The Underlying Reasons of Rapid Economic Growth in Singapore

Source: Mario Sammut¸ PKF Malta¸ 4th June 2012

East Asia has a remarkable record of high and sustained economic growth over the past three decades. Growth in East Asia during this period has been concentrated in eight economies that have formed three waves of growth. The first wave was growth in Japan¸ followed by a wave of growth in the “Four Tigers” — Hong Kong¸ the Republic of Korea¸ Singapore¸ and Taiwan/China.

Another wave of growth is apparent in Indonesia¸ Malaysia¸ and Thailand. Since 1960 these eight economies together have grown about twice as fast as the rest of East Asia and the industrial economies¸ about three times as fast as Latin America and South Asia¸ and about five times as fast as Sub-Saharan Africa. Between 1960 and 1985¸ real income per capita increased more than four times in Japan and the Four Tigers and more than doubled in Indonesia¸ Malaysia¸ and Thailand as seen in the bar graph below.

Singapore wants to position itself as Asia’s leading commodities hub – before Shanghai and Hong Kong get there first. Sunny Verghese¸ chief executive of Olam¸ the Singapore-listed agricultural trading house that relocated from London to the city several years ago¸ sees a “five to seven years” window before China-based rivals start to catch up with Singapore. Lured by the shift of global commodities demand from Asia¸ traders are resettling in Singapore’s central business district. But¸ in large part¸ traders say the city is also benefiting from tax and regulatory arbitrage. It is a powerful draw for companies looking for “light touch” oversight.

Three large agricultural houses – Olam¸ Noble Group and Wilmar – are already listed in Singapore. Other commodities houses and natural resources companies are either moving their incorporation into the city¸ such as Trafigura¸ or locating regional hubs there – Xstrata¸ BHP Billiton or Anglo American. Moreover¸ the commodities traders that arrived more than a decade ago¸ including Glencore and Vitol¸ are trying to book as much business as they can through the city.  Trafigura’s relocation is a big boost for Singapore as it challenges the supremacy of Switzerland as the world’s commodities trading hub and fends off competition from other financial centres¸ such as Shanghai¸ Hong Kong¸ and Dubai. Trafigura is not alone: BHP Billiton¸ the world’s largest mining company by market capitalisation¸ is to close its coal and iron ore marketing hub in the Dutch city of The Hague and relocate senior traders to Singapore this year. Anglo American also plans to open a new trading hub in Singapore.

Industry executives estimate Singapore handles about 15 per cent of the world’s physical crude oil trading¸ ranking fourth after Geneva¸ London and a combined New York and Houston. In agriculture¸ it sees about 20 per cent of global trade¸ ranking second after Geneva.  In metals and minerals¸ Singapore is battling London for the number two slot¸ with the Swiss hubs of Geneva¸ Zug¸ Lucerne and Lugano at the top.</p