Economy & Finance
The Economy of Singapore
Advantages and Drawbacks
As far as the economy in Singapore is concerned, the tiny state has made the best of some unfavorable conditions. Singapore has a small surface area of less than 700 km². It lacks both arable land and natural resources, like fuels, metals, or minerals. It is hardly surprising that only 0.1% of the labor force is employed in agriculture. The primary sector does not make any significant contribution to the GDP.
But the economy of Singapore has one distinct advantage: the location. The 190 kilometers of coastline feature natural deepwater ports. The island is situated along important shipping routes in Southeast Asia, too. Trade and commerce are key parts of the economy in Singapore. The government has also invested in education for decades. Human capital and a skilled workforce contribute to the prosperous economy in Singapore.
The Primary and Secondary Sectors
As mentioned above, the primary sector barely plays any role whatsoever in the economy of Singapore. There is an agribusiness park where some foodstuffs are produced. The country boasts other agricultural products such as orchids for horticulture or ornamental fish. Obviously, the financial contribution is negligible. The manufacturing sector is much more significant.
About 28% of Singapore’s GDP come from industry, and the secondary sector employs a fifth of the workforce. The petrochemical industry in particular is very important for the economy in Singapore. The country imports a lot of crude oil, using it for refined petroleum products.
Singapore places great emphasis on high-end manufacturing: semi-conductors and consumer electronics, as well as machinery, transport equipment, and ships are typical for this field. The government is also trying to foster future growth sectors such as aerospace, precision engineering, and especially the life sciences.
The latter include bio technology, medical equipment, and pharmaceutics. There is a huge overlap with the service industry, which caters to medical tourists and the needs of an aging population.
The Service Industry
Singapore’s very business-friendly environment has not only encouraged investment in manufacturing. It is the service sector that drives the economy in Singapore. It provides jobs to 80% of 3.03 million workers and employees, and it creates over 70% of the gross domestic product.
Commerce and trade, shipping and logistics are essential industries. The Port of Singapore is the busiest cargo port in the world: the country has a flourishing import and/or export trade with China, Hong Kong, Indonesia, Japan, South Korea, Malaysia, Saudi Arabia, and the US.
In general, the Singaporean government favors globalization and free trade. Import tariffs are low to non-existent. The tiny state is an active member of NATO, ASEAN, and other multinational trade organizations. It has entered into free trade agreements with plenty of foreign countries too. In 2013, Singapore is expected to sign its next FTA, this time with the European Union.
Other than shipping and storage, banking, finance, and insurance make up a large part of the economy in Singapore. There is a reason why the country is sometimes called “the Switzerland of Asia”. Singapore’s CBD has made a name for itself when it comes to wealth management.
So far, we have painted a fairly rosy picture of the economy in Singapore. Indeed, Singapore has several points in its favor: Its strongly pro-business environment provides an efficient infrastructure and a transparent administration. As previously mentioned, the economy of Singapore is committed to free market development and free trade.
At the same time, the city state is very secure and has offers all residents a good standard of living, though there are pronounced financial inequalities. Singapore’s investment in further infrastructure projects and new industrial parks provides more opportunities for the near future. So does its increasing reputation as a hub for research and development in various high-tech and bio-tech industries.
Singapore has to cope with increasing competition from other emerging markets in the region and the demographic problems of an aging society. Above all, its huge export orientation has proven to be a burden in times of global economic uncertainty. Both in 2001 and 2009, the economy of Singapore contracted by 1-2% after a worldwide financial crisis.
While the economy bounced back each time — it grew by nearly 15% in 2010 – it is now slowing down again. Its growth amounted to roughly 2% of the GDP in 2012, and the prognosis for 2013 isn’t any better.
In addition to the stagnation in Singapore’s economy, the inflation rate has increased, too. Though prices remain fairly stable, there has now been an annual inflation of 4-5% for the past couple of years. Fortunately, the unemployment rate is still low, and private households are generally well-off.
The industries hardest hit by recession include former growth engines: the electronics and petrochemical industries, as well as shipping and logistics. Other sectors like pharmaceutics, medical technology, transport and ship repair, and construction are still going strong.
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