The Association of South East Asian Nations (ASEAN) consists of ten member countries namely Brunei Darussalam, Singapore, Laos, Myanmar, Vietnam, Philippines, Malaysia, Cambodia, Thailand and Indonesia. ASEAN plays a major role in accelerating economic growth and promoting social and cultural development through a joint effort of the member countries guided by the equality and partnership spirit. It also promotes peace and stability among the member countries (Chia 2016, p.269). This is done through strict adherence to the rule of law and the principles set by the United Nations as well as respecting justice among the member countries. ASEAN has been successful to a greater extent in pursuing its mission through the intergovernmental cooperation of its different members.
Singapore has been benefiting much from the free trade agreements established by ASEAN. ASEAN has established ASEAN Free Trade Agreements (AFTA) among its member countries whereby almost 90 percent of goods are traded among the nations with no tariffs. Eleven sectors of goods and services have been prioritized for integration which includes textiles, automotives, apparels, electronics and rubber-based products among others. ASEAN has also signed six free trade agreements with Australia, Japan, Republic of South Korea, India, China and New Zealand. Singapore has continued to record positive economic growth due to trade activities between the ASEAN nations. Its exports have increased for the past five years. Currently, Singapore exports to the ASEAN nations stand at $60.37 billion (Abeysinghe and Yeok 2017, p.51). Singapore also benefits from imports from ASEAN nations for which it lacks comparative advantage in producing. They include machinery and equipment and oil products among others. Currently, imports of Singapore from the ASEAN nations stand at $61.89 billion. This shows that the Singaporean economy has been benefiting much from the ASEAN free trade agreements with various nations.
Singapore merchandise export and import with ASEAN
Due to globalization and the various free trade agreements signed by ASEAN, Singapore has highly embraced international trade (Baier and Bergstrand 2017, p.72). As a result, Singapore has been exporting commodities which it has a comparative advantage in producing and importing commodities for which it lacks comparative advantage in producing. During the year 2017, Singapore was ranked position 14 in terms of exports in the whole world. Singapore’s top export commodities include refined petroleum products, machinery and equipment, electronics, gold and chemicals. During the year 2017, Singapore’s total exports amounted to $373 billion. Out of the $373 billion, exports to ASEAN nations amounted to $60.37 billion. The main exporters for Singapore in the ASEAN nations included Malaysia with $18.8 billion, Indonesia $15.10 billion, Vietnam $11.30, Thailand $6.90 billion and the Philippines $5.17 billion. Singapore has also been ranked position 16 in terms of imports in the whole world with imports amounting to $327 billion for the year 2017. Out of the $327 billion, imports from the ASEAN nations amounted to $61.89 billion. The main import commodities for Singapore include machinery and equipment, chemicals, foodstuffs, oil products, electronics and jewelry. The main imports for Singapore in the ASEAN nations come from Malaysia with $31.1 billion, Indonesia $13.30 billion, Thailand $8.35 billion and the Philippines $4.88 billion. Worldwide Singapore recorded a positive trade balance of $46 billion but recorded a negative trade balance of $1.52 billion with the ASEAN nations during the year 2017. In a nutshell, Singapore benefits much from merchandise imports and exports among the ASEAN nations which enables it to export commodities for which it has a comparative advantage in producing and import commodities for which it lacks comparative advantage in producing. This has enabled Singapore to improve its efficiency in production and hence improve its economic growth by a greater margin.
ASEAN has remained to be the largest recipient of foreign direct investments since 2015. Foreign direct investment inflows have been high averaging $96.7 billion in the ASEAN region from since the year 2015 (Callis 2017, p.32). The major sources of foreign direct investment in the ASEAN region include the European Union, the United States and Japan. The three major contributors to foreign direct investment in the ASEAN region have the following contributory shares; European Union 25 percent, Japan 13 percent and the United States 11 percent. Among the ASEAN nations, Singapore receives more than half of the foreign direct investment (actually 52 percent), followed by Thailand 13 percent, Indonesia 11 percent, Malaysia 10 percent, Vietnam 8 percent and the Philippines 3 percent. Singapore has managed to attract main foreign investors in the ASEAN region through its simple regulatory system, favorable interest rates to foreign investors, various tax incentives, political stability and high government integrity with actually low levels of corruption (Chua and Ming Wong 2018, p.1492). Due to this, foreign direct investment in Singapore has increased and is now averaged at more than $77 billion. The main foreign direct investors in Singapore come from the United with 20.6 percent, Japan 6.9 percent and the United Kingdom with 5.3 percent. The favorable economic climate and trade agreements established by the ASEAN have attracted the many foreign direct investors who have highly invested in Singapore and contributed much towards improving its economic growth.
