Historical overview of Singapore, Economics

8/13/2019 Historical overview of Singapore, Economics.

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Singapore

A Shinning Experience

of a Central PlannedEconomy

Gustavo Almeida, 608

Hugo Vilares, 606

Francisco Farto e Abreu, 562

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Agenda:

Country ID & Historical Background

Political Framework

Social Framework

Economical Framework

External Relations & Challenges

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Where is Singapore?

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Population: 5 Mi

GDP: $239.700 BiGDP/capita (PPP): $61,046

Size: 692.7 km2(slightly smaller than NYC)

Geography: 1 main Island + around 30 smaller Islands

Ethnicities: Chinese (76.5%), Malay (13.8%), Indian (8%)

Official Languages: English, Mandarin, Malay, Tamil

Under British Rule, in the 19thcentury, it became a very importantport in the Europe-East Asia trade route

During WWII, Singapore was disputed by British and Japanese

Singapore gained its Independence in the 9thof August 1965(forced by the Federation of Malaysia)

Early days:

Country ID:

4

World Bank


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Low probability ofSuccess

Badneighbors

No naturalresources

Ethnic mix(nonationalmindset)

An equatorialnation withless than 700km2

In the 60s, SEAsia was either: Dictatorships Communist Malaysia

New-born nation w/ 3 ethnicitiesand 4 official languages

Military dictatorships

Malaysia

Communist inf. (Cold War)

What Now?!

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Investment in strengthening defenses

Gaining a seat in the UN

SecureIndependence

The PAP set the Housing DevelopmentBoard up, providing jobs and housingfor Singaporeans

Find a newsource of

Employment

The First World Oasis in a Third World

Region

Low corruption, low bureaucracy, highefficiency, high education

AttractingAmerican

MNCs FDI

Lee Kuan Yew, a Cambridge Alumnus and the founder of the PAP, shaped Singapore and

its values after his own: education, discipline, work ethics, and ethnic tolerance Richard

Vietor, HBS

Country-levelStrategy

Ever since its inception, Singapore has been conceiving a Nation-level Strategy, and

creating quite specific political, social and economical frameworks

Strategy:

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Agenda:


Political Framework

Social Framework



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Political System:

Each racial minority is represented in the Parliament with a minimum of 10%

Voting is mandatory (every 5 years)

Lateral job switching system in senior positions broader overview of the

country strategy

Internal Security Act: allows the government to make detentions indefinitely

without trial (not evoked since the 80s, with political opponents of the PAP)

Peoples Action Party:

Ruling party since 1stelection with no formal opposition until recently

HDB to help building and maintaining political base

Singapore is a Hybrid Regime, The Economist inits Freedom in the World Report

A benevolent dictatorship, Singapore lives a partly free regime,

The Freedom House, in its Freedom in the World Report

Political Framework:

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Agenda:


Political Framework

Social Framework



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Labor Market and Labor Unions:

Labor market legislation is flexible, but the National Wages Council still holds

an important say on wages Unions have been domesticated, as their leaders are involved in Parliament

and trained so as to incorporate the countrys strategy

Main feature of Singapores Social

frameworkControl

Social Framework:

Media Censorship:

Needed to maintain the delicate racial harmony, these restrictions have been

progressively loosened over time

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Control of Social and Physical Environment:

Clean and Green Campaign

River cleaned, trees planted, draining system improved insects extinction

Anti-spitting and chewing gums campaigns

High rates for driving in the CBD, and COEs subject to a bidding process (a car

that costs $20K, implies paying $10K, and $30K for the COE)

Social Framework:

Crime and Corruption Environment:

Crime rates are among the worlds lowest (due to high penalties highest per

capita execution rate in the world)

Singapores government ranks 5thin the Transparency International Corruption

Perception Index Singaporean government officials salaries are higher than in other countries, and

tied to macroeconomic performance

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Agenda:


