ECONOMIC PROSPECTS FOR AN INDEPENDENT SINGAPORE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T01003A002400060001-8
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 20
• Document Creation Date: December 9, 2016
• Document Release Date: February 8, 2001
• Sequence Number: 1
• Publication Date: October 1, 1965
• Content Type: BRIEF

App[-?ved for Release 2001/03/16 CQI4~R~'~bk~A002400060001-8
Gcpy No.
INTELLIGENCE BRIEF
-Office of Research and Reports.:
Excluded from outamatic!
downgrading and 11
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pproved For Release 2001/03/16 :`CiA=~D~T91'(T~'003'A0024000600~M=declassifi~~atio^,_;,~
ECONOMIC PROSPECTS FOR AN INDEPENDENT SINGAPORE
DIRECTORATE OF INTELLIGENCE
NO FOREIGN DISSEM
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This material contains information affecting
the National Defense of the United States
within the meaning of the espionage laws,
Title 18, USC, Secs. 793 and 794, the trans-
mission or revelation a# which in anp manner
to an unauthorized person is prohibited by law.
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ECONOMIC PROSPECTS FOR AN INDEPENDENT SINGAPORE
The recent withdrawal of Singapore from Malaysia raises an impor-
tant question regarding the degree to which the economic. well-being of
this city state depends on :neighboring countries. The economy of Singa-
pore is based primarily on entrepot trade and manufacturing, with the
British military bases also playing an important economic role as~ bath
employer and consumer. Singapore's gross national product (GNP) cur-
rently stands at about US $450 per capita -- one of the highert levels
in Asia. During 1961-63, Singapore's GNP grew at about 6 pexce:nt per
year, but in 1964, following confrontation, the rate decreased sharply
to only 0. 5 percent.
Singapore's withdrawal from Malaysia is not expected to aggravate
existing economic problems, provided that the two can work out arrange-
ments for. continued economic ties in trade and finance. Singapore's
long-run economic problems, however, will remain, Entrepot tr~~.de,
still the most important saurce of income, is expected to decline, adding
to the problem of unemployment and restricting economic:growth. There
has been no resumption of trade with Indonesia, and.. none is expected
in the near. future.
Although there are pressures by Chinese merchants in Singapore
for- increased trade with Communist China, the possibilities for stash
trade seem to be quite limited.. Singapore has considered sending a
.mission to China to negotiate increased exports of rubber, but significant
increases are unlikely because of existing Chinese commitments to im-
port rubber from Ceylon and Indonesia. Furthermore, t:he Chinese may
be reluctant to increase their imports from Singapore because their
presently unbalanced trade with the city provides them with an important
source of foreign exchange.
In recent years, Singapore has made a concerted effort to develop
its industry to offset the declining entrepot trade, -Them is accordingly
a continued need for new capital investment. While development eco-
nomic assistance from international monetary organizations probably
will continue,. foreign investors probably will be reluctant to risk their
capital in Singapore until. the political and economic situation becomes
more certain.. Competition with Malaysia for foreign investment capital
will .become more intense. With Malaysia's continuing need for Si;nga-
pore's port facilities, however, the need for cooperative economic
arrangements in the interests of both parties seems to be generally
recognized, and some common market arrangement may emerge,
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I. The Economy of Singapore
The economy of Singapore is supported principally by its entrep~it
trade, a growing manufacturing sector, and the servicing of UK military
bases. Entrepot trade contributes from 20 to 30 percent of the gross
national income and employs from 15 to 20 percent of the labor force in
trade and related. activities. 1/ Singapore's industrial sector contributes
about 14 percent to the GNP and provides the major potential for eco-
nomic growth. 2/ The third major source of employment and income is
the British military establishment, which contributes an estimated 5 per-
cent to Singapore's GNP. 3 /
Mare than 50 percent of Singapore's entrepot trade is with Asian
countries -- the States of Malaya alone accounting far almost 30 percent
of total trade during 1964. The United States and Western Europe ac-
counted for about 20 percent in 1964, and the remaining 30 percent was
distributed through Latin America, Africa, and the Eastern European
Communist countries. (For the distribution of Singapore's foreign trade
during 1962-64, see Table l.) Principal commodities in Singapore's
entrepSt trade are petroleum products, food, manufactures, and tropical
products such as rubber, palm oil, coffee, and. pepper. There is little
prospect for expanding this trade. Neighboring countries increasingly
are establishing direct trading links for their primary products anal are
developing their own impart-substitution industries. Although Singapore
officials had estimated that entreptit trade would stagnate and possibly
even decline, the trend was gxeatly accelerated by the loss of Indonesian
trade in September 1963. In 1964 the value of Singapore's total foreign
trade dropped 19 percent below the 1963 level (see Table 2}. Singapore's
GNP currently stands at about US $450 per capita -- one of the highest
levels in Asia, During 1961-63, Singapore's GNP grew at about 6 per-
cent per year, but in 1964, fallowing confrontation, the rate decreased
sharply to only 0. 5 percent.
