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Home > Blogs > Anthony Harrington > Singapore—The fastest growing economy in the world?

Singapore—The fastest growing economy in the world?

Finance Blogger: Anthony Harrington Anthony Harrington

While the eurozone waits for the other sovereign debt shoe to drop and US commentators fret over a possible double dip recession, Singapore has revised its growth estimates for 2010 sharply up from its original estimates of seven to nine percent. It now anticipates growth of 13-15% for the year, putting it on track for the title of the world’s fastest growing economy—never mind Asia’s fastest growing economy.

From a low point when it received its independence in 1965, at which point the economy was characterised by high unemployment, sluggish growth, decaying infrastructure and social unrest, this country of just over 4.7 million inhabitants has become a modern multi ethnic community with English as its official language and all citizens learning at least one of three “native” Singapore languages, including Mandarin and Malay.

Founded as a British trading post on the Strait of Malacca in 1819, Singapore’s economy today is heavily export orientated with IT and consumer electronics featuring heavily in the mix. Its port is one of the busiest in the world and as its Budget for 2010 makes clear, the country could give lessons to many a developed nation when it comes to  incentivising innovation and R&D.

Singapore’s Budget for 2010 [PDF] made clear the fact that Singapore will commit $5.5 billion over the next five years in tax benefits, grants and training subsidies all aimed at improving skills and supporting enterprise investment in innovation. What this means is that companies can get a 250% tax deduction for the first $300,000 of expenditure in six different areas. These are spending on R&D, including the salaries of R&D staff; the registration of intellectual property, including the cost of patenting; the acquisition of IP, such as the purchase of a patented technology for use in a manufacturing process; outsourced or other design spend; automation (including mundane items such as a point of sales system installed in a restaurant); and finally, course fees and training for staff.

This means that companies can reduce their taxable income by up to $750,000 for the first $300,000 that they invest in these areas. (Those who invest $300,000 in two areas knock $1.5 million off their taxeable earnings, and so on.) Those businesses who do not have sufficient taxable income can carry forward the credits to future years or convert them at the rate of 7% into cash (ie $300,000 investment would generate a cash grant of $21,000).

On top of this the government is making available a $2 billion fund for initiatives aimed at specific industries, clusters and on sectors with the potential for large productivity gains. A further $2.5 billion has been committed for spending on continuing professional education over the next five years, with the aim of developing expertise across all industry sectors.

These kinds of cash backed initiatives clearly have the potential to uplift skills and productivity significantly, perhaps even dramatically. It will be very interesting to see the impact over the next five years on Singapore’s drive to extend its market share of high value add products. It will also be interesting to see if politicians in the UK or the Eurozone take note of the extent to which this small country is prepared to invest heavily to support innovation.

For further reading on innovation and R&D

Tags: Asia , export , innovation , intellectual property , patents , real economy , Singapore , tax incentives
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