Catching up with the Singapore lion

My second visit to Singapore after a seven-year absence has left me impressed at how the small city-state with no natural resources managed to break free of the post-2008 global recession and like a lion, roar to success.

Comparisons with Malta stop dead when one realizes that the economic renaissance of Singapore exceeded expectations with its corruption-free administration (no juicy kickbacks at its national oil procurement agency) and its meteoric progress in all its social and economic status. Yes it is odious to compare, but one cannot help falling into the trap when considering how affluence has flourished at all levels of society in Singapore.

Readers may question that Malta's own home-grown success post-2008 recession, when compared with other laggards in the Med, cannot be understated, as politicians remind us that the EU average jobless rate is around 11% and ours is a respectable 7%. One need not forget the added bonus of a free welfare and education system for all citizens.

Granted that our politicians have led us up the garden path, extolling the merits of a grand vision of a future strategy which is expected to cut annual deficits, repay accumulated debt, and see us all drive expensive imported cars and taking holidays, owning yachts in our over-flowing marinas. This looks like a pipe dream that has come true for the 5 million inhabitants of the tiny island of Singapore, which had to develop its own solutions to constraints such as land shortage and the lack of natural resources such as water.

Singapore has limited arable land and relies on the agro-technology park for agricultural production. Many of the agro-commodity players in Singapore today have also moved beyond trading functions, to establish significant activities along the business value chain, including marketing, trade finance, shipping.

It is no secret that its citizens have a high propensity for saving and investment through policies such as the Central Provident Fund, which is used to fund its citizens' healthcare and retirement needs. Since the Natural Resources Strategy encompasses aquaculture, agriculture, metals and minerals, Singapore aims to be a nerve centre playing a part in fulfilling global demand for these resources, and create technologies to ensure future sustainability.

Presently, the growing number of international companies has generated a buzz of activity. This exploits Singapore's ideal location in the centre of a region which is home to some of the top producers of several commodities. Hence companies in the commodities or natural resources business find it attractive to choose Singapore as the epicentre of their operations. Needless to say, branded as a global business city Singapore's well-established trading infrastructure and comprehensive network of international agreements, backed by established financial, logistics and shipping industries, flourish thanks to the country's low bureaucracy and pro-business approach. Its battle-cry of "export or die" has been kept alive by its politicians who are constantly aware of competition from nearby Third World countries with cheap labour resources.

Exports, particularly in electronics, chemicals and services label Singapore as the regional hub for commerce which has resulted in a higher affluence. This FDI is the main source of revenue for the economy, which allows it to purchase natural resources and raw goods which it lacks (such as water). Singing its praises, one cannot escape noticing how Singapore has the highest trade-to-GDP ratio in the world, averaging around 400% during 2008-11 with a successful management of its busy port, fully modernized for easier access to markets both for imports and exports.

Undoubtedly the economic miracle is the envy of many others and few doubt that its success flows from the practice of free trade and economic freedom, coupled with the vision of continuing in its drive to remain a natural resource hub in resource-rich Asia.

Unlike Malta, in Singapore its government has for decades entered into successful partnerships between the city-state's public agencies and industry. It goes without saying that Singapore has had its own problems, particularly as it is located sandwiched to Malaysia and Indonesia with a constant flow of low-cost immigrants. Yet it struggled to go up-market in high-end manufacturing and it was no-nonsense politicians who positioned the island to serve as a 'Living Laboratory', making its national urban infrastructure available to local and international companies who find it useful to develop, test, prove and showcase their solutions in a real-life urban environment that is also representative of many Asian cities.

Therefore, similar to Malta it lacks minerals, water, oil and land mass so it concentrated its energy to educate its workforce to international standards as it could not hope to compete upon the basis of the cheapness of its labour; it had to create technical skills that are unavailable elsewhere in developing countries. The recipe of hard work and low incidence of corruption has bequeathed the country with an exemplary rate of job seekers of 1.8% (compared to the 7% in Malta).

One may stop and reflect if the Malta can ever reach the high level of development of the Asian lion, when in Europe the recession has slowed down business in most states; consequently one can never expect to match the Asian prowess of high GDP growth in the 7 to 9% range, when recession in the EU is slowing down larger countries like France, Spain and Italy.

Malta compares well at a respectable 1.9% GDP growth even though Singapore has managed to double that figure. Political party apologists placate us that we cannot join the race at breakneck speed and if we wish to double our growth rate we need schemes such as the controversial individual investor scheme and the global residence scheme, which if successful will wipe off a third of our national debt.

Again we do not have reserves necessary to place significant investment in research and innovation. Perhaps only with private sector participation can we acquire R&D funding for energy, water, green buildings and like Singapore start addressing land scarcity with environmentally-friendly land reclamation. Without such research how can Malta achieve decent growth of innovation-driven clusters in the newly-built Life Sciences Park?

Readers may disagree with the style of government which gripped Singapore since its independence in 1963 under the leadership of Lee Kuan Yew. He sought to bring in foreign industry but with much of the Third World trying to do the same thing, it was not an easy task. One of the first goals was to make potential employers aware of the relative incorruptibility of the Singaporean bureaucracy. Corporations do not want to risk investing millions of dollars in facilities in an area where various elements of the government can take part or all of it at any time. The laws in Singapore might not be exactly to the liking of foreign companies but they would be fairly enforced. This proved to be a highly attractive feature of Singapore, combined with a tax system that has helped create a thriving financial services sector, often giving lower tax rates for foreign investment than for local residents.

Readers may disagree with the discipline and autocratic rule of Lee Kuan Yew - he was not infallible, many times seen wielding his ideologies; but his altruistic intention was to raise the income levels of Singaporean people. He increased on a regular basis the minimum wage much to the chagrin of foreign employers. The higher wages were a discouragement to foreign companies considering Singapore relative to other locations where wages are lower. Lee Kuan Yew learned his lesson, stood fast on his policy and took an unpopular strategy for raising Singaporean incomes.

So what can we learn from this Asian lion? Having sold our family silver in the past decade and sometimes on the cheap, our political leaders may have lacked the foresight to upgrade road infrastructure, expand freeport facilities and in the process neglected the upkeep of environment with unbridled building of concrete jungles and ugly architecture in premium areas along the coast.

Yes, the "tax, borrow and spend" political theory mainly financed by borrowing from local banks to settle recurrent expenditure, pay social benefits and pubic sector payrolls was short-sighted. SO while the Singapore lion roars and gallops ahead with the building of the second Sands Marina  casino, attracting a huge influx of tourists, Malta can take notice of this success story and in a strategy to catch up, start developing its maritime hub as a oil and gas servicing centre in the Mediterranean.

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The writer is a partner in PKF an audit and business advisory firm.