Aruba Caribbean Hub

Paper Caribbean University • Aruba, Caribbean Hub • Master Planning the Singapore Way • Remo Kock • January 2005

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ARUBA, CARIBBEAN HUB

Master Planning the Singapore Way

Remo Kock MBA Masterclass International Marketing and Business Caribbean University, Aruba Palm Beach, January 2005


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1.0. Preface

Summary The paper examines the possibilities for the Island of Aruba to make use of a economic Master Plan to diversify its market. It focuses on issues like economic hub, logistics hub, knowledge economy, similarities of economies, captive insurance, as well as the viability of implementing a Master Plan, possible limitations and minimum requirements. In the discussion challenges and opportunities are assessed of using a Master Plan. The paper concludes that using a Master Plan could be a viable move toward a diversified economy for Aruba, taking into account that it will probably take 3 or 4 decennia to accomplish the goal, and that without a Master (policy) Plan, supported by all future governments, it will fail.

Aruba as an Economic hub The relevance of discussing Aruba as a potential economic hub in the Caribbean, lies within recent statements of the Aruban Government which is striving for diversification of the economy. According to the government, Aruba must diversify its economy, in order to lessen the risks related to a back fall in the tourist industry, which is currently the only economic pillar of the island. The vulnerability of the tourism industry has become more than evident after the terrorists attacks of September 11th 2001, that caused a massive decline in tourists coming to the Island.

Focal points According to the Aruban Government there are 4 major focal points1 which can be used to develop the current economy into a more diversified economy, namely:

1. Diversification of the existing tourism sector 2. Turning Aruba into a knowledge Economy 3. Globalizing the Financial Sector of Aruba 4. Turning the local transportation and logistics facilities into a hub for Latin American countries to the

USA and Europe. These factors were also focal points of the Singapore Government to diversify their economy. A goal of the Singapore government was to become an Intelligent Island, offering different services to regional and global customers.

The Singapore way The planning, management and implementation in Singapore all took place within the framework of a Master Plan, with the goal of turning Singapore from a third world country into a first world country. For the Aruban economy to become more diversified the Aruban government also should start thinking about a Master Plan. This will take a lot of planning, budgeting, implementing and managing a huge undertaking. This will probably take decennia to accomplish. It took Singapore almost 40 years.

The omitted factor: tourism Because of the fact that tourism is a factor which, although very important, has been discussed very often by government and other actors dealing with the Aruban economy, the paper focuses only on the other three, namely: knowledge economy; the financial sector and transport & logistics.

1 Policy Plan: Vision, Curashi y Disciplina, June 14th 2002, Department of Finances and Economic Affairs Aruba


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2.0. Topic, focus and discussion

2.1. Topic In this chapter the general topics discussed in the paper are mentioned. It gives a brief overview of the topics where in the next chapter the focus will be set upon.

Diversification of the Aruban Economy according to the Government The Aruban economy depends at the moment almost solely on the tourism industry. This economic one-sidedness stresses the adaptability of the Aruban economy and Aruban business community to the utmost, since Aruba must compete with many other tourist destinations in the world, especially the Caribbean. The Aruba government policy has since long been focused on long term economic growth. It is the desire of the current government, that in the future more attention is given to diversification of the economy, so the vulnerabilities of tourism as a main economic activity can be, more or less, neutralized2. Although the topic of diversification has been the focus of political discussion for quite some years, it has gotten emphasized attention after the terrorists attack of 11 September 2001, indicating that tourism is a very incident sensitive sector. The government has argued that Aruba can benefit from several macro-economical factors. For example, its geographical position, the existing economic structure, the regional and global economical developments and the available work potential. Two possible paths for diversification are recognized. The first option is to diversify the tourism industry by exploiting new markets such as ecotourism, golf tourism and culture tourism. Secondly, creating new markets outside the realm of tourism by developing opportunities in logistics and transportation (Free Zone Aruba), financial services (Captive insurance) and a knowledge economy (test-bed for universities and businesses). Considering the fact that tourism is a subject amply talked about, it was left out of the thesis. The focus is on new markets and new products, which can be used to diversify the market in Aruba for local and global players. For Aruba to be successful the government has to setup a well balanced program, which involves planning, organizing and controlling of every aspect.

Diversification of the Singapore economy through a Master Plan A few decades ago, Singapore also felt a need for economic reform. After its independence from Malaysia in 1965, Singapore decided it wanted to develop itself from a third-world to a first-world country. The Singapore government through its prime minister Lee Kuan Yew shaped Singapore into a first-world country by meticulously addressing several problem areas working with cool efficiency. Singapore changed its economic structure, shifting from local (agriculture, quarrying) to global services.

Aruba, diversification the Singapore way? The idea of taking on a role similar to Singapore is not new to Aruba. Both the government and the private sector have occupied themselves with this topic. For example, in January 2003, the government publicly stated that it envisioned Aruba as ‘the Singapore of the Caribbean’. In this case, the government argued that Aruba should be developed into a financial service center. Critics, however, have stated that Aruba lacks the infrastructure to develop into the desired service center3.

2 Policy Plan: Vision, Curashi y Disciplina, June 14th 2002, Department of Finances and Economic Affairs Aruba 3 Article: Aruba, Singapore van het Caribisch gebied, Newspaper Amigoe di Aruba, January 6th 2003


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2.2. Focus Singapore today, is Asia’s hub for businesses, (financial) services and transportation. In the past it succeeded in attracting foreign firms to locate their manufacturing activities on the Island, because of its low-cost but high-quality labor. People are becoming more educated in Singapore, making labor more costly. Foreign investors are moving away to neighboring countries4. This is the reason Singapore’s government had to focus on new markets, which are the high value added industries such as financial and business services5. This is also the focus of the Aruban government. Aruba and Singapore have some other things in common, which are taken into account when discussing the topic of implementing a Master Plan.

Similarities of Aruba and Singapore Important (macro-economic) factors Aruba and Singapore share, are namely:

1. Both Aruba and Singapore are considered one of the richest Island states in the geographic region where they are situated.

