Singapore and Asia in a Globalized World: Contemporary Economic Issues and Policies - Example

Name: Course: Instructor: University: Date: Modern Singapore is an island city at the tip of the Malay Peninsula, and it is home to some four million people. It’s characterized by high per capita gross domestic products (GDP) in the world (Peebles and Wilson). The country embraces the Asian culture whereby it has several brilliant museums, and an numerous theatres and other up to date entertainment facilities. The country emerged in the 19th century. In the 18th century, the British decided to expand their power in India as they traded with China. They found out that there was need for a port of call in the region. The port of call could assist to rejuvenate and protect their merchant convoy. It could also assist to preclude advances by the Dutch in East Indies. This resulted into the establishment of ports in Penang and Singapore. Singapore became a valued settlement. By 1820, Singapore was earning revenue and its trade overtook Penang (Singapore Expats). By the end of the 19th century, Singapore was the rubber export center. Singapore launched an enormous industrialization program with the Jurong industrial estate extension of the. Other smaller estates were established in Kallang Park, Red hill, Tiong Bahru, Tanglin and Halt. Foreign investment increased in the country with tax incentives. The industrialization changed the manufacturing sector to one that produced superior value added commodities and accomplish greater revenue. Similarly, the service industry grew at this time, motivated by the demand for services through ships calling at the port and growing commerce. In 1968, the government passed the Employment Act and the Industrial Relations Amendment Act to encourage industrial peace and order among the labor force (Pang). At the same time, the Economic Development Board underwent reorganization and the Jurong Town Corporation as well as the Development Bank of Singapore (DBS) was put in place up. By 1970, the Monetary Authority of Singapore was in place to devise and execute Singapore's monetary policies. By early 1970s, Singapore had been recognized as a politically stable country which had a high economic growth rate (Pang). In the year 1979, after the two oil crises, the Government started an economic restructuring program. It involved the modification of education policies, expansion of technology and computer education. The government also offered monetary incentives to industrial ventures and initiated a productivity campaign. The government embarked on public housing as new towns sprang up. Citizens bought Housing and Development Board apartments at a low cost. Singaporeans could utilize the Central Provident Fund savings for the payment of these apartments, to encourage home ownership. By 1980s, the country began to upgrade to high technology industries, such as the wafer fabrication sector, so as to compete with its neighbors, which had cheap labor by then. The port of Singapore became one of the busiest ports, in the world. The tourism industries also grew immensely during this period. The country emerged as a vital transportation hub, and a significant tourist destination. Ever since independence, the country’s economy has grown by nine percent annually. By the 1990s, the country had become one of the world's most prosperous nations, with a highly developed free market economy, the highest per capita GDP in Asia apart from Japan and strong international trading links (daCunha). Singapore’s government planned to attract foreign capital from developed nations, in order to establish export oriented industries, rather than institute import substituting industries for a small home market. At the same time, the country built up a modern service department that is based on banking and financial services. Policy makers realized that the domestic entrepreneurial class was small and inexperienced (Peebles and Wilson). Therefore, there had to be a strategy which was to rely on foreign investment and expertise while the country built up strong state enterprises to take over the provision of infrastructure, provide housing, transport and other essential services for the local population that was in congested and unhygienic slums. Free trade, an open arms policy towards multinationals, active export promotion strategy, and multilateral/ regional trade liberalization support, have never wavered. In the country, there were never any heavily protected industries that produced wholly for the domestic market, but Singapore does not have to undergo throbbing structural adjustment guidelines to make the domestic economy competitive. Its export trade has moved away from the manufacture of primary products alongside labor-intensive manufactures, and concentrates on medium and high technology products including disk drives, among other electronic components (Peebles and Wilson). Thereby, the country’s modern service department which offers most of the new employment opportunities over the recent two decades. It is now an essential provider of educational, financial and health services to the region, compared to three