Economically, the United States broadest and deepest connections in the ASEAN region are not with its largest economy, Indonesia, or with the Philippines, Washington’s former colony. Rather, they are definitively with the small city-state of Singapore. This despite the Indonesian population being over 40 times larger than Singapore’s and the Philippine population close to 20 times larger. Not only are the economic links with Singapore already the most significant, they are bound to grow even more, given the strong economic complementarities between the two Pacific economies. The US economic rebalance to Southeast Asia is to Singapore.
Fortunately, what is good for Singapore and the US is also good for Southeast Asia as a whole. Singapore’s historic role as an entrepot economy has long positioned Singapore as the economic link between Southeast Asia and the rest of the world as shown by re-exports accounting for 45% of Singapore’s total exports in 2013. Singapore’s successful promotion of itself as a site for MNCs to locate their regional headquarters also means that an increasing amount of FDI into Singapore is for companies to expand their presence in the region as a whole, meaning that these headquarters in effect account for a growing share of Singaporean FDI to Southeast Asia.
A quick look at the latest USTR trade statistics give witness to the power of complementarity over size. In 2012, Singapore alone accounted for close to 45% of total US exports to the region and the $43 billion dollars of exports to the city-state were close to three times more than the next largest Southeast export market, Malaysia at $15 billion. Singapore’s top billing as a services market is even greater as the United States exported $12 billion to Singapore, more than the US service exports to other nine Southeast Asian economies combined.
The two-way investment story is even more disproportionately large in regional comparison. The stock of Singapore foreign direct investment (FDI) in the United States is estimated by the USTR at $26.2 billion. This is 21 times larger than the FDI stocks in the United States of the other nine regional economies combined. Malaysia has the second largest stock at a modest $662 million, equal to 2.5% of the Singapore stock.
US FDI flows to the region tell a similar Singapore story. From 2011 to 2013, using US Bureau of Economic Analysis figures, flows to Singapore at $51.7 billion dwarfed by seven times US flows to the rest of Southeast Asia. The US de-invested by over a billion dollars in the Philippines during this period, while Indonesia only received 4% the amount of US FDI of Singapore, and Malaysia brought in 9%. According to ASEAN statistics, while Chinese FDI flows to the region as a whole in this period almost matched US ones and Japanese flows were over twice as large, the United States invested much more in Singapore than any other national economy. According to Statistics Singapore, from 2010-2012, US FDI to Singapore increased by $39 billion, more than three times greater than the second largest investor, the Netherlands, and almost seven times more than the largest Asian investor, Japan.
The key factor explaining this huge upsurge in US investment in Singapore and Singapore’s predominance in US economic relations in Southeast Asia is Singapore’s rapid move towards a services-based domestic and external economy and the US’ global leadership in services exports and investment. The growth in regional headquarters based in Singapore is part of this structural shift. In 2012 alone, Singapore’s manufacturing sector lost $13.6 billion in total FDI (9.6% of total stock), while the financial services and insurance sector saw net inflows of $64.2 billion (21.7% of total stock). From 2012 to 2013, the share of manufacturing in the Singapore GDP fell by 1.6% to 18.8% while that of services grew by 1.4% to 70.3%. US FDI in Singapore is heavily concentrated in these growth sectors with finance and insurance accounting for close to two-thirds to total US FDI, while manufacturing accounts for less than one-sixth of the total. By comparison, finance and insurance accounts for less than one-third of Japanese FDI in Singapore, while over one-third of Dutch FDI is in the sunset manufacturing sector.
Singapore’s shift to a services economy; its status as a global financial center; its dominance as the location of regional headquarters in Southeast Asia; it having the only free trade deal with the US in the region; and its participation in the Trans-Pacific Partnership (along with Malaysia, Vietnam and Brunei) all suggest that the US-Singapore economic relationship will maintain its regional primacy. For economic reasons alone, the US president should visit Singapore on each Southeast Asian trip. President Obama should consider following in Prime Minister Abbott’s footsteps and seek a “closer economic partnership” with Singapore that builds on the close complementarity between the two economies and on the bilateral trade agreement.
Malcolm Cook is a Senior Fellow at Singapore’s Institute of Southeast Asian Studies (ISEAS).