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Economic Strategy: Advanced Economies

Remaking Singapore
Prof. Sanjay K. Singh
Indian Institute of Management Lucknow

Singapore: An Overview
Located at the end of the

Malayan Peninsula between

Malaysia and Indonesia.
Area: 719.1 Km2 (including
130 Km2 land reclamation
area)
Having tropical rainforest
climate (with no distinctive
seasons, uniform temperature
(22 to 35 C), high humidity,
and abundant rainfall).
Pop (2015): 5.5 million
Pop density: 7697/Km2
Culture: Diverse (Chinese,
Malay, Indian, Western)

In 2014, GDP: US$ 308 B; GDP/Cap: $56,319; GDP (PPP):

$453 B; GDP/Cap (PPP): $82,762 (fourth largest in the world)

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A Brief History
The English language name Singapore comes from the Malay
Singapura, which is derived from Sanskrit. Singa comes from the
Sanskrit word siha ( ), which means "lion", and pura ( )
means "town" in Sanskrit.
Sang Nila Utama, a Srivijayan prince, founded the Kingdom of
Singapura in 1299.
Singapore was an important trading centre and port as early as
seventh century.
Colonial Singapore was founded by Sir Stamford Raffles, an officer
of East India Company, in 1819.
British colonisation 18191942
World War II and Japanese occupation 194245
Return of the British 194559
Self-government 195963 (People's Action Party with Lee Kuan
Yew as the first Prime Minister)
Merger with Malaysia 196365 (Lee believed in merger for
Singapores survival; however, on 9 August 1965, Malaysian
Parliament voted to expel Singapore from Malaysia)
Independence 1965present

Prosperity growth: Selected Countries

In 2008, trade: >400% of GDP
Trade surplus: >12% of GDP
Re-exports (export of foreign goods):
50% of all exports
Domestic fixed investment: 28.5% of
GDP (19.7% for OECD; 25.7% for
ASEAN)

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What determines prosperity growth?

Productivity; productivity of labor and capital
Standard of living of people depends on labor and capital productivity,
particularly labor productivity
Therefore, nations standard of living depends on the capacity of its companies to
achieve high levels of productivity and increase in productivity over time

What determines productivity and consequently competitiveness?

Two Sources of Prosperity

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Stages of National Competitive Development

Shifting Policy Imperatives

Creating a National (or Regional) Economic Strategy

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Let us now focus on the case

Singapore: is one of the few countries that have moved
from poverty to high-income level in the course of lifetime
of one generation.
Role model for many developing countries.
Let us analyze the case
What were the initial conditions (in 1965) in Singapore?
Assets
Location (located on the main EuropeFar East shipping route)

British legal system and

public service
Language (English for administration)
Port infrastructure
Entrept (trading post)
economy (trade in rubber and tin
accounted 20% of GDP during 1950-53)

Liabilities
Tropical climate, exposure
to diseases
Low skill base (50% illiterate; 1/3rd
living in slums; 14% unemployment)

No national history, identity

No track record of rule of law,
policies
Mix of ethnic groups
No natural assets
No meaningful domestic firms

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Policy Evolution Over Time

1965-1980
Key objective
Creating a nation with Singaporean identity

Key policies
Emphasis on orderliness and cleanliness; High taxes on private cars; Speed limits for taxis; Fines
for littering, smoking in public places,
Promoting meritocracy; no corruption
CPF to increase savings and long-term stake (was introduced in 1955 during British rule;
initially 5% of salary from both employee and employer)
Housing (HDB to build 10,000 low- and middle-income houses per year)
In 1968, CPF regulations were relaxed to allow low income people to buy HDB flats
FDI attraction to create jobs (though Jurong Industrial Estate initially failed due to unstable
political climate in early 1960s)
New laws to check the power of labor unions (parliament barred unions from negotiating
promotions, transfers, firings, and hiring conditions after 1968)
Exchange rates were managed close to market rate
Free convertibility of S$
Low tariffs/duties on imports and exports
EDB opened offices in Hong Kong, New York, to attract FDI (By late 1969, National
Semiconductors, Texas instruments,located plants in Jurong)

