British colonization In 1819,
Stamford Raffles, at the time
Lieutenant-Governor of Bencoolen, established a trading post in Singapore. Raffles had been searching for a new settlement that could be used as an outpost of the British Empire. He left Calcutta and set out to explore much of South-East Asia. At the time, the Dutch Empire and British Empire were close economic rivals. Colonization enabled these empires to gain control of the vast resources of militarily weaker and economically less prosperous
nations. Raffles was looking for a new settlement that could replace Malacca as a key economic advantage over the Dutch Empire. The former had been handed over to the Dutch under the
Treaty of Vienna of 1815. Raffles found Singapore to be a perfect location, sitting just of the edge of the Straits of Malacca, nowadays one of the most important shipping lanes in the world. As well, the territory had key economic resources which would benefit the British. There was abundant timber and fresh water, and a natural deep water harbor which would be beneficial for the British fleet. He arrived on an island at the mouth of the Singapore River, where there was a small Malay settlement. At the time accompanied by William Farquhar, Raffles met with
Temenggong (essentially, Chief of Security, for the settlement)
Abdul Rahman to negotiate the right to establish a trading post on the island, under the British Empire. The island was ruled nominally from
Johar on the peninsula by
Tengku (essentially, Prince)
Rahman, Sultan of Johor, who was heavily influenced by the Dutch and the
Bugis. However, the Sultanate was weakened by factional division so that Temenggong Abdul Rahman and his officials were more loyal to Rahman's elder brother Tengku
Hussein (or Tengku Long) who was living in exile in "Riau" (likely
the Riau Archipelago). With the Temenggong's help, Raffles managed to smuggle Hussein back to Singapore. He offered to recognize Hussein as the rightful Sultan of Johor and provide him with a yearly
stipend; in return, Hussein would grant the British the right to establish a trading post on Singapore. On 6 February 1819 Raffles succeeded in having the territory formally incorporated into the British Empire as the aforementioned trading post. Much of the settlement's rapid economic growth thereafter can be credited to its natural suitability as a seaport hub.
Trade expansion On 17 November 1869, the
Suez Canal opens, connecting the
Mediterranean Sea to the
Red Sea. This allowed for a decrease in travel time, which resulted in a rise in trade volume. The nation saw a $32 million rise just a year after its opening. Trade volume reached $105 million
Straits dollars in 1879, during which entrepot trade was the main source of income and trade alone accounted for more than one-third of GDP.
Independence In the 1950s, the region saw social unrest which resulted in colonial powers deciding to relinquish some decision making. With spurs of race riots the colonial powers sought to empower and establish a formidable local government. With most of the unrest resulting from high unemployment, the local government was directed to solve this issue. In 1955, a Singapore local legislative Assembly with 25 out of 35 members elected was formed. Upon independence from Malaysia in 1965, Singapore faced a small domestic market, and high levels of unemployment and poverty. 70 percent of Singapore's households lived in badly overcrowded conditions, and a third of its people squatted in slums on the city fringes. Unemployment averaged 14 percent, GDP per capita was US$516, and half of the population was illiterate.
Industrialisation boom and change After
Lee Kuan Yew was elected, he oversaw significant economic reforms to the country. Structural change and machinery propelled the economy during his tenure. Singapore was a small and densely populated nation, with very few natural resources and little space to grow outwards. Recognizing this, Lee identified that the key advantage that Singapore held was its human capital, and its ability to provide highly educated citizens capable of competing in global industry and trade. On 1 August 1961, the Singapore Government established the
Economic Development Board to spearhead an investment drive, and make Singapore an attractive destination for foreign investment. FDI inflows increased greatly over the following decades, and by 2001 foreign companies accounted for 75% of manufactured output and 85% of manufactured exports. Meanwhile, Singapore's savings and investment rates rose among the highest levels in the world, while household consumption and wage shares of GDP fell among the lowest. The beginning of Lee's tenure was marked with success and from 1965–1973, annual growth of real GDP was 12.7%. He directed spending to repair and improve infrastructure. This effort spurred economic productivity and put in place the foundations needed to build up basic industry. As of 2019, Singapore's infrastructure is ranked the best in terms of quality, with a score of 95.4 out of 100. The period from 1973-1979 marked a struggle for Singapore as they pivoted away from basic infrastructure spending and moved towards more sustainable economic progress. The 1973 oil crisis raised government awareness of issues such as economic concentration. It forced the government to hold new forum to discuss ways of adapting the countries economy to economic change. GDP growth during this time was slightly lower than the preceding years, at 8.5% annually. However, unemployment was virtually 0%, and most of the population had experienced great strides in productivity. The government highlighted a focus in technology and education to be the new wave of economic gain. In addition, they identified financial services as a key area in which Singapore could diversify and attract new growth. During this time, the government invested heavily in its budding financial services industry. It managed to minimize inflation and provide workers with the proper equipment and machinery to sustain growth.
