Doha: Singapore is a remarkable growth story. Back in the 1960s, it was one of the poorest countries in Asia. Since then, it has transformed itself into one of the most of the advanced economies, with the third highest per capita GDP in the world after Qatar and Luxembourg.
Singapore went through several stages in this astonishing development. It had initially started with basic industrialisation, then moved to more sophisticated industries before developing as a regional hub for trade and financial services. Its latest phase of development is establishing a knowledge-based economy. Singapore’s remarkable development provides useful lessons for GCC countries, which seek to diversify their economies away from oil into a more sustainable model of growth and development, says a study by QNB group.
An economy grows either because of increase in inputs (labour, capital or natural resources) or because those inputs become more productive. In the case of Singapore, most of the initial growth came from an rapid increase in labour and capital. Most of the Singapore growth story has come from more productivity gains as the economy has become more knowledge-based.
The first phase of Singapore’s development involved a large mobilisation of inputs to turn the economy into an export-led manufacturing base. Singapore climbed up the value-added chain, moving from basic industries such as textiles, clothing and plastics to sophisticated ones such as electronics, chemicals, precision engineering and biomedical sciences. In addition, this development went hand-in-hand with a large increase in services, especially banking. However, a development model based merely on the expansion of inputs eventually hits a wall as the marginal returns to those inputs decline and the population becomes fully employed.
Given, therefore, the limits of the previous development model, Singapore needed to move to a new stage of development that relies on productivity gains from existing inputs rather than their further expansion. To do so, Singapore is adopting two strategies. The first relies on importing the latest global technological advances to increase capital and labour productivity by encouraging foreign direct investments and hiring foreign talents as a means of knowledge transfer. The second rests on providing the right legal, governance and intellectual environment to grow and nurture the acquired talent in order to innovate and create new technological advances.
Qatar could draw useful lessons from the experience of Singapore. Both are small countries with an open economy. Although Qatar is blessed with far more natural resources than Singapore, production in its hydrocarbon sector has plateaued and the economy is undergoing a diversification phase.
The diversification phase is marked by rapid expansion in investment spending into infrastructure and industries leading to a large build-up in physical capital such as roads, machines and buildings. This is accompanied by rapid increases in skilled labour through immigration. This is similar in nature to the first phase of Singapore’s rapid growth. However, like other countries, the process of expanding the inputs of production will eventually run its course, requiring a new model of development in line with Qatar’s National Vision 2030. A key factor in changing that growth model will be Qatar’s ability to attract, develop and retain human capital in the same way as Singapore is doing it today.
In the long term, growth is primarily due to increases in knowledge and improvements in productivity. The experience of Singapore suggests that offering excellent education, attracting high-quality workers and creating the right environment and infrastructure to innovate and advance are necessary conditions to create growth. Qatar’s National Vision 2030 sets out the roadmap for this new development phase.
The Peninsula
