PESTLE Analysis

PESTLE ANALYSIS
Summary
Singapore is globally renowned for its stable political situation and consistent policymaking. The government is
considered to be one of the most efficient among the Asian countries. However, the one party system has raised
concerns about political freedom. Moreover, the recent curbs on media freedom have drawn protests, raising questions
about the government's commitment to the voice and accountability of the electorate. Relations between Singapore and
Malaysia have improved in recent times. This is mainly a consequence of consensus among leaders on both sides over
the resolution of legacy issues. Further co-operation in infrastructure development was taking place as of 2014.
Singapore's immigrant-friendly image is at risk as anti-foreigner sentiment is on the rise.
On the economic front, Singapore has always been a key investment destination given the ease of conducting business
in the country. Its banking system has remained highly resilient and well-capitalized. However, the openness of the
economy has left it susceptible to cyclical demand and market sentiment. The government faces a major challenge in
reducing the dependence on foreign workers. The government's focus on productivity improvement for small- and
medium-sized enterprises (SMEs) should provide impetus to the sector. However, risks remain as household debt
remains elevated.
A strong education system has helped Singapore in increasing literacy rates and student turnout in all regions. However,
Singapore is troubled with a low birth rate, an aging population and declining population growth. There is also a high
degree of income disparity in the country. The government has introduced various measures to build an inclusive society
in the 2013 budget. Increased public expenditure to care for an aging population is likely to be a serious concern in the
future.
The country is home to a number of reputed scientific institutions, and is strongly backed by the private sector.
Singaporean firms are already world leaders in data storage and semiconductors, both of which have been successful in
establishing international technology roadmaps. The country is venturing into new areas of research such as IT services
and the space industry. Nevertheless, the city-state's high dependence on foreign researchers in Science, Technology
and Innovation (STI) pose a major challenge in terms of maintenance of sustained inflows of foreign talent. The problem
might be aggravated with increasing competition for skilled personnel from big economies like China and India.
Singapore has become one of the best trade hubs in Asia. As an economy, which is extremely dependent on trade for its
economic growth, Singapore has signed a number of free-trade agreements (FTA) in the last two decades. The most
recent additions to the list have been FTAs with Costa Rica and the Gulf Co-operation Council (GCC). The country also
has a very open and business friendly economy, which is proven by its high position in major indices such as the World
Bank's 2015 Doing Business and the Heritage Foundation's and the Wall Street Journal's 2014 Index of Economic
Freedom. Comprehensive tax treaties make it possible for resident companies to access worldwide technology expertise.
However, there are certain regulations in place that cause concern for investors.
Singapore's environmental policy focuses on conservation and waste management. However, emissions have been on
the rise in recent years, and atmospheric changes continue to affect the environment. The government is implementing
several measures to conserve the environment. Being an island nation, which depends highly on carbon fuels, climate
change is one of Singapore's main environmental challenges.

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Political analysis
Overview
Singapore is globally renowned for its stable politics and consistent policymaking. The government is considered to be
one of the most efficient among the Asian countries. However, the one party system has raised concerns about the
political freedom of its citizens. Moreover, the recent curbs on media freedom have drawn protests from the community,
raising questions about the voice and accountability of the electorate. Relations between Singapore and Malaysia have
improved in recent times, with the resolution of the legacy issues, mainly as a consequence of consensus among political
leaderships on both sides. Further co-operation in infrastructure development was taking place. Singapore's immigrantfriendly image is at risk as anti-foreigner sentiment is on the rise.

Table 3:

