Posting an artilce from Bloomberg news Nov. 11 2010. The gap is in fact widening between these 2 brother nations .
Nov 11, 2010
Singapore Seen Overtaking Malaysia 45 Years After Lee’s Tears
By Shamim Adam
Forty-five years after Singapore’s expulsion from a union with
Malaysia left Lee Kuan Yew in tears on national television, the
economy of the city-state he led to independence is poised to overtake
Singapore’s gross domestic product will cap its fastest annual growth
this year since independence, rising as much as 15 percent to about
$210 billion, while the economy of Malaysia, a country 478 times its
size, will expand 7 percent to $205 billion, government forecasts
show. The nations are scheduled to release their 2010 data by
The island that former economic adviser Albert Winsemius once said was
considered a “poor little market in a dark corner of Asia” is now
ranked by the World Bank as the easiest place to do business, has the
world’s second-busiest container port, and boasts the highest
proportion of millionaire households, according to the Boston
“Singapore kept on moving to the next level as the world economy
evolved and adjusted to market demands and investors’ interests,” said
Lee Hock Guan, senior fellow at the Singapore- based Institute of
Southeast Asian Studies. “Malaysia was struck by the curse of
resource-rich countries: It didn’t optimize its human capital.”
From a low-cost manufacturing center for companies such as Texas
Instruments Inc. in the 1960s, Singapore has become the world’s
fourth-largest foreign-exchange center with a S$1.2 trillion ($932
billion) asset-management industry.
Smaller than New York City and the only Southeast Asian nation without
natural resources, Singapore has grown 189-fold since independence in
1965, helping boost GDP per capita to $36,537 last year from $512.
Malaysia’s economy expanded at one- third the pace during the same
period and had a GDP per capita of $6,975 in 2009, up from $335 in
Malaysia’s growth fell to an average 4.7 percent a year in the past
decade, from 7.2 percent in the 1990s, when former prime minister
Mahathir Mohamad wooed overseas manufacturers, built highways and
erected the world’s tallest twin towers.
“Development is like a marathon and all policies geared toward it must
be sustainable and continuous,” said Thomas Lam, chief economist at
OSK-DMG, a venture between Malaysian securities firm OSK Holdings Bhd.
and Deutsche Bank AG. “Malaysia runs the marathon like a 100 meter
event, so you see the initial spurt but not continuous progress in the
Lam, 35, is one of 386,000 Malaysians who have become permanent
residents or citizens of Singapore, a list that includes Health
Minister Khaw Boon Wan and Oversea-Chinese Banking Corp. Chairman
Cheong Choong Kong.
“Singapore seems to offer greater career opportunity and mobility in
my field,” said Lam, the second-most-accurate U.S. economic forecaster
for 2008 to 2009 in Bloomberg surveys.
After more than 140 years under British rule, Singapore joined the
Federation of Malaysia in September 1963 as Lee and his colleagues
sought a bigger common market to cut unemployment and curb communism.
The merger survived less than two years amid ideological differences
and worsening relations between the United Malays National
Organisation, which dominated the ruling Barisan Nasional coalition,
and Lee’s People’s Action Party.
“For me, it is a moment of anguish,” Lee said on Aug. 9, 1965, the day
Singapore became a sovereign state. “My whole adult life, I believed
in Malaysian merger and unity of the two territories.” Lee, 87, was
Singapore’s prime minister from 1959 to 1990.
‘Loss of Time’
Winsemius, the country’s economic adviser from 1961 to 1984, said he
thought the merger was a “loss of time.” Credited with helping
formulate Singapore’s industrial strategy, Winsemius, who died in
1996, said the general opinion of Singapore in the early 1960s was a
country “going down the drain.”
The government acted by investing in export-based industries. It built
new container terminals for Singapore’s port, the genesis of the
country’s development; reclaimed land offshore to attract companies
such as Exxon Mobil Corp. and Royal Dutch/Shell Group for a S$30
billion oil refining complex; and moved into high-tech industries like
electronics and drugs.
“Economic development does not occur naturally,” said Ravi Menon, a
senior official at Singapore’s Ministry of Trade and Industry. “This
is where free marketers are disenchanted with Singapore. The
government has never hesitated from guiding the development process or
intervening in markets where it believes such intervention will lead
to superior outcomes.”
The government invested about S$500 million in its Biopolis biomedical
research hub after attracting drugmakers including Pfizer Inc. and
Novartis AG. It cut corporate tax rates by nine percentage points
since 2000 to 17 percent, compared with 25 percent in Malaysia.
BNP Paribas has a “buy” recommendation on Keppel Corp. and SembCorp
Marine Ltd., the world’s biggest builders of oil rigs and two of the
companies the government backed to propagate its industrial policy.
Singapore Technologies Engineering Ltd., Asia’s biggest
aircraft-maintenance company, was rated a “buy” by Deutsche Bank AG.
Singapore was kicked out of the union partly because Lee opposed
Malaysia’s affirmative-action policy, which provides special rights to
the ethnic Malay majority. While Malaysian Prime Minister Najib Razak
has pledged to roll back key policies of ethnic favoritism, he told
UMNO’s 61st General Assembly last month that the “social contract”
that gives benefits to the Malays cannot be repealed.
“Singapore will overtake Malaysia because its focus is just on
economic growth,” Mahathir, Malaysia’s prime minister from 1981 to
2003, said in an e-mailed response to questions. “There is no social
restructuring goal such as fair distribution of wealth between races
as we have in Malaysia.”
Najib is trying to return the Malaysian economy to the levels of
growth that boosted stock prices almost fivefold in the decade through
1996. He set a goal of tripling gross national income to 1.7 trillion
ringgit ($550 billion) in 2020, from 600 billion ringgit in 2009 and
creating 3.3 million jobs.
His government unveiled an economic transformation program in
September aimed at attracting investment, including $444 billion of
programs this decade ranging from mass rail to nuclear power, led by
private and government-linked companies. Najib is also taking steps to
bolster the talent base, including plans for a teaching hospital with
courses by Baltimore-based Johns Hopkins University and a new
corporation tasked with luring back skilled Malaysians from overseas.
About 350,000 to 400,000 Malaysian citizens work in Singapore,
including 150,000 who commute daily via buses and motorcycles to jobs
in the city-state’s factories, kitchens and offices.
“Singapore followed the export-led industrialization model to become a
base for foreign manufacturers,” said Lee of the Institute of
Southeast Asian Studies. “The main model for Malaysia for a number of
years was import-substitution where it protected certain industries.
That created inertia.”
Lee, a 52-year-old Malaysian who studied and lived overseas for more
than 30 years, said he plans to return to live in Malaysia only when
Singapore beat 182 economies to take first place in the World Bank’s
annual ranking of business conditions, which looks at property rights,
taxes, access to credit, labor laws and regulations on customs and
licenses. Malaysia climbed two steps to 21st, according to the Nov. 4
Mercer Consulting ranked Singapore as Asia’s most livable city in May,
even as it lags behind Hong Kong on measurements of personal freedom
and media censorship. The government says restrictions on public
assembly and speeches are necessary to maintain social and religious
harmony among its 5 million people. The city was wracked by violence
between ethnic Malays and Chinese in the 1960s.
The country must keep innovating to stay ahead, said Tomo Kinoshita,
deputy head of Asia economics research at Nomura Holdings Inc. in Hong
“Singapore must keep searching for new markets,” Kinoshita said. “Less
developed Asian countries are all growing quickly and trying to catch