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POLICY REVIEWS: FIRST PRESS RELEASE, SECRETARIAT
AND GOVERNMENT SUMMARIES
Singapore: March 2000
Notwithstanding the repercussions of the Asian economic crisis, Singapore has continued to pursue liberal trade and investment policies and to deepen internal reform, especially in key services. A new WTO report on Singapore's trade policies says that Singapore has weathered the recent economic crisis in the region well mainly due to its stable and sound macroeconomic policies and its open trade and investment regime.
Singapore gains from its openness to trade and foreign investment
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The report states that Singapore's economic success, which is reflected in one of the world's highest per capita incomes, owes much to its high degree of openness. International trade in Singapore is equivalent to 300% of GDP and in the manufacturing sector foreign direct investment currently accounts for around 70% of total investment.
The new WTO Secretariat report, along with a statement by the Government of Singapore, will serve as the basis for the third trade policy review of Singapore, which will take place at the WTO Trade Policy Review Body on 29 and 31 March.
The report notes however that in the longer term Singapore is likely to face competition from relatively low-cost producers in the region. The reports says that in recent years, Singapore's relative unit labour costs have been rising, putting pressure on the external competitiveness of lower value-added exports. In response, the Government of Singapore has established programmes aimed at attracting investment into higher value-added activities.
Singapore's openness to international trade is reflected in the fact that border measures are, with few exceptions, confined to those related to health and safety concerns, the report says. Apart from tariff lines involving alcoholic products, Singapore's applied tariff is zero, although excise taxes are levied on a number products, including motor vehicles, alcohol products, motor spirits, and motor oil, a large percentage of which are not produced domestically.
The report notes that Singapore did not raise tariffs in the wake of the Asian economic crisis, despite the considerable scope allowed for doing so within its existing bindings. On the contrary, the Government removed tariffs on high-speed diesel in 1998. Singapore's average bound tariff rate was 9.7% in 1999, and is projected to decline to 6.9% in 2005. The report notes nevertheless that given its applied tariff of zero for most products, Singapore's decision to keep bound tariffs higher and to bind only 70.5% of its tariff lines lends a degree of uncertainty to its tariff regime.
Between 1995 and 1998, Singapore reduced the percentage of tariff lines subject to import prohibitions (from 0.7% to 0.5%) and to automatic and non-automatic import licensing (from 19.7% to 19.2%), the report states. In general, Singapore maintains import and export restrictions for environmental or health and safety reasons; however, imports of rice are licensed for food security reasons and a ban is maintained on imports of motor vehicles that are three years old and above, for safety and environmental reasons.
The report notes that foreign investment in Singapore is allowed in most sectors of the economy, with restrictions in only few services sectors. Moreover, several of these restrictions are being gradually reduced or removed. For example, in the financial services sector, a 40% limit on foreign investment in any locally incorporated banks was abolished and the limit on foreign ownership of companies listed on the Singapore Stock Exchange was raised from 49% to 70%. In the telecommunications sector, the Government announced its decision to abolish all restrictions on foreign investment and to introduce full competition in April 2000 rather than maintaining a duopoly until April 2002, as planned originally.
While an active member of the WTO, Singapore has also pursued trade and investment liberalization on a regional level. Singapore is a founding member of the Association of South East Asian Nations (ASEAN) and a member of the Asia Pacific Economic Cooperation (APEC). Although in theory Singapore offers tariff preference to its ASEAN partners, in practice, as Singapore's applied tariff is largely zero, such preference does not exist. In the APEC forum, Singapore plans to meet the deadline agreed for developed country members to liberalize trade and investment by 2010. Singapore was also a participant in APEC's Early Voluntary Sectoral Liberalization (EVSL) and Accelerated Tariff Liberalization (ATL) initiatives, covering 15 and 9 sectors, respectively.