Policy Evolution Over Time

1965-1980
Key policies
Ministry of Finance took equity stakes and financed large projects (by 1970, its holdings
amounted to a quarter of all equity investments in the economy); investment happened in
electrical machinery, petroleum products, and construction.
GLCs (such as Keppel, Sembawang, Jurong Shipyards in ship building and repair; Singapore
refining company, a joint venture with Caltex and BP) were not protected from competition
Creation of Temasek Holdings in 1974 (a limited holding company with independent legal status
to manage governments ownership stakes in GLCs; stakes in 36 companies, value of $100m)
Low inflation monetary policy; floating exchange rate since 1973 (oil shock)
GDP Growth: 5.8% 1960-65; 12.9% 1966-73; investment inflows, export-oriented manufacturing, and
external trade grew rapidly; GDP Growth: 7.1% 1973-79 (despite oil shock)
Singapore became worlds fourth busiest port.
Wage increase in 1979 to shift to higher technology, higher-productivity products.

Institutions
HDB (housing development board), EDB (economic development board), PUB (public utilities board), CPF
(central provident fund), GLCs (government linked companies), Temasek Holdings

Competing on
Low cost, reliability

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Cluster Portfolio Evolution over Time

1965-1980
Transport & Logistics
Fourth busiest port;
upgradation of the port

In 1972, built regions first container British naval dockyard got

freight terminal; introduced 24 hour converted into a ship repair
berthing service
centre

Petroleum Refining
Promoted expansion of former British Navy refueling facilities
to multinational oil companies interested in the oil deposits in
Indonesia

Became Asias largest

petroleum refining centre

Petrochemicals
Petrochemicals benefited from the war in Vietnam

Financial Services (as well as communication services also grew rapidly)

Policy Evolution Over Time

1980-2000
Key objective
Growing prosperity

Key policies
GDP Growth: 8.4% 1980-84; recession in 1985 (GDP Growth: -1.4%, first contraction since independence); recession was due
to slow down in US and other economies, bursting of construction sector boom, increase in labor productivity not inline with
increase in wages, regional countries (Malaysia, Indonesia,Thailand, Philippines) trading directly, bypassing Singapore, as an
entrept, poor performance of oil refining and ship building and repair industries due to new entrants,

More freedom to private sector (lessening of extensive managerial and development role)
Flexibility in wage setting
Reduction in high mandatory CPF contribution (to stimulate domestic demand)
Landfill to expand the area
GIC (Govt. of Singapore investment corporation) established in 1981 to manage foreign reserves; it
invests internationally in equities, fixed income, real estate, money-market, etc.
Goh Chok Tong taking charge as the (second) prime minister in Nov. 1990
Focus on improving infrastructure, expanding educational opportunities, and building research
institutes to support companies expanding to world markets (Next Lap announced by Goh)
CPF rule relaxed to allow to use savings for additional health care costs (1991-92 slowdown)
EDB tried to attract new investment in high value added industries (electronics, information
technology, communications, petrochemicals); set the goal to attract 500 world class companies to
carry out substantial HQ activities by 2010

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Policy Evolution Over Time

1980-2000
Key policies
In 1996, PSB was formed to identify and nurture SMEs to become Asian MNCs
Significant investment in new ISDN (integrated services digital network) technology and fiber
optics
Economy grew at brisk pace till 1997 (though experienced slow down during 1991-92)
Excess liquidity and low interest rate in industrial world and liberalization in Asian financial market led to
massive capital flow in Asia (invested heavily in property and equity market).When export revenues and FDI
inflows softened as local currency appreciated, current account deficit increased. Massive capital flight forced
many Asian currency to devalue (July 1997 to Oct. 1998).They moved from fixed to floating exchange rate.
Singapore also suffered though not as heavily as others.
Committee on Competitiveness was created in 1997 (to review and develop a path for future
development)
Reducing cost of doing business
Privatization of national computer board in 1999; opening of Govt. IT to private sector
Focus on improving productivity

Institutions
Productivity and Standards Board (PSB)

Competing on
Efficiency

Cluster Portfolio Evolution over Time

1980-2000
Transport & Logistics (worlds busiest port; overtook Hong Kong to become the worlds
largest container port; Changi Airport (the best in the world); Singapore Airlines (voted as the
best airline))

