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Discovery Of Oil In Ghana Economics Essay

Since the discovery of oil in deep-water offshore the coast of Ghana in 2007, the nation has had amplified expectations on possible accelerated economic growth and development. This “black gold” if managed well has the propensity to transform a structurally week economy into a self-sustain economy or can lead to social, economic and political instability as evidenced in some resource rich countries where their economies are characterized by corruption, poverty, and conflict. As Ghana becomes a member of league of oil producing countries, it is imperative that the country considers available successful options for effective allocation of its oil windfalls. This paper examines policy instruments that the Ghanaian governments can adopt to promote rapid improvement in development indicators in order to avoid the resource curse.
“Now, with oil as a shot in the arm, we’re going to fly, We’re going to really zoom, accelerate, and if everything works, which I pray will happen positively, you come back in five years, and you’ll see that Ghana truly is the African tiger, in economic terms for development.” [1] This statement attributed to a former president of Ghana in 2007 upon discovery of oil in commercial quantities justifies the optimistic expectations from the government and people of Ghana on the acceleration of economic growth and development from revenues to be obtained from exploration and development of oil fields. However, countries endowed with abundance of natural resources often perform poorly in achieving their targeted economic development than those with fewer resources resulting in what is popularly known as the “paradox of plenty” or “natural resource curse”. [2] For most of these richly endowed countries, the dream of using revenues from oil and gas to propel economic development is shuttered due to poor governance, oil price volatility, overdependence of oil revenue and the enclave nature of the oil industry.
Ghana, a resource rich country and already producing gold, diamond, bauxite, magnesium and aluminium has not been able to achieve economic stability and low poverty rate with revenues from these mineral resources. Based on current proven reserves, Ghana’s production of oil from the Jubilee field is expected to reach it peak from 2013-2015 at a production capacity of 120,000 barrels per day, lasting for 20 years and a potential revenue generation of USD 1.8 billion per annum at its peak production. [3] Availability of both short and long term economic measures and macro-economic policies are needed to avoid the resource curse. This paper seeks to examine how the governments of Ghana can effectively manage this scarce resource (oil) in the nation’s quest to achieving a middle income status economy by 2020. For a proper understanding of oil exploration and exploitation, chapter two will consider the history of oil discovery in Ghana. A comparative approach method will be adopted in chapter three to analyse two diverging case scenarios of how one country (Norway) has been able to effectively manage it resources to advance economic development and the other country’s (Nigeria) failure to achieve such success. Chapter four will elaborate on how key mechanisms such as diversification of the economy, strengthening of contractual and legal framework, transparency and accountability and resource management can be used as a tool in achieving sustainable economic growth. The conclusion will be chapter five.
2. Ghana Overview: History of Oil Discovery Exploration of hydrocarbons in Ghana started in 1896 from the onshore Tano exploration in the Western Region (GPE, 2004). This initial exploration by the West Africa Oil and Fuel Company (WAOFCO) and later by the Société Française de Petrole in 1909 was hitched by the discovery of seepages of oil onshore by early explorers in surrounding communities onshore Tano (GNPC, 2009). The Saltpond field, which is the first major oil field in Ghana was discovered and developed by Signal Amoco in 1970 and began producing oil in 1975. A total of about 3.47 million barrels of oil was produced and 14 billion cubic feet of gas was flared between 1978 and 1985. [4] Three major discoveries – Cape Three Points, Saltpond and North and South Tano were made from drilling of 31 wells by the end of 1980.
With the nation’s vision of reducing crude oil importation and the provision of sustainable and reliable supply of petroleum products, Ghana Petroleum Corporation (GNPC) was established in 1983 with a mandate to continue major and sustainable exploration activities through the usage of needed technology and personnel, accelerated petroleum exploration and preventing adverse effects on the environment from petroleum exploration. [5] Figure 1 shows Ghana’s Jubilee Oil Field.
