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:
Country ID & Historical Background
Political Framework
Social Framework
Economical Framework
External Relations & Challenges
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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:
Country ID & Historical Background
Political Framework
Social Framework
Economical Framework
External Relations & Challenges
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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:
Country ID & Historical Background
Political Framework
Social Framework
Economical Framework
External Relations & Challenges
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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
Economical Framework: stylized facts in 1965
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
Economical Framework: stylized facts in 1965
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
Economical Framework: stylized facts in 1965
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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
Steady andSustainable
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:
Source: Khuong (2011)
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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
Steady andSustainable
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
Steady andSustainable
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:
Source: Khuong (2011)
Source: Khuong (2011)
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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
Economic Changes after the Plans:
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
Economic Changes after the Plans:
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:
Country ID & Historical Background
Political Framework
Social Framework
Economical Framework
External Relations & Challenges
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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.
33
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
38
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