Economy of developing country. Singapore

 

Al-Farabi Kazakh National University

Faculty of biology and biotechnology

 

 

 

 

 

Student’s individual work №2

Subject: Economy of developing countries: Singapore.

 

 

 

 

 

 

 

 

 

 

 

                                                              Prepared: Baizhigitova A.

                                                             Checked: Kondybayeva S. K

 

Almaty 2013

 

 

 

 

 

 

 

 

 

 

Content

• Introduction
• History

• Globalization in Singapore

• Singapore Today

• Government and politics

• Economy

• Modern-day economy

• Economic history

• Sectors

• Employment and poverty

• Trade, investment and aid

• Singapore workforce
• Public finance

• Monetary policy

• Taxation

• A FUTURE ECONOMIC POWERHOUSE?

 

 

Introduction

Fifty years ago, the city-state of Singapore was an undeveloped country with a GDP per capita of less than US $320. Today, it is one of the world's fastest growing economies. Its GDP per capita has risen to an incredible US $60,000, making it the sixth highest in the world based on Central Intelligence Agency figures. For a country that lacks territory and natural resources, Singapore's economic ascension is nothing short of remarkable. By embracing globalization, free market capitalism, education, and strict pragmatic policies, the country has been able to overcome their geographic disadvantages and become a leader in global commerce.

Singapore’s economic freedom score is 88, making its economy the 2nd freest in the 2013 Index. Its score is 0.5 point higher than last year, with an advancement in financial freedom outweighing small deteriorations in five other economic freedoms. Singapore is ranked 2nd out of 41 countries in the Asia–Pacific region.

Singapore officially the Republic of Singapore, is the world's only sovereign city-state that is also an island country. It lies in Southeast Asia off the southern tip of the Malay Peninsula and 137 kilometres (85 mi) north of the equator. Made up of thelozenge-shaped main island (widely known as Singapore Island but also as Pulau Ujong, its native Malay name) and over 60 much smallerislets, it is separated from Peninsular Malaysia by the Straits of Johor to its north and from Indonesia's Riau Islands by the Singapore Straitto its south. The country is highly urbanised, with very little primary rainforest remaining. Its territory has consistently expanded through land reclamation.

Part of various local empires since being settled in the second century AD, modern Singapore was founded in 1819 by Sir Stamford Raffles as a trading post of the East India Company with the permission of the Johor Sultanate. The British obtained sovereignty over the island in 1824, and Singapore became one of the British Straits Settlements in 1826. Occupied by the Japanese during World War II, Singapore declared independence from the United Kingdom in 1963 and united with other former British territories to form Malaysia, from which it departed two years later. Since then, it has developed rapidly, earning recognition as one of Four Asian Tigers.

Singapore is one of the world's leading commercial hubs, with the fourth-biggest financial centre and one of the five busiest ports. Its globalized and diversified economy depends heavily on trade, especially in manufacturing, which constituted 26 percent of Singapore's GDP in 2005. In terms of purchasing power parity, Singapore has the third-highest per capita income in the world. It ranks high in international rankings of education, healthcare, government transparency, and economic competitiveness.

Singapore is a unitary multiparty parliamentary republic with a Westminster system of unicameral parliamentary government. The People's Action Party has won every election since self-government in 1959. Slightly over five million people live in Singapore, of which around 2 million are foreign-born. Singapore is highly diverse: 75 percent of the population are Chinese, followed by significant minorities of Malays, Indians,Eurasians, and others. This diversity is reflected in the country's four official languages — English, Malay, Chinese, and Tamil — as well as in official policies that promote multiculturalism.

One of the five founding members of the Association of South East Asian Nations (ASEAN), Singapore is also the host of the APECSecretariat, and a member of the East Asia Summit, the Non-Aligned Movement, and the Commonwealth. Singapore's rapid development has given it disproportionate influence in global affairs, leading some analysts to identify it as a middle power.

History

The earliest known settlement on Singapore was in the second century AD. It was an outpost of theSumatran Srivijaya empire, named Temasek ('sea town'). Between the 16th and early 19th centuries, it was part of the Johor Sultanate. In 1613, Portuguese raiders burnt down the settlement and the island sank into obscurity for the next two centuries.

In 1819, Thomas Stamford Raffles arrived and signed a treaty with Sultan Hussein Shah of Johor on behalf of the British East India Company to develop the southern part of Singapore as a Britishtrading post. In 1824, the entire island became a British possession under a further treaty with the Sultan and the Temenggong. In 1826, it became part of the Straits Settlements, under the jurisdiction of British India. Singapore became the capital of the Straits Settlements in 1836.Before Raffles arrived, there were around 1,000 people living in Singapore, mostly indigenous Malaycommunity, and 20-30 Chinese. By 1860, the population exceeded 80,000, with over half of the population being Chinese. Many immigrants came to work at rubber plantations; and, after the 1870s, the island became a global centre for rubber exports.

