The economy of Singapore is a major Foreign Direct Investment (FDI) outflow financier in the world. Singapore has also benefited from the inward flow of FDI from global investors and institutions due to its highly attractive investment climate and a stable political environment. Exports, particularly in electronics, chemicals and services including Singapore's position as the regional hub for wealth management provide the main source of revenue for the economy, which allows it to purchase natural resources and raw goods which it lacks. Moreover, water is scarce in Singapore therefore water is defined as a precious resource in Singapore along with the scarcity of land to be treated with land fill of Pulau Semakau. Singapore has limited arable land, meaning that Singapore has to rely on the agro technology park for agricultural production and consumption. Human resources are another vital issue for the health of the Singaporean economy. The economy of Singapore ranks 2nd overall in the Scientific American Biotechnology ranking in 2014, with the featuring of Biopolis.
Singapore could thus be said to rely on an extended concept of intermediary trade to Entrepôt trade, by purchasing raw goods and refining them for re-export, such as in the wafer fabrication industry and oil refining. Singapore also has a strategic port which makes it more competitive than many of its neighbors in carrying out such entrepot activities. Singapore has the highest trade to GDP ratio in the world, averaging around 400% during 2008–11. The Port of Singapore is the second-busiest in the world by cargo tonnage. In addition, Singapore's port infrastructure and skilled workforce, which is due to the success of the country's education policy in producing skilled workers, is also fundamental in this aspect as they provide easier access to markets for both importing and exporting, and provide the skills needed to refine imports into exports.
Singapore's government promotes high levels of savings and investment through policies such as the Central Provident Fund, which is used to fund its citizen's healthcare and retirement needs. Singapore's savings rates have remained among the highest in the world since the 1970s. Most companies in Singapore are registered as private limited-liability companies (commonly known as "private limited companies"). A private limited company in Singapore is a separate legal entity, and shareholders are not liable for the company's debts beyond the amount of share capital they have contributed.
To preserve its international standing and further its economic prosperity in the 21st century, Singapore has taken measures to promote innovation, encourage entrepreneurship, re-train its workforce, and even attract foreign talents. To attract foreign talents, Singaporean government issues Employment Pass (EP) under three categories viz. P1 Employment Pass for those individuals with monthly income of $8,000 and up, P2 Employment Pass for individuals with monthly income of $4,500–7,999 and Q1 Employment Pass individuals with a monthly income of at least $3,000. The Ministry of Manpower (Singapore) oversees the matter related to immigration of workers. These measures aim to boost Singapore's productivity, so that Singapore remains competitive and ready for the challenges of an information-driven global economy.
Upon independence from Malaysia in 1965, Singapore faced a small domestic market, and high levels of unemployment and poverty. 70 percent of Singapore's households lived in badly overcrowded conditions, and a third of its people squatted in slums on the city fringes. Unemployment averaged 14 percent, GDP per capita was US$516, and half of the population was illiterate.
In response, the Singapore government established the Economic Development Board to spearhead an investment drive, and make Singapore an attractive destination for foreign investment. FDI inflows increased greatly over the following decades, and by 2001 foreign companies accounted for 75% of manufactured output and 85% of manufactured exports. Meanwhile, Singapore's savings and investment rates rose among the highest levels in the world, while household consumption and wage shares of GDP fell among the lowest.
As a result of this investment drive, Singapore's capital stock increased 33 times by 1992, and achieved a tenfold increase in the capital-labor ratio. Living standards steadily rose, with more families moving from a lower-income status to middle-income security with increased household incomes. During a National Day Rally speech in 1987, Lee Kuan-Yew claimed that (based on the home ownership criterion) 80% of Singaporeans could now be considered to be members of the middle-class. However, much unlike the economic policies of Greece and the rest of Europe, Singapore followed a policy of individualising the social safety net. This led to a higher than average savings rate and a very sustainable economy in the long run. Without a burdensome welfare state or its likeliness, Singapore has developed a very self-reliant and skilled workforce well versed for a global economy.
Singapore's economic strategy produced real growth averaging 8.0% from 1960 to 1999. The economy picked up in 1999 after the regional financial crisis, with a growth rate of 5.4%, followed by 9.9% for 2000. However, the economic slowdown in the United States, Japan and the European Union, as well as the worldwide electronics slump, had reduced the estimated economic growth in 2001 to a negative 2.0%.
