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.