Figure 1: Ghana’s Jubilee field straddles two licenses: Deep-water Tano and West Cape
Three Points
Map of Ghana highlighting offshore projects
Source: Tullow Oil Ghana, 2012
In June 2007, GNPC together with its partners in the Jubilee field, Tullow Oil and Kosmos Energy announced the discovery of oil offshore Ghana. Tullow Oil expressed that the oil discovered offshore Ghana is one of the biggest oil finds in Africa in recent times. [6] Production of oil from the Jubilee field commenced in December 2010, and is estimated to contain 1.5 billion barrels of oil. Production in 2012 is estimated to be between an average of 70,000 and 90,000 barrels per day (bpd). [7] It is important to observe that since 2007, more offshore discoveries of oil and gas has been made with the recent discovery filed by Hess and GNPC for the Pecan-1 exploration well located in at deep-water Tano/Cape Three Points license offshore Ghana. [8]
3. Comparative Analysis In recent years, due to the extreme variations in the standard of living of resource-rich countries, resource management has become a key element in exploration and development of natural resources. While countries such as Norway ranks very top in effective management of oil revenue, others such as Yemen, Angola, Nigeria and Chad have performed poorly in achieving economic development. Plagued in poverty, most of these countries have become rich with poor people often struggling to design appropriate resource management strategies for resource utilization. [9] Oil price volatility and the “Dutch Disease” are the two commonly known adverse effects to development path of resource endowed countries. The “Dutch Disease” which occurred in the Netherlands in 1970s refers to a sharp increase in the value of exported resource leading to appreciation of the local real exchange rate. This usually increases import as a result of increase in expenditure due to what is termed as “petro-dollar” and makes exportation of local commodities unattractive and difficult, hence the “spending effect”. The shift in human resources and logistics from other sectors to the resource sector raises cost of production of other sectors creating “resource pull”. [10] A comparative analysis of Norway and Nigeria discussed is intended to offer Ghana with two practically extreme modules for guidance in avoiding the resource curse.
3.1 Norway Norway has earned a reputable position in resource management in oil and gas development. This has been labelled by many as the classical Scandinavian mechanism to tackling obstacles for long-term economic growth and development in the oil and gas industry. Norway discovered its first commercial oil in 1971 from the North Sea and considered its windfall from oil revenues as a temporal tool to insulate global economic shocks instead of stimulating present consumption. From the “Norwegian Model”, the government carefully and effectively disaggregated administration of petroleum development into policy formulation, commercial and regulatory arms. The separated arms included the national oil company (Statoil) which was mandated to undertake commercial oil and gas exploration and exploitation, Norwegian Petroleum Directorate (NPD) as a regulatory body responsible for control, monitoring and provision of technical support and Ministry of Petroleum and Energy directing government policies. [11]
To sustain revenue management and wealth, total and non-oil economy separation was introduced in economic forecasting in 1973 and was strengthened by the establishment of Government Petroleum Fund, renamed as Government Pension Fund in 2006. New fiscal policy guidelines were adopted by Parliament in 2001. [12] All these policy instruments instituted and strictly adhered to has resulted in prudent and transparent management of oil revenue.
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The success chalked by Norway in the management and administration of revenue from oil and gas production has attracted immersed international attention and has led to the formation of the Oil for Development (OfD) by the Norwegian government. The scheme launched in 2005 aims at supporting developing economies upon request, to manage, control and achieve economic development through efficient utilization of oil revenues. [13] With core members such as Nigeria, Angola, Uganda, Vietnam and limited cooperation countries such as Ghana, Tanzania and South Africa, Oil for Development now cooperates with more than over 23 countries depending on area of expertise needed.
3.2 Nigeria Nigeria joined the ranks of oil producers in 1958 after it had discovered oil in commercial quantities in 1956 by Shell-BP as the sole concessionaire at the time and producing about 5,100 bpd at Oloibiri in the Niger Delta. By the late sixties and early seventies, production level had surged to over 2 million barrels of crude oil a day. [14] Between 1971 and 1973, Nigeria’s oil revenue almost quintupled due to windfalls from increasing oil prices. Nigeria as a major oil producer joined the Organisation of Petroleum Exporting Countries (OPEC) in 1971 and established the Nigerian National Petroleum Company (NNPC) in 1977 as a national oil company to manage and controlled both the upstream and downstream energy sectors. [15] Though sectorial and trade patterns begun showing traits of oil income by early1970s, agriculture maintain its dominance accounting for about 40% of non-oil GDP and employing about 70% of the national work force. However, this achievement was short-lived as the economy suffered severe “oil syndrome” propelling a sharp decline in agriculture sector, collapse of non-oil export and appreciating of the country’s real exchange rate. [16] These were the result of high public capital spending (an increase from 3.6% of nominal GDP in 1970 to 29.5% by 1976) leading to high GDP deficit , inflation and wage increments by the government, based on the Public Service Review Commission (the average wage for civil servants doubled with increases of up to 130%). [17]
