Investigating Modern History of Economic Development of Singapore

In this blog post, I am going to address the following question;

What are the key factors that have contributed to Singapore’s rapid economic development after 1963? What are the key milestones or turning points in Singapore’s economic development journey, and how did they contribute to its transformation into a developed economy?

Before the independence of Singapore, it was a British colony, but during the Second World War, the British failed to protect this colony against the Japanese. When the British returned in 1945 to rule Singapore, they realized that the people’s confidence had diminished towards them, and later the Straits Settlements were disintegrated and Singapore became a separate royal colony. In 1963, Singapore joined the Malaysian Federation, but left there due to ethnic and political origin disagreements (StudySmarter, n.d.). Singapore gained its independence in 1965. When the country gained its independence, it was an island that was very poor, had little fresh water, few natural resources, and had religious and ethnic debates. So much so that there was not even compulsory education in the country and there were very few skilled workers with university and high school graduates. However, the country has managed to become a first world country from a third world country with various policies (Yew, 2000).

Lee Kuan Yew being the leader for Singapore is one of the biggest turning point in Singapore’s economic development. Lee Kuan Yew, who become leader in 1959, remained in his position for 41 years and ruled Singapore until 1990 (Hussain, 2015). Although Lee Kuan Yew is a leader who has been criticized for suppressing press freedom and political opposition, Singapore’s international recognition by restricting corrupt financial practices, its very strong dominance of power and its ability to maintain stability is a major factor for the country’s development by attracting billions of dollars of foreign investment in the country. He is a leader who has made contributions (Alam, 2015).

The financial crises experienced have also been other turning points for Singapore’s economy. After the 1997 Asian crisis, Singapore entered a deep recession in 1998 and Singaporean companies started to close and thousands of Singaporeans were left unemployed. However, Singapore was less affected by this crisis than other Asian countries thanks to its prudent fiscal policies and strong reserves. During another crisis in 2008, Singapore was able to withdraw its reserves and in 2009 used its reserves to support businesses and save jobs, resulting in Singapore growing 10% in 2010. Again, during the COVID-19 crisis, Singapore benefited from its strong reserves (SG101, n.dc.).

Economic Development Board (EDB)

The Singapore Industrial Promotion Board (SIPB) was tasked with financing, promoting, assisting and managing commercial and economic ventures and established in 1957. However, SIPB was “too small to have an impact on industrialization problems” instead of SIPB it was decided to establish another institution that could do what the SIPB had to do with great organization and capital. Thus, the establishment of EDB was accepted in 1961 (HistorySG, n.d.). First of all EDB helped to transform Jurong from a swamp to an industrial zone by first creating a favorable infrastructure for industrial development. As the industrialization program progressed, EDB focused on promoting industrial development and investment. At the end of the 1960s, Singapore faced increased wages and a tightened workforce. Therefore, EDB is focused on training the workforce for high-tech and capital-intensive industries. In the 1970s, EDB initiated local industrial training grants, government-industry joint training centers and overseas industrial training programs grants to meet the skilled needs of upgraded industries. At the same time, new EDB offices have been established in Asia, Europe and America to market Singapore by highly skilled workforces. EDB has helped local companies grow by encouraging the diversification, updating and expansion of local industries (Pek, n.d.).

In the 1980s, EDB focused more on finance and tourism-related services and manufacturing. In order to meet the specialized manpower needed in high-tech industries, joint technological institutions have been established with countries such as France, Germany and Japan. In 1986, the Small Business Bureau was established at EDB to focus on the development of SMEs. In the master plan of this institution, it was stated that local businesses should be enlarged. The Local Industry Improvement Program was initiated to modernize and upgrade local businesses. The National Biotechnology Program, the National Automation Program and the International Direct Investment Unit were established in 1988 to develop multi-focus activities in the sectors (Pek, n.d.). These units have planned strategies for development in areas such as raising public and institutional awareness, infrastructure, manpower and industry development. In the 1990s, EDB helped businesses meet their needs. With EDB, many multinational companies have started to locate their headquarters in Singapore. In the 1999s, as Singapore moved towards a knowledge-based economy, EDB launched “Industry 21”. This was a 21st century economic plan that outlined strategic plans for sectors such as engineering, healthcare, business services, education. Since the 2000s, Singapore has been focused on research, development, innovation and knowledge. That’s why EDB launched the Start-up Enterprise Development Scheme, a co-financing program, investment and participation in the private sector, in 2001. In 2005, the Business Angel Program was introduced in order to raise funds for entrepreneurs from investors called angel investors. Efforts were made to develop the energy and digital media industry with the “Clean Energy” and “Energy Innovation” Program Offices. EDB still continues to develop industrial sectors and encourage investment for Singapore’s economic growth (Pek, n.d.).

