Singapore Defence and Security Report Q4 2010

Singapore is one of the most stable countries in the world, with the People’s Action Party (PAP) having ruled since independence in 1965, and we do not envisage the PAP’s displacement over the coming decade. Although elections are held every four to five years, the PAP continues to win almost all parliamentary seats, meaning that in practice Singapore is a one-party state. The PAP derives its support from having transformed Singapore from a relative backwater in the 1960s to one of the world’s most advanced economies, with major hi-tech industries, a dynamic financial centre and a thriving port. The PAP also maintained social harmony after race riots in the 1960s.

The PAP’s long-term political challenges are, firstly, maintaining the strong performance of the economy; second, developing a willingness to accommodate opposition parties; and third, engaging the concerns of the younger generation. Singapore does not have credible opposition parties, meaning that should the PAP’s support falter, there is no-one to take its place. The PAP could lose support if it fails to take into account the needs of the younger generation of voters, who have been voicing their concerns on the internet.

Singapore’s real GDP growth was a massive 19.3% y-o-y in Q210, according to advance estimates by the Ministry of Trade and Industry (MTI). Accordingly, we have increased Singapore’s 2010 growth forecast to 12.9% (a significant markup from the previous projection of 7.0%), making Singapore the best performing Asian economy this year. However, the economy likely peaked in H110 and will shrink in H210. Going into 2011, we are projecting a muted 3.3% growth, noting that global growth is likely to remain weak.

Generally robust economy is by far the main reason for the PAP’s continued rule. However, with Singapore having caught up with developed economies, maintaining competitiveness is going to rove difficult. With labour costs rising, it is conceivable that Singapore could become uncompetitive and that jobless rates could begin to increase. Should this happen, the PAP could come under growing criticism.

Piracy in South East Asia is still a major security issue, especially in the Malacca Strait and waters around Indonesia, near Singapore. The Strait is one of the world’s main maritime ‘chokepoints.’ There are fears that terrorists could block the channel. Nine attacks were recorded in the South China Sea in this region from August 16 to September 2. Since February, 26 attacks have taken place in this region. In 2009, there were only seven for the whole year.

Singapore remains a potential target of South East Asian Islamist militant groups such as Jemaah Islamiyah (JI), due to its proximity to Indonesia and Malaysia. Although there have been no known terror plots against the city-state since December 2001, Singapore would be an attractive target, due to its status as a major international financial centre and trading hub. Any terror attack involving immigrant operatives could substantially raise inter-ethnic tensions.

On February 2, Krauss-Maffei Wegmann (KMW) announced the establishment of a subsidiary in Singapore, named KMW Asia-Pacific, to be a regional hub for the company’s activities in the region. KMW is the market leader in Europe for armoured tracked and wheeled vehicles. Singapore purchased KMW Leopard 2A4 main battle tanks and support systems from Germany in 2006, for which KMW will continue to train workers from local company ST Kinetics.