Analysis of Singapore's political landscape

Current strengths

Current challenges

Continuity in government policies

Government restrictions on political freedom

Efficient governance

Future prospects

Future risks

Improved bilateral ties with Malaysia

Racial tensions and increasing xenophobia

Growing ties with China

Source: MarketLine

MARKETLINE

Current strengths
Continuity in government policies
Political conditions in Singapore have been stable and consistent, with the PAP having been in power since 1959. Lee
Kuan Yew was the prime minister until the 1980s, and the consistent policies of his administration helped build a robust
economy. During the 1980s, Singaporean politics underwent a period of transition, with younger PAP members brought
into the picture. This new generation helped attract significant amounts of foreign direct investment (FDI) into the country.
The PAP has fostered social stability, new housing, employment opportunities, and a rise in living standards, and the
political continuity has allowed policymakers to take a long-term view of the economy and society.
Efficient governance
High quality governance has been particularly important for the development of Singapore. This is evident from the
country's position as the seventh least corrupt nation among the 174 surveyed by Transparency International (TI) in
2013. The honesty and competence of the country's political leadership has worked well for the economy. The nation's
political leaders are appointed on the basis of merit and capabilities, with a meritocracy in both politics and the
bureaucracy. Increasingly, PAP parliamentary candidates and ministerial appointments are selected based on their
ability through a stringent process. The high quality of political leadership that the country offers has reinforced traditional
respect for distinguishing between inherited and created factors. These conditions have enabled the country to develop

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competitive advantages in several areas (including manufacturing and services) and to attract FDI. The majority of the
country's competitive advantages have developed as a result of the PAP's astute leadership. The ability of the
government to create strong economic fundamentals is one of Singapore's key strengths.
Current challenges
Government restrictions on political freedom
Although Singapore is among the freest places to do business in the world, the government reportedly restricts the
political freedom of its citizens. The PAP currently controls 80 of the 87 elected seats in parliament. Its political
dominance reflects both the weak and fragmented state of the main opposition parties and the confidence of much of the
electorate in the PAP. The government maintains restrictions on freedom of speech, allowing only out-of-bounds markers
which refer to topics that can be discussed in public (including religion and race). The deliberately ambiguous nature of
these limits indicates the prevalence of self-censorship, particularly concerning criticisms raised against the PAP.
The ruling party also regularly uses the country's defamation laws to undermine its critics. The government has imposed
restrictions even on media. An instance of this came to the fore in May 2013, when the Media Development Authority
(MDA), Singapore's media regulator, announced that internet sites "reporting regularly on issues involving Singapore and
having significant reach" apply for a license and deposit a "performance bond" of S$50,000 ($37,481.8). The regulation
drew protests from around 2,000 people in early June 2013. Not surprisingly, the country ranked in the 52.13 percentile
on the voice and accountability indicator in the World Bank's 2014 Worldwide Governance Indicators.
Despite being one of Southeast Asia's wealthiest economies, the nation - which has been ruled by the PAP since
achieving independence in 1965 - has been criticized within the international community for its lack of tolerance of
political dissent.
Future prospects
Improving bilateral ties with Malaysia
Historically, diplomatic ties between Singapore and Malaysia have been weak due to ideological differences in their
political leaderships and legacy issues regarding the ownership of the island of Pedra Branca, Singapore's reclamation
work in the Straits of Johor, water supply issues and a dispute over the use of Singaporean land by Malaysian railways.
However, since Abdullah Ahmad Badawi took office as Malaysia's prime minister in 2003, the countries have resolved
these disputes mutually. His successor, Najib Razak, has successfully managed to convert improved bilateral ties into
better economic engagement, which stands to benefit both nations.
Singapore and Malaysia settled their dispute on Singapore's land reclamation work in 2003 after both countries agreed to
accept the International Tribunal for the Law of the Sea (ITLOS) verdict on the issue, which unanimously decided in favor
of Singapore continuing its land reclamation activities. A 2008 International Court of Justice (ICJ) ruling also settled the
issue of sovereignty of Pedra Branca islands, while bilateral talks held between Singaporean Prime Minister Lee Hsien
Loong and Malaysian Prime Minister Najib Razak in May 2010 led to the resolution of the 20-year railway land issue
between Malaysia and Singapore. In light of the city-state's growing self-sufficiency in terms of water supply, the
contentious issue of water supply to Singapore has also gradually softened in recent years. Bilateral ties were put to test
in April 2012 following allegations made by some Malaysian blogs that Singaporean diplomats participated in a rally for
electoral reforms in Malaysia in the same month. This incident threatened to damage relations, but the proactive stance
of Singapore's foreign minister in clarifying the issue with his Malaysian counterpart and his prompt response in
Singapore's parliament greatly helped in strengthening the ties.