http://www.eia.gov/countries/analysisbriefs/Nigeria/images/oil_production_consumption.png
Nigeria has failed on the path to developing clear cut oil revenue management systems to manage its windfalls. This is traced to failures on attempted management commissions such as the Niger Development Board of 1960 and the Oil Minerals Producing Areas Development Commission (OMPADEC) of 1992 due to political instabilities. The most recent commission created to salvage the country is the Niger Delta Development Commission (NDDC) in 2000. [18] Nigeria’s crude oil production capacity is currently at 1.673 million bbl/d, with recent offshore oil developments and the restart of some shut-in onshore production increasing it to an average of 2.17 million bbl/d for the month of July 2011. High levels of poverty and corruption has led to kidnappings, militants takeovers of oil facilities in the Niger Delta and pipeline vandalism since 2005. [19] Though currently producing below capacity, Nigeria’s oil production is expected to increase based on the estimated 37.2 billion barrels of proven oil reserves and a more comprehensive revenue management system envisaged from the much debated Petroleum Industry Bill. [20]
4. Implementing Strategic Management Framework The energy sector strategy and development plan 2010 drafted by the Ministry of Energy in Ghana advocate that in order to achieve the country’s goal of sustaining oil and gas exploration, development and judicious management of accrued revenue, the ministry’s plan is to “manage oil and gas revenues transparently and ensure equity for the benefit of the present and future generation of Ghanaians. This will be achieved through institutional reforms and transparent regulation for the management the oil revenue through legislative guidelines for the creation of a Future Generation Fund and stabilization fund”. [21] The challenge is how Ghana positions itself in managing and formulating policies to achieve these set goals. Subsequent chapters will be dedicated to deliberating various successful policies and management styles governing allocation of oil revenues, how much to save (Current versus Future), building economic shocks for oil price volatility and guarding against the “Dutch Disease”
4.1 Strengthening Contractual, Regulatory and Legal Framework In modern business transactions, the buyer is always guided by the traditional concept of caveat emptor “let the buyer beware” of the natural risk in purchasing products in the market. To this end, and more crucial in the oil and gas industry is the opposite, “let the owner beware” of how resource revenue management if not meticulously planned could create inequalities. [22] Countries such as Botswana and Norway have been able to manage their resource sectors to sustain economic growth by adapting efficient and effective contractual and legal framework. Ghana in an attempt to follow such examples has passed two crucial bills, the Petroleum Revenue Management Bill (PRMB) and the Petroleum Exploration and Production Bill 2011 (PEPB). These bills governing exploration, development and management of oil revenues are intended to strengthen and provide a comprehensive approach to the Ghana National Petroleum Corporation Act (PNDC Law 64), the Petroleum (Exploration and Production) Act (PNDC Law 84), the Petroleum Income Tax Act, 1987 (PNDC Law 188), the Internal Revenue Act 2000 (Act 592) and the Environmental Protection Act 1994 upon commercial discovery of oil in 2007.
The Petroleum Revenue Management Act 2011 provides for “framework for the collection, allocation and management of petroleum revenue in a responsible, transparent, accountable and sustainable manner for the benefit of the citizens of Ghana in accordance with Article 36 of the Constitution and for related matters”. [23] Thus, the bill provides instruments for key issues such as setting up of petroleum funds, allocation and disbursement of the funds, management and investments of the petroleum funds and encumbrances and auditing of the funds. [24] The Petroleum (Exploration and Production) Act, also seeks to provide “a robust framework for the sector for the exploration, development and production of petroleum” and “create an enabling environment for increased private sector participation and investment in the petroleum sector and to strengthen the regulatory framework for healthy competition and quality assurance”. [25] By adopting Production Sharing Agreement in negotiating and awarding of petroleum contracts to IOCs, Ghana seeks to promote local contents and sense of ownership in petroleum production. However, it is important to state that creating these regulatory and legal frameworks alone is not the end, for Ghana to be able to be successful in promoting economic growth using petroleum revenues; it must strictly adhere to these frameworks as done in Norway and Botswana.
4.2 Transparency, Accountability and Democratic Governance Strong institutions and administrative capacity for transparency and accountability in the oil industry is an important tool in achieving the purpose of improving human lives. Independent and accountable institutions are needed to manage proceeds from natural resource revenues. As done by some countries such as Chile and Malaysia, even with relatively low institutional capacities have overturned the negative cycle and maintained social stability and accelerated economic growth. [26] Ghana as member of the New Partnership for Africa’s Development (NEPAD) which promote good corporate governance, effective regulatory framework for economic activities, corporate accountability , sound, transparent and predictable government policies should adhere to these standards in order to promote quality standard of living and reduce poverty rate.