During World War II, the Imperial Japanese Army invaded Malaya culminating in the Battle of Singapore. The British were defeated, and surrendered on 15 February 1942. British Prime Minister Winston Churchill called this "the worst disaster and largest capitulation in British history". The Sook Ching massacre of ethnic Chinese after the fall of Singapore claimed between 5,000 and 25,000 lives. The Japanese-occupied Singapore until the British repossessed it in September 1945 after the Surrender of Japan.

Singapore's first general election in 1955 was won by the pro-independence David Marshall, leader of the Labour Front. Demanding complete self-rule he led a delegation to London but was turned down by the British. He resigned when he returned and was replaced by Lim Yew Hock, whose policies convinced Britain to grant Singapore full internal self-government for all matters except defence and foreign affairs.

During the May 1959 elections, the People's Action Party won a landslide victory. Singapore had become an internally self-governing state within the Commonwealth, with Lee Kuan Yew as the first Prime Minister. Governor Sir William Allmond Codrington Goode served as the first Yang di-Pertuan Negara ("Head of State"), and was succeeded by Yusof bin Ishak who in 1965 became the first President of Singapore. During the 1950s Communists, mostly supported by the Chinese-speaking group, with strong ties to the trade unions and Chinese schools, carried out an armed struggle against the state, resulting in the Malayan Emergency and later, the Communist Insurgency War. The 1954 National Service Riots, Chinese middle schools riots and Hock Lee bus riots in Singapore were all linked to the Communists.

Globalization in Singapore

During colonial times, Singapore's economy was centered on entrepôt trade. But this economic activity offered little prospect for job expansion in the post-colonial period. The withdrawal of the British further aggravated the unemployment situation.

The most feasible solution to Sinagpore's economic and unemployment woes was to embark on a comprehensive program of industrialization, with a focus on labor-intensive industries. Unfortunately, Singapore had no industrial tradition. The majority of its working population was in trade and services. Therefore, they had no expertise or easily adaptable traits in the area. Moreover, without a hinterland and neighbors who would trade with it, Singapore was forced to look for opportunities well beyond its borders to spearhead its industrial development.

Pressured to find work for their people, the leaders of Singapore began to experiment withglobalization. Influenced by Israel's ability to leap over its Arab neighbors who boycotted them and trade with Europe and America, Lee and his colleagues knew they had to connect with the developed world and to convince their multinational corporations to manufacture in Singapore.

In order to attract investors, Singapore had to create an environment that was safe, corruption- free, low in taxation, and unimpeded by unions. To make this feasible, the citizens of the country had to suspend a large measure of their freedom in place of a more autocratic government. Anyone caught conducting narcotic trade or intensive corruption would be met with the death penalty. Lee's People Action Party (PAP) repressed all independent labor unions and consolidated what remained into a single umbrella group called the National Trade Union Congress (NTUC), which it directly controlled. Individuals who threatened national, political, or corporate unity were quickly jailed without much due process. The country's draconian, but business-friendly laws became very appealing to international investors. In contrast to their neighbors, where political and economic climates were unpredictable, Singapore on the other hand, was very predictable and stable. Moreover, with its advantageous relative location and established port system, Singapore was an ideal place to manufacture out of.

By 1972, just seven years since independence, one-quarter of Singapore's manufacturing firms were either foreign-owned or joint-venture companies, and both the U.S. and Japan were major investors. As a result of Singapore's steady climate, favorable investment conditions and the rapid expansion of the world economy from 1965 to 1972, the country's Gross Domestic Product (GDP) experienced annual double-digit growth.

As foreign investment poured in, Singapore began focusing on developing its human resources, in addition to its infrastructure. The country set up many technical schools and paid international corporations to train their unskilled workers in information technology, petrochemicals, and electronics. For those who could not get industrial jobs, the government enrolled them in labor intensive un-tradable services, such as tourism and transportation. The strategy of having multinationals educate their workforce paid great dividends for the country. In the 1970s, Singapore was primarily exporting textiles, garments, and basic electronics. By the 1990s, they were engaging in wafer fabrication, logistics, biotech research, pharmaceuticals, integrated circuit design, and aerospace engineering.

Singapore Today

Today, Singapore is an ultra industrialized society and entrepôt trade continues to play a central role in its economy. The Port of Singapore is now the world's busiest transshipment port, surpassing Hong Kong and Rotterdam. In terms of total cargo tonnage handled, it has become the world's second busiest, behind only the Port of Shanghai.

