UNIVERSITY OF BOHOL

PROFESSIONAL STUDIES

SINGAPORE: WORKING TOWARDS PROSPERITY

August 23, 2022

Report submitted to:

Dr. AMMON DENIS R. TIROL, DM, CPA
as partial fulfillment of the requirements in
BA205 – SURVEY OF ECONOMICS
Summer AY 2021-2022

KEZIAH REVE B. RODRIGUEZ

MASTER OF SCIENCE IN BUSINESS ADMINISTRATION
Singapore: Working Towards Prosperity
BA205 Survey of Economics
University of Bohol Graduate School and Professional Studies

Table of Contents
An Overview of the Economy 3
The Founding Myth 3
A History of Growth 4
The Twentieth Century: From Policy to Results 4
Human Capital (Resource) Development 6
The Twenty First Century: New Horizons 7
A New Market Growth 7
An Attempt to Develop Regional Trade 8
The Region and Changing Investment Patterns in the Twenty-First Century 8
Conclusion 9
Summary of Singapore’s Economic Progress 9
Singapore’s Level of Income in Terms of Gross Domestic Product 9
Singapore’s Generation of Income 9
Singapore’s Distribution of Income 10
1965–1984: Export-led Industrialization Through Multinationals 10
1985–2010: Liberalization and the Rise of Modern Services 11
2011–2025: Demographic Slowdown and Economic Restructuring and Recovery 11
References 13

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Singapore: Working Towards Prosperity
BA205 Survey of Economics
University of Bohol Graduate School and Professional Studies

An Overview of the Economy

Small but terrible. Despite Singapore’s geographic size, it is now the 15th largest
trading partner of United States. Singapore has built strong trade agreements with several
countries in South America, Europe, and especially, Asia. There are currently over 3, 000
multinational corporations functioning in the country, accounting for more than two-thirds of
its manufacturing output and direct export sales.

With just a total land area of 433 sq. miles and a small labor force of 3 million people,
Singapore can produce a GDP that exceeds $300 billion annually, higher than three-
quarters of the world. The life expectancy is 83.75 years, the third highest in the world. The
country is also considered to be one of the best places to live if the strict rules will not be
considered.

Singapore ranks the best country in the world in human capital development. This
means that child born today in Singapore will be 88% productive when she grows up as if
complete education and full health has been enjoyed. Together with strong financial support
from the government, the country continues to strengthen the nimbleness and flexibility of
its workforce by providing continuing education. Government spending on continuing
education will nearly double to more than S$ 1 billion annually.

Singapore’s model of sacrificing freedom for business is highly controversial and

heavily debated. Regardless of philosophy, its effectiveness is undeniable.

The Founding Myth

The State of Singapore Act was passed in Britain on August 1, 1958. The People’s
Action Party triumph over the elections on May 30, 1959, leading to the 1958 act to be
adopted as the Constitution of Singapore on June 3, 1959, installed Lee Kuan Yew as the
Prime Minister of Singapore on June 5, 1959.

After gaining independence, the city-state of Singapore created an extensive state

capitalist sector which still exists today. The Singaporean government inherited some parts
of this sector form the British colonial era, but other parts were built up by the government
itself, in absence of a domestic industrial entrepreneurial class to jump start industrial
development, make the society more prosperous, and preserve the independence of
Singapore. (Volgyi, 2019)

Together, the state capitalist sector and foreign transnational corporations are the
two main pillars of economic growth and development in Singapore. They have had an
indisputable role in transforming Singapore, over decades, into one of the world’s wealthiest
and most competitive countries.

In Singapore, the state acts as an entrepreneur. The management of state-owned

enterprises is based on the principles of the market and effectiveness. Loss-making

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Singapore: Working Towards Prosperity
BA205 Survey of Economics
University of Bohol Graduate School and Professional Studies

enterprises are not saved but closed. Since its creation in the 1960s and 1970s, the
Singaporean state capital sector ahs been continuously changing. On the other hand, the
state has withdrawn from some economic sectors, while on the other hand, it has expanded
into others according to the economic development aims of Singapore. As a result, the
Singaporean state capitalist sector is always restructuring. The government decided to
privatize companies not only partially or wholly because they were loss-making entities, but
also if the participation of the state was no longer needed in a specific sector. Since the
1980s, many of Singapore’s professionally managed, profitable state-owned enterprises
operating in a competitive market environment have begun to expand regionally and
globally beyond the borders of the city-state and have become important actors in the
respective sectors of the global economy.