Another mechanism used in tracking the performance of extractive natural resources countries in admonishing transparency, accountability and good governance is participating as a member of the Extractive Industries Transparency Initiative (EITI). As a global standard of ensuring transparency, EITI provides all industry players (IOCs, civil society groups and international organizations) and country members with principles of upholding transparency and accountability of payment from natural resources. [27] Ghana together with other countries such as Norway, Nigeria and Tanzania as EITI compliant countries have been meeting all requirements in the EITI standards and must continue to do so as a measure of promoting and strengthening transparency. The democratic dispensation in Ghana is considered by far to be one of the most reliable and stable governance in Africa. Continuing this path of democratic governance and strong civil societies such as the Centre for Policy Analysis (CEPA), IMANI, Centre for Education and Policy and the Institute of Economic Affairs (IEA) in Ghana, the country can tap experience from Chile and Botswana in avoiding the “resource curse”. The position of transparency and accountability is confirmed in article 8.1 of the Petroleum Revenue Management Act 2011. Its state that “for the purpose of transparency and accountability, the records of petroleum receipts in whatever form, shall simultaneously be published by the Minister in the Gazette and in at least two state owned daily newspapers, within thirty calendar days after the end of the applicable quarter”. [28]
4.3 Resource Management A million question usually posed by many experts is whether Ghana should spend or save windfall revenues from the oil sector. Thus, should revenue management policy be structured towards repayment of Ghana’s large foreign borrowing and eradicate capital scarcity and credit spreads, invest in foreign assets through sovereign wealth fund which has the capacity of building economic shock absorbers against volatile oil prices or to invest in domestic capital which has the tendency of promoting growth and structural transformation.
In the case of Norway, the government instituted the State Petroleum Fund (SPF) in 1990 to function as both savings and stabilization funds to manage macroeconomic growth and guard against oscillating oil prices. Through prudent economic managements, strong democratic institutions, transparency and conservative fiscal policies, the SPF accumulated substantial wealth which led to consistent budget surpluses and the surging popularity of the “Norwegian Model”. [29] Though economic conditions and priorities between Ghana and Norway are different, Chile a developing economy has similar economic growth and development characteristics to that of Ghana. Like Norway, Chile in 1985 established the Copper Stabilization Fund for the management of its copper revenues and its effective management led to economic booms and poverty reduction between 1990 and 1997.
Ghana government’s oil revenue from the Jubilee field has four components, a royalty of 5% of gross oil revenues, Ghana National Petroleum Corporation share of 13.75% as oil field’s commercial net profits, an “additional oil entitlement” of 10-25 % of petroleum revenue, net of royalties and the GNPC interest, is accrued if the project rate of return is between 18 and 33% and government levies on company income tax on all net profits of 35 %. [30] For effective management of windfall revenues from oil production and drawing experience from Norway, Chile and Botswana, Ghana’s Petroleum Revenue Management Act allocates government oil revenues between annual budget and sovereign wealth funds based on “benchmark revenue”. The Petroleum Act established a Petroleum Holding Fund with Bank of Ghana to receive and disburse all public oil revenues. From the Petroleum Holding Fund, 50-70% is allocated to consolidate the annual budget with a minimum of 70% to be used for investment in eleven priority areas including agriculture, human resource, education and health, security, transport and the remaining 30% for consumption. The other 30-50% from the Petroleum Holding Fund goes into the Ghana Petroleum Funds which consist of the Ghana Stabilisation Fund and the Ghana Heritage Fund. The Ghana Stabilisation Fund, constituting a minimum of 70% of the Ghana Petroleum Fund, will be used “to cushion the impact on o sustain public expenditure capacity during periods of unanticipated petroleum shortfalls” and the remained 30% to be invested as the Ghana Heritage Fund “to provide an endowment to support the development for future generations when the petroleum reserves have been depleted”. [31] These policies, when properly administered and supported with strong democratic institutions can eliminate Ghana from the oil curse.
4.4 Conflict Management As observed in the case of Nigeria, political instability and authority has been a key fundamental issue hindering effective management of oil revenue. This is to say that though the promise of piece of share of the “oil” cake keeps the nation together, its distribution has plunged the country into political, social and economic instability resulting in high levels of poverty and corruption, militants takeovers of oil facilities and vandalism in the Niger Delta. [32] Similar cases are spread across the Middle East where poor management of oil revenue has led to polarization of the economy and economic laxity. Although Ghana’s commercial oil discoveries have been made in deep water offshore Western Region, the fact still remains that region is most likely to suffer more in the case of oil spillage. Environmental safety trust funds and care must be taken to avoid social disruptions. From Ghana’s own experience, towns such as Obuasi and Akwatia which are well known for the extraction of gold and bauxite have seen little development with respects to the national revenue generated from the area. As a result, there are important discussions on the need to establish Western Region Development Fund to cater for a more responsive regional development to avoid undesired sentiment of marginalisation and alienation.
