Singapore is very often referred to as a model for Mauritius. In spite of its limited land area of 714 sq km and its lack of any natural resource, Singapore has effectively overcome its natural constraints to position itself as one of the most competitive and performing economies in the world
The Manufacturing Sector : A Critical Economic Driver for Singapore
Between 1970 and 2014, its economy grew at a Compounded Annual Growth Rate (CAGR) of 7.1%. The country reported a GDP per capita of USD 56,286 in 2014, higher than that of the United States and Germany. Singapore ranks 2nd on the Global Competitiveness Index 2015 published by the World Economic Forum, 1st on the Ease of Doing Business Index 2016 released by the World Bank Group, 10th worldwide on Deloitte’s 2016 Global Manufacturing Competitiveness Index, and 7th worldwide in terms of global competitive industrial performance according to the United Nations Industrial Development Organisation (UNIDO). The city-state is home to more than 7,000 multinational companies. 20 Singapore companies are featured in the 2015 Forbes list of the 2,000 biggest public companies in the world. The manufacturing sector has been a mainstay of Singapore’s remarkable economic performance over the past decades, under-going five major industrialisation waves, namely: labour-intensive, skill-intensive, capital-intensive, technology-intensive and knowledge-driven/innovation intensive.
Singapore’s Industrialisation Waves
In the early 1960s, leveraging on its human capital and infrastructure built by the British, Singapore adopted a pro-business, a pro-foreign investment and an export-led industrialisation strategy supported by solid governmental institutions, particularly as from 1965 following its separation from Malaysia, to build a solid and globally-competitive manufacturing sector. In 1961, the Economic Development Board (EDB) was created in order to attract foreign investors, particularly in the manufacturing sector to address the massive unemployment issue. In addition, the EDB was in charge of the development and promotion of vocational training programs to form the required manpower. The Jurong Industrial Estate with ready-to-move-in factories was established under the impulse of Dr Goh Keng Swee and, in 1967, tax incentives were enforced through the Economic Expansion Incentives Act to further enhance the attractiveness of Singapore to large foreign manufacturing companies. From 1960 to 1969, the focus remained on labour-intensive activities such as garments, textiles, toys and wood products. On 04 July 1969, Texas Instruments, which was at that time the world’s largest manufacturer of semiconductors, opened a plant at the Kallang Basin Industrial Estate following a S$6 million deal with the EDB. The start of the production process, which engaged 1,400 workers, from the date of Texas Instruments’ decision to set up in Singapore, took only seven weeks.
In the case of Singapore, the government effectively steered a city-state having no natural resource, no natural access to water and mostly reliant on entrepôt activities in the 1960s to the second most competitive economy worldwide in 2015.
During the 1970s, as full employment was attained, the EDB aggressively expanded its network across the globe with offices in the USA, Europe and Asia to promote Singapore as the ideal platform for sophisticated and skill-intensive manufacturing activities. Training institutions and apprenticeship programs were launched in partnership with foreign companies such as Tata, Philips and Rollei to uplift the country’s industrial skills. The employment regulatory framework was reviewed for more favorable labour conditions for foreign investors. The tax incentives scheme was further improved for foreign companies and extended to small domestic manufacturing enterprises. Autonomous government-owned companies were also launched in unattractive yet key sectors, notably in the financial and transportation sectors (Development Bank of Singapore, Singapore Airlines and Sembawang Shipyard), to support the industrialisation of Singapore. By the end of the 1970s, the GDP share of manufacturing increased to around 24 % from 14 % in 1965.
The 1980s witnessed the move of Singapore towards capital-intensive and high-tech manufacturing activities. In effect, faced with the emergence of other Asian economies and the erosion of the cost competitiveness of its labour force, the city-state embarked on a strategy to rapidly develop high-value-added industries. In the early 1980s, a New Education System, based on bilingualism, moral education and civics, mathematics and technical education, was established to provide the country with the required manpower in its quest for enhanced development. Institutions such as the National Computer Board and the Skills Development Fund were set up by the government, and in some cases with the collaboration of Japan, Germany and France, to form the required labour force for high-tech industries. Research & development activities were promoted and low-cost financing and consultancy facilities offered to the private sector for automation of their operations. The EDB continued to play a crucial role to attract foreign companies whilst the government maintained its policy to continually upgrade the country’s public infrastructure. In 1981, Apple launched a circuit-board manufacturing plant followed by other electronics and engineering companies. By the end of the 1980s, Singapore was the world’s largest producer of disk drives and disk drive parts.
A conducive regulatory and institutional framework for manufacturing businesses to prosper was put in place. In addition, the government tactfully intervened in strategic foundation sectors such as transportation and banking, through autonomous government-owned enterprises, to support and enable the country’s economic progress.
In the 1990s, Singapore reinforced its efforts towards the promotion and development of more technology-driven manufacturing activities. High-technology parks including tertiary education institutions were created, cooperation programs were established with leading foreign universities and a National Science Technology Board was set up to further consolidate the country’s capabilities in terms of technological research and support the country’s move towards an innovation- driven economy. Furthermore, the borders were opened to foreign talents to strengthen the country’s human capital. The new focus sectors were namely chemicals, electronics, engineering, pharmaceutical & biomedical and medical technology. Since 1990 and despite the revisited strategy of Singapore for a knowledge and innovation- intensive economy with focus on the services sector, particularly at the turn of the millennium, Singapore has maintained its global industrial competitiveness, as measured by UNIDO’s competitive industrial performance index. In spite of its declining GDP share, which is a usual pattern observed in countries experiencing late industrialisation, the manufacturing sector in Singapore has steadily and substantially increased its absolute GDP contribution. Between 1990 and 2012, the Manufacturing Value Added (MVA) of Singapore grew at a CAGR of 6.5 % compared to 3.3 % for Mauritius.
