Country Analysis & Assessment Of Singapore's Emerging Market

Write a report to perform a country analysis and assessment of a new emerging market where rapid GDP growth has created attractive investment opportunities.

Introduction: General overview of Singapore

In the early 19^th century, Singapore was primarily considered as one of the recognized commercial trading centre but with increased globalisation and integration of the economies in the global world, there has been analyzed a remarkable transformation of the Singaporean economy. There can be analysed complete mechanism and increased level of service trading that has tripled the GDP of the country and it is presently one of the nations that has upsurge level of inward FDI and considered as one of the most favoured destinations of several multinational companies. Singapore is a republic with government based on parliamentary system. The country offers a good opportunity and climate for investments in regards with its adaptable work force, fascinating investment incentives, professional support services, financial support services, communication systems, infrastructure, free enterprise economy, efficient government and political stability. Singapore is recognized as one of the most business friendly and competitive economies across the globe (Huat, 20110). The Singaporean economy is diverse in nature which has its key dependence on the refined imported goods and exports. In the development of the economy there is also a major role of tourism, education, logistics services, ports services and financial services. Singapore is a member of the WTO i.e. World Trade Organization as well as of ASEAN i.e. the Association of Southeast Asian Nations. These associations helps in fostering attracting increased number of foreign direct investments, regional stability, cultural development, social progress and economic cooperation.

Singapore is considered as one of the most enterprise friendly nation. The political system of the country supports the foreign relation and globalised business. The Singaporean government ahs established numerous organisations to support the businesses in an adequate and systematic manner. The most robust participation is of the regulation structure of the country that comprises of the Ministry of Trade and Industry atht works upon the measures such as fostering pro-enterprise environment, developing the industries, expansion of trade and growing economy. Other political influences that support the foreign direct investments include deregulation of numerous markets such as telecommunication, electricity, etc. Government of local bodies have no more monopolized control over such markets. The markets are opened for private sectors and this carets liberalization of businesses that attracts increased FDIs (Lucintel, 2013).

Singaporean economy is a recognized example of a free-market and vibrant economy which is growing with a continuous pace. In the ASEAN countries, the per-capita income of Singapore is considered as one of the most strong and robust. The economy and business sector of the nation is strengthened as well as influenced by a well-established financial business framework, robust legal framework, motivated workforce, educated labour and a corruption-free environment. In last decade, the government of Singapore has spent large amount of capital in the diversification of the economy. This has resulted in increased growth and development of the medical technology, retail and leisure, multimedia, education, financial services, pharmaceutical industry and the tourism industry of the country. There has also been seen a sudden improvement in the fiscal and monetary policies as well as the taxation system of the country that had led to the development of the Singaporean economy and increase in the foreign direct investments (Lucintel, 2013).

Political, Economic, Socio-cultural and Technological influences of Singapore

Singapore is an eastern nation that till the time follows the cultural and traditional norms and values but it has also been analysed that the current generation is fascinating towards the western culture more. Singaporean economy is rising rapidly and so the purchasing power of the individuals that offers benefits the foreign investors of introducing their products in the Singaporean markets as people are willing to buy such products and services. Singapore is a multi-cultural society that has a variety of religions such as Chinese, Malaysian and India. The Singaporean individuals prefer more of white collar jobs only that lead to easy entry of foreign investors who can offer such employment opportunities to the domestic individuals. From the education perspectives, it is mandatory that all the children must be enrolled in the primary school age and if they are not enrolled then it is considered as an offense. There are mostly two languages that are widely spoken i.e. English and Chinese and this develops attraction for the FDIs as they are mostly comfortable in both these languages (Deng and Quigley, 2012).

Technological influence is one of the most primary influences that lay down a strong and robust impact of the foreign investors to have increased amount of capital investments in Singaporean markets (Woo, 2009). The rapid technological advancements are the key strength behind the change and improvement in the quality of lives of the individuals. For the local business as well as the foreign investors, the continuously developing infrastructure is one of the primary attractive factors to perform business in Singapore. The growing IT services and the financial services are the factors on which the foreign companies have their dependence after investing in the Singaporean regions. Thus, the increased technological support and innovations help these ventures to grow and sustain (Lucintel, 2013).

Being a small country, there is shortage of land in Singapore and both the key natural resources i.e. land and water are highly preserved and use in a considerable manner so that they can be saved and the future generations do not feel scarcity of the same. In context with the non-renewable resources such as natural gas, oil, coal, etc. the country is depended upon the imports. But in the past, a very significant decision has been taken by the country of shifting their dependence from fuel oil to natural gas and presently around eighty percent of the electricity generation depends upon the use of natural gas instead of fuel which is beneficial for the companies (Lee, Lee and Yeo, 2016). The most attractive natural resource and factor endowments that offer competitive benefits to the nation are the use of the solar energy. The country is rich in tapping social energy and use of bio mass and the bio mass is taken use as electricity or fuel after storing as solar energy. The other factor endowments of Singapore that offers competitive benefits comprises of the Port of Singapore which is recognized as one of the most busiest ports across the globe in regards with the overall shipping tonnage. Because of the shortage of land and lack of the natural resources, the port is considered as the economic necessity and the factor for economy growth of the country (Chee and Nair, 2010). It is also the busiest port in terms of container and transhipment services. To overcome the challenge of lack of land and natural resources, the Port of Singapore plays a vital role and considered as an economic boon.