2. Both Islands are considered to be located in a geographical strategic position. Aruba lies in the Caribbean sea, between Venezuela and the Caribbean Islands. Singapore lies in the Southeast Asia sea, between Malaysia and Indonesia..

3. Both have seaports which serve as a hub to neighboring countries. 4. Both try to develop the economy into more diversified sectors, which can compete with first world

countries on a global scale. 5. There are no natural resources (such as oil) available for exploitation. However, there are

indications there are oil reserves within Aruba territorial waters. At the moment this is being researched6.

6. There are limited natural fresh water resources. 7. There is limited land available which presents waste disposal problems7.

Policy, focus and implementation of the Aruban government The government of Aruba has set out ideas to diversify the Aruban economy. Creating new markets outside the realm of tourism. According to the government this can be done by developing the logistics & transportation sector (free zone), financial services (especially the Captive insurance market) and a knowledge economy (using Aruba as an R&D center for universities and private companies).

Aruba; Education & ICT It is obvious that the government is aware of the fact that, to realize growth into a knowledge economy, some factors have to be in place to support the system. These are the factors the government thinks are important to be developed8:

• Financial stimulus: the availability of public or private capital to stimulate Research & Development (R&D), also the access to this capital is important for the setup and development and, in the end, marketability of knowledge.

• Research in public sector: the Public sector itself is a important initiator of R&D. In this context one has to think of National and – preferably – International research programs of universities.

• Investments in ICT: an important factor for an successful operating knowledge economy is the availability and exploitation possibilities of ICT.

4 Article: Asian technology information program, http://atip.org/public/atip/reports.96/atip96.034r.html 5 Article: Structural changes in the Singapore Economy, Singapore government website, http://www.singstat.gov.sg/ssn/feat/2Q96/feat.html 6 Bulletin: Noticiero Aruba, October/November 2004, Arubahuis 7 Article: Singapore, SPAMfighter information, http://spamfighter.com/country_info/SG.asp 8 Policy Plan: Vision, Curashi y Disciplina, June 14th 2002, Department of Finances and Economic Affairs Aruba


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• Percentage of homes with Internet: closely related with the investments in ICT is the availability of Internet for homer users. Only than knowledge – including commercially – can be marketed.

• Private financing of public research: public research programs can get an important push because of financial, but also practical involvement of the private sector.

• Fiscal treatment of R&D: With the help of specific tax incentives R&D can be stimulated and a climate created which is inviting for organizations to participate in research.

Internet use in Aruba Setar9, the Aruban PTT provider, claims to have 4,500 Internet users with dial-up and a total of 8,500 total users of Internet, including broadband users10. With a average growth of 500 new users per month they expect to have 10,000 users by the end of the year 2004. These figures don’t include 123 users (dial-up without subscription), and Internet café’s. A considerable quantity of the daily Internet users consists of tourists checking e-mail to keep in touch with home. Setar calculates there are about 50.000 daily users of Internet on Aruba. The total population of Aruba in 2003 according to the CBA (Centrale Bank Aruba) was 96,000 people11. According to a Clickz Stats 2003 report12 Aruba ranks highest in the Caribbean in Internet penetration with 24,000 (?) users on a population of 70,441 people. This amounts to a percentage of 34% with Puerto Rico a distant second with 15%. As seen earlier, both the Internet usage and population figures are incorrect. The right percentage would be 10,000 users on a population of 96000, which amounts to 11%. Still one of the highest in the Caribbean, next to Puerto Rico with 15% and Trinidad and Tobago with 10%. Aruba got a boost of Internet users when in November 2004 Setar came with a marketing stunt, where people could get a starters package for ADSL services for only Afl. 129,- instead of 250,-. People also got a cellular phone for free, when applying for this deal. Since November 2004 Setar also started a Internet school program. Schools get 6 months free of ADSL services, and after that they pay Afl. 25.- per month (standard rate is Afl. 69.-). The goal of this program is to promote the use of Internet among students. ATES-project In the final report of the Comision di Berdad13 the ATES-project is mentioned. ATES stands for Aruba Information Technology System project. The goal of this project was to make the population of Aruba aware of information technology by placing computers in homes of pupils graduating from elementary schools, and to implement computer labs in these elementary schools. One of the conclusions of the report was that the project was inefficient because of the fact that computers were given to kids to use at home instead of using it more effectively for computer classes at school. Only 14 elementary schools could get computers to use in computer labs. The report also mentions the fact that the project was implemented without a policy plan and that the didactical value of supplying hardware to school and kids was not analyzed. Education in Aruba In general, when considering a knowledge economy, it is important to look at trends concerning education in Aruba. The nominal GDP of Aruba in 2002 was Afl. 3421.2114 million. The GDP15 per capita (in US$) was $20,09516. In general, there is potentially more money available for investments in education, when the GDP per capita is higher. However, The GDP does not give a indication of the real investments in education. The percentage of the GNP that the government (and even private organizations) dedicate to education are a better reflection of the attempts of a country to invest in the future through education.

9 Servicio di Telefon di Aruba – the local PTT and Internet provider 10 Press release: Setar – Desaroyo di Internet na Aruba, October 28, 2004 11 Report: Quarterly Bulletin 2002-IV, April 10, 2003-Issue no.66, Centrale Bank van Aruba 12 Article: ClickZ Stats, Caribbean Internet usage, http://clickz.com/stats/sectors/geographics 13 Report: Eindrapportage Comision di Berdad, een kwestie van mentaliteit – Bestuur en integriteit op Aruba, June 2002 14 Report: Onderwijs op Aruba, context en output, CBS, statisics for progress, census 2000, December 2003 15 Note: GDP based on Purchasing Power Parity, OECD website, http://oecd.org 16 Report: Onderwijs op Aruba, context en output, CBS, statisics for progress, census 2000, December 2003


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Exhibit 117 Government expenditures for education (in florins)

