Trade Area (AFTA), and is signatory to ASEAN FTAs with China, Korea, Japan, India, and a joint agreement with New Zealand and Australia. Singapore is also a party to the Transpacific Strategic Economic Partnership Agreement, which includes Brunei, Chile, and New Zealand (US department of State). These agreements directly affect Singapore trade especially in export and import activities become easily with other country. (Travel Document System, 2011)
Export and Import in Singapore
Singapore has a successful economy though it’s lack of resources and as the smallest nation in Southeast Asian. It is one of the most business-friendly and efficiently run countries in world trade.
Singapore has strategic location and facilitates its international trade. Singapore also has the biggest port in the world. It is surrounded by is countries that active in traditional economic activities such as India to the west, Australia to the south-east, and Japan and China to the north. The port boasts of rapid foreign shipment processing and fast customs clearance process. At the same time, the port’s policies and state-of-the-art infrastructure facilitate the creation of a free market economy has easier for Singapore access to global trade partners for exports and imports.
The Singapore exports sector contributes the large share economy which is $268.9 billion to the nation’s net earnings in 2009. Key export commodities include consumer electronics, information technology products, petroleum products, pharmaceuticals, and Chemicals. (Econ Stats, 2011) The consumer electronics and information technology products are particularly important. It is the world’s leading producer of computer disk drives. Although electronic products account for 60 percent of Singapore’s exports, chemicals are also a strong source of revenue (Workman, 2007).
The figure above shows the four most important export partner for Singapore. Hong Kong and Malaysia are respectively contributed 11.6 percent and 11.5 percent to the percentage of export countries of Singapore. Both are the most important trading partner for Singapore. The next countries are United States which cotribute11.2 percent, and Indonesia 9.7 percent. Singapore is United States’ 23rd largest import market in 2009. It has exports totaled $15.7 billion to U.S. in the year of 2009. Singapore exports agricultural products to U.S. with totaled US$108 million in 2009. The leading categories include: cocoa paste and cocoa butter which totaled US$ 59 million, and snack foods which totaled US$ 18 million. (Office of the United States Trade Representative , 2010)
Source: CIA reports
Singapore’s principal imports are crude oil, electronic components, industrial machinery, motor vehicles, food and beverages, and iron and steel. During 2009, according to CIA reports, Singapore imports fell short of exports by $23.9 billion. From the Singapore export-import scenario it is evident that the nation practices an extended concept of ‘entrepot’ trade; wherein it purchases raw goods and refines them for re-export.
Figure below shows the major trade partners of Singapore and their share in its total trade. According to CIA reports for 2009, U.S is the largest country import to Singapore which contributes 14.7 percent from the total import. It followed by Malaysia which contribute 11.6 percent. The last two countries is China and Japan that respectively contribute 10.5 percent and 7.6 percent to Singapore.
Source: CIA reports
Singapore Trade Agreements
Singapore pursues several free trade agreements. As of 2009, the nation had 16 bilateral and multi-lateral trade agreements with 24 trading partners, including:
Association of Southeast Asian Nations Free Trade Area (AFTA)
Cooperation Council for the Arab States of the Gulf (GSFTA)
United States (USSFTA)
Singapore continues to negotiate trade agreements with other nations, including Canada, Kuwait and Panama, to further facilitate Singapore trade. Singapore government has also setup a transparent regulatory system to encourage foreign investment and trade.
Singapore has come with a new approach which is Export Expansion Incentives in increase the export sector in Singapore. Direct foreign investment was welcomed both to help Singapore penetrate export markets and to bring in advanced technology. Singapore also put an effort in upgrade the overall industrial structure in order to provide higher paying job and opportunity jobs.
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Foreign direct investment in Singapore
Foreign Direct Investment (FDI) or foreign investment refer to the net inflows of investment to acquire a lasting management interest (10% or more of voting stock) in an enterprise operating in an enterprise operating in an economy other than that of the investor. It is the sum of equity capital, reinvestment of earnings, other long-term capital, and short-term capital as shown in the balance of payments. It usually involves participation in management, joint-venture, transfer of technology and expertise.
