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Economy of Singapore

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A tiny dot in Asia Pacific between the South China Sea and the Indian Ocean has managed to make a giant leap from the third world right into the highest global economic rankings since obtaining its independence from the UK in 1963. For incredibly powerful zeal for progress and rapid investment transformation shown in the 1980s and mid-1990s, the Singaporean economy was called a “tiger”. Today, it is one of the wealthiest nations of the world: Singapore has 3rd largest GDP (PPP) per capita on the planet (according to International Monetary Fund and the World Bank, 2014). Being pro-business, honestly governed, and the least corrupt in Asia, Singapore boasts the world’s highest investment potential that turned it into a competitive global business hub.

Features of Singapore’s Economy

Trade-driven economy

For decades, the country has been an active and reliable exporter of chemicals, electronics, petroleum products, transport equipment, telecommunication hardware, and food; however, in the new century, it has reconsidered its priorities and opportunities and switched over also to development and research, finances, health care, and biomedicine. With its low taxes and open trade practice, the country has won the loyalty of global investors and turned into a vigorous startup hub.

Singapore has over 20 “Free Trade” bilateral agreements with its strategic trade partners including its former Metropolitan State (the UK) and the European Union. The country boasts the world’s highest “trade-to-GDP” ratio which was 4 to 1 in 2011. In 2014, Singapore’s trade totalled 982 billion SGD. Malaysia is the biggest trading partner and import source for Singapore. Other active trade partners are China, Indonesia, Japan, Hong Kong, South Korea, the US, and the EU.

Singapore is an active participant in the entrepot trade: it buys raw materials, refines them, and re-exports. Singapore is a perfect business destination for environmental companies as it is Asia’s leader in water fabrication: it already has over 180 companies that specialize in water and invests in innovation in water desalination and developing more effective sewerage systems. Another entrepot activity Singapore is the Asia’s leader in is oil refining. The country already has huge facilities for storing oil and aims at expanding them in the near future.

Singapore is famous for very simple scheme of documentation in relation to trade. Singapore customs uses electronic system called Tradexchange for handling export and import papers.

Constant investment flow

Despite the high cost of living, Singapore attracts more and more investments. The US remains Singapore’s main investor in such sectors as electronics, chemicals, and oil refining. In 1999, the total investment of the U.S. companies reached 20 billion USD. Over 3 thousand international corporations were lured to Singapore by its low taxes, low corruption rates, and effective infrastructure. Singapore actively invests in China, Malaysia, Hong Kong, and even the U.S.

The government takes a leading investment position itself: it owns 2 sovereign wealth funds (Temasek Holdings and GIC Pte Ltd) which initially had been intended for managing strategic sectors of economy (public transport, media, shipping, banking, defence, airport and so on), but later were reoriented to commercial activity. Government-owned enterprises operate under the same conditions as private companies and enjoy no particular privileges. In 2014, Temasek held over 69 billion SGD of Singapore’s assets.

Financial expert

Singapore gets the quarter of its GDP from providing professional financial services such as insurance, reinsurance, wealth and asset management, foreign exchange, trading, arbitration, and so on. Singapore is a powerful banking hub of the Asia Pacific region and the Asia’s 3rd biggest Financial Centre that is home to 117 foreign banking institutions. Singapore provides various competitive banking services from consumer credits to insurance and investment operations. For faithfulness to interests of its high-net-worth clients, Singapore has deserved the nickname “the Switzerland of Asia”: it hasn’t signed the EU Tax Directive (2005) which would oblige it to disclose private information about its investors/depositors.

Less reliance on foreigners

Singapore has been relying on foreign manpower for long decades, but today the government makes hard though reasonable efforts to reduce such dependence by enhancing productivity. Policies that regulate the employment of foreigners have become tougher, and some working visas (like the S Pass or Work Permit) now have a quota and mandatory levy for every foreign employee. The Ministry of Manpower has become pickier in giving work passes and constantly increases the salary benchmark as well as other salary-dependent criteria.

The government stakes on the local manpower that is well-educated and motivated. The country’s priority is to build up a knowledge-driven and competitive economy, boost expertise of local manpower and keep it prepared for the challenges of today’s economy. For this purpose, the government welcomes the most professional foreigners who are able to share competitive knowledge. A 3-subclass working visa was developed for foreign talents – the Employment Pass. Mandatory requirements for getting this visa are: being hired by the Singapore-based company for the salary that corresponds with the professional level (but isn’t lower than 3,300 SGD) and possessing valuable knowledge and skills the Singapore economy has a need in.