Political Framework

Social Framework



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Economic Indicators

GDP growth11,7% (8th highest in 114 countries

reported)

GDP as % of U.S. (PPP converted) 25,19% (90th in 114 countries reported)

FDI in Gross Formation of Fixed

Capital9,2%

Gross Formation of Fixed Capital as %

of GDP9,7%

Labour and Population Indicators

Unemployment rate 10% (estimate)

Population Growth between 1960 and

196518,75%

Increase in Labour Force between

1960 and 1965344%

Infrastructure Indicators Singapore OECD Average

Telefone Lines (per 100 people) 3,1 13

Fast growing, lowincome country

Steady population

growth with high

unemployment

Under-developed

Infrastructures

Low Capital

In terms of Income, Singapore was identical to Jamaica

Economical Framework: stylized facts in 1965

World Bank

World Bank

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Financial Indicators Singapore OECD Average

Savings Rate (Note: There was a mandatory regimeset) 11,2% -

Domestic Credit Claims to Central Government (%

GDP)-20,72% 18,4%

Domestic Credit Claims to Private Sector (% GDP) 37,29% 67,86%

Total Openness of the Economy (% of GDP) 356% (1960) -

Manufacturi

ng 15,6% Financial

and

business

13,9%

Trade 29,5%

Transport

and

Communicati

on 11,6%

Constructio

n 6,8%

Other

sectors

22,6%

Source: Lan (2011)

In 1961 was reckognized by Singaporean Government that Trade Sector had

very limited capabilities to expand.

Sector Decomposition

Heavily dependent onits Trade Entrepot,

with a low developed

Private Sector.

Recognized dead end


World Bank

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Health Indicators SingaporeOECD

Average

Fertility Rate4,7 childs per women

(6th highest rate in the world)

Life Expectancy at Birth 67 Years 68 Years

Infant Mortality Rate 26 per 1000

Education Indicators SingaporeOECD

Average

Adult Literacy Rate 73%

Labour Force with Secondary Education 14%

Labour Force with Terciary Education 2%

Weak and non

universal education

system.

An average health

System


World Bank

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Steady Increase in Standards of Living was required.

Need to Stabilize the Infant Country

Lack of Infrastructures and Capital

Incipient Private Sector

Population and Unemployment Growth

Inexistant Natural Resources


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Labour-intensive & export-oriented

Keep the TradeEntrepot

Mandatory HighSavings

(Reform plans andto grant economy

with investmentcapacity)

Diversify theEconomy,

investing inLabour Intensive

Sectors

Attract ForeignDirect

Investment

Steady andSustainable

Growth

ShipRefitting

and repairChemicals

MetalEngineering

ElectricalEquipment

andappliances

Singapore Central Planned Economy: 1stPlan (65-73)

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FDI attraction Strategy

A one-stop shop for an investor.Reduced 20% the cost of initialinvestment in the Country.

Implement theEconomic

Development Board

Several coporate tax exemptions forforeign investment.Corporate TaxIncentives

Pre Infrastructure investment to preparethe arrival of foreign investors in theplanned industries

InfrastructureInvestment

Focus on stable exchange rate and lowinflation.

Great openness to exterior in trade andimmigration policy.

Stable MonetaryPolicy and Free

Trade Environment

Oil Shock in

1973

Singapore Central Planned Economy: 1stPlan (65-73)

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GDP Growth

Labour Shortage

Oil Dependent

The oil shock pressureprofits in energyintensive industries(Core of SingaporeanEconomy)

Low value addedindustries

The Strategy was exhausted. Singapore was bumping the limits

of growth again

Plan Outcome:

Source: Khuong (2011)

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Upgrading and Diversifying

Move up the valuechain through strong

investment in

Human Capital

Keep MandatoryHigh Savings

(Investment capacity)

