WIXLIB

IGF Guidance For Governments:Leveraging Local Content Decisionsfor Sustainable DevelopmentCASE STUDYSINGAPORE:DOWNSTREAM LINKAGESPROACTIVE EXPORT PROMOTIONPOLICIES AND INVESTMENT OFINCENTIVESOVERVIEWLEVEL OF OPERATION:NationalGOVERNMENT ROLE:Regulator; program facilitatorFOR MORE INFORMATION:See Economic Development Board; Jurong IslandKEY COMMODITIES:Fish, deepwater ports1TOTAL NATURAL RESOURCE RENTS(AS % OF GDP) (2015):0.0 per cent2NATIONAL EXTRACTIVES COMPANY:N/A. However, Temasek Holdings, a holdingcompany with the Singapore Minister for Financeas its sole shareholder, has shares in Repsol, S.A.,Turquoise Hill Resources Ltd., and Pavilion EnergyPte Ltd.UNDP HUMAN DEVELOPMENT INDEX VALUE (2016):0.925 (Global Rank 38)3Singapore’s development since the 1960s hasrelied heavily on an export-led economic strategysupported by dedicated institutions providingguidance, fiscal incentives and a thriving financialand logistics sector. With little reserves ofcrude oil, the country has leveraged its uniquegeographical position as the gateway to Asianmarkets with world-class port infrastructure.It has attracted a number of large-scale oilrefineries and petrochemical industries clusteredin an export processing zone, making it thepetroleum trading hub of the region.Building on Royal Dutch Shell’s initiative to set upa refinery to exploit the Asian market and takingadvantage of its port facilities and strategiclocation in the Asia-Pacific region, the government1Central Intelligence Agency (CIA). (2017). The world factbook. Washington, DC: CIA. Retrieved from factbook/fields/2111.html2World Bank Group. (2017). Total natural resource rents (% of GDP). Washington, DC. Retrieved from T.ZS3United Nations Development Programme. (2016). Human Development Reports: Singapore. Geneva, Switzerland. Retrieved from http://hdr.undp.org/en/countries/profiles/SGP

2implemented an export-driven industrial policycentred around refined oil products. The successover the years has been sustained thanks to thestrong fuel consumption trends in rapidly growingAsian economies. Recognizing a shift in theregion’s product demand trends, the governmenthas moved further downstream by developing thepetrochemicals sector.To implement its vision, thegovernment has adopted atwin-track industrial strategyof keeping bureaucraticregulations to a minimum whilebuilding supportive dedicatedinstitutions to attract, stewardand support investments. Thiswas coupled with generousfiscal and financial incentives.The industrial strategy alsoleveraged the power ofindustrial agglomerationwith the Jurong Island Export Processing Zone(EPZ), which has attracted companies along thevalue chain, including in refining, storage andshipping. A thriving financial and service sectorsupports these activities. The model has allowedthe industry in Singapore to differentiate itselffrom other emerging players in Asia by helpingfirms achieve operational efficiencies and costreductions. Over time, oil trading has become amajor sector in the country, granting Singapore itsprimacy as Asia’s oil trading hub.After independence from the British regime, in1961 Singapore established a dedicated institutionto promote industrial development and attractinvestment. The so-called Economic DevelopmentBoard (EDB) was endowed with a budget of USD100 million to design and implement policiesto promote industrial investments in Singapore,The government has adopted a twintrack industrial strategy of keepingbureaucratic regulations to a minimumwhile building supportive dedicatedinstitutions to attract investments.THE PILLARS OF A SUCCESSFULDOWNSTREAM POLICYSingapore’s success in attracting the downstreamvalue chain of oil has its roots in the late 19thcentury, when the British Empire built three bulkstorage tanks for kerosene on Bukom Island(belonging to the Singapore archipelago) forstoring oil and supplying British operations inEast Asia. They also invested in Singapore’s portinfrastructure and regional connectivity.foster enterprise opportunities in internationalmarkets and offer development financing options.The 1965 separation from the Federation ofMalaysia, which for its part was pursuing importsubstitution strategies, empowered the EDB. Itbecame the engine of Singapore’s economicgrowth through an export-oriented industrialstrategy. At the core of this strategy was thedesire to build on the strategic comparativeadvantage in the oil industry built by the BritishEmpire and to leverage Singapore’s strategic portbetween the Indian Ocean and the Pacific Ocean.In this context, the 1960s and 1970s saw theestablishment of further supportive institutionsto the oil-based export industry as well as thedeployment of a fiscal incentive policy: In 1968, the EDB created the DevelopmentBank of Singapore (DBS) to oversee capitalfinancing for export-oriented industries(EOI), and the International Trading Company(Intraco) with the mission “to developoverseas markets for Singapore-madeproducts and to source cheaper raw materialsfor local industries through bulk buying.”44Rodan, G. (1989). The political economy of Singapore’s industrialization: National state and international capital. International Political EconomySeries. Palgrave Macmillan UK.