Further expansion of Singapore`s growing manufacturing sector is
needed to provide employment for the rapidly increasing population and
to insure the continued maintenance of a relatively high standard of living.
Since 1961 the government of Singapore has actively encouraged the develop-
ment of new manufacturing industries, An Economic Development Board
has promoted industrial expansion by developing industrial estates and by
providing financial and technolagical assistance to new industries. The
largest of the industrial estates is Jurong in the western part of the island.
Here the government provides road, rail, and sea transport and water
and electric power for new industries, Production has already begun at
Jurong by a number of industries including the National Iron and Steel
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Singapore; Percentage Distribution of Foreign Trade a~
1962-64
1962
X963
1964
Imports
Exports
Imports
Exports
Imports
Exports
States of
Malaya
18.0
27.6
17.7
29.1
22.8
33.4
2ndonesia
19.9
8.6
14.5
7.5
Negl.
Neel.
Japan
9.1
4.7
9.5
3.9
10.5
3.4
Sarawak,.
3.2
2.6
2.6
2.8
4.5
1+.2
Australia
3.2
2. ~+
3.6
2.5
~+. 6
~?. 8
Thailar~a
3.0
2.7
2.9
2.8
3.7
:3.3
Hong Kong
2.7
2.1
2.9
2.6
3.3
~~.~
Communist
China
3.9
Negl.
4.9
0.5
5.6
Nei;1.
United Kingdom 9.5
6,3
10.0
5.8
10.1
6.6
United States 5.0
8.3
5.3
6.7
5.6
~~-.2
West Germany 2.4
2.0
2.6
2.0
2.6
.L.7
Other
20.1
32.7
23.5
33.8
26.7
31}.8
Total 100 100 100 100 100 100
~~
Singapore; Value of Foreign Trade
1959-64
Million US
1959 1960 1961 1962 1863 1964
Exports 1;124.3 1,136.3 1,081.2 1,116.6 1;135.5 905.8
Imports 1,277,2 1,332.6 1,295.2 1,318.9 1;398.4 1,13Ei.8
Total 2,401.5 2,468.9 2, 76.4 2,435.5 2,533.9 2,042.6
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Mill, the Jurong Shipyard, a Vespa assembly plant, and an electric
cable factory. An additional 75 factories are now under construction.
Besides Jurong, there are four small industrial estates -- Redhill,
Tanglin Halt, Kampong Arnpat, and Bendemeer Road.
Although Singapore has been successful in stimulating the growth
of domestic industry, there are obstacles to further expansion. The
basic problem is that the less than 2 million. inhabitants of Singapore
do not constitute a large enough market tv encourage industrialization
at a significant rate. The formation of Malaysia and the accompanying
establishment of a common market were expected to provide a sub-
stantially larger protected market for Singapore's manufactures. Al-
though some industry was attracted by Singapore`s free port, its ready
access to imported raw materials, and the availability of a trainable
labor force, high tariff barriers in many neighboring countries and the
Indonesian trade embargo now counteract these advantages.
Singapore might be expected to develop on the pattern of Hong Kong --
both being urban economies built up primarily as trading centers and
now dependent increasingly on manufacturing -- but the fact that Hong
Kong is an established supplier in world markets for textiles, electronic
equipment, plastics, and light manufactures puts Singapore at a disad-
vantage in competing for these markets. In addition, Hong Kong performs
important economic functions as an outlet for Communist China's exports.
Singapore, without these advantages, will be mare dependent on markets
in Malaysia and neighboring developing countries and probably will not
enjoy the rapid growth experienced in Hong Kong.
II. Economic Problems ~l'ithin Malaysia
Despite the economic promisee of Malaysia, Singapore did not prosper
as a member of the Federation.. During 1964, Singapore's rate of eco-
nomic growth declined from 6. 5 percent to 0. 5 percent. 5/ The decline
was attributable largely to Indonesia's policy of confrontation which
curtailed trade with Indonesia. The embargo was especially damaging
to Singapore and resulted in the lass of employment for an estimated
5, 000 workers. 6/ Programs to promote economic integration within
Malaysia were being implemented very slowly, if at all, because of con-
tinuing communal and political rivalries between the member states.
Disputes between the federal government and the government of
Singapore became intense on questions of economic policy with. each side
claiming that the other lacked the proper common market spirit. One
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of the areas under dispute concerned the financial contribution by
Singapore to the federal government. Under the original "Malaysia
agreement, Singapore retained the right to collect federal revenues
and taxes, of which 40 percent were to be turned over to the federal
government. This arrangement was to be reviewed biennually to
assure that it accurately reflected Singapore's share of federal govern-
ment expenditures. In re cent months, before the first such review, of~
ficials of the federal government were stating that Singapore should
remit an increasing share of these collected revenues to help meet
increasing defense expenditures and to support development expendi-
ture s in Sarawak and Sabali. Singapore, on the other hand, maint