ECONOMIC & INDUSTRIAL

DEVELOPMENT OF SINGAPORE

By

Dr David Chew (PEng)

School of CEE

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 SECRETS OF
SINGAPORE SUCCESS & SURVIVAL:

SECURITY & DEVELOPMENT

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A. INTRODUCTION
Singapore has made miraculous economic
progress over the last 49 years.
• Foreign-exchange reserves:
- $0.1b in 1965
- $135b in 1998
- $340b in 2014
• Foreign debts - None (few in the world)
• GNP per capita of Singapore
-$1,330 in 1960
-$9,300 in 1979
-$38,500 in 1998
-$43,500 in 2005
-$61,700 in 2011
-$70,140 in 2014
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• In 1965,
- population growth of 2.5%
(among the world’s highest)
- unemployment rate 14% (vs. 1.9% in 2014)
- economy dependent on entrepot trade &
British Forces
- small manufacturing base

• Average GNP growth of about 8% from

1960 to 1998, one of the fastest (if not the
fastest) in the world

• GNP fluctuating since 1999 due to

external factors

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• In 2014,
- GDP of $383b (27% Industry, 73% Services)
- Exports $512b; Imports $466b
- Trade about 2.6 times GDP
- FDI (Manufacturing) about $10b (annually)
- Manufacturing is 22% of GDP (Construction 5%)
(as against 15% in 1965)

• Economic governance (or management)

- based on Capitalistic approach of free market
and outward orientation, underpinned by stable
macro-economic environment (low inflation,
positive real interest rates, sound fiscal policy,
liberal trade and investment policies)

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Singapore Economy in a Nutshell
„ Highly developed, trade-oriented market
economy
„ Most open (and globalized) in the world
„ Least corrupt
„ Most pro-business
„ Low tax rates (14.2% of GDP)
„ One of the highest per capita GDP in the world
„ World’s 2nd busiest container port
„ GDP: $372b in 2013; $383b in 2014
„ Biggest trading partner: Malaysia
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Global Corruption (Least) Index 2014
1. Denmark (By CEOWorld Magazine)
2. New Zealand
3. Finland
4. Sweden
5. Norway
6. Switzerland
7. Singapore (3rd in 2012 & 2013)
8. Netherlands
9. Luxembourg
Japan is 15th and
10. Canada Hong Kong is 17th
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 …and now

then…

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 …and now

then…

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B. ECONOMIC DEVELOPMENT STRATEGY
OF SINGAPORE

The Strategy: A Historical Perspective

Phase 1: Import substitution (1959-65)

Phase 2: Export orientation (1966-78)
Phase 3: Industrial restructuring (1979-84)
Phase 4: Economic diversification (1985-92)
Phase 5: Further restructuring (1993-99)
Phase 6: Knowledge-based economy/KBE (>2000)

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Phase 1: Import substitution (1959-65)
- self-governance to a federal state

- Malaysia episode (a bigger hinterland)

- entrepot to industrialization

- UN Report (1961) & the Winsemius Plan

- open-door policy to attract foreign

investment

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Phase 1: Import substitution (1959-65) cont’d
- 14% unemployment in 1959

- pioneer status for labour-intensive industries

- setting up of EDB in 1961 to promote

industrialization

- protectionist policies using tariffs to shield

local industries from foreign competition

- unemployment remains high- 14% in 1965

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Phase 2: Export orientation (1966-78)

Since independence in 1965:

- import substitution failed due to small domestic

market (no more hinterland) & no economy of scale

- British withdrawal compounded problem of

unemployment (loss of 38,000 jobs- 20% of workforce)

- adopted export-orientation approach through

industrialization

- tariffs removed, export grew, balance of payment

improved, unemployment reduced

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Phase 2: Export orientation (1966-78) cont’d

- full employment by early 1970s

- still a low-wage producer, attractive to MNCs as a
low-cost production base

- EDB granted investment incentives

- oil crises in mid-1970s cushioned (no recession)
- low-wage, labour-intensive industries threatened by
regional competitors (resource-rich neighbors)

- restructuring began in late 70s for hi-tech, high-

value industry
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Phase 3: Industrial restructuring (1979-84)

- take-off
to hi-tech, skill-intensive industries
(higher value-added per worker, predecessor
of knowledge worker today)

- to
computerise, automate & mechanise
operation, using capital-intensive equipment
and technology-based processes

- EDB-MNC Training Centres established for

skilling the workforce

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Phase 3: Industrial restructuring (1979-84) cont’d

- increased emphasis on R&D

- high-wage producer, levy on unskilled

foreign workers

- develop high value-added services

- wage increases>> productivity growth,

precipitating first Singapore recession in
1985 (minus 1.5% GDP growth)

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1985-86 Recession

The recession in 1985/86 was triggered by the collapse

of world commodity prices including oil.
Weaknesses of our earlier development model:
- lack of diversification of source of growth,
- over reliance on manufacturing especially
electronics & construction,
- poor labour productivity gains relative to wage costs,
amplified the downturn in our main export markets
of US and Japan.