A History of Growth

Singapore’s history is a crystal-clear example of the close relationship between

economic growth and political stability. On the current date, Singapore has a population of
about 6 million people with reclaimed land of 277 square miles of territory. During the fifty
years of economic development, it has transformed from a modest trading post to an alluring
world-class metropolitan city. Singapore’s current developed country status is an enormous
opposite to its early days of independence when strikes and riots were its routine.

After the independence of Singapore in 1965, the first Prime Minister, Lee Kuan Yew
was able to provide the newborn Republic of Singapore the stability and security it needed
in 1969. The island’s stability comes from the fact that the legal system is “clear, secure,
and efficient.” Even before 1965, except for 1964, Singapore has started to grow
economically. The slowed growth in 1964 is a result of the lone full calendar year in which
the country was part of Malaysia, which was marked by severe racial riots and the
Konfrontansi campaign of Indonesia that got in between Singapore’s trade.

For much of its history, the growth of Singapore’s GDP has been clear closer to 10%
than to 5%. This is the result of spontaneous market-free growth nor is it the result of a
consistently applied economic policy. On the other hand, their policies were modified
countless times. The country has varied its economic policies from time to time to lead its
workforce up the productivity and value ladder. Also, Singapore has continued to refurnish
its administration to heighten the efficiency of procedures necessary for business.
Singapore is considered a “business-friendly” country.

The Twentieth Century: From Policy to Results

With small domestic market and limited natural resources, Singapore was forced to
plug into the global economy early in its development. During the 1950s and the early
1960s, Singapore has been heavily relying on the vicinity of Malaysia. Due to the
expectation of a common market, the two countries had decided to adopt the Import-
substitution strategy (ISS) which is by nature, a policy that is based on self-sufficiency.
Being self-sufficient gives benefits to Singapore including immunity to exchange rate

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Singapore: Working Towards Prosperity
BA205 Survey of Economics
University of Bohol Graduate School and Professional Studies

flexibility, specialization in specific types of goods and services, and making sure the quality
and excellence and innovation and creativity.

On the downside, ISS was not for Singapore considering the policy is dependent on
a large population and consumers with adequate disposable income. Singapore did not
have a sufficiently large population to sustain the policy. Due to this event, ISS had to be
disposed as an option when separating from Malaysia. This set Singapore off on an export-
oriented trajectory, slashing trade barriers and actively seeking foreign investment. This
change in orientation brought Singapore an average growth rate of 10% from 1965 to 1979.
In 1965, when Singapore first became independent, its total trade amount is S$6.8 billion.

The government of Singapore began to pursue exports as the basis of economic

development and thus national security. However, the detail rather than the fact of planning
is what is most striking. There is no mystical or magical thinking, only an understanding of
the challenges that were forecasted and a rational choice of actions to overcome the
challenges. This began soon after self-government and continued for the rest of the
twentieth century.

In 1965, the Minister of Finance repeated the importance of creating manufacturing

jobs to ensure the development of the country. This would be done by a limited number of
businesses capable of manufacturing competitive products. The minister further noticed
that the higher skilled workers would only contribute to the economy if they had jobs, and
to this end, it was important to proceed in attracting multinationals to manufacture in
Singapore, and to encourage the expansion of manufacturers in the country. This is to keep
targeted firms in a fast-paced industries current. He also announced a sequence of fiscal
incentives for these purposes.

Increasing labor shortages, labor costs, the increase of protectionism among

developed countries for labor-incentive industries and the rise of nations whose competing
economies featured low labor costs all brought the country to deploy a new stage in
economic policy in the late 1970s, increasing R&D, upgrading labor skills, and further
encouraging businesses towards more advanced processes and outputs. This resulted into
a long run of ever-increasing GDP and increasing exports, so much so that the trade
balance became consistently positive and large that it became a significant fraction of GDP,
passing 10% in the early 1990s and averaging 20% in the 21st century.

