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Analysis of Singapore’s Economic Environment

Executive Summary

This paper analyses Singapore as a country to invest in. It begins by describing the country’s level of development and wealth, infrastructure, important industries, economic ties to other countries, level of corruption, political stability, legislation affecting inward foreign investment and cultural issues that may affect business. The paper then goes on to analyze land, labor and technology as factors of production in the country, highlighting the business that might be supported by these factors of production. An analysis of the risks and benefits that are inherent in doing business with the country follows, before finally making recommendation on which investment in the country would be a successful venture. 

Analysis of Singapore’s Economic Environment

Country’s Macro Environment      

            Singapore, which is a high-income economy has a gross national income of $54,530 per capita (World Bank, 2019). The country boasts of a per capita GDP higher than that of most developed countries (Central Intelligence Agency, 2020). Its GDP growth averages at 7.7% since independence, and ranks among the World’s highest (World Bank, 2019). Furthermore, the country has made substantial infrastructural investments, and thus it takes pride in its top-notch physical infrastructure. The reliable electricity access rate stands at 100%, and with a fully developed public transport system, transportation is easy to access (Central Intelligence Agency, 2020).  However, the government employs several means, including Certificates of Entitlement and levies, to limit private car usage as a means of curbing traffic congestion. “Singapore’s remarkable success in economic development has been strongly associated with the country’s vigorous efforts to embrace the Information and Communication Technology ICT revolution to promote economic growth,” (Vu, 2013). Thus, the country’s IT infrastructural level remains unmatched. Manufacturing and service industries form the pillars of Singapore’s high-income economy (World Bank, 2019).

Being a member of the Asia-Pacific Economic Cooperation (APEC), the Association of Southeast Asian Nations (ASEAN), and the Trans-Pacific Partnership (TPP), Singapore is well connected economically to other countries (Global edge, 2020). Thus, Singapore uses trade openness as a strategy to attract inward foreign direct investment (Santander, 2020). As a result, FDI inflows rose to USD 92 billion in 2019, from USD 79 billion in the previous year (Santander, 2020). A corruption-free system of governance has also attracted over 7,000 multinational corporations to operate in Singapore. For instance, companies such as Lufthansa and Schaeffler have significant operations in Singapore. Moreover, Singapore enjoys above ordinary political stability. It is described as one of the most politically stable countries in Southeast Asia. This is because the country is a republic that practices an altered version of Westminster parliamentary system.

As aforementioned, Singapore has minimum restrictions on inward foreign investment. The country employs a consultative approach between foreign investors and regulatory bodies to assess each application on a case by case basis (Yuen, 2019. Thus, unless the inward foreign investment touches on matters of national security, legislation is favorable towards the investment.

Regarding currency exchange rates, the Singapore dollar is rated as one of the most stable currencies of 2019. Driven by exports in manufacturing and electronics, the Singapore economy ranks among the World’s most stable economies. They lack foreign debt and generate a high amount of government revenue. With a high population of Asian people, the cultural issue of relationships sometimes serves as a barrier to doing business. Maclachlan (2020) explains that Singaporeans are heavily influenced by Asian philosophies, and are thus cautious when doing business. They like to make sure they are doing business with someone they can trust. The trust building process is often cumbersome. Thus, a cultural awareness programme on how to do business in Singapore is necessary to ensure genuine relationships are formed. Singapore employs a national education system known as Workforce Skills Qualifications system that serves as a training system for adults concerning work skills. Their workforce skills are therefore superb.

Factor Endowments 

            Singapore has fertile land which offers the opportunity to cultivate crops such as rubber, fruits and vegetables. However, with a growing population, land is a great challenge in Singapore. The country is further endowed by a long coastline. Thus, business such as fisheries would do quite well in the Singapore coastline. Moreover, the country is located on a major sea route, and thus any business that deals in services concerning sea transport may benefit greatly from Singapore’s location. With a workforce of around 2.2 million people, Singapore faces minimal shortages of labor as a factor of production. The country is also open to foreign labor, which ensures that there are minimal shortages. This serves as a great opportunity for any form of business that requires a large pool of employees. Capital accumulation serves as another major factor of production in Singapore. With great amounts of capital, the country can easily increase its wealth. Massive information technology advancements in the country also serve as an advanced factor of production. This has raised the country’s competitiveness and helped industrial services. This also offers a great business opportunity for businesses focused on finance, services or manufacturing as technology has increased the country’s productivity. 

Analysis  

            Several benefits of doing business in Singapore are evident. Being a high-income economy, the country readily offers financial support in the form of loans to foreign investors. With top-notch physical and Information Technology infrastructure, the cost of doing business is significantly low, thereby leading to larger profit margins. The country is well connected, economically, to other countries, which means a business can easily expand into the other countries or extend their services to such countries. A politically stable and corruption free system of governance ensures minimal disruptions to a business’ operations unless in the case of unprecedented pandemics such as the ongoing COVID-19 pandemic. The legislations for inward foreign investors are also highly favorable, making business much easier. A stable currency also ensures seamless operation for a business. However, certain risks lie in doing business with the country. The cultural issue of relationships in Singapore is one of the risks. Failure to gain the trust of the philosophy guided by the Asian culture may mean negative growth for a business. Additionally, businesses dealing in commodities that seem to affect national security may be faced by multiple licensing issues or even fail to be licensed.

Recommendation and conclusion   

            The benefits of investing in Singapore far outweigh the risks. Finding a country with an open economy, minimal legislation towards foreign investors, politically stable and corruption free is difficult. Thus, I would advise a potential foreign investor to invest in the country. Moreover, a large number of companies have had success in their investment in the country