THE ongoing discussions to establish a Johor-Singapore Special Economic Zone (JS-SEZ) will be a boon for the Asean region.
Much like the Greater Bay Area provides a crucial engine of growth for China’s economy, the establishment of the JS-SEZ has the potential to elevate Asean’s economic position, particularly due to the investment opportunities it will open along with the jobs it will create, while also developing a globally competitive business region.
The flourishing Malaysia-Singapore corridor is at the heart of this development, occupying a strategic position in the centre of South-East Asia.
Malaysia and Singapore have enjoyed a robust and enduring relationship underpinned by their proximity, economic, historical, and familial ties.
And this month, as the two nations celebrate the anniversary of their independence, their relationship continues to evolve.
Both countries are each other’s second largest trading partners, with bilateral trade reaching US$83.53bil in 2022, reflecting a notable growth of 37.6% compared to US$64.55bil in 2021.
By seeking to tap and complement each other’s growing markets, these two economic partners can boost their growth potential and that of the wider Asean region. Some links are already in place and improving.
Earlier this year, both countries signed agreements related to the digital economy which will facilitate enhanced cooperation in areas such as trade facilitation, digital identity, standards, investment promotion, facilitation of digitisation as well as digitisation of micro, small and medium enterprises.
This will open opportunities in the technology sector, inclusive of providing funding to new economy businesses that are an emerging force driving innovation and transformation.
The pact also aims to promote more Asean-wide cooperation in the digital space.
At the same time, the two countries also signed a green economy framework agreement.
This is Malaysia’s first green economy agreement signed with any country and will include working together on developing electric vehicles, low carbon solutions, renewable energy and carbon credits projects among others, aligning well with the ambition of both Malaysia and Singapore to achieve carbon neutrality and net-zero emissions, respectively, by 2050.
Financial institutions have an opportunity here to provide sustainable financing and investment that support the development of these projects.
Partnership between the private and public sector to address any funding gaps will also be crucial in addressing challenges presented by climate change.
HSBC and Temasek, for example, have established a debt financing platform through their joint venture Pentagreen, dedicated to sustainable infrastructure projects with an initial focus on South-East Asia.
The possible establishment of the JS-SEZ also reinforces the commitment to drive growth and strengthen connectivity and collaboration across the corridor.
In 2022 alone, Johor recorded RM70.6bil worth of foreign investments across various sectors.
Singapore was Johor’s second-largest foreign investor and contributed to around 70% of Johor’s total foreign direct investment (FDI) in the manufacturing sector.
The creation of the new zone will only fuel greater development of trade and investment between both countries and across the wider Asean region.
Improving mobility between the two nations will be essential to ensuring the JS-SEZ’s success, especially given the vast number of residents in Malaysia who cross the border every day to work in high value jobs in Singapore.
Great strides have already been made with the ongoing development of the Johor Baru-Singapore Rapid Transit System Link and the large-scale property rejuvenation project that will convert Bukit Chagar in Johor into a southern economic hub.
But we believe that more strategies will be implemented to enhance the connectivity between the two borders.
As the two economies’ partnership continues to deepen, we expect to see greater cross-border trade and investment. We have already seen a growth in FDI flows from Singapore into Malaysia’s real estate sector.
Investments from Singapore into Malaysia’s manufacturing sector have also been key, with Malaysia’s well developed electrical and electronic sector benefiting significantly.
At the same time, there have been growing FDI flows from Malaysia into Singapore’s financial sector, particularly as many corporates are focused on setting up their regional treasury and finance centres in the republic.
There are several factors that make Malaysia an attractive investment destination.
Its booming demography with a growing, skilled workforce and expanding consumer class, its flourishing business landscape inclusive of a vibrant manufacturing sector, along with its favourable government policies and well-developed infrastructure, all offer corporates unique investment prospects.
Its diversified economy and connectivity to global trade networks and supply chains further add to its allure.
Singapore too has a lot going for it. Its position as a regional financial centre conducive for trade, excellent infrastructure, its stable, progressive legal and regulatory framework, along with its development into a sustainability and innovation hub, make it a strategic investment location.
Singapore is also the gateway to companies wanting to expand into Asean, receiving 57% its FDI, while serving as a major foreign exchange centre for the region.
We are increasingly seeing international businesses establishing their Asean regional hubs in Malaysia and Singapore due to the reconfiguration of the global supply chain, increased geographic diversification efforts and the adoption of the China+1 strategy.
This creates enormous possibilities for greater collaboration across the Malaysia-Singapore corridor.
Deeper ties between Malaysia and Singapore will unlock unprecedented opportunities for both, particularly around the areas of trade, sustainability and digital.
Capitalising on these prospects will be fundamental to not only enabling the two nations to play a growing role in the global economy but will also be crucial to enabling the wider Asean region to gain further international significance.
Datuk Omar Siddiq is the chief executive officer of HSBC Malaysia and Wong Kee Joo is chief executive officer of HSBC Singapore. The views expressed here are the writers’ own.
