How did Singapore rise up to be a global trade hub?
By: Darshan.K, Asia Business Outlook team
What exactly is needed for a nation to prosper? Is it large amounts of tax money? A large population? Large quantities of oil reserves? Or a fertile land with lot of minerals? What would be the situation of countries which had neither of these? The obvious answer would be the country will be in poverty which would find meeting even the basic needs of their people difficult. What if there was a country in the map right now without any of the above features in their geography but is wealthier than most of the countries with all the above characteristics? Singapore is the 20th century story of “rags to riches” which grew from a poverty ridden third world country to an industrial power house of the Asian continent. What did Singapore do that makes it so prosperous? Let us observe how they got here Singapore was not always the free market utopia it is today, it was a former British colony which was heavily impacted by World War II which resulted in lots of damaged infrastructure. It gained Independence in 1959 from the British and again in 1965 when Malaysia signed the Independence of Singapore agreement. Lee Kuan Yew became the first elected prime minister of Singapore and took the reins in building the island nation and was the key figure responsible in making the nation the mammoth it is today.
What Helped Singapore Become A Success in the Early Years?
Shelter is a basic necessity, along with food and water, lacking in any of these cannot allow an individual to progress in their life, let alone the country, so one of the first undertakings of the newly formed government was a proposal for public housing facilities. This was desperately needed as the nation was facing a huge homelessness crisis. This initiative was a huge success which housed nearly the entire population and successfully allowed the people to endeavor in employment and skilling themselves. Even today 80% of their population lives in public housing facilities which are meticulously designed to blend in people of different socio-economic and racial background allowing the immigrants to seamlessly blend in with the people of different nationalities fostering an environment which allows everyone to get along well, thus enforcing social stability. To help people buy these housing facilities, the government allows them to use money from the central provident fund, a saving fund that all working class citizens have to pay into, being fundamental to the wealth of its citizens, with each citizen having their own personal savings account, as Warren Buffet once said “Do not save what is left after spending, but spend what is left after saving”.
The fund is mandatory, which means citizens have to save whether they like it or not, and the contributions aren’t small either, these savings can later be used for your pension, housing, medical expenses and even university education for yourself or a family member, the returns on these savings is very attractive too, this explains why the nation has one of the highest savings rate in the world that’s over a staggering 53%.
Foreign Investment, Blessing or a curse?
Singapore’s success story is basically made up of foreign investments, over 70% of the country’s total output is made up of foreign companies trading within the country, notably banking, shipping and oil refineries. The country has earned its reputation among investors as a stable nation to park their businesses and money in. The country is also a safe haven due to its tax laws, all in all it’s the location which connects the power houses of Europe, South east Asia and the middle-east. Close behind Singapore’s manufacturing industry is its financial services industry, which has enjoyed stable growth due to Singapore’s pro-business environment and political stability. Home to over 200 banks and a regional hub of choice for many global financial services firms, Singapore’s financial services marketplace facilitates the transfer of knowledge, processes, technology and skills between global, regional and domestic markets.
Singapore is often called the Switzerland of Asia The nation from the very start knew that its pathway to riches would be by foreign investments, as it lacked many meaningful natural resources, it turned to its people for human resource by educating them with necessary knowledge in areas such as IT, Electronics and petrochemicals. Other emerging industries that are making significant contributions to Singapore’s economy include medical technology, aerospace engineering, clean energy, healthcare, and content development. The stock of Foreign Direct Investment (FDI) in Singapore's corporate sector stood at $2,141.8 billion as at end 2020, an 11.3% increase from $1,923.6 billion as at end 2019. The increase was largely due to higher foreign direct equity investments, which comprised paid-up capital and attributable reserves. As Benjamin Franklin once said “An investment in education always pays the highest returns”. It is worth noting that education is a big deal in Singapore, to keep up with the rising demand of skilled workers, it is constantly improving which is reflected in its frequent top ranks in the international standardized testing.
The Right Place at the Right Time
The geographic location of Singapore is ideal for its shipping industry as the country has the second largest port by volume after shanghai and ranks first in transshipment which is a huge contributor of export revenue, its airport also creates a similar impact which translates to what is called “network effects”, The more the people use it, The more valuable it becomes. The biggest beneficiary of this is the tourism industry, which further improves the infrastructural assets and again lures more tourists.
With all the tools the nation provides and the rigid framework it provides for ease of business right from transportation to financial services and extensive human resources, Singapore has truly established itself as a global powerhouse for new and experienced entrepreneurs alike and will improve more over time and continue to provide these service. All that is left is in the hands of the hands of the business owners to bring their dreams to fruition.