Million Afl. * A B A+B C D

% (A+B)/C

% (A+B)/D

E Afl. (A+B)/E

1997 1998 1999 2000 2001 2002*

122.64 124.52 132.83 137.32 138.00 145.89

24.17 26.3 9.13

19.21 2.33 6.7

146.81 150.87 141.96 156.53 140.33 152.59

1014.401044.501101.981195.381365.71

2742.202980.503083.813326.883398.653421.21

14.514.412.913.110.3

5.45.14.64.74.14.5

16987 17570 17866 18505 18884 19346

8642 8587 7946 8459 7431 7887

A: current government expenses for education B: expenses capital service education C: total government expenditure D: nominal GDP (in Aruban florins) E: total sum of students, source: Department of education * real GDP in 2002 was -2.6% of nominal GDP18 In column D the figures show that in the last period Aruba had an annual growth of the nominal GDP. However, the percentage growth (related to the previous year) has declined annually. If the GDP in 1998 related to 1997 still had a growth of 8.7%, at the turnover of 2001-2002 the growth was only 0.7%. The annual government expenditures in education show a average downward trend. This trend counts for both the relative course of the GDP as for the total government expenditures. In 2000 and 2002 there was a slight increase in expenditures, however, in general the average shows a continuing decline in expenditures. See columns (A+B)/C and (A+B)/D. The average annual government pattern of spending in education per student shows, for the period 1997-2002, also a declining line. See Exhibit 1a. Exhibit 1a19

The education level of the total population of Aruba not attending school, measured against obtained education level measured in 2000 was as following: Exhibit 2

TOTAL Segmentation of obtained education level (%) For non school going population in ARUBA of 15-65 years20 in 2000

Elementary school or less 39 Secondary education 44 Associate education level 9 Bachelor and master education level 8 Unknown 1 Total 100

17 Report: Onderwijs op Aruba, context en output, CBS, statisics for progress, census 2000, December 2003 18 Report: Quarterly Bulletin 2002-IV, April 10, 2003-Issue no.66, Centrale Bank van Aruba 19 Report: Onderwijs op Aruba, context en output, CBS, statisics for progress, census 2000, December 2003 20 Report: Onderwijs op Aruba, context en output, CBS, statisics for progress, census 2000, December 2003


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Something that stands out, is the relatively high percentage of persons who have only an elementary education or less. This segment accounts for 39%. The percentage of the segment with not more than secondary education is also high, totaling 44%. This means that only 17% of the non school going population has an associate, bachelor or master’s degree.

Singapore; Education and ICT In Singapore ICT was used as a tool to boost the knowledge economy. A study was done to look at implementation possibilities and the current situation in 1985. The project was called IT2000. The study involved all economic sectors in Singapore and placed IT on the strategic plans of all businesses. In 1998 Singapore ONE was launched. It was the first nationwide broadband network. It was also an attempt to create a nationwide test-bed for broadband applications. This means in fact that applications made for broadband could be tested on the Singapore ONE network. Not only for local businesses and universities, but also for international organizations willing to pay for the service21. Singapore began the road to an ICT economy in the late 1970’s and early 1980’s. The national computerization push was part of a macroeconomic high-tech strategy to overcome the constraint of a small labor force under full employment and the dependence on unskilled foreign labor. The national computerization effort was trailblazing. No country before had attempted to introduce computerization on such a massive scale. ICT has been part of Singapore’s plans for national development and two phases of this plan already have been completed. The national development plan is now it its 3rd fase.

• In the 1st fase, from 1980 to 1985, the Singapore government introduced a national computerization program to support economic restructuring, starting first with the civil service departments within the government.

• The second phase, from 1986 to 1990 extended the program to include multiple agencies within Singapore.

• The 3rd and current phase aims to use ICT to support Singapore’s long-term vision to become a developed country22.

Internet in Singapore Singapore is often promoted by herself and others as an intelligent island. Singapore has one of the highest internet penetration rate and it created world’s 1st broadband network. Singapore offers services to regional and multinational companies, expanding the focus of products offered and diversify the economy. The nationwide implementation of broadband in Singapore through Singapore ONE has to be seen against the backdrop of its overall economic development goal of being a 1st world nation. By some measures Singapore has reached that goal. The GDP per capita was about $22,366 US in 200323, which ranks it as one of the highest in the world. Infocomm Development Authority of Singapore In Singapore there is a authority – the IDA (The Infocomm Development Authority of Singapore) which develops, implements and regulates information and communication services in Singapore. Its aim is to establishing Singapore as a leading infocomm HUB in Asia. To nurture the industry a comprehensive set of programs have been developed for both local and international companies. The programs are called IDA programs. One of the most important roles of IDA is to boost the growth of the economy24.

21 Case study: Singapore ONE: universal access to broadband (Singapore), case studies regional development, www.etw.org/2003/case_studies/reg_dev_singapore-one.htm 22 Article: Lessons in Broadband adoption from Singapore, , Peng Hwa & Qian Zhou - Nanyang Technological University Singapore, Yayun Jiang - Ac Nielsen, Shanghai, China, Journal of interactive Advertising, Volume 4, number 1, Fall 2003, http://www.jiad.org/vol4/no1/ang/ 23 Article: Science Fair Project Encyclopedia, http://all-science-fair-projects.com/science_fair_projects_encyclopedia/Singapore 24 Article: IDA Programs, Singapore government website, http://www.ida.gov.sg/idaweb/techdev/infopage.jsp?infopageid=1781&versionid=2


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The following list contains the several programs available:

• Connected Homes – provide a test-bed environment for the development of a integrated end-to-end solutions for homes so that people can experience a “connected lifestyle”.

• iLIUP (infocomm Local Industry Upgrading Program) – promotes strategic and mutually beneficial partnerships between Singapore enterprises and multinational corporations in the infocomm sector.

• Overseas Development Programs – facilitates partnerships among Singapore infocomm enterprises and MNC’s (Multi National Corporations in the information & Communication sector)

• SAFE (Securing assets for End-users) Program – aims to catalyze the growth of Singapore ‘s infocomm security.

• Singapore ONE – a broadband initiative to facilitate the implementation of a nationwide broadband network and encourages the development of interactive broadband multimedia applications and services.

• WEAVE (Web Services) – taps on the market potential of web Services through collaboration with industry partners to grow Singapore’s software and IT services industry.