Political Influences

Singapore has a supreme quality of institutions that stands for with utmost fairness and sound administrative and legal frameworks and it helps the individuals, government and the companies to generate wealth. The strong institutional environment influences the investments and results in upsurge FDIs (Buchanan and Rishi, 2012). Another factor endowment comprises of the robust infrastructure. The efficient, extensive and well-developed infrastructure of Singapore offers numerous competitive benefits to the country in terms of in shorter distance between several regions, connecting to the markets at a low cost and successful integration of the markets (Chandran and Tang, 2013). From other aspects such as efficient labour market, supreme quality of training and education, healthy workforce, technological readiness and advancements, innovation and high level of business sophistication are the key factor endowments that results in increase rate of foreign direct investments (Vu, 2013).

                                                                                    (Source: tradingeconomics, 2017)

The foreign currency and the exchange rate play a vital role in the increase or decrease of the flow of foreign direct investment in any country. A stable exchange rate is considered as optimistic for FDI as high volatility affects the forecasting related to the costs and the profits associated with the FDIs. In the economic development of Singapore, the FDI has played a significant role by the means of expansion of the domestic capital formation (Hailu, 2010). A significant element is the movement of the exchange rates that supports the determination of the distribution of global resources and has a direct impact upon the revenues gained from the regular global transactions. The exchange rate poses a positives as well as a negative impact upon the FDI in context with Singapore as there has been analysed high volatility in last few years which has resulted in decrease in the FDIs in last two consecutive years (Liu, Shu and Sinclair, 2009). Thus, there is a need to balance the stability in the exchange rate so that more number of FDIs can be there.

Economic Influence

                                                                                      (Source: ceicdata, 2017)

There are certain trade policies towards the FDI in Singapore as the country maintains an economy which is extremely trade- dependent. It is featured by a free investment regime, but few limitations in context with the media sector, professional and financial services. As per the Global Competitiveness Report of 2016-2017, the economy of Singapore is regarded as the second-most spirited and competitive in nature (International Trade Administration, 2017). The 2004 USSFTA i.e. U.S.-Singapore Free Trade Agreement has resulted in the expansion of the U.S. market right of entry in respect with investment, promotion of labour rights, services, intellectual property protection, goods, environment protection and government procurement. The Singaporean Government is highly dedicated and strives hard to maintain a free market so that high number of FDIs can be attracted. There has been signed a BITs i.e. Bilateral Investment Treaties by the country with other 46 nations for the protection of the FDIs (Aggarwal and Urata, 2013). As well as the most favoured policy is that there are no laws which abide the foreign investors for transferring the control or the ownership to the regional interest and thus there are no disputes occur for the same (International Trade Administration, 2017).

The legal framework, systems and the public policies are considerably favourable for the foreign investors as they are not required to participate in the joint ventures or having key management control of the domestic investors as well as the laws are also same for both the domestic and the foreign investors. Except for some of the sectors mentioned above, the Government of Singapore analyse all the proposals of investment with the aim of deciding the eligibility for several incentive regimes. There has been no imposition of restrictions or barricades on the repatriation of earnings or reinvestments (Alfaro, Kalemli?Ozcan and Sayek, 2009). The robust judicial system that comprises of the commercial court, mediation centres and international arbitration strongly support the contracts’ sanctity and thus there is increased level of transparency that supports increased number of foreign direct investments. In the Articles of Incorporation under the Singapore law there is mentioned shareholding limits which confine the possession and rights in the companies by the foreign partners.

Socio-cultural Influences

There are several incentives that fetch the attention of the foreign investors to perform business in Singapore such as the strong financial, robust transport infrastructure, excellent telecommunications, easy and accessible loan conditions that boost investment incentives, big markets, strategic locations and efficient maritime routes. Thus, all such are the key benefits to perform business and invest in Singapore (Wahid, Sawkut and Seetanah, 2009). The government also promotes incentives by offering tax concessions or incentives to the corporations once they have been registered within the Singapore’s Economic Development Board. There are few barricades to such as monopoly and restricted entry in the sectors such as telecommunications, financial services, media and the professional services. There is a wide role of the Government-linked corporations that restricts the entry and possession of the foreign investors on few of the restricted sectors (Farole and Akinci, 2011).

                                                                         (Source: Banco Santander, 2017)

According to the Doing Business 2017 report published by World Bank, Singapore is ranked at the second best position for performing business with an ease. The economic development of Singapore is strong based upon a proactive strategy of attracting the foreign direct investments by taking use of its trade openness. As per the ranking systems initiated by the World Bank in the year 2003 till 2015, Singapore always remained at the key position in terms of performing businesses (Banco Santander, 2017). The total GDP in percent in terms of FDI stock id continuously rising which supports the growth and development of the nation. The continuously increasing FDIs and strong existing levels of foreign investments in Singapore is the result of the absence of corruption, political stability, supreme quality of real estate and infrastructure, tax incentives and the uncomplicated regulatory system (Al-Sadig, 2009). As per the reports of 2016 World Investment governed by UNCTAD, Singapore is positioned at 7^th place in terms of largest recipients of the foreign direct investments. In the year 2016, it was dropped down to US 50 billion from US 65 billion in the year 2015. The primary investors comprises of countries such as Japan, United Kingdom, the Netherlands and the United States (Banco Santander, 2017).