The economic development of Singapore has been defined as a movement from

exclusively trade to low-skilled, simple manufacturing, then to intermediate, higher skilled
manufacturing, on to high technology, and then on to business, financial, and health
services. The Global Financial Centres Index rates Singapore as number 4 in the world on
2018, and the Boston Consulting Group Wealth Report ranks Singapore 3rd in the world for
offshore finance. The rise of Singapore offering financial services began in 1968 when Bank
of America licensed the country to handle transactions for non-residents, this then lead to
the “Asian dollar” or “Asian Eurodollar” market.

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Singapore: Working Towards Prosperity
BA205 Survey of Economics
University of Bohol Graduate School and Professional Studies

There are two things that took place in 1984 that contributed to Singapore’s
economy: services rose in importance and overall economic performance flunked.
Manufacturing activities decreased in great terms as well as relative to GDP. The GDP from
services increased in absolute terms but the total GDP still decreased in the year 1985.
There was already a recession that began in the country that lasted throughout the year.
Even though the downturn after the Asian financial crises was more impactful, the recession
on 1985 was far more burdensome for Singapore. However, the government of Singapore
carried out a cold analytical diagnosis, including internal and external factors, and moved
to address those factors it controlled. Among its many actions was one that would reduce
costs and reduce savings.

Nevertheless, manufacturing activities has become more sophisticated from 1980s

onwards and this has been dubbed as the second industrial revolution period of Singapore.
The pharmaceutical, biotechnology, medical technology, electronics, and engineering
industries were given importance by the Economic Development Board during the 1990s.
Categorizing industries as more sophisticated than others is somehow subjective.
Additionally, much of the increasing sophistication occurred within industries, resulting in
greater productivity, rather than through changes in the mix of industries.

It has been shown that the value added per worker for industry increased more
rapidly in Singapore than in other industrial countries, the highest ranked on the Economic
Complexity Index.

Human Capital (Resource) Development

When Singapore gained independence in 1959, its literacy and morbidity rates – two
most important measures of human capital – were like those of other lower-middle-income
countries. In 1960, the port city-state’s per capita gross domestic product was US$428, less
than the world average of US$453 and less than one-sixth of the United States.

Modernizing the economy and achieving prosperity required building and

harnessing Singapore’s human capital. The government charted a new path for Singapore,
adopting a fast-paced industrialization strategy to create employment for an unskilled
workforce and generate export earnings. Implementing that plan required overcoming
fundamental challenges such as ethnic tension, high unemployment, regional instability,
and turmoil caused by Britain’s withdrawal from the former colony. From these difficult and
uncertain beginnings, Singapore would attain the highest score of any country in the world
in the World Bank’s 2018 Human Capital Index, which considered several health and
education indicators. This delivery note examines some of the strategic decisions and
policies that contributed to Singapore’s success (Yusuf, 2020).

Singapore’s experience illustrates the “whole of government” approach that,

according to the Human Capital Project, can overcome challenges countries face in
developing their human capital. The three elements of this approach are continuity
(sustaining effort across political cycles), coordination (ensuring that sectoral programs and

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Singapore: Working Towards Prosperity
BA205 Survey of Economics
University of Bohol Graduate School and Professional Studies

agencies work together), and evidence (expanding and using the evidence base to improve
and update human capital strategies). This delivery note focuses on the continuity and
coordination that defined Singapore’s success (Human Capital Project, 2019).

The Twenty First Century: New Horizons

At the turn of the millennium, Singapore continued to be an important trade and

transportation hub, provided regional headquarters for multinational corporations, boasted
competitive manufacturing in relatively advanced industries and had added financial and
other sophisticated services. The nation had weathered the Asian financial crisis well. Gross
capital formation as a percentage of GDP dropped from the high 30s to the high 20%.

There was nonetheless a limit upon growth through increasing sophistication. While
a large and growing portion of Singapore’s workforce has become capable of increasingly
sophisticated production in manufacturing and services, there is a limit to the breadth of
diverse technical know-how within a population of six million. Further, the workforce of
Singapore will begin to shrink in 2020 and is ageing. A painful observation for Singapore is
that GDP growth closely follows the growth of the foreign workforce

GDP continued to increase, nonetheless. New markets, or at least the rapid growth
of previously small markets, and new development of an established export industry—
tourism—contributed to the growth of GDP. Despite these, however, exports began to falter
in 2011 even as GDP continued to grow. More of the value added created in Singapore
manufacturing and services was being consumed in the country, and the current account
(exports less imports of goods and services) grew rapidly. Still Singapore sought to
stimulate growth, looking to the immediate region and beyond. The following pages cover
these points in greater detail.

