On any normal day in recent years, the terminals of Singapore’s container port, busiest in the world in total tonnage, would throb with activity. Furiously working the cranes, Chinese, Indian, and Malay workers would guide in superjumbos and small harbor craft, relying upon one of the most sophisticated systems of monitoring vessel movement in the world. Last year, the port handled over 130,000 boats, and most days, at least 400 ships come in and out of port.

But in Singapore, as in all of the world’s major ports, normal hardly exists anymore.

These days, rows of boats sit idle in its docks and many foreign workers have left the city-state. With the global financial crisis hitting shipping and exports hard, two staples of the city-state’s economy, Singapore’s prime minister, Lee Hsien Loong, recently warned his compatriots they would be facing the toughest downturn since World War II. Indeed, Singapore’s exports plunged by some 35 percent in January of 2009, a steep drop, and many shippers are storing their cargo for far longer in transit than in the past, depressing port revenues.

Still, Singapore, famous for its meticulously driven government, isn’t exactly throwing in the towel. Instead, its port sees the crisis as an opportunity, a chance to demonstrate how it can thrive, and gain a leg up on rising Asian competitors. “Singapore’s forte is survival,” says Ernie Bower, a partner at the Brooks Bower Asia consulting firm in Washington, which focuses on Southeast Asia. “Singapore will recover relatively quickly [from the crisis].”

Facing the global crisis, the port of Singapore apparently has a multi-part response strategy. First, it is trying to hold onto the container traffic it has, until the global economy improves. In its 2009 budget initiatives, the government rolled out a raft of plans. It announced that the Maritime and Port Authority of Singapore (MPA) would slash port dues by twenty percent for smaller harbor craft operating in Singapore, and ten percent for larger, oceangoing ships docking in Singapore for less than ten days. These cuts, inaugurated on April 1, will last for year, and come on top of other concessions made in previous years to shippers in Singapore. The Singapore government also announced a forty percent property tax rebate for industrial and commercial properties in 2009, a measure designed to encourage new business development even during a downturn.

To sweeten the deal even more, Singapore has also completely removed the country’s goods and services taxes for some shippers building new container cargo facilities in the city-state. And if these measures are not enough to keep companies working with Singapore, the government likely will come up with more.

“Singapore has the resources, wits and confidence in its governance to survive,” says Walter Lohman, a Southeast Asia expert at the Heritage Foundation think-tank. “Their future will be determined by recovery of demand in global markets. They don’t have a domestic demand that can replace it.” 

Yet even as it tries to keep longstanding business, the port is using the downturn to actually make new investments. Singapore has a large enough cash stash to upgrade facilities and look for undervalued assets elsewhere during a downturn, even as other Asian ports, like those in neighboring Thailand, struggle. Indeed, the city-state may use its cash hoard to buy up other shippers, logistics companies, and warehousers around the region. After all, Singapore boasts foreign exchange reserves of over $170 billion for a country of only 4.6 million people; by comparison, Thailand, a country more than ten times its size, has reserves of less than $120 billion.

“Look to see Singaporean financial institutions and other government-linked companies expand positions in regional investments and carefully buy new companies,” says Bower. “In the meantime, stability will be retained by cautious pump priming at home.” 

Indeed, this winter, the Singapore government started that pump. Besides its tax rebates, it announced it would boost outlays for capability development programs at the port, designed to keep the shipping industry ready for a global economic recovery. Dipping into its reserves for the first time in recent history, it also created a $14 billion economic stimulus package, by far the largest of any nation in Southeast Asia, according to an analysis by the U.S.-Asean Business Council, a trade group. It launched a new influx of money into the state’s Maritime Cluster Fund, designed to help pay the start-up costs of new companies setting up port-related businesses in Singapore or current Singapore-based companies that are expanding their operations.

The port also has increased its investments in R&D and education, boosting the money in the country’s Maritime Innovation and Technology Fund, designed to develop R&D in areas like port operations, maritime telecommunications, and maritime environmental issues.