Technological Influences

Conclusion and Recommendations 

Before expanding in any country or overseas nation, it is essential for the companies to analyse the particular region with numerous lenses so that the future and sustainability of the business does not get negatively impacted. To have an in-depth understanding of any such country the report has been developed. From the insights gained, it can be concluded, Singapore is one of the most potential and favoured destinations for foreign direct investments as there are numerous positive factor and opportunities that are associated with the nations which are the key attraction factors. From the political, economic, technological and socio-cultural analysis, it has been analysed that there is a positive influence of all these factors which helps the foreign investors to have a successful and growth oriented business opportunities in Singapore (Thangamani and Zhong, 2010). It has also been evaluated that there are several factors that offers a series of competitive advantages to Singapoore which helps the country in attracting increased number of foreign investments. But there is mix or little negative implication of the high volatility of the exchange rate that has resulted in a sudden decrease in the foreign direct investments in Singapore. Thus, there is a need to balance the volatility and brings down a stability in the exchange rate by various measures such as increase the reserves and invoicing and hedging strategies. From the trade policies and the systems, it can be stated atht they have a positive support to attain a boost in the FDIs and there are only few sectors that are restricted (Wan, 2009). Last from the existing levels of FDI in Singapore, it can be concluded that there has been realized a sudden decline in the FDI but from eth overall perspective, Singapore is one of the well-developed nations which is highly potential for the FDIs to achieve success and increase level of sustainability.

References

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Alfaro, L., Kalemli?Ozcan, S. and Sayek, S., 2009. FDI, productivity and financial development. The World Economy, 32(1), pp.111-135.

Al-Sadig, A., 2009. The effects of corruption on FDI inflows. Cato J., 29, p.267.

Banco Santander, 2017. SINGAPORE: FOREIGN INVESTMENT. Accessed on: 26^th August, 2017. Accessed from: https://en.portal.santandertrade.com/establish-overseas/singapore/foreign-investment 

Buchanan, B.G., Le, Q.V. and Rishi, M., 2012. Foreign direct investment and institutional quality: Some empirical evidence. International Review of Financial Analysis, 21, pp.81-89.

Ceicdata, 2017. Singapore Foreign Direct Investment. Accessed on: 26^th August, 2017. Accessed from: https://www.ceicdata.com/en/indicator/singapore/foreign-direct-investment 

Chandran, V.G.R. and Tang, C.F., 2013. The impacts of transport energy consumption, foreign direct investment and income on CO 2 emissions in ASEAN-5 economies. Renewable and Sustainable Energy Reviews, 24, pp.445-453.

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Deng, Y., Li, Z. and Quigley, J.M., 2012. Economic returns to energy-efficient investments in the housing market: evidence from Singapore. Regional Science and Urban Economics, 42(3), pp.506-515.

Farole, T. and Akinci, G. eds., 2011. Special economic zones: progress, emerging challenges, and future directions. World Bank Publications.

Hailu, Z.A., 2010. Impact of foreign direct investment on trade of African countries. International Journal of Economics and Finance, 2(3), p.122.

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International Trade Administration, 2017. Singapore - 1-Openness to, and Restriction Upon Foreign Investment. Accessed on: 26^th August, 2017. Accessed from: https://www.export.gov/article?id=Singapore-Openness-to-Foreign-Investment 

Lee, C., Lee, C.G. and Yeo, M., 2016. Determinants of Singapore's outward FDI. Journal of Southeast Asian Economies (JSEAE), 33(1), pp.23-40.

Liu, X., Shu, C. and Sinclair, P., 2009. Trade, foreign direct investment and economic growth in Asian economies. Applied Economics, 41(13), pp.1603-1612.

Lucintel, 2013. PESTLE Analysis of Singapore 2013. Pp.12. Accessed on: 26^th August, 2017. Accessed from: https://www.marketresearch.com/product/sample-8033992.pdf 

Thangamani, B., Xu, C. and Zhong, C., 2010. Determinants and growth effect of FDI in South Asian economies: Evidence from a panel data analysis. International Business Research, 4(1), p.43.

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Vu, K.M., 2013. Information and communication technology (ICT) and Singapore’s economic growth. Information Economics and policy, 25(4), pp.284-300.

Wahid, A.N., Sawkut, R. and Seetanah, B., 2009. Determinants of foreign direct investments (FDI): Lessons from the African economies. The Journal of Applied Business and Economics, 9(1), p.70.

Wan, X., 2009. A literature review on the relationship between foreign direct investment and economic growth. International Business Research, 3(1), p.52.

Woo, J., 2009. Productivity growth and technological diffusion through foreign direct investment. Economic Inquiry, 47(2), pp.226-248.