Legacy and political landscape

Singapore has a very stable political climate. Imagine the country governed by the same political party (People’s Action Party) since 1959 and the country that is open, business-friendly, and well-developed in the same time. The lever of trust to the government and the Parliament is very high, and such steadiness attracts foreign investments. The authorities, in their turn, are faithful to business-friendly trade and economic policies and show business a tangible support in the form of co-investment initiatives and comfortable taxes.

Singapore has a very strong enforcement of law, but all regulations are transparent and just. Singapore’s legal system is based on statements of British common law. The country has the lowest crime and corruption rates in Asia, and dealing with the authority is a pleasure here, of course, if you don’t violate the law. Foreign businesses benefit from professional dispute resolutions and the Asia’s best (#2 in the world) protection of intellectual property.

In some cases, the legal ambience may be quite stifling for immigrants from western countries especially when it comes to bans which are taken very seriously (for example, you can be fined for not flushing the toilet after use).

Creative & innovative approach

Creativeness isn’t the strongest native feature of the Singaporeans, and, therefore, the government consciously pampers it in economy in order to stay competitive globally. Singapore is all about bold experiments and innovations; that is why, it has managed to create highly competitive and successful systems that are said to be hardly applicable somewhere else such as, for example, the healthcare. Singapore invests in creative environmental design and architecture (and its main attractions are legendary indeed), mass media, visual communications, fashion and software design, IP protection, and content in order to be iconic in the whole Asia Pacific region.

Singapore tests and applies the newest technologies in biomedical science. Being the 6th in the world for effectiveness, Singapore’s healthcare system attracts thousands of medical tourists pursuing effective treatment every year. In the same time, the country’s annual expenditure for healthcare is among the lowest in the “first world”: only 3.9% (for comparison, it is over 8% in the US, and 7.6% in the UK). In the research sector, Singaporean clinics collaborate with world-class medical centres such as Massachusetts General Hospital or Pennsylvania University Medical Center.

Personal savings

Singapore shortens its expenditure on retirement and healthcare by motivating the citizens to make their own savings. The national Central Provident Fund enables employed individuals to make savings through mandatory monthly contributions (usually 7 to 9% of the salary) to their personal accounts in the Fund. The fund has 3 “pockets”: Medisave (for healthcare and retirement), MediShield (insurance), and MediFund (extra needs).

Based on the amount of money accumulated, individuals can cure themselves and their dependents (relatives) choosing the comfortable amount of the governmental subsidy. It doesn’t, however, mean that individuals can get medical services for free: even if they undergo treatment in public facilities, they must pay a certain percentage of the cost from their pockets. Such approach protects public facilities from over-use and promotes healthy lifestyle that results from understanding of personal financial responsibility for one’s health.

Advantages of Setting up Business in Singapore

Ease of running business

SG is praised as the easiest place to start and run a business according to the World’s Bank report (2014). The government simplified the procedure of registering a new company (today it takes only a single day to get your Singapore-based firm registered) and introduced beneficial conditions for foreign stakeholders: the minimum share capital that allows foreigners to set up a private limited company is only 1 Singaporean dollar while the percentage of foreign shareholding isn’t restricted (it can be up to 100% foreign).

Most companies incorporated in Singapore are registered as private limited companies: their shareholders have a liability that is limited to the paid-up capital formed in the very beginning. This form of business protects personal assets of shareholders in case of the company’s debts or legal issues and provides the widest possible opportunities in expanding, buying property, receiving loans, investing, and changing the ownership. As the private limited company is preferred by the Singapore government, the latter offers significant tax incentives and rebates that allow to dramatically reduce the corporate tax rate.

Low taxes

To attract more investments, Singapore keeps its taxes business-friendly. The country has one of the world’s lowest corporate tax rates – 17%. But even this number remains mainly on the paper as new companies are privileged with various tax rebates and incentives during first years of their activity: they can earn their first 100k SGD tax-free, and pay only 50% of the corporate tax for the next 200k SGD of revenue.

Singapore’s personal income tax is also among the planet’s lowest: the rate gradually rises from 0% and is capped at 20 per cent for revenues of over 320k SGD. Taxing of individuals’ incomes also depends on whether these individuals are tax residents in Singapore or not. To be considered a tax resident (and to be taxed as a local), the foreigner must stay/work in Singapore for 183 days a year or more. Those who stay less are taxed at the flat rate of 15%.

