The history of Modern Singapore began in the early 19th century with the arrival of the British East Indies and Sir Stamford Raffles. While Singapore had long existed in the centuries prior to the British arrival as a settlement under various names such as Singapura and Temasek, it was the signing of the 1819 treaty to give British East India Company the right to establish a trading post in Singapore, that signalled the founding of Modern Singapore. Several factors contributed to Singapore being earmarked as the site of the British base. Singapore possessed a natural harbour, fresh water supplies and a timber supply for ship repair. Most importantly, unlike other islands in the region, Singapore enjoyed free port status.
Europeans, Malays, Chinese, Indians and Arabs came to live and work in Singapore. By 1824 the population had risen to 10,000. In 1826, Singapore was joined with Melaka and Penang to form the Straits Settlements, under the control of British India. From 1842, Singapore’s trade suffered from British development of a rival port, Hong Kong. Trade was further affected with the French occupation of mainland Southeast Asia and their development of Saigon (now Ho Chi Minh City) and Haiphong in Vietnam and the establishment of Dutch ports and shipping lines in the Dutch East Indies (present-day Indonesia).
In 1867 Singapore became a Crown Colony ruled directly by the British government rather than the East India Company. When the Suez Canal was built in 1869, Singapore became even more important as a ‘gateway’ between Europe and eastern Asia. Aided by the advent of the steamship in the mid-1860s, the reduction of travel time resulted in a rise in trade volumes. Singapore saw a $32 million rise just a year after the opening of the Suez Canal. And with the development of rubber planting, especially after the 1870s, it also became the main sorting and export centre in the world for rubber.
Before the turn of the 20th century, Singapore experienced unprecedented prosperity, and trade expanded eightfold between 1873 and 1913. This prosperity attracted immigrants from areas around the region. Statistics showed that in 1860, the population had already grown to 80,792, with the Chinese accounting for 61.9 percent of the population; the Malays and Indians 13.5 and 16.05 percent respectively; and others, including the Europeans, 8.5 percent.
This period of peace and prosperity ended during World War II, when Singapore was attacked and fell to the Japanese on 15 February 1942. It was to remain under Japanese occupation for three and a half years. When the war ended, Singapore reverted to British control, with increasing levels of self-government being granted, culminating in Singapore’s merger with the Federation of Malaya to form Malaysia in 1963. However, deep political and economic differences between Singapore’s ruling People’s Action Party (PAP) and Malaysia’s United Malays National Organisation (UMNO) resulted in Singapore’s separation from Malaysia. On 9 August 1965, Singapore became an independent republic.
Upon its independence from Malaysia, Singapore faced a small domestic market, and high levels of unemployment and poverty. Seventy percent of Singapore’s households lived in badly overcrowded conditions, and a third of its people squatted in slums on the city fringes. In that period, unemployment averaged 14 percent, Gross Domestic Product (GDP) per capita was US$516, and half of the population was illiterate. Facing severe unemployment and a housing crisis, Singapore embarked on a modernisation programme beginning in the late 1960s through the 1970s that focused on establishing a manufacturing industry, developing large public housing estates, and investing heavily in public education and infrastructure.
Economic Growth and Industrialisation of the Late 1960s and Early 1970s
In the period from 1965 to 1973, Singapore witnessed unprecedented economic growth, during which the average annual growth of real GDP was 12.7 percent. Major credit for this development must be given to the effective implementation of sound government policies, which took full account of Singapore’s strengths and weaknesses. The time was right for structural change in the economy. Enough capital had been accumulated to permit the domestic production of goods that were more capital intensive. The government focused economic efforts to increase industrial growth, solve domestic problems of unemployment, population growth, and housing.
Industrialisation promised the most economic progress. The strategy was to attract foreign direct investment which resulted both in a large share of Singaporean manufacturing being foreign-owned and a high degree of export-led growth. The government aggressively promoted export-oriented, labour-intensive industrialisation through a programme of incentives designed to attract foreign investment.
As foreign investment money poured in, Singapore began focusing on developing its human resources. The country set up many technical schools and paid international corporations to train their unskilled workers in information technology, petrochemicals, and electronics. For those who could not get industrial jobs, the government enrolled them in un-tradable services, such as tourism and transportation. The strategy of having multi-nationals educate their workforce paid great dividends. In the 1970s, Singapore was primarily exporting textiles, garments, and basic electronics.