A Visionary and Entrepreneurial Government
As pointed out by Ravi Menon, Managing Director of the Monetary Authority of Singapore, in one of his speeches in June 2015, the “visible hand of good government” played an essential role in the continual economic restructuring and consequently the development of Singapore since its independence in 1965. In effect, the rapid and impressive economic progress of Singapore over the past decades is the result of a planned and consistent vision, which is unfortunately not the case in Mauritius.
In the case of Singapore, the government effectively steered a city-state having no natural resource, no natural access to water and mostly reliant on entrepôt activities in the 1960s to the second most competitive economy worldwide in 2015. Backed by internationally recognised foreign advisors, the government adopted a pro-active and outward-looking development approach to continually upgrade Singapore’s capabilities towards higher-value added activities and consolidate its international position as a highly competitive business platform to create value. A conducive regulatory and institutional framework for manufacturing businesses to prosper was put in place. In addition, the government tactfully intervened in strategic foundation sectors such as transportation and banking, through autonomous government-owned enterprises, to support and enable the country’s economic progress.
An Enabling Human Capital Strategy
Human capital is at the center of any economy’s success and Singapore is no exception. The adaptable and low-cost workforce enabled the first industrialisation wave of Singapore. Under the impulse of the government and the collaboration of the private sector, skills and competencies of Singaporeans were further developed and uplifted through appropriate revisions of the education system and specific training programs. According to scores from 2011 Trends in International Mathematics and Science Study (TIMSS) and the 2012 Program for International Student Assessment (Pisa), Singapore students are among the best performers internationally in Mathematics and Science. The National University of Singapore ranks 26th on the 2015-2016 Times Higher Education World University Rankings.
Furthermore, low-skilled to high-skilled foreign talents were welcomed to complement the country’s human capital, whilst ensuring transfer of knowledge and competencies to Singaporeans in key sectors such as financial services, aerospace engineering and research & development. As a consequence, the share of foreign workers, excluding permanent residents, in the country’s labour force increased from 3 % in 1970 to 35 % in 2010. In spite of this aggressive immigration policy, the unemployment rate in Singapore has remained on the low side since 1990, with a peak of 5.2 % in 2003.
Continual Modernisation of Public Infrastructure
Adequate public infrastructure is crucial for any country to achieve its economic ambitions, notably in the manufacturing sector. The infrastructure left by the British was used as a basis for the first industrialisation wave and was then gradually upgraded and modernised to enable the subsequent industrialisation moves. Internal connectivity, external connectivity and later on internet connectivity were aggressively developed to enhance competitiveness and eventually position the country as an indisputable international manufacturing platform.
A Strategically-Located Country
In the 1970s, in the face of the eroding cost-competitiveness of their domestic market, a number of Japanese firms engaged in labour-intensive manufacturing activities relocated to neighbouring Singapore to benefit from the low-cost labour and pro-business environment. Japanese manufacturing firms have since then maintained their presence in Singapore whilst shifting their investments to higher value-added activities, thus contributing to the next industrialisation waves. Panasonic, Fujitsu, Hitachi and Toshiba are still present today in Singapore. Besides, the strategic location of Singapore in the South East Asian region, at the crossroads of major maritime routes permitted the city-state to position itself as a competitive maritime hub, leveraging on its historic role as an entrepôt port. In 1972, the country inaugurated the TanjorPaga Container Port, the first container port of South East Asia. This maritime connectivity factor provided a unique competitive edge to Singapore in its efforts to attract foreign manufacturing firms.
A Proactive Investment Promotion Agenda
The achievements of Singapore in the industrial sector would not have been possible without the capital, knowledge, competencies and technologies brought in by foreign investors. On the one hand, a pro-business environment was established for foreign investors whilst on the other hand the EDB proactively and aggressively enticed major foreign companies to locate their activities in Singapore. Collaboration and partnership agreements were also signed with reputed international companies and organisations to reinforce the country’s capabilities in terms of human capital and research & development.
Enhanced Wealth-Creation Potential through Research & Development and Innovation
As from the 1980s, Singapore rightfully recognised the importance of research & development and innovation to move towards higher-value added manufacturing activities and therefore strengthen the wealth-creation potential of its manufacturing sector. Singapore is currently ranked 7th worldwide as compared to 49th for Mauritius on the Global Innovation Index jointly prepared by Johnson Cornell University, Insead and WIPO.
Reviving the Mauritian Manufacturing Sector
As rightly highlighted in the Economic Mission Statement-Vision 2030 presented by the Mauritian Government in August 2015, “few countries in the world can progress without a sustainable manufacturing base”. In effect, Mauritius’ quest towards its inclusion in the group of developed economies demands a solid, vibrant and globally-competitive manufacturing sector. Although, Mauritius cannot replicate Singapore’s development model given its unique characteristics, it is judicious that we learn from the industrialisation journey of this country and act accordingly with a view to positioning Mauritius as a globally-competitive manufacturing platform. The end of the preferential agreements which sustained the Mauritian Economic Miracle cannot be reversed. We can, however, mould the necessary enablers and environment to revive our manufacturing sector and build a prosperous economic future.
CEO of Lapidus Azuri