Along with a liberal trade and investment regime, the Government has sought to support Singapore's economic development by implementing policies to encourage certain activities, the report states. Government policy is implemented mainly by statutory boards, which regulate and promote economic activities whose potential for strong economic growth is thought to be particularly promising. Policies include a range of tax incentives to encourage investment in the desired activities and a small number of grants to small and medium sized enterprises. In addition, the Government remains indirectly involved in the economy through government-linked companies (GLCs). The GLCs were formed in the 1960s when the Government invested directly in key sectors of the economy. Although the companies which include some of the largest in Singapore have since been transferred to a holding company, and appear to be largely independent, concerns have been raised about the possible advantages enjoyed by them in raising finance or competing with small local firms.
The report says that Singapore aims to maintain the share of manufacturing at around 25% of GDP (22% in 1998) and has actively promoted the development of high value-added manufacturing activities. This policy has been largely successful, with electronics dominating both manufacturing output and merchandise exports. As Singapore's trading advantage appears to be shifting towards higher value-added electronics and services, long term development programmes have been established to encourage investment in these activities.
With the manufacturing sector open to competition, Singapore has pursued reform in the services sector, including financial services, transport and utilities. Currently, services account for around 64% of GDP and provide employment to around 70% of Singapore's workforce. Liberalization is most advanced in the financial and telecommunications services.
With regard to its WTO commitments, the report notes that Singapore amended its legislation in the light of the TRIPS and customs valuation agreements ahead of the transition period available to developing countries. In services, Singapore has signed both the Agreement on Telecommunication Services and Agreement on Financial Services but has, in practice, moved well ahead of its WTO GATS commitments. Under the Agreement on Telecommunications Services, Singapore committed to grant licenses for up to two additional operators for public switched services and leased circuit facilities from 1 April 2000. This replaced the previous offer, under which exclusivity was granted to Singapore Telecommunications until 2007. Under the Agreement on Financial Services, Singapore's commitments include an offer to increase offshore bank lending limits to residents of Singapore from S$100 million per bank to S$200 million, and to allow up to 49% aggregate foreign equity ownership in locally owned insurance companies. Given the importance of services for economic growth, the report suggests that the predictability of Singapore's trade and investment regime could be further enhanced by an extension of Singapore's GATS commitments to the five services sectors currently not covered in its schedule.
Notes to Editors
Trade Policy Reviews are an exercise, mandated in the WTO agreements, in which member countries trade and related policies are examined and evaluated at regular intervals. Significant developments which may have an impact on the global trading system are also monitored. For each review, two documents are prepared: a policy statement by the government of the member under review, and a detailed report written independently by the WTO Secretariat. These two documents are then discussed by the WTOs full membership in the Trade Policy Review Body (TPRB). These documents and the proceedings of the TPRBs meetings are published shortly afterwards. Since 1995, when the WTO came into force, services and trade-related aspects of intellectual property rights have also been covered.
For this review, the WTOs Secretariat report, together with the policy statement prepared by Singapore, will be discussed by the Trade Policy Review Body on 29 and 31 March 2000. The Secretariat report covers the development of all aspects of Singapores trade policies, including domestic laws and regulations, the institutional framework, trade policies by measure and by sector.
Attached to this press release is a summary of the observations in the Secretariat report and parts of the government's policy statement. The Secretariat report and the governments policy statement are available for the press in the newsroom of the WTO internet site (www.wto.org). These two documents and the minutes of the TPRBs discussion and the Chairmans summing up, will be published in hardback in due course and will be available from the Secretariat, Centre William Rappard, 154 rue de Lausanne, 1211 Geneva 21.
