Growth the Singapore Way

This is part three of a three-part series about my 2014 trip to Asia. Read part one here and part two here.

Although I’ve visited Asia many times, I recently took my first trip to Singapore. You might think Singapore is a natural place to visit when you’re in Asia. But it’s not close to other major Asian capitals. It’s still a four-hour flight from Hong Kong. That’s like going from Chicago to Cuba. It lies 85 miles north of the Equator with a climate to match.

I didn’t think I was going to like Singapore. It has a reputation for being a sterile place with a strict government that limits personal freedom. The press is controlled and I’ve heard of the harsh penalties for seemingly minor infractions like throwing gum on the sidewalk. I didn’t encounter any of those restrictions on my trip.

Warren Buffett’s partner Charlie Munger says that having low expectations is the key to happiness in life. So perhaps having low expectations set me up nicely for a positive impression of Singapore. I found it to be a dynamic city with high energy, a positive atmosphere that comes from good growth, attractive architecture, and a hard-working, friendly populace.

My schedule was full during my three-day stay. I visited 10 clients and had several dinners with Morningstar’s local staff. Many of our multi-national clients have Asian headquarters in Singapore. They are attracted to its stable government and emerging position as the “Switzerland of Asia” for private banking. Clients across Asia come to Singapore to manage their wealth to hedge political, corruption, and currency risk. We offer many wealth management solutions so we see ample opportunity to grow in Singapore.

I won’t recount the history of Singapore here, but it’s an impressive story. Other than geography (Singapore connects the sea lanes between the Indian Ocean and the Pacific), Singapore has few natural advantages. It’s very small—it takes less than an hour to drive across it. There is no common language, culture, or ethnic background of its people. Yet Singapore has been a remarkable economic success. So much so that it has amassed the world’s 11th-largest foreign reserves. It has had the advantage of smart leadership that looked out for the best interests of Singapore as opposed to personal enrichment. Singapore focused its resources on growing, high-tech sectors, and the government played an active role in providing incentives—both business and public—to spur growth.

To give an example of smart government policy, take a look at one of our clients, the Central Provident Fund of Singapore, or CPF. Singapore citizens are required to put 20% of their salaries into the CPF—and the employer kicks in an additional 16%. Saving 36% of your salary each year and letting it compound tax-free is a powerful way to grow wealth. But here’s a smart twist: you can use these funds to buy a home or for medical expenses, in addition to saving for retirement. I suspect not having to wait until retirement to access your funds makes the CPF even more appealing than 401(k)s in the United States. I also suspect there is no retirement crisis in Singapore—a major problem in most developed nations.

While policies like these encourage saving, there are other policies that discourage spending. Want to buy a new car? You need to pay a tax equal to 150% of the car’s value. You also need a permit that costs roughly $55,000 USD. No surprise that traffic congestion isn’t a problem in Singapore. Then there’s also the iconic three-tower Sands casino. Foreigners can enter free, but locals must pay an $80 entry fee. Government policy is guiding its populace away from spending. Consumption taxes can make sense, but Singapore has taken that to extreme forms in certain areas.

You can see the Singapore equation for growth: strong incentives to save plus strong incentives not to spend equal rapid wealth accumulation. Since its independence from the UK 50 years ago, Singapore is a case study in economic growth and rising prosperity. It’s also smartly positioned for the future. It focuses its efforts on high-value areas, with good growth prospects and where it can build competitive advantages. Its future looks bright to me.

I look forward to returning.

Photo: ekkachai / Shutterstock