The economy expanded by 2.2% the following year, and by 1.1% in 2003 when Singapore was affected by the SARS outbreak. Subsequently, a major turnaround occurred in 2004 allowed it to make a significant recovery of 8.3% growth in Singapore, although the actual growth fell short of the target growth for the year more than half with only 2.5%. In 2005, economic growth was 6.4%; and in 2006, 7.9%..
As of 8 June 2013, Singapore's unemployment rate is around 1.9% and the country's economy has a lowered growth rate, with a rate of 1.8% on a quarter-by-quarter basis—compared to 14.8% in 2010. The public sector is used both as an investor and as a catalyst for economic development and innovation. The government of Singapore has two sovereign wealth funds, Temasek Holdings and GIC Private Limited, which are used to manage the country's reserves. Initially the state's role was oriented more toward managing industries for economic development, but in recent decades the objectives of Singapore's sovereign wealth funds have shifted to a commercial basis.
Government-linked corporations play a substantial role in Singapore's domestic economy. As of November 2011, the top six Singapore-listed GLCs accounted for about 17 percent of total capitalization of the Singapore Exchange (SGX). These fully and partially state-owned enterprises operate on a commercial basis and are granted no competitive advantage over privately owned enterprises. State ownership is prominent in strategic sectors of the economy, including telecommunications, media, public transportation, defence, port, airport operations as well as banking, shipping, airline, infrastructure and real estate.
As of 2014, Temasek holds S$69 billion of assets in Singapore, accounting for 7% of the total capitalization of Singapore-listed companies. To maintain its competitive position despite rising wages, the government seeks to promote higher value-added activities in the manufacturing and services sectors. It also has opened, or is in the process of opening, the financial services, telecommunications, and power generation and retailing sectors up to foreign service providers and greater competition. The government has also attempted some measures including wage restraint measures and release of unused buildings in an effort to control rising commercial rents with the view to lowering the cost of doing business in Singapore when central business district office rents tripled in 2006.
Singapore is considered a global financial hub, with Singapore banks offering world-class corporate bank account facilities. These include multiple currencies, internet banking, telephone banking, checking accounts, savings accounts, debit and credit cards, fixed term deposits and wealth management services. According to the Human Rights Watch, due to its role as a financial hub for the region, Singapore has continually been criticised for reportedly hosting bank accounts containing ill-gotten gains of corrupt leaders and their associates, including billions of dollars of Burma's state gas revenues hidden from national accounts. Singapore has attracted assets formerly held in Swiss banks for several reasons, including new taxes imposed on Swiss accounts and a weakening of Swiss bank secrecy. Credit Suisse, the second largest Swiss bank, moved its head of international private banking to Singapore in 2005. Tax evasion is illegal in Singapore; however, according to an Organisation for Economic Co-operation and Development official, Singaporean authorities tend to cooperate with other countries' tax authorities only when evasion of Singaporean taxes is involved..
Singapore is aggressively promoting and developing its biotechnology industry. Hundred of millions of dollars were invested into the sector to build up infrastructure, fund research and development and to recruit top international scientists to Singapore. Leading drug makers, such as GlaxoSmithKline (GSK), Pfizer and Merck & Co., have set up plants in Singapore. On 8 June 2006, GSK announced that it is investing another S$300 million to build another plant to produce pediatric vaccines, its first such facility in Asia. Pharmaceuticals now account for more than 8% of the country's manufacturing production.
Singapore is the pricing centre and leading oil trading hub in Asia. The oil industry makes up 5 per cent of Singapore's GDP, with Singapore being one of the top three export refining centres in the world. In 2007, it exported 68.1 million tons of oil. The oil industry has led to the promotion of the chemical industry as well as oil and gas equipment manufacturing. Singapore has 70 per cent of the world market for both jack-up rigs and for the conversion of Floating Production Storage Offloading units. It has 20 per cent of the world market for ship repair, and in 2008 the marine and offshore industry employed almost 70,000 workers.
