Singapore's economy
High-flyer
Oct 25th 2007
The Economist print edition
Booming, bustling and bursting at the seams
THE strong global economic tide has lifted the boats of most South-East Asian countries, but perhaps the most impressive performer is Singapore. Its national income per head is already higher than Spain's and New Zealand's, and five times that of its nearest neighbour, Malaysia. Yet in the year to the third quarter, its economy grew by 9.4%. Singapore is “a developed country that grows at developing-country rates,” as Robert Prior-Wandesforde, an economist at HSBC, puts it. Since the 1997 Asian crisis it has fared markedly better than its rival, Hong Kong (see chart).
The signs of a boom are unmissable. The shopping malls along Orchard Road are bustling. Fancy hotels are full of wealthy tourists despite cranking up their room rates. Marina Bay, by the financial district, is a forest of cranes as a $3.6 billion casino resort goes up. The Singapore Flyer, a giant Ferris wheel, looks down on the vast expanse of building site. Office rents have risen by 50% in the past year, while the price of homes is up by 28%.
Any downturn in America, which buys a fair chunk of Singapore's exports, is bound to have an effect. But, reckons Mr Prior-Wandesforde, a slackening of foreign demand might be just what Singapore needs to avoid the only danger to its sizzling economy: overheating. Inflation hit a 12-year high of 2.9% in the year to August, though it fell to 2.7% in September.
Singapore has sustained its growth through unusually clean and efficient government, and by having one of the world's best education systems. While Hong Kong has shifted most of its factories to its southern China hinterland, in Singapore manufacturing still accounts for around 25% of GDP. However, anticipating the competitive threat from China, it has moved up the value chain, away from low-end electronics, and found lucrative new niches. Its marine-engineering and biomedical firms are growing at around 40% annually. Its finance industry has cornered the regional market in private banking for the wealthy.
Singapore's boom has already sucked in millions of immigrants: new figures show that, as in London, almost one-third of residents were born in other countries. To keep the economy growing and reduce pressure for wage rises, the government is keen to admit more foreigners: its development plans assume the population will grow from 4.7m now to 6.5m in 40-50 years' time, mostly by immigration. Many of the new immigrants come from India and China. They are wowed by Singapore's order and prosperity, notes Sinapan Samydorai of the Think Centre, a think-tank. They also tend to be conservative-minded and thus are likely to embrace Singapore's unique mixture of free-market economics and strait-laced politics.
There have been worries that lower-paid Singaporeans are missing out on the boom. Indeed, until recently, consumer spending was lacklustre. But it has gathered pace in the past few months and, with employment and wages each growing at around 9% annually, there is plenty of domestic spending power to help the economy survive any export downturn.
Though its Gini coefficient, a measure of income disparity, suggests Singapore is a rather unequal place, there are few visible signs of poverty. Most Singaporeans live in massive, publicly built housing projects that are freshly painted and surrounded by neat, litter-free gardens. No graffiti or menacing youngsters here. Most residents have bought their apartments and are seeing their value soar.
Singapore still has plenty of green space it could build on. But the plan, says Lim Eng Hwee, a senior planning official, is to keep this and find other ways to accommodate the growth in population and new businesses. One is to continue reclaiming land from the sea. Since independence Singapore's land area has grown from under 600 square kilometres (230 square miles) to around 700. Mr Lim says it could be increased to about 760 sq km by closing gaps between Singapore's main island and lesser ones. But this might prompt more envious grumbles from Malaysia and from Indonesia, another close neighbour, which has become reluctant to sell Singapore sand for its reclamation projects. Like Malaysia, Indonesia feigns environmental concerns about them.
If the scope for extending sideways is limited, one solution is to stretch upwards—ever taller skyscrapers are being built, with financial incentives to encourage owners of low-rise apartments to make way for them. But also downwards: Singapore's big oil-storage business, which takes up much land, is being shifted to underground caverns. Roads, which use up 12% of Singapore's land area, will increasingly be put below ground too. Then perhaps concert halls, sports stadiums—who knows? Such schemes are hugely costly but Singapore has massive financial reserves for its size. In creating enough space to continue its breakneck expansion, money will be no object.