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Singapore is also the biggest foreign investor in the Iskander Malaysia development zone (around 16% of total
investment in the region), a region three times the size of Singapore in the Southern Malaysian state of Johor. The zone
has attracted increased investment from Singaporeans looking to reside in the area, as the cost of living is much lower,
besides which commuting to the city is gradually becoming easy as connectivity improves. In addition, a Mass Rapid
Transit is expected to start by 2018 between Johor and Singapore. In February 2013, the countries have jointly
announced plans to go ahead with a high-speed rail link between Singapore and the Malaysian capital of Kuala Lumpur.
The project, which is expected to be ready for operation by 2020, will be a public-private partnership venture and will
reduce the travel time between the two cities to 90 minutes from around 240 minutes currently. Overall, these
developments have paved the way for closer bilateral co-operation between the two countries.
Growing ties with China
Singapore has maintained strong and substantive relations with China since 1990, anchored by strengthening economic
ties, budding people-to-people exchanges and frequent high-level visits between officials from Beijing and the city-state.
Co-operation between the two countries further strengthened in 2012, with Chinese officials making a visit to Singapore
in September 2012 and Singapore's prime minister making an official six-day trip to China in the same month. Talks were
held on improving defense ties, as well as boosting trade and co-operation in social management. China also offered
Singapore a giant panda couple in September 2012, which made the latter only the ninth country to receive the
endangered animal from China since 1994, reflecting closer bilateral ties.
On the economic front, the FTA with China that came into effect on January 1, 2009, has allowed tariff-free access for
around 95% of Singapore's exports to China, and has improved bilateral ties and advanced co-operation in East Asia.
The FTA has also opened up possibilities for enhanced economic co-operation between the two countries, provided that
economic matters remain depoliticized. In 2007, the two countries jointly embarked on a program to build an eco-city in
Tianjin, which is expected to be completed by 2020. The economic engagement is likely to expand to other parts of
China such as Sichuan, Shandong, Liaoning, Zhejiang, Guangdong and Jiangsu. Moreover, Suzhou Industrial Park,
Guangzhou Knowledge City, and others in Chengdu, Xi'an, and Henan were also developed jointly in co-operation with
Singapore.
Future risks
Racial tensions and increasing xenophobia
Although Singapore is a multiracial society, people of Chinese descentwho constitute 74.2% of Singapore's total
populationare dominant within the government. While ethnic Malays are 13.3% of the residential population and those
of Indian heritage constitute 9.2%, these groups are underrepresented in the government. There also remains the risk of
differences between Muslims and non-Muslims. In order to alleviate tensions and encourage interracial and interreligious
co-operation in the government, the Harmony Centre was opened in 2006. However, racial tensions remain high, which
could also affect businesses in the country. In a National Day Rally speech, Prime Minister Lee Hsien Loong warned of
rising anti-foreigner sentiment, especially toward immigrants from China and South Asia. He cited concerns that rising
xenophobia could hurt Singapore's international reputation. Immigration policies have always been a contentious issue in
Singaporean politics, as it is putting pressure on infrastructure and fueling unrest among natives.

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Economic analysis
Overview
Singapore has always been a top investment destination given the ease of conducting business in the country. The
banking system has remained highly resilient and well-capitalized. However, the openness of the economy has left it
susceptible to cyclical demand and market sentiment. The government has also been facing a major challenge to reduce
dependence on foreign workers. Nevertheless, strong corporate balance sheets help mitigate negative developments in
the global macroeconomic environment to a certain extent. The government's focus on productivity improvement for
small- and medium-sized enterprises (SMEs) should provide impetus to the sector. However, highly indebted households
may find it difficult to pay off their debt as house prices has started cooling, which may limit their debt servicing ability.

Table 4:

Analysis of Singapore's economic landscape

Current strengths

Current challenges

Healthy corporate balance sheets

Reliance on external trade

Resilient banking system

Overdependence on foreign workers

Future prospects

Future risks

Focus on SMEs

Household debt

Source: MarketLine

MARKETLINE

Current strengths
Healthy corporate balance sheets
The corporate balance sheets of Singapore-listed companies in SGX are very healthy; this is reflected from the fact that
debt-equity ratios of these firms stood at around 38.8% by the first half of 2014. Stress test conducted by the Monetary
Authority of Singapore (MAS) of the corporate balance sheets suggests that debt servicing ability of the corporates
remains strong, even when firms are subject to interest rate and earnings shocks. The low leverage bodes well for
mitigating external vulnerabilities resulting from global macroeconomic developments.
Resilient banking system
According to the MAS, as of September 2014, banks in Singapore were well-capitalized and had strong liquidity buffers.
The Regulatory Tier I Capital to Risk-Weighted Assets (RWA) of the local banking sector was 13.5%, while the
Regulatory Capital to Risk-Weighted Assets (RWA) was 16.0%. Furthermore, all the banks in the country had
implemented the Basel III capital standards and capital adequacy ratios set by MAS (which are stricter than Basel III
regulations), from the beginning of 2013. While NPLs are at a low of 0.9% as of September 2014, suggesting that the
Singaporean banking system is quite healthy in comparison to its European peers, and is thus capable of handling
external and domestic shocks better.