Singapore's tourism industry is also thriving, attracting over 10 million visitors annually. The city-state now has a zoo, night safari, and a nature reserve. The country recently opened two of the world's most expensive integrated casino resorts in the Marina Bay Sands and the Resorts World Sentosa. The country's medical tourism and culinary tourism industries have also become quite marketable, thanks to its mosaic of cultural heritage and advance medical technology.

Banking has grown significantly in recent years and many assets formerly held in Switzerland have been moved to Singapore due to new taxes imposed by the Swiss. The biotech industry is burgeoning, with drug makers such as GlaxoSmithKline, Pflizer, and Merck & Co. all establishing plants here, and oil refining continues to play a huge role in the economy.

Despite its small size, Singapore is now the fifteenth largest trading partner of the United States. The country has established strong trade agreements with several countries in South America, Europe, and Asia, as well. There are currently over 3,000 multinational corporations operating in the country, accounting for more than two-thirds of its manufacturing output and direct export sales.

With a total land area of just 433 square miles and a small labor force of 3 million people, Singapore is able to produce a GDP that exceeds $300 billion dollars annually, higher than three-quarters of the world. Life expectancy is at an average of 83.75 years, making it the third highest globally. The corruption minimal and so is the crime. It is considered to be one of the best places to live on earth, if you don't mind the strict rules.

Singapore's economic model of sacrificing freedom for business is highly controversial and heavily debated. But regardless of philosophy, its effectiveness is certainly undeniable.

 

Government and politics

Singapore is a parliamentary republic with a Westminster system of unicameral parliamentary government representing constituencies. Its constitutio nestablishes representative democracy as its political system. Freedom House ranks Singapore as "partly free" in its Freedom in the World report, and The Economist ranks Singapore as a "hybrid regime", the third rank out of four, in its "Democracy Index". Singapore is consistently rated one of the least corrupt countries in the world by Transparency International.

Executive power rests with the Cabinet of Singapore, led by the Prime Minister, and the President. The president is elected through popular vote, and has some veto powers for a few key decisions such as the use of the national reserves and the appointment of judges, but otherwise occupies a ceremonial post.

The Parliament serves as the legislative branch of government. Members of Parliament (MPs) consist of elected, non-constituency and nominated members. Elected MPs are voted into parliament on a "first-past-the-post" (plurality) basis and represent either single-member or group-representation constituencies. The People's Action Party has won control of Parliament with large majorities in every election since self-governance was secured in 1959. However, in the most recent parliamentary elections in 2011, the opposition, led by the Workers' Party, made significant gains and increased its representation in the House to 6 elected MPs.

The legal system of Singapore is based on English common law, albeit with substantial local differences. Trial by jury was entirely abolished in 1970 leaving judicial assessment performed wholly by judgeship.^[34] Singapore has penalties that include judicial corporal punishment in the form of caning for rape, rioting, vandalism, and some immigration offences. There is a mandatorydeath penalty for murder, and for certain drug-trafficking and firearms offences. Amnesty International has said that some legal provisions conflict with the right to be presumed innocent until proven guilty, and that Singapore has "possibly the highest execution rate in the world relative to its population". The government has disputed Amnesty's claims. In a 2008 survey, international business executives believed Singapore, along with Hong Kong, had the best judicial system in Asia.

In 2011, the World Justice Project's Rule of Law Index ranked Singapore in the top countries surveyed for "Order and Security", "Absence of Corruption", and "Effective Criminal Justice". However, it scored low for both "Freedom of Speech" and "Freedom of Assembly". All public gatherings of five or more people require police permits, and protests may legally be held only at Speakers' Corner.

Singapore consists of 63 islands, including the main island, widely known as Singapore Island but also as Pulau Ujong. There are two man-made connections to Johor, Malaysia: the Johor–Singapore Causeway in the north, and the Tuas Second Link in the west. Jurong Island, Pulau Tekong,Pulau Ubin and Sentosa are the largest of Singapore's smaller islands. The highest natural point is Bukit Timah Hill at 166 m (545 ft).

There are ongoing land reclamation projects, which have increased Singapore's land area from 581.5 km² (224.5 sq mi) in the 1960s to 704 km²(272 sq mi) today; it may grow by another 100 km² (40 sq mi) by 2030. Some projects involve merging smaller islands through land reclamation to form larger, more functional islands, as with Jurong Island. 5% of Singapore's land is set aside as nature reserves. Urbanisation has eliminated most primary rainforest on the main island, Bukit Timah Nature Reserve being the only significant remaining forest. There are only about 250 acres (101 ha) of farmland remaining in Singapore.

