How Did Singapore Address Its Economic Challenges?

Economic Vulnerability

1. Limited Access to the Malaysian Hinterland

• Malaysia remained Singapore’s main trading partner after Singapore gained Independence.

• Trade between the two countries was limited due to the absence of a common market and direct access to the Malaysian Hinterland.

2. Threat of Unemployment

• Another economic concern was the need to provide sufficient jobs to cater to Singapore’s rapidly growing population.

• In 1975, there were already more than 70,000 unemployed persons out of a total labour force of over 700,000.

• There was also a large number of young people finishing their schooling and would be in need of a job.

• If no jobs were available to them, Singapore’s unemployment rate would grow even more severe.

• The entrepot trade, which had been a lifeline of Singapore’s economy for more than a century, had been declining since World War II.

• Due to the growing competition from the other ports in the region, its importance as a source of job creation was diminishing.

• Since the military bases were a major source of employment for Singaporeans, with the livelihood of over 40,000 people dependent on supplying goods and services to British servicemen stationed there, the announcement in 1967 of the closure of its military bases affected Singapore’s economy.

• The government had to diversify the economy, which meant finding new and varied sources of economic growth instead of always depending on only one source.

• That would make it more likely for the economy to grow steadily and ensure there were sufficient jobs available for the people.

  (Labour Force consists of all the people in a country who are either working or looking for work. Generally, the higher the percentage of a country’s labour force who are working, the better its economy is considered to be doing)

Economic Diversification

1.Development Of Export-Oriented Industrialisation

• Even before the merger or independence, the government believed industrialisation was key to diversifying Singapore’s economy.

• In 1961, Finance Minister Dr Goh Keng Swee announced the establishment of the Economic Development Board (EDB).

• EDB was to promote industrial development in Singapore.

• For example, by attracting multinational corporations (MNCs) to set up factories here. Goods produced in these factories were meant to be sold mainly in Singapore and the Malaysian Hinterland. However, this became impractical after independence.

• Thus, Singapore adopted an export-oriented economic policy.

• The majority of the goods produced would instead be exported worldwide.

• Hundreds of MNC’s from countries such as the Netherlands, Britain, Japan and the US set up operations in Singapore.

• The MNCs included Shell, Seiko and Hewlett-Packard.

How Singapore Benefitted from MNCs Setting Up Operations Here:

• Employment for thousands of people

• Valuable technical training and work experience for the local workforce, which helped to build up local expertise that would eventually fill job vacancies previously filled by foreigners

• Greater access to modern technology to help keep Singapore competitive globally

• Increased exports of locally manufactured goods to more overseas market

• In 1961, the EDB transformed almost 70 square kilometres of land in Jurong into Singapore’s first industrial estate.

• Plots of land across the country were set aside for development into industrial estates.

• As Singapore grew more industrialised, the task of managing industrial estates became more difficult.

• So, in 1968, the Jurong Town Coperation (JTC) was set up to take over the task of building and managing industrial estates.

• Which then allowed the EDB to focus on attracting foreign investment.

• These efforts to diversify the economy paid off, as manufacturing activity in Singapore increased significantly.

• Almost 150,000 jobs were created between 1967 and 1973 alone.

• So many jobs were created to the point there was a shortage of labour, such that foreign workers had to be recruited to fill up the jobs.

• Up until 1973, Singapore’s economic growth rates exceeded 10 per cent every year.

• Some of the key Industries that developed SG: Electronics, Petroleum Refining, Ship Building and Repair, Garments and Textiles

2. Development Of Infrastructure

• The government also developed the proper infrastructure in Singapore.

• This would not only help to attract MNCs and other foreign investors, but also facilitate the growth of Singapore’s manufacturing industries.

  -Telecommunications

• To boost connectivity among industries and household

• New telephones being installed at a rapid pace

• Took 85 years to install the first 100,000 telephones

• Took just 5 years from 1967 to 1972 to double the network size to 200,000

  -Banking and Finance

• Services were expanded to meet the needs of the MNCs and other companies in SG

• For example, Development Bank of Singaore (DBS) was established in 1968 to finance industrialisation and other development projects

• Many foreign banks also set up operation in SG

  -Public Utilities

• The Public Utilities Board (PUB) was set up in 1963

• Responsible to provide public utilities such as water, electricity and gas

• Improved both operating conditions and people’s living condition

  TRANSPORT FACILITIES

  -Air Transport

• Paya Lebar Airport was expanded in the 1960s and 1970s to handle more passengers

• Insufficient space for future expansion so the government decided in 1975 to replace it with a larger aiport

• Changi Airport was opened in 1981

  -Sea Transport

• Port of Singapore Authority (PSA) was formed in 1964 to manage port operations

• To cater to the rise in cargo traffic, port facilities were set up in Jurong, Sembawang, Tanjong Pagar and Pasir Panjang.

  -Land Transport

• Roads constructed to connect industrial areas to housing estates

• Expressway system built to reduce travel time around the island

Impact of the 1973 Oil Crisis

• In late 1973, a conflict in the Middle East, a major oil exporting region, caused a shortage in global oil supply and oil prices jumped by almost four times in less than three months.

• This had a significant impact on Singapore since it imported all its oil, which was needed for its economy to run smoothly.

• Several measures were implemented to help the people deal with the effects of the oil crisis.

• For example, the government took the lead in increasing worker’s wages to help them cope with the inflation.

• While Singapore recovered by 1976, this crisis served as a reminder that its economy was vulnerable to external developments beyond its control.

1. -Increase in global oil prices → Increase in petrol and electricity prices in SG → Increase in public transport fares → increase in cost of living

2. -Increase in global oil prices → Increase in petrol and electricity prices in SG → Increase in cost of producing and transporting goods → Increase in price of goods → Increase in cost of living

3. -Increase in global oil prices → Increase in petrol and electricity prices in SG → Increase in cost of producing and transporting goods → Increase in price of goods → Decrease in demand’s for SG’s exports → Decrease in economic growth rate