Running head: FOREIGN DIRECT INVESTMENT IN SINGAPORE

FOREIGN DIRECT INVESTMENT IN SINGAPORE Foreign Direct Investment In Singapore

Since 1819, foreign investment has played a major role in Singapore's Economic development making it a strategic entrepot for the entire South-East Asia. Aggressive political and legal policies were enforced by the Singapore government after its separation from Malaysia in 1965 to promote industrialization and boost the service sector. These measures have made Singapore one of Asias leading financial hubs. It is a home to numerous MNEs and budding ventures. In terms of Foreign Direct Investment (FDI), Singapores FDI alone is more than that of Malaysia, Indonesia, Philippines, Thailand and Vietnam combined. Not only is Singapore a free port with an open economy, it is also very stringent with its political-economic system resulting in a strong legal system and delivering quality, productivity and integrity void from corruption. It is ranked as the 2nd most transparent country in the world (IMD World Competitiveness Yearbook 2011). As per 2012 of the total exports, the major export partners for Singapore are: Malaysia that accounts to 12.2% Hong Kong that accounts to 10.9% China that accounts to 10.7% Indonesia that accounts to 10.5% United States that accounts to 5.5%

Despite its limited geographic constraints Singapores FDI is more than most American and European countries. It is currently ranked 16 in the world with an FDI of $454.9billion(2012). There has been a considerable growth in the FDI since 2006 and sustainable trends even post 2008 world debt crisis. One of the major concerns post-2010 is of the Singapore GDP that has dropped to 1.3% in 2012 from 14.8% in 2010 due to the fast falling of non oil domestic exports that has declined by 6.2% in August. The fall in electronics is about 9.2% and that of pharmaceuticals and aromatic chemicals is 4.7% respectively compared to the previous year. Other factors such as low interest rate and aging society where about 20% of the

FOREIGN DIRECT INVESTMENT IN SINGAPORE

population is above 55yrs are well tackled by the macro-economic policies incorporated by the government in the favor of Singapore. This can be seen as stringent measures were considered during the US debt crisis post-2008 when Singapores DBS Group holdings of 103mn SGD notes linked to Lehman Brothers went worthless over night and to cover up the mess the DBS Group paid up to 80mn SDG in compensation to its investors. In times like that where most of the countries were still collapsing due to withdrawal of FDI and other unsystematic risks, Singapore not only boosted its industrial and service sector by quickly altering prevailing policies during that time frame, but also opened 2 casinos in 2010, attracting tourists in large number to the country. Marina Bay Sands is projected to stimulate an addition of $2.7 billion or 0.8% to Singapore's GDP by 2015, employing 10,000 people directly and 20,000 jobs being created in other industries.(says CDL chairman in TODAYonline). Singapore Dollar (SG$), has gradually only appreciated in the last 5years against the US$ i.e., from on average of being 1.415 in 2008, has moved to an average of 1.2563 in 2013. This depicts slow but steady growth in the economy as a whole in terms of stability across sectors of industry and service. Furthermore to incentivize foreign institutions the Singapore government has incorporated concessional tax slabs on income generated within Singapore. The inflation on the other hand stand at of average of 4.5% since the past decade subject to import inflation and increase in wages as well as accommodation and transportation cost of which is projected at 4% for the 2013 to help ease policies with the Central Bank of Singapore(CBS). Government intervention being an eminent factor for conducting international activities of the MNEs since the very reason of ceasing opportunity cost cannot become counter-productive as the host nation implements tariffs on the imported products. This situation is well tackled by the Singapore government as most of the imports into Singapore are duty-free making it the eye candy for investors. It is also a member of numerous regional free trade agreements and 3 major Free Trade Zones (FTZ) which provide a range of facilities and services to boost national GDP. On the contrary there is heavy sumptuary tax levied on imported products such as consumer goods like cigarettes and liquor invariably working towards corporate social responsibility.

FOREIGN DIRECT INVESTMENT IN SINGAPORE

Singapore being a small open economy which specializes in external trade of services, finance and logistics can be very volatile as the financial sector is the backbone of the economy where banking contributes to almost half of the nations GDP. Therefore in recent years the EU crisis has affected Singapore in terms of job losses in Singapore, especially in the pharmaceutical and electronic industry. Due to a low population foreign skilled labor which is an average of only 2.1% of the entire population in the preceding 3years, the Singapore Government is encouraging them to acquire jobs in Singapore by in providing incentives in terms of employee benefits with regards to various job classifications. In Singapore, there are a number of stringent laws applicable to local residents with regards to maintaining discipline and following moral ethics. Violating of the same succumbs to heavy monetary penalty as well as spending hours in social service. Thus a more disciplined set of locals populate Singapore, displaying greater focus towards given tasks and an appealing work culture. This is one of the major drivers for encouraging investors to set up a service oriented business since the very work culture in Singapore is task oriented and job focused. Inheriting the British colony legal system, in Singapore there is no discrimination in the eyes of the law. Based on the diverse ethnic races prevailing in Singapore it is essential for any investing company to acknowledge the cultural differences that prevail in the audience of this city. Hence product research and development should be focused towards acceptability by this diverse audience across ethnic groups and age class. The Government does not enforce any restrictions with regards to foreign ownership of business in Singapore. This type of legal systems is helpful from the point of view of testing new products in a diverse economy without heavy initial losses giving adequate knowledge to the potential foreign institution for the feasibility of the venture and securing capital costs. This very legal system of Singapore makes the policies very transparent for the investor in order to understand the applicable legal laws in regards to setting up a branch and proceeding with business activities rather smoothly.

FOREIGN DIRECT INVESTMENT IN SINGAPORE

The above dimensions and drivers help build a conclusive notion on the benefits of capital investment, moreover building confidence in Singapore with regards to safety of capital and optimum utility of resources for setting up new projects. Since the advantages outweigh the existing disadvantages quite distinctly it makes taping opportunity cost seem favorable for a foreign entity to smoothly commence business or trade of goods or services in Singapore. Such concrete legal, economic and political policies have helped Singapore become the land of opportunities.

Key Words: FDI, MNE, FTZ

References: 1. Thomas A Poynter (2012), Multinational Enterprises and Government Intervention, pgs 13-18 2. Newman M.K. Lam (2000), Government Intervention in the Economy: A comparative analysis of Singapore and Hong Kong 3. Pearson Education Australian (2012), Globalisation, pgs 130-180 4. Linda Y.C. Lim And Pang Eng Fong (1991), Foreign Direct Investment and Industrialization in Malaysia, Singapore, Taiwan And Thailand, pg 51-52 5. Garrett G (2000), The Causes of Globalization, pg 13-15

General Information: 1. http://www.sgdi.gov.sg/ 2. https://www.cia.gov/library/publications/the-world-factbook/ 3. http://www.mom.gov.sg 4. http://www.acra.gov.sg/ 5. http://www.singstat.gov.sg/statistics/browse_by_theme/investment.html