Recent history Growth in the service sector As a result of this investment drive, Singapore's capital stock increased 33 times by 1992, and achieved a tenfold increase in the capital-labour ratio. Living standards steadily rose, with more families moving from a lower-income status to middle-income security with increased household incomes. In 1987, Lee claimed that (based on the government's home ownership criterion) 80% of Singaporeans could now be considered to be members of the middle-class. Under Lee, Singapore had both low inflation and unemployment. However, much unlike the economic policies of Greece and the rest of Europe, Singapore followed a policy of individualising the social safety net. This led to a higher than average savings rate and a very sustainable economy in the long run. Without a burdensome welfare state or its likeliness, Singapore has developed a very self-reliant and skilled workforce well versed for a global economy. In the late 1980s, Singapore's export-driven economic model required adjustment for further development. The 1990s emergence of efficient manufacturing firms in southeast Asia challenged the nation with such a small labor force and land restrictions. Friedrich noted how it would be "unlikely to expand beyond the current 25% share of the economy," when regarding manufacturing firms. Despite struggling in the manufacturing sector Singapore thrived in global finance, trading, and was an industrial hub for international trade. It positioned itself as a supplier of secondary factors, including expertise in management and industrial infrastructure, and emphasized a regionalization strategy through which it would invest in other Asian countries. The economy picked up in 1999 under
Goh Chok Tong, the Prime Minister of Singapore, after the regional financial crisis, with a growth rate of 5.4%, followed by 9.9% for 2000. However, the economic slowdown in the United States, Japan and the
European Union, as well as the worldwide electronics slump, had reduced the estimated economic growth in 2001 to a negative 2.0%. The economy expanded by 2.2% the following year, and by 1.1% in 2003 when Singapore was affected by the
SARS outbreak. Subsequently, a major turnaround occurred in 2004 allowed it to make a significant recovery of 8.3% growth in Singapore, although the actual growth fell short of the target growth for the year more than half with only 2.5%. In 2005, economic growth was 6.4%; and in 2006, 7.9%. It was apparent that Singapore would also struggle due to the
2008 financial crisis given its status as a financial services hub. Some market commentators doubted the economy's ability to cope with the effects of the crisis. In the end the economy grew in 2009 by 3.1% and in 2010, the nation saw a 15.2% growth rate. As of 8 June 2013, Singapore's unemployment rate is around 1.9% and the country's economy has a lowered growth rate, with a rate of 1.8% on a quarter-by-quarter basis—compared to 14.8% in 2010. 2015 and 2016 saw a downturn for the nation as GDP growth shrunk to just 2 percent. Despite growth diminishing, the nation has yet to post negative growth rates which are a positive sign. During the same period of diminishing economic growth, unemployment and inflation have also decreased. Singapore is expected to experience an economic slowdown in 2019, with GDP growth slowing to 1.9% from 3.1% in 2018, due to tariff hikes from the United States and China. During the initial months of the
COVID-19 pandemic, on 26 March 2020, Singapore's Ministry of Trade and Industry said it believed that the economy would contract by between 1% and 4% in 2020. This was after the economy shrank 2.2% in the first quarter of 2020 from the same quarter in 2019. On 26 May, MTI said that it was revising down its expectation for the Singapore economy in 2020 to shrink by 4% to 7%. Economists had to downgrade their numbers from previously, and some suggested that the economic recovery could take some time. In response to the economic pressure, Moody's temporarily downgraded the Singapore banking sector that year from "stable" outlook to a "negative" outlook. It was estimated by the economist Chua Hak Bin, the
Singapore circuit breaker measures in response to the pandemic, beginning on 7 April could impact the economy to the tune of S$10 billion. With the lockdown imposed on construction workers, there were concerns that there could be delays in construction projects of up to six months. Senior Minister of State for Trade and Industry
Chee Hong Tat announced that some 3,800 companies had closed in April 2020, only slightly higher than the 3,700 reported on average for the same month in the past 5 years, though he warned that this would likely rise in the following months. Despite this only small increase in companies shutting down, the number of companies starting up had declined by about a third from the average April since 2015. ==State enterprise and investment==