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Current challenges
Reliance on external trade
Singapore is a highly trade-dependent economy, with one of the highest trade-to-GDP ratios (337.84% of GDP in 2014,
which includes trade of merchandize as well as services) in the world. In 2014, the country exported merchandize worth
$539.04 billion, while imports were worth $498.92 billion. Of this, China accounted for around 21.1% of the total trade.
Furthermore, the US and the EU together accounted around 15%. In a scenario, where the Chinese economy seems to
be slowing, the US recovery is still in its early stages and demand in the Eurozone is on the weaker side, an external
demand shock can put downward pressure on Singapore's GDP growth.
As long as Singapore's industries rely on overseas export markets, they will remain sensitive to global swings in cyclical
demand and market sentiment and therefore, this reliance on a growth model based on trade will keep the economy
vulnerable to external shocks.
Overdependence on foreign workers
Singapore has largely been dependent on foreign workers due to a consistent labor crunch. According to data from
Ministry of Manpower, non-resident foreign workers' share was more than one third of the total labor force as of June
2014, one of the highest in the world. According to the IMF, this overdependence has led to a continuous fall in total
factor productivity, as more labor has been substituted instead of the better implementation of technologies and
increased efficiency. The overdependence on foreign workers and consequent rising inflow of the same has increased
the pressure on Singapore's infrastructure, which in turn has led to a rise in real estate prices. The overdependence has
led the government to impose curbs on foreign workers; this is expected to have a negative impact on GDP growth in the
medium term, although the government has taken steps to upgrade the skills of local workers to negate the impact.
Reducing this dependence will be a major economic challenge, given that the economy has attained a high level of
competiveness based on a large inflow of skilled foreign workers.
Future prospects
Focus on SMEs
The government has taken special measures since the 2014 budget to help SMEs restructure their operations by
extending the Enhance Productivity and Innovation Credit (PIC) Scheme, which was supposed to lapse in 2015 until
2018. The scheme entails 400% tax deductions/allowances on up to S$400,000 ($299,855) expenditure per year in each
of the six activities namely training of employees, purchase/leasing of PIC IT and automation equipment, acquisition/inlicensing of intellectual property, registration of intellectual property, research & development and approved design
project.
Further, another extension of the scheme name PIC+scheme was also introduced from 2015, eligible SMEs that invest in
excess of the combined cap of S$1.2m ($899,564) in any of above mentioned six activities will get enhanced
deductions/allowances on an additional amount of S$200,000 ($149,927) for each qualifying activity. The schemes
designed to incentivize them to procure productivity-enhancing capital goods, in addition to investing in skill-upgrading
training programs. The measures are expected to significantly boost SME innovation and productivity, in addition to
making them competitive enough to survive international competition.
Future risks
Household debt
Indebted households pose a grave threat to the Singapore financial system as any interest rate shock or any other

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adverse macroeconomic scenarios could threaten their payment abilities. The household debt-to-income ratio has gone
up from 1.9 times in 2008 to 2.3 times in 2013. As of Q32014, it is close to 80% of GDP, much higher than Hong Kong
which is a little above 60% of GDP by the end of Q32014. However, household wealth has also gone up with rising debt
levels as private residential property prices have soared by more than 120% between 2008 and 2013, while public
residential property prices have risen by 70% during the same period. This rise in real estate prices has happened on the
back of strong demand among foreigners and locals, and prevalence of low interest rates since the global financial crisis.
The MAS has implemented many rounds of measures to curb the overheating in property prices since September 2009
and they have managed to slow down the pace of growth in residential markets. Owing to the measures, house prices in
Singapore which have been increasing continuously since 2008 have started to cool down since 2014. But declining
house prices poses a grave risk to over-indebted households, who may find it extremely difficult to pay off its debt.
Already NPLs in housing loans has seen an uptick of late, which is suggestive of the fact that over-indebted households
are getting strained because of cooling house prices. The MAS needs to monitor this situation, which otherwise could
pose a threat to the overall financial system.