A New Market Growth

The first few decades of the new century were helped by the rise of a previously
small market: China and with mainland China, Hong Kong. It has been shown how exports
to China and Hong Kong have increased, while those to the other principle destination, the
USA, have varied considerably but with a flat trend. Between them, Hong Kong and
mainland China accounted for a quarter of Singapore’s exports in trade and services in
2018, in about equal measure. Further, Singapore has a positive trade balance with both,
in contrast to the notable exception of trade with the USA

Tourism is an exported service, so efforts to increase tourism can lead to increased

added value in exports. Although tourism was expanding in the Asia Pacific region, receipts
from tourism were flat in Singapore over the last five years of the twentieth century, at
around US$6 billion. Although both tourism and the new markets of mainland China and
Hong Kong did bolster exports and GDP, and while the trade balance of Singapore has
been growing, the volume of exports has faltered since 2011. GDP, in contrast, continued
to grow albeit more slowly.

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Singapore: Working Towards Prosperity
BA205 Survey of Economics
University of Bohol Graduate School and Professional Studies

Singapore’s exports had grown vertiginously in the twentieth century; however,

exports to neighboring countries were rather disappointing. Neighboring economies had not
kept pace with Singapore and were unable to absorb Singapore’s exports. Singapore would
have fared even better had other ASEAN neighbors grown as rich with consequent
purchasing power. Whether intentionally or not, Singapore has twice tried to address this
problem, first by trade (mostly in the twentieth century) and second by investment (mostly
in the twenty-first century).

An Attempt to Develop Regional Trade

Prompted by a lack of endowments and sluggish advancement in ASEAN
integration, Singapore searched for more free trade agreements (FTAs) with other global
trading partners. Unfortunately, this was viewed as undermining the ASEAN spirit by
allowing a “back door” entry for its global partners into the ASEAN markets. That is, other
global trading partners would sign an FTA with Singapore and be granted access into the
ASEAN markets by virtue of bilateral arrangements. Singapore ensured that its
relationships with ASEAN members would not be undermined by a “back door” entry. In a
bid to appease its ASEAN neighbors, the city-state took the initiative by fostering closer
economic and trading ties with its immediate neighbors and leading regional economies

As the partnership developed, competition between the economies overshadowed

cooperation. Singapore benefited from its earlier investment in labor skill formation.
Because it took advantage of its comparative edge in human capital development, foreign
firms did not need to devote many resources to staff training and development.

Singapore strived to be a valuable partner to support the development and growth

of its partners. Beyond growth, the city-state also made every effort to stay useful to the
region when neighboring ASEAN partners had attained a certain level of development.

The Region and Changing Investment Patterns in the Twenty-First Century

Besides finding new markets for existing businesses, another way to seek increased
returns was to invest abroad. This would not increase GDP but would increase income.
Distribution of that income would be another issue. Singapore’s direct investment abroad
doubled in the final five years of the twentieth century and octuple since then. This is
equivalent to roughly double the GDP of Singapore in 2016 as compared to a little more
than one-third of GDP in 1994. The 1997 Asian financial crisis meant that there were many
bargains available at the start of the new millennium. However, this change to increased
investing abroad also derives from government encouragement

Destinations were no doubt decided by investment opportunity, contacts and

familiarity. Eventually this should lead to a steeper increase in national income than in gross
domestic product, but this has not proven to be the case so far.

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Singapore: Working Towards Prosperity
BA205 Survey of Economics
University of Bohol Graduate School and Professional Studies

Conclusion

Unlike most of its neighbors, Singapore boasts a strong stable government that
directs the economy towards greater prosperity rather than ceding to the interests of groups
that exploit a protected status quo. It has repeatedly rebounded from external shocks to
return to rapid long-term growth. This growth has been achieved by climbing a ladder of
increasing sophistication in manufacture and in services for export—as a litmus test for
competitiveness—as well as for internal consumption.

