Warming ties between Malaysia and Singapore

THEIR smiles, friendly handshakes and joint statements after every meeting spell good omen for bilateral ties.

Suffice it to say that Prime Minister Datuk Seri Najib Tun Razak and his Singapore counterpart Lee Hsien Loong have continuously demonstrated their commitment to building good neighbourly ties between the nations that they are leading.

A case in point: Both Najib and Lee ended the fourth Malaysia-Singapore Leaders' Retreat last month on a high note, reaffirming strong bilateral relations, with announcements of further collaboration and, more specifically, the construction of a high-speed rail (HSR) link between Kuala Lumpur and Singapore.

There is a consensus among international relations observers that the efforts sown by both leaders have catapulted the Malaysia-Singapore ties to new heights and would pave the way for long-term mutual economic benefits. That, they say, would also send positive signals to investors and business professionals alike.

“It (the intensified effort in enhancing the bilateral ties between Malaysia and Singapore) clearly stems from the desire for more growth,” Dr K.S. Balakrishnan, head of International & Strategic Studies at the University of Malaya, argues.

“We're living in a globalised world, where economics is defining politics more than politics defining economy. Leaders must be open-minded to find win-win solutions and create synergies that can help both countries to expand in an increasingly challenging business environment,” he explains.

Turning point

That Malaysia-Singapore ties have never been as good as they are now is not an overstatement.

The bilateral relationship between both countries had in the past been marked by constant bickering and disagreements over many issues from that pertaining to land and water to skies, especially since Singapore got separated from the Federation of Malaysia in 1965, and despite the fact that the economies of both neighbours were highly interdependent.

As political observers argue, the animosity between the two countries deepened under Malaysia's former Prime Minister Tun Dr Mahathir Mohamad's leadership, but changed after the fourth premier, who is internationally known for his acerbic mannerism, stepped down.

“Malaysia's relationship with Singapore became better under Pak Lah (Malaysia's fifth Prime Minister Tun Abdullah Ahmad Badawi), but moved one step higher when Najib came to power,” James Chin, senior visiting fellow, Institute of Southeast Asian Studies in Singapore, says.

According to Singapore High Commissioner Ong Keng Yong, the major turning point in the bilateral relationship between Malaysia and Singapore is Najib's effort in clearing one major obstacle the implementation of the points of agreement (POA), which had been negotiated and agreed upon in 1990. The 20-year-old deadlock, which involved the transfer of the railway land owned by the Malaysian Government through KTM Bhd in Singapore, was cleared in 2010, a year after Najib assumed the role as the sixth Prime Minister.

“Our (Singapore's) relationship with Malaysia has been particularly good for the last few years, and we have Najib to thank for that because he cleared that one big roadblock,” Ong tells StarBizWeek.

On how Malaysia's changing political landscape could affect its ties with Singapore in the future, Ong reiterates his prime minister Lee's stance that Singapore wants to develop its relationship with Malaysia on the basis of “continuity and stability” in Malaysia.

Growing strong together

The economies of Malaysia and Singapore have always had a high degree of interdependence.

The direction of trade, for one, underscores the importance of Malaysia and Singapore as each other's vital trading partners, says Rusdi Omar, senior lecturer at the Department of International Affairs Management of Universiti Utara Malaysia.

Malaysia and Singapore have been each other's main trading partners for many years. Data from Malaysia's Department of Statistics, for instance, show that bilateral trade between Malaysia and Singapore was valued at RM175.5bil last year, up from RM161.7bil in 2011. Malaysia remains Singapore's largest trading partner, while Singapore is Malaysia's second largest trading partner after China.

For Rusdi, it is clear. He argues: “Singapore's well-being is important to Malaysia as Singapore is one of its largest trading partners, and vice versa. The establishment of good relations is, therefore, economically vital for both countries.”

That seems to gel with what most economists have long contended: That it is high time that Malaysia and Singapore capitalised on each other's comparative advantages to continue growing their economies especially in the current global economic uncertainties.

Incidentally, Malaysia and Singapore's economic interdependence is not just reflected in their bilateral trade, but it can also be seen in the flow of investments between both countries.

Data from the Malaysian Industrial Development Authority show that Singapore remains one of the top investors in the country, with total value of approved projects standing at RM2.2bil last year, down slightly from RMRM2.5bil in 2011 because of the global economic weakness. Singapore's investments in Malaysia are mainly concentrated in the manufacturing sector.

And in recent years, Singapore has been pouring money into Iskandar Malaysia, the development corridor in Johor.