Major foreign direct investments in the ASEAN region are concentrated in the manufacturing sector. As a result, this has led to the growth of the manufacturing sectors of various nations within the ASEAN nation at a fast pace. For instance, companies from Japan have invested heavily in the ASEAN manufacturing sector making their inflows to rise to an average of $23.8 billion. Also, more than 50 percent of foreign direct investments from the Republic of Korea have been going to the manufacturing sectors of the ASEAN region. As a result of various investments in the ASEAN region, its manufacturing sector has been ranked the second largest after that of Japan (Hertel, Walmsley and Itakura 2016, p.446). The manufacturing sector of Singapore has highly improved as it’s the major beneficiary of foreign direct investments in the ASEAN region. The manufacturing sector of Singapore has improved due to its comparative advantage of producing various commodities which include chemicals, electronics and engineering products such as those involved in transport and precision engineering. The open trade system, ease of doing business and availability of natural resources have attracted many investors in the manufacturing sector and as a result, the sector has now improved and accounts for more than 25 percent of the total gross domestic product of Singapore.
Competition in natural resources within the ASEAN
Singapore has been facing stiff competition in natural resources from the other ASEAN countries. Most of the ASEAN nations are richer in natural resources as compared to Singapore (Secretariat 2014, p.5). The major natural resources for Singapore include petroleum and some minerals. It has been competitive in producing electronics such as computers, chemicals and petroleum products. The very few natural resources available in Singapore have made it to highly depend on imports from other ASEAN countries. The bad thing is that Singapore still imports some of the commodities which it exports. This is due to the scarcity of its competitive natural resources. Some of the commodities imported by Singapore include machinery and equipment, oil products and electronics among others. The main exports of Singapore include electronic equipment, gold, petroleum products and chemicals. The scarcity of natural resources has made Singapore import much than it exports to the ASEAN nations recording a trade deficit of $1.52 billion as its imports ($61.89 billion) exceed its exports ($60.37 billion).
Singapore has been faced with labor force problems for a long period of time. A large proportion of Singaporeans are aged with only a few working adults. This has led to low productivity among many companies in Singapore. Actually, wage rates in Singapore exceed productivity due to the labor shortage. Wages have highly as foreign firms hire highly skilled individuals for higher salaries to outdo the local industries in terms of quality production. Currently, Singapore has a population of 5.65 million out which only 2.8 million are working. Most sectors such as manufacturing and agricultural sectors have hired foreign employees. The percentage of foreign employees in Singapore currently accounts for than 40 percent of the total working population of Singapore. Due to a labor shortage in Singapore, its productivity has decreased for the past years and its economic growth rate has been slow among the ASEAN nations. The government has been undergoing many expenses trying to cater for the health of its aged population who consume much but only produce less (Bryant 2016, p.29). The government of Singapore has highly improved its education sector by offering adequate training to its students but the problem is that they are few as the birth rate is low in Singapore.
Singapore is highly depended on trade between the foreign nations not only within the ASEAN region but also worldwide. It highly participates in both exports and imports trade. Due to its scarcity of natural resources, it imports much than it exports to the ASEAN nations. A country which is highly dependent on imports is likely to suffer a lot in case of clutches arise between the nations and its trading partner which acts as a source of its crucial imports such as foodstuffs. The Singaporean high dependence on imports and foreign direct investment means that it is difficult for Singapore to survive without them. This may undermine its sovereignty as a nation as it must keep peaceful coexistence between its ASEAN trading partners for its survival (Luckett, Schulze and Wong 2017, p.20). Due to free trade agreements between Singapore and the ASEAN nations, it is difficult for Singapore to protect its industries which product important commodities but lack comparative advantage in their production. This has made Singapore depend highly on the ASEAN countries for its economic growth.
Strengthening financial cooperation
Singapore should maintain its financial standards favorable among the nations in the ASEAN. A favorable financial system is assessed by checking various macroeconomic factors within the nation such as interest and inflation rates, foreign currency exchange rates and the prevailing tax rates. Singapore should maintain all its money related factors favorable in ASEAN in order to strengthen its relationship with various nations not only within the ASEAN but also outside the ASEAN. Singapore inflation and interest rates have been maintained low and stable at rates of 0.7 percent and 1.97 percent respectively (Lee and Tse 2018, p.143). This is an implication that the general prices of goods and services in Singapore are low and relatively stable among the ASEAN nations. Also, investors can acquire capital at lower costs for the expansion of their activities. Tax rates have been maintained low with various tax incentives being offered for foreign direct investments in certain areas. The financial system of Singapore has highly attracted many investors both intra and extra ASEAN and this has made it win the bigger percentage of foreign direct investments in ASEAN. Singapore should improve and maintain its financial favorability to remain attractive and competitive among the ASEAN nations and this will strengthen its economic relationship with the ASEAN nations.
