Singapore was ranked first in the world’s most competitive economies by IMD in May 2019. What factors enabled an island city-state in Southeast Asia to progress from a developing country to a developed country and then to the most competitive economy in roughly one generation?
There are numerous factors that support Singapore’s rapid development. The three main factors are as follows:
- The island’s strategic location, just suspended in the Malacca Strait, ensures control over 40% of trading passes.
- The government’s welcoming policies towards foreign investment.
- An “honest” and efficient government.
Economic growth and political stability are inextricably linked.
Singapore’s history exemplifies the close relationship between economic growth and political stability. In fact, following Singapore’s independence in 1965, the first Prime Minister Lee Kuan Yew was able to provide the new Republic of Singapore with the stability it required in 1969. The island’s stability stems from its “clear, secure, and efficient” legal system. In legal terms, this means that the consequences of the laws are predictable for everyone (clear), the law does not change frequently but is rather reliable (secure), and it is constantly enforced (efficient). These three key elements provide the necessary stability to attract investors.
A strong educational system that promotes economic growth
However, there could be another reason that has been overlooked thus far. Even if the above is correct (which we believe it is), it is not the entire picture of Singapore’s success. Other countries have a well-enforced legal system, but despite their success, they do not top the IMD world competitiveness ranking.
To comprehend Singapore’s success, consider the following horse racing metaphor. In horse racing, the expression “win by a nose” means that if two or more competitors are very close, the one who can put his nose first wins. So, what is Singapore’s nose?
To understand it, we should look at another ranking: the PISA Worldwide Ranking, which evaluates the educational systems of various countries. And who comes in first in that list? Singapore, to be exact! Singapore’s “nose” is its education system and its contribution to economic growth. The contribution of education is twofold: on the one hand, education provides skilled workers with higher marginal labour productivity; on the other hand, education increases the marginal productivity of labour (with obvious consequences on the GDP). However, as Lucas (1988) pointed out, education has positive externalities. A positive externality is a benefit obtained by a party without having to pay for it. In plain English, when we invest in education, we only consider our personal benefits. However, once we are finally educated, this education benefits the entire society.
For example, given our knowledge, we are more likely to start a profitable business that will provide employment for others. Giving another person a job was not our original intention. Our initial plan was to invest in education in order to have a successful career. It turns out that by doing so, we benefit from our education. Singapore has now made significant investments in education. According to the BBC, Singapore made an effort to raise the prestige of teaching by recruiting teachers “from the top 5% of graduates in a highly centralized system” and training teachers to ensure educational quality control. This could not have been accomplished without a well-established government. A government capable of ensuring security, avoiding corruption, and enforcing the law. However, a well-established, law-enforcing government cannot ensure success, at least not to the level “earned” by Singapore. The government should also be generous in recognizing what is at the heart of the success of an island that lacks raw material and must rely solely on its own resources. This is education. And it is on this true spell of magic that Singapore’s success is built.
What drives the Singapore economy?
The robust Singapore economy attracts thousands of global professionals each year, but what makes it so appealing? Continue reading to find out.
Singapore, a major financial hub in the Asia Pacific region, has long been regarded as one of the world’s most advanced economies.
In 2017, the Heritage Foundation’s Index of Economic Freedom ranked Singapore as the world’s second most open economy, and the World Bank’s Doing Business report ranked Singapore as the world’s second most pro-business regime.
Despite its small domestic market and scarcity of natural resources, Singapore successfully weathered the 1997 and 2008 financial crises.
Singapore’s economy is now one of the world’s most stable, with no foreign debt, high government revenue, and a consistent positive surplus.
Singapore’s economy is primarily supported by exports of electronics and machinery, financial services, tourism, and the world’s busiest cargo seaport.
Which industries in Singapore drive the economy?
The manufacturing sector is by far Singapore’s largest industry, accounting for 20%-25% of the country’s annual GDP.
Electronics, chemicals, biomedical sciences, logistics, and transport engineering are key industry clusters in Singapore’s manufacturing. The manufacturing sector grew by 35% in the third quarter of 2017, with clusters such as electronics and precision engineering benefiting from high demand.
Closely following Singapore’s manufacturing industry is its financial services industry, which has experienced consistent growth as a result of the country’s pro-business environment and political stability. Singapore’s financial services marketplace, home to over 200 banks and a regional hub of choice for many global financial services firms, facilitates the transfer of knowledge, processes, technology, and skills between global, regional, and domestic markets.
Medical technology, aerospace engineering, clean energy, healthcare, and content development are some of the other emerging industries that are making significant contributions to Singapore’s economy.
