Foreign Singapore has faced extremely difficult economic conditions in the 1960s, and these will be exacerbated by the withdrawal of the United Kingdom military Investment and establishment during the next few years. Foreign investment can play an important role in Singapore’s economy and at the same time make profits for the foreign investors. This book explores the problems Industrialisation involved. The aim of the surveys conducted by Dr Hughes and her colleagues during 1966 and 1967 was to see whether the incentives in Singapore offered by Singapore to foreign investors were suitable and effective, to evaluate the contribution made by foreign investors to the development of manufacturing in Editors HELEN HUGHES I YOU POH SENG Singapore, and to highlight the problems they faced. The most surprising finding of the book is that direct financial incentives to foreign investors are unnecessary. Singapore’s principal attraction to outside investors lies in its efficient administration and the provision of public services, while its central geographic situation in Southeast Asia has to some extent offset the smallness of its internal market. The book will be of particular interest to two kinds of reader: manufacturers, administrators, and others concerned with investment in Southeast Asia, and economists everywhere who are studying the economic development of the area, the problems of establishing manufacturing industries in developing countries, and the economics of direct foreign investment. Jacket designed by Will Bloem $>A5.50 Foreign Singapore has faced extremely difficult economic conditions in the 1960s, and these will be exacerbated by the withdrawal of the United Kingdom military Investment and establishment during the next few years. Foreign investment can play an important role in Singapore’s economy and at the same time make profits for the foreign investors. This book explores the problems Industrialisation involved. The aim of the surveys conducted by Dr Hughes and her colleagues during 1966 and 1967 was to see whether the incentives in Singapore offered by Singapore to foreign investors were suitable and effective, to evaluate the contribution made by foreign investors to the development of manufacturing in Editors HELEN HUGHES I YOU POH SENG Singapore, and to highlight the problems they faced. The most surprising finding of the book is that direct financial incentives to foreign investors are unnecessary. Singapore’s principal attraction to outside investors lies in its efficient administration and the provision of public services, while its central geographic situation in Southeast Asia has to some extent offset the smallness of its internal market. The book will be of particular interest to two kinds of reader: manufacturers, administrators, and others concerned with investment in Southeast Asia, and economists everywhere who are studying the economic development of the area, the problems of establishing manufacturing industries in developing countries, and the economics of direct foreign investment. Jacket designed by Will Bloem $>A5.50 Dr Helen Hughes has been an industrial consultant in Australia, and undertook research into problems of Australian industrial development while she lectured at the Universities of New South Wales and Queensland. For the last five years she has studied industrialisation in Southeast Asia. She is a Senior Fellow in the Department of Economics, Research School of Pacific Studies, Australian National University, and is at the time of publication working in the Economics Department of the International Bank for Reconstruction and Development. Dr You Poh Seng is Director of the Economic Research Centre of the University of Singapore. His main interest is in demographic studies, and he is currently working on the problems of population growth and employment in Singapore. This book was published by ANU Press between 1965–1991. This republication is part of the digitisation project being carried out by Scholarly Information Services/Library and ANU Press. This project aims to make past scholarly works published by The Australian National University available to a global audience under its open-access policy. Foreign Investment and Industrialisation in Singapore V- •■vai-v-v äafeH Foreign Investment and Industrialisation in Singapore Edited by Helen Hughes and Yon Poh Seng PLEASE RETURN TO ;« EDITORIAL DEPARTMENT 'PoVWVv- OJu uhlt-t AUSTRALIAN NATIONAL UNIVERSITY PRESS CANBERRA 1969 First published 1969 © Australian National University Press SBN 7081 0289 i Library of Congress Catalog Card no. 69-14301 National Library of Australia reg. no. AUS 68-2591 Preface Foreign investment has become widely accepted as an ‘engine of growth’ for the industrialisation of developing