Foreign Direct Investment
There are two types of FDI: inward foreign direct investment and outward foreign direct investment. It is resulting in a net FDI inflow in positive or negative and “stock of foreign direct investment”, which is the cumulative number for a given period.
The stock of FDI in Singapore stood at $529 billion as at end 2009. Netherlands and United States were the top two investor countries invest into Singapore. Both countries respectively invest $60 billion and $56 billion in Singapore. Other countries with significant investment in Singapore include Japan ($51 billion), United Kingdom ($48 billion) and British Virgin Islands ($35 billion).
Figure: The stock of FDI in Singapore in 2009
Stock of FDI
Source: Department of Statistics Singapore
The figure above shows that foreign direct investments (FDI) in Singapore were increase from 2005 to 2009. This figure is based on the total investment in Singapore country. The countries are Asia, Europe, United State, Canada, Australia, New Zealand and other country. Service trade is an important source of growth in Singapore. The Singapore economy is export oriented and actively seeks FDI to develop its economy and further the cause of economic objectives of industrialization and development.
Some of the prominent industries attracting FDI in Singapore are:
Both domestic and foreign companies can provide facilities based (fixed line or mobile) or services based (local, international and callbacks).The FTA requires that Singapore ensures, US telecom service providers obtain the license to interconnect with networks in Singapore at cost effective rates and under conditions that ensure transparency.
The domestic free to air broadcasting, cable and newspaper sectors are not open to International companies. As per Section 44 of the Broadcasting Act, International Companies broadcasting to Singapore cannot have equity of more than 49 per cent. But in certain cases there are exceptions to the rule. The newspaper and printing presses act restricts equity ownership to 5 per cent per shareholder and it is mandatory that the Directors be Singapore citizens. Newspaper companies give out two types of shares, ordinary and management. The management shares are available only for Singapore citizens or corporations having Government approval.
The Monetary Authority of Singapore (MAS) monitors all banking activities as per the provisions of the Banking Act. In Singapore there are clear cut legal distinction between International and Local Banks and the type of license issued to International Banks. The license to International Banks can be further classified into full service, wholesale and offshore. The Government initiated Banking Liberalization in 1999 to relax the restrictions on foreign banks. In spite of the liberalized environment for banks, International Banks in the segment of domestic retail banking still face barriers, which are not faced by domestic banks.
Engineering and Architectural Services
In Singapore Engineering and Architectural firms can be 100 per cent foreign owned. Keeping in line with FTA provisions, Singapore has done away with the need for the chairman and two-thirds of a firm’s board of directors to be engineers, architects or land surveyors registered with local professional bodies.
Accounting and Tax Services
Most of the major International Accounting firms have their operations in Singapore. Public accountants and at least one partner of a public accounting firm must reside in Singapore. Only those public accountants who are members of the Institute Of Certified Public Accountants Of Singapore and registered with the Public Accountants Board may practice in Singapore.US accountants registered with the American Institute of Certified Public Accountants have been recognized by the Singapore government.
Since Singapore has a small population and a relatively small domestic economy. Thus, Singapore recognizes the connection between foreign investment and internationalization. Singapore policy maker tend to view transnational corporations (TNCs) as powerful agents for the transference of modern technologies to developing countries. They also hope that sophisticated foreign technology would transfer to their local companies because TNCs are at the forefront of innovation. Their presence can provide a way of keeping up with technical progress.
Unemployment rate in Singapore
Based on the two figure above that is the unemployment rate and labor force in Singapore, we can conclude that the employment in Singapore seeing a rapid increase in recent years as well as the unemployment rate decreased at the same time. Singapore has proved that they can prevent the effect of subprime mortgage crisis that happened in 2007, where the unemployment rate was dropped to 2.10% from 3.10% in 2008. Meanwhile, the labor force in Singapore also showed an increased until 2010 since it slight dropped in 2005.
