Gross Domestic Product
PART A – SHORT ESSAY
Singapore was just a humble sea port town and not many expected her to make the strides it has so far to become what it is today. Singapore is now a flourishing global hub for finance and trade which has transcended it from a third world country to a first world country in just half a century since it’s independence in 1965. Services-producing sectors such as banking, transportation, transhipment etc is one reason that has made Singapore economy a success.
Figure 1: Chart extracted from Singstat website. Two-Third from Services-Producing Sectors.
One of the strength that Singapore has and will continue to be an advantage to her is its strategic and favourable geographical location in the Asia region. Located at the southern tip of the Strait of Malacca, it has proven to be of great benefit to Singapore since its founding as a free port. The ports of Singapore have natural deep-water features and also offer shorter shipping routes between the Indian Ocean and the East or countries in Southeast Asia. Singapore gain full independence in 1965 and since then has had to compete with other ports in the region in order for her to attract trade and shipping to its port.
Singapore had to adapt in order to compete thus began relying on an extended concept of intermediary trade to Entrepot or transhipment port trade. Entrepot trade involves value adding processes such as importing raw goods and then refining them for re-exporting like for examples oil refining and the water fabrication industry. The Port of Singapore is now currently the second busiest port in the world in terms of cargo tonnage, averaging 60 vessels calling daily. It contributes to “7 per cent to the economy and over 170,000 jobs” for Singapore (A Paulo, 2018). Due to its location, it is “relatively cheaper for companies to operate from” in terms of cost (Today, 2017). Thus, further solidifying the strength of its location.
One of the limitation that prompted Singapore to pursue economic growth through services-producing sectors is its lack of natural resources available. Supply of natural resources is vital for a country to grow. When Singapore gain independence in 1965, many did not anticipate them to prosper or survive due to its lack of natural resources. Having only a surface area of roughly 700 km² and also an infertile land, it was to difficult for Singapore to depend on agriculture for economic growth. Scarcity of drinking water, shortage of food supplies, lack of energy, no hinterland and no industry, Singapore had to depend on the outside world for these resources. Thus, income growth was difficult to achieve then compared to countries that are rich with such resources. With this in mind, Singapore had to depend more on services-producing sectors such as entrepot trade in order to compete and grow economically, not relying much on goods-producing sectors.
One longstanding challenge that may affect Singapore is the declining total fertility rate (TFR). TFR has been declining steadily since 1980s and this year it was recorded at a “new 7-year low of 1.16” (Ong, 2018). With the declining birth rate, Singapore is slowly becoming an ageing population. An ageing population will pose different sets of challenges such as “slower economic growth” and also an “increase in aged residents exceeding the growth in labour force” needed (Kelly Ng, 2018). This will significantly affect the workforce needed on the services-producing sectors in the future. Services sectors relies on labour force in order to function. With a shrinking workforce, this will in tandem also result in lower innovation, which in turns makes it difficult for Singapore to support economic growth and productivity.
One upcoming challenge that may affect Singapore is the increase competition from the countries around her. One of Singapore services-producing sectors is air transportation services. Singapore aviation sector contributes to about “3% of Singapore’s Gross Domestic Product (GDP)” and also “enabler of other sectors” for instances the financial services, tourism, retail etc (CAAS, 2018). This shows the importance of the aviation services sector to Singapore economic growth. However, it is facing stiff competition as an aviation hub from its neighbouring countries in particular Thailand. Thailand is “geographically better positioned” then Singapore for aviation and with them expanding their airports, this in turn could pose a challenge to Singapore tourism and its aviation services (Bhaskaran, 2017). Also, in order for Singapore to fund Changi Airport major expansion plans, she has to increase flight cost for passengers. This could lead to Singapore losing its competitiveness due to the increase cost structure.