It is natural for Singaporeans to take deep interest in Iskandar given the latter's close proximity to the city-state. And it appears that the development zone is not only attracting investments of Singaporean businesses and companies, but also that of individual investors from the city-state because of the relatively more affordable housing in Iskandar Malaysia.

Iskandar is key

According to the Iskandar Regional Development Authority (Irda), Singaporeans are the single largest group of investors in Iskandar, accounting for about 16.6% of the total money invested there.

As at August last year, total cumulative investments from Singapore in Iskandar stood at S$2.5bil (RM6.1bil), up from S$1.82bil in 2011. About three quarters of the total cumulative investments from Singapore went into the manufacturing sector, while the rest flowed into the property, education and healthcare sectors.

Such flow of money, Rusdi says, has further complemented economic activities on both sides of the Causeway. He points out that Malaysia will benefit from Singapore's investments, while Singapore will be able to alleviate its space problems by transferring some of its industries to Iskandar.

Chin concurs, saying that Iskandar, which will act as hinterland to Singaporean industries, will be a “game changer” in bilateral ties, and a key to driving Malaysia-Singapore ties to the next level.

On that note, Ong observes that Iskandar has remained high on the agenda of both governments because of the intensity of development in Southern Peninsular Malaysia and the increased movement of Singaporean businesses and companies as well as individuals into the development corridor in Johor in recent years.

“There are many issues that need to be addressed in order to harmonise our targets,” Ong says, referring to the types of Singaporean industries that are moving into Iskandar and labour supply issues, among others.

There seems to be a mismatch of expectations, as Malaysia anticipates high-technology and capital-intensive industries to invest in the country as part of its ambitious plan to become a high-income economy by 2020, while Singaporean businesses that are invested in Iskandar are mostly not from that “ideal” segment.

Ong's justification is that Iskandar needs a variety of business sectors, especially industries that could provide the “critical mass” (read: labour-intensive industries) in order to support other businesses, especially the retail sector, and sustain the development of the economic corridor.

As for Singaporean individuals' investment in Malaysian properties, especially those in Iskandar, Ong reveals that both the Malaysian and Singaporean governments are also concerned on ensuring that such investments do not contribute to rising costs on the ground.

Abundant opportunities

According to Ong, while Iskandar remains a bright spot for most Singaporeans, they are also looking into investing in other economic corridors throughout Malaysia, including Sabah, Sarawak, the East Coast Economic Region and Northern Corridor Economic Region.

“Going forward, we'll probably look at other attractive locations in the whole of Malaysia,” he says.

From Singapore's perspective, Malaysia is regarded as a “big” market that presents a spread of opportunities for all types of businesses from manufacturing to the services sectors to thrive. For one thing, Malaysia's economic growth is relatively more robust than that of the developed and mature Singapore.

Malaysia's gross domestic product (GDP), for instance, is expected to grow at an average of 5% to 6% per year through 2020, while that of Singapore is expected to grow only at an average of 2% to 3% per year over the same period. According to official forecasts, Malaysia's GDP growth will likely be sustained at around 4.5% to 5.5% this year (versus 5.6% in 2012), while Singapore's GDP is expected to expand between 1% and 3% this year (versus 1.3% in 2012).

For another, with Malaysia's massive stimulus measures such as the Economic Transformation Programme (ETP) in place, opportunities are abundant for foreign investors including those from Singapore.

Cost-wise, Malaysia also offers a much cheaper operating environment which could help Singaporean businesses make better profit margins.

According to a World Bank report for 2013, the ease of doing business in Malaysia has improved, with the country ranking 12th out of more than 180 countries, compared with its 14th position in the preceding year.

Nevertheless, it still lags behind Singapore in terms of ease of doing business. The city-state has for the past two years ranked top in the world in terms of ease of doing business.

“One of the things that we (policymakers) constantly look at is how to improve policy measures to facilitate business and investment flow to make it easier for the private sector to flourish,” Ong says.

He points out that Singapore is a very open and liberal market economy that allows foreign investor participation in almost every sector of the country's economy, including key strategic sectors such as power generation.

Singapore's second largest utility firm PowerSeraya Ltd, for instance, is wholly-owned by Malaysian infrastructure conglomerate YTL Group through YTL Power International Bhd. YTL Group is also involved in the real estate sector of Singapore.

Ong notes that there are already many Malaysian businesses that have invested in Singapore, besides the YTL Group. Among these are S P Setia Bhd and Selangor Dredging Bhd in the real estate sector; Malayan Banking Bhd in the financial services sector; Axiata Group Bