Republic of Singapore Business Guide
Introduction
Singapore is an island nation located at the southern tip of the Malay Peninsula. It lies 137 kilometers (85 miles) north of the Equator, south of the Malaysian state of Johor and north of Indonesia's Riau Islands. At 704.0 km² (272 square miles), it is one of the few city-states in the world and the smallest country in Southeast Asia.
The main island contained a fishing village sparsely populated by indigenous Malays and Orang Lauts at the mouth of the Singapore River when it was colonized by the British East India Company in 1819. The British used the position as a tactical trading outpost along the spice route. Occupied by the Japanese Empire during World War II, it reverted to British rule in 1945 and was later part of the merger which established Malaysia in 1963. Two years later, it left the federation and became an independent republic on August 9, 1965. The new republic was admitted to the United Nations on September 21 of the same year.
Since gaining independence, Singapore has seen its standard of living rise dramatically. Foreign investment and government-led island-wide industrialization have created a modern economy based on electronics and manufacturing, featuring entrepôt and financial trade centering around the country's strategic location. In terms of GDP per capita, Singapore is the 18th wealthiest country in the world. The geographically small nation has a foreign reserve of S$212 billion (US$139 billion).
Economy
Singapore has a highly-developed and successful free-market economy. It enjoys a remarkably open and corruption-free environment, stable prices, and a per capita GDP equal to that of the four largest West European countries. The economy depends heavily on exports, particularly in consumer electronics and information technology products. It was hard hit from 2001-03 by the global recession, by the slump in the technology sector, and by an outbreak of Severe Acute Respiratory Syndrome (SARS) in 2003, which curbed tourism and consumer spending. Fiscal stimulus, low interest rates, a surge in exports, and internal flexibility led to vigorous growth in 2004-06 with real GDP growth averaging 7% annually. The government hopes to establish a new growth path that will be less vulnerable to the global demand cycle for information technology products - it has attracted major investments in pharmaceuticals and medical technology production - and will continue efforts to establish Singapore as Southeast Asia's financial and high-tech hub.
Market Overview
Singapore remained the 15th largest trading partner of the United States and became the 9th largest export market in 2006, according to U.S. Census trade data. Two-way trade increased 19% to US$42.5 billion while exports grew bynearly 20% to US$24.7 billion. The data reflect Singapore’s important role as a major distribution center, serving as the gateway to the region. Many of the industrial inputs imported into Singapore are eventually re- exported as finished and semi-finished products to other markets in Southeast Asia and worldwide. Singapore was home to the world’s busiest container port in 2006.
Beyond its role as an entrepôt, Singapore is one of the most highly developed and sophisticated industrial, commercial, financial and consumer economies in the world. With a per capita GDP of more than US$30,000, Singapore is an excellent market for a wide variety of U.S. products and services. The U.S.-Singapore Free Trade Agreement that came into effect on January 1, 2004, expanded U.S. market access in goods, services, investment, and government procurement. It also enhanced intellectual property protection, and provided for cooperation in promoting labor rights and the environment.
The Singapore economy grew 7.9% in 2006. Some economists forecast a more sustainable growth rate of 5-6% in 2007; the official forecast is 4.5-6.5%. Foreign investments, combined with investments through government-linked corporations, underpin Singapore's open, heavily trade-dependent economy. Singapore's aggressive pursuit of foreign investment as a pillar of its overall economic strategy has enabled the country to evolve into a base for multinational corporations (MNCs). More than 1,500 U.S. firms operate in Singapore and many have their Asia Pacific overseas headquarters here.
According to KPMG Competitive Alternatives Study 2006, Singapore was ranked the most competitive place for business in the world. The World Bank’s report, “Doing Business 2007: How to Reform,” ranked Singapore as the easiest country in which to do business. The island city-state has an excellent infrastructure, including an airport and seaport that are among the best in the world, an extensive road network and subway system, state-of-the-art telecommunications facilities and reliable public utilities.