Since December 1989, the following reports have been completed: Argentina (1992 and 1999), Australia (1989, 1994 and 1998), Austria (1992), Bangladesh (1992), Benin (1997), Bolivia (1993 and 1999), Botswana (1998), Brazil (1992 and 1996), Burkina Faso (1998), Cameroon (1995), Canada (1990, 1992, 1994, 1996 and 1998), Chile (1991 and 1997), Colombia (1990 and 1996), Costa Rica (1995), C˘te dIvoire (1995), Cyprus (1997), the Czech Republic (1996), the Dominican Republic (1996), Egypt (1992 and 1999), El Salvador (1996), the European Communities (1991, 1993, 1995 and 1997), Fiji (1997), Finland (1992), Ghana (1992), Guinea (1999), Hong Kong (1990, 1994 and 1998), Hungary (1991 and 1998), Iceland (1994 and 2000), India (1993 and 1998), Indonesia (1991, 1994 and 1998), Israel (1994 and 1999), Jamaica (1998), Japan (1990, 1992, 1995 and 1998), Kenya (1993 and 2000), Korea, Rep. of (1992 and 1996), Lesotho (1998), Macau (1994), Malaysia (1993 and 1997), Mali (1998), Mauritius (1995), Mexico (1993 and 1997), Morocco (1989 and 1996), New Zealand (1990 and 1996), Namibia (1998), Nicaragua (1999), Nigeria (1991 and 1998), Norway (1991 and 1996), Pakistan (1995), Papua New Guinea (1999), Paraguay (1997), Peru (1994), the Philippines (1993), Poland (1993), Romania (1992 and 1999), Senegal (1994), Singapore (1992 and 1996), Slovak Republic (1995), the Solomon Islands (1998), South Africa (1993 and 1998), Sri Lanka(1995), Swaziland (1998), Sweden (1990 and 1994), Switzerland (1991 and 1996), Tanzania (2000), Thailand (1991, 1995 and 1999), Togo (1999), Trinidad and Tobago (1998), Tunisia (1994), Turkey (1994 and 1998), the United States (1989, 1992, 1994, 1996 and 1999), Uganda (1995), Uruguay (1992 and 1998), Venezuela (1996), Zambia (1996) and Zimbabwe (1994).
POLICY REVIEW BODY: SINGAPORE
Since its previous Trade Policy Review in 1996, Singapore has continued to pursue liberal trade and investment policies, while deepening internal reforms, especially in key services sectors. The economy remains relatively free of trade barriers and, indeed, notwithstanding the repercussions of the Asian economic crisis, the percentage of tariff lines subject to import prohibitions and licensing has declined. Foreign investment is allowed in most sectors of the economy, with restrictions in only a few services sectors. Since the previous Review, reform has been pursued in several services sectors, for example, financial services, transport, and utilities, and restrictions on foreign investment have been lifted in many instances. Singapore retains few other border measures. It has also shown an increased tendency to align standards with international norms, where appropriate standards exist, and measures such as those in the sanitary and phytosanitary area apply equally to imported and locally produced goods.
Along with a liberal trade and investment regime, the Government has sought to support Singapore's economic development by implementing policies to encourage certain activities. In the past, this included direct government involvement in key sectors through government-linked companies, which are currently managed by a holding company (Temasek). In addition, the Government created statutory boards to implement its policies; their present role consists primarily of regulating and promoting economic activities that are thought to have high growth potential, as well as providing technical and marketing assistance. In order to encourage investment in the desired activities, a number of tax incentives have been provided. Most recently, with rising unit labour costs relative to other countries in the region, Singapore's trading advantage appear to be moving towards higher value-added manufacturing and services sectors; the Government has responded to this by establishing long-term development programmes, including tax incentives, to encourage investment in higher value-added activities.
During the review period, economic growth in Singapore was strong until mid-1997, when the effects of the Asian economic crisis began to be felt. Between 1995 and 1997, real GDP growth averaged over 8% annually. Real GDP growth fell sharply to 0.3% in 1998, however, mainly as a result of both weaker demand in the region and in demand for Singapore's main exports outside the region. Slower economic activity pushed unemployment up from 1.8% in 1997 to 3.2% in 1998.
Economic growth in Singapore is underpinned by a stable macroeconomic environment. A history of prudent fiscal and monetary policy enabled the Government to respond swiftly to the economic crisis that hit the region in 1997, giving temporary tax cuts to businesses in the 1998 and 1999 budgets to tide them over the crisis. As a consequence, the previously surplus budget is expected to register a deficit of 3.5% of GDP in 1999/2000. In addition, monetary policy was loosened to allow the exchange rate to fluctuate within a wider band, reducing pressure on the currency. The outcome is that the Singapore dollar has depreciated against major international currencies, although the more substantial regional currency devaluations have eroded the external competitiveness of Singapore's lower value-added exports.