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Social analysis
Overview
A strong education system has helped Singapore in increasing literacy rates and student turnout in all regions. However,
Singapore is troubled with a low birth rate, an aging population and declining population growth. There is also a high
degree of income disparity in the country. The government has introduced various measures to build an inclusive society
in the 2014 budget. However, age-related expenditure is likely to be a serious concern in the future.

Table 5:

Analysis of Singapore's social landscape

Current strengths

Current challenges

Sound education policy

Low birth rate

Income disparity

Future prospects

Future risks

Government initiatives toward an inclusive society

Economic cost of the aging population

Source: MarketLine

MARKETLINE

Current strengths
Sound education policy
The government has given special significance to education, allocating nearly one-fifth of the country's annual budget to
the sector. Primary education in the country is heavily subsidized. Students are provided with the option of studying in
private schools at secondary and pre-university levels; public secondary education provides multiple paths to students,
depending on their abilities and goals, ranging from gifted student programs to vocational school programs. Under the
gifted student program, the education system lets students learn at their own pace; the objective of the program is to
provide leadership in the education of intellectually gifted children.
University education is provided by four universities: the National University of Singapore; the Nanyang Technological
University; the Singapore Management University; and the Singapore Institute of Management University. The strong
support given to the education sector has provided the country with a skilled labor force and highly trained scientific
personnel. Furthermore, the country's brand of education is attracting interest from traditional strongholds such as the
US, the UK and Australia, and many universities from these countries have tied up with Singapore University for
exchange programs.
Current challenges
Low birth rate
Singapore has a declining birth rate and an aging population. The average birth rate (the number of births per 1,000
members of the population) dropped from 18.7 in 1990 to 8.1 in 2014, according to CIA - The World Factbook. The
government had promoted family planning with a degree of success in the 1980s and 1990s, by encouraging residents to
have more children. However, the fertility rate declined rapidly during 2001-14. Any decrease in population would put

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pressure on the country's labor market. Singapore's founding Prime Minister Lee Kuan Yew expressed disappointment
over the declining birth rate. Looking at the grim scenario, the government has taken steps to encourage families to have
more children.
Income disparity
The biggest criticism of Singapore's social strategy is its immigration policy, which takes a conservative approach
towards population growth while allowing individuals willing to work for cheaper rates to settle in the country. This policy
has resulted in the creation of a growing income gap between those at the bottom of the economic pyramid and those at
the top. Despite a GDP per capita of $62,400 (purchasing power parity, 2013the highest in Asia PacificSingapore
suffers from high income inequality. According to MarketLine estimates, Singapore's Gini coefficient rating (a measure of
income inequality, with a score of zero equating to absolute equality and a score of hundred equating to absolute
inequality) stood at 46.3 in 2013. Singapore's ASEAN counterparts like Malaysia (46.2), the Philippines (44.8) and
Indonesia (36.8) had better Gini scores than Singapore. The prevailing income disparity in Singapore remains a cause
for concern.
Future prospects
Government initiatives toward an inclusive society
The realization of the fact that income inequality poses a grave risk to social cohesion has led to initiation of government
reforms in recent years. The budget for FY2014, like the previous one, aims to build a more inclusive society through the
following four measures: promoting social mobility, enhancing healthcare affordability, support for the aged community
and support for persons with disabilities.
In order to promote social mobility, the government plans to enhance its spending on the pre-school sector and higher
education, mainly intended towards affordability of pre-schools for lower- and middle-income families. It has also
increased healthcare affordability by providing permanent subsidies for lower- and middle-income groups so that
premiums remain affordable. The budget has also announced considerable monetary support for the aged population
through top-ups and subsidies.
Future risks
Economic cost of the aging population
Singapore, like many Western nations, is likely to face long-term fiscal challenges as a result of its aging population.
Singapore will have the second highest percentage of individuals aged 65 and above (at around 19%) in Asia by 2030,
behind only Japan. These estimates suggest that the overall government expenditure will increase sharply in line with
rising pension, healthcare and old age care costs. Also, there are estimated to be only 2.1 working-age people (aged 2064) to support one elderly citizen (aged 65 and above) in 2030 against 5.1 in 2012, according to the government
estimates, which will put pressure in terms of tax collection to satisfy the needs of the aging population. In such a
scenario, the government will have to resort to easy immigration policies to support its shrinking labor force, which is
again a major issue of contention with the resident population. Therefore, major reforms and policy changes are required
to avoid a large financial gap and to secure the sustainability of public finances.

