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What Actually Makes the Singapore Economy Work?

What Actually Makes the Singapore Economy Work?

Singapore is often called a global economic powerhouse and a haven for business. And while these accolades are well-deserved, they really only paint a surface-level picture, leaving us with a glossy brochure version of Singapore’s economic landscape.

The reality is far more complex. Yes, the Singapore economy offers a wide range of business advantages — low taxes, ease of doing business, and robust intellectual property laws, to name a few. However, these perks are just the tip of the iceberg.

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This article aims to dive deeper to explore the mechanisms that actually drive Singapore’s economic success. We are not just interested in knowing that Singapore is a good place for business.

Instead, we want to understand how it became such an attractive global hub for trade, finance, and innovation in the first place. 

By studying the key policies and strategic decisions, we will reveal the ‘how’ and ‘why’ behind Singapore’s thriving economy.

For entrepreneurs, this deeper understanding offers more than just facts; it provides invaluable insights into the stability and opportunities that the Lion City offers, beyond the well-publicised benefits.


Historical Context: Singapore’s Economic Transformation

Before we dive into the complexities of Singapore’s current economic prowess, it is important to take a brief look at its transformation. In 1965, when Singapore gained independence from Malaysia, it was far from the economic giant it is today. 

The country struggled with a range of challenges — high unemployment rates, a tiny domestic market, and an almost complete lack of natural resources.

The government, led initially by Prime Minister Lee Kuan Yew, had the enormous task of transforming this tiny nation into a functioning, viable state. The government made several important decisions that would set the course for Singapore’s future:

  • Foreign Investment: Recognising the limitations of a small domestic market, the government encouraged foreign investment. Tax incentives and a business-friendly environment were created to attract multinational corporations.
  • Export-Oriented Industrialisation: Singapore adopted an export-oriented industrialisation strategy, focusing on manufacturing sectors like electronics, shipbuilding, and later, petrochemicals.
  • Human Capital: The government invested heavily in education and skills training, understanding that a skilled workforce was crucial for economic development.
  • Strategic Location: Leveraging its strategic location, Singapore developed its port, which has since become the busiest in the world, facilitating global trade.
  • Rule of Law: A strong emphasis was placed on establishing a robust legal framework (based on English Common Law), which gave businesses the confidence to operate in Singapore.
  • Fiscal Discipline: From the beginning, the government maintained strict fiscal discipline, ensuring that the country lived within its means and built up reserves for the future.

These basic principles were not just short-term fixes — they have continued to guide Singapore’s economic policies to this day. 

They serve as the foundation upon which the modern Singaporean economy stands, and understanding this history enriches our exploration of the country’s current economic landscape.


The Economic Landscape

Fiscal Health

One of the most striking aspects of Singapore’s economy is its fiscal health. The country has little or no foreign debt, consistently high government revenue, and a positive surplus. 

This is a statement of economic strength and policy effectiveness that assures businesses of a stable operating environment.

Stability Amidst Crises

Singapore’s economic stability is nothing short of remarkable, especially considering its vulnerabilities during the financial crises of 1997 and 2008, as well as the COVID-19 pandemic. 

Unlike many countries that faced severe downturns, Singapore navigated these turbulent waters with agility. The government implemented timely monetary and fiscal measures, ensuring the economy remained resilient.


The Driving Industries

Manufacturing

Manufacturing is not just an industry in Singapore; it is a powerhouse that contributes 20%-25% to the nation’s GDP. From electronics to chemicals and biomedical sciences, the manufacturing sector is diverse and continually evolving. 

Crucially, Singapore, as usual, has its eyes set on the future and has many cogs in place to make it a global hub in manufacturing 4.0

Financial Services

Singapore is a focal point of the global financial system — home to over 130 banks, it serves as a regional hub for many global financial services firms. 

The stability and growth in this sector are not accidental but the result of a pro-business environment and long-term political stability. Looking towards the future, Singapore is already setting itself up to be a global destination for fintech, green finance, and more.  

Emerging Industries

While manufacturing and financial services are the stalwarts, emerging industries like medtech, agritech, and clean energy are exciting new fields, contributing significantly to economic diversification. This innovation will only further enhance Singapore’s reputation for fruitful corporate ventures


The Unsung Hero – Human Capital

An Educated Workforce

Often overlooked, Singapore’s human capital is its most valuable asset. With a highly educated workforce, the country has a pool of talent that can drive innovation, fill skilled job roles, and contribute to business growth. This is a critical factor for entrepreneurs looking for a skilled and adaptable workforce.