Economy

Pre-independence economy

Before independence in 1965, Singapore was the capital of the British Straits Settlements, a Crown Colony. It was also the main British naval base in East Asia. Because of its status as the main British naval base in the region, as well as hosting the largest dry dock in the world at that time in the form of the Singapore Naval Base, it was described in the press as the 'Gibraltar of the East'. The opening of the Suez Canal in 1869 caused global trade to boom, and Singapore became a major world trade node, and the Port of Singapore became one of the largest and busiest ports in the world.^[57] Before independence in 1965, Singapore had a GDP per capita of $511, then the third-highest in East Asia. After independence, foreign direct investment and a state-led drive for industrialisation based on plans by Goh Keng Swee and Albert Winsemius created a modern economy.

Modern-day economy

The Port of Singapore, one of theworld's five busiest,^[60] with the skyline of Singapore in the background.

Today, Singapore has a highly developed market-based economy, based historically on extended entrepôt trade. Along with Hong Kong, South Koreaand Taiwan, Singapore is one of the original Four Asian Tigers. The Singaporean economy is known as one of the freest, most innovative, most competitive, and most business-friendly. The 2011 Index of Economic Freedom ranks Singapore as the second freest economy in the world, behind Hong Kong. According to the Corruption Perceptions Index, Singapore is consistently ranked as one of the least corrupt countries in the world, along with New Zealand and the Scandinavian countries.

Singapore is the 14th largest exporter and the 15th largest importer in the world. The country has the highest trade-to-GDP ratio in the world at 407.9 percent, signifying the importance of trade to its economy. The country is currently the only Asian country to have AAA credit ratings from all three major credit rating agencies; Standard & Poor's, Moody's, and Fitch. Singapore attracts a large amount of foreign direct investment as a result of its location, corruption-free environment, skilled workforce, low tax rates and advanced infrastructure. There are more than 7,000 multinational corporations from the United States, Japan, and Europe in Singapore. There are also 1,500 companies from China and 1,500 from India. Foreign firms are found in almost all sectors of the economy. Singapore is also the second largest foreign investor in India. Roughly 44 percent of the Singaporean workforce is made up of non-Singaporeans. Over ten free trade agreements have been signed with other countries and regions.

Singapore also possesses the world's eleventh largest foreign reserves, and is rated top in terms of net international investment position per capita. The currency of Singapore is the Singapore dollar, issued by the Monetary Authority of Singapore. It is interchangeable with the Brunei dollar.

In recent years, the country has been identified as an increasingly popular tax haven for the wealthy due to the low tax rate on personal income, a full tax exemption on income that is generated outside of Singapore and legislation that means that capital gains are also tax exempt. Australian millionaire retailer Brett Blundy, with an estimated personal wealth worth AU$835 million, and multi-billionaire Facebook co-founder Eduardo Saverin are two examples of wealthy individuals who have settled in Singapore (Blundy in 2013 and Saverin in 2012) Singapore ranked fifth place on the Tax Justice Network's 2013 Financial Secrecy Index of the world's top tax havens, scoring narrowly ahead of the United States.

Singapore has a highly developed trade-oriented market economy. Singapore's economy has been ranked as the most open in the world,least corrupt,most pro-business, with low tax rates (14.2% of GDP) and one of the highest per-capita gross domestic products in the world. Singapore's sovereign wealth fund, Temasek Holdings, holds majority stakes in several of the nation's largest companies, such as Singapore Airlines, SingTel, ST Engineering and MediaCorp. The economy of Singapore is a major Foreign Direct Investment outflow financier in the world, and the economy of Singapore has benefited from the inward of Foreign Direct Investment from the global investments due to Singapore's attractive investment climates.

Exports, particularly in electronics, chemicals and services including the posture that Singapore is the regional hub for wealth management  provide the main source of revenue for the economy, which allows it to purchase natural resources and raw goodswhich it does not have. Moreover, water is a scarcity in Singapore therefore water is defined as a precious resource in Singapore along with the scarcity of land to be treated with land fill of Pulau Semakau. Singapore has limited arable land that Singapore has to rely on theagrotechnology park for agricultural production and consumption. Human Resource is another vital issue for the health of Singaporean economy.

Singapore could thus be said to rely on an extended concept of intermediary trade to Entrepôt trade, by purchasing raw goods and refining them for re-export, such as in the wafer fabrication industry and oil refining. Singapore also has a strategic port which makes it more competitive than many of its neighbours in carrying out such entrepot activities. Singapore has the highest trade to GDP ratio in the world, averaging around 400% during 2008-11.  The Port of Singapore is the second-busiest in the world by cargo tonnage. In addition, Singapore's port infrastructure and skilled workforce, which is due to the success of the country's education policy in producing skilled workers, is also fundamental in this aspect as they provide easier access to markets for both importing and exporting, and also provide the skill(s) needed torefine imports into exports.