4.5 Diversification and sustainable Economic Policy A key challenge of windfall revenues is how to avoid or minimize the possible negative effect that spending from oil revenues could have on the non-oil sectors of the economy. This negative effect usually leads to shrinking of non-oil sector by shifting production from exports while imports stay the same, shifting production from import substitute’s goods and creating additional imports of goods and services. Unlike Nigeria which has seen a near “collapse” of export from the agricultural sector after discovery of oil, Indonesia has achieved tremendous improvement in agricultural production. [33] Other countries such as Angola, Iraq and Equatorial Guinea have also performed poorly in sustaining agricultural development and food security. Agriculture, services and manufacturing sectors are relatively labour-intensive, with agriculture alone employing about 65% of the work force in most developing countries as compared to the extractive industry , Ghana as a major exporter of cocoa, gold and a relatively growing manufacturing sectors should continue to diversify its productions to build a robust economy capable of sustaining oil price volatility.
5. CONCLUSION Ghana, like other developing countries can effectively manage its oil revenue and use the windfalls as an engine for accelerated development through sustainable planning from upstream, midstream and downstream activities. Major challenges for the country would be how to develop the oil and gas industry with optimal local content and participation, how to provide security for the industry and the overall management of potential revenue from oil and gas production. From a lot diverging experiences, Ghana can only do better in areas many countries have failed in relation to the management of exploration and exploitation of crude oil. Given the fact that crude oil and gas as natural resources are exhaustive and temporary, the broad objective of the country should be to use revenues accrued from oil production in support of the non-oil productive sectors in order to achieve a diversified and stable economic growth. The set-up of the national petroleum regulatory authority responsible for the regulation of all petroleum activities and the creation of a future generation fund and stabilization fund to ensure transparency and equity of benefit for both present and future generations are good initiatives. To maximize potentials from the oil industry, these initiatives should be cushioned by building a supporting human resource capacity, technological transfer and strong contractual, regulatory, legal frameworks.

PESTEL analysis of Singapore

The flag consists of a red strip at the top and white strip on the bottom. On the red strip at the hoist, are a white crescent opening to the fly and five white stars.
Anthem:- long live Singapore
Weight and measure:-The metric system is in force, but some local measures are us
Political Aspects:- Singapore in the late 1980s was effectively a single-party state. The ruling People’s Action Party (PAP) of former Prime Minister Lee Kuna Yew has dominated the country since 1959.
Majority function of the PAP in (1961)split was to form a new party, the Socialist Front (SF), also known as the Barisan Socialis. In 1966 11 SF members resigned their seats in parliament and 2 others joined the underground opposition to the Lee government, leaving the PAP as the sole party represented in parliament. Till 1990 they were in the government with Ling How Doong and Cheo Chai Chen. The Workers’ Party MP was Low Thai Khiang.
The two other seats went to J. B. Jeyaretnam (WP) and to Chiam See Tong of the Singapore Democratic Party (SDP), the two main opposition parties that are tolerated but subject to almost continual harassment by the government. For instance, in 1984, Jeyaretnam was accused of making false statements involving irregularities in the collection of WP’s funds; he was acquitted of two of three charges and fined. In 1986 the government appealed the case and the higher court set aside the initial judgment; Jeyaretnam was again fined and jailed for one month, enough to disqualify him from parliament and ban him from contesting elections for five years. On the basis of his criminal convictions he was disbarred and denied a pardon. He was refused permission to appeal against the conviction and sentence that resulted in his disqualification as an MP.
The main opposition parties are the SDP and the WP. Smaller minority parties are the United People’s Front, which is also critical of antidemocratic aspects of the government rule and is pro-Malaysian; the Singapore Malays’ National Organization; and the Singapore Solidarity Party, formed in 1986 by three former leaders of the SDP. There were 22 registered political parties at the beginning of 1993.
In 1997, parliamentary elections were again held and, again, the PAP maintained its virtual monopoly of seats. Of 83 seats up for election, the long-ruling party captured 81 with 47 unopposed. After the election, in a move that has been commonplace in Singapore, leaders of the PAP, including Prime Minister Goh and Senior Minister (and longtime leader) Lee sued Tang for defamation. Tang promptly fled the country, saying he feared for his safety as the government froze his assets and imposed travel restrictions on his family. Jeyaretnam continued to face bankruptcy and the loss of his parliamentary seat as well, from a defamation payment awarded against him for allegedly defaming a PAP parliamentarian and nine other members of the Tamil community in an article written by a colleage in 1995. In the 1997 elections, the SDP lost all three seats it had won in the 1991 round.
