Qatar and Singapore Major Trade Partners - Coursework Example

QATAR AND SINGAPORE MAJOR TRADE PARTNERS QATAR AND SINGAPORE MAJOR TRADE PARTNERS Introduction When it comes to trade and economic relations, it is said that no country is an island on its own. The implication of this saying is that no country can effectively prosper without identifying key partners it can rely on in terms of trade and economic exchanges and support (AAhad & Tan, 2002). Because of this, countries put a lot of factors into consideration when deciding the kind of trade partners they will have. This is because as much as possible, any two countries going into such trade partnership must ensure that there is some level of mutual benefits that each can get from the other. Because of this need, there are several modalities and avenues by which countries measure the outcome of their trade partnership with other countries. In this paper, the trade partnership between Qatar as a host country and Singapore is brought into very strict academic review in considering and understanding what the macroeconomic influences in Singapore has been since its long term close economic relationship (CER) with Qatar started. The essay will further review how the influences in Singapore has affected the trade relationship between the two countries, particularly in terms of macroeconomic policy existing in Singapore and the impact of this on the larger relationship. By the close of the paper, it should be possible to conclude on whether or not the Qatar-Singapore CER has been a positive development that needs to be continued. Background behind the trade relations between Qatar and Singapore Trade relations between Qatar and Singapore are noted to date back to the early 1970s when trade liberation was an important global phenomenon as globalisation is today (Robinson, 2010). According to Hoffman & Bateson (2006), entering into the new millennium was an opportunity for the trade relations between the two countries to further deepen, given the expanding trade and international relations opportunities that became abundant among various countries of the world. As a host nation of the relations between the two countries, Qatar has been a very influential country to the growth and development of Singapore, especially in terms of macroeconomic development. There are a number of factors that has made Qatar remained an important trade partner with Singapore for several years now. Particularly, follow up activities and globalisation ideas fostered by world organisations such as World Trade Organisation (WTO), United Nations Conference on Trade and Development (UNCTAD) and Economic and Social Commission for Western Asia (ESCWA) can be mentioned as some of the major motivations behind the long standing trade partnership between the two countries (AAhad & Tan, 2002). Between Qatar and Singapore also, there are several non-economic factors that make trade and economic relations between the two countries more viable. Particularly is the issue of proximity, similarities in culture, and human and social demographics. Over the past five years, analysts have described the trade partnership between Qatar and Singapore as one of the most significant in the world, making it deserve all the necessary academic, theoretical and practical attention and discussion it deserves. Such attention and discussion helps in highlighting major strengths and weaknesses in the partnership for the purpose of making prudent economic adjustments. There is therefore much emphasis on the close economic relationship (CER) that has existed between the two countries in the past five years. These past five years have seen significant reforms and policy structures that have come from both sides of the agreement, with the host country leading the park with most of these reforms and policy structures. Particularly, it is known that Qatar has adjusted its international cooperation and trade agreements to focus on three major sections namely World Trade Organisation Section, Regional and International Organisations Section, and Trade and Investment Agreement Section (Pheng & Yuqua, 2011). Under each of these sections, Singapore has featured as an important trade partner, particularly with the trade and investment agreement section. Emphasising the analysis on the past five years, it will be possible to determine how the partnership in previous years have shaped the existing situation and how current trends forecasts a future for the two countries in terms of trade relations and agreements. Major macroeconomic influences on the relationship in Singapore Macroeconomic variables form some of the most important determinants of growth for any country. In this section therefore, six key macroeconomic variables namely gross domestic product (GDP), inflation, unemployment, competitive advantage, balance of payment, and exchange rate in Singapore are discussed in relation to how the country’s trade partnership with Qatar has influenced figures in the past five years from 2010 to 2014. Growth/Recession (in GDP) As of the end of the first quarter of 2014, the World Bank reported that Singapore’s GDP exceeded estimates by expanding at an annualised rate of 2.30% over the quarter that had just past (Trading Economics, 2014). The country has experienced such levels of consistency with growth in its GDP when it come GDP constants such as GDP constant prices, GDP per capita PPP, gross fixed capital formation, and gross national product (Robinson, 2010). Within the past five years, the average GDP growth rate for Singapore is pegged at 5.59%, with the year 2010 experiencing some of the most unstable rate of growths including an all time high of 36.40% in the first quarter and a sharp decline to -13% in the third quarter