As a result, inter alia, of the Government's budgetary measures, improved demand in Singapore's major export markets for electronics, and signs of economic recovery in the Asian region, the Singapore economy appears to be making a rapid recovery. Overall real GDP growth projections for 1999 are currently around 5%, substantially higher than 0.3% in the previous year.
The economic crisis in Asia and subsequent currency devaluations in neighbouring countries has, nevertheless, highlighted concerns about the export competitiveness of some sectors, particularly lower value-added manufactures, where lower cost regional producers are making in-roads. Singapore's relative unit labour costs, especially with respect to other countries in the region, have continued to rise for much of the period under review. While the recent temporary budgetary measures have helped cut costs, longer term measures, including programmes such as Industry 21, Information Technology 21, and Manpower 21, have also been taken to increase value-added production in manufacturing and services.
Singapore's economic success owes much to its high degree of openness. International trade is equivalent to 300% of GDP, while foreign direct investment currently accounts for around 70% of total investment in the manufacturing sector. Trade and trade-related policies are the responsibility of the Ministry of Trade and Industry, which coordinates policy with other Ministries and statutory bodies, and are implemented by the Trade Development Board (TDB). Policies are generally formulated upon consultation with Singapore's business community and other interested parties. In addition, national committees are formed from time to time to address specific issues, most recently on competitiveness; the committees include participants, and solicit advice, from a range of interests.
Singapore strongly supports the multilateral trading system and has been an active participant in both the WTO and its predecessor, the GATT. In general, Singapore extends most-favoured-nation (MFN) treatment to all its trading partners; in some aspects of intellectual property rights, non-members of the WTO are granted less than MFN treatment. Singapore has amended its legislation in the light of its obligations undertaken in the context of the Uruguay Round, including in the areas of intellectual property rights and customs valuation ahead of the transition period available to developing country Members of the WTO. Since its previous Review, Singapore has notified the WTO of changes to its legislation on trade remedies under the Countervailing and Anti-Dumping Duties Act. Singapore became a member of the WTO Government Procurement Agreement in September 1997.
Singapore's foreign investment regime is liberal, the exception being some services sectors and real estate, where there are limits on foreign investment. However, several of these restrictions are being gradually reduced or removed. Recent examples of this include the financial services sector, where a 40% limit on foreign investment in any locally incorporated bank has been abolished and the limit on foreign ownership of companies listed on the Singapore Stock Exchange raised from 49% to 70%; the previous cumulative 73.99% limit on foreign investment in the telecommunications sector was abolished in January 2000.
Singapore's openness to international trade is reflected in the fact that border measures are, with few exceptions, confined to those related to health and safety concerns. Apart from four tariff lines at the HS 9-digit level involving alcoholic products, Singapore's applied tariff is zero; the four tariff lines carry specific rates of duty. Excise taxes are levied on a number of products, including motor vehicles, alcohol products, motor spirits, and motor oil, a large percentage of which are not produced domestically. Together, customs and excise duties accounted for 7.4% of total tax revenue in 1999, down from 8.1% in 1995. Singapore did not raise tariffs in the wake of the Asian economic crisis, despite the considerable scope allowed for doing so within its existing bindings; on the contrary, the Government removed tariffs on high-speed diesel in 1998. While tariff concessions are provided for under the ASEAN's CEPT scheme, as Singapore's MFN tariff rate is virtually zero, no tariff concessions are granted in practice to ASEAN products under CEPT.
