The Economy of Singapore

The starting point for all questions about Singapore could be:
Singapore is a small open economy with no natural resources.
This sentence, that can be found on the MTI website, should remind us of key
issues pertinent to our understanding of economics in the red dot. Small in
geographical size, 687sq.km. and population 5.4 million is both advantage and
disadvantage, as we shall see. More interestingly are the two remaining
descriptions open and no natural resources.
No Natural Resources
Not strictly true in the sense that Singapores geographic location and deep
harbour are the natural advantages that led to the initial development of the
island. Location is still an important factor. A natural route for goods travelling
to and from Asia and Europe the port is still an important element of the
economy. You only have to stroll along the East Coast park to notice the flotilla
of ships waiting to berth or bunker in Singapore.
Natural resources are usually classified in economics as factor LAND. The
production of ALL GOODS generally involves EXTRACTED natural resources. Its
worth finding out about some of these, especially RARE EARTHS. Of course, the
importance of recycling means that virgin resources may be less important than
in the past but currently the hard commodities remain essential to modern
manufacturing. So, no factor land to support domestic production. Learning
point number 1:
Imports are essential to the survival of Singapore.
Thinking point no. 1; how can Singapore pay for its breakfast (imports and that
includes, dinner, supper and all the ingredients for production)? Well the obvious
answer; Singapore needs to sell goods and services to the rest of the world.
Learning point number 2:
Exports are essential to the survival of Singapore.
A historical perspective helps us understand the issues facing Singapores
survival. Can you recall the image of a tearful Mr. Lee informing Singapore of its
expulsion from Malaysia? Mr. Lee and the founding fathers of Singapore
contemplated the survival dilemma. A major problem if the lives of
Singaporeans were to be improved.
Solution: import foreign capital and foreign labour. This is reference to the open
nature of the economy. Open to trade, open to capital flows and, partially open
to labour flows. Notice this is an issue about the MOBILITY of the factors of
production. Be clear about capital (one of the most complex ideas in
economics); we generally are thinking about tools, plant and machinery when
this term is used. You only have to look down the road to see foreign capital; in
the form of Panasonic Refrigeration Division. We are talking about foreign firms
setting up in Singapore the import of foreign capital. Why on earth would
foreign firms want to come to Singapore?
Singapore is the least corrupt state in Asia probably one of the least corrupt
countries in the world. Patents, copyright and intellectual property rights are

respected. The government has built up an efficient INFRASTRUCTURE. Labour

costs are relatively low (this may be changing). The location of Singapore is
ideal to meet the demand for goods and services from especially from ASEAN.
The member countries have a combined population of approximately 625
million people, 8.8% of the world's population. In 2015, the organisation's
combined nominal GDP had grown to more than US$2.6 trillion. That equals high
demand for goods and services. Through the work of the Economic Development
Board (EDB) many industries have been attracted to set up offices, shops and
factories in these 687 sq. kms.
The electronic sector was an early success and it remains an important source of
exports today. We know that if you produce goods and services you need;
Ingredients (land); machines, tools and factories [pant] (capital); of course you
need labour.
Singapore has a workforce of 3.6 million and approximately one third of the
workforce is foreign, i.e. not citizens or permanent residents (PRs). Labour
comes generally in two major classifications; the lower end of relatively low
skilled workers, and two obvious groups are domestic workers (maids) and
construction workers. Also imported labour fills skills gaps in the local economy.
The recent introduction of SkillsFuture is partly about plugging the skills gaps by
enhancing the capabilities of the local workforce;
The SkillsFuture Council is a Tripartite Council chaired by Deputy Prime Minister
(DPM) Tharman Shanmugaratnam to:
Develop an integrated system of education, training and career progression for
all Singaporeans,
Promote industry support for individuals to advance based on skills, and
Foster a culture of lifelong learning.
The openness of the economy exposes Singapore to changes in demand in other
countries. In turn downturns in sales bring risks to retrenchment and
redundancy to the local workers.
Professionals, managers, executives and technicians (PMETs) formed seven in ten
of residents laid off in the second quarter of 2015, followed by clerical, sales and
service workers (16%) and production and transport operators, cleaners and
labourers (13%). About three in five (64%) of the residents affected were workers
aged 40 and over.
The chart below shows the importance of exports.

From these data we can understand why the EXCHANGE RATE is one of the most
important tools (or instruments) to manage the economy. The responsibility of
governments to manage economic performance is essentially the subject matter
of macroeconomics. Learning point 3.
The exchange rate policy is the key instrument used by the government
of Singapore
Sources:
https://www.cia.gov/library/publications/the-world-factbook/geos/sn.html
accessed on 23/10/15
http://www.wda.gov.sg/
accessed
on 26/10/15