The government has played their role especially in its labor force. The labor in Singapore is consists of many foreigners. It is believed that in 2001, there were 35,000 Philippines, 10,000 Sri Lanka, 4,000 Indonesia and surprisingly it was Malaysian who made up to 60% of the foreign workers in Singapore and mostly worked in the manufacturing sector. It is also being discussed by one of the researcher in National university of Singapore, Brenda S.A Yeoh in January 2007. She wrote on a website of Migration Information Source, the title of the topic is Singapore: Hungry for Foreign Workers at all skill level. The Prime Minister of Singapore also Lee Hsien Loong also stressed in his National Rally speech in August 2006 that promoting the immigration of the skilled and talented is a necessary strategy and crucial to Singapore long term growth and prosperity.
The government also plays a vital role in the strategy to promote foreign workers to Singapore. One of the government initiative are an online, self assessment for foreigners to check eligibility for permanent citizenship besides campaign to profile Singapore to be an attractive home thus, persuade foreigners to change their citizenship status. This issue also have been one of the hot topic in Malaysia, where recently our Prime Minister Datuk Seri Najib Tun Razak stressed that the Brain Drain crisis have hit Malaysia where most of Malaysian student in overseas have decided to work in other country especially Singapore. This is one of the challenges for Malaysia’s New Economic Model to achieve its objectives. Below is the data for percentage of employment to population in Singapore.
Based on the table above, the inflation for Singapore is shows a negative rate which means that deflation has occurred in 2003. This leads to the increase of FDI (Foreign direct investment) for Singapore but then, in 2004 Singapore inflation rate have boom as far as 50%.this is because of the power of the imported products in controlling the expenditure of the Singaporeans. Besides that, the Singapore dollar has depreciated.
Since then, the inflation of Singapore dollar has gone on the roller coaster ride, which the rate is not stable. In 2009, once again the inflation rate increases. But this time it was not big as the previous inflation that has occurred in 2004. The inflation at that year was 6.50% compared to only 2.10% on the previous year. Based on the survey and research by the Singapore Trade and Industry (MTI), the cause of the increase in inflation rate that year was the faster and steeper decline in global economics activities as well as spill over factors. Besides that, they believed that the adjustment of high based recorded in 2008 when foods, electricity tariff, transport and accommodation cost rose significantly.
In conclusion, Singapore is a small nation but has excellent performance in the changing circumstances. The large and adverse economic shocks from the global financial crisis could have devastated impact on Singapore economy but it has emerged with unscathed. Singapore has shown that it open economy’s flexibility has enabled itself to adjust rapidly to these shocks by constantly improving productivity and thus international competitiveness, which in turn contributes to economic growth and higher living standards. Not only the GDP growth, it is undeniable that its strategies in export-import, FDI, unemployment rate, labor force and inflation has generate numerous benefits and assisted the development of economy in Singapore.
As a small, resource constrained-country, Singapore has to ensure that this is not a barrier for its economic competitiveness and growth. Other factors can determined the competitiveness of it economy. Increased productivity is essential for the growth in economy. This is not achieved merely through increased efficiency, but restructuring our economy to provide more room for rapidly growing and innovative enterprises. Singapore should growing productivity through enhance skills and innovation of enterprise. For example, the potential renewable energy in Singapore region such as in the form of hydro-electricity or geothermal power will require new skill from labor and innovative technology to produce it. The innovative and skill enterprise will increase the productivity.
It is also important to add a complementary source of growth to the domestic economy to help overcome the domestic resource, market and talent constraints. This is because add a complementary source of growth is strengthen the essential external wing. To remedy the defect of its domestic market is needed by Singapore and this will assist in the growth economy.
Furthermore, Singapore will face intense competition with other Asian countries that shifting their focus to producing high value-added electronic goods. Yet, Singapore could continue to reinvent itself and look for new opportunities such as biomedical and services products. It is also has to attach important both to the manufacturing and services as twin engines in economy. By preventing on lessen dependence on any single sector or market, vulnerability will reduce and providing a broader and more resilient economic base.