As a result of the Uruguay Round, Singapore bound 70.5% of its tariff, a level below the developing country average. The average bound tariff rate was 9.7% in 1999, and is projected to decline to 6.9% in 2005. Bindings by individual HS chapters range from 100% for agriculture to 10% and below for transport equipment and mineral products. Given that the current applied tariff is zero for the large majority of products, the decision to keep bound tariffs higher and to bind only 70% of tariff lines lends a degree of uncertainty to the tariff regime, although this is presumably for future negotiation purposes in the WTO.
Between 1995 and 1998, Singapore trimmed down the percentage of tariff lines subject to import prohibitions (from 0.7% to 0.5%) and to automatic and non-automatic import licensing (from 19.7% to 19.2%). In general, Singapore maintains import and export licensing for environmental or health and safety reasons; however, licences are required for rice imports, for food security reasons. In addition, a prohibition is maintained on imports of motor vehicles that are three years or older, on environmental grounds. But given the relatively stringent environmental and roadworthiness standards applied by Singapore to older cars, the need for an outright ban on cars of three years and over is unclear. In order to control traffic congestion, motor vehicles under three years are subject to an import quota, which is increased by around 3% annually, as well as to high internal taxes.
In conjunction with its overall policy to unilaterally reduce and eliminate border measures, the Government provides a certain guidance to the economy. While economic development in Singapore has, by and large, been private-sector driven, the Government has, nonetheless, played, and continues to play, an important role in providing private business with strategic guidance. Government policy is implemented mainly by statutory boards, which regulate and promote economic activities whose potential for strong economic growth is thought to be particularly promising. Assistance is provided, to a large extent, through tax incentives for investors and through grants for small and medium sized local enterprises. In addition, during the 1960s, the Government invested directly in sectors believed to be of strategic interest for economic development, and in which private investment would prove to be insufficient, by taking a direct stake in companies involved in these sectors. Management of these government linked companies (GLCs) was transferred to a government holding company, Temasek Holdings, in 1970.
Singapore has no over-arching competition policy legislation. In services, where competition has been introduced more recently than in the goods sector, Singapore has opted for a sectoral competition policy framework, establishing regulatory authorities and rules in each sector to ensure competition between the incumbent service providers, often a public sector monopoly, and newer competitors.
In the goods sector, a liberal market-based policy has been sufficient to ensure competition, although of late there has been some debate about the role of government involvement in the economy through Temasek and the government-linked companies. The companies, some of which are the largest in Singapore and account for around 25% of the market capitalization of the Stock Exchange of Singapore, appear to be largely independent and compete directly with private sector companies. Temasek does, however, play a role in appointing management, such as the Chief Executive Officer and the Chairman. Concerns have also been raised about possible advantages enjoyed by these companies in raising finance or competing with smaller local firms, through the Temasek group. Temasek has attempted to address these concerns by recently changing its policy on the appointment of the Chairman and Chief Executive Officer in the GLCs so as to improve corporate governance. The Government has also indicated in Parliament that it may be willing to sell its stake in "non-strategic" GLCs to a single or group of shareholders to ensure that they "remain in good hands". Policies to improve corporate governance are also being pursued in the financial services sector, with improved disclosure requirements being a key factor in recent banking reforms.
In 1998, manufacturing accounted for 22% of GDP. Singapore aims to maintain the share of manufacturing at around 25% of GDP and has actively promoted the development of high value-added manufacturing activities. This policy has been largely successful, with electronics dominating both manufacturing output and merchandise exports. Notwithstanding a cyclical decline in export demand in 1998, electronics and electronic products accounted for 43% of value added in manufacturing; office machines, including electronic products and telecommunications equipment accounted for almost 62% of merchandise exports.
As in the case of manufacturing, government policies in services have encouraged investment in high value-added sectors. Currently, services account for around 64% of GDP and provide employment to around 70% of Singapore's workforce. The importance of services in the economy and the need to encourage the development of higher value-added activities has highlighted the need for accelerated liberalization in this sector. Reform in services has been deliberately gradual, however, so as not to cause unnecessary disruption and to ensure an orderly transition to full competition. Liberalization is most advanced in financial and telecommunications services. In other sectors, such as energy and water, which are important business inputs to manufacturing and services activities, reform is taking place more gradually.