Singapore's government promotes high levels of savings and investment through policies such as the Central Provident Fund, which is used to fund its citizen's healthcare and retirement needs. Singapore's savings rates have remained among the highest in the world since the 1970s.Most companies in Singapore are registered as private limited-liability companies (commonly known as "private limited companies"). A private limited company in Singapore is a separate legal entity, and shareholders are not liable for the company's debts beyond the amount of share capital they have contributed.

Economic history

This is a chart of trend of gross domestic product of Singapore at market prices estimated by the International Monetary Fund.

Year	Gross Domestic Product  ($ millions)	US Dollar Exchange	Nominal Per Capita GDP  (as % of USA)	PPP Per Capita GDP  (as % of USA)
1980	25,117	2.14 Singapore Dollars	39.65	55.00
1985	39,036	2.20 Singapore Dollars	36.63	63.41
1990	66,778	1.81 Singapore Dollars	52.09	74.76
1995	119,470	1.41 Singapore Dollars	86.14	90.60
2000	159,840	1.72 Singapore Dollars	66.19	91.48
2005	194,360	1.64 Singapore Dollars	67.54	103.03
2007	224,412	1.42 Singapore Dollars	74.61	107.92
2008	235,632	1.37 Singapore Dollars	73.71	107.27
2009	268,900	1.50 Singapore Dollars	78.53	108.33
2010	309,400	1.32 Singapore Dollars	82.13	119.54
2011	270,020	1.29 Singapore Dollars	-	-

Upon separation from Malaysia in 1965, Singapore faced a small domestic market, and high levels of unemployment and poverty. 70 percent of Singapore’s households lived in badly overcrowded conditions, and a third of its people squatted in slums on the city fringes. Unemployment averaged 14 percent, GDP per capita was US$516, and half of the population was illiterate. In response, the Singapore government established the Economic Development Board to spearhead an investment drive, and make Singapore an attractive destination for foreign investment FDI inflows increased greatly over the following decades, and by 2001 foreign companies accounted for 75% of manufactured output and 85% of manufactured exports. Meanwhile, Singapore's savings and investment rates rose among the highest levels in the world, while household consumption and wage shares of GDP fell among the lowest. As a result of this investment drive, Singapore's capital stock increased 33 times by 1992, a tenfold increase in the capital-labor ratio. Living standards steadily rose, with more families moving from a lower-income status to middle-income security with increased household incomes. During a National Day Rally speech in 1987, Lee Kuan-Yew claimed that (based on the home ownership criterion) 80% of Singaporeans could now be considered to be members of the middle-class. However, much unlike the economic policies of Greece and the rest of Europe, Singapore followed a policy of individualizing the social safety net. This lead to higher than average savings rate and a very sustainable economy on the long run. Without a burdensome welfare state or its likeliness, Singapore has developed a very self-reliant and skilled workforce well versed for a global economy.

Singapore's economic strategy produced real growth averaging 8.0% from 1960 to 1999. The economy picked up in 1999 after the regional financial crisis, with a growth rate of 5.4%, followed by 9.9% for 2000. However, the economic slowdown in the United States, Japan and theEuropean Union, as well as the worldwide electronics slump, had reduced the estimated economic growth in 2001 to a negative 2.0%. The economy expanded by 2.2% the following year, and by 1.1% in 2003 when Singapore was affected by the SARS outbreak. Subsequently, a major turnaround occurred in 2004 allowed it to make a significant recovery of 8.3% growth in Singapore, although the actual growth fell short of the target growth for the year more than half with only 2.5%. In 2005, economic growth was 6.4%; and in 2006, 7.9%.

As of 8 June 2013, Singapore's unemployment rate is around 1.9% and the country's economy has a lowered growth rate, with a rate of 1.8% on a quarter-by-quarter basis—compared to 14.8% in 2010

 

Sectors

The Singaporean economy depends heavily on exports and refining imported goods, especially in manufacturing,^]which constituted 27.2% of GDP in 2010^[6] and includes significant electronics, petroleum refining, chemicals, mechanical engineering and biomedical sciences sectors. In 2006 Singapore produced about 10% of the world's foundrywafer output.^[78] Despite its small size, Singapore has a diversified economy, a strategy that the government considers vital for growth and stability.

Tourism also forms a large part of the economy, and 10.2 million tourists visited the country in 2007. To attract more tourists, in 2005 the government legalised gambling and allowed two casino resorts (called Integrated Resorts) to be developed. Singapore is promoting itself as a medical tourism hub: about 200,000 foreigners seek medical care there each year, and Singapore medical services aim to serve one million foreign patients annually by 2012 and generate USD 3 billion in revenue. Singapore is an education hub, and many foreign students study in Singapore. Singapore hosted over 80,000 international students in 2006. More than 5,000 Malaysian students cross the Johor–Singapore Causeway every morning with hopes of receiving a better education in Singapore. In 2009, 20% of all students in Singaporean universities were international students. The students were mainly from ASEAN, China and India.

