In 1960, Singapore’s GDP per capita was S$1310. By 2014, this figure had jumped to S$71,300, ahead of the US. In terms of Purchasing Power Parity (PPP), regarded as a better measure of the standard of living, Singapore easily surpasses the US.
How has this small island come to be such a competitive and successful trading nation?
It goes without saying that Singapore is small. But to put this into perspective, it is not even half the size of Greater London. Its size is, however, a double-edged sword.
Being so small brings attractive benefits. For example, there is considerably less infrastructure to maintain than in the UK, the US or mainland Europe. Although the population has more than trebled since 1960, it is still tiny when compared to the aforementioned group of nations. This means that there are fewer people to look after and so the healthcare system is easier to coordinate, maintain and adapt to a changing population.
The setbacks are significant, however. Singapore has few natural resources. There are no metals on the island and coal, oil and natural gas in very limited supply; even water is considered “scarce”. The lack of available space means that, despite being in a near-ideal location for harnessing solar energy, it cannot be exploited to meet the needs. Such a lack of natural resources means that Singapore has always been forced to look overseas for what it needs.
Throughout its history, even in pre-Colonial times, Singapore has been an important trading hub. It was founded in 1819 by Sir Thomas Raffles with the idea that “the port of Singapore is a free port, and the trade thereof is open to ships and vessels of every nation… equally and alike to all”.
Whilst this was meant to stamp out Dutch trading dominance in the area, the approach to trade is still very similar today. Singapore has relatively few barriers to trade, with most goods and services imported/exported with zero tariffs.
The Winning Combination
Upon becoming independent from Malaysia in 1965, Singapore faced many challenges, and one was improving the quality of housing. Its small physical size, small population and approach to trade made such phenomenally quick development possible. With a relatively small workforce, the barrier to training and re-training people was considerably smaller than for most countries. This enabled numerous technical training programs to be rolled out, quickly bringing up the level of skills present in the economy.
Importantly, Singapore did not get complacent with its more highly skilled workforce and, as new industries came along – manufacturing technical electrical components, for instance – people were retrained. This kept the economy moving in the right direction and aligned with where the rest of the world seemed to be headed.
Gradually, the direction shifted towards financial services and, helped by its approach to free trade, Singapore has become the world’s third-largest financial capital.
Singapore has prospered as its small size made its economy more flexible and hence more easily aligned with growth markets. However, this economic model succeeds only if the realignment process continues and the country does not become complacent.
This is where the Committee on the Future of the Economy (CFE) comes in. The panel met earlier this year to discuss economic goals and how best to achieve them. Such meetings have been taking place since at least 1985 and Singapore’s growth and prosperity is an indicator of their success.
This time, following on from a consultation with people and businesses across the country, a 10-year plan was created with the headline goal of generating 2-3% annual GDP growth. Accompanying this is a set of measures/proposals that span the entire economy.
From broad aims such as further reducing trading barriers and working more closely with the emerging South-East Asian markets, to more focused policy on simplifying access to venture capital and trying to help companies scale up their activities – the plan is comprehensive.
Key growth areas include infrastructure, healthcare and the digital cluster. There are desires to create a far more digital economy and fully embrace FinTech. However, and perhaps most importantly, these goals are underpinned by a raft of training programs for the relevant sectors of the workforce. So, as the economy moves in a new direction to keep the country growing, its workforce is not left behind.
Singapore’s small physical size and populace give its economy the benefit of flexibility. Its lack of natural resources has played a part in its open trading style. But the success has come from combining these two characteristics to create a dynamic economy capable of keeping aligned with the key growth areas. Singapore will be an economic force for years to come.