In general, services reform has been carried out unilaterally and has gone beyond that scheduled by Singapore under the General Agreement on Trade in Services (GATS) in the WTO. Under the GATS, Singapore made commitments in 7 of the 12 sectors; commitments were not made in distribution services, education services, environmental, health-related and social services, and other services. In addition, only partial commitments were made in some sectors, notably transport, where commitments were made only in maritime transport, while no commitments were made in certain professional services, such as legal services. Since the previous Review, Singapore has signed the Fourth Protocol to the GATS (Agreement on Telecommunications Services) and the Fifth Protocol (Agreement on Financial Services). Under the Fourth Protocol on basic telecommunications services Singapore committed to grant licences for up to two additional operators for public switched services and leased circuit facilities from 1 April 2000; this replaced the previous offer, under which exclusivity was granted to Singapore Telecommunications (SingTel) until 2007. Under the Agreement on Financial Services, Singapore's commitments include an offer to increase offshore bank lending limits to residents of Singapore from S$100 million per bank to S$200 million, and to allow up to 49% aggregate foreign equity ownership in locally owned insurance companies.
In practice, Singapore has moved well ahead of its WTO GATS commitments. For example, recent reforms have abolished foreign ownership restrictions in banking services, previously restricted to 40%, and strengthened bank disclosure requirements to improve transparency. Similarly, while Singapore planned to introduce competition by means of a duopoly in basic telecommunications until April 2002, in January 2000 the Government announced its decision to abolish all restrictions on foreign investment and to introduce full competition in April 2000 rather than April 2002, as planned originally.
A strong supporter of the multilateral system, Singapore also believes that accelerating trade liberalization through regional fora benefits, rather than impedes, multilateral negotiations and liberalization undertaken within the multilateral framework. As a founding member of the Association of South East Asian nations (ASEAN), and a member of the Asia Pacific Economic Cooperation (APEC) forum, Singapore participates actively in reducing trade and non-trade barriers between the member countries of these fora.
Within ASEAN, in theory Singapore offers tariff preferences under the CEPT; in practice, however, as Singapore's applied tariff is largely zero, its ASEAN partners receive no such preferences. Singapore also pursues trade links through participation in efforts to harmonize ASEAN customs procedures and valuation. Cooperation between the member countries is also being pursued through: the ASEAN Framework Agreement on Services (AFAS), which includes seven services sectors; the Framework Agreement of the ASEAN Investment Area (AIA), which will extend national treatment in investment to investors from ASEAN countries by 2010 and subsequently to all investors by 2020; and the ASEAN Framework Agreement on Mutual Recognition Agreements.
In the APEC forum, Singapore plans to meet the deadline agreed for developed country members to liberalize trade and investment, by 2010. Singapore was also a participant in APEC's Early Voluntary Sectoral Liberalization (EVSL) and Accelerated Tariff Liberalization (ATL) initiatives, covering 15 and 9 sectors, respectively.
In addition to regional agreements, Singapore's size and resource constraints have led to the formation of regional alliances such as the Indonesia-Malaysia-Singapore growth triangle, formed in 1994, which allows all three countries to benefit from each others' resource complementarities. A free-trade agreement is also currently being negotiated with New Zealand and feasibility studies for free-trade agreements with Mexico and Japan are being conducted. In addition, Singapore is examining the possibility of setting up a tri-party agreement with New Zealand and Chile.
Singapore has weathered the recent economic crisis in the region well mainly due to its stable and sound macroeconomic policies as well as its open trade and investment regime; the Government's rapid reaction to the crisis through the introduction of short-term cost cutting measures also assisted businesses in adjusting to increased price competition as a result of currency devaluations in the region. These measures, together with Singapore's strong economic fundamentals, have helped it to emerge from the economic downturn more rapidly than many of its neighbours, with growth expected to be 5% in 1999, lower than 8% achieved during 1997, but considerably higher than the 1998 level of 0.3%.