Singapore is a world leader in several economic areas: The country is the world's fourth leading financial centre, the world's second-biggest casino gambling market, one of the world's top three oil-refining centres, the world's largest oil-rig producer, and a major ship-repairer. The port is one of the five busiest ports in the world. The World Bankhas named Singapore as the easiest place in the world to do business and ranks Singapore the world's top logistics hub. It is also the world's fourth largest foreign-exchange trading centre after London, New York and Tokyo.

As a result of the early 2000s recession and a slump in the technology sector, Singapore's GDP contracted by 2.2% in 2001. The Economic Review Committee was set up in December 2001 and recommended several policy changes to revitalise the economy. Singapore has since recovered, due largely to improvements in the world economy; the economy grew by 8.3% in 2004, 6.4% in 2005, and 7.9% in 2006. After a contraction of 0.8% in 2009, the economy recovered in 2010, with GDP growth of 14.5%. Most work in Singapore is in the service sector, which employed 2,151,400 people out of 3,102,500 jobs in December 2010. The percentage of unemployed economically active people above age 15 is about 2%.

Employment and poverty

Singapore has the world's highest percentage of millionaires, with one out of every six households having at least one million US dollars in disposable wealth. This excludes property, businesses, and luxury goods, which if included would further increase the number of millionaires, especially as property in Singapore is among the world's most expensive. Despite its relative economic success, Singapore does not have a minimum wage, believing that it would lower its competitiveness. It also has one of the highest income inequality levels among developed countries, coming in just behind Hong Kong and in front of the United States.

Acute poverty is rare in Singapore; the government has rejected the idea of a generous welfare system, stating that each generation must earn and save enough for its entire life cycle. There are, however, numerous means-tested 'assistance schemes' provided by the Ministry of Community Development, Youth and Sports in Singapore for the needy, including some that pay out SGD 400 to SGD 1000 per month to each needy household, free medical care at government hospitals, money for children's school fees, rental of studio apartments for SGD 80 a month, training grants for courses, etc.

 Prudent macroeconomic policy within a stable political and legal environment has been the key to Singapore’s continuing success in maintaining one of the world’s highest levels of economic freedom. Well-secured property rights promote entrepreneurship and productivity growth. A strong tradition of minimum tolerance for corruption is institutionalized in an efficient judicial framework, strongly sustaining the rule of law.

Singapore’s openness to global trade and investment has facilitated the emergence of a more competitive financial sector and continues to provide real stimulus and ensure economic dynamism. Competitive tax rates and a transparent regulatory environment encourage vibrant commercial activity, and the private sector is a continuing source of economic resilience and competitiveness. However, state ownership and involvement in key sectors remain substantial. A government statutory entity, the Central Provident Fund, administers public housing, health care, and various other programs, and public debt is equal to a year’s production for the entire economy.

Singapore is a nominally democratic state that has been ruled by the People’s Action Party (PAP) since independence in 1965. The PAP won the May 2010 elections with the lowest percentage of the popular vote in its history. Six opposition members also won seats. Certain civil liberties, such as freedom of assembly and freedom of speech, remain restricted, but the PAP has embraced economic liberalization and international trade. Singapore is one of the world’s most prosperous nations. Its economy is dominated by services, but the country is also a major manufacturer of electronics and chemicals.

RULE OF LAW

Property Rights90.0

Freedom From Corruption92.0

Contracts are secure, there is no expropriation, and the commercial court functions efficiently. Singapore has one of Asia’s strongest intellectual property rights regimes, although enforcement could be improved. The government enforces strong anti-corruption measures, and acts of bribery, whether committed inside Singapore’s territory or overseas, are prosecuted by the government.

LIMITED GOVERNMENT

Government Spending91.3

Fiscal Freedom91.1

The top income tax rate is 20 percent, and the top corporate tax rate is 17 percent. Other taxes include a value-added tax (VAT) and a property tax. The overall tax burden equals about 14.1 percent of total domestic income. Government spending is equivalent to 17 percent of GDP. Structural budget surpluses have sustained high debt levels near 100 percent of GDP. The state remains heavily involved in the economy through government-linked companies.

REGULATORY EFFICIENCY

Business Freedom97.1

Labor Freedom91.4

Monetary Freedom82.0

The overall regulatory environment remains one of the world’s most transparent and efficient. With no minimum capital required, launching a business takes only three days. There is no statutory minimum wage, but wage adjustments are guided by the National Wage Council. Inflation is under control despite the challenging external environment. The state influences prices through state-linked enterprises and can impose controls as it deems necessary.