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Technological analysis
Overview
The country is home to a number of reputed scientific institutions, and is strongly backed by the private sector. The
country is venturing into new areas of research such as IT services and the space industry. The government is also
playing its part in promoting R&D by providing companies, especially cash-constrained firms, with tax incentives and
cash conversion schemes. It has also increased its allocation towards R&D in recent years. Nevertheless, the city-state's
high dependence on foreign researchers in Science, Technology and Innovation (STI) poses a major challenge. The
problem might be aggravated with increasing competition for skilled personnel from big economies like China and India.

Table 6:

Analysis of Singapore's technology landscape

Current strengths

Current challenges

Strong scientific institutions

Excessive dependence on foreign researchers

Building R&D competencies

Future prospects

Future risks

Emphasis on space industry

Increasing competition from emerging nations

Source: MarketLine

MARKETLINE

Current strengths
Strong scientific institutions
The government has established scientific institutions such as the Science and Engineering Research Council (SERC)
and the Biomedical Research Council (BMRC) to generate innovative products. The SERC is responsible for developing
new capabilities to satisfy industry needs as projected by the aforementioned roadmaps, and promotes research in
nanotechnology to help overcome physical barriers for incumbent technologies like silicon chips. The BMRC, on the
other hand, helps to bridge the gap between basic biomedical research and clinical practice through the development of
useful and commercially viable applications. The presence of research institutions in the country has enabled fast-paced
development and rapid advancement in R&D.
Building R&D competencies
Singapore's government has been building R&D capabilities in the country by increasing their investment. As a result,
Singapore's research intensity, which is defined as gross expenditure on R&D as a percentage of GDP, increased from
2.09% in 2010 to 2.70% in 2013. This research intensity is on par with the Eurozone average.
The major areas of research in both public and private sector were electronics, infocommunications and media (ICM),
chemicals, biomedical sciences, and precision and transport engineering. Increased investment in R&D has also led to
growth in the number of research personnel. This bodes well for Singapore as it develops a strong base for technological
development.

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Current challenges
Excessive dependence on foreign researchers
Although Singapore has a large pool of full-time researchers on a per million capita basis (6,437.7 in 2012), which is
second only to that of Finland, the majority are not permanent residents. As of 2013, around one quarter of the students
in the Computing, Science and Engineering courses at NUS, NTU and SMU are foreigners; this reveals the excessive
dependence on external talent for STI development. According to UNESCO, Singapore faces significant challenges in
terms of maintaining the sustained inflow of foreign talent for STI development, especially due to a rapid rise in demand
for skilled personnel in big economies like China and India.
Future prospects
Emphasis on space industry
In order to boost its economic potential in high-technology sectors, Singapore is looking to venture into the capitalintensive space industry, a sector that generates annual revenues of around $300 billion and is dominated by Western
firms. To this effect, the government established the Office for Space Technology and Industry (OSTIn) in February 2013
that will emphasize on designing and manufacturing small satellites and on providing satellite-based services. The initial
target of the agency is to fulfill the ever-increasing demand for high-speed Internet and high-resolution images used in
surveillance systems, environmental monitoring, forestry and resource exploration. Singapore will also leverage its
proficiency in precision engineering, electronics and ICT to meet its space exploration goals. Leading satellite operators
such as France-based Eutelsat Communications, the British Inmarsat and the homegrown Singapore
Telecommunications already have a base in the city-state, which can be utilized by the broadcasters to transmit their
programs and by ships to communicate with other vessels.
The national research foundation, A*STAR has already established space-related R&D programs in collaboration with
two local state-funded universitiesthe National University of Singapore (NUS) and the Nanyang Technological
University (NTU). The space industry holds great potential for Singapore, which could drive future investment in a new
range of R&D-intensive manufacturing industries.
Future risks
Increasing competition from emerging nations
Many emerging economies in Asia and Latin America have been investing heavily in R&D, and recent predictions
indicate that around 90% of an emerging global middle class will live in developing nations by 2025. With the growth of
emerging economies, the global scientific landscape will change dramatically. Singapore should prepare to face fierce
competition from these countries, which can offer advantages in terms of low cost skilled labor and large domestic
markets.

