Magazine article African Business

From Singapore to the World: Economic Ties between Africa's One Billion People and Singapore's 5.4m Are Likely to Grow, but It Is to Be Hoped That It Is a Relationship That Becomes Increasingly Bilateral

Magazine article African Business

From Singapore to the World: Economic Ties between Africa's One Billion People and Singapore's 5.4m Are Likely to Grow, but It Is to Be Hoped That It Is a Relationship That Becomes Increasingly Bilateral

Article excerpt

From digital services firm Tolaram and the oil sector's Pavilion Energy to agribusiness innovator Olam, Singaporean companies have established themselves as major players on the African investment scene. Providing yet another source of foreign direct investment (FDI), the country exerts an economic influence far beyond its tiny size would seem to justify, while also providing an alternative model for economic development that ignores natural resources. Given its highly strategic location, Singapore also offers African firms a starting point for their own engagement with East Asian markets. African politicians often state their desire to replicate the success of non-African economies, with regular reference to becoming 'the Dubai of Africa' or 'the Singapore of Africa'.

The former is used with reference to oil-rich countries with small populations that seek to base their entire economies on hydrocarbon exports. The latter, however, is much more interesting because it provides a model of how a country with few natural resources can generate sustained levels of strong economic growth.

Singaporean firms are unlikely ever to trade with Africa on the same scale as their Chinese counterparts, not least because Singapore does not have China's massive demand for raw materials. They can, however, play an internationally important role as trade partners and investors. Singapore's relatively small size is actually an advantage in some ways.

No African government would fear domination by, or over-reliance on Singapore, in the same way they might with regard to the US, China or their former European colonial powers. Moreover, aside from their links as former members of the British Empire, there are also ethnic links between Singapore's Chinese and Malay populations and their counterparts in South Africa that investors are beginning to tap into.

Investments by Singaporean firms in Africa have risen by an average of 11.1% a year since 2008; and trade with Africa by 10.2% over the same period, to reach $10.9bn in 2013. This makes it the third biggest trading partner for Africa out of all members of the Association of Southeast Asian Nations (Asean), just behind Thailand and Indonesia.

In addition, Asean's trade with sub-Saharan Africa is growing more rapidly than with any other region outside Asia. Africa-Asean trade increased in value from just $2.8bn in 1990 to $42.sbn in 2012, averaging 14% a year over the 22-year period. Finally, stronger economic relations with Singapore can help to promote African ties with the whole Asean region.

A model for Africa?

Singapore's economic success has been achieved through creating a very attractive investment regime, promoting itself as a trade nexus and investing very heavily in a world-class education system. In addition, founding father Lee Kuan Yew--who died in March--was always quite open about the fact that some social and political freedoms were sacrificed in the course of promoting social, economic and political stability. The government used its overwhelming power to suppress ethnic tensions and create one of the most multicultural cities in Asia, while promoting the concept of small government. State spending still stands at just 16% of GDP.

Various studies rate Singapore as the least restrictive economy in the world, as well as the most favourable for investors, although state-owned companies continue to play a big role in many sectors. The nation is rated as one of the least corrupt in the world. Singapore's GNP increased 1,500% between i960 and 1980, transforming the tiny nation from a poor outpost of the British Empire into a very modern city state. The country now has the third highest per capita GDP in purchasing power parity (PPP) terms of any economy in the world.

GDP breaks down as three-quarters service sector and one quarter industrial output, with little place for agriculture, mining or oil and gas. …

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