In the longer term, however, one of Singapore's main challenges remains competition with relatively low-cost producers in the region. In recent years there has been concern that Singapore's relative unit labour costs have been rising, putting pressure on the external competitiveness of lower value-added exports. To address these concerns, the Government established the Committee on Singapore's Competitiveness (CSC), which made its recommendations in November 1998. The Committee found that in comparison with several of its neighbours, unit labour costs in Singapore, especially in manufacturing, had been rising more rapidly in recent years. It concluded that there was a need to upgrade capabilities to keep ahead of competition by ensuring that productivity gains were not outstripped by growth in business costs. The Government's response to the decline in external competitiveness has been to establish programmes such as Industry 21, Information Technology 21, Manpower 21, and tax incentives aimed at attracting investment to higher value-added activities.
Given the strong role played by Singapore's open trade and investment regime in fostering its economic development by, inter alia, facilitating a shift towards higher value-added activities, the stability and predictability of this regime could be much enhanced by Singapore undertaking greater bindings at the WTO. More specifically, Singapore might usefully increase its tariff bindings from the current level of 70.5% of tariff lines and bring bound tariff rates more into line with applied rates; Singapore could also extend its GATS commitments to the five sectors not yet covered in its Schedule.
POLICY REVIEW BODY: SINGAPORE
1. Despite our strong fundamentals, Singapore did not escape unscathed from the crisis that buffeted the region, due to our close economic interdependence with the neighbouring economies. Between 1 July 1997 and 31 December 1998, our stock market fell by 28%, while the Singapore dollar lost about 14% of its value against the U.S. dollar. Real GDP growth fell sharply from 8.9% in 1997 to 0.3% in 1998. But we were less badly hit than many of our neighbours, who slipped into negative growth for the first time in more than a decade.
2. Recovery, however, has been relatively quick, quite against initial expectations. After two quarters of negative growth in the second half of 1998, the Singapore economy returned to positive territory in 1999. The V-shaped recovery was driven by a sharp global electronic upturn, which fuelled not only our manufacturing activities but boosted recovery in other Southeast Asian countries as well. Our cost-cutting measures, implemented in the thick of the crisis, had also enabled Singaporean exporters to benefit from the surge in external demand.
3. The full impact of the crisis was felt in 1998, as deepening recessions in most parts of Asia led to a slump in Singapores external demand. The sharp depreciation in the regional currencies eroded our relative cost competitiveness. The global over-capacity in the electronics industry further contributed to the decline in Singapores manufacturing sector. As a result, real GDP growth slowed significantly as the year progressed from 4.4% in the first quarter of 1998 to 0.1% in the second quarter, -2.1% in the third quarter and -1.1% in the fourth quarter. On an annual basis, real GDP growth fell sharply from 8.9% in 1997 to 0.3% in 1998. About 29,000 workers were retrenched in 1998, close to three times that recorded in 1997, while the seasonally adjusted unemployment rate rose to 4.4% in December 1998 compared with 2% in December 1997. Our inflation rate and productivity growth slipped into negative territory.
4. The key economic indicators from 1995 to 1999 are listed in Table 1.
Full year preliminary estimate is 5.6%, as announced by
Singapore Prime Minister Goh Chok Tong on 31 December
5. Growth in all sectors moderated significantly in 1998, with the manufacturing, financial services, wholesale and retail trade, and hotels and restaurants sectors contracting. The manufacturing sector was plagued by oversupply in the electronics industry and weak regional demand for petroleum and petrochemical products. The financial services sector was affected by the severe curtailment in offshore lending. The decline in entrepot trade and visitor arrivals affected the wholesale and retail trade, hotels and restaurants, and transport and communications sectors, while the smaller pipeline of projects lowered construction growth.