Market Challenges
Singapore offers excellent opportunities for U.S. companies to sell their products and services as the country is virtually a free port. The challenge is in competing with all the other suppliers from the world since it is such an open economy. With the exception of four tariff lines covering beer and certain alcoholic beverages, Singapore imposes no tariffs on imported goods. For goods originating in the United States, these four remaining tariffs were eliminated under the U.S.-Singapore FTA. However, for social and/or environmental reasons, Singapore levies high excise taxes on distilled spirits and wine, tobacco products, motor vehicles (all of which are imported), and gasoline.
Special import licenses are required for certain goods, including designated strategic items, hazardous chemicals, films and videos, arms and ammunition, as well as agricultural biotech products, food derived from agricultural biotechnology products, prescription drugs, over-the-counter drugs, vitamins with very high dosages of certain nutrients, and cosmetics/skin care products. As a result of the FTA, Singapore now allows the importation of chewing gum with therapeutic value for sale, subject to certain provisions.
Singapore is a signatory to the WTO Government Procurement Agreement. The FTA provides additional government procurement access to U.S. firms, in part by subjecting additional types of contracts to FTA disciplines. Some U.S. and local firms have expressed concerns that government-owned and government-linked companies (GLCs) may receive preferential treatment in the government procurement process. Singapore’s government denies that it gives any preferences to GLCs or that GLCs give preferences to other GLCs.
There are barriers for certain service sectors in Singapore. For example, the local free-to-air broadcasting, cable and newspaper sectors are effectively closed to foreign firms. Section 47 of the Broadcasting Act restricts foreign equity ownership of companies broadcasting to the Singapore domestic market to less than 49 percent. Singapore also restricts the use of satellite receiving dishes and has not authorized direct-to-home satellite television services. Foreign law firms with offices in Singapore also face certain restrictions. They are unable to practice Singapore law, cannot employ Singapore lawyers to practice Singapore law, and cannot litigate in local courts. U.S. law firms can provide legal services in relation to Singapore law only through a Joint Law Venture (JLV) or Formal Law Alliance (FLA) with a Singapore law firm.
Credit card fraud is a growing problem, especially with unsolicited orders for items requiring immediate shipment. The Commercial Service has received numerous complaints from firms that have been defrauded by companies and individuals in and around Singapore using stolen credit cards. Orders normally range from US$5,000 to US$30,000 and the buyer requests immediate air shipment. Two or three days later, the bank informs the seller that the credit card was fraudulent and the amount is charged back. Since the goods have already been shipped the seller has neither the money nor the merchandise. Once received, the goods are likely sent to neighboring countries, making the items very difficult to trace or recover. If you received a credit card order from a new customer in Singapore, please contact the Commercial Service if you have any questions.
Market Opportunities
U.S. companies will find particularly attractive market opportunities in the following best prospects sectors: aircraft and parts, electric power systems, laboratory and scientific instruments, electronics components, computer hardware and software, telecommunication equipment, oil and gas equipment, medical devices, pollution control equipment, pumps and valves, construction equipment, building products, university education services and franchising.
In May 2006, the Government of Singapore granted a license to the Las Vegas Sands to build Singapore’s first Integrated Resort (IR) at Marina Bay with a bid of US$3.6 billion. The Singapore Sands IR will include a casino, hotels, trade exhibition and convention space, retail outlets and much more. Construction has started and the resort is scheduled to open for business in 2009. In December 2006, the government awarded a second license to Malaysian conglomerate Genting, with a bid of US$3.3 billion, to build an IR including a Universal Studios theme park on Sentosa Island. There are excellent opportunities for U.S. companies to participate in the two projects.
Other on-going projects include a US$4.4 billion Deep Tunnel Sewerage System project (Phase 1 to be completed by 2008, Phase 2 by 2015). Another project involves engineering, procurement, and construction of the largest independent oil storage terminal (approximately 15 million barrels capacity) by the private sector. The terminal will be completed by mid 2008 and located on Jurong Island. Other public sector projects include the US$4.19 billion Circle Line subway project to be completed by 2010, the US$1.25 billion Changi Water Reclamation Plant project to be completed by 2008, the US$1.13 billion Kallang/Paya Lebar Expressway project to be completed by 2007 and the US$938 million Changi Airport Terminal 3 project to be ready by 2008.
