Singapore Economic Structure

Singapore’s economy is one of the most open, and thus competitive, markets in the world. According to the 2011 World Bank Ease of Doing Business Index, Singapore is ranked first in the world for doing business – ahead of Hong Kong and New Zealand. Singapore is also ranked third in the World Economic Forum’s Global Competitiveness Report behind Switzerland and Sweden.

Singapore’s economy is one of the most open, and thus competitive, markets in the world. According to the 2011 World Bank Ease of Doing Business Index, Singapore is ranked first in the world for doing business – ahead of Hong Kong and New Zealand. Singapore is also ranked third in the World Economic Forum’s Global Competitiveness Report behind Switzerland and Sweden.

The economy of Singapore is best described as a mixed economy. Although the country strongly advocates free-market policies and practices, this has come hand-in-hand with strong government intervention as well, particularly in macroeconomic management and major factors of production such as land, labour and capital resources. Oddly enough, both the free market and the state have a high degree of influence on the economy. This unique, yet highly successful, form of economics has been dubbed as the Singapore Model.

The Singapore Model seemed to have been born out of necessity. Ever since the country was found by the East India Company in 1819, the economy of Singapore has hinged on a free port with a free market. Singapore relies heavily on international and regional markets as its own domestic market is relatively small. As such, Singapore had to develop a high degree of economic openness, free trade and free markets in order for the economy to thrive. However, the inherent vulnerability in depending on external markets compelled the government to enact economic policies that would safeguard the country from perturbations in the global market. The government has also been responsible for developing new economic initiatives and industries that could respond to the needs of the global market. To date, the Singapore Model has proven to be extremely successful. Globally and regionally, Singapore’s economy has demonstrated astounding resilience to financial crises such as the 1997 Asian Financial Crisis or the 2008 Global Financial Crisis. Singapore is the only Asian country to have AAA credit ratings from all three major credit rating agencies – Standard & Poor’s, Moody’s and Fitch.

Government intervention has trickled down to various facets of society as well, from education to transportation and to the media. Often, this has led to social policies that have been catered towards enhancing the economy. A common label for the country is that of “Singapore Inc.” – where the country appears to be run more like a business, rather than as a nation itself.  

Singapore’s Economic Geography

After the East India Company found Singapore in 1819, it quickly became a thriving port city due to its deepwater ports and strategic geographic location as a trade route between India and China. Today, Singapore continues to retain strategic importance as a centre of trade around Asia. Singapore is the busiest port in the world, above Rotterdam and Hong Kong. Many Multi-National Companies (MNCs) have also set up their regional headquarters in Singapore, due to its high degree of globalisation and accessibility to other markets.

Singapore has virtually no natural resources. As such, trade is highly important in order to meet domestic demand for energy, food, and other necessities. Singapore regularly engages in entrepôt trade, whereby industries and business import raw materials, before refining them for re-export.

Despite a relatively small land area of 687 sq km, Singapore aims to be a global and regional hub for multiple activities, including trade and finance. Limited land area in Singapore has led to strong government planning and regulation for land use. Singapore is also increasingly turning to land reclamation from the sea in order to meet the demands of a growing population.

Singapore’s Population and Labour Force

Singapore had a population of 5.165 million in 2010. 2.795 million people were considered to be part of the labour force. Singapore’s unemployment rate for 2010 was 2.2 percent.

Singapore has one of the lowest unemployment rates in the world. The majority of the labour force is highly skilled with compulsory primary education implemented by the government for all its citizens. From the early 1990s, Singapore began actively inviting foreign workers and expatriates in order to meet a labour shortage. Today, foreign workers comprise of 35.8 percent of the labour force, with the vast majority being low waged workers from developing Asian countries who fill up jobs that regular Singaporeans wouldn’t take. In 2010, 0.1 percent of the labour force worked in agriculture, with a further 30.2 percent in industry and 69.7 percent in services.

Apart from dealing with a labour shortage problem during that point of time, the high influx of foreign workers and immigrants was also meant to tackle a poor population growth rate and an aging population. Singapore’s annual population growth rate for 2010 was 0.817 percent. Singapore’s population replacement rate is also one of the lowest in the world at 1.07. Despite having one of the best mortality rates in the world, Singapore’s birth rate of 8.5-birth/1,000-population is one of the lowest in the world. Singapore’s population is also aging rapidly. According to data from the CIA World Factbook, the median age of Singaporeans has risen within a year from 39.6 years to 40.1 years. As such, without immigration or an increase in total fertility rate, Singapore is likely to face a declining population over the next few decades.

Singapore’s Industry Sectors

Services (72.8 percent) and Industry (27.2) made up the entirety of Singapore’s GDP in 2010. Agriculture’s contribution on the other hand was virtually irrelevant – statistically it accounted for zero percent of the GDP.

Since the nation’s independence in 1965, Industry has been a vital part of the economy. Manufacturing in particular has been the cornerstone of Singapore’s economy. Although Singapore has specialised in digital and electronics manufacturing for the past forty years, the country has diversified into other forms of manufacturing. Thanks to government initiatives and subsidies, biomedical and pharmaceutical manufacturing are the burgeoning industries in Singapore at the moment.

Another crucial industry for Singapore is the petroleum and petrochemicals industry.  Singapore has the third largest oil refinery in the world, behind Rotterdam and Houston. The Singapore Petroleum Company (SPC) is a leading player in the petroleum industry and is engaged in exploration, production, refining and distribution. Remarkably, despite not having a single drop of proven oil reserves in the country, Singapore is a net exporter of oil – exporting 1.374 million barrels of oil/day and importing 1.195 million barrels/day. This makes Singapore the 18^th largest exporter of oil in the world.

Singapore is also a global leader in services, particularly in finance. Singapore’s banking system is considered to be among the strongest in the world. Singapore has the fourth largest foreign exchange market in the world after London, New York and Tokyo. The Singapore Government Securities is the only Asian market, besides Japan, to be part of the Citigroup World Bond Index. The Singapore Exchange (SGX) was also the first demutualised, integrated securities and derivatives exchange in Asia-Pacific. Singapore is recognised as one of the premier asset management centres in Asia with more than 200 international asset management firms. Finally the Asian Dollar Market in Singapore has become an influential element to the economic development of the whole of Asia with assets of more than US$582 billion recording in 2004.

Apart from finance, tourism is the other major service industry available in Singapore. In 2010, tourist arrivals to Singapore hit a record high of 11.638 million visitors with tourist receipts of more than S$18.8 billion. Thanks to government initiatives, tourism has diversified into niche markets such as medical tourism, the gaming industry and the MICE (Meetings, Incentives, Conferencing and Exhibitions) industry. With the advent of the two new integrated resorts in 2010, tourism expenditure in sightseeing and entertainment grew by an astonishing 1,834 percent in 2010.

As such, after two years of negative industrial production growth due to the global financial crisis, Singapore’s industrial production growth rate for 2010 was the third highest in the world at 25 percent – behind Qatar and Taiwan. The list of industries in Singapore include electronics, chemicals, financial services, oil drilling equipment, petroleum refining, rubber processing and rubber products, processed food and beverages, ship repair, offshore platform construction, life sciences, and entrepot trade.