š¤ The Crazy Rich Singaporeans!
Here's how Singapore managed to transform itself from a developing country to a developed country in just a few decades.
When you think about Singapore, you probably think about the Merlion statue or its crazy chewing gum ban.
But very few people know about the countryās rags to riches story. How it went from a developing nation to a developed country.
That too in just a few decades.
What makes the islandās transformation particularly inspiring is that it has always had little in the form of land, natural resources, and labour force.
So how did Singapore do the unthinkable?
š² A Rocky Past
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Singapore attained independence from British rule in 1963 and was declared an independent state from Malaysia in 1965.
During this time, the country was not doing well at all. It had lost most of its business, lacked proper planning and jurisdiction, and unemployment was rife. The financial reserves of Singapore were slowly running dry and it couldnāt even sustain its own populationās food and water requirements. The nation had one of the worldās worst slums during those times.
Over the recent years, however, the country has shown an average growth rate of about 6.22% consistently. The income per capita in Singapore is comparable to that in the US. In fact, it is ranked second internationally in ease of doing business by the World Bank.Ā Ā Ā
What brought this exponential transformation?
š Ingredient 1: The Perfect Location
The nation did not have a large availability of land, coal reserves, or any major natural resources it could capitalise on. What it did have, however, was the perfect location.Ā
Following the 1960s, Asian nations saw rapid growth. Western multinationals wanting to expand needed a safe outpost in Asia, and Singapore offered just that. It had a robust system of strategically located seaports that connected India, China, and the South Asian regions to the West.Ā
Singapore thus emerged as a highly efficient middleman between rich nations looking to trade and the developing nations looking to import.
But, you see, even Malaysia, Thailand, and Indonesia had the gift of location. But how was only Singapore victorious?
š° Ingredient 2: Investorās Paradise
Education and foreign investment also played a huge impact in Singaporeās transformation. Today, it has emerged as an FDI hub. Now, how did this happen?
The former prime minister of Singapore, Mr Lee Kuan Yew, understood the importance of providing ease of doing business and safe investment opportunities in the country. Result? It attracted a lot of foreign capital to the country.
But, just like India, initially, Singapore also followed import substitution - protectionist policies (policies that aim to replace imports with domestically produced products). However, it opened up its economy completely in 1965 (unlike India which opened up its economy in the 1990s).Ā
This marked the beginning of the nationās complete transformation.Ā
Lee Kuan Yew
The open and free economic model adopted by Lee Kuan Yew helped build a positive image of Singapore in the minds of those looking to invest in Asia. It emerged as a stable, safe, and corruption-free state. Because of low taxes and ease of doing business, Singapore ranked first in the Economic Freedom Index of 2021.
The highly developed infrastructure and skilled workforce in Singapore aided Leeās mission of attracting foreign investment.Ā
After the nation witnessed a heavy inflow of cash from other countries, it decided to work on the key issues its citizens faced. First in line: housing issues. The city was surrounded by slums and there was a lack of sanitisation. So, the government followed a land acquisition policy wherein, it bought land from the public for cheap to construct high-rise buildings and homes for the people. The slum-dwellers could now move to modern high-rises and make a better life for themselves.
Another policy that was quite controversial yet proved to be highly beneficial for the economy was a rigid national savings plan - the Central Provident Fund. This required the citizens to save a part of their income, with their employers making a similar contribution. This money could be used for medical and education expenses, and could even be āborrowedā to purchase houses.Ā
Singapore now has a gross domestic savings rate of 53.8%, one of the highest in the world. Not only is every citizen highly economically productive but also a very generous saver, making growth inevitable for the country.
And weāve saved the best for the last: extremely low taxes. Even the wealthiest are charged just a small portion of their income and tariffs are close to nil.Ā
Here, look at the tax comparison between India and Singapore:
The government makes up for the loss of tax revenue by taxing other services and products. For instance, automobiles are taxed heavily and car owners also have to pay a hefty registration fee. So, only those who can afford these exorbitant costs own a car. The majority of the population uses the public transport system which is quite efficient and affordable. This is why despite Singaporeās high population density and highly industrial nature, the pollution levels always remain low.
So, Singapore has truly come a long way. It took advantage of its geography and was able to capitalise on Asiaās growth. Singapore serves as a great example for other Asian developing economies, like India, and shows how apt government decisions and public policies can change the face of an economy.Ā
ā” In a line: Singapore capitalised on its location at the right time, focused on ease of business and developed infrastructure to transform itself into a first-world country.
š” Quick question: What do you think India should learn from Singapore?
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