For someone seeking to do business in Southeast Asia, or even all Eastern Asia,
Singapore is an obvious option to prefer. Rents and wages are higher than elsewhere in
the ASEAN region. However, the workforce is skilled and disciplined and usually speaks
both English and Malay, Mandarin, or Tamil (opening the doors to markets of a few hundred
million or a billion and half people). Even more important is the business environment, with
a streamlined bureaucracy and skilled bureaucrats looking to facilitate endeavors, not
control them.

Summary of Singapore’s Economic Progress

1965 - 1984: 2011-2025:

1985-2010:
Export-led LIberalization and Demographic
Industrialization The Rise of Modern Slowdown, Economic
Through Services Restructuring and
Multinationals Economic Recovery

Singapore’s Level of Income in Terms of Gross Domestic Product

• In 1965, Singapore’s nominal GDP per capita was around US$500. We were at the
same level as Mexico and South Africa.
• In 1990, GDP per capita had risen to about US$13,000, surpassing South Korea,
Israel, and Portugal.
• In 2015, GDP per capita was about US$56,000. We had caught up with Germany
and the United States.
• By 2040, when GDP per capita had reached US$96,000, same level as the top-
ranked countries in the world and benchmarked became cities.
• At present, GDP per capita is US$56, 746, fourth highest among cities in the world
(GDP per Capita, 2022)

Singapore’s Generation of Income

• In 2015, Singaporeans worked 2, 300 hours

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Singapore: Working Towards Prosperity
BA205 Survey of Economics
University of Bohol Graduate School and Professional Studies

• The carbon intensity of Singapore economy has fallen sharply

• At present, Singaporeans has emitted 0.2 kilograms of carbon to produce a dollar
of output

Singapore’s Distribution of Income

• Income distribution has become more equal, thanks to heavy investments in building
human capital and skills as well as a tax and transfers system that has become more
progressive over the years.
• Wealth inequality has remained more stubborn though.
o At present, the top 1% and 10% of wealth holders in Singapore own around
20% and 60% of total wealth respectively.

1965–1984: Export-led Industrialization Through Multinationals

Key Events:
• An island of 580 squares kilometers at low tide, Singapore in 1965 had no natural
resources, no hinterland, no industry
• It depended on the outside world not just for food and energy, but even water.
• Industrial strife was common. Unemployment was close to 9%.
• Separation from Malaysia meant the loss of not just a common market but a
hinterland.
• Indonesia’s Confrontasi cut off Singapore’s southern hinterland, further undermining
the fledgling nation’s traditional role as an entrepot trading post for the region.
• In 1968, the British government announced a withdrawal of its troops from
Singapore, which left thousands of workers without a job and as much as a fifth of
the economy at risk of coming to a halt.
• The government developed industrial land, put in place infrastructure facilities,
reformed labor laws to promote industrial peace, and invested in basic education
with an emphasis on technical skills relevant to industrialization.
• Sound fiscal and monetary policies ensured macroeconomic stability and
underpinned investor confidence.
• By 1975, Singapore had established a substantial industrial base, with
manufacturing’s share in GDP climbing to 22% from 14% in 1965.
• The economy was at full employment, and it was clear that Singapore had to move
up the value chain towards more capital-intensive and skill-intensive activities.
• Industrialization began in the 1960s with factories producing items such as matches,
fishhooks, and mosquito coils.
• In the 1980s, Singapore became the world’s leading producer of hard disk drives –
an early form of memory storage used in computers at the time.

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Singapore: Working Towards Prosperity
BA205 Survey of Economics
University of Bohol Graduate School and Professional Studies

