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Country Commercial Guides for FY 2000: Singapore Report prepared by U.S. Embassy Singapore, released July 1999 Note*

Chapter I

EXECUTIVE SUMMARY

This Country Commercial Guide (CCG) presents a comprehensive look at Singapore's commercial environment, using economic, political and market analysis. The CCGs were established by recommendation of the Trade Promotion Coordinating Committee (TPCC), a multi-agency task force, to consolidate various reporting documents prepared for the U.S. business community. Country Commercial Guides are prepared annually at U.S. Embassies through the combined efforts of several U.S. government agencies.

Singapore is the United States' 10th largest export market largely due to its status as a transhipment point for the rest of Southeast Asia. Beyond its important role as an entrŽpot, it is also one the most highly developed and sophisticated industrial, commercial, financial and consumer economies in the world. It is also an excellent market (and test market) for U.S. products. Singapore's role as one of the principal gateways to Southeast Asia means that most American manufacturers can find either interested local buyers or regional ones as Singapore's distributors sell to other Southeast Asian countries.

Shipments from the U.S. accounted for about US$18.7 billion or 18 percent of Singapore's total imports in 1998. These were: electronic equipment, electrical machinery, aircraft and parts, optical/photographic/measuring devices and plastics.

Singapore is extremely dependent on foreign trade which was two and a half times the country's GDP in 1998. Singapore levies minimal import duties and has no real non-tariff barriers to trade. The country's role as a regional commercial hub is underscored by the fact that 40 percent of Singapore's total imports are re-exported. Singapore's major exports are: automatic data processing machines, electronic integrated circuits and micro-assemblies, semiconductor devices, petroleum products, disk drives and telecommunication equipment. Singapore's major imports consist of electronic integrated circuits and micro-assemblies, automatic data processing machines, crude oil, petroleum products, semiconductor devices and transport equipment. Total trade in 1998 reached US$211 billion, of which US$101 billion were imports and US$109 billion were exports.

New foreign manufacturing investment, which accounted for two-thirds of total manufacturing investment commitments, fell to US$3.1 billion in 1998 from US$4.0 billion in 1997. The U.S. remains Singapore's largest investor, accounting for 44 percent of total foreign investment commitments in 1998. The decline is not only due to the Asian financial crisis, but also to the ongoing industrial restructuring process in which fixed asset-intensive production facilities were relocated to lower cost countries as higher-end manufacturing and service operations became established. The Economic Development Board (EDB) expects total new manufacturing investment (foreign and local) to contract further by about 4.0 percent to US$4.4 billion in 1999, following a 7.8 percent decline in 1998.

The Singapore economy grew by 0.3 percent in 1998, a sharp drop from the average annual growth rate of about 9.0 percent in the preceding 10 years. The economy lapsed into a minor recession when GDP contracted by 1.9 percent and 1.1 percent in the third and fourth quarters, respectively. The weak economic performance in 1998 was due to the regional financial and economic crisis which dampened external demand for Singapore's goods and services. It also eroded Singapore's cost competitiveness vis-ˆ-vis countries in the region whose currencies were sharply devalued as a result of the crisis. In addition, the economy was hit by the global electronics slump and excess capacity which caused the export-oriented manufacturing sector to contract by 0.5 percent.

The economy emerged from the recession in the first quarter of 1999 when GDP grew by 0.6 percent, and it strengthened in the second quarter, expanding by 6.7 percent. The manufacturing sector led growth, expanding on the back of a strong electronics upturn and higher output of pharmaceuticals and petrochemicals products. Consequently, unemployment, which peaked at 4.5 percent in the third quarter of 1998, eased to 3.3 percent in June 1999. Meanwhile, the deflationary cycle was also halted when the consumer price index went up by 0.1 percent in May 1999, after 11 consecutive months of decline.

Singapore's recovery in the first half of 1999 was largely due to the marked electronics upswing in developed markets and the booming economic conditions in the United States. Moreover, the regional economy is recovering more rapidly than earlier forecast, responding positively to expansionary fiscal and monetary policies, low interest rates, currency stability, higher exports and a stock market rally which is reviving consumer spending.

In addition, various counter-cyclical and competitiveness-boosting measures that Singapore adopted in 1998 have also positioned it well to ride the crests of the current strong electronics and regional upturns. These included a US$6.0 billion business cost-cutting package which included a 10 percent across-the-board cut in salary benefits and a US$1.2 billion "off-budget" package that provided US$400 million for stepped-up construction of the country's educational and economic infrastructure. The Monetary Authority of Singapore (MAS) - Singapore's central bank - estimated that the boost from the November and June fiscal measures will add about 1.3 to 1.5 percent to real GDP in 1999.

Furthermore, Singapore has intensified efforts to strengthen its domestic economic fundamentals. These include: restructuring its economy towards knowledge-based and high valued-added activities; pursuing labor development strategies; undertaking reforms to become an international financial center; and developing new export markets. Singapore secured the top spot in the 1999 World Economic Forum (WEF) ranking of economic competitiveness, ahead of the United States and Hong Kong which took second and third places, respectively.

Analysts of the Singapore economy are unanimous in their prognosis that the economic outlook has brightened considerably since the beginning of the year, notwithstanding the significant challenges that remain. The primary threats to the recovery include: a sharp correction in the U.S. financial markets leading to a downturn in the real economy; failure of Japan to pull out of its decade-long economic malaise; and a deterioration of regional economies due to unresolved structural weaknesses.

While these threats remain serious, we do not see them reversing the positive growth trends of the region or at the very least that of Singapore's, in the near future. Hence, we expect the Singapore economy to remain firmly on the recovery track. The economy is likely to gain momentum in the second half of the year when the global electronics upswing, continued regional recoveries, and domestic competitiveness-enhancing measures begin to register their full effects. These factors, together with the statistical low base of 1998, should enable the Singapore economy to achieve a 4.0 to 5.0 percent GDP growth rate for 1999. (The Singapore government is predicting a full 5.0 percent).

Country Commercial Guides are available for U.S. exporters from the National Trade Data Bank's CD-ROM or via the Internet. Please contact STAT-USA at 1-800-STAT-USA for more information. Country Commercial Guides can be accessed via the World Wide Web at HTTP://WWW.STAT-USA.GOV and HTTP://WWW.STATE.GOV/, and HTTP://WWW.MAC.DOC.GOV. They can also be ordered in hard copy or on diskette from the National Technical Information Service (NTIS) at 1-800-553-NTIS. U.S. exporters seeking general export information/assistance and country-specific commercial information should contact the U.S. Department Of Commerce, Trade Information Center by phone at 1-800-STAT-TRAD(E) or by fax at (202) 482-4473.