Diversify theEconomy, investing inCapital/Technological

Intensive Sectors

Develop FinancialSector as a leverage

of the Economy


Growth

Petro-quimicals

MachineTools

SophisticatedElectronicsand officeequipment

PrecisionEngineering

A more selective FDI

Strategy to the

targeted industries

Singapore Central Planned Economy: 2ndPlan (73-79)

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GDP Growth

The Strategy was exhausted. New strategy

required

Industrial Countrieswere entering in a

Slowdown

Economy washeavily

dependent onDevelopedCountries

DevelopedCountries had

increasingly beenproteccionists

Plan Outcome:


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Economic Restructuring

High Wage Policyto discourage

labour intensive

industries

Skill DevelopmentProgram(give

subsidies to firmsthat invest in

training)

Find Highproductivity and

value-added

niches

Public Companiestook over several

activities torestructure and

promote theprogram


Growth

Manufacturing

Trade &Tourism

Brain

Services

Transportsand

Communications

Minimum wage

increased 80% in

1979-81 period

Singapore Central Planned Economy: 3rdPlan (79-00)

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Temasek Holdings:

Governments investment arm (in 2000 had

20% of Singapores market cap)

Allowed the Government to had stakes in allthe key areas in the Economy

Singapore Airlinessuccess case study

100% government, with private industry s

operational discipline


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Plan to foster Investment (specifically targeting High Value Sectors)

Passed from 40% to 4%Export Tax cut for high

value added sectors

Refund on 50% on investment in machinery and plantsTax cut on fixed

investment

Broad set of incentives to foster computarization, mechanization,innovation and upscalling of plants;

All machinery could be written off in 5 to 10 years;

R&D was double deductable;

Warehouse Incentive

By 2000 it was clear that a new plan was needed to secure the steady growth

Singapore Central Planned Economy: 3rdPlan (79-00)

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Economic Restructuring II

Keep the baseof the Economybut intelectualcapital is key

Adjust theIntelectual

Property Law

Find Highproductivityand value-

added niches

Invest in requiredphysical, financial

and intelectual

capital to attract thetargeted industries


Growth

BiomedicalIntelectualProperty

Biotechnology

HealthCare

Industries

Objective: Become the

Biopolis of Asia

Boston of the East

Singapore Central Planned Economy: 4thPlan (2000)

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GDP Growth

-20%

0%

20%

40%

60%

80%

100%

1965-1980 1980-1990 1990-2000 2000-2008

Sources of GDP Growth

Contribution of Capital Contribution of Labour Total Factor Prod.

Economic Changes after the Plans:



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FDI Growth

0

10

20

30

40

50

60

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Thousand

sof$

GDP per Capita (in purchasing power parity)

European Union OECD members World Singapore United States


Source: Lan (2011)

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Sectorial Transformation

-20%

0%

20%

40%

60%

80%

100%

120%

1965-1980 1980-1990 1990-2000 2000-2008

Contribution to Average Labour Productivity Growth

Capital Deepening Total Factor Prod.

0%

1%

2%

3%

4%

5%

6%

7%

1965-1980 1980-1990 1990-2000 2000-2008

Average Labour Productivity Growth

In a first period the growth

was driven by capital

accumulation and steady

gains in productivity.In a second period the

growth is sustained by

industry value-added


Source: World Bank

Source: World Bank

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Education System

Health Indicators Evolution

73.4

75.5

77.778.9

79.8

71.6

75.6

78.780 81

1980 1990 2000 2005 2010

Life Expectancy at Birth

Very High Human Development Singapore

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

1965 1970 1975 1980 1985 1988

Feritility Rate

0.778

0.812 0.8390.852

0.855

0.733

0.815 0.876 0.893 0.921

1980 1990 2000 2005 2010

Human Development Index

Very High Human Development Singapore

Development Indicators after the Plans:

Source: World Bank

Source: World BankSource: World Bank

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Agenda:


Political Framework

Social Framework



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Exports represent 230% of GDP (2011). Where is value coming from?

