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Sam Gibb

Singapore reveals 3 economic solutions to traffic congestion for Asian peers

BY SAM GIBB

Traffic congestion reduces a country’s potential for creating prosperity. Singapore identified this early in the piece and was able to create an effective system of incentives and constraints so traffic wasn’t a hindrance to economic growth.

Neighbouring countries could learn a lot from the systems that Singapore has put in place, allowing their economies to reach their potential.

Despite billing itself as the ‘Garden State’, Singapore has one of the highest road densities of developed nations with 4.8km of road for each square kilometre of land. Singapore also has one of the highest ratios of vehicles per kilometre of road at 281.

This is significantly higher than Japan (63), France (36), the United Kingdom (77) and the United States (38). Regardless, Singapore has found a way to avoid the traffic problems that plague neighbouring countries.

Understanding the economic issues that come with traffic congestion, the Government put in place a range of incentives and constraints to limit the impact cars have on the city-state. There’s a system of quotas, registration fees, and congestion charges that allow Singapore’s traffic to flow relatively easily 24/7.

The issue for neighbouring countries

People love complaining about traffic. Anyone who has had a “quick” business trip to Jakarta will have most likely uttered something about the traffic under their breath. Neighbouring countries have a similar number of vehicles per kilometre of road as Singapore with Indonesia at 143, Thailand at 255 and the Philippines at 226.

However, the quality of the roads is a far cry from the silky smooth expressways that you’ll glide across in Singapore. A poor road system combined with a growing middle class who own an increasing amount of vehicles per household can quickly lead to crushing congestion problems.

As traffic slows to a crawl, it’s not just the commuters that suffer. Manufacturers find the number of shipments per day restricted, business meetings are limited to 1-2 per day, and multi-nationals prefer to avoid the traffic jams altogether instead of devising solutions to the logistical issues.

The cost of congestion isn’t trivial. A 2013 McKinsey research report put the economic cost of Indonesia’s poor road infrastructure at US$5.2bn in 2010. This was a result of having 70% of the total road network poorly maintained and 35% heavily damaged. Adding to the inadequate infrastructure, Indonesia has put incentives in place encouraging people to own vehicles by subsidising the price of fuel.

Singapore’s Solutions

It’s always a shock when people first hear about how much it’ll cost to get behind the wheel of a brand new Honda Jazz in Singapore. After hitting a low of S$3,864 in March 2011 the Certificate of Entitlement (COE) for a new car will now set you back over S$70,000.

When you add on the additional registration fee, the level of which ratchets up to 180 per cent of the Open Market Value of the vehicle, you end up paying 2-3 times the regular price of the car.

By increasing the price of vehicles, the COE system restricts the amount of people that want or are able to buy a car. Twice a month, the Singapore Land Transport Authority runs an auction process for the available COEs. The amount of COEs is determined by a quota system.

Further to the quota system and additional registration fees that new car owners need to pay, there’s also the Electronic Road Pricing (ERP) system that incentivises drivers to avoid certain areas at peak times.

Costing about the same as a cup of coffee, passing underneath an ERP gantry can cost a normal car up to S$5 during peak hours. If drivers aren’t in a rush they’ll think twice before turning down a road that could lead them to an ERP gantry.

What can neighbouring countries learn from Singapore?

Singapore’s private transport fees and charges might seem excessive, but they work. Singapore has created a system of incentives and constraints that allow the economy to expand without causing congestion.

If the neighbouring countries are able to get beyond politics and use a similar economic system to Singapore they will be able to remove the cuffs that are constraining their potential growth.

The views expressed in this column are the author's own and do not necessarily reflect this publication's view, and this article is not edited by Singapore Business Review. The author was not remunerated for this article.

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Sam Gibb

Sam Gibb

Sam works at Symphony Financial Partners.

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