of the same year. Figure 1 below gives an outlook of Singapore’s GDP growth rate from 2010 to 2014. Figure 1: GDP Growth rate for Singapore from 2010 to 2014 Source: Trading Economy (2014) From the figure, it would be noted that the country has been experiencing positive growth in its GDP, even though the trend of growth has not been very stable. This notwithstanding, Singapore has been described as having one of the rapidly growing economies in the world and having one of the highest GDP per capita in the world (Wood, Miller & Gold, 2010). Relating this impressive performance in growth to the country’s trade relations with Qatar, Pheng & Yuqua (2011) mentioned that the growth has come about because of Singapore’s heavy reliance on foreign trade. Meanwhile, in terms of both port activities and exports of key products like electronic components, Qatar remains an important stop point for the country. Certainly, excluding the trade partnership that has existed between the two countries, which has for example made Singapore one of the world’s most preferred destinations for refined oil due to the oil partnership it has with Qatar would make Singapore record negative growth rates. Inflation Inflation is an important macroeconomic determinant that influences the prices of goods and general attitude towards business, including demand and supply pattern (Mun & Ying, 2009). Because of this, it is important for every country to have an inflation growth rate that can be termed as conducive for businesses to grow and flourish. According to the Statistics Singapore, the first quarter of 2014 ended with Singapore’s inflation rate standing at 2.50% (Trading Economics, 2014). This was below the national average of 2.8, which has been recorded since 1962. Over the past five years, the rate of inflation in Singapore has been described by analysed as being impressive and favourable to the business environment. Below is the average yearly inflation rate for Singapore from 2010 to 2014. Figure 2: Singapore Inflation (Consumer Price) Percentage Source: Trading Economics (2014) From figure 2, it is seen that there have been efforts to keep the country’s inflation rate as low as possible when it comes to consumer prices. Wood, Miller & Gold (2010) also noted that with consumer price inflation down, consumer purchase confidence becomes boasted to engage in more purchases and thereby increasing overall circulation of money in the country. Relating the existing situation to Singapore’s trade partnership with Qatar, Robinson (2010) maintained that trade agreements between the two countries have facilitated efforts aimed at making industries, manufacturers and service providers in Singapore get very cheap and sometimes duty free supply of raw materials from Qatar. Consequently, the overall cost of production has been low, leading to the ability to keep prices of products and services in the country low. Unemployment When unemployment rate in a country is high, it becomes a major distraction to economic growth because productivity becomes low and dependence on government through government spending becomes higher (AAhad & Tan, 2002). Because of this, countries around the world have put in place various interventions and programmes aimed at reducing rate of unemployment very significantly. In Singapore, one of the country’s core macroeconomic strategies to reducing unemployment is by opening up its borders to foreign and international businesses to start foreign direct investments that can employ as many local citizens as possible (Pheng & Yuqua, 2011). Meanwhile, through Qatar’s Trade and Investment Agreements Section of the country’s International Cooperation and Trade Agreements, Singapore has become one destination where a good number of international companies from Qatar are found. Most of these companies are in the area of oil and gas, which remains one of the largest employment sectors of Singapore (Wood, Miller & Gold, 2010). Due to such interventions, Singapore in the first quarter of 2014 recorded an unemployment rate of 2.1-%, which was lower than the country’s average of 2.5% since 1986 (Trading Economics, 2014). Below is a chart giving the trend of unemployment from 2010 to 2014 for Singapore. Figure 3: Unemployment Rate in Singapore from 2010 to 2014 Source: Trading Economics (2014) From the chart, it will be noted that Singapore has managed to maintain an averagely low unemployment rate, which continues to reduce by the years. As of 2013, the unemployment rate country comparison to the world was 12, which means that Singapore is one of the countries with the least employment rates, thanks to an effect trade partnership with Qatar, which makes foreign direct investment easier for job creation (Keng et al., 2014). Comparative/competitive advantage As Singapore relies very heavily on foreign trade for the growth of its national economy, it is important that the country continues to have competitive advantage that will continue to make it a preferred trade partner for most international organisations and countries. Med Tech (2014) notes that Singapore “is currently ranked first in Word Bank’s Ease of Doing Business Index and second in the World Economic Forum’s Global Competitiveness Index.” This means that the country has almost everything it takes in terms of trade and business variables that makes it lucrative destination for trade partners, including Qatar. According to AAhad & Tan (2002), some of the core competitive advantage that Singapore currently has includes an impressive manufacturing output that adds value to individual industries and the economy at large. This situation is depicted in the diagram below. Figure 4: Manufacturing Output for Singapore Source: Med Tech Figure 5: Value Added by Industries Source: Med Tech From figures 4 and 5, it will be noted that a major competitive advantage for Singapore is that it operates an open market economy where every type of industry can see some level of fair growth. Because of this, it is easier for countries and companies around the world to choose Singapore as their international investment destination (Hoffman & Bateson, 2006). It is important to note however that such competitive advantage that makes Singapore a preferred destination for business as against other competitors is largely influenced by its relations with Qatar. This is because most of the leading industries which have welcomed international investments from across the globe benefit from government trade partnership agreements under the Qatar Regional and International Organizations Section that makes Qatar a cheap supplier of raw materials for these industries (Wood, Miller & Gold, 2010). Knowing the importance of cheap raw materials for the growth of industries, one can understand that excluding the Qatar-Singapore partnership would not have made Singapore realise its current position in world trade. The balance of payments In the assessment of the importance of trade partnership between countries, Keng et al. (2014) noted that the balance of payments as a macroeconomic indicator is a very important variable for telling whether the country is making progress in the partnership or not. This is because the balance of payments helps the country to track how much of money is coming into the country, whereby a positive balance of payment is expected over a negative balance of payments. This is because where negative balance of payments exists, the implication is that more money is flowing out of the country and this could easily cause scarcity of cash and affect exchange rate as well (Hoffman & Bateson, 2006). In the case of Singapore, the country’s balance of payments since 2010 has been one of the most impressive in the world, indicating that the country’s trade partnership agreements have been largely positive in ensuring that the country keeps a very fair and favourable current account balance. Meanwhile, what is worrying is that as depicted in the graph below, even though the country has been recording positive current account balance, this has been on the declining urge, especially in the context of 2011 and 2012. Figure 6: Current Account Balance for Singapore Source: Economic Survey of Singapore (2012) By implication, there are a number of interventions that Singapore can put in place in terms of its trade partnership with Qatar to ensure that fund that flow in from Qatar can be increased from its current state. This is because even though current figures are not bad, there remains an opportunity in this area for Singapore. Exchange rates With reference to the trade partnership between Singapore and Qatar, the exchange rate of Singapore can be affected negatively if Singapore becomes over dependent on Qatar in terms of importation of raw materials without taking advantage of the trade agreements to also export to Qatar. In such a situation, there will be a devaluation of the country’s currency, not just against the currency of Qatar but against all other major trading currencies, given the fact that most international trade transactions are done in Euro, Dollar or Pound Sterling (Wood, Miller & Gold, 2010). Meanwhile, in its current state, 1 SGD is equivalent to 2.905 Qatar Riyal, which means that the value of Singapore’s currency is higher than that of Qatar. Below is a table giving a detailed May 24 exchange rate between the Singapore Dollar and other major trading currencies. Singapore Dollar 1.00 SGD inv. 1.00 SGD Euro 0.585399 1.708238 US Dollar 0.797989 1.253150 British Pound 0.474059 2.109440 Indian Rupee 46.638470 0.021442 Australian Dollar 0.864490 1.156751 Canadian Dollar 0.867294 1.153011 Emirati Dirham 2.930958 0.341185 Swiss Franc 0.714631 1.399323 Chinese Yuan Renminbi 4.976579 0.200941 Malaysian Ringgit 2.563140 0.390146 Source: X-Rates (2014) From the table, it will be noted that there are only few major trading currencies that the SGD is weak against, indicating a favourable international trade deal whereby Singapore gets the opportunity to protect its currency against unfavourable exchange rate values. Macroeconomic policy and how they affect trading in the two countries Fiscal policy and how it might affect trading Like with almost all other countries, the fiscal policy of Singapore is such that it regulates how the revenue collected by government in the form of taxation is expended to influence the country’s economy (Johnston & Clarke, 2008). Specifically in Singapore, the Monetary Authority of Singapore (MAS) which is the country’s major monetary authority focuses government’s expenditure on the “delivery of essential public goods and services to Singaporean” (Singapore Government Securities, 2014). In line with this, the fiscal policy of the country has always focused on such areas as education, public housing, health care and national security for short term and medium term basis (Singapore Government Securities, 2014). This means that the government is focused on ensuring that the local people have what it takes to live a successful and comfortable lifestyle that is free from all forms of economic constraints. True to this, Mun & Ying (2009) indicated that Singapore remains one country where citizenry have the most fulfilling economic outcomes for their lives. Whiles forecasting the fiscal policy for the country, Keng et al. (2014) indicated that no major changes are expected to be experienced from what currently exists. There are a number of ways that the short to medium term goals of the country’s fiscal policy affects its tre relations with Qatar. In the first