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Legal analysis
Overview
Singapore has become one of the best trade hubs in Asia. The country has a very open and business-friendly economy,
highlighted by its position in major indices such as the World Bank's 2015 Doing Business and the 2014 Index of
Economic Freedom published by the Heritage Foundation and the Wall Street Journal. While the former ranked
Singapore first in the world out of 189 nations in terms of ease of doing business, the latter placed Singapore second on
its list. Comprehensive tax treaties make it possible for resident companies to access worldwide technologies and
expertise. However, there are certain regulations in place that cause concern for investors. Nevertheless, as an economy
which is dependent on trade for growth, Singapore signed a number of free-trade agreements in the last two decades.
The most recent additions to the list have been Costa Rica and the Gulf Co-operation Council (GCC).

Table 7:

Analysis of Singapore's legal landscape

Current strengths

Current challenges

Top destination for business investment

Political interference in the judiciary

Double taxation agreements

Future prospects

Future risks

New FTAs to liberalize trade further

Increasing flaws in business regulations

Source: MarketLine

MARKETLINE

Current strengths
Top destination for business investment
Several factors make Singapore a favored destination for business investment. According to the World Bank's 2015
Doing Business report, Singapore ranked first in the world out of 189 nations in terms of ease of doing business. The
country also ranked first in the world in terms of trading across borders and enforcing contracts. Singapore's labor market
is highly flexible, the non-salary cost of employing an individual is low, and regulations related to work hours are very
flexible. In addition, the number of days required in categories such as dealing with construction permits, getting
electricity, registering property, paying taxes, trading across borders, enforcing contracts, and resolving insolvency are
lower in Singapore than the East Asia and Organisation for Economic Co-operation and Development (OECD) averages.
Singapore has regulations in place for protecting investor rights, and the country ranks second in the world on this
parameter.
Double taxation agreements
The country had signed double taxation agreements with 77 countries, as of December 2014. The agreements will help
transnational companies avoid being taxed twice. Moreover, the agreements are likely to smooth capital flows and
technical knowhow. The number of tax treaties gives investors certainty in tax rights while operating in cross-border trade
and investment in and out of Singapore.

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Current challenges
Political interference in the judiciary
Singapore's judiciary is reportedly vulnerable to political pressure. There have been doubts about its impartiality in cases
of arbitration where the government is one of the concerned parties, and even more so in non-commercial cases like
public law, where the judiciary has been accused of being compliant with the interests of the government. The PAP has
often filed defamation cases against members of the opposition and the media and sought large damages that have
silenced dissenters. Political interference in judicial decisions is currently jeopardizing legal freedom of the country.
Future prospects
New FTAs to liberalize trade further
As an economy which is extremely dependent on trade for its growth, Singapore has always taken measures to sign new
free-trade agreements since the last two decades, which has in turn provided lucrative business and investment
opportunities for its firms. Since the signing of ASEAN Free Trade Area (FTA) in 1993, Singapore's network of FTAs has
expanded to cover 20 regional and bilateral FTAs with 31 trading partners. The most recent additions to the list have
been Costa Rica and the Gulf Co-operation Council (GCC). While the FTA with Costa Rica was effective from July 1,
2013, the FTA with the GCC was effective from September 1, 2013. Moreover, the city-state has also completed
negotiations with the EU over a free trade agreement in October 2013.
The FTA with Costa Rica has eliminated 90.6% of its tariff lines for Singapore, with the tariffs for remaining products to
be eliminated over the next ten years. Singapore, on the other hand, has granted tariff-free access for all imports from
Costa Rica. As the trade between the two nations has increased gradually in recent years, this agreement represents
good trade prospects for both economies. The trade aspect is supplemented by liberalization of investment flows
between the two nations. As a part of this deal, Singapore will be able to venture into Costa Rica's potentially profitable
sectors such as oil refining, infrastructure, energy, transport and logistics, e-services and tourism.
The FTA with the GCC that comprises six Middle East nationsBahrain, Kuwait, Oman, Qatar, Saudi Arabia and the
United Arab Emirateshas eliminated approximately 93.9% of tariff lines immediately and will eliminate a further 2.7%
by 2018. The negotiations on the FTAs as of December 2014 is ASEAN-India Services & Investment, ASEAN-Japan
Services & Investment, Canada, Mexico, Pakistan, Trans Pacific Partnership and Ukraine.