6. The sectoral performance indicators from 1995 to 1999 are listed in Table 2.
Full year preliminary estimate is 5.6%, as announced by
Singapore Prime Minister Goh Chok Tong on 31 December
1. Our external merchandise trade in 1998 contracted by 7.5%, caused primarily by a sharp drop of 14.6% in our trade with the crisis-hit economies (which make up about 40% of our total trade). Fortunately, our trade with other markets in the U.S. and Europe remained healthy, which helped to cushion the decline. It was a severe downturn from the period 1994 to 1997, during which growth in our external trade averaged 10.4% per annum. Singapore's trade performance from 1995 to 1999 is listed in Table 3.
Source: Singapore Trade Development Board.
2. Our exports in 1998 only dipped slightly. In fact, non-oil domestic exports registered a marginal increase of 0.9%, as our export markets are diversified, with about 40% of our exports going to the crisis-hit economies and 40% to the U.S. and Europe. The effects of depressed demand from the crisis-hit economies were thus cushioned by sustained demand from developed markets in the West.
3. The demand from developed markets was mainly in non-electronic products such as pharmaceuticals. Export demand for our key electronic products, which make up 69% of our non-oil domestic exports, was weak, plagued by oversupply in the global electronics market. Our domestic exports of oil also declined significantly due to the plunge in oil prices as well as sluggish demand from the Asian economies, which accounted for about 80% of our oil domestic exports. Our re-exports also fell marginally in 1998, as the crisis weakened the import-ability of the affected economies, especially for domestic consumption.
4. Our imports shrank by 13.6% in 1998, as a consequence of sluggish industrial activity and weak consumer demand in Singapore (for retained imports), as well as weak demand from the region (for re-exports). The decline was largely in imports of oil, printed circuit board assembled (PCBAs), disk drives, parts of semiconductors, disc media products, parts of colour televisions (CTVs), radios and video cassette recorders (VCRs), cigarettes and parts of aircraft.
(c) Trade balance
5. Unlike the preceding years in which we recorded a trade deficit, our trade balance recorded a surplus of S$13.9 billion in 1998. Manufacturers ran down inventory in 1998 in view of the uncertain economic conditions.
6. Singapores total trade in services shrank by almost 18% in 1998, compared with 5.8% growth in 1997. The crisis resulted in a 32% fall in exports of services, compared with growth of 7.2% in 1997. The decline was due to several factors. First, lower receipts from travel services as a result of the fall in visitor arrivals. Second, lower receipts from freight and port services as a result of the sluggish regional trading environment. Third, lower receipts from financial services as a result of dampened foreign interest in the stock market. Meanwhile, although imports of services continued to grow, this masked the slower growth in payments for travel services as a result of fewer Singaporeans travelling abroad.
(b) Service balance
7. The surplus in our trade in services amounted to only S$553 million in 1998. This largely reflected the widening of the transportation deficit to S$2.6 billion and the travel deficit of S$744 million.
8. Singapore's trade in services from 1995 to 1999 is given in Table 4.
First three quarters data.
9. Against most expectations, the Singapore economy staged a strong recovery in 1999. It grew by a preliminary 5.6%, helped by several positive external factors the strong upswing in the global electronics industry, the gradual recovery in the regional economies including Japan, continued growth in the U.S. and the EU, as well as our own cost-cutting measures. The growth momentum for most of our key economic sectors has clearly turned stronger, although the construction sector is still languishing and there are pockets of weakness in the manufacturing sector.
10. Singapore is now out of the woods and firmly on the road to economic recovery. The outlook for 2000 is positive. The strong demand for electronics products is expected to continue. The global economy is expected to expand further on the back of continued robust growth in Europe and the U.S., although there is some lingering risk of a sharp fall in U.S. stock prices. The regional economies are expected to recover further. Taking all factors into account, the preliminary GDP forecast for 2000 is 4.5% to 6.5%.
11. While the outlook for 2000 is encouraging, the reality is that the economic landscape in the region has changed. In the aftermath of the Asian crisis, many regional countries are now restructuring their economies, and will become more formidable competitors. The advances in technology and the momentum of globalization have also continued unabated. Singapore recognizes that we must transit into a Knowledge-based Economy, in order to remain globally competitive. It cannot be business as usual.
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