A country's development experience and driving factors over the past decade

Singapore Economy

Singapore: Looking Back to the Past for Answers to the Future

Looking Backwards

According to the Singapore Ministry of Finance the world economy has created a challenging environment for growth in any nation. However, despite these challenges, the Singapore economy has averaged 5% growth per year over the past decade. The Singapore economy has experienced a deep recession over the last two years, but still continued to manage at least minimal growth. Singapore households continue to realize higher real incomes, with median incomes rising over 20% (MOF 2012).

Diversification and globalization have been key components of the success of the Singapore economy. International Services have grown to allow Singapore to become one of the leading business and financial centers in Asia. Manufacturing has been strong as well as new developments in the biomedical sciences and aerospace engineering. These sectors have led growth over the past decade (MOF 2012). In addition to a more diversified economy, more small businesses have started up with larger numbers of them seeking export opportunities. The government has sought to strengthen trade and investment opportunities with many of Singapore's trading partners (MOF 2012). However, whether this will be enough in the future is yet to be seen.

Singapore's restructuring of the economy began in 2002 when the Prime Minister ordered a full review committee investigation of the state of the economy and its growth potential (Sitathan, 2002). The committee suggested that Singapore create a hub mentality and expand the role of the government to help expand privatization and to spark local business expansion (Sitathan, 2002)

Singapore's labor force is its best asset for future development of the economy. In the past, small businesses and local medium size businesses did not have the ability to seek export capabilities. Corrupt government entities also hindered Singapore's ability to attract foreign investment. Businesses did not wish to invest in facilities in areas where various elements of the government can come in and take all are port part of it at any time (Watkins, n.d.). These were key problems that needed fixed before Singapore could develop its trade and economic capabilities.

Singapore relied on government instituted training programs for its workers to provide skilled labor, but not necessarily cheap labor for companies that wish to invest in Singapore (Watkins). Workers could attend government sponsor training courses that met twice a week for three-hour sessions over a two-year period if they wished to improve skills that would make them more marketable (Watkins).

Apple computers was one of the first U.S. companies to locate facilities in Singapore. The Singapore facility produced boards for assembly to be used in computers produced in the U.S. This led to increased awareness of the highly skilled personnel that Singapore had to offer. Eventually, Apple decided to produce all of its computers in Singapore. This worked out well for Apple because Singapore workers not only duplicated what U.S. workers could do, they made changes to the process that resulted in lower costs for Apple (Watkins, n.d.).

Once Apple established facilities successfully in Singapore, other companies soon followed and the government declared the training program a success. The government then decided to pump more money in to the training program utilizing a special tax to pay for it. The success of the training programs led to the creation of a science park where innovation and research could be exchanged between the government and industry. A National Computer board was formed to add computers to schools, offices, and homes throughout the nation. Two engineering universities tripled their size. It also provided $50 million in venture capital to help startup companies

These changes allowed Singapore to rise from a developing nation to be counted among small industrial nations of the world (White 2012). Incentives such as tax relief for five years and the repatriation of profits help to build a Singapore that was relatively untroubled throughout the 1980s were successful government programs to improve the economy. However, then a financial crisis hit in 1997. The dense population of Singapore allowed it to weather economic hard times better than many other economy's in the world (White, 2012). By the year 2000, the economy had recovered and reached a growth rate of 9.4%. Once again, it was Singapore's people that helped it to weather the storm (White 2012).

The global financial crisis had a significant impact on Singapore, as it did many other countries around the globe. Singapore's growth shrank from 9.4% with the construction sector the representing the only one with double digit growth. Manufacturing is typically a largie percentage of the country's GDP. Even it shrank by 4.1%, leaving many worried about Singapore's future (White, 2012). However, Singapore demonstrated faster resilience than many other countries of the world, soon returning to 18.8% growth by 2010. The manufacturing sector led the rise in output. The biomedical and electronics sector of manufacturing accounted for the greatest expansion during this period (White 2012). Singapore was the fastest growing economy in the world, even ahead of bigger Asian economy's such as China, India, and Thailand (White 2012).