Singapore's total trade in 2014 amounted to S$982 billion. Despite its small size, Singapore is currently the fifteenth-largest trading partner of the United States. In 2014, Singapore's imports totaled $464 billion, and exports totaled $519 billion. Malaysia was Singapore's main import source, as well as its largest export market, absorbing 18% of Singapore's exports, with the United States close behind. Malaysia is Singapore's biggest trading partner, with bilateral trade totaling roughly 91 billion US dollars in 2012, accounting for over a fifth of total trade within ASEAN. Singapore’s trade with major trading partners such as Malaysia, China, Indonesia and South Korea increased in 2012, while trade with EU27, United States, Hong Kong and Japan decreased in 2012. Since 2009, the value of exports exceeds imports for
Singapore’s trade with China. In comparison, the value of imports exceeds exports for Singapore’s trade with the US since 2006. Re-exports accounted for 43% of Singapore's total sales to other countries in 2000. Singapore's principal exports are petroleum products, food/beverages, chemicals, textile/garments, electronic components, telecommunication apparatus, and transport equipment. Singapore's main imports are aircraft, crude oil and petroleum products, electronic components, radio and television receivers/parts, motor vehicles, chemicals, food/beverages, iron/steel, and textile yarns/fabrics. Trade in Singapore has benefited from the extensive network of trade agreements Singapore has passed. According to Healy Consultants, Singapore has free trade access to the entirety of the ASEAN network, with import duty reduced when dealing with Indonesia, Malaysia, the Philippines, Thailand, Brunei, Burma, Cambodia, Laos and Vietnam.
The Singapore Economic Development Board (EDB) continues to attract investment funds on a large-scale for the country despite the city's relatively high-cost operating environment. The US leads in foreign investment, accounting for 40% of new commitments to the manufacturing sector in 2000. As of 1999, cumulative investment for manufacturing and services by American companies in Singapore reached approximately $20 billion (total assets). The bulk of US investment is in electronics manufacturing, oil refining and storage, and the chemical industry. More than 1,500 US firms operate in Singapore.
Singapore's largely corruption-free government, skilled workforce, and advanced and efficient infrastructure have attracted investments from more than 3,000 multinational corporations (MNCs) from the United States, Japan, and Europe. Foreign firms are found in almost all sectors of the economy. MNCs account for more than two-thirds of manufacturing output and direct export sales, although certain services sectors remain dominated by government-linked corporations. The government also has encouraged firms to invest outside Singapore, with the country's total direct investments abroad reaching $39 billion by the end of 1998. The People's Republic of China was the top destination, accounting for 14% of total overseas investments, followed by Malaysia (10%), Hong Kong (8.9%), Indonesia (8.0%) and US (4.0%). The rapidly growing economy of India, especially the high technology sector, is becoming an expanding source of foreign investment for Singapore. The United States provides no bilateral aid to Singapore, but the US appears keen to improve bilateral trade and signed the US-Singapore Free Trade Agreement. Singapore corporate tax is 17 per cent.
In 2000, Singapore had a workforce of about 2.2 million. The country has the largest proficiency of English language speakers in Asia, making it an attractive place for multinational corporations. The National Trades Union Congress (NTUC), the sole trade union federation which has a symbiotic relationship with the ruling party, comprises almost 99% of total organised labour. Government policy and pro-activity rather than labour legislation controls general labour and trade union matters. The Employment Act offers little protection to white-collar workers due to an income threshold. The Industrial Arbitration Court handles labour-management disputes that cannot be resolved informally through the Ministry of Manpower. The Singapore Government has stressed the importance of co-operation between unions, management and government (tripartism), as well as the early resolution of disputes. There has been only one strike in the past 15 years.
Singapore has enjoyed virtually full employment for long periods of time. Amid an economic slump, the unemployment rate rose to 4.0% by the end of 2001, from 2.4% early in the year. Unemployment has since declined and as of 2012 the unemployment rate stands at 1.9%. While the Singapore government has taken a stance against minimum wage and unemployment benefit schemes, in 2007 the government introduced a Workfare Income Supplement (WIS) scheme to supplement wages of low-skilled workers. In order to support employers in hiring older Singaporean workers, Special Employment Credit (SEC) was introduced in 2011. It was first enhanced in 2012 to provide employers with support in hiring older Singaporean workers and Persons with Disabilities (PWDs). It helped the employers to cope with costs associated with the increase in Central Provident Fund (CPF) contribution rates for older workers. The 5-year SEC scheme was further extended to additional 3 years, up to 2019 to encourage employers to voluntarily re-employ older workers aged 65 and above..
The Singapore Government and the NTUC have tried a range of programs to increase lagging productivity and boost the labour force participation rates of women and older workers. However, labour shortages persist in the service sector and in many low-skilled positions in the construction and electronics industries. Foreign workers help make up this shortfall. In 2000, there were about 600,000 foreign workers in Singapore, constituting 27% of the total work force. As a result, wages are relatively suppressed or do not rise for all workers. To have some controls, the government imposes a foreign worker levy payable by employers for low end workers like domestic help and construction workers.
