A Tale of Two Countries – Singapore Vs. Malaysia

Recently there was an article in the Legal Affairs magazine about Malaysia. The article mentioned that researchers have concluded a country’s legal system is a major that determines its success or failure in overall growth. Thoughtfully they agreed that this factor was in addition to other traditional factors like political system, economic policies, etc.

The article mentioned that Malaysia has advanced so much when compared to Indonesia though they share many things in common such as Islam as the main religion, former colonies of major powers, commodity based economy, etc. The reason for Malaysia’s success was attributed to its legal system which is based on the British legal system since Malaya used to be a colony of Great Britain.

On the other hand, Indonesian legal system is based on the Dutch legal system. Holland used to be the colonial master of Indonesia.The Dutch legal system is based on the Napoleonic French legal system which is considered inferior to the British one. Hence Indonesia which followed the Dutch system remains a poor country whereas Malaysia has prospered after Independence from UK.This kinda made me thinking about another question:

Why does Malaysia lag Singapore in terms of economic growth?

Singapore is a tiny island city state neighboring Malaysia. But Singapore is today considered a first world country where Malaysia falls under the emerging market category.

I think Malaysia lags Singapore in many aspects because of its political system which is influenced heavily the predominant religion. Malaysia has been unable to invest and promote high tech “knowledge” based industries such as IT. The famous Petronas Towers in Kuala Lumpur was built to house many of the IT and other hi-tech companies that were to start operations. But that never materialized and today the majority of the building is occupied by the oil company and other regular foreign multinationals. Today Malaysia remains a commodity driven economy based on oil palm and other natural resources. Malaysia recently discovered oil offshore and hence is a net exporter of crude oil. Malaysia is an example to prove that a country does not need more land or people to become a first world nation.

Singapore has not much land at all. The island can be crossed from one end to the other in less then 30 minutes. The population is small as well. When Singapore broke off from Malaysia and became an independent country, it implemented many successful economic policies the fruits of which are evident today. The country is not democratic by any means. It is tightly ruled by a kinda of dictatorship but there are some freedoms. Media is heavily controlled by the government. However Singapore invested in the right industries such as marine shipping, finance, IT,trading, etc. to become a global powerhouse today. Many top banks of the world are setting up shops in Singapore as it tries to attract capital from other capital friendly locales like Switzerland, Isle of Man, Bermuda,etc. The country’s success can be attributed to its statesman Lee Kuan Yew who implemented the economic policies when he ruled the city state with an iron fist for many years.

Comparison of ETFs – EWS Vs. EWM:

The iShares Singapore ETF has an asset base of about $1.5B compares to iShare’s Malaysia ETF EWM which has asset size of only $479M. About 50% of EWS are made up of financials. EWM has about 30%. YTD EWS is down 8.6%. EWM is down 17.6% YTD due to the crash in commodity prices world-wide.

The 5-Year Performance Chart of EWS, EWM and S&P 500 Index:


Due to the reasons mentioned above, Singapore is a better investment destination than Malaysia. Readers – What is your opinion?.

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  1. Your analysis is insightful, but left out some other key factors: 1) Size – Singapore’s small size has proven to be more of an advantage than a hindrance for the simple reason that it’s much easier to build a top-notch infrastructure throughout your county when your country consists of one small island as opposed to 125,000+ square miles spread over two discontiguous land masses. 2) Colonial inheritance – Singapore was the chief port and administrative center during the British colonial period. Thus, Singapore inherited these infrastructure assets upon independence. It remains the chief port in the region today. 3) Political system – Malaysia is a federal republic where the central government must negotiate with multiple quasi-sovereign sultanates, kingdoms, monarchies and states. Singapore is a unitary state where the government can implement development planning from the top down. None of these factors are related to religious differences between Malaysia and Singapore

  2. Well glad it “kinda makes you thinking about things”, as you have written in your own words. Maybe you would like to “kinda go to school” before running your fingers and saying that Singapore is a dictatorship.

    We vote, we complain and we do a lot of political debates in Singapore. And the Singapore government has been ranked the least corrupt and most transparent in the world by all measures. We get all kinds of news in Singapore and even prostitution is legal in the gazetted red light districts. And we have the highest GDP per capita in the whole of Asia, above Japan.

    Keep scraping the bottom of the pot for more dirt to throw about how repressed Singaporeans are.

    We know you are jealous. Just watch as we rise further. 15% GDP growth this year.

    Singaporean male.

  3. i agree about your insight but the reason in my opinion that singapore is better than malaysia is because they are not corrupted. Have you been to sarawak? There are so many poor people. Our politicians take kickbacks and our land like thieves of the night. You can judge a country not by their economy but by their leaders. We malaysians are so blinded that we can’t see what’s happening yet the rest of the world can.

  4. Thanks Malaysian atheist for your comment. I agree with your comments though not fully.I would say that a country’s economy is a reflection of its politicians actions. Singapore is a classic example where a true leader led the country to development and new leaders took charge in maintaining the lead. Of course people’s cooperation was also needed in making the country better. Corruption is a major problem in Malaysia. Recently I learned from a friend who stayed there that everyone seems to take bribes to get things done and he was very frustrated. Definitely the attitude of Malaysians towards obeying laws have to change.Nope I have not been to Sarawak. Thanks.

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