OPEN MARKETS

Trade Freedom90.0

Investment Freedom75.0

Financial Freedom80.0

The trade regime is very open and competitive, and no tariffs are imposed on imports. Foreign and domestic businesses are treated equally under the law, but foreign investment in some service industries remains limited. As a leading global financial hub, the efficient financial sector is highly competitive. The government has been opening the domestic market to foreign banks. Over 100 of 120 commercial banks are now foreign.

Trade, investment and aid

Singapore's total trade in 2000 amounted to S$373 billion, an increase of 21% from 1999. Despite its small size, Singapore is currently the fifteenth-largest trading partner of the United States. In 2000, Singapore's imports totaled $135 billion, and exports totaled $138 billion. Malaysia was Singapore's main import source, as well as its largest export market, absorbing 18% of Singapore's exports, with the United States close behind. Re-exports accounted for 43% of Singapore's total sales to other countries in 2000. Singapore's principal exports are petroleum products, food/beverages, chemicals, textile/garments, electronic components, telecommunication apparatus, and transport equipment. Singapore's main imports are aircraft, crude oil and petroleum products, electronic components, radio and television receivers/parts, motor vehicles, chemicals, food/beverages, iron/steel, and textile yarns/fabrics.

Trade in Singapore has benefited from the extensive network of trade agreements Singapore has passed. According to Healy Consultants, Singapore has free trade access to the entirety of the ASEAN network, with import duty reduced when dealing with Indonesia, Malaysia, the Philippines, Thailand, Brunei, Burma, Cambodia, Laos and Vietnam.

The Singapore Economic Development Board (EDB) continues to attract investment funds on a large-scale for the country despite the city's relatively high-cost operating environment. The U.S. leads in foreign investment, accounting for 40% of new commitments to the manufacturing sector in 2000. As of 1999, cumulative investment for manufacturing and services by American companies in Singapore reached approximately $20 billion (total assets). The bulk of U.S. investment is in electronics manufacturing, oil refining and storage, and the chemical industry. More than 1,500 U.S. firms operate in Singapore.

Singapore's largely corruption-free government, skilled workforce, and advanced and efficient infrastructure have attracted investments from more than 3,000 multinational corporations (MNCs) from the United States, Japan, and Europe. Foreign firms are found in almost all sectors of the economy. MNCs account for more than two thirds of manufacturing output and direct export sales, although certain services sectors remain dominated by government-linked corporations.

The government also has encouraged firms to invest outside Singapore, with the country's total direct investments abroad reaching $39 billion by the end of 1998. The People's Republic of China was the top destination, accounting for 14% of total overseas investments, followed by Malaysia (10%), Hong Kong (8.9%), Indonesia (8.0%) and U.S. (4.0%). The rapidly growing economy of India, especially the high technology sector, is becoming an expanding source of foreign investment for Singapore. The United States provides no bilateral aid to Singapore, but the U.S. appears keen to improve bilateral trade and signed the U.S.-Singapore Free Trade Agreement. Singapore corporate tax is 17 per cent.

Year	Total trade	Imports	Exports	% Change
2000	$273	$135	$138	21%
2001				-9.4%
2002	$432			1.5%
2003	$516	$237	$279	9.6%
2004	$629	$293	$336	21.9%
2005	$716	$333	$383	14%
2006	$810	$379	$431	13.2%

All figures in billions of Singapore dollars.

Singapore workforce[edit]

In 2000, Singapore had a workforce of about 2.2 million. The country has the largest proficiency of English language speakers in Asia, making it an attractive place for multinational corporations. The National Trades Union Congress (NTUC), the sole trade union federation which has a symbiotic relationship with the ruling party, comprises almost 99% of total organized labour. Government policy and pro-activity rather than labour legislation controls general labour and trade union matters. The Employment Act offers little protection to white-collar workers due to an income threshold. The Industrial Arbitration Court handles labour-management disputes that cannot be resolved informally through the Ministry of Manpower. The Singapore Government has stressed the importance of cooperation between unions, management and government (tripartism), as well as the early resolution of disputes. There has been only one strike in the past 15 years.

Singapore has enjoyed virtually full employment for long periods of time. Amid an economic slump, the unemployment rate rose to 4.0% by the end of 2001, from 2.4% early in the year. Unemployment has since declined and as of 2012 the unemployment rate stands at 1.9%.

While the Singapore government has taken a stance against minimum wage and unemployment benefit schemes, in 2007 the government introduced a Workfare Income Supplement (WIS) scheme to supplement wages of low-skilled workers.