By 1972, a quarter of Singapore’s manufacturing firms were either foreign-owned or joint-venture companies, with the United States and Japan both major investors. The response of foreign investors to Singapore’s favourable investment climate and the rapid expansion of the world economy at that time accounted for the annual double-digit growth of the Singapore’s GDP during most of the period from 1965 through 1973.
Growth Despite Oil Shock of 1973 and 1979
For the first two decades of its independence, Singapore enjoyed continuous high economic growth, largely outperforming the world economy. Its GDP growth rate never fell below 5 percent and rose as high as 15 percent. At the same time, Singapore managed to maintain an inflation rate below world averages.
In 1973, the Organization of Arab Petroleum Exporting Countries (OAPEC) proclaimed an oil embargo, causing an oil crisis, or “shock”, with repercussions on global politics and global economy. Although this brought an end to Singapore’s super growth period, its growth rate averaged 8.7 percent from 1973 to 1979, which was high in comparison to other countries. Manufacturing continued to grow, as did other industries such as transportation and communications.
Although a second worldwide oil crisis happened in 1979, which set off the longest and deepest recession in industrialised countries since the Great Depression of the 1930s, Singapore was unscathed. Instead, its economy grew in 1980 to 1981 while the world economy was contracting. The real average GDP growth rate between 1979 and 1981 was 8.5 percent. Unemployment was virtually nil, and most of the population had experienced great strides in productivity. Financial and business services joined manufacturing as the major economic engines. During this period, Singapore’s function as a petroleum-servicing entrepôt made it more like an oil producer than an oil consumer.
Major Trade Center in the 1980s
The principle of free trade laid down by Raffles was still largely in effect in the late 1980s, with only a few revenue tariffs levied on such things as tobacco and liquor. Trade continued to be the island’s lifeblood; in 1988 the value of Singapore’s international trade was triple the total of its gross domestic product (GDP). Although some aspects of the trade have changed, others remained the same.
By the late 1980s Singapore aspired to be a “global city” serving world markets and major multi-national corporations. Singapore was the world’s third largest petroleum-refining center as well as third largest oil-trading center, serving the needs of oil-rich Indonesia and Malaysia. By 1988 Singapore had nosed out Rotterdam as the world’s busiest port in terms of tonnage. Some 700 shiplines used its modern facilities each year, including Singapore’s own merchant fleet, which ranked fifteenth worldwide. Four major shipyards employed about 70,000 workers, about 40 percent of whom were from neighbouring Asian countries.
A quarter century after independence in 1965, the city-state had become a manufacturing center with one of the highest incomes in the region and a persistent labour shortage. As one of Asia’s four “little dragons” or newly industrialising economies, Singapore along with the Republic of Korea (South Korea), Taiwan, and Hong Kong was characterised by an export-oriented economy, relatively equitable income distribution, trade surpluses with the United States and other developed countries, and a common heritage of Chinese civilisation and Confucian values. The small island had no resources other than its strategic location and the skills of its nearly 2.7 million people. In 1988 it claimed a set of economic superlatives, including the world’s busiest port, the world’s highest rate of annual economic growth (11 percent), and the world’s highest savings rate (42 percent of income).
One of the fastest growing sectors of the economy was Singapore’s international banking and financial services sector, which accounted for nearly 25 percent of the country’s GDP in the late 1980s. At that point, Singapore ranked with Hong Kong as the two most important Asian financial centres after Tokyo. The government provided incentives for the continuing diversification and automation of financial services, and Singapore’s political stability and top-notch infrastructure were important attractions for international bankers and investors. Trade, manufacturing, and international financial services were closely linked in Singapore, which in 1990 hosted more than 650 multi-national companies and several thousand international financial institutions and trading firms. Singapore’s reliance on the international economy, over which it had little control, provided incentive for the government to play a strong role in regulating domestic conditions.
Given Singapore’s dependence on the world economy, however, the consequences of declining foreign demand were inevitable. In 1985, Singapore experienced one of its worst recession. Singapore staggered under a year of negative growth (-1.5 percent), then recovered slightly in 1986 (+1.9 percent). Worldwide slumps in petroleum-related and marine-related sectors were reflected in reduced demand for Singapore’s goods and services and raised the spectre of worldwide overcapacity in shipbuilding and shiprepairing. A slowdown in demand for semiconductors and electronics in the United States significantly reduced the market for Singaporean components and parts.
