One of the world’s great economic success stories, Singapore, owes much of its prosperity to a record of honest and pragmatic governance which was the legacy of Lee Kuan Yew, who died this week aged 91.
He retired as prime minister in 1990, but his influence shaped government policy until his death and will continue to do so beyond.
When Singapore gained its independence nearly 50 years ago, it was a poor, colonial outpost in a swampland that lacked natural resources. Today, the Southeast Asian city-state of 5,4 million people is wealthier per capita than the United States and Germany. The country’s real GDP per capita has risen more than a hundred-fold from less than US$2 000 in 1960 to an estimated $52 179 today with more than one in six households holding US$1 million in cash savings. This is remarkable when you consider that Singapore (710sq/km) is smaller than the town of Bulawayo (900sq/km) and has no natural resources.
In the past decade alone, the number of Singaporeans running their own businesses has doubled, giving the city-state the world’s second most entrepreneurs-per-capita, behind only the US. Last year, the International Monetary Fund named Singapore the easiest country in the world to do business and number two in terms of competitiveness. So how did Singapore become so successful and what lessons can be learnt from their success?
According to Singapore’s former finance minister, Tharman Shanmugaratnam, “Singapore’s story can be explained by three factors: the cultural work ethic of Singaporeans, our response to adverse external conditions and our government, especially its education and housing policies. Our approach is to enable people and support a culture of aspiration, work and personal responsibility, rather than have the government taking over responsibility.”
Post-independence in 1965, Singapore’s government, led by Lee Kuan Yew focused on job creation. The best of all the bad options was to industrialise.
But the question remained how to entice investors and industrialists to invest in Singapore when there are many other attractive options around?
“We cast around for solutions and were willing to try any practical idea that could create jobs and enable us to pay our way,” said Lee Kuan Yew.
“We had one simple guiding principle for survival — that Singapore had to be more rugged, better organised and more efficient than others in the region. If we were only as good as our neighbours, there was no reason for businesses to be based here.”
Over the next five decades, Singapore became the manufacturing hub of the region and a centre of excellence.
Singapore’s government established the Economic Development Board to spearhead an investment drive and make Singapore an attractive destination for foreign investment (FDI). FDI inflows increased greatly over the following decades, and by 2001, foreign companies accounted for 75% of manufactured output and 85% of manufactured exports.
Singapore’s government also focused on housing. It is estimated that in 1966 over 300 000 people lived in squatter settlements in the suburbs and 250 000 lived in squalid shop-houses in the central district of Singapore. The Housing and Development Board (HDB) was established in February 1960 to develop public housing and improve the quality of living environment for its residents. By 1965, the HDB had provided housing for over 400 000 Singaporeans — nearly a quarter of the city’s 1960 population. Today, over 90% of Singaporeans own their own homes, and more than 80% live in government-built residential units.
Government also focused on savings through the establishment of the Central Provident Fund (CPF) in 1955. Employees were “forced” to contribute 20% of their savings while employers contributed 15%. The objective was to build up assets that could be tapped for housing, medical expenses and retirement.
In 1968, the government introduced the Public Housing Scheme, allowing Singaporeans to pay for the mortgages of their HDB flats using their CPF savings instead of having to use their take-home pay.
Finally, government focused on education. Education played a critical role in the economic success of Singapore. Singapore has one of the highest literacy rates in the region at over 96% and over 70% of its population has secondary or higher qualifications.
According to Shanmugaratnam, “to remain competitive, we must be constantly upgrading those skills. Other priorities must be security, rule of law and political stability. Investors need certainty; they need to know what to expect 10 or 20 years from now”.
Singapore’s government created a stable political, economic and regulatory environment in order to attract investment.
“We cannot retroactively change laws or rules. We must try to anticipate changes in the international environment and move early.”
Today, Singapore is a gleaming global hub of trade, finance and transportation. Singapore’s economic strategy produced real growth averaging 8% per annum since 1960. This means that GDP doubled every nine years. Singapore’s unemployment rate is among the lowest in the world at around 1,9%.
Much has been written about Singapore’s economic success and many more books will be written about the “Singaporean model”.
Lee is the only leader known to bring an entire country from Third World to First World status in a single generation. There are a number of lessons to be learnt from Asia’s greatest economic success story.
The vision and leadership of Lee in transforming Singapore from a poor colonial outpost to one of the richest countries in the world in a single generation is a great achievement and provides important lessons for many African countries.