Petrochemicals/Petroleum Refining (third largest in the world)

Financial Services
By 1990, became Asias third most important financial center (accounted for 28% of GDP;
employed 11% of labor force)

Electronics
Information Technology

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Policy Evolution Over Time

2000-2008
Key objective
Becoming a knowledge driven economy

Key policies
Sept. 11, 2001 terrorist attack; US economy slipped into a recession; IT and telecommunications industries
crashed; GDP fell by 2.4% in 2001, faced budget deficit in over 10 year,
SARS virus in March 2003 affected tourism and related industry badly, Singapore Airlines made loss, lay off
414 employees, HDB shed 3000 of its 8000 staff,
Employers contribution to the CPF was reduced
Rental rates for government owned industrial spaces were reduced
Income tax rate was reduced (from 26% to 21% in 2006; now 20%)
In 2005, corporate tax was reduced to 20% (now 17%); GST (3% in 1994 to 7% in 2007)
Free trade agreements with number of countries including the US (internationalization)
Workforce development agency (2003) to upgrade workers skill
Tuas Biomedical Park (in 2000), Biopolis Science Park (Phase I 2003; Phase II 2006)
A*Star (national research and development agency) recruited researchers from all over the
world (by 2007, more than 2000 scientists were working in Biopolis)
In 2003, S$100 m were committed to enhance infrastructure for tourism (10 million tourists
visited in 2008, spent S$15.2 b)
Medical tourism was promoted (10% of all tourism spending); tried to become education hub

Policy Evolution Over Time

2000-2008
Key policies
In August 2004, Lee Hsien became Prime Minister
National research foundation (2006) to develop IT infrastructure and use of e-services
(Science and innovation)
Singapore media academy (2006) to promote filmmaking and media
Creation of CCS (Competitive Commission of Singapore) in 2005
Keeps balanced budget over each term of government (constitutional requirement).
Government debt is only for investment purpose, not to fund expenditure.
No capital gain or inheritance tax (tax haven; 17% income tax; no tax on income
generated from outside Singapore; many wealthy individuals settled in Singapore)

Institutions
A*Star; Biopolis; CCS (competitive commission of Singapore)

Competing on
Innovation

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Cluster Portfolio Evolution over Time

2000-2008
Transport & Logistics
Banking & Financial Services (global financial hub, world class corporate bank account
facilities (include multiple currencies))

Tourism
Business Services
Petrochemicals (Asias leading oil trading hub; among top 3 refining centers in the world; oil
industry makes 5% of GDP)

Pharma & Biotech (GlaxoSmithKline (GSK), Pfizer, Merk & Co., have set up plants; Pharma
accounts for 8% of manufacturing output)

Electronics
InformationTechnology
Media & Design
Aerospace & Defence

Singapore national cluster export portfolio, 2001 to 2007

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Labor Productivity and Labor Force

Participation in 2008

Indexes of Hourly Compensation Costs for

Production Workers (Manufacturing), Selected
Countries, 1975 to 2005

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Inward FDI Stocks and Flows, 2000 to 2008

Singaporean FDI

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Level and Growth of US Utility Patents, Selected

Countries, 1998 to 2008

Doing Business Ranking, Singapore, 2008

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GDP growth rates in South East Asian Countries

Challenges / Policy Advice

Inequality
Aging population (fertility 1.3)
Diverse ethnic groups

Singapore was the first Asian

country to face recession in
2008 due to external shock
(sub prime crisis in the US)

Weak domestic private Sector

Transition towards innovation/creativity

GDP (2015)= US$ 308 B;

Inflation (CPI, 2014)=1%; GDP by
Sector (2014): Services (75%),
Industry (25%), Agriculture
(0%); Export (2014): S$ 519 B;
Export to Malaysia, China, Hong
Kong, Indonesia, US, Japan,
South Korea; Import (2014):
S$464 B; Import from China,
Malaysia, US, South Korea,
Japan, Indonesia, UAE

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Learning for Others

Transferable

Context-Specific

Economic Strategy

City-state

Institutions

Leadership

Stages/Transition points

Historical context

Cluster-driven policy
Evolution of cluster portfolio

Thank You

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