What are Singapore’s natural resources?
Singapore, located at the southernmost tip of the Malaysian peninsula and with a land area smaller than New York, lacks significant natural resources.
This hasn’t stopped Singapore from becoming a regional oil and gas hub, as well as a world leader in sustainable water solutions and projects like NEWater and the Deep Tunnel Sewerage System.
It has been said that Singapore’s true natural resource is its people, and this could not be more true in a growing economy. As the economy grows, both local and non-local businesses will have access to a larger pool of educated workers and, eventually, a growing consumer market.
What is the state of Singapore’s infrastructure?
Singapore’s infrastructure has always been well-developed as a commercial and military seaport during the British colonial era. Following the country’s independence in 1965, the post-colonial government worked to improve and expand the country’s transportation, communications, industrial, and housing systems.
Singapore has 9,310 kilometres of paved roads, 199.6 kilometres of rail (mass rapid transit and light rail combined), and an island-wide bus, taxi, and ride-share system. The public transportation system is efficient, safe, and on time.
Changi International Airport has direct flights to 380 cities in 90 countries. It handles over 7,000 weekly flights transporting passengers and cargo all over the world.
By sea, the Singapore port provides shippers with access to over 200 shipping lines and 600 ports in 123 countries. At any given time, the Singapore port can have up to 1,000 ships docked, making it the busiest container port in the world.
The telecommunications system is equally impressive: Singapore has one of the highest mobile penetration rates in the world, with 1.5 phones per person, and more than 90% of Singaporean households have Internet access. You can use a free island-wide Wi-Fi service called Wireless@SG in hotspots such as coffee shops, fast-food restaurants, and Changi Airport.
Singapore also has an abundance of industrial and commercial facilities for businesses. Jurong Town Corporation (JTC) has over 47.7 million square metres of strategically located built industrial space available for the construction of factories, warehouses, and business parks. Commercial businesses can choose from a variety of world-class high-rise and low-rise offices in the Central Business District and other parts of town.
What is the current Gross Domestic Product (GDP) of Singapore?
Singapore’s GDP (at current market prices) was S$107 billion in the third quarter of 2017. According to Bloomberg, the Singapore economy grew by 5.2% during this time period, the fastest rate in more than three years.
The recovery of global trade and an improving labour market have enabled Singapore to not only sustain growth in the manufacturing industry, but also to diversify into other sectors such as services and retail.
According to the Monetary Authority of Singapore, the Singapore economy will grow at a steady but slightly slower rate in 2018 compared to 2017.
Is there any public debt owed by the Singapore government?
Since 1995, the Singapore government has had no external debt. In terms of domestic debt, the total outstanding government borrowing as of the third quarter of 2017 was S$496 billion, which included registered stocks and bonds, treasury bills, and advance deposits.
This high figure, however, does not accurately represent Singapore’s fiscal strength; the Singapore government borrows to invest, and the return on investment (ROI) generated on these investments makes up the difference.
The Singapore government has a strong balance sheet due to the implementation of these strategic debts, as well as strong asset protection, robust economic growth, and prudent macroeconomic policies.
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What are the Singapore government’s main sources of revenue?
As of the third quarter of 2017, the Singapore government’s total revenue was estimated to be S$69 billion.
Singapore, like most governments, derives the majority of its revenue from taxes, including income, property, excise and customs duties, and GST. Other sources of revenue for the government include licence and permit fees, rental of government property, fines and forfeitures, and capital receipts from the sale of capital goods.
What is the current trade strength of Singapore?
Singapore traded S$967.1 billion in goods in 2017, up 11.1% from the previous year. Singapore is ranked 14th in the world in terms of exports and 17th in terms of imports.
Machinery and transport equipment, chemicals and chemical products, and miscellaneous manufactured articles are Singapore’s top three export and import commodity categories.
Singapore exported $515 billion in goods in 2017, with the United States, Australia, Japan, China, and the United Kingdom as its primary export partners.
It also imported S$452.1 billion in goods in 2017, with the United States, Netherlands, China, Hong Kong, and Japan being its primary import partners.
To summarize, Singapore is a country that has overcome a difficult neighbourhood, hostile players, and a scarcity of important natural resources. It is an example of a country that has successfully managed its strengths to maximize its economic potential. But it was also based on an orderly society that became a beacon of stability in a turbulent region. This order and rule of law were only possible because of a strong government led by a highly competent individual, as well as the fact that it had a small population concentrated on a small piece of land, making it very manageable.