A Robust Consumer Market

As the economy grows, so does the consumer market. Both local and international companies benefit from a burgeoning consumer market, which is a testament to the country’s economic health and consumer purchasing power.


Infrastructure – The Backbone of the Economy

World-Class Transport System

Singapore’s transport infrastructure is a marvel of efficiency and planning. With 9,608 kilometres of paved roads and a comprehensive public transport network, the country ensures smooth logistical operations, a vital aspect for businesses in manufacturing and retail.

Strategic Connectivity

Changi International Airport connects Singapore to 400 cities in over 100 countries and territories worldwide, handling more than 5.2 million passengers per month

The port gives shippers a choice of over 200 shipping lines, making it the busiest container port in the world. This level of connectivity makes Singapore a global logistics hub, advantageous for businesses involved in global trade.

Telecommunications

Singapore is a digitally connected nation, boasting one of the world’s highest mobile penetration rates at 1.5 mobile phones per person. Over 90% of households have Internet access, making it a hotspot for digital businesses and startups.


Fiscal Strength and Government Revenue

Little to No Foreign Debt

As mentioned earlier, Singapore maintains little to no foreign debt. This is not just a number; it is a policy that reflects the country’s fiscal discipline and strategic financial planning.

Revenue Sources

The government’s revenue is diverse, coming from taxes, license and permit fees, and property rentals. This multiplicity ensures that the government has a stable income stream to invest back into the economy, thereby creating a conducive business environment.


Global Trade and Currency Strength

Trading Position

Singapore is a trading titan, being the world’s 19th largest exporter and 16th largest importer. This strong trading position is a boon for businesses looking to expand their global footprint.

Currency Strength

The Singapore dollar is robust, with bank analysts bullish on the SGD, considering it a “haven currency” thanks to the Singapore Government’s strong monetary policy. A sturdy currency is indicative of a healthy economy and is beneficial for businesses dealing in multiple currencies.


The Government’s Role

Strategic Debts and Investments

The government’s role in economic stability cannot be overstated. Through strategic debts and investments, the government ensures that the ROI generated is higher than the borrowing cost, thereby contributing to economic growth.

Macroeconomic Policies

Prudent macroeconomic policies, including fiscal measures and monetary controls, have been instrumental in maintaining economic stability. 

These policies are not static but evolve to meet the changing economic landscape, with the COVID-19 pandemic being a prime example — the International Monetary Fund (IMF) called Singapore’s economic recovery from the pandemic “impressive. 


The Future Outlook

The future of Singapore’s economy appears to be an extension of its current strengths. Built on prudent fiscal policies, diverse industries, and a skilled workforce, Singapore is well-positioned for sustainable growth. 

Technological advancements are expected to drive evolution in key sectors, while ongoing investments in human capital and infrastructure will continue to make Singapore an attractive destination for businesses. 

In essence, the city-state’s future economic landscape promises stability and opportunity, making it a compelling choice for entrepreneurs and investors alike.


Where to Next for Your Venture in Singapore

Understanding the intricacies of Singapore’s economy is not just an academic exercise; it is a roadmap to success for entrepreneurs and investors. 

From its robust fiscal health to its diverse industries and world-class infrastructure, Singapore offers a stable and promising landscape for business ventures. 

If you’re looking to optimise your entrepreneurial entry into this dynamic market, don’t leave your success to chance. Contact InCorp today to navigate the complexities of Singapore’s economic landscape and make your business venture a resounding success.

FAQs About Singapore Economy

  • Fiscal discipline, diverse industries, and a skilled workforce are the pillars of Singapore's economic strength.
  • The government plays a pivotal role through strategic debts, investments, and evolving macroeconomic policies to maintain stability and growth.
  • Contact InCorp to navigate the complexities of Singapore's economic landscape and make your entrepreneurial entry a success.

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About the Author

Eric Chin

Eric Chin is the Group Chief Commercial Officer at InCorp Global, leading sales, marketing and consulting teams in 8 countries. With 11 years of corporate banking experience with HSBC and OCBC, Eric is highly skilled in creating market-entry strategies and structuring operations for diverse industries in the Asia-Pacific. He also advises fund managers and family offices on corporate structuring and tax incentives and has set up VCC structures for licensed fund managers.

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