Export-Oriented Industrialization

Export-Oriented Industrialization (EOI) Policy was mostly focused on exports. The aims of this policy were to raise the productivity of workers and supply a economic growth. With this policy, Singapore wanted to push companies to focus on exports and attract foreign investors to the country. Incentives were also provided to attract foreign investors. By the EOI policy, companies in Singapore during the industrialization period were enabled to compete in sectors such as high technology, refinery, petrochemicals and electronics. With this policy, Singapore welfare aimed primarily at increasing exports, reducing unemployment and increasing the welfare level of the people. In addition, with this policy, Singapore has been able to globalize in the production sector (Agrawal, 1995).

The Development of Strategic Industries

In the 1960s, investments were made in Singapore for oil, and between 1961 and 1973 4 oil refineries were built and operated. In 1973, the Minister of Finance of the time wanted to attract investors to fields such as precision engineering and petrochemistry in order to alleviate the labor shortage in Singapore. With the government’s tax incentives, industries such as petroleum and petrochemicals began to grow. So much so that, by the end of the 1970s, Singapore had 1.2 million barrels of capacity and was one of the world’s major refinery hubs. The financial industry was given increasing attention by the 1980s. With the development of the Asian dollar market in the late 1960s, Singapore became one of the leading foreign exchange markets (SG101, n.d.). Local banks such as OCBC, OUB and UOB have also been the mainstay of Singapore’s economy. With the increase in industrialization, these banks became commercial banks that finance wider activities. Looking at this, financial services were one of the leading factors in Singapore’s economic growth in the 1980s. During the 1980s and 1990s Singapore also sought to develop financial areas such as insurance, stock trading and fund management. In 1981, the government determined tourism as the main factor of growth in its 10-year economic plan, and it was convened in 1984 to promote Singapore as an important tourism center. As a result, it has been recommended to protect cultural and historical sites and to develop tourism attraction centers. Since then, tourism has been a major economic growth factor for Singapore (SG101, n.d.).

The Formation of Free Trade Agreements

Free markets and free trade flows have also been relied upon to enable Singapore to continue exporting goods and services. An FTA was signed in 1992 to develop an FTA network, starting with the ASEAN Free Trade Zone. This agreement facilitates investment and trade between two or more economies. Singapore has signed both multilateral and bilateral FTAs as it aims to expand its economic space. Their strategy has been to connect small economies to the economies of large countries. Additionally, these FTAs give Singaporean exporters — that is, international manufacturers operating in Singapore — access to discounted rates in major export markets like the US, China and Japan. This provides Singapore a competitive advantage over other less expensive sites, which is another reason why foreign MNCs are eager to invest there (SG101, n.db.).

In conclusion, by several policies applied, strategic industries that developed and various agreements signed, Singapore was able to develop its economy and has become first world country.

References

1. Alam, N. (2015, March 23). How Lee Kuan Yew transformed Singapore from small town into global financial hub. The Conversation. https://theconversation.com/how-lee-kuan-yew-transformed-singapore-from-small-town-into-global-financial-hub-39192
2. Agrawal, P. (1995). Singapore: Export-oriented industrialization. Economic Restructuring in East Asia and India, 54–102. https://doi.org/10.1057/9780230376038_3
3. Economic Development Board is formed. (n.d.). HistorySG. Retrieved June 4, 2023 from https://eresources.nlb.gov.sg/history/events/509d1656-8fc5-405f-8eec-ad058d8a540c#:~:text=The%20bill%20was%20assented%20to,1%20August%20that%20same%20year.
4. Hussain, B. Z. (2015, March 24). How Lee Kuan Yew engineered Singapore’s economic miracle. BBC News. https://www.bbc.com/news/business-32028693
5. Pek, S. (n.d.). Economic Development Board. Singapore Infopedia. Retrieved June 4, 2023 from https://eresources.nlb.gov.sg/infopedia/articles/SIP_2018-01-08_135544.html
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7. The 1970s: Upgrading the economy (n.d.) SG101. Retrieved June 4, 2023 from https://www.sg101.gov.sg/economy/growing-our-economy/1970/
8. Yew, L.K. (2000), From Third World to First, Harper Collins, New York.
9. 1986 to 1996: Rebounding into a decade of growth (n.d.-b). SG101. Retrieved June 4, 2023 from https://www.sg101.gov.sg/economy/growing-our-economy/1986/
10. 1997 to 2009: Overcoming Multiple Crises. (n.d.-c). Retrieved June 8, 2023 from https://www.sg101.gov.sg/economy/growing-our-economy/1997