The Singapore Government and the NTUC have tried a range of programs to increase lagging productivity and boost the labour force participation rates of women and older workers. However, labour shortages persist in the service sector and in many low-skilled positions in the construction and electronics industries. Foreign workers help make up this shortfall. In 2000, there were about 600,000 foreign workers in Singapore, constituting 27% of the total work force. As a result, wages are relatively suppressed or do not rise for all workers. In order to have some controls, the government imposes a foreign worker levy payable by employers for low end workers like domestic help and construction workers. In 2012, the Ministry of Trade and Industry (MTI) reported that Singapore should continue to fine-tune the calibration of its inflow of foreigners as the country continues to face an ageing population and a shrinking workforce. Singapore Parliament accepted the recommendations by its Economic Strategies Committee (ESC) for the optimal ratio of the level of immigration and foreign manpower for both high and low skilled workers. The Government recognises that the current overall foreign workforce should complement the local resident workforce and not replace the Singaporean Core concept, and helps companies greatly as they raise productivity through business restructuring and workforce retraining; raise resident labour force participation rate

 

 Public finance

Government spending in Singapore has risen since the start of the global financial crisis, from around 15% of GDP in 2008 to 17% in 2012. The government's total expenditure as a percentage of GDP ranks among the lowest internationally and allows for a competitive tax regime. The government has no foreign debt and consistent budget surpluses. Singapore government debt is issued for investment purposes, and not for fiscal needs.

Personal income taxes in Singapore range from 0% to 20% for incomes above S$320,000. There are no capital gains or inheritance taxes in Singapore. Singapore's corporate tax rate is 17% with exemptions and incentives for smaller businesses. Singapore has a single-tier corporate income tax system, which means there is no double-taxation for shareholders.

Singapore introduced Goods and Services Tax (GST) with an initial rate of 3% on 1 April 1994, increasing government's revenue by S$1.6 billion (US$1b, €800m) and establishing government finances. The taxable GST was increased to 4% in 2003, to 5% in 2004, and to 7% in 2007.

The Singapore government owns two investment companies, the Government of Singapore Investment Corporation and smaller Temasek Holdings, which act as the nation's sovereign wealth funds. Both operate as commercial investment holding companies independently of the Singapore government, but Prime Minister Lee Hsien Loong and his wife Ho Ching serve as Chairman and CEO of these corporations respectively. Temasek Holdings holds around S$60 billion of assets in Singapore, holding majority stakes in several of the nation's largest companies, such asSingapore Airlines, SingTel, ST Engineering and MediaCorp.

In 2012, an economics professor, Dr.(PhD) Christopher Balding, based in China began scrutinizing and criticizing the Government of Singapore Investment Corporation and Temasek Holdings on its alleged accounting and auditing of public finances

Monetary policy

The Monetary Authority of Singapore is Singapore's central bank and financial regulatory authority. It administers the various statutes pertaining to money, banking, insurance, securities and the financial sector in general, as well as currency issuance. The MAS has been given powers to act as a banker to and financial agent of the Government. It has also been entrusted to promote monetary stability, and credit and exchange policies conducive to the growth of the economy.

Unlike many other central banks such as Federal Reserve System or Bank of England, MAS does not regulate the monetary system via interest rates to influence the liquidity in the system. Instead, it chooses to do it via the foreign exchange mechanism. It does so by intervening in the SGD market.

Taxation

In April 2013, the country was recognized as an increasingly popular tax haven for the wealthy due to the low tax rate on personal income, a full tax exemption on income that is generated outside of Singapore and 69 double taxation treaties that can minimize both withholding tax and capital gains tax. Australian millionaire retailer Brett Blundy, with an estimated personal wealth worth AU$835 million, and multi-billionaire Facebook co-founder Eduardo Saverin are two examples of wealthy individuals who have settled in Singapore (Blundy in 2013 and Saverin in 2012). Additionally, Australian mining magnate Gina Rinehart owns property in Singapore and American investor Jim Rogers moved to Singapore in 2007—Rogers has identified the 21st century as an era in which Asia will dominate and wishes for his two daughters to learn Mandarin as a key outcome of the relocation. Chinese Media TV celebrities Jet Li and Gong Li have also taken up naturalized Singapore citizenship.

A FUTURE ECONOMIC POWERHOUSE?

On 5 August 1965, after enduring two years of intense friction with the Malayan central government in Kuala Lumpur, Singapore declared its independence to become the Republic of Singapore. Singapore chose to maintain a certain social and cultural distance from its neighbouring countries, while deliberately developing a new and distinctively ‘Singaporean’ culture and social identity. By late 1989, though physically small, Singapore was an economic giant. It is a multicultural, modernized and orderly country, with its major cities populated by a mosaic of individuals hailing from Chinese, Arab, Malaya, Indian and English backgrounds.

Economic Reform

The components that propelled Singapore’s success were comprised of major reforms in every aspect of the country. The central government was aware of the need to develop policies that would enable Singapore to attract investors and business, so it instated policies that would promote international trading and ensure economic development.