countries. Sought and welcomed not so much for the capital itself as for the advanced technology it injects into an economy, it has the added merit of supplying foreign exchange for the industrialisation process to the extent to which it supplements domestic savings. In developed countries among which the bulk of foreign investment in industry takes place, the opinion that the benefits of foreign investment greatly exceed its costs prevails, and this has stilled much of the fear and criticism common in developing countries even a decade ago. Developing countries wishing to industrialise rapidly in a free enterprise and politically democratic environment have not, moreover, been able to find satisfactory alternatives. Yet in spite of the attention it has received in development planning and economic analysis, many questions about the course and effects of foreign investment remain unanswered, and on some of these this study of foreign investment in Singapore manufacturing attempts to throw light. The study is confined to direct foreign investment, that is invest­ ment which involves an equity interest and some degree of control in the sense that the lender wishes to, and is able to, influence the borrowing company’s policy. Direct foreign investment can be in a branch or wholly-owned subsidiary or in a public or private company in which the foreign investors hold equal, majority, or minority, shares. It includes investment through licensing, technical, or managerial agreements. It does not include portfolio investment. With its success in attracting foreign investors from a number of countries in the 1960s, Singapore was well suited for such an investiga­ tion, particularly as the Economic Development Board, the principal government agency concerned with foreign investment and industrial growth, was sympathetic to the aims of the study and very co-operative throughout its progress. We would like to thank its staff members for their help. To overcome the difficulties of gaining the confidence of foreign businessmen of various nationalities, a team of economists, one from each of the principal investing countries, interviewed the firms with foreign investment. Manufacturing firms with Japanese and Australian investment were interviewed during 1966 and surveys of United States, United Kingdom, v Preface Hong Kong, and Taiwan investment followed in 1967. Questionnaires were standardised as far as possible, and all the participants in the study were able to meet at a seminar in Singapore in July 1967 to co-ordinate their work and discuss it with economists from the Economic Develop­ ment Board and the University of Singapore, and with representatives of Singapore business organisations. The study and its publication were organised jointly by the Economic Research Centre of the University of Singapore and the Department of Economics of the Research School of Pacific Studies, the Australian National University, and these two departments have borne much of the incidental work and some of the expense. We are particularly indebted to Ruth Daroesman who helped with the organisation of the surveys and seminar, Ung Gim Sei who compiled the appendix tables, and Patricia Brown who assisted with the editorial work. The Ford Founda­ tion made the study possible by generously financing the field work and the seminar. H. H. y . p. s. Editors and Contributors Gethyn D avies Professor of Economics, Institute of Science and Technology, University of Wales Ryokichi H irono Associate Professor of Economics, Seikei University Helen Hughes Senior Fellow in Economics, Australian National University Peter H. L indert Assistant Professor of Economics, University of Wisconsin Paul Luey Lecturer in Economics, University of Hong Kong U ng G im Sei Research Assistant, Economic Research Centre, University of Singapore You Poh Seng Director, Economic Research Centre, University of Singapore vii Exchange Values All values are in Malayan dollars unless otherwise stated. Average exchange rates for Malayan dollars in 1966 were as follows: $ Malayan 100 = $ Aust. 29-56 = $ HK 189*35 = Yen 11,904-00 = $ New Taiwan 1,306 = £ Stg 11-72 (£11.14s. 5d.) = $ US 32-94 Percentages are expressed in round figures and therefore totals do not always add up to 100. viii Contents Page Preface v Editors and Contributors vii Exchange Values viii 1 From Entrepot Trade to Manufacturing Helen Hughes i 2 United Kingdom Investment Gethyn Davies 46 3 Australian Investment Helen Hughes 62 4 Japanese Investment Ryokichi Hirono 86 5 Hong Kong Investment Paul Luey 112 6 Taiwan Investment Paul Luey and Ung Gim Sei 140 7 United States Investment Peter H. Lindert 154 8 Conclusions Helen Hughes 177 Appendix: Pioneer Firm Statistics 211 Index 221 ix Tables Page 1.1 Population of Singapore