• Wired With wireless – develop Singapore into a “living lab” and launch pad for a wireless development in Asia.

Singapore uses its broadband network for its domestic users, both home users and companies, and uses it for international business, namely for banking and other financial services. There is both a regional and a global marketing focus. Regional focus is on the surrounding countries, including China, Thailand and Malaysia. The global focus is mainly on MNC’s (Multi National Corporations), with or without a branch in Singapore. One important factor to mention is that, at first, the government was cautious to implement Internet because it carried content that could not be controlled or censored. Only after Malaysia had made it available in their country, Singapore introduced it to the public Education in Singapore The education profile of Singapore residents has improved significantly in the last decade. According to the latest results from the 2000 Population Census, 56.3% of the resident non-student population aged 15 years and over had upper secondary or higher education. This was 15% more than the 42% recorded in 1990. The share of university graduates in the population has also increased significantly; from 4.5% in 1990 to 11.6 % in 200025. The improved educational attainment of the resident population reflects the expansion in educational facilities to meet the rising aspirations of the population to attain a higher education. Another contributory factor is the increased inflow of well-educated permanent residents. Exhibit 326

TOTAL Segmentation of obtained education level (%) For non school going population in SINGAPORE of 15-65 years in 2000

Below Secondary 45.1 Secondary 25.0 Post secondary 18.4 University 11.6 Total 100

In Singapore 30% of the population has an higher education level. This means an Upper Secondary, Polytechnic or University degree. For Singapore, highest qualification attained refers to the highest standard passed or the highest level where a certificate, diploma or degree is awarded.

25 Report: Singapore census of population 2000, advance data release no.1 – changing education profile, http://singstat.gov.sg/papers/c2000/adr-edu.pdf

26 Report: Changing education profile of Singapore population, Hong Kong University of Science and Technology, June 2002, Hong Kong SAR


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Competition in Singapore through PPT services To support the penetration of Internet and other ICT services, Singapore introduced competition to its government-controlled PTT several years ahead of schedule. Today more than 250,000 subscribers access public broadband through three major ISP’s and a cable television network. Corporations, under the Open Access Policy, including international organizations, may use the existent broadband infrastructure to provide broadband service. Lessons learned in ICT implementation in Singapore In a study done by students of the Nanyang Technology University in Singapore and AC Nielsen, from Shanghai China, called Lessons in Broadband Adoption from Singapore27, the development of broadband adoption in Singapore is examined28. The lessons learned according to the authors are that it may be applicable to similar developments elsewhere in the world and that the pioneering experience of Singapore should be useful in guiding comparable efforts. These were the main conclusions of the study:

• The top-down manner in which the Singapore government intervened to accomplish their goals has worked in many areas. However, it has not worked well for broadband diffusion. It should be noted however, that even that it did not work well, Singapore is still among the top 20 broadband nations in the world.

• Competition is essential for the technology to diffuse widely. In Singapore it lowered the price enough for the public to use widely. Broadband use jumped after the telecommunications market was liberalized to allow new entrants.

• Some weaknesses in Singapore’s approach into deploying ICT for national development has been highlighted by the experiences with broadband. Singapore has the “hard infrastructure” right. However, the physical networks can be rapidly rolled out in an compact Island.

• It is the “soft infrastructure” that is proving to be problematic. There are enough skilled personnel available and the policies are up to date. But, because of a lot of red tape many businesses feel that the rules for exploitation of broadband need to be liberalized further. Otherwise they would stunt the country’s plan to be a regional IT hub. Another area that needs change is the almost exclusively economic focus of IT use, to the neglect of a focus on social and cultural impact on the Island.

Aruba; Transport and logistics Aruba is a thriving market for U.S. food and beverage products as well as a transshipment center for Colombia, the European Union (EU), Panama and Venezuela. In 1999, transshipment of products through the Free Zone of Aruba represented a US$271 million industry of which $219 million consisted of food and agricultural products, mainly Scotch whiskey, American cigarettes, Dutch cheeses, Irish milk, European wines and refined sugar. Originating points for products handled in 1999 were the United Kingdom (44%), the Netherlands (16%), the United States (6%), Mexico (2%), Panama (2%), the Netherlands Antilles (2%), Columbia (1%) and the rest of the world (27%). Transshipment destinations were Colombia (38%), the EU (26%), Panama (13%), Venezuela (8%), the United States (5%) and the rest of the world (7%). The overall annual tonnage of Aruba is 119,505 metric tons. Container traffic is 76,942 metric tons (TEUs29) and breakbulk is 42,563 metric tons30. According to the AFZ N.V.31 Aruba’s geographical location makes the free zone a perfect overseas location for export business. The free zone of Aruba holds a strategic geographic position for transit trade to and from South America and the European Union. Aruba’s free zone is also considered a central secure and convenient gateway to the Caribbean for the Far East countries.

27 Article: Lessons in Broadband adoption from Singapore, , Peng Hwa & Qian Zhou - Nanyang Technological University Singapore, Yayun Jiang - Ac Nielsen, Shanghai, China, Journal of interactive Advertising, Volume 4, number 1, Fall 2003, http://www.jiad.org/vol4/no1/ang/ 28 Note: Broadband is defined as high-speed internet access of more than 256Kbps through ADSL (asynchronous digital subscriber line), cable modem wireless access and LAN (local area network) lines. 29 Note: Tonnage of container units transported 30 Article: AAPA Port Profiles, Aruba Ports Authority NV, http://aapadirectory.com 31 Aruba Free Zone N.V.


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With the enactment of the new law, the State Ordinance Free Zones 2000 service oriented companies (excluding financial services) are able to operate from the free zones. Mechanical engineers, software developers, business consultants and many other service businesses can benefit from the incentives offered by the Aruban free zone. Drop shipments (also a type of service activity), whereby the goods do not physically have to pass through the free zone of Aruba, are also considered an export activity and a 2% profit tax is applicable. Aruba has currently three areas designated as free zones, namely:

• Oranjestad Free Zone, situated next to the harbor of Oranjestad, 3.8 hectares; • Bushiri Free Zone, situated at a very short distance from the harbor, 9.2 hectares; • Barcadera Free Zone, situated adjacent to the freight harbor at Barcadera, 2 miles from the International

Airport, 90 hectares32.