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Future risks
Increasing flaws in business regulations
Although the country's business environment is considered one of the best in the world, there has been a gradual
increase in business regulations. Some of the obstacles that might deter an entrepreneur from starting a business in
Singapore include the following:

Irrespective of the company's status in its home country, it must be registered as a private limited company in
Singapore, which is one of the several options in most other countries. All company names require approval,
and must end with "private limited" or "pte limited" labels.

Annual accounts and returns are required to be filed by all businesses. Moreover, according to the laws passed
in 2007, returns have to be filed with both the registry of companies and the income tax authorities. As a result,
the confidentiality that businesses may wish to maintain can be compromised.

To start a limited liability company in Singapore, two directors are required, with one either a resident of
Singapore, a native Singaporean, or someone who has a Singapore Employment Pass. This puts pressure on
the company to compromise on its existing management and other human resources.

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Environmental analysis
Overview
Singapore's environmental policy is focused on biological conservation and waste management. However, the country's
emission levels have been on the rise in recent years, and atmospheric changes continue to affect the environment. The
government is taking several new initiatives to manage environmental conservation in the country. Being an island nation
dependent on carbon fuels, climate change is a key focus area of the government.

Table 8:

Analysis of Singapore's environmental landscape

Current strengths

Current challenges

Waste management initiatives

Increasing greenhouse emission levels

Future prospects

Future risks

Commitments towards a cleaner environment

Changing climatic conditions

Source: MarketLine

MARKETLINE

Current strengths
Waste management initiatives
The municipal waste management infrastructure includes sewerage and solid waste management systems. The
sewerage network has more than 2,500km of sewers, 139 pumping stations, and six sewage treatment works.
Wastewater is collected and treated before being discharged into the sea. Solid waste is collected and disposed primarily
through incineration due to the scarcity of land for landfills. The incineration plants have flue gas cleaning devices, and
the heat released is used to generate electricity. Moreover, the "polluter pays" principle is applied to both residential and
industrial areas for wastewater collection and treatment. Centralized recycling bins are being set up in Housing
Development Board estates to encourage household recycling. The government is also working with the Packaging
Council of Singapore to reduce the amount of packaging used and to increase the recovery of packaging materials.
Current challenges
Increasing greenhouse gas emission levels
Over the years, greenhouse gas emissions have been on the rise in Singapore. According to MarketLine, the level of
CO2 emissions increased from around 110.26 million metric tons in 2002 to 212.39 million metric tons in 2011. The
manufacturing industries and vehicular emissions account for 70% of the overall greenhouse gas emissions in
Singapore. Electricity generation is the biggest source of CO2 emissions in the country, followed by industries and
transportation. The Singapore government must introduce initiatives to reduce CO2 emissions in the country.

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Future prospects
Commitments towards a cleaner environment
Urbanization in Singapore has resulted in various problems in traffic management, air and water pollution, and energy
efficiency. In December 2014, the authorities have stated that Euro VI emission standards for diesel vehicles will be
effective from January 2018 and for petrol vehicles it will be effective from September 2017. In 2014, the government has
signed the Memorandum of Understanding with Belgium's public waste agency of Flanders. In September 2014, the
government established a national standard for the management of electronic waste. All these initiatives show the
commitment by the government to reduce the carbon footprint.
Future risks
Changing climatic conditions
Climate change is one of Singapore's main environmental challenges, by virtue of the fact that it is an island nation with a
high economic dependence on carbon fuels. The government has adopted a four-pronged strategy to tackle climate
change, which involves adapting to climate change, mitigating carbon emissions, raising awareness and building
competency. Air quality is good, but efforts made by the government have failed to reduce particulate emissions from
diesel vehicles. Moreover, with an increasing immigrant population, vehicular pollution is on the rise. The changing
climatic conditions could be a potential environmental risk for the country.

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