The GST (VAT) is set on the level of 7% in Singapore which is one of the planet’s lowest rates. Foreign entrepreneurs who set up businesses in Singapore shouldn’t be afraid of double taxation as Singapore has signed agreements of avoiding double taxation with many countries of the world. Also, Singapore doesn’t impose capital gain and dividend taxes. Since the gain was taxed on the level of corporation, shareholders can enjoy their dividends tax-free. Such things as death and inheritance taxes don’t exist here as well.

Business speaks English here

English is the official language of economic and business regulations in Singapore which eases dealings with major developed economies of the world. Well-educated and English-speaking local manpower gives tremendous opportunities for business growth.

Motivated and educated local staff

Singapore treats education as strategic and spends lots of money on keeping its local manpower trained and competitive. The country plans to double its spending on post-graduate education to over 1 billion SGD yearly.

Top-notch infrastructure

Singapore’s infrastructure sector is where the country’s passion for innovations is seen. The state isn’t sparing of money and lavishly invests in infrastructure treating it as one of the most important sectors of excellence. By 2020, Singapore plans to increase its investment in infrastructure by 50 per cent. Singapore invests not only in better roads and vehicles, but also in managing light and wastes, building roads for innovative autonomous cars and developing mobile applications to improve communication between providers of public services and consumers.

The public transport (most of the Singaporeans use) is reliable, safe and maintained scrupulously clean. The Mass Rapid Transit (MRT) that connects all parts of Singapore is kept constantly updated. By 2030, it is planned to extend its length to 360km and redesign it by 2020.

The Singapore’s boldest and most innovative infrastructure project is its Changi Airport which was highlighted as the best airport on our planet for several years running. It serves businesses from all over the world by connecting Singapore with over 110 destinations in Asia Pacific and more than 300 airports worldwide. Singapore takes pride in the airport and invests lots of funds in realising lots of innovative projects inside it in order to over-meet the visitors’ expectations: garden-style interior, spectacular design, and comfortable facilities (a swimming pool, free cinema, and the 12-meter high slide). All its terminals are being constantly renovated and expanded for better convenience.

Singapore also boasts the world’s 2nd busiest maritime port which eases trading in the East-Asian region. The Singaporean port is the planet’s busiest trans-shipment port: it trans-ships the 5th part of the planet’s shipping containers. Having 67 berths, the port connects Singapore businesses with over 600 ports (in over 120 countries) worldwide. Having a well-developed port is a necessity for tiny Singapore that lacks land and, therefore, natural resources.

Winning location

Singapore’s location in the spot where western and eastern shipping lanes intersect that gives an easy access to almost 50% of world’s population is very winning in the terms of doing business and building up the company’s presence.

Singapore is associated with the economic region ASEAN (South East Asian Nations) which is much larger than the EU and is home to over 620 million of Asians. And Singapore takes the leading position on this huge and highly-promising Asian market. That is why world’s major retailers and influential holdings strive to have a shop in Singapore or open subsidiaries, representative offices and branches here. Huge “Metropolitan” businesses (such as Rolls-Royce, Barclays, Shell, Standard Chartered etc.) has already appreciated economic benefits of Singapore and moved their regional businesses there.

High creditworthiness

3 major credit rating agencies (Standard & Poor's, Fitch, and Moody's) gave Singapore their highest AAA ratings. It means that they evaluated the creditworthiness of the Singaporeans and Singapore corporations as very high.

Singapore is an open economy, and therefore reflects all trends of global trade as a mirror. Thus, this feature makes it vulnerable to global downturns. For example, sluggish processes in global economy in 2013/14 impacted the GDP’s ups and downs in Singapore. In steadier conditions, Singapore’s GDP is expected to grow by 3-4% yearly. Today, it’s the 36th in the world: over 307 billion USD, which is huge for a tiny country. Its GDP per capita (over 56k USD) is more than that of Singapore’s former Metropolitan State (the UK).

The Singaporean economy is a rare combination of hardworking and devoted manpower, wise resource management, business zeal, and government-initiated innovativeness and investments. Like a tiger, Singapore’s economy managed to make a huge leap from the third world to the first one in less than half a century polishing its top-notch business and trade standards and turning into the center of global excellence in everything it does.

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