Singapore; Transport and logistics Singapore’s export oriented economy has caused problems in recent years and in 2001 the economy shrank by just over 2% as a result of the global recession. To cope with the recession Singapore invested a lot to make its port accessible to the biggest vessels in the world. Transportation and logistics of both seaport and airports in Singapore, are considered among the most efficient in the world. Singapore made it possible for customers to be on their way very quickly by doing most of the paperwork digitally and paperless. This makes transportation and logistics in Singapore more cost effective33. Singapore has become one of the world’s most prosperous countries with strong international trading links. In 2003 the PSA Corp34, operator of the port of Singapore, announced an annual throughput of 24.5 million TEU for 2002. Singapore’s economy is primarily based on trade, shipbuilding and repairing, oil refining, electronics, information technology, banking and finance. Due to its location on the major sea route between India and China and superb natural harbor, trade has been especially crucial to Singapore’s economic success and re-export trade accounts for almost half of all trade. Some 400 shipping lines link Singapore to more than 700 ports in 130 countries worldwide and in 2001 the port handled some 313,487,000 tons of cargo35. Singapore ranks 2nd in the world, right after Rotterdam for most tons of cargo volume in metrics tons transported. Rotterdam had 314,714 tons of cargo. In container traffic (TEUs) Singapore ranks second in the world on the AAPA36 world ranking list containing 40 of the world’s busiest seaports37. Hongkong is number one, with 17,826 TEUs and Singapore second with 15,571,100 TEUs.

Financial services diversification in Aruba In the 2002 Government of Aruba policy plan38 it is stated that diversification should take place and that further growth has to be possible. When developing the financial sector the focus should be on “captive insurance”. With the implementation of the “Landsverordening toezicht Verzekeringsbedrijf” the possibility has been created to promote Aruba as an haven for the international “captive insurance” market. The market for this form of insurance has become interesting because of a recent stroke of premium raises by insurance companies as a result of quickly changing risk profiles in different economic sectors. Captive Insurance explained The captive insurance company is recognized throughout the world as an important part of the international insurance market. It has been developed over the last twenty to thirty years partially as a response to the increasing amount of litigation. It also provides the multinational corporation protection against the risk of damage or loss and third-party liabilities. Recently, private citizens have recognized the utility in creating and using a captive insurance company as a means of protecting their own assets while realizing tax benefits.

32 Article: The Aruban Free Zone, http://fzanv.com/us/freezone.html 33 Book: IT2000: Singapore’s Vision of an Intelligent Island, Chun Wi Choo, Book chapter “Intelligent Environments”, edited by Peter Droege, published by North-Holland, 1997 34 Note: Port of SingaporeAuthority – manages the Singapore port 35 Article: www.usatoday.com, http://usatoday.com/marketplace/ibi/singapore.htm 36 Note: American Association of Port Authorities 37 Article: AAPA Advisory, June 2, 2003 38 Policy Plan: Vision, Curashi y Disciplina, June 14th 2002, Department of Finances and Economic Affairs Aruba


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The significant difference between captive insurance companies and traditional insurance companies is that captive insurance companies deal with a restricted risk that the company underwrites or reinsures. Many companies are incorporated in offshore financial centers which offer several advantages39. Some of the advantages in offshore financial centers include:

• (1) less restrictive insurance regulation; • (2) freedom from exchange control; and • (3) absent or low rates of taxation.

There are four types of domestic and offshore captives:

• (1) parent-only or pure captive; • (2) association or industry captive; • (3) agency captive; and • (4) quasi profit center or open market captive.

Financial services in Singapore Singapore has been working for years to set up a global market for financial services. Recently its government introduced reforms40 which are aimed at enhancing Singapore’s position as a major international financial center and include:

• Opening the financial industry to greater foreign competition; • Bringing regulatory and supervisory practices closer in line with international best practices on

prudential regulation and supervision and disclosure-based regulation; • Developing deep and liquid fixed-income and equity markets; • Promoting the asset management industry; and • Gradually liberalizing the restrictions of the international use of the Singapore dollar.

Stability of Singapore’s Financial Sector In an recent IMF report41 the stability of Singapore’s financial sector is assessed. There where some major points linked to the stability of the market. These points are also a reflection of the sector’s infrastructure:

• Singapore’s financial sector, which is dominated by the banking sector, remains robust despite a series of economic downturns and substantial asset price declines. Singapore’s local banks, which have a 55 percent share of domestic banking assets, are profitable and well capitalized. They are also liquid, adequately provisioned for nonperforming asset exposures, and conservative in their management practices. The insurance sector is well capitalized and profitable overall.

• Economic developments in the past few years have highlighted Singapore’s vulnerability to exogenous shocks, including the outbreak of Severe Acute Respiratory Syndrome (SARS). Going forward, the main potential risks to the profitability of the financial sector include, among other things, further negative shocks in external demand, continued weakness in the labor market, higher interest rates, lower asset prices, and the persistent threat of terrorism in the region.

• Stability implications from Singapore’s close integration with the global financial system are not an immediate concern, but the linkages should be more closely monitored to enhance the MAS’s (Monetary Authority of Singapore) early warning capabilities. The main financial linkages include local banks’ operations overseas and in the Asian Dollar Market (ADM) – an offshore banking market-and foreign banks’ presence in the domestic market. Local banks are increasingly exposed to external shocks through their growing overseas operations, but geographical diversification helps dampen the effects of domestic shocks. Local banks’ activities in the ADM are mainly interbank lending, which has experienced virtually no losses even during the Asian crisis.

39 Article: http://cyberhaven.com/offshorelibrary/captive.html 40 Report: IMF Country Report No. 04/104, April 2004 41Report: IMF Country Report No. 04/104, April 2004


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• Systemic liquidity is well managed. The policy objective of the MAS is to ensure the continued smooth functioning of the payment system and the financial system as a whole. The overnight facility introduced in 2001 has helped reduce the volatility of short-term interbank rates. The MAS is planning to introduce an intraday liquidity facility in conjunction with the upgrading of the payment system.

