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As Singapore shows tentative signs of recovery from its worst economic recession, the challenge now is to remake the economy in such a way that it is less vulnerable to the vagaries of the global economy and is more resilient and adaptable. At the same time, Singapore has to cope with the intensity of economic challenges posed by China and Malaysia.
The budget unveiled by the government in May emphasised economic restructuring and competitiveness. The tax system is being restructured to increase the flow of foreign investments and global talent into Singapore. Corporate and personal income tax will be lowered to 20 per cent by 2005 and the goods and services tax will be increased from 3 per cent to 5 per cent in 2003.
In spite of what Singapore can do to improve its competitiveness, it has to manage the geographical givens of being in a volatile neighbourhood. Indonesia remains a source of deep concern, the more so because of the perception that terrorists operate with much latitude there. Malaysia has been improving its ports and international airport and seeks to stake its claim as a worthy rival for Singapore as a logistics and transport hub. The Johore port of Tanjong Pelepas has attracted two of the world’s largest shipping liners, Maersk Sealand and Evergreen, to relocate their container operations from Singapore.
China’s rise as an economic and political power has focussed primary concern on the hollowing out of Singapore’s economy and that of ASEAN. Singapore’s economic approach to China is to co-opt the opportunities that arise from China as a market and factory. Singapore therefore has to maintain its relevance to China. Over the last two years, a string of measures and initiatives have been adopted in an effort to capitalise on the innate advantage that co-ethnics are believed to have in cross-border transactions. This has recently been expanded to include India, especially Sino-Indian trade.
The inertia with which ASEAN has responded to China’s rise has been frustrating for the Singapore leadership. ASEAN’s commitment to AFTA, its proposed Free Trade Area, is lukewarm at best and fails to take advantage of its potential complementarity with China. Since 2000, Singapore has been aggressive in pursuing bilateral free trade agreements with its key economic partners under the rubric of their being ‘WTO-plus’. To-date, Singapore has entered into FTA agreements with New Zealand (2001) and Japan (2002) with another agreement impending with the European Free Trade Area. FTA negotiations are in progress with the US, Australia, Canada and Mexico. Plans are afoot to start FTA discussions with the European Union. Singapore is also the prime mover behind the proposed ASEAN-China Free Trade Area envisaged to be in place by 2012.
A change of mindset change is imperative to undergird the remaking of Singapore’s economy. Allied to this is the need to nurture an entrepreneurial culture. The jury is still out on the raison d’etre of government-linked companies that are a significant presence in the local economy. Decades of heavy dependence on the government have left Singapore society somewhat impoverished in terms of economic initiative, willingness to take risks, and tolerance of failure.
WATCHPOINT: The government will use the strong mandate from the 2001 elections to implement strategic angles to the economy, get them accepted, and strengthen the national bond.
About our company:
AFG Venture Group is an Asia and Australia based corporate advisory and consulting firm with over 20 years experience in creating alliances, relationships and transactions in Australia, South East Asia and India; including a 15 year history of corporate and equities advisory in Australia, undertaking merger, acquisition, divestment, fund raising and consulting for private and public companies.
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