1985–2010: Liberalization and the Rise of Modern Services

Key Events:
• As the earlier phase of “catch-up” growth came to an end, resource constraints and
diminishing returns to investment began to set in.
• The cost advantage that Singapore enjoyed began to narrow.
• The share of modern services in GDP increased steadily, from 16% in 1965 to 24%
in 1985 and 28% in 2010
• The 1985 recession was a significant milestone in Singapore’s development history.
It led to a fundamental review of the policies and strategies that prevailed at the
time. The most important outcomes from that period of review which continued into
the 1990s were the structural reforms to:
o enhance wage flexibility in the labor market.
o tap more decisively into regional markets for trade and outward investment.
o step up the pace of industrial upgrading.
o promote innovation, enterprise, and entrepreneurship in the economy; and
o liberalize various services sectors such as finance, telecommunications, and
utilities
• In the late 1990s and early 2000s, the insurance and securities industries were
completely liberalized and progressive steps were taken to open up the domestic
banking industry to foreign competition.
• The government embarked on a plan to computerize the civil service in the early
1980s.
• In 2005, the government decided to allow two casinos to operate within integrated
resorts that also included leisure facilities, business and convention zones, and high-
end retail outlets.
• By 2010, Singapore was an affluent society and a global city, at the cross-roads of
international flows of trade, investment, finance, and talent
• It was also a period in which the economy was buffeted by one crisis after another:
o the Asian Financial Crisis in 1998;
o the collapse of the global IT industry in 2001;
o the spread of the deadly SARS virus in 2003; and
o the Global Financial Crisis in 2008

2011–2025: Demographic Slowdown and Economic Restructuring and Recovery

Key Events:
• By 2011, annual growth in the total working age population had declined to less than
3%, and continued to fall steadily over the decade.
• Foreign labor, which had driven Singapore’s labor force growth since the late 1970s,
was already one-third of the total workforce.

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Singapore: Working Towards Prosperity
BA205 Survey of Economics
University of Bohol Graduate School and Professional Studies

• It was neither economically efficient nor socially desirable to allow the foreign
workforce to expand much faster than the local workforce. By 2020, average total
labor force growth was down to 1% per annum
• The growth of lower-skilled foreign labor was curbed through increases in the foreign
worker levy and reductions in the foreign worker dependency ratio ceilings.
• Financial incentives were given to firms to undertake capital deepening and adopt
technology solutions to raise productivity.
• Programs were put in place to help Singaporeans develop and master skills in new
growth clusters.
• It proved particularly challenging for many traditional domestically oriented services
like retail, hospitality, construction, real estate, and social services, which had come
to be heavily dependent on cheap labor over the decades.
• While many firms in these sectors successfully upgraded themselves and became
more efficient, there was a substantial reduction in the size of these sectors by the
early 2020s.
• For the full year 2021, GDP grew 7.6% versus an initial 7.2% estimate and a 4.1%
contraction in 2020. Last year's growth was the highest in a decade.
• Output of the construction sector was expected to remain below pre-pandemic levels
throughout 2022
• Affirmed 2022 core inflation forecast at 2-3% and headline inflation at 2.5–3.5%
• By 2025, international students studying in Singapore could be awarded joint
degrees from 10 of the top 20 universities in the world.
• Singapore was well on its way to become the premier educational hub of Asia.
• By 2025, Singapore had become a multi-faceted medical hub hosting the world’s
top medical professionals and multi-national healthcare companies.
• This led to a vibrant ecosystem that created jobs in areas from research and training
to conventions for medical professionals both locally and abroad, in addition to the
large and diverse number of good jobs in hospitals.

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Singapore: Working Towards Prosperity
BA205 Survey of Economics
University of Bohol Graduate School and Professional Studies

References
Aravindan, A. (2022). Singapore keeps 2022 growth forecast as economy stays on
recovery path. Retrieved from Reuter:
https://www.reuters.com/markets/asia/singapore-slightly-upgrades-q4-gdp-keeps-
2022-forecast-2022-02-17/

GDP per Capita. (2022). Retrieved from Worlometer:

https://www.worldometers.info/gdp/gdp-per-capita/

Human Capital Project. (2019). How countries nurture Human Capital. Retrieved from
World Bank:
https://documents1.worldbank.org/curated/en/270541555605484950/pdf/Human-
Capital-Project-How-Countries-Nurture-Human-Capital-Implement-a-Whole-of-
Government-Approach.pdf

Macdonald, R. (2019). Southeast Asia and the ASEAN Economic Community. Cham,
Switzerland: Palgrave Macmillan. doi:https://doi.org/10.1007/978-3-030-19722-3

Volgyi, K. (2019). A Successful Model of State Capitalism: Singapore. In M. Szanyi,

Seeking the Best Master: State Ownership in the Varieties of Capitalism. Central
European University Press.

Yusuf, S. (2020). How Singapore Does It. World Bank.

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