decades ago. The country is classified as 'developed economy, in fact, a high income developing economy. The country has developed both the domestic financial system and an offshore financial market. There is also the increasing of budgetary surpluses that have been used to finance an enormous accumulation of foreign reserves. Singaporean exports managed a growth trend in spite of the real dollar appreciation since the 1980s. One irony of modern Singapore is that it possesses the highest domestic savings rate globally, huge foreign reserves and a compulsory savings system. Despite this, most of the older citizens have been unable to gather enough to finance a reasonable pension (Peebles and Wilson). Singapore's economy had a steady development after 1999, though it had been affected by regional monetary problems. In 1999, the rate of economic growth was 5.4 percent while in 2000 the rate increased to 9.9 percent. In 2001, Singapore's economy suffered as a result of a financial crisis. 2002 recorded an increase in economic growth by of 2.2 percent, but this rate dropped in fiscal 2003. The rate of growth achieved by Singapore was 1.1 percent, in 2003. This problem resulted from breakout of Severe Acute Respiratory Syndrome (Economy Watch). In the financial year of 2004, a major reversal of economic fortunes in Singapore occurred. The country recorded an amazing rate of growth of 8.3 percent. In 2005 and 2006 the growth rates of Singapore’s economy were 6.4 percent and 7.9 percent respectively. There are several factors responsible for economic development in Singapore. The key reason was an increasing demand for electronic products, all around world. Singapore is a key producer of electronic commodities. It has been able to use this demand for the benefit of the country and for overall economic progress. Other industries in Singapore have also contributed to the country’s economic well-being. This is through impressive business in sectors like pharmaceuticals, financial services and manufacturing. Singapore has always maintained a pleasant relationship with United States of America. This has helped the country’s economy because the U.S is among major export partners of this Southeast Asian country (Figure 3). It is also a major import partner of Singapore (Figure 4). The economic growth in Singapore has been on a steady rate constantly (Economy Watch). Figure 3: Major Export Partners of Singapore Source: (Global Finance) Figure 4: Major Import Partners of Singapore Source: (Global Finance) All those decades of Singapore’s hard work were almost in ruins after the global financial crisis affected the economy of the country. The country always relies on exports to finance its economic growth, and when demand drooped in major markets in the U.S., and Europe, its export industry suffered great losses. In the year 2009, the Singapore economy shrank by close to two percent (Table 1 and Figure 1). Only the construction sector posted a double digit growth. The country’s manufacturing, which accounts for the biggest share of the country’s GDP, dropped by 4.1 percent. This left the government worried. However, the Singaporean economy picked up, as the global economy picked up. Table 1: Overall GDP and Real Economic Growth for Singapore Year Overall GDP(S $m) Real Economic Growth (%) 2000 165,358.9 9.0 2001 163,450.0 -1.2 2002 170,318.1 4.2 2003 178,119.1 4.6 2004 194,433.2 9.2 2005 208,763.7 7.4 2006 227,059.0 8.8 2007 247,169.5 8.9 2008 251,374.0 1.7 2009 248,911.2 -1.0 2010 285,658.5 14.8 Source: (Government of Singapore) With surprising flexibility, the manufacturing sector and the export industry were the first sectors to record economic recovery. The country’s economy recorded an amazing 18.8 percent growth year on year, in the second quarter of 2010. Numerous growth patterns are as a result of the increased output of biomedical manufacturing, and a constant expansion in the nation’s electronics sector. Singapore was the fastest growing economy in the world, in 2010 September (Thomas White International). Figure 1: Singapore’s Real Economic Growth Source: (Government of Singapore) Recent fiscal strict measures, introduced in the European Union might affect Singapore. The European Union accounts for close to about twelve percent of Singapore’s exports. Therefore, weakening European Union demand might further cripple the country’s export sector. The country’s economy is one of the most globalized. This exposure means that while the economy has an opportunity to gain the most during periods of a global boom, it can also collapse dramatically if the global economy goes on recession, just as it happened during the financial crisis. Singapore’s challenge is to ignite domestic consumption, of which the government is intensely conscious. Government officials have lately allowed gambling, and two new casinos have opened. Since then, a rise in tourist arrivals has been the order of the day. Over 3 million tourists visited the country in the first 6 months of 2010 (Thomas White International). The Singapore government expected the Singapore economy to rise by thirteen to fifteen in 2010, leaving behind advanced economies