The FDI angle

• Despite its many economic successes, Singapore has yet to develop a fully-fledged entrepreneurial culture.
• The government supports start-ups in strategic areas like water, developing key technologies and entrepreneurs.

Why it matters: Government-backed initiatives are pivotal for fostering innovation and ensuring Singapore’s continued global economic leadership. Encouraging risk-taking and entrepreneurship will sustain long-term economic success.

Singapore’s economic progress over recent decades is the envy of the world. The city state managed to overcome a seemingly bleak outlook at independence in 1965 to become one of the most important hubs in the global economy. Its transformation is such that governments from Beijing to Brexit Britain have attempted, with varying degrees of success, to emulate its model.

The so-called Singaporean miracle is typically credited to a farsighted government that has imposed discipline and cultivated a highly educated workforce, while also welcoming talent and investment from overseas. But, perhaps ironically for a country that has accomplished such an audacious rise, risk-taking is not perceived to be a core part of Singaporean business culture. Relatively few Singapore-based entrepreneurs have gone on to found globally recognisable companies.

Yeo Chai Meng, deputy CEO at ZWEEC, a Singaporean water technology company, says that Singapore became “more conservative” after independence. Many university graduates came to prefer the “iron rice bowl” of a secure job with the government or a major corporation, he says, rather than the uncertainty of life as an entrepreneur.

More recently, however, the Singaporean government has ramped up efforts to boost its start-up ecosystem. A plethora of initiatives are underway to encourage entrepreneurs, particularly in strategic sectors such as cleantech, artificial intelligence (AI) and biotech. Grant funding is being made available to start-ups through multiple public sector bodies as the government seeks to ensure that Singapore remains a leader in innovation.

Incubating innovators

One of the organisations supporting start-ups is Ripple2Wave, an incubator partly funded by investment promotion agency Enterprise Singapore. Ripple2Wave focuses specifically on companies in the water sector — a sector that carries a special significance in Singapore, given the island country’s deeply held sense of vulnerability around its water supply.

Tan Yuan Jin, business manager at Ripple2Wave, notes that it is not easy to be an entrepreneur in an environment where risk-taking is sometimes frowned upon. But he emphasises that stereotypes around the country’s risk aversion do not tell the whole story — as shown by the fact that a growing number of Singaporeans are “willing to take risks” and move out of their comfort zones.

Ripple2Wave believes that start-ups can play a key role in providing solutions around industrial water management, aquaculture and wastewater disposal. Compared to more established companies, Mr Tan says start-ups tend to produce “more competitive solutions” and focus on “greenfield” technologies.

In common with other business promotion initiatives, Ripple2Wave specifically focuses on helping start-ups to “seek their fortune” in international markets. The ultimate aim, says Mr Tan, is to “position Singapore as the global leader” in managing water resources.

Indeed, despite Singapore’s many economic successes, the limited scale of the Singaporean market is often listed as one of the reasons why entrepreneurs are hesitant about establishing start-ups in the city state. For those that do, a global outlook is essential.

ZWEEC is one of the companies that worked with Ripple2Wave and has grown into an international business. The company’s technology for monitoring threats to water safety using AI is now being used in Singapore itself, as well as in markets including Abu Dhabi, China and the US. 

“What we want to do is, of course, go to more countries,” says Mr Yeo, noting that the Singaporean government has been “very supportive” through providing travel grants to help it explore new overseas markets.

And Mr Yeo believes that ZWEEC’s success fits into a broader re-emergence of entrepreneurship in Singapore. “Nowadays, for the younger people, the mentality has changed,” he says, noting that the economic security built-up over previous generations makes risk-taking more viable for recent graduates.

Breaking free

Despite its struggles in building a start-up culture, Singapore does have obvious advantages for entrepreneurs with a global vision. As well as possessing a business-friendly government, Singapore is a regional and international hub for trade and logistics.

“Singapore has an excellent ecosystem for incubating new technology,” says Tulika Raj, CEO of SunGreenH2, which uses nanotechnology to produce materials that enable electrolysers to operate more efficiently. 

SunGreenH2 has been an international business from the start. Research and development takes place in Australia and the first commercial test of its technology is currently underway in Spain. Ms Raj says, however, that Singapore was the ideal location for the company’s headquarters and for some of its manufacturing activities, which it eventually hopes to scale worldwide. 

The ability to partner with global companies that operate in Singapore — notably in the maritime sector — is a key reason for basing the company in the city, says Ms Raj. “While Singapore itself is not the largest market for green hydrogen, it’s an excellent place to testbed, demonstrate and then launch partnerships with some of the local Singaporean conglomerates who have presence in global markets.”

SGInnovate, a government-owned body that invests in tech start-ups, was an equity investor in the company’s seed round, while the Energy Market Authority also provided grant funding. 

Despite Singapore’s strengths, it will not be easy to overcome the obstacles to growing its start-up ecosystem. SGInnovate’s report for 2023 shows a decidedly mixed picture. Funding for early stage tech start-ups rose by an impressive 59% year-on-year across the four sectors that it covers — advanced manufacturing, agrifood, sustainability, and health and biomedical sciences. But only 25 companies in these sectors were incorporated in 2023, compared to 35 a year earlier.

In a reflection of global trends, total equity deal value for Singapore-headquartered firms fell by almost half from a peak of $11.33bn in 2021 to $6.10bn last year, according to Singapore Enterprise data. 

And it is hard to escape the thought that the growth of Singapore’s start-up ecosystem is heavily dependent on continued government support. In a business culture that has an ambiguous relationship with risk-taking, government agencies play a vital role in keeping start-ups afloat until they can convince private capital to invest.

This even has a physical manifestation in the form of the ‘one-north’ complex built by industrial park operator JTC Corporation to the west of the central business district. This sprawling campus of futuristic offices, laboratories and research centres has taken shape over the past two decades as part of a government masterplan to encourage high-tech innovation. Facilities have been developed to serve start-ups in multiple sectors, such as the ‘Biopolis’ complex for biotech companies.

While continued government backing seems assured for the time being, in the longer term the start-up ecosystem will need to prove it can sustain itself organically. The stakes are high. Shifting towards a more innovative and entrepreneurial economy will be essential if Singapore is to continue its remarkable run of success.

Ben Payton is a freelance journalist based in London.

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This article first appeared in the August/September 2024 print edition of fDi Intelligence.