Singapore – known to many as the ‘little red dot’ – was ranked the fourth most competitive nation among 59 economies surveyed for the 2012 World Competitiveness Yearbook. This is a remarkable achievement for a small nation with a population of just five million packed into 704 square kilometres.
Singapore remains one of the top ten richest countries in the world with a GDP per capita of approximately S$59, 000. It is ranked second for business and government efficiency and in the top ten for overall economic performance, alongside economic powerhouses such as the US, China and Switzerland, according to the Competitiveness Yearbook.
Almost 90% of the country’s households live in their own homes, with nearly three-quarters housed in four bedroom or larger public flats and private homes. Its two sovereign wealth funds are ranked 7th and 11th in the world. Even during the recent financial crisis Singapore proved resilient and recovered quickly, with an average growth rate of 12% in 2009 and 2010.
From fishing village to major global financial centre
A new book entitled “Some Small Countries Do it Better”, published by The World Bank, pointed to Singapore, Finland and Ireland as examples of small, resource-poor countries with high growth rates over a decade and serving as useful economic models for other low and middle-income countries striving to accelerate growth.
Singapore’s significant achievements can be traced back to robust planning, strategic foresight, and a sound and efficient government. Less than 50 years after independence, the country has gone from a port hub in the Straits of Malacca to an international business and financial centre, as well as a cutting-edge manufacturing destination. It is developing into a global research hub in IT, biotechnology, education and healthcare, and can take pride in its world-class infrastructure. Changi International Airport is linked to some 200 cities in 60 countries and is still one of the top international airports in the world.
The growth of trade in the early 1960s to 1970s was boosted when a number of European countries, the US and Japan moved their manufacturing operations offshore to industrialised economies where wages, rental facilities and other costs were lower. Singapore recognised the importance of multinational corporations (MNCs) in creating jobs, providing access to global markets and transferring technology and skills to the local community. It actively wooed them, offering foreign investors a range of financial incentives, including competitive tax rates, and investing in the country’s training, infrastructure, urban services and amenities to attract a substantial flow of foreign capital.
Singapore has differentiated itself from its neighbours, many of which have more natural resources, human resources and space, with its rule of law, world-class infrastructure and world-class communications system.
The country does not rely on sheer volume of capital spending or an abundance of natural resources, but on harnessing the potential of human capital and technologies. By moving quickly to build its human and knowledge assets, it has been able to diversify much faster into high-tech manufacturing and value-added services than other East Asian economies. This has enabled Singapore to maintain higher growth rates over a longer period.
There is no doubt that the country’s competitiveness has been boosted by a strong focus on education, providing Singapore with a major talent pool. The quality of education, particularly in science and mathematics, is considered to be among the best in the world. The government also works with educational establishments and industry partners to develop a range of training and scholarship programmes focused on producing a high-quality workforce. This stimulating intellectual climate must be cultivated on an ongoing basis if Singapore is to continue attracting foreign talent and MNCs.
At the heart of a world-class learning and innovation system, Singapore’s research capabilities give rise to entrepreneurial ideas and innovation to boost productivity and profitability. As a preferred location for innovation, Singapore has nurtured a rich research and development (R&D) ecosystem and robust intellectual property (IP) regime. It is currently rated number one in Asia and ninth in the world for IP rights protection in the IMD World Competitiveness Report 2011. Similarly, the World Economic Forum’s Global Competitiveness Report 2011-2012 ranks the island as having the best IP protection in Asia and the second best in the world.
Singapore has relied heavily on western superpowers and multinational corporations to generate demand for its goods and services. In fact, reliance on external demand for its exports has risen to 76% in the last ten years, with more than half of the country’s exports still going to the US and Europe. While MNCs are crucial in job creation and driving economic growth, they are also quick to downsize operations or move to more cost-efficient destinations in a recession. Therefore, Singapore faces the very real risk of production pullbacks and job losses.
It seems that reliance on MNCs was born out of necessity in the early days of independence. But could Singapore have tried to change its course, perhaps attempting to grow its own local manufacturing elite?
The government has taken some steps towards developing a strong and sizeable SME base as part of Singapore’s economy. The Economic Strategies Committee recommended nurturing 1,000 SMEs, with an annual turnover of more than S$100m, over the next decade. While some of these businesses may eventually be able to compete worldwide as a Singapore MNC, it is highly unlikely that 1,000 SMEs will become 1,000 MNCs. The reality is that Singapore lacks the critical mass to produce global manufacturing champions in the same way that South Korea, Taiwan or Hong Kong have. Singapore’s manufacturing sector will always be dominated by foreign MNCs, so the focus should instead be on providing a superior environment and services to retain the best MNCs in Singapore for as long as possible.
There is also a concern that the pursuit of high growth inevitably leads to a widening income disparity. Higher earners enjoy double-digit growth while lower-income wages remain largely stagnant. The government’s view is that as long as it continues to deliver economic growth, people will tolerate the accompanying social problems and trust them to redistribute some of the wealth, for example, through public housing.
Pooling talent further afield
Another price that Singapore is paying for fast growth is the need to import foreign talent, with all the associated social costs. Low-cost foreign labour is essential to the growth of sectors like manufacturing and construction, as Singaporeans are often unwilling to do these unskilled jobs. And yet they continue to look unfavourably upon the competition from foreign workers for jobs, housing and school places – despite the contribution these individuals make to society.
To counter the labour shortage the challenge is to retrain and upgrade workers, especially those over 40 who have missed out on tertiary or vocational education in their early years. However, there is no immediate solution to this problem, so Singaporeans will either have to settle for slower growth or learn to live with the new social dynamics.
The reasons and success factors behind Singapore’s growth from a fishing village to a major international financial centre are expected to remain in place for the next decade or so. This ‘little red dot’ will continue to be used by both the East and West as a hub for doing business with each other – helped by the country’s vast talent pool. It is not unusual to see Indian IT experts working alongside Chinese IT brains, European and American expatriates, and Malaysians and Singaporeans. As long as Singapore retains its status as a place where it is easy to do business, and is safe and comfortable for the families of foreign workers, it will continue to prosper.
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