• Regulatory and supervisory practices exhibit a high degree of observance of international standards and codes across all segments of the financial sector. In addition, Singapore’s financial sector benefits from an efficient legal system, accounting standards that closely follow international best practices, and ongoing initiatives to promote good corporate governance and to strengthen the framework of disclosure practices.

• A further deepening of the corporate bond market would help diversify funding sources for the corporate sector. Notwithstanding a number of recent initiatives to facilitate market development, the corporate bond market in Singapore is not yet an advanced stage of development. Market growth has been constrained by the size and structure of the domestic economy and ample liquidity in the banking system. To further boost bond market activity, it is recommended that the authorities review and address factors that may constrain the corporate bond market.


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3.0. Discussion In Aruba the idea of diversification the Singapore way is a topic that is not new42, but never was there really any structured thinking on the topic. There is no general policy plan available discussing the possibilities and restrictions of implementing a Master Plan.

Knowledge economy To be able to successfully develop and implement a knowledge economy one cannot set aside developments in the ICT sector. Nowadays knowledge is dispersed through PCs via the Internet, e-mail, LANs and WANs everywhere. Singapore started early, with the development of the infrastructure in the 60’s and 70’s, such as building more universities and in the 80’s the ICT development, with Singapore ONE in the 90’s. It took them ten years to get from 8% to 40% of highly educated people, with a polytechnic or university level education (compared to Aruba’s 17%). This could only be done by investing in the previous decades. Without growth in the educational system, there can be no growth in the knowledge economy.

Transport and logistics Because of the ties Aruba has historically, and still has today, with Europe it is easier for Aruba to access this market for Latin American customers. Aruba can open up new markets and get a share profit of the TEUs moved around the globe. Aruba is a natural stepping stone for transport to and from the US and Europe. But, first the infrastructure should be in place. In Barcadera the designated free zone is far from being ready for global players. A lot has to be done to improve infrastructure and safety & security issues. The other two free zones in Oranjestad, are growing beyond their capacity. For expansion Barcadera would be the best option. Only than more tonnages of TEUs can be moved, turning the free zones into a really diversified sector of the economy. Annual cargo tonnage and TEUs The annual cargo in tons and TEUs are the factors to be taken into account, when considering upgrading ports facilities. This means that the government should invest a lot in port infrastructure, including heavier cranes, tight sailing schedules and IT technology such as optical scanners, remote camera’s and geopositioning satellites or radar, to track cargo and equipment in all terminals. If the government really wants to diversify its economy, the annual tonnage handled of TEUs should increase dramatically, to develop the transportation sector into a viable pillar which can stand next to the tourist sector as a pillar of equality. For Aruba to become a major player in the Caribbean it should look at its nearest competitors, using the same sea routes to deliver goods. APA will have to be proactively busy being ahead of competition, innovate ahead of others and be aware of value-added services for its customers. This means the APA will also need its own Master Plan to steer toward a higher efficiency focused port, capable of competing with other ports in the Caribbean area43. Exhibit 4 Competitors in the Caribbean area/Latin America For TEU’S handled over 2001 compared to Aruba44

COUNTRY (developing countries) TEU (metric tons) Aruba45 119.505 Venezuela 924.642 Jamaica 888.941 Bahamas 860.000 Costa Rica 563.825 Dominican Republic 466.000 Trinidad and Tobago 352.758 Cuba 258.264 Martinique 140.034

42 See enclosure of news clipping: Building knowledge economies: Master Planning the Singapore Way! 43 Article: Port improvement plan, Maritime and Port Authority of Singapore, 25 April 2000 44 Report: Review of Maritime transport chapter 5, 2003, United Nations conference on trade and development, Geneva, UNCTAD/RMT/2003 45 Article: AAPA Port Profiles, http://www.aapadirectory.com


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Besides having to comply with the ISPS Code (International Ship and Port Facilities Security Code) a Master Plan will have to take care of upgrading the ports facilities of Aruba and support the marketing effort of APA to turn it into a major player in the Caribbean.

Finance and banking

Looking at the figures of the labor force occupation in Singapore almost half of it works in the financial sector, banking and other services. It can be said that Singapore successfully diversified it’s economy. By putting financial services on the map, Singapore turned itself into a major player on the Asian market for financial services. Exhibit 5 Labor force occupation in Singapore in 200346 Percentage Manufacturing 18% Construction 06% Transportation and communication 11% Financial, banking and other services 49% Other 16% Compared to Singapore’s 49%, in Aruba the percentage of people working in the financial sector is only 3.6% of the total working population. This can be seen in the following table47. Exhibit 6 Labor force occupation in Aruba by branch of industry48 ISIC-category (International Standard Industrial Classification of Economic Activities) Percentage Agriculture, hunting and forestry 00.4% Fishing 00.1% Mining and quarrying 00.1% Manufacturing 05.9% Electricity, gas and water supply 01.2% Construction 09.4% Wholesale and retail trade, repair 17.1% Hotels and restaurants 18.4% Transport, storage and communications 07.0% Financial intermediation 03.6% Real estate, renting and business activities 09.0% Public administration and defense; social security 08.5% Education 03.4% Health and social work 04.8% Other community, social and personal services 06.7% Private households with employed persons 04.5% Extra territorial organizations and bodies 00.1% Not reported 00.0% 100 %

If the Aruban government wants to use the financial sector as a diversification factor a lot of effort will have to be put in upgrading its people and reforming the system to implement the necessary tax and financial infrastructure needed to support the system. Aruba already has a commitment with the OECD49 to implement certain tax reforms for transparency and efficiency reasons, dating from 2001.

46 Article: http://spamfighter.com/country_info/SG.asp 47 Report: Current developments of Aruba’s Labor Market, CBS May 2003 48 Report: Current developments of Aruba’s Labor Market, CBS May 2003 49 Note: Organization for Economic Co-operation and Development, http://www.oecd.org/infobycountry


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4.0. Summary, conclusions and recommendations It took Singapore about 3½ decades to be successful. Before Aruba can become a hub for the Caribbean financial and physical infrastructures should be in place. More people have to become higher educated and reshaped into thinking globally. Priorities should to be shifted. Thinktanking a Master Plan is needed for implementation. To make things happen, effort and money have to be allocated; start a commission to think about every aspect and come up with an executable Master Plan.