In 2012, the Ministry of Trade and Industry (MTI) reported that Singapore should continue to fine-tune the calibration of its inflow of foreigners as the country continues to face an ageing population and a shrinking workforce. Singapore Parliament accepted the recommendations by its Economic Strategies Committee (ESC) for the optimal ratio of the level of immigration and foreign manpower for both high and low skilled workers. The Government recognises that the current overall foreign workforce should complement the local resident workforce and not replace the Singaporean Core concept, and helps companies greatly as they raise productivity through business restructuring and workforce retraining; raise resident labour force participation rate. Government spending in Singapore has risen since the start of the global financial crisis, from around 15% of GDP in 2008 to 17% in 2012. The government's total expenditure as a percentage of GDP ranks among the lowest internationally and allows for a competitive tax regime. Singapore is required under its constitution to keep a balanced budget over each term of government. Singapore government debt is issued for investment purposes, not to fund expenditure.
Personal income taxes in Singapore range from 0% to 20% for incomes above S$320,000. There are no capital gains or inheritance taxes in Singapore. Singapore's corporate tax rate is 17% with exemptions and incentives for smaller businesses. Singapore has a single-tier corporate income tax system, which means there is no double-taxation for shareholders. Singapore introduced Goods and Services Tax (GST) with an initial rate of 3% on 1 April 1994, increasing government's revenue by S$1.6 billion (US$1b, €800m) and establishing government finances. The taxable GST was increased to 4% in 2003, to 5% in 2004, and to 7% in 2007.
The Singapore government owns two investment companies, GIC Private Limited and Temasek Holdings, which manage Singapore's reserves. Both operate as commercial investment holding companies independently of the Singapore government, but Prime Minister Lee Hsien Loong and his wife Ho Ching serve as chairman and CEO of these corporations respectively. While GIC invests abroad, Temasek holds 31% of its portfolio in Singapore, holding majority stakes in several of the nation's largest companies, such as Singapore Airlines, SingTel, ST Engineering and MediaCorp. As of 2014, Temasek holds S$69 billion of assets in Singapore, accounting for 7% of the total capitalisation of Singapore-listed companies.
In April 2013, the country was recognised as an increasingly popular tax haven for the wealthy due to the low tax rate on personal income, a full tax exemption on income that is generated outside of Singapore and 69 double taxation treaties that can minimise both withholding tax and capital gains tax. Australian millionaire retailer Brett Blundy, with an estimated personal wealth worth AU$835 million, and multi-billionaire Facebook co-founder Eduardo Saverin are two examples of wealthy individuals who have settled in Singapore (Blundy in 2013 and Saverin in 2012). Additionally, Australian mining magnate Gina Rinehart owns property in Singapore and American investor Jim Rogers moved to Singapore in 2007—Rogers has identified the 21st century as an era in which Asia will dominate and wishes for his two daughters to learn Mandarin as a key outcome of the relocation. Chinese Media TV celebrities Jet Li and Gong Li have also taken up naturalised Singapore citizenship.
The Monetary Authority of Singapore is Singapore's central bank and financial regulatory authority. It administers the various statutes pertaining to money, banking, insurance, securities and the financial sector in general, as well as currency issuance. The MAS has been given powers to act as a banker to and financial agent of the Government. It has also been entrusted to promote monetary stability, and credit and exchange policies conducive to the growth of the economy. Unlike many other central banks such as Federal Reserve System or Bank of England, MAS does not regulate the monetary system via interest rates to influence the liquidity in the system. Instead, it chooses to do it via the foreign exchange mechanism. It does so by intervening in the SGD market.
The pick-up in activity experienced in the final quarter of last year seems to have carried over into the first months of 2017. In February, the manufacturing PMI remained firmly in expansionary territory and exports grew for the fourth month in a row, reflecting strengthening foreign demand following a trade slump which started in 2015. However, the property market, one of the country’s main weaknesses, remains troublesome. After housing prices fell for the third consecutive year in 2016, on 10 March the authorities eased some of the cooling measures adopted in 2009, reducing stamp duty and removing the total debt servicing ratio for some mortgage loans, among other measures. The authorities are also trying to take advantage of Brexit to strengthen the role of Singapore as an international financial center. To this end, they submitted to parliament a battery of measures to counter money laundering and terrorism financing and to enhance financial record keeping. While the economy bounced back each time — it grew by nearly 15% in 2010 — growth has declined over the past six years. The GDP peaked in 2014, but has now slowed to a growth of about 2% a year. Economists, however, are cautiously optimistic, predicting a 3% annual growth in GDP by 2018.