Source: The Observatory of Economic Complexity

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70% of all inter-ASEAN trade moves through Singapores port (the 2ndbusiest worldwide)ASEAN

The next great market opportunity versusa considerable threat

Need to be one step ahead the value-added chainChina

International Tradeframework

Exchange-ratestability orientation

Low inflation, int.

rates at par withforeign

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External Relations:


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13.9%

14.0%

15.1%

17.8%

25.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

1965 1970 1978 1980 1985

Financial Services

Financial

Services

Recent experience shows that countries where the banking sector is several timeslarger than the economy are, on average, more vulnerable. Mario Draghi

Capital controls loosened for financialdevelopment and FDI.

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Policies undertaken:-High savings and reserve accumulation;-Rely on Political Stability;-Strong balance sheets of Banks (Core tier 1 of 9.2% 2007);

External Shocks:

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-20%

0%

20%

40%

60%

80%

100%

1965-1980 1980-1990 1990-2000 2000-2008

Sources of GDP Growth

Contribution of Capital Contribution of Labour Total Factor Prod.

Scaling upof the

economy

Need for highskilled labor

Increase oflabor share onincome

The 2008 financial crisis

2008 2009 2010 2011 CAGR

TFP growth -5,6% -4,8% 9,6% 0,6% -0,1%

Singapore faces a key challenge in raising productivity and innovation as globalcompetition heats up. Moodys

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Productivity Challenge


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Country FDI (billion $) 2011

China 220b$

Singapore 64b$

Indonesia 18b$

Malaysia 12b$

Thailand 7.7b$

Vietnam 7.4b$

0.8

0.85

0.9

0.95

1

1.051.1

1.15

1H09 2H09 1H10 2H10 1H11

RER-ULC

vis-a-vis China

vis-a-vis Korea

vis-a-vis Taiwan

106.0

108.0

110.0

112.0

114.0

116.0

118.0

120.0

2009 2010 2011 2012

ULC

ULC

Source: Singapore Department of Statistcs

Source: JPM Global Data Watch Nov12

5.6%

Gain of competitiveness

against China but notagainst knowledge-based

economies.

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Other Net Receivers of FDI in the Region:


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Immigration

High-skilled(20%)

Low-skilled(72%)

Students(8%)

Steady growth with historicalhighs in 2000s. In 2008 immigrants

increased by 19%.

We cannot continue going like thisand increasing our population 100,000,150,000 a year indefinitely Lee Hsien Loong (PM in Office)

Source: Migration Policy Institute

Social pressure

to integrate and

rise ofnationalistic

feelings

Shortage of

Land

Decreasing working

permits for low-skilledmostly (mainly for 2011

general elections)Land reclamation: Singapore

increased his land by 21%

from 1960 to 2010.

Migration Challenge:


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When asked about this, PM Goh called them quitters.

Is this Social and Political framework sustainable formuch longer?

What may happen if it collapses?

20% of Singaporeans considered leaving the country, citing factors such as the high

cost of living, the stressful educational system, and the unresponsive overbearinggovernment ACNielsen

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Social and Political Challenge:


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Is this social and political

framework sustainable?

What if it collapses?

Country ID, Road

to Democracy,Early days

Wrap-up:

no natural resources,

unemployment, ethnicmix, bad neighbors

shaping unique political,

social and economical

frameworks

Political system, role

of PAP, worlds

perception

Context in 65, Structural

Plans to maintain

growth, FDI and scaling-

up, Boston of the East

CONTROL: unions,

media, crime, physical

environment

Economical framework

IS IT SUSTAINABLE?

Political frameworkSocial framework

Country StrategyWhat Challenges?Intro

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China, ASEAN, and

the exchange-rate

focus

External Relations

Productivity: keep on scaling-up?; Competitors: can they

catch up? Immigration: who

is coming in?

New Challenges

Documents

Historical overview of Singapore, Economics