In parliamentary elections held on 3 November 2001, the PAP won 82 out of 84 seats with 75.3% of the vote. Opposition candidates contested only 29 .The opposition parties complained that constituency changes and a range of regulations imposed by the PAP made it more difficult for them to win votes. The Parliamentary Elections Act was amended, curbing the use of the Internet for political campaigning and banning the publication of opinion polls during elections.
Economic development:- Economy of Singapore is based on its role primarily and entre pot for neighbor countries. The main reason of it its strategic geographic location and the entrance to the straits of Malacca. The country did not have minerals and other primary products as oil and gases to export but it served a major economic function by transshipping and processing of goods nearby lands. The most significant resource in Singapore in deep water harbors.
In 1960 Singapore government embarked on an ambitious and largely successful program to promote industrial investment from its local market and foreign market. This was a step taken by the Singapore government to break the economic pattern. The aim of this program was to develop industrial estate and to provide industrial financing and technical services.
In the starting of 1980s Singapore built an diversified economy 1980s, Singapore had built a much stronger and diversified economy which gave it an economic importance in Southeast Asia out of proportion to its small size. In first half of the 1980s government plans to realigning industrial activities from traditional labor- incentives, low wage activities to capital intensive, high-wage and high-technology activities, notably the electronic industries and oil refining. In 1985 Singapore’s economy declined for the first time in 20 years. The reason behind declining the economy was high wages and slumping demand for oil and electronic products and the economic woes of Malaysia, which made Singaporean products less competitive on the world market.
After 1980s Singapore started to diversify its economy to make it capable to provide manufacturing, financial, and communications facilities for multinational firms. That time the one of the fastest growing sector in the economy was international banking and finance for some 25% of GDP. It ranked behind Tokyo and Hong Kong amongst financial service centers in the Southeast Asia region. In 1989 earnings from manufacturing accounted for 30% of GDP.
In the 1990s Export growth in high-technology manufactured goods signaled. Success of the country shifted to the higher value added production due to increase in productivity as par increase in labor cost. Largest share in the economy was the electronic manufacturing industry. Manufacturing was dominated by the production of computer peripherals and oil processing. Between 1992 and 1995 property prices double and reached at their peak in 1996. In the five years 1993 to 1997, GDP growth averaged8.84%. In June 1997, GDP growth rate dropped due to revert of the Chinese rule by Hong Kong triggering the Asian financial crisis. In Singapore, GDP growth dropped to 1.5% in 1998 and residential property prices fell 40%. Singapore’s sensitivity to the external economic environment, with trade running 300% of GDP, is extreme.
Singapore weathered the crisis and without a contraction in 1999 its growth had recovered to 5.4%. Driven by the world-wide boom in IT demand and robust recoveries in domestic consumption and investment, GDP growth soared to9.9% in 2000. However, the dot.com bust in 2001 to the economy’s first yearly contraction since 1985, of 2%. Recovery of GDP 2002 was not much rapid due to continue low export demand as the growth of the country was positive 2.2% in that year. Projections for 2003 are for only a 4.8% growth.
Other constraints on Singapore’s economic performance are labor shortages, rising labor costs, and the declines of productivity-although in by the second and third quarter of 2002, gains in productivity were averaging 6.1% compared to decreases averaging 7.75% in the last half of 2001. Singapore maintains one of the most liberal trading regimes in the world, and has regularly been ranked one of the least corrupt and most competitive countries.
The government is a major and active player in the economy, owning substantial productive assets (land and capital). The government directs and targets the economy through laws, regulations and incentives, and participates in business ventures through Singapore’s unique hybrid, the government-linked company (GLC).
There was no inflation in 2002, as consumer prices show mild deflation (-0.4% to -0.9%) in 2002. Unemployment rose to 4.7% in 2001, and remained above 4% throughout 2002, a high level for Singapore. Per capita income estimate in terms of purchasing power was $24,700, as it was the highest in the world economy at that time.
Environmental aspects:- Environmental responsibility is vested. As air act which maintain air quality was adopted in 1971 and amended in 1975 and 1980 by the clean air regulations. Environmental responsibility for Singapore is vested in the Ministry of the Environment and its Anti-Pollution Unit. Air pollution from the transportation is main problem in the nation’s growing urban areas. In 1992, Singapore was among 50 nations with the world’s highest levels of industrial carbon dioxide emissions, which totaled 49.8 million metric tons, a per capita level of 17.99 metric tons. In 1996 it rose to 65.8 million metric tons.