place, the concentration of the government on educational development is a very important idea for ensuring that the country has the kind of skilled and trained labour to man the labour force that must exist for investment projects and undertakings in the country. Consequently, FDIs coming from Qatar do not have to worry about the need to exporting skilled labour from Qatar and other countries, as this is an expensive option to recruitment. What is more, the government’s fiscal policy has resulted in building and maintaining world-class economic infrastructure and services. Meanwhile, the evidence of the usefulness and importance of such infrastructure and services development for the growth of industries for the expansion of FDI is very clear. This means that through fiscal policy, Singapore has laid foundation for the successful and sustainable growth of its trade relations with Qatar. Monetary Policy and how it might affect trading Generally, the monetary policy of Singapore represents how monetary authorities regulate the supply and flow of money within the country. In Singapore, the Monetary Authority of Singapore (MAS) is the body responsible this task. Currently, the goal in short to medium term monetary regulation has focused on managing the SGD exchange rate against a trade-weighted basket of currencies of countries that form the country’s major trading partners and competitors, including Qatar as a partner (Singapore Government Securities, 2014). As a result, an open capital account is currently practiced. Clarke (2008) also explained that in such a situation that open capital accounts are managed, the forecasted impact is that there will be sufficient liquidity in the country’s banking system so as to ensure that banks in the country meet their demand for reserve and settlement balances. Apart from the focus on foreign exchange in the short to medium term, there is also emphasis of the MAS on the money market operations within the country and the need to regulate factors and considerations affecting these operations. As matter of fact, the impact of the monetary policy in Singapore is enormous, particularly when it comes to how it affects trading with Qatar. This is because in such a monetary policy where the emphasis is on exchange rate and money market operations, Mun & Ying (2009) observed that domestic interest rates and money supply become endogenous. This means that the interest rates and money supply become determined by internal monetary factors rather than external shocks. Consequently, investors and businesses can be assured of regular supply of money that comes at highly affordable interest rates. Noting the trade exchanges between Qatar and Singapore, which is highly dependent on foreign direct investment in Singapore, such low interest rates for borrowing from the banks is necessary to serve as incentive for businesses to strive and grow. In effect, Singapore can be said to be using a monetary policy that rightly considers the interest and needs of businesses and investors from Qatar, knowing that Qatar has been an instrumental and influential part of the country’s trade partnership for several years. Conclusion The discussions have been very useful in establishing the current place of Singapore’s trade partnership with Qatar in one of both country’s longest CER. Very importantly, it has been established that there are several areas of macroeconomic variables that Singapore has benefited positively from its trade with Qatar. Even though the values discussed in the study did not single out figures from Qatar due to the macroeconomic nature of the variables, it has been possible to relate the trade partnership in each case of gross domestic product (GDP), inflation, unemployment, competitive advantage, balance of payment, and exchange rate to the trade partnership. At this point, it can be concluded that Qatar as a host nation in the partnership has been a great influence on Singapore in terms of actively engaging in trade partnership agreements that make it possible for Singapore to rely on Qatar as a market destination for most supplies needed to run and power Singapore’s industries. There have also been very specific trade transactions between the two countries, leading to improved flow of cash into Singapore. With this noted, there are a number of opportunities that were identified, which Singapore is yet to explore thoroughly. One of these has to do with balance of payments, where it has been found that the declining nature of statistics could be disturbing to Singapore in the nearest future. In terms of macroeconomic policy also, there have been good monetary and fiscal policy in Singapore that gives very bright forecast for productive trading between the two countries. It will therefore be to the advantage of both countries that their trade partnership continues. References AAhad, M.O.G. & Tan, J.S. (2002). Influence of culture on negotiation styles of Asian managers: An empirical study of major cultural/ethnic groups in Singapore. Hoboken, United States: Wiley Periodicals Inc. Economic Survey of Singapore (2012). Balance of Payments. Retrieved from http://www.mti.gov.sg/ResearchRoom/SiteAssets/Pages/Economic-Survey-of-Singapore-2012/Ch7_AES2012.pdf Hoffman, K. D., Bateson, J. E.G. (2006). Services Marketing – Concepts, Strategies, & Cases. (3rd ed.). Mason: Thomson Higher Education Johnston, R.& Clark G. (2008). Services Operations Management – Improving Service Delivery (3rd ed.). Essex: Pearson Education Limited. Keng, A. K, Kwon, J., Kuan, T. S. & Jiuan, T. S. (2004). Understanding Singaporeans Values, Lifestyle, Aspiration and Consumption Behaviors. Singapore: World Scientific Publishing Co. Pte. Ltd. Med Tech (2014). 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