Internally, the construction boom – which had produced a glut of hotels, shopping centers, and apartments – began to be reversed. Domestic demand weakened as a result of a rise in domestic savings, which was not matched by a rise in productive domestic investment. The situation was complicated by a loss of international competitiveness and a profit squeeze attributed to labour costs rising faster than productivity. The government responded promptly and firmly by lowering employer contributions to the Central Provident Fund, freezing overall wage levels for 1986 and 1987, reducing corporate income taxes from 40 to 30 percent, reducing personal income taxes in line with corporate taxes, and introducing an across-the-board investment allowance of 30 percent to encourage greater investment in equipment and machinery. These measures were highly successful; costs dropped 30 percent and productivity climbed. By 1988 Singapore’s economy had rebounded.
High-Tech Industries Expansion in the 1990s
The 1990s posed an important question for Singapore, as to how it would reinvent its economy. During this time, the emergence of efficient manufacturing firms in southeast Asia presented a challenge to the nation with such a small labour force and land restrictions. Despite struggling in the manufacturing sector, Singapore thrived in global finance, trading, and was an industrial hub for international trade. The major sectors of the economy were the regional entrepôt trade, export-oriented manufacturing, petroleum refining and shipping, production of goods and services for the domestic economy, and a vastly expanded services industry.
By the 1990s, Singapore was engaging in wafer fabrication, logistics, biotech research, pharmaceuticals, integrated circuit design, and aerospace engineering.
GDP growth in the 1990s was linked closely with export growth and expansion of the electronics industry. Office machines and telecommunications equipment accounted for about 15 percent of exports in 1980 and 60 percent in 1995. Singapore grew at an average rate of 8 percent a year through the 1970s, 80s and 90s. Unemployment was around 2 percent in the early 1990s.
From 1990 to 2004, Singapore experienced high growth rates. Growth was 7 to 8 percent until the mid-1990s. In 1997, Singapore’s per capita income exceeded $33,000, higher than that of Germany. The reversion of Hong Kong to Chinese sovereignty in 1997 saw an influx of entrepreneurial Hong Kong Chinese businesses into the country.
Asian Financial Crisis of 1997-1998
Singapore was hit hard by the 1997-1998 Asian financial crisis but not as hard as some of its Asian neighbours. Growth fell from 8 percent in 1997 to 1.5 percent in 1998. The value of the Singapore currency fell by more than 25 percent and property values dropped by 40 percent.
With a fundamentally sound economy – a budget surplus, strong currency, hard currency reserves, low inflation and no debts – Singapore pulled through. Much of its trade was done with the United States and Europe, and not Asia. In 1998, the government announced $6.5 billion in budget cuts and improved corporate transparency, allowing more foreign control of its companies and banks. Business contributions to the nation’s pension fund and airport and port fees were reduced to stimulate growth.
Ups and Downs of the 2000s
Singapore’s economy boomed for a little while after the Asian financial crisis then slumped again. Growth was 9.5 percent in 2000. During a recession in 2001, GDP shrank 2.4 percent and Singapore struggled through one of its worst economic slumps ever.
Singapore was hit hard by the dot.com bust and the decline in the electronic and computer chip industries. The value of the Singapore dollar fell. Singapore posted negative growth rates in 2001 when the bust was at its peak. The following year, there was a slight recovery of 2.5 percent.
Growth in 2003 was slowed by SARS, which affected tourism and business in general in Singapore. In the second quarter of 2003, when the SARS outbreak was at its peak, economy shrank 11.8 percent, the biggest contraction ever. Growth in 2004 was 8.5 percent, led by an increase in exports of computer chips and pharmaceuticals. Growth was 5.2 percent in 2005. That year exports accounted for 80 percent of GDP. Growth was 7.9 percent in 2006 and 7.7 percent in 2007. Inflation was 2.1 percent in 2007. Inflation reached 7.5 percent in June 2008, a 26-year high, due to higher oil and food prices.
The global financial crisis of 2008-2009 took a toll on Singapore’s export dependent economy, reducing annual economic growth to just 1.1 percent in 2008, compared to around 8.2 percent between 2004-2007, and creating the highest unemployment rate in five years. The Government of Singapore Investment Corp (GIC), one of the world’s largest sovereign wealth funds, invested billions of dollars in global financial institutions that had fallen victim to the international crisis. Strengthening ties with China was seen as a way of mitigating Singapore’s risk.
Singapore’s trade-reliant economy was the first in Asia to slip into recession (in the third quarter of 2008) after the fall of US investment bank Lehman Brothers sparked a crisis that led to a collapse in global consumption. The Singapore economy shrank 2.1 percent in 2009 but this was less than originally feared. Singapore’s worst recession on record yet was the 2.4 percent contraction in its GDP following the collapse of the technology bubble in 2001.
The government declared the recession over in November 2009 but cautioned that the strength of its recovery will depend on the pace of rebound in Singapore’s major trading partners such as the United States, the European Union and Japan. With the economy contracting less than feared, Singapore escaped what could have been its worst recession since 1965, thanks in part to a S$20.5 billion Singapore dollar government stimulus package.
Singapore’s GDP soared 32 percent in the first quarter of 2010 and was 14.5 percent for all of 2010. Associated Press reported: “Singapore says its economy soared in the first three months of 2010 as manufacturing more than doubled.”
Growth was 6.3 percent in 2011 and 4.5 percent in 2012. AFP reported: “Growth in Singapore’s trade-reliant economy slowed down sharply in 2012 as exports tumbled due to a global economic slump, according to the latest official data. The key manufacturing sector bore the brunt of the slowdown, as global demand for electronics goods softened.”
“For the whole of 2012, Singapore’s GDP growth slowed by 1.8 percent, from 6.3 percent in 2011, mainly due to weakness in the externally-oriented sectors,” the Ministry of Trade and Industry (MTI) said in a statement. “Weighed down by the contraction in the electronics cluster, manufacturing sector growth slowed sharply from 7.8 percent in the previous year to 0.1 percent.” Electronics shrank by 11.3 percent in 2012, faring the worst out of Singapore’s six major manufacturing clusters. Overall GDP was supported by a buoyant construction sector which grew 8.2 percent. Services rose 1.2 percent.
In 2013, Singapore’s unemployment rate was around 1.9 percent and the country’s economy had a growth rate of 4.8 percent.
2015 saw a downturn for the nation as GDP growth shrunk to just 3 percent from 3.9 percent in 2014. And although it picked up in 2016 with 3.3 percent and to 4.5 percent in 2017, Singapore experienced an economic slowdown in 2019, with GDP growth slowing to 1.3 percent from 3.5 percent in 2018, due to tariff hikes from the United States and China.
As of 2020, Singapore GDP sits at S$469.1 billion and real GDP growth rate is -5.4 percent. According to the Singapore Department of Statistics (DOS), its gross national income (GNI) per capita is S$72,418 per capita, a dip of 8.2 percent from the year before.
The World Bank has ranked Singapore 12th highest for gross national income (GNI) per capita in 2019 (Atlas) with US$59,590, and 2nd highest economy in Purchasing Power Parity (PPP) with US$92,270.
The Global Pandemic Impact in 2020
The COVID-19 pandemic caused massive global economic disruptions in 2020. Singapore was not spared as the economy recorded its worst full-year recession since independence. During the year, the economy had to grapple with both demand- and supply-side shocks, such as a fall in external demand for goods and services produced in Singapore caused by the economic slowdown in major economies and global travel restrictions, supply chain disruptions, as well as the implementation of the Circuit Breaker (CB) measures domestically from April to June 2020.
Across sectors, the economic impact of COVID-19 was felt through different transmission channels. Consequently, their economic performance, including their recovery post-CB, was variegated. For example, while the proxy indicators for external demand had either surpassed or were close to pre-pandemic levels by the fourth quarter of 2020, air passengers and tourist arrivals remained significantly lower than pre-pandemic levels as at end-2020.
Furthermore, significant risks in the global economy remain. While Singapore’s vaccination programme is well underway, there is uncertainty over how the COVID-19 pandemic will evolve around the world given the emergence of new strains of the virus and difficulties in vaccine rollouts globally.
Overall, Singapore’s GDP is projected to gradually recover and expand by 4.0 to 6.0 percent this year, with GDP not likely to return to pre-COVID levels until the second half of the year at the earliest. The pace of recovery is also expected to be uneven across sectors. For instance, while outward-oriented sectors are likely to benefit from the pickup in global economic activity, activity levels in tourism- and aviation-related sectors are projected to remain below pre-pandemic levels even by the end of 2021.