“Shipping is a cyclical industry. It is vital that companies take this economic downturn as an opportunity to upgrade the skills of its staff in preparation for the next boom,” Maritime and Port Authority of Singapore chief executive Tay Lim Heng told World Trade.

Perhaps most important, unlike some other nations in the region that are retreating into protectionism, Singapore actually is pushing harder for liberalization at this time. (The value of Singapore’s total two-way trade is three times as much as its GDP, showing its dependence on trade.) “Its neighbors are seeking to roll back the timetable for implementation of the Association of Southeast Asian Nations (Asean) Free Trade Agreement [but] Singapore will push hard for World Trade Organization progress,” says Bower.

The city-state, Bower believes, also will push for the Trans-Pacific Partnership Agreement (TPP), a trade facilitation agreement between the United States and several selected Asian nations, including Singapore. 

Singapore’s strategies already appear to be paying off. With so many incentives being dangled, earlier this year, NYK Logistics, a leading Japanese freight forwarder and warehousing company, took advantage of the tax breaks to open a new container cargo facility, located in the massive Keppel Distripark complex.

And in its advocacy for trade, Singapore clearly has impressed Washington. At the end of President George W. Bush’s term, the U.S. vowed to push forward on the Trans-Pacific Partnership Agreement. And though the Obama administration has taken a more cautious view of trade deals in general, it has embraced closer links with Southeast Asia, and most likely will take up the TPP. 

Meanwhile, Singapore has delivered the numbers. In January, the MPA announced that, despite the global downturn, in 2008 Singapore still reached a record tonnage of shipping, some 1.6 billion gross tons, as well as a growth in container traffic in 2008 as well.

Over the next year, in fact, Singaporeans will have much more to be proud about at their port. Though the MPA admits 2009 will be tough, the port, and the country in general, likely will see significant recovery in traffic in 2010. One comprehensive recent report by BNP Paribas, the giant French bank, predicted that the city-state’s economy would recover rapidly in 2010. “The recovery [will be] more V- than U-shaped,” Paribas economist Richard Iley predicted. wt



Contributing writer Joshua Kurlantzick is a visiting scholar in the Carnegie Endowment’s China Program and the author of Charm Offensive: How China’s Soft Power is Transforming the World.

Sidebar: A Knowledge-based Economy

Its port isn’t the only place where Singapore is investing doing during this global downturn (the country’s GDP this year is projected to approach negative 9%). A tiny city-state (4.8 million people) whose viability hinges upon strategic government guided development with a heavy emphasis on trade, Singapore is renowned for directing resources shrewdly.

So where is the Singapore Economic Development Board and its corporate partners placing their bets these days?

Infrastructure investments in knowledge and innovation intensive sectors top the agenda, says Keat-Chuan Yeoh, International Director, America. Health science is a high priority, both in terms of pure pharma R&D as well as hospital services, particularly directed toward Asia (with potential applications elsewhere). 

A health science research campus launched in 2003 currently offers 2.4 million square feet of laboratory space and is planned to be twice that than when completed. Called Biopolis, it is a public-private partnership with global pharmaceuticals, directing particular focus on drugs related to the diseases of developing countries (TB, dengue fever, malaria). 

Singapore is developing platforms such as ‘Hospital-of-the-Future’ and ‘Homecare-of-the-Future’ for healthcare service providers. These platforms allow healthcare players to develop and test new products and business models with companies from other industries such as IT systems, medical equipment, pharmaceuticals, nutrition and consumer lifestyle.

“We want to open up Singapore like a living laboratory,” explains Keat-Chaun. “When companies look at Singapore, they see it as model for Asia.”

Environmental enterprises are also being encouraged. The world’s largest manufacturer of solar panels is located in Singapore.

Advances in water technology, long a critical concern for Singapore itself because of its limited supply, have been fruitful. Facilities to return treated wastewater to reservoirs are on line and have been well received by consumers, Singapore enterprises have begun exporting water recovery technology to China. 

“For those who say that water will be the new oil,” observes Keat-Chaun, “this is important.” - Neil Shister