Singapore has been helping its various small and medium-sized enterprises (SMEs) to access the over 628 million customers available in the ASEAN nations (Wongbangpo and Sharma 2016, p.27). The government of Singapore has been internalizing its local smaller companies through its two agencies namely the Standards, Productivity and Innovation Board of Singapore (SPRING Singapore) and International Enterprise (IE) Singapore. The SPRING Singapore has been assisting the smaller companies to improve the quality of their goods and services as well as assisting them with finance to cater for their operations and expand as well. IE Singapore has been assisting SMEs to franchise abroad in other ASEAN nations. Due to favorable economic climate and government support, Singapore has become the stepping stone for many small companies to access the ASEAN market. This has enabled the smaller companies to access the ASEAN market and has strengthened the relationship between Singapore and other ASEAN nations.
Singapore has strengthened its economic relationship with ASEAN nations by signing various free trade agreement both bilateral and regional agreements. It is also doing much in establishing free trade agreements with various individual nations outside ASEAN. Singapore has respected the free trade agreements among the ASEAN nations ASEAN Free Trade Agreements (AFTA). Most of its goods and services are traded across its borders almost 100 percent free. Singapore has very low tariffs imposed on its national goods as compared to other ASEAN nations. Free trade agreements made between Singapore and other nations such Japan, China, India and the United States have strengthened its relationship with the ASEAN nations as most foreign investors enter the ASEAN market through Singapore (Smarzynska Javorcik 2017, p.605).
Conclusion: the confidence of the economic integration
The economic integration of ASEAN nations has benefited Singapore to a greater extent. This has made Singapore improve and maintain its economic growth. Singapore has been able to win a greater percentage of foreign direct invest attracted by the ASEAN free trade agreements such as Japan and Korea. It has also been able to export much of its commodities for which it has a comparative advantage in producing and obtain goods and services for which it lacks a comparative advantage in producing. Foreign direct investments from Japan and Korea have highly improved the manufacturing sector of Singapore which accounts for more than 25 percent of the total gross domestic product. Singapore has also faced various problems in ASEAN relationship such as labor shortage and stiff competition of natural resources from the ASEAN nations which has made it dependent on ASEAN nations for its survival. Singapore has strengthened its economic relationship with various ASEAN and non-ASEAN nations through its various free trade agreements, strengthening financial cooperation and assistance of local companies in accessing international markets (Chen 2015, p.42). To sum up Singapore has benefited much from the ASEAN economic integration and its economic growth is anticipated to increase in the future.
References
Abeysinghe, T. and Yeok, T.L., 2017. Exchange rate appreciation and export competitiveness. The case of Singapore. Applied economics, 30(1), pp.51-55.
Baier, S.L. and Bergstrand, J.H., 2017. Do free trade agreements actually increase members’ international trade?. Journal of international Economics, 71(1), pp.72-95.
Bryant, R.C., 2016. Financial structure and international banking in Singapore (No. 29). Brookings Institution.
Callis, H.G., 2017. Foreign Capital in Southeast Asia. AMS Press, 61(4), pp.32-39.
Chen, P.S., 2015. Singapore development policies and trends. Oxford University Press, USA, 51(3), pp.42-45.
Chia, S.Y., 2016. 10. The ASEAN Economic Community: progress, challenges, and prospects. A World Trade Organization for the 21st Century, p.269.
Chua, V.C. and Ming Wong, C., 2018. Tax incentives, individual characteristics and charitable giving in Singapore. International Journal of Social Economics, 26(12), pp.1492-1505.
Hertel, T.W., Walmsley, T. and Itakura, K., 2016. Dynamic effects of the” new age” free trade agreement between Japan and Singapore. Journal of economic Integration, pp.446-484.
Lee, T.K. and Tse, Y.K., 2018. Term structure of interest rates in the Singapore Asian dollar market. Journal of Applied Econometrics, 6(2), pp.143-152.
Luckett, D.G., Schulze, D.L. and Wong, R.W., 2017. Banking, finance & monetary policy in Singapore. McGraw-Hill Book Co., 50(3), pp.20-25.
Secretariat, A.S.E.A.N., 2014. ASEAN economic community blueprint. Jakarta: ASEAN Secretariat, pp.5-6.
Smarzynska Javorcik, B., 2017. Does foreign direct investment increase the productivity of domestic firms? In search of spillovers through backward linkages. American economic review, 94(3), pp.605-627.
Wongbangpo, P. and Sharma, S.C., 2016. Stock market and macroeconomic fundamental dynamic interactions: ASEAN-5 countries. Journal of Asian Economics, 13(1), pp.27-51.
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