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Singapore’s Business Risks Evaluation

Introduction

The purpose of this risk analysis report was to evaluate risks associated with starting a business in Singapore.

Singapore, a country in the Asia–Pacific region, is generally a democratic country. Although the country has restricted some civil liberties like free speech, the government has embraced economic liberalization coupled with strong support for international trade (Heritage Foundation, 2014). Today, Singapore is among the most developed nations in the world. It has a strong service economy and some major electronic and chemical industries.

Vital statistics 2013 & Regional comparison
Vital statistics 2013 & Regional comparison

Risk Assessment

According to the Heritage Foundation, Singapore is the second freest country in the 2014 index with 89.4 points, 1.4 points better than the previous year’s ranking (Heritage Foundation, 2014). This result is attributed to improvements in investment freedom, economic growth (4.3% 5-year compound annual growth), and developments in the labor market, although it recorded a minimal decline in monetary and business freedom.

GDP per capital and population for selected countries
GDP per capital and population for selected countries

Economic Risks

Singapore is considered a city-state with strong regional and international business hubs. It depends on the international community for economic growth (A.M. Best Company, Inc., 2014). The country’s economy is service-driven, but Singapore also has electronic and chemical plants. It is supported by a strong labor force.

The country is open to trade with the international community, which exposes it to external economic threats. The government, however, has designed fundamental economic policies certainly to attract and promote foreign investments.

Singapore government is keen on economic reforms to promote productivity, enhance inclusive growth, and support the fast-aging population.

Major sectors of the economy, such as tourism, are ready for long-term growth (Business Monitor International, 2012). Good infrastructures, political environment, and massive investments in integrated resorts have favored the Singaporean tourism sector.

The country has nearly zero average tariff rates coupled with few non-tariff barriers (Heritage Foundation, 2014). However, investors must note that the government has restricted investments in key sectors of the economy. For instance, the government has been keen on controlling the financial market, and it has allowed limited foreign activities in this sector, but the latest trends have shown that the number of foreign banks has increased in Singapore.

Economic risks are generally low in Singapore.

Economic growth
Economic growth

Political Risk

A single party, PAP has ruled the country since 1959. Despite its lengthy and generally unopposed rule, PAP has created a stable, efficient, democratic government focused on ensuring political and economic stability. Singapore’s political stability has allowed the government to implement “focused economic growth policies that attract foreign direct investments” (A.M. Best Company, Inc., 2014). In addition, the government has reviewed the legal and tax regime to favor growth.

Singapore government has implemented a highly “competitive tax regime, reduced state expenditures, and promoted transparent, regulatory environment” (A.M. Best Company, Inc., 2014).

There are massive ongoing reforms on housing and infrastructure developments. It aims to win public support with these reforms.

Singapore has been ranked first out of 189 countries based on the Ease of Doing Business by the World Bank (A.M. Best Company, Inc., 2014).

Some analysts have noted that the country could be a potential target for terrorist groups because of its close links with the US and crackdown on purported terrorists (Political Risk Services, 2010), but the country is physically secure in the region (Business Monitor International, 2011).

Monetary Policies

The country has Monetary Authority to oversee financial issues. However, the government has significant influences on financial issues, and government-owned corporations are dominant and accepted.

The country has a highly robust capital market, which has been responsible for the constant “flow of financial resources and increased investment” (Michigan State University, 2014).

The Monetary Authority of Singapore (MAS) ensures that financial policies remain tight. It allows the Singapore dollar to appreciate marginally with the aim of maintaining low rates of inflation.

The witnessed growth in the Islamic banking service indicates that the country has made positive moves to follow powerhouse Malaysia. Experts, however, believe that Singapore should focus on asset management and capital markets to carve a niche out rather than competing with Malaysia or Indonesia (Allsopp, Tan, & Chanco, 2011).

Singapore has also focused on improving strained relations with its neighbors, such as Malaysia (Business Monitor International, 2009).

Political Risk Summary
Political Risk Summary

Rule of Law

For years, the country has been touted for its lack of corruption. However, transparent processes are still sources of concern. In addition, the government has won several legal battles, a situation that raises concerns about the independence of the judicial system in the country. For instance, opposition politicians have suffered bankruptcy because of expensive lawsuits. Singapore, however, has “secure contracts, there is no expropriation, and commercial courts function well” (Heritage Foundation, 2014). The country has “one of Asia’s best intellectual property rights regimes” (Heritage Foundation, 2014).

Regulatory Efficiency

Starting a business in Singapore requires three days and processes. There is no minimum capital is required, and the country does not have fixed minimum wage, but the National Wage Council regulates wages (Heritage Foundation, 2014). Singapore has struggled to control inflation occasioned by external conditions. Nevertheless, analysts believe that it will remain elevated because of tight labor market and the narrowing gap of output (Tan, 2010). In addition, the rising prices of food commodity are likely to increase inflation rates. Currently, the rate of inflation is 4.6% while unemployment rate is 2.0% (Heritage Foundation, 2014). The government has embarked on massive housing and healthcare reform programs and adopted other methods to control prices of certain products linked to state-owned corporations.

Cultural conditions

Singapore is a multicultural state. It has a more formal business practices relative to other Western nations (Kwintessential, 2014). The company is more important than an individual employee is and employees must observe a strict chain of command with high expectation from both parties. People must strive to stop losing a face and therefore it is imperative to observe all forms of verbal and non-verbal communications.

Weaknesses

Although Singapore has generally performed extremely well in promoting investments, its dependence on exports exposes it to external economic threats (Michigan State University, 2014). While Singapore has improved labor market regulations, supply of highly skilled labor force remains a challenge. In addition, the country must contend with a rapidly aging population and low birth rates, which threaten its future growth potentials. Nevertheless, Singapore “is ranked high in several areas” (Saleem, 2014).

Recommendations

Singapore has significantly low risks in economic, political, fiscal and labor environments. The World Bank and other organizations have ranked Singapore among the best investment destinations and this risk analysis as determined favorable investment conditions.

The fact that Singapore has relatively low risks and ranks top among preferred investment destinations show that the country has required conditions for favorable investors to run successful ventures. Hence, this report recommends investments in Singapore.

However, it is imperative to understand threats from aging population, low birth rates inflation and much dependence on export trade. In addition, potential investors must comprehend the role the government and ownership in key sectors of the economy, which has affected full potential of the country’s economic capabilities.

References

A.M. Best Company, Inc. (2014). AMB Country Risk Report: Singapore. Web.

Allsopp, S., Tan, K., & Chanco, M. (2011). Islamic Banking: Some Signs of Progress. South East Asia: Business Monitor International.

Business Monitor International. (2009). Political Outlook: Singapore. London: Business Monitor International Ltd.

Business Monitor International. (2011). Business Environment: Singapore. London: Business Environment Ltd.

Business Monitor International. (2012). Business Environment Outlook: Singapore Tourism Report Q1 2012. London: Business Monitor International Ltd.

Heritage Foundation. (2014). Index of Economic Freedom: Singapore. Web.

Kwintessential. (2014). Singapore – Language, Culture, Customs and Etiquette. Web.

Michigan State University. (2014). Singapore Risk Assessment. globalEDGE. Web.

Political Risk Services. (2010). Singapore: Country Conditions, Climate for Investment & Trade. Syracuse, NY: PRS Group, Inc.

Saleem, F. (2014, January 7). Doing Business in Singapore or China? Detailed Analysis. Singapore Business Journal. Web.

Tan, K. (2010). Inflation Levels To Remain Elevated. South East Asia: Business Monitor International.