Why Singapore became the finance centre of the Far East

Finance

  • Author Giorgi Mikhelidze
  • Published August 26, 2020
  • Word count 1,227

Singapore is one of the smallest states in the world, its area is only 710.2 square kilometres. Until the middle of the 20th century, the country was an English colony, in 1951 it acquired the status of a self-governing state within the British Empire. In 1963, the city-state became part of Malaysia, but in August 1965 it seceded and became independent.

Prior to modernization and becoming the finance centre, Singapore was a poor third world country with no obvious economic advantages and significant reserves of natural resources. Even the country had to import fresh water from Malaysia. Most of the population lived in slums and was illiterate. The country was rife with corruption, drug trafficking and piracy.

How did the country manage to achieve these results in a short time? Modernization of Singapore was ensured by efforts in four key areas, such as: economic reforms that set the vector for investment and innovation development, social modernization, an effective fight against corruption, and political stability.

Fighting corruption

Today Singapore is one of the least corrupt countries in the world. However, in the 1950s, bribes were taken openly, this was a tradition of local authorities. The new government has set the task of eradicating corruption, regardless of personal connections and making no exceptions. A special Anti-Corruption Bureau was created in the country, reporting personally to the Prime Minister. The bureau's employees were endowed with broad powers, had the right to detain and search suspects of corruption. Members of the Cabinet of Ministers and even relatives of the Prime Minister became the object of anti-corruption investigations. As a result, a number of high-ranking officials ended up in prison, some are still serving their sentences. Many corrupt officials fled the country.

When a close friend of the Prime Minister was convicted of corruption, Lee Kuan Yew, perhaps the architect of modern Singapore sent him to prison.

Simplifying regulation and enhancing the prestige of the civil service has become another area of ​​the fight against corruption. The powers of officials were regulated in detail, a number of prohibitions and restrictions were established for them, decision-making procedures became much simpler and more transparent.

The salaries of judges and civil servants were raised. Thus, the salary of a Singaporean judge has reached several hundred thousand dollars a year (in the 1990s it exceeded a million dollars a year). The salaries of civil servants in positions of responsibility have been raised to a level comparable to that of top managers in private corporations.

Today, officials are regularly interviewed about the pitfalls of corruption. They systematically receive advice on how not to accidentally get involved in corrupt schemes. Officials are warned about accountability under the law on preventing corruption. Bureau staff regularly lecture college students about the dangers of corruption, both for themselves and for the whole society.

Officials are prohibited from accepting any gifts in the form of money or in any other form from people in business with them. It is also forbidden to accept invitations that could put an employee of a government department in any kind of dependent position. If an official cannot refuse a gift, he or she can accept it, but must immediately give it to the head of his department. An official can take a gift only if he pays for it in advance at a price determined by the accounting department of his department.

Simple and transparent business conditions

The government has relied on attracting foreign investors, developing the financial market and high-tech industries. Singapore has adopted simple and transparent procedures for registering and regulating businesses. The city-state became the first country in Asia that was able to establish favourable conditions for foreign corporations, and the latter began to open branches in the country. A simple and transparent taxation system with low tax rates was established. To avoid double taxation, Singapore immediately signed about 70 agreements with foreign countries.

Simultaneously with the simplification of the business environment, the city-state government implemented a consistent industrial policy in which government leverage played a significant role. The authorities allocated priority sectors, invested in them and developed them, and then these segments, having reached a certain level of development, like locomotives, pulled the entire economy forward.

In the 1970s, a new priority area appeared - the electronics industry, in which small Singapore was able to take the place of one of the world leaders. The development of the industry has allowed not only to create high-paying jobs, but also to equip Singaporean enterprises with the latest technology.

In the 1980s, an IT plan was adopted, within the framework of which a total computerization of state institutions took place, which gave an impetus to the development of the computer industry at the expense of government orders. This prompted private companies to accelerate their computerization as well, giving the computer industry an additional boost. Today Singapore is one of the most computerized countries.

At the end of the 20th century, the government found a new priority - the development of pharmaceuticals and biotechnology.

Currently, preferential programs for business continue to operate in the country. So, for small and medium-sized enterprises, dozens of programs of preferential lending have been developed, the state assists them in recruiting personnel, compensates for up to 90% of the costs of training and retraining. Foreign high-tech companies investing in research and development receive a ten-year tax exemption.

Social modernization

The most important role in the modernization of the country was played by the reform of the education system, which took place in the 1960s – 1970s. Minimum educational standards binding on all schools were created. Among other things, it became mandatory to study English and teach a number of subjects in it. The government has invested in educating Singaporean students at the best universities in the world, while establishing leading research and education centres in its homeland.

Another important social aspect is the successful housing and communal reform. The state has made a bid for citizens to buy apartments in their ownership, and not live in rented housing. In four decades of independence, more than 90% of Singaporeans have moved to government-sponsored apartment buildings.

The Central Provident Fund has become a key instrument of housing reform. Each working Singaporean receives a special personal account in it, to which he is obliged to transfer 20% of his salary, the same amount is transferred by his employer. These funds are charged with bank interest and are not taxed.

The sheer scale of the government's housing program has made the construction industry a powerful engine of Singapore's economic development. Private companies used the experience in the construction of multi-storey residential areas to develop the hotel stock, and a hotel boom began in the city-state. Thanks to it, Singapore can comfortably receive up to six million tourists a year: this is twice the country's population.

Conclusion

The success of the Asian city-state is interesting first of all because it took place in the absence of obvious advantages and was ensured by an exceptionally competent state policy. However, there is nothing among the measures that is not known to a wide range of decision-makers: support for priority industries, simplification of procedures and improvement of business conditions, and fight against corruption. Much of this has been used many times in different parts of the world. It is obvious that success was not ensured by unique measures, but by their intelligent application by highly motivated professionals.

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