Knowledge economy For a knowledge economy to work the government would have to make sure that the right infrastructures needed to educate its people are in place. Getting an education as an Aruban citizen, to help Aruba diversify its economy, should be a goal of the government to promote. The government has to put the right people, with the right papers, in the right places to make the Master Plan work. Only 17% of Aruba’s population has a higher education, compared to Singapore’s 40%. In 1990 this was still 8% in Singapore. So within a decade Singapore has had a boost of higher educated people by expanding educational facilities to meet the rising aspirations of the population50. In the period 2003/2004 Singapore invested 3.8% of its GDP in education51, Aruba invested about 4.5%. Singapore’s GDP per capita was $22,366 US in 2003. Aruba’s GDP per capita was $21,20052 in 2003. At the moment there are some projects underway for education. However, the focus is on “hard” infrastructure, such as buildings. True, this is very important, considering the fact that Aruba’s population has had a boost, doubling itself within tens years. But if the “soft” infrastructure, such as highly qualified teachers and professors, is not available, the knowledge economy will not be a viable solution. Aruba still does not have enough intellectuals to support a knowledge economy. ICT is also an important factor to keep in mind. It should be a government effort to import knowledgeable people to implement the foundations for a knowledge economy. Multinational Corporations should get special benefits to invest in Aruba and make use of local universities and the knowledge economy infrastructure. There is still a loss of economically active workers, especially the highly educated, on account of the brain drain. Many Aruban students studying abroad do not come back, and stay to work and live in the country where they studied. There are also 50.000 Arubans and Netherlands Antilleans in Holland (both born in the Antilles and in the Netherlands). The well educated and skilled are the most mobile group of migrants because they are in high demand in OECD53 countries, but also because they can afford to migrate. The brain drain in the Caribbean is the highest in the world54. Language There is a trend in Aruba to do everything in Papiamento, even the local university is thinking about implementing Papiamento as an instruction language. Papiamento is the lingua franca for the several nationalities in Aruba. But, to be able to compete globally the Aruban government should start thinking about using English as the national (business and instruction) language, as Dutch is today. In Singapore Malay is still spoken by most of the population, and is used as the lingua franca for the several nationalities living on the Island. It remains Singapore’s national language for historical reasons. English is the official national language used in the Singapore government and is also used to communicate with global partners.

Transport, logistics Aruba should expand and upgrade the free zone infrastructure, before starting promoting the Island has a hub in the Caribbean. The FZA should be capable of handling large cargo vessels and a certain amount of ships annually.

50 Article: Census of population office Singapore department of statistics, November 2000 – changing education profile, http://singstat.gov.sg/papers/c2000/adr-edu.pdf 51 Fact sheet: Ministry of education Singapore, educational fact sheet 2004 52 Fact sheet: Selected statistics on Aruba, Centrale Bank van Aruba 53 Note: Organization for Economic Co-operation and Development, http://www.oecd.org/infobycountry 54 Policy paper: Diaspora, Migration and Development in the Caribbean, Keith Nurse, Focal(Canadian Foundation for the Americas) policy paper


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Financial sector For the financial market, certain international standards and controls should be in place. Aruba should be seen as the most trustworthy place to trade in financial services, offering good service with efficient processing at reasonable prices. If Aruba wants to become a hub for the captive insurance market, it should make sure the following advantages are in place to make it attractive for (offshore) financial centers to deal in Aruba55:

• less restrictive insurance regulation • freedom from exchange control, and • absent of low rates or taxation

Conclusions The conclusion is that it is a viable solution for Aruba to diversify its economy. But, if Aruba wants to implement a Master Plan there are certain factors that need to be taken into account, namely:

• A Master Plan should be set up which has to be supported by all future governments. Without a long term commitment the Master Plan will fail.

• Aruba needs to build up the necessary infrastructures to grow into a knowledge economy, expand the logistics facilities and incentives for Aruba to become a haven for Captive Insurance seekers.

• A global language should be used, such as English, or even Spanish, as an National language. Papiamento should be cherished because of historical reasons.

• To become a global player, the government efforts for the economy should be more globally focused. There is still a lot to be done before Aruba can start thinking of really becoming a global player, but the basic ingredients are available to make it happen. The general conclusion for Aruba master planning the Singapore way is; possible, with a really good Master Plan, long term commitment of the government and its people, and a marketing focus on global diversification.

55 Article: The need for Captive Insurance, http://cyberhaven.com/offshorelibrary/captive.html


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5.0. Literature Books

1. Global Marketing Strategies, Jeannet & Hennesy, sixth edition, Houghton Mufflin publishers, 2004 2. Oxford Advanced Learner’s Dictionary, A.S. Hornby, 1984 3. Kramers woordenboek Engels, 36e druk, Elsevier, 1987 4. Intelligent Environments, chapter IT2000: Singapore’s vision of an Intelligent Island, Chun Wei Choo, edited by

Peter Droege, North-Holland 1997 Policy Plans

1. Vision, Curashi y Disciplina, policy plan 2002-2005, June 14th 2002, Department of Finances and Economic Affairs Aruba

2. Diaspora, Migration and Development in the Caribbean, Keith Nurse, FOCAL policy paper FPP-04-6 Press releases / newspaper articles

1. Aruba, Singapore van het Caribisch gebied, Amigoe di Aruba, 6 January 2003 2. Economisch beleid voor de komende jaren, meer hotelkamers, maar vooral diversificatie van de economie, Amigoe

di Aruba, 22 juni 2003 3. Captives interessant voor Aruba, Amigoe di Aruba, 9 augustus 2002 4. Setar – Desaroyo di Internet na Aruba den top compara cu otro paisnan, October 28, 2004

