Taking a Closer Look at Investing in Singapore
Official Name: Republic of Singapore.
GDP and global rank (2010): US$257 billion ranking as 41st in the world.
Per Capita GDP and rank (2010): US$62,100 ranking as fifth largest in the world.
How did Singapore get to where it is today?
The economy of Singapore was classified as socialist until 1965 when the nation was faced with an alarming lack of physical resources following their separation from Malaysia. In response, the ruling government adopted an economic policy that was based on state ruled capitalism where the government invested in strategic corporations thereby opening the nation to receive foreign investment. Work began on building an infrastructure that can support a growing economy and the government encouraged education as a starting step towards economic prosperity. The nation experienced an average of 8% annual growth from the late 1960s until the Asian economic crisis slowed down growth in the late 1990s.
Where is Singapore today?
The combination of one of the lowest levels of government corruption and a very educated population as well as holding the number 1 spot in the “Ease of Doing Business” rankings has resulted in thousands of multi national corporations setting up offices and research and development facilities in Singapore thereby directly investing in the nation and employing the local population. The central government also invests approximately 20% of its total budget in education and it has paid dividends as the National University of Singapore is highly regarded as a top 50 university worldwide and the citizens of Singapore are internationally respected and have a terrific reputation. The Port of Singapore is the busiest port in the world and handles traffic to 123 counties worldwide. As such Singapore's role in Asia is identical to that played by New York in the United States or Zurich in Europe: A central hub of transportation and commerce. One more source of pride for Singapore is the fact that the nation lacks natural resources yet is able to boast the world's fifth largest GDP per capita.
The largest sector in the Singapore economy is “re-exports” which refers to importing raw materials and then refining them to be exported as a final product. This type of business accounts for around 50% of Singapore's exports. Singapore is the fourteenth largest exporter in the world and fifteenth largest importer worldwide. The largest commodity that is re-exported is crude oil. Singapore operates the world's third largest oil refinery and is therefore one of the largest exporters of crude oil, a statistic which is amazing considering there is not a single drop of oil to be found in Singapore! Singapore imports oil from Saudi Arabia and it is then refined and exported as crude oil to nations worldwide.
Singapore is in the final stages of developing the Seletar Aerospace Park, in industrial park in Singapore catering specifically to the aerospace industry which will further strengthen Singapore's importance to the global aviation industry. Real estate space the size of 100 football fields is being allocated for foreign companies to open manufacturing and research and development facilities. Rolls Royce, one of the world's largest manufacturers of engines has already opened a facility where it tests the Trent 1000 and Trent XWB which are turbo fan engines that powers the Dreamliner 787, the crown jewel plane manufactured by Boeing (NYSE: BA) As quoted by Sir John Rose, Rolls-Royce, Chief Executive, said: "Singapore is an important centre for the Group's operations, we have been active here for over 50 years and are committed for the long term. Opening this office today is the latest step in our continuing development and follows the investment of S$700m in new facilities which we are making at Seletar Aerospace Park."
Singapore's electronics manufacturing was born in the late 1960s when it was home to the only assembly plant in Southeast Asia. Since then the manufacturing industry has evolved to include manufacturing virtually every electronic device from video game consoles, GPS navigations, cell phones and computers. Today Singapore is home to over 40 integrated circuit design centers, the world's top three wafer foundries (thin slice of semiconductor material.) Intel (NASDAQ: INTC) and Micron Technology (NASDAQ: MU) have announced a join US$3 billion investment in opening a manufacturing plant in Singapore that will produce 25,000 wafers per week and provide employment to hundreds. As explained by the joint venture Singapore was an obvious choice due to the educated and skilled population, proximity to the companies supply chain with other important factories in Asia, and an extremely advanced and reliable power grid and access to water.
Singapore is home to thousands of world renowned researchers in the field of pharmaceutical, biotechnology and chemicals. Singapore boasts one of the highest rates of published research papers by recognized experts with 1.41 papers per 1000 people. As such well known pharmaceutical giants such as GlaxoSmithKline (NYSE: GSK) has opened advanced laboratories in Singapore. In 2009 GSK opened a vaccine plant that produces bulk polysaccharides and conjugates, one of only two sites in the world that can handle production needs. Republican presidential candidate John Huntsman Jr in addition to being a former ambassador to Singapore was CEO of Huntsman Corporation (NYSE: HUN) one of the world's largest manufacturer and marketer of differentiated chemicals. In 2009, Huntsman Corporation moved their textile effects headquarters and main manufacturing plant from Switzerland to Singapore. As such Singapore is the largest manufacturer of chemicals and dye products that enhance the performance, properties and colors of finished textiles and materials.
What are some causes of concern?
As the global economy is cooling down, economists have lowered Singapore's 2012 forecast and believe the economy will grow by only 3% compared to previous estimates of over 5%. Singapore's economy will continue to be hurt by the European zone debt crisis that has resulted in a decreased demand for Singapore's exports. In 2011, Singapore attracted a record US$13.7 billion in foreign investment and given the worldwide economic outlook one might take caution in believing that the 2012 figure would be as high.
ETFs of interest
iShares MSCI Singapore Index Fund (NYSE: EWS) holds 33 of the largest companies that are based in Singapore. The largest holding in the fund, Singapore Telecom represents over 12% of the entire fund and boasts over 400 million users through its global operations in 25 countries worldwide, making it one of the largest mobile network operators in the world and valued at US$38 billion. The average market cap of funds in the index is US$5.78 billion. The fund his heavily invested in financials representing over 40% of the fund, so investors should proceed with caution since Singapore boasts a strong global economy their financial sector are susceptible to a new worldwide financial or liquidity crisis.
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