3 Investment incentives included allowingcompanies to operate tax-free for the firstfive years of operation, removing importduties on equipment and raw materialsneeded as inputs, and reducing thecorporate income tax rate to 4 per cent onexport manufacturing companies.Investment attraction policies also reliedon quick approval/licensing processesfor private investment and large-scalegovernment investments in advancedlogistics infrastructure.Complete corporate income taxexemptions in some cases wereextended to 10 years or longer.The deployment of export promotion strategiesbuilt on the auspicious context of the time: therefinery sector was attracted by fuel demandincrease in Asia and lack of competing refineriesin the region. Oil refining was cited as Singapore’s“dominant growth industry between 1965 and 1969”as the island nation steadily rose to become theAsia-Pacific’s leading port economy.5 Singaporeenjoyed a first-mover advantage to cater to theAsia-Pacific’s fuel and specialty chemical needs.6The first foreign company to invest was BritishDutch oil major Shell in the 1960s. It built a20,000 barrel per day (bpd) refinery to service theSoutheast Asian markets. Other oil companiesfollowed, using and developing storage facilities inSingapore. Investments in refineries boomed duringthe years of soaring fuel demand coming fromthe American military’s involvement in Vietnam.Singapore was a close partner of the United States,with the People’s Action Party-led governmenthaving a strong anti-communist stance.7Building on this momentum, the EDB continuedoffering fiscal incentives for the industries thatit granted “pioneer” status, which included theoil refining sector. Complete corporate incometax exemptions in some cases were extendedto 10 years or longer. These incentives, coupledwith perceived political stability compared toits neighbours, helped strengthen Singapore’sinvestment attractiveness in the 1970s.8To benefit from the thrivingsector, the government createdthe Singapore National OilCorporation (SNOC) in 1980,which was responsible formanaging energy resourcesand infrastructure, as well asstimulating economic growth inthe oil downstream sector.9USING THE “CLUSTERAPPROACH” TO FURTHERDEEPEN DOWNSTREAMLINKAGESIn the 1980s, prompted by the realization thatthe oil business was volatile (after the two oilshocks), Singapore decided to move down thevalue chain and focus its efforts on developingthe petrochemicals industry. At the core of thisundertaking was the establishment of the JurongEconomic Zone on the Jurong Islands in 1983. Thiswas partly motivated by the industrial land scarcityon the mainland. The Zone benefited from largeinfrastructure investments by the EDB. A roadwaynetwork was built connecting the seven islands.In a few years Jurong became the heart of thepetrochemical industry, with companies clusteringin the area. The industry benefited from being close5Ibid.6Ng, W.H. (2013). Singapore, the energy economy: From the first refinery to the end of cheap Oil, 1960–2010. Routledge.7Ibid.Meanwhile, neighbouring countries were experiencing mass conflict and political instability: Vietnam slipped into war in the late 1960s, Thailand’sfarming class led a revolution in 1970, and Indonesia was beset by a Communist purge in 1965.89Sharma, S., & Fesharaki, F. (Eds.). (1991). Energy market and policies in ASEAN. Institute of Southeast Asian Studies.