such as India and China (Figure 2). Asia is not an easy region to stand out economically. It’s expected to be a leader of the global economic revival. The country can claim to be Asia’s finest, in terms of infrastructure, political stability, freedom in doing business, and economically. Singapore’s future lies in enchanting visitors with its variety in every walk of life, appealing city lights reflecting elegant buildings, where open and liberal agreements are signed (Thomas White International). Figure 2: Singapore’s Overall GDP Source: (Government of Singapore) Economic and development prosperity of Singapore depends on its location as the only resource. Remarkably, its labor force, more specifically training is an excellent resource for development of the economy. Since Singapore could not use cheapness of its labor as the basis for competition, it had to create technical skills, which are unavailable, elsewhere in other developing countries. The tax system is also attractive to foreign companies, frequently giving lower tax rates for foreign investment than for home residents (Watkins). Apple was one company that located facilities in Singapore. Originally, this company only produced electronic boards in Singapore for assembling into computers that were made in the U.S. However, the availability of many skilled personnel in Singapore, through the training institutes, Apple chose to manufature its entire computers in Singapore. This decision came by because Singaporean workers were able to duplicate the operations of its United States plant. The newly trained, highly motivated Singaporean workers computer generated the old production process on top of beginning to make improvements that further lowered costs. A culture of innovation developed in Singapore. Consequently, the success of Singapore’s technical training programs led to the establishment of a Science Park to share research between government and the whole industry. A national computer board to encourage the computerization of Singapore’s learning institutions, homes and offices was also introduced. The government put in place a fifty million dollar venture capital fund to encourage start up of companies in Singapore and fund startups, outside Singapore (Watkins). Singapore is expected to be among the fastest growing in Asian nations. Price pressures exist and it is expected that the central bank will be watching if inflation expectations are raised because of these figures. Increased exports, tourism and a flourishing manufacturing sector were the main drivers of the expansion of Singapore's economy. Singapore’s dependence on exports hurt her when the financial crisis hit, leading to a drop in her economy by 1.3%, in 2011. Singapore’s inflation rate increased by 2.2 percent, in 2010 (Table 2).This year's increase in international demand increased the country's exports to Europe by more than seventy percent. Singapore's Asia bound exports also increased considerably. For instance, Exports to countries such as China, Japan, Indonesia and Malaysia increased, given that they are Singapore’s principal trading partners. Table 2: 2009/2010 Macroeconomic Indicator Comparison Macroeconomic Indicator 2009 2010 Inflation Rate 0.6% 2.8% Unemployment Rate 3% 2.2% Public Deficit -0.5% 5.1% FDI Inflows 15,279 S $ Million 38,638 S $ Million FDI Outflows 18,464 S $ Million 19,739 S $ Million Population 4.14 Million 5.1 Million Source: (Global Finance)   As Asian growth continues at a rapid pace, governments are keeping inflation in check by allowing numerous currency revaluations and also through increasing interest rates. Singapore's currency has been appreciating, compared to other currencies. Singapore holds one of the most open economies in Asia. It specializes in production of both electronics and pharmaceuticals. The country’s fast economic growth has served as a role model in Asia, and investors should take notice. The country’s position in wealth, economic freedom, clean business and clean government contribute to making it a highly attractive destination for investment. It is ranked the best country that trades across borders, thereby attracting foreign direct investments (Table 3). There are alternatives for investors who are interested in becoming part of the one of the fastest growing countries in the world. The problem with many investments in Singapore is the fact that many of her companies are blocked from the New York listings. Therefore, there are now no companies with United States listings. (Shannon). Table 3: Economic Ranking of Singapore Ranking Position Out of; Overall Ranking 1 183 Countries Starting a Business 4 183 Countries Registering Property 15 183 Countries Paying Taxes 4 183 Countries Getting Credit 6 183 Countries Protecting Investors 2 183 Countries Trading Across Border 1 183 Countries Enforcing Contracts 13 183 Countries Source: (Global Finance) Bursting of the dot com bubble in 2000 compelled the government planners of Singapore to change the focus of the knowledge economy. Biotechnology and life sciences became recognized as the main drivers of the new economy. 