Water Pollution Control and Drainage Act made in 1975 and the Trade Effluent Regulations of 1976, which control water quality. Singapore does not have enough water to support the needs of its people. The nation hardly have about has 0.1 cubic miles of water. 4% of it is used for farming and 51% for industrial purposes. Pollution from the nation’s oil industry is also a significant problem, and its cities produce about 0.9 million tons of solid waste per year. As to solve the problem of water shortage waste water is treated and recycled to conserve water supplies.
Singapore has lost 20 to 30% of its original mangrove area. In 2001, two plant species, six mammal species, and nine bird species were considered to be in danger of extinction. Ridley’s leaf-nosed bat, Chinese egret, yellow-crested cockatoo, batagur, tigers, and the Singapore round leaf horseshoe bat are in endangered mammal species in Singapore.
Social development:- For social development Government-provided social welfare services. They are directed by the Ministry of Community Development, which is often assisted by various voluntary organizations, most of them affiliated with the Singapore Council of Social Service. Besides institutionalized care, the Ministry of Community Development administers foster and homemaker service schemes for needy young persons.
In January 1986, the government operated 88 child care centers and three welfare homes for aged and destitute persons. Social welfare assistance is also provided by mutual-benefit organizations and voluntary services.
Employees who are earning more than $500 per month must contribute to the Central Provident Fund, a public pension and retirement program which provides lump-sum benefits for old age, disability, death, sickness, and maternity. Retirement is at age 55. Employee contributions are based on income; employers pay 10% of monthly earnings. If employees earn less that S $200 per month, they are exempt from contribution requirements.
There is a special system for public employees, and employers may choose a private plan if approved. Employers also fund workers’ compensation benefits for job related injuries. In addition, employers are required to provide 14 days of paid sick leave and eight weeks of paid maternity leave to their employees.
Women’s legal rights are equal to those of men in most areas, including civil liberties, employment, business, and education. Women comprise 42% of the labor force and are well represented in the professions. Despite the legal principle of equal pay for equal work, women earn approximately 75% of the average male salary.
Prison conditions are considered to be good, but there are reports of the mistreatment of detainees. Caning is a common form of punishment for many different offenses. Cases of police abuse are generally investigated by the government and reported in the media. Freedom of assembly and association are restricted.
Technological development:- Earlier 1950s, it was obvious that prospects for economic growth would be severely limited if Singapore remained bound by its old economic role as enter pot. The decision to industrialize and to do so rapidly was deliberate policy.
Initial government started economic development program was upon employment. The increasing trend toward economic self-sufficiency in neighboring Indonesia and Malaysia-and the steady retreat of the UK from defense responsibilities in the region as a whole prompted the government to focus completely on finding alternative employment for the island’s highly skilled and disciplined workforce. By the end of the 1960s, this problem was effectively solved, with Singapore boasting one of the lowest unemployment rates in all of Asia.
In mid 1970s the emphasis was on labor skills and technology, as these were identified with such modern industries as machine tools, petrochemicals, electronics, and other precision work especially. A high level of participation by private foreign capital provided an important cornerstone to this development. In 1979, the government abandoned its earlier policy of stimulating low-wage industries and adopted a policy of encouraging capital-intensive and technologically sophisticated industries.
The government of Singapore in 1980s especially target on investment promotion were computers, computer peripherals, electronic medical instruments, automotive components, specialty chemicals and pharmaceuticals, and optical and photocopying equipment. I the year 1985-86 the government concentrated on developing new markets and on turning Singapore into a manufacturing, financial, and communications center for multinational corporations as following the recession.
In the 1990s the economic development strategy emphasized both the manufacturing and service sectors and in 1961 government formed The Economic Development Board (EDB) to guide Singapore’s industrialization. Early emphasis was placed on promoting investment in manufacturing.
To focus on education and human resources and to enhance export competitiveness government started The Strategic Economic Plan (SEP) in 1991. The Creative Business Program promotes investment in the film, media, and publishing, arts and entertainment, textile, fashion and design sectors. Currently the EDB works toward Singapore’s vision of its future as a developed country through the promotion of business.
Singapore’s globalization strategy hinges on making a transformation from a production-driven economy to an innovation-driven one. Other key elements of this strategy are the reversal of downward trends in productivity, and sustaining foreign investment in Singapore’s capital investment. Singapore initiated the formation of a growth-triangle, linking Johor, Malaysia, Singapore and Indonesia’s Riau province focusing on Batam Island. Singapore benefits by tapping a supply of low-wage workers and offshore land to sustain its more labor-intensive industries.
Draw back- The Asian financial crisis and rise in Singapore’s currency were the two foremost draw backs in its in economic history. Roadblocks to further economic development include rising labor costs; which have threatened investment in Singapore’s industrial sector, causing the government to implement strategies to cut costs and increase productivity. The rise of Singapore’s currency has also prompted the dispersion of new industrial enterprises from the country, which the government has answered by promoting the development of high-capital industries.
