Singapore: SEA’s economic miracle

Anver Versi

When impoverished, disease-ridden Singapore became independent in 1965, the nation’s leader – Lee Kuan Yew – had to build up an economy almost from scratch. Now it is considered the best place in the world to do business

Chinatown at Chinese New Year: the area still retains its ethnic charm

Singapore continues to sit on top of the global economic pile. This tiny state, with a population of just over five million, has once again been acknowledged by the World Bank as the best place in the world in which to do business. This is the seventh consecutive year that Singapore has won this highly coveted accolade. With a per capita income of around US$61,000, it is also the world’s richest non-resource based country.

It is also among the world’s top three oil export refining centres, the world’s busiest trans-shipment port, the world’s biggest manufacturer of jack-up rigs, the only Asian country to have AAA credit ratings from all three major credit rating agencies – Standard & Poor’s, Moody’s and Fitch – and among the world’s handful of highly sophisticated financial centres. According to the Index of Economic Freedom, it is also the second freest economy in the world and considered the world’s most efficient and least corrupt nations.

Beyond economics, Singapore has the least rush-hour traffic density of any capital city. It is reputed to have the best designed and integrated public housing on earth and the swathes of trees, flowers, shrubs and parks that cover the urban infrastructure have given it the well deserved reputation of a ‘garden city’.

Michelin-starred restaurants are cheek by jowl with cheaper, but excellent, local eateries offering an astonishing array of global cuisine to a cosmopolitan clientèle and world class theatres, casinos and sporting events – including a Formula 1 Grand Prix – provide well-rounded entertainment. All these factors taken together have made Singapore one of the world’s most desirable places in which to invest and live. This is of crucial importance, as foreign investment is the bedrock on which Singapore has built its extraordinary success. More than 80 per cent of net investment commitments in manufacturing come from foreign investors and around 8,000 multinational corporations are headquartered in Singapore.

The island’s success is even more remarkable when you consider the dire circumstances the newly independent state found itself in in 1965 – when it was expelled from a short-lived merger with Malaysia – what it has achieved borders on the miraculous. It is unprecedented and is unlikely to be repeated anywhere else, despite the large body of academic work devoted to trying to decipher the ‘Singapore model’.

Singaporeans will remind you, and it seems themselves, that in 1959 when it attained self rule under Lee Kuan Yew, it was a poverty-stricken, disease-riddled little entrepôt with a polyglot population of around a million Chinese, Malays and Indians sharing atrocious living conditions and constantly bickering with each other. Singapore earned its living by processing rubber, copra and other produce from surrounding the hinterland. But its main source of income was as a British naval base and trans-shipment port.

After independence in 1963, and with fraught relations with its neighbours, the fate of its independent economic existence seemed sealed, especially as Britain stuck to its determination to withdraw from all its possessions east of Suez.

How could Singapore survive when it was no longer the centre of the wider area that the British once governed? pondered Lee Kuan Yew. “We had to create a new kind of economy, try new methods and schemes never tried before anywhere else in the world, because there was no other country like Singapore,” he writes in From Third World to First.

The best of all the bad options available was to industrialise. But the question remained as to how to entice investors and industrialists to set up shop in Singapore when there were so many other more attractive options around. “We cast around for solutions and were willing to try any practical idea that could create jobs and enable us to pay our way,” Lee Kuan Yew recalls.

Analyst Tilak Abeysinghe says that what happened next was “a wonder created out of a tear drop”. The tears that the nation saw in the eyes of the then young leader Lee Kuan Yew solidified the determination of the nation to rise against all odds. The rest is history – Singapore turned its vulnerability to strength.

Lee Kuan Yew’s highly dedicated team, led by Goh Keng Swee, considered the architect of the country’s economy, hit on what turned out to be twin strokes of genius. The first was to leapfrog the region and link up directly with the developed world – America, Europe and Japan – and attract their manufacturers to produce in Singapore and export their products to developed countries.

The second was “to create a First World oasis in a Third World region”.

“We had one simple guiding principle for survival,” Lee Kuan Yew says, “that Singapore had to be more rugged, better organised and more efficient than others in the region. If we were only as good as our neighbours, there was no reason for businesses to be based here.”

He and his ministers set out to woo the US industrialists through a series of talks. The breakthough came when Texas Instruments started production of semiconductors – at that time a high-technology product – in 1968. National Semiconductors followed closely on its heels. Hewlett-Packard (HP) came onboard and General Electric set up six different facilities. By the 1980s, the country had become a major electronics exporter and by 1997 there were nearly 200 US manufacturing companies with over $19 billion-worth of investments.

Shell and Exxon set up refineries, spawning a thriving chemical industry and hundreds of manufacturing firms appeared to service the large multinationals and rapidly expanding economy. Britain had been persuaded not to destroy its facilities when it left, contrary to usual custom, and the dockyards at Sembawang and Keppel prospered under private management. The RAF Changi airbase was expanded through reclaimed land and developed to rank as one the very best airports in the world – and it is still expanding.

Singapore’s rise as a financial centre came about as a chance observation that the daily financial world went to sleep when San Francisco closed in the afternoon until Zurich opened in the morning. Could Singapore fi ll in the gap and thus deliver a 24-hour round-the-world service in money and banking? It could and did. By the 1990s, Singapore had become the fourth largest financial centre in the world after London, New York and Tokyo.

Singapore was well on its way. The model that emerged consisted of, on the one hand, a tightly regulated planned economy and, on the other, one of the world’s most free market systems. That model continues to this day with each administration making adjustments to suit changing circumstances. For example, the education system has been upgraded from providing basic vocation-oriented scholarship to advanced secondary and tertiary learning. Singapore itself has become a major centre of learning for the Asian region.

The government works with trade unions and employers to regulate the flow of foreign workers and thus control the labour market. Ironically, its policies to limit population growth in the 1970s, when unemployment was rife, worked too well and its current total fertility rate of just around 1.2 is the lowest in the world. In an effort to increase the fertility rate, premier Lee Loong introduced substantial bonuses for larger families in 2004.

However, bowing to public pressure, he also raised the foreign-workers’ levy and cut back the number of foreign work permits, but this has added to manufacturing and services costs, which have been passed on to customers, fuelling a three to four per cent inflation.

Nevertheless, Singapore is determined to continue its march towards a knowledge-based economy and is upgrading both its high-end technical training and providing companies with subsidies to increase their rate of mechanisation. In 2000, it set up the Agency for Science and Technology (A*STAR) and it is devoting more of the budget to research and development, as well as the promotion of innovation, entrepreneurship and attracting foreign talent. The mega, three-phase One North science-culture project is an important move to anchor Singapore in the higher reaches of the knowledge-based economy structure.

As always, Singapore seems to be one step ahead of the world. The tear in Lee Kuan Yew’s eye seems to have turned into an enduring pearl.

About the author:

Anver Versi is the editor of London-based African Business and African Banker magazines


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