Reports

1. Onderwijs op Aruba, context en output, CBS December 2003 2. Current developments of Aruba’s Labor Market, CBS May 2003 3. Eindrapportage Comision di Berdad, een kwestie van mentaliteit, Bestuur en integriteit op Aruba, juni 2002 4. IMF Country Report No. 04/104, April 2004 5. The people of Aruba, Continuity and Change, Fourth population and housing census, Aruba, CBS February 2002

Articles

1. Structural changes in the Singapore Economy, Dr. Soon Teck Wong and Mrs. Tay Siu Lin, Department of Statistics, papers & analyses, Statistics Singapore, http://www.singstat.gov.sg/ssn/feat/2Q96/feat.html

2. Top-line indicators, Singapore government statistical website at current market prices, http://www.singstat.gov.sg 3. International business index, Singapore - overview, USA Today,

http://usatoday.com/marketplace/ibi/singapore.htm 4. The need for Captive Insurance http://cyberhaven.com/offshorelibrary/captive.html 5. Lessons in Broadband Adoption, Journal of Interactive Advertising, volume 4, Number 1, Fall 2003, Peng Hwa

Ang, Qian Zhou and Yayun Jiang - http://www.jiad.org/vol4/no1/ang/ 6. Journal of Interactive Advertising, Loh, Ang, and Hukill, 2000 7. Singapore, Science Fair Project Encyclopedia, http://all-science-fair-

projects.com/science_fair_projects_encyclopedia/Singapore 8. Journal of Interactive Advertising, Ang and Lee, 2001 9. Singapore, Island in the stream, http://www.streamingmedia.com 10. Singapore Masterplan and media, http://ida.gov.sg/idaweb/media 11. IDA Programmes, IDA Singapore, Singapore government website,

http://www.ida.gov.sg/idaweb/techdev/infopage.jsp?infopageid=1781&versionid=2 12. Singapore, http://spamfighter.com/country_info/SG.asp 13. Changing education profile, Census of population office Singapore department of statistics, November 2000,

http://singstat.gov.sg/papers/c2000/adr-edu.pdf 14. Selected Statistics Aruba, Centrale Bank Aruba, http://www.cbaruba.org/statistics/statistics.htm 15. AAPA advisory, vol.35, no.2, Port news 16. Review of Maritime Transport, 2003, chapter 5 UNCTAD, UNCTAD/RMT/2003, United Nations, New York and

Geneva, 2003 17. AAPA Port profiles, Aruba Port Authorities, 2004 Online edition, http://aapadirectory.com 18. World Seaborne Trade 1975, 1980-2001, Shipping Statistics Yearbook 2002, AAPA Advisory June 2, 2003 19. AAPA advisory vol.35 no.8, Port news 20. Port improvement plan, http://www.singaporemaritimeportal.com/pips.htm


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Articles, continued 21. From Third World to First: The Singapore Story: 1965-2000, Lee Kuan Yew, October 2000, excerpt book 22. Singapore ONE: Universal Access to broadband (Singapore), Case studies regional development,

http//www.etw.org/2003/case_studies 23. Singapore census of population 2000, advance data release no.1, changing education profile,

http://singstat.gov.sg/papers/c2000/adr-edu.pdf 24. Changing education profile of Singapore population, Hong Kong University of Science and Technology, June

2002, Hong Kong SAR 25. Census of population 2000, http://www.singstat.gov.sg/keystats/2000/education.pdf 26. Caribbean Internet Usage, www.clickz.com/stats/sectors/geographics/article.php/2203981 27. Prices and Purchasing Power Parities (PPP), New GDP comparisons based on Purchasing Power Parities for the

year 2002, OECD article, http://www.oecd.org/document/15 28. Educational system on the Island of Aruba, Kathleen Ferrier, http://minority.homac.at/schoolsys/aruba.html 29. Quarterly bulletin 2002-IV, April 2003, Issue no. 66, Centrale Bank van Aruba 30. Onderzoek naar gasboringen, Noticiero Aruba oktober/November 2004, Arubahuis 31. Data storage Institute, Asian technology information program (ATIP), Singapore,

http://atip.org/public/atip.reports.96 32. Key indicators, statistics Singapore, http://www.singstat.gov.sg/ 33. Connected Singapore, IDA Singapore, http://www.ida.gov.sg/idaweb/aboutida 34. Wired Singapore, Business Week magazine, http://www.businessweek.com/adsections/itu/wired.htm 35. Aruba economic affairs, www.aruba.com/pdf/gov/governm.php?name=governm.pdf 36. Aruba at a glance, Worldbank, www.worldbank.org/data/countrydata/aag/abw_aag.pdf 37. Factsheet2004.pdf, http://www.moe.gov.sg/esd/factsheet2004.pdf 38. One hundred years of population growth, papers & analyses, Statistics Singapore,

http://www.singstat.gov.sg/papers/snippets/100years.html 39. Regionalism & Globalization, Singapore’s vision for Regionalism, why should we regionalize? Chai Ming Huang,

Foo Suan Yong, University Scholars Programme, http://www.scholars.nus.edu.sg/sea/students/region/p3.html 40. Country information Aruba, Pro-tran website, http://pro-tran.com/Leander-Information/Aruba.html 41. Aruba Information, detailed facts and statistics about Aruba, http://phrasebase.com/countries/aruba.html 42. The Aruban Free Zone, the ideal place for your company, FZA website,

http://www.fzanv.com/us/management.html 43. Singapore SPAMfighter information, http://www.spamfighter.com/country_info/SG.asp 44. Wired Island, Andrew Tanzar, http://www.fsa.ulaval.ca/personnel/vernag/EH/F/cause/lectures/Singapore.htm 45. Singapore financial system stability assessment, including reports on the observance of standards and codes, IMF

Country report no. 04/104, International Monetary Fund, April 2004 46. Asia Telecom 97 – Singapore ONE, Pioneering the 21st Century, IDA website,

http://www.ida.gov.sg/idaweb/media/infopage.jsp?


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Enclosure:

Seminar “Building Knowledge Economies: Master Planning the Singapore Way” News clipping Extra (Curaçao newspaper) Wednesday November 10th 2004

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