The collapse of the dot.com bubble in 2001 presented a more serious challenge, particularly as subsequent events-the 11 September 2001 terrorist attacks on the United States and global uncertainties attending the confrontation with Iraq-have resulted in continued low export demand. As of 2003, the Singapore economy was set to register its second year of positive growth of 4.8%, at that time government has not made any fundamental adjustments in its economic development strategy.
Legal and policy environment:- Singapore government believes that the growth of electronic commerce requires transparent market favourable regulation and legislation in certain areas. The legal regulatory and business environment required to support industry development and growth in the economy.
Singapore has introduced a number of e-commerce policy initiatives E- Commerce programme was introduced in 1996 to develop the e-commerce services. Cross border e-commerce laws and policies.
Basic legal and technical infrastructures to support secure and reliable e-commerce have been in place since 1998.
Electronic Transactions Act
Intellectual Property Rights
Amendments to the Evidence Act
Content Regulation
Tax Issues
Import and Export Procedures
Electronic transitions act This act was made in July 1998, to enact to provide a legal foundation for electronic signatures, and gives predictability and certainty to contracts formed electronically. The ETA addresses the following issues:
Commercial code for e-commerce transactions – This act was enacted in order to create a predictable legal environment for EC and clearly define the rights and obligations of the transacting parties. It also deals with legal aspects of electronic contracts, use of digital signatures, concerns for authentication and non-repudiation.
Use of electronic applications and licences for public sector – In order to promote a culture of use of electronic transactions in the public sector, the ETA contains an omnibus provision through which Government departments and statutory boards can accept electronic filings without mending their respective acts. It also allows public bodies to issue permits and licences electronically.
Liability of service providers – Singapore recognises the importance of service providers in providing information infrastructure and content. The government also realises the impracticality in having service providers check all content for which they merely provide access. To create a transparent legal environment conducive to the growth of service providers, the ETA specifies that service providers will not be subject to criminal or civil liability for such third- party material. The clause, however, will not affect the obligations of a network service provider under any licensing or other regulatory regime established under the law.
Intellectual Property Rights In order to strike a balance between the protection of rights for copyright owners and increased public access to intellectual property, Singapore has ensured that its intellectual and copyright laws are harmonised with underlying principles in global IPR laws.
Amendments to the Evidence Act The Evidence Act was amended in 1997 to allow the use of electronic records as evidence in the courts.
Computer Misuse Act- The Computer Misuse Act defines a class of critical computer systems and provides them with greater protection. To deal with new potential abuses of computer systems, the Computer Misuse (Amendment) Bill 1998 was introduced in Parliament on 1 Jun 1998. It was passed on 29 Jun 1998 and came into force on 1 Aug 98.
The amended act takes a more sophisticated approach to provide for enhanced penalties proportionate to the different levels of potential and actual harm caused. It also addresses new potential computer abuses such as denial or interruption of computer services and unauthorised disclosure of access codes.
Tax Issues- There are two areas of tax laws in relation to e-commerce, Income tax and Goods and Services Tax (GST).
Whether or not a company needs to pay income tax on its business activities conducted on the web very much depends on the broad principle of an operations test.
Porter’s Diamond points of Singapore:- Factor conditions:- There are two main factors; first basis factors include natural resources, climate, location, unskilled and semiskilled labour and debt capital.
The second advance factor includes modern communications, in fracture and highly educated personnel. Since Singapore is not a developed country, due to increase in wages Singapore is investing in china and the south East Asian countries where labour is cheap.
Attraction of FDI from advanced countries will the best way to obtain access to modern technologies.
Demand conditions- Growth rate of home demand can be more important to competitive then its absolute size. Rapid domestic growth leads to a nation’s firm to adopt new technologies faster with less fear. It can be hypothesized that a higher level of education of the consumers increase demand sophistication.
The size of sophistication of demand is measured by annual growth and an education index respectively. Though Singapore is poor natural resource country, therefore only labour is considered as a determinant for the state of the factor conditions.
Related and supporting industries: – Industries are more supporting in the case when local supporting industries are competitive and more cost effective.
As Singapore is not a developed country so there are not too much competitive MNCs in Singapore. The suppliers are also not strong global competitors
Firm strategy, structure and rivalry: – The final determinant of a nation’s competitiveness reflects the context in which firms are created, organized and managed. National advantage may result from a good match among these variables.
The successful firms of Singapore are more concerned about international rivalry than about domestic rivalry.

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