The government supported growth of the electronics industry throughout the economic recovery period. This significantly added to growth of the overall economy through using the manufacturing sector to lead other interrelated sectors (Venu 2007). Computer peripherals and oil processing were other keys to a quick recovery. In December 2001 the economic review committee (ERC) took actions to revitalize an economy that was hit hard by the global recession. The government added support and structural reforms that allowed it to sustain strong growth in the manufacturing sector (Venu 2007).

The government made many improvements that helped Singapore to grow. It made policy changes that resulted in less corruption, and that provided an open business environment in which the state played a minimal role, except for providing needed funds to help certain sectors, such as manufacturing, grow. The government promotes high levels of savings and investment through a mandatory savings scheme and through allocating a significant amount of their budget to education and training to help support the technology field (Venu 2007).

In 2003, Singapore was affected by the SARS outbreak resulting in falls in the number of tourists and expatriates who decided not to remain in the country. However, once this outbreak was over, they quickly returned, and Singapore was able to make a rapid recovery to 8.3% growth (Venu,2007). It was in the same year that Singapore's government decided to open retail competition in the electric and gas Industries. This initiative allowed Singapore residents the ability to choose their utility provider. This had the effect of significantly lowering utility costs and providing more free money for Singapore citizens to spend in other areas of the economy (Ministry of Trade and Industry in Singapore 2010). In 2005, Hurricane Katrina damaged oil rigs in the Gulf of Mexico. This had a positive effect on increasing orders for Singapore's offshore engineering industry. This industry is a major player in ship conversion and in the design and construction of oil rigs (Venu 2007).

Singapore was well on its way to improving its condition from its previous third world country state in the 1980s. Although it is had its if OPS and downs, it has generally moved steadily in GDP growth (Gavin 2002 ). Now, Singapore is a thriving, modern city with a growing middle class and one of the best infrastructure systems in Asia. Cities in Singapore are relatively crime free, clean, and well maintained (Gavin 2002 ). It is a cultural arts center that showcases Asian culture with museums, theatres, and modern entertainment venues. The government has generally allowed the economy to grow on its own, focusing on free education for its most valued resource, its labor force. This educational program, as well as incentives provided what the country needed to maintain steady growth, even in the face a global recession and economic shocks caused by natural disasters.

One of the key difficulties that Singapore faces is a result of its abundant labor force. Eventually, the labor force grows old and Singapore must be able to support growing numbers of elderly. This problem is not unique to Singapore and is one that is being faced by almost every country in the world. Singapore's the government and its established mandatory saving program were designed to help overcome this foreseeable problem in the future. However, the government does not intend to provide entitlements to the elderly. Unfortunately, many of the elderly were in the workforce before the educational benefits when into affect. Therefore, much of the elderly population spent much of their life earning lower wages. They were not able to put away sufficient savings. The government may have to change its policy if large numbers of elderly find themselves too impoverished to survive (Gavin, 2002 ).

Singapore has excellent relations with the United States. These relations form an excellent basis from which to establish strategic partnerships and dialogue between Singapore and U.S. companies. Strengthening cooperation between Singapore companies and U.S. companies will benefit Singapore by bringing U.S. dollars into the nation. Currently, the U.S. Companies are attracted to the skilled workforce and Singapore, particularly in technological fields (Bureau of East Asian and Pacific Affairs, 2012). Since 2003 the U.S. has provided close to two million dollars in technical exchanges and existence to encourage favorable export conditions from the U.S. To Singapore. Currently, the U.S. is one of Singapore's largest foreign investors, with over 1,500 U.S. firms in operation in Singapore. Singapore has a waiver program that allows Singapore nationals to travel to the United States for 90 days or less to conduct business without needing a Visa (Bureau of East Asian and Pacific Affairs, 2012). These programs will significantly improve trade opportunities for small and medium companies in Singapore.

Looking Forward

The people of Singapore have demonstrated resilience during the most recent economic crisis (MOF 2012). However, the next decade promises even greater challenges than the previous one. Although Singapore has made great strides in strengthening trading partnerships and building small businesses into international opportunities, the Ministry of Finance feels that Singapore must make some changes in strategy in order to not only survive, but to thrive in the upcoming decade (MOF 2012).