100s of millions of dollars were injected in the biotechnology sector to build up fund research, infrastructure and the development and to recruit top international scientist to Singapore. Market leaders (Morck and Company Ltd ) in the manufacturing of drugs put in place their plants in Singapore (International Business). Pharmaceuticals account for more than sixteen percent of the country’s manufacturing production. Other major companies in Singapore include Sing Tel (Table 4). Due to the economic downturn, recommendations for restructuring the Singapore economy and identify new growth areas were made. Table 4: Largest companies in Singapore Company Name Industry/Sector Wilmar International Food Processing SingTel Telecommunications services DBS Group Major Banks United Overseas Bank Regional Banks Oversea-Chinese Banking Major Banks Keppel Conglomerates Source: (Global Finance) Diversity and Heterogeneity define the society of Singapore. The island is uniquely multicultural with a combination of Chinese, Indians, Malay and European immigrants. Globalization has encroached upon this cultural set up, through Westernization. But Singapore has still managed to retain wisps of its past. Currently, Singapore is among the world’s developed economies, and the city state has some of the best infrastructure in Asia, according to the Economist Intelligence Unit. Singapore’s environment is corruption free thus it is categorized the first, in the ease of doing business out of 108 three economies, according to the 2010 Doing Business Report that was published by the International Finance Corporation and the World Bank. Singapore has faced the language of modernity and progress has often been positioned as a way in which some national pursuits are accorded economic value, prioritized above others and compartmentalized. This contributed to some functional differences in knowledge. Some forms of knowledge are essential for economic development and industrialization while others are related to national development (Heng and Aljunied). Financial business services and Manufacturing are the engines of the Singapore economy. They accounted for 26 percent and 22 percent respectively of Singapore’s GDP in 2000. The electronics industry is the leading in Singapore’s manufacturing sector, accounting for 48 percent of the country’s total industrial output. High tech companies are being promoted in Singapore (International Business). Today, Singapore is strengthening its relationships with countries such as Indonesia, which offers a strong economic growth, a tremendous human capital and geographic proximity, making it more attractive (TIOS Group International). Singapore has had an unusual, but a highly successful monetary policy since 1981. This monetary policy has contributed significantly to the country’s successful economic growth. The country has been able to preserve the purchasing power of its dollar in international markets. This is because the policy mainly affects the exchange rate, and the principal objective was to ensure price stability. In turn, this contributes to macroeconomic stability and a sound basis for sustainable economic growth. The success of the monetary policy of Singapore has also been helped by strong supporting institutions and a flexible labor market (Chia and Sng). These have ensured consistency in economic policy and provided a supportive environment to a rapid FDI led economic growth. Tourism and the country’s culture are also major determinants of the successful economic growth. Works Cited Chia, Wai Mun and Hui Ying Sng. Singapore and Asia in a Globalized World: Contemporary Economic Issues and Policies. Singapore : World Scientific Press, 2009. daCunha, Derek. Singapore in the New Millennium: Challenges Facing the City-State. Singapore: ISEAS Press, 2002. EconomyWatch. "Singapore Economic Growth, Economic Growth Singapore, SG Economic Growth." 30 June 2010. 4 November 2012 . Global Finance. "Singapore Country Report: GDP Data and GDP Forecasts; Economic, Financial and Trade Information; the Best Banks in Singapore; Country and Population Overview ." 2012. 4 November 2012 . Government of Singapore. "Time Series on GDP at 2005 Market Prices and Real Economic Growth ." 16 February 2012. 4 November 2012 . Heng, Derek Thiam Soon and Syed Muhd Khairudin Aljunied. Singapore in Global History. Amsterdam: Amsterdam University Press, 2011. International Business. Singapore: Business and Investment Opportunities Year Book. Washington D.C: International Business Publications, 2009. Pang, Eng Fong. Education, Manpower, and Development in Singapore. Singapore: Singapore University Press, 1983. Peebles, Gavin and Peter Wilson. "Economic Growth and Development in Singapore: Past and Future." August 2003. 3 November 2012 . Shannon, Kerri. "Singapore's Economy Leads Asia's Rebound With Record-Breaking 2010 Growth." 15 July 2010. 4 November 2012 . Singapore Expats. "Brief History of Singapore." 2012. 3 November 2012 . Thomas White International. "Singapore: The Jewel in Asia’s Crown." 2012. 3 November 2012 . TIOS Group International. Tios Asean 2011. Bangkok: TIOS Group International Press, 2011. Watkins, Thayer. "Economic History of Singapore." 2012. 3 November 2012 . Read More