ON Jan 7, leaders of Malaysia and Singapore signed an agreement for the Johor-Singapore Special Economic Zone (JS-SEZ) – marking a new chapter in fortifying the long-standing bilateral relationship between the two countries.
The agreement follows the collaborative memorandum of understanding signed in 2024.
It demonstrates the commitment of both countries to thrive on robust economic ties, strategic collaborations and heralds new business value propositions as well as investment opportunities.
Both sides will leverage on each other’s complementary strengths, synergies and resources to achieve a win-win outcome through more streamlined regulatory procedures and tailor-made investment tax incentives.
While the development gaps between Johor and Singapore could pose a risk, there are competitive advantages that each of them can offer to collaborate closely and “sincerely” for mutual benefits. Johor has abundant land, competitive utilities, connectivity infrastructures, and manpower resources while Singapore’s has an edge in technology, smart manufacturing, logistic, digitalisation and international financial services.
Compared with the Iskandar Development Region (IDR) about 20 years ago, we have reasons to believe that the JS-SEZ has a better chance to succeed.
> The collaborative agreement underscores both countries’ commitment to jointly developing it unlike the IDR which was driven by the federal government and Johor,
> Persistent geopolitical risks threaten the supply chains, necessitating derisking and shifting of supply chains, making the SEZ a viable choice of investment destination,
> Increasing labour cost and utilities in Singapore compel businesses to relocate and
> More developed infrastructure, transportation and logistics networks (Johor Baru-Singapore Rapid Transit System, Gemas-Johor Baru electrified double-track rail, Johor Port and Port of Tanjung Pelepas).
Malaysia and Singapore have a long-standing economic partnership, maintaining strong diplomatic relations. The signing of the agreement coincides with the 60th anniversary of diplomatic ties signifying a start of a new milestone in elevating both countries’ economic ties.
The establishment of the JS- SEZ also offers Asean the opportunities to invest in the special economic zone, positioning it as key investment location in the region.
The bilateral trade and investment between Malaysia and Singapore had grown over the decades.
Singapore has consistently ranked as one of Malaysia’s top trading partners and a leading source of foreign direct investment (FDI). The city-state is Malaysia’s second largest trading partner in the first 11 months of 2024 and also the second largest approved foreign investor in various economic sectors in the first three quarters of 2024.
Supported by its strategic sweet spot in the region, regulatory regime and business ecosystem, including favourable tax incentives, well-established transportation networks and a trainable workforce, the JS-SEZ can rival the world’s best industrial parks.
We believe the SEZ will expand economic growth and job-creation.
Ultimately, domestic small and medium enterprises have to enhance their capabilities to collaborate by partnering with foreign business partners to secure business opportunities in the SEZ. The cross-border investment flows and cooperation span diverse high growth and high sectors including semiconductor, digital economy, green economy, logistics, financial and business services.
Domestic integration
The SEZ must focus on promoting domestic integration and value-addition to ensure that the benefits are distributed across different locations and sectors, while fostering industrial linkages between foreign players and local small and medium enterprises (SMEs).
The proposed separation of funding requirement model for both countries, in which Malaysia will be taking care of the funding of on-site and off-site infrastructure is deemed appropriate and sustainable since the SEZ is located in Johor.
We must have good governance of the proposed fund as it involves taxpayers’ money.
Malaysia’s financing of the SEZ infrastructure can ease the on and off-site infrastructure bottlenecks and constraints.
The government’s direct involvement also enables it to raise long-term concessional funds to sustain the development of the zone.
However, the pitfall is that this can increase its debt burden given its current tight fiscal balance sheet.
Another aspect to consider is the management of the SEZ.
Public management will enable closer coordination and facilitation of policy in aligning with the federal government’s goals.
In this regard, the focus is on ensuring the effective coordination and strategic collaborations between the federal government, state and local authorities.
On the other hand, private management of SEZ can be more dynamic, leveraging on its expertise, including mobilising self-funding to operate within the zone.
The JS-SEZ has set a target of 50 projects within the first five years and a cumulative of 100 projects within first 10 years, aiming to create 20,000 skilled jobs.
In deciding the projects, both countries will have to consider the mutual benefits in terms of cost savings and competitiveness.
Both countries have to prioritise projects based on their strategic importance and deliverables. JS-SEZ blueprint
Creating a well-defined plan can help keep the JS-SEZ on track. We look forward to the formulation of the JS-SEZ blueprint to serve as a catalyst to work together between public and private sectors.
The Invest Malaysia Facilitation Centre Johor which is a centre for facilitating investment must offer both domestic and foreign investors a smooth journey from initial interest to operational realisation, leveraging on the digital platform. Time is of the essence.
The JS-SEZ blueprint should include the following aspects:
> Policy clarity and consistency: A transparent and predictable regulatory environment is paramount for investor confidence. Clear ownership and accountability of the management will ensure quick redressal of operational challenges.
> Infrastructure funding needs: A comprehensive assessment of funding requirement for infrastructure development both within the SEZ and in surrounding areas is crucial.
The assessment should cover the requirements of potential investors and supporting industries, aligning with the priority sectors.
For instance, upgrading the existing road infrastructure and expanding capacity to accommodate increased traffic flow such as the Pasir Gudang highway.
> Inclusive growth and SME participation: SEZ’s benefits should be extended to various sectors and locations. Fostering linkages between SEZ companies and local SMEs will create opportunities for local businesses to participate in value chain.
Technology transfer
The government must ensure that domestic industries will benefit from FDI in the SEZ through technology transfer, sharing of expertise, and creation of jobs for the people.
Providing SMEs with access to infrastructure, finance, technology, and markets will be vital for their capacity building development to integrate into domestic and regional value chains.
> Human capital development: Investing in manpower development, training, and capacity- building is essential to meet the human resource demands of the SEZ priority sectors.
Collaboration between educational institutions in both countries can further enhance the talent pool.
In conclusion, the biggest challenge is the process of turning the agreement into action and deliverables. Both countries must commit to strategic collaborations to secure a win-win outcome and complementary synergies.
The critical phase of the SEZ requires effective planning, monitoring, coordination as well as enhanced communication of Malaysia and Singapore as it affects the performance, deliverables of the zone and trust of both countries.
Lee Heng Guie is Socio-Economic Research Centre executive director. The views expressed here are the writer’s own.