The ministry of finance feels a Singapore is strategically positioned to succeed as the global economy improves. Some of its main advantages include a growing trend for urbanization, better infrastructure development particularly in rural areas, and a demand for products produced in ASEAN countries (MOF 2012).

The Ministry of Finance also concludes that the skill sets of Singapore workers are in high demand. This offers Singapore many opportunities to provide human capital to promote a competitive environment. Government plans to expand funding for participation in key market niches in the next decade. New ways of creating value will be explored. The government plans to institute policies to expand financing opportunities within Singapore so that companies do not have to depend on foreign financing for their enterprises (MOF 2012).

The Ministry of Finance feels that the size of the workforce in Singapore will be a main constraint. It states that GDP growth over the past year was achieved through expansion of the workforce. It is not expected that the Singapore population will be able to keep up with demand for labor. Policies to help use energy more efficiently are also a primary focus of governmental attention. The government plans to do everything possible to reduce carbon emissions to remain a responsible member of the global community (MOF 2012). The ministry of finance feels that a shift towards production driven growth rather than workforce driven growth will be necessary to achieve continued growth over the next decade. They also realize that they will have to provide significant capital in order to achieve increased productivity in manufacturing and services. Limits on capacity to produce will be the key hurdles that Singapore will have to overcome over the next decade (MOF 2012).

Singapore realizes that it is still considered a developing economy. Its goals are to achieve a productivity growth of 2 to 3% per year over the next 10 years. That would more than double the 1% rate of the past decade (MOF 2012). They do not feel that this target can be achieved by relying on a single sector of the market, but rather every sector of the market will have to be increased in order to achieve the desired nationwide results. Combined with workforce growth, the Ministry of Finance feels that a GDP growth of 3 to 5% can be achieved.

The Ministry of Finance has developed a comprehensive plan to make Singapore a significant contributor to the Asian economy in the next decade. One of the key components of the plan is to develop their own workforce by increasing skills through greater educational opportunities. They also plan to decrease dependence on foreign workers to fill capacity needs

The first component of the plan focuses on workers and the ability to build a skilled workforce (MOF 2012). The second portion of the plan includes preparing corporations to grow and sees developing opportunities in the global market. A majority of companies in Singapore are in the small to medium range. Therefore, it will focus on providing an MNCS and global SMEs the ability to increase export capabilities (MOF 2012). The third portion of the strategy includes making Singapore known as a global city such as New York or Los Angeles. It wishes to become a meeting place for enterprise, talent, and culture. The Ministry of Finance feels that this would increase competitiveness and growth of the Singapore economy (MOF 2012). The focus of the global city campaign will be to make Singapore talent desirable to others in the global economy.

The Ministry of Finance feels that the Singapore government can play an enabling role in achieving these three main priorities (MOF 2012). The key tools used by the government to spark growth will be investment in education of the workforce, infrastructure and building the connectivity of the global city project. The government will act as a catalyst in economic restructuring and in the shift to more efficient use of land, labor, and energy (MOF 2012). The government will not show favoritism as to which companies to back but it can provide the ability to reallocate resources so that they will be used most productively. Self-reliance will be the key component of the government campaign to take Singapore to the next level (MOF 2012). The Singapore workforce still has numerous unskilled workers. The government intends to support educational opportunities for low income workers so that they can improve their own situation, and help to improve the skill and attractiveness of the Singapore workforce (MOF 2012).

The Ministry of Finance sees the Singapore of 10 years from now as a very different place. It hopes to create a Singapore where the people have enough skills and expertise to manage higher level jobs across a range of occupations, thus earning higher wages (MOF 2012). They expect to have a top system of continuing education and a deeper base of globally competitive businesses. They wish to build a market nation and to provide a climate of innovation and creativity through the design of new products and services for the market through expansion of R.&D. possibilities (MOF 2012). It has plans to refresh and enhance infrastructure and to increase the use of underground space. An entire new city at Tanjong Pagar is already on the drawing table (MOF 2012). Singapore plans to be a leading global city that features its own culture and character that sets it apart. The Ministry of Finance feels that they have a long way to go and a lot of work ahead, but that there is no reason why Singapore cannot achieve its goals to become a global leader over the next decade.