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Economic Committee

The Economic Committee chaired by Lee Hsien Loong,

then Minister of Trade and Industry, brought together
public and private sectors and union leaders to craft
immediate remedial action.

1986 marked a shift in economic strategy.

Economy broadened to include services as a pillar of
growth to complement manufacturing.
Immediate wage freeze and CPF cuts to restore
competitiveness.

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Phase 4: Economic diversification (1985-92) cont’d

- First economic recession in Singapore in 1985

- Economic Committee chaired by BG Lee

-a more broad-based economic profile targeted

- towards more diversified growth

- series
of cost-cutting measures (including CPF)
implemented

- economy recovered in 1986 (V-shaped growth)

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Phase 4: Economic diversification (1985-92) cont’d

- EDB promoted total business concept with support

services of R&D, design, product development,
technical servicing, marketing, distribution and fund
management to complement hi-tech manufacturing

- “Not to put all eggs in same basket”

- upgrading of local firms through partnering with MNCs

- growth triangle of Singapore-Batam-Johor in 1989

- unemployment fell to record low of 1.7% in 1990

- by 1990, Singapore became an NIE or “Asian Tiger”

(with HK, SK &Taiwan)
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Phase 5: Further restructuring (1993-99)

- Restructuring domestic sectors

- relocating low value-added industries overseas

- promote new economic activities to become an

international business hub

- emphasize capital market development and VC

(Venture Capital) industry

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Phase 5: Further restructuring (1993-99) cont’d

- Regionalization & globalization

- Government-linked companies (GLCs) taking
lead (into China, India & ASEAN)
- Grooming promising local companies (PLCs)
to become regional MNCs (those with annual
turnover >$100m)
-Fears of hollowing-out, compounded with Asian
financial crisis (1997)

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Phase 6: Knowledge-based Economy (>2000)

- Into
the borderless world of knowledge-based
economy (KBE)

- globalization (WTO) & hyper-competition

- liberalising telecoms, banking & services industries

(healthcare, education, tourism etc)

- Develop manufacturing & services clusters

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Phase 6: Knowledge-based Economy (>2000) cont’d
- enlarge external economy
- further diversify FDI destinations to non - traditional
countries like Middle East, Latin America, Eastern Europe,
(South) Africa etc.
- integrate domestic & external economies for bigger GNP
(M&As by GIC, Temasek, Singtel, PSA, DBS, CapitaLand)
- continue to attract foreign talents in IT, life-sciences,
environment technology, electronics, digital media and
other knowledge industries
- maintain economic resilience, spearhead economic
redevelopment & reduce vulnerability

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Historical and Future GDP Growth of Singapore
Year GDP Growth (%)
1998 (post Asian crisis) -2.1
1999 6.4
2000 9.4
2001 (post 9/11 terror attack) -2.4
2002 2.2
2003 (post SARS) 0.8
2004 8.3
2005 9.0
2006 7.7
2007 8.0
2008 1.5
2009 (post global crisis) -2.6
2010 14.8
2011 4.9
2012 1.2
2013 4.1
2014 2.9
2015-2020 2-4 (Projected) 25
Recession 2009

The 2009 economic recession was different from past

recessions. It was more severe and triggered by the
collapse of banking and financial system in the US
initially spreading to Europe and other parts of the world.

All major regions of the world were experiencing economic

decline at the same time, which makes this the first
global recession in the post-war period.

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Recession 2009 (cont’d)
Immediate Economic Measures - ‘Resilience Package’
- Save Jobs with a Job Credit Scheme giving direct cash
grant to subsidize wage bill.
- Provide Loans for Businesses with a Special Risk-sharing
Initiative and a new Bridging Loan Programme to meet
working capital needs of mid-sized companies; loan
scheme for SMEs.
- Cutting Cost for companies (rebates and various tax cuts).
- Help Families with rebates on HDB services charges and
rentals.
- Invest for the Future through increased spending on
infrastructure e.g. roads, MRT networks, HDB upgrading
etc, and other sustainable development projects.

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Recession 2009 (cont’d)

The President and the Council of Presidential Advisors

were asked to approve the utilization of S$4.9b from
Singapore’s past reserves for the one-off expenditure on
the Jobs Credit Scheme and the Special Risk-sharing
Initiative.

Earlier in October 2008 the government had obtained the

President’s approval to use the past reserves to back the
government’s guarantee of all bank deposits in
Singapore. This has provided stability and confidence in
the Singapore banking system during the period of
economic uncertainty world-wide.

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C. GOVERNMENT’S ROLES IN ECONOMIC
DEVELOPMENT
• Adopts principles of free market & outward orientation
• Provides stable macro-economic environment of
- political stability & pro-business legislations
- favorable tax incentives
- harmonious industrial relations & disciplined workforce
• Provides hard infrastructures such as transportation,
telecoms & financial services
• Provides soft infrastructure of sound education system
• Facilitates business through EDB, A*Star, SPRING,
IESingapore, JTC Corporation etc.

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D. KEY CHALLENGES FACING SINGAPORE
ECONOMY

• Lower workforce growth due to decline in fertility rate

and aging population
• Lower workforce productivity
• Higher rental and business cost (higher property prices,
COEs and manpower cost etc)
• Lack of certain skills in identified growth sectors
(banking and finance, biomedical and pharmaceutical,
clean energy, digital media, tourism and hospitality etc)

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 E.THE ROAD TO RECOVERY AND BEYOND

Economic Strategies Committee Report (2010)

„ Higher productivity growth 2 to 3% per year.

„ Improve skills and less reliance on cheap foreign labour.
„ Increase spending on R&D to 3.5% by 2015.
„ Help SMEs grow. Doubling SMEs with revenue > $100m
to 1000 by 2020.
„ Distinctive Global City – new waterfront city;
underground space; a cultural capital and home to
diverse talents.

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Economic Strategies Committee Report (2010)
Recommends Economic Restructuring Measures in
2010
„ To raise economy’s productivity & lift workers’ salaries
„ To achieve sustained and inclusive growth in next stage of
development
„ To provide good jobs and reduce reliance on low-skilled foreign
workers
„ By 2030, 2/3 of workers will be PMETs, up from ½ now
„ To raise workforce productivity by 2 to 3% p.a. for next 10 years
„ To automate work processes, create innovative products and
services
„ To incentivize companies through Productivity & Innovation
Credit (PIC) schemes
„ To kick-start a virtuous circle of better skills, better jobs, higher
salaries where productivity gains will account for 2/3 of future
growth (from previous 1/5)
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Major Challenges for Singapore’s Economic
Restructuring
„ How to get firms to raise productivity and innovation while
keeping costs down
„ How can Government manage inflow of foreign workers and
incentivize firms to employ more Singaporeans
„ What assistance schemes can Government provide for firms to
raise productivity and competitiveness
„ How can individual Singaporeans keep pace with technological
changes and embrace life-long learning
„ How can work-life balance be attained through combined effort
of Government, employers and employees
„ Other emerging issues caused by external environment/global
competition

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F. CHARACTERISTICS OF FUTURE ECONOMY
OF SINGAPORE

„ A globalized economy, a key node in global network,

linked to all major economies and emerging regions
„ A creative and entrepreneurial nation, taking risks to
start new businesses
„ A diversified economy, powered by twin engines of
manufacturing and services
„ Singapore companies complement MNCs, new start-
ups co-exist with traditional businesses, exploiting
new and innovative ideas

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G. ROLES OF ENGINEERS/PROFESSIONALS IN
SINGAPORE’S ECONOMIC DEVELOPMENT

• Infrastructure development

• Hi-tech, value-added manufacturing & services

• Support services to MNCs

• Technopreneurs & SMEs

• R&D & innovations

• International ventures

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 REFERENCES

„ Website of MTI @ www.gov.sg/mti

„ Website of EDB @ www.sedb.gov.sg

„ Singapore’s Success: Engineering Economic Growth by

Ghesquiere, Henri, Singapore, 2007

„ Economy policy management in Singapore by Lim Chong

Yah (ed.), Addison-Wesley, Singapore, 1996

„ Singapore: A case study in rapid development by Kenneth

Bercuson (ed.), International Monetary Fund, Feb. 1995

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„ Singapore: Towards a developed status by Linda Low
(ed.), Oxford University Press, 1999

„ The political economy of a city-state by Linda Low,

Oxford University Press, 1998

„ Challenges & response: thirty years of the Economic

Development Board by Linda Low (et al.), Times
Academic Press, Singapore, 1993

„ The strategic economic plan: towards a developed

nation by the Economic Planning committee of the MTI,
Singapore, SNP publications, 1991

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„ Management of success- the moulding of modern
Singapore by K.S. Sandhu & P.W. Wheatly (eds.),
Institute of Southeast Asian Studies, 1989

„ Policy options for the Singapore economy by Lim Chong

Yah, McGraw-Hill, Singapore 1998

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 ADDITIONAL REFERENCES

„ Dynamic Governance - Embedding Culture, Capabilities

and Change in Singapore by Boon Siong Neo and
Geraldine Chen, World Scientific Publishing, 2007

„ A Mandarin and the Making of Public Policy-Reflections

by Ngiam Tong Dow introduced and edited by Simon
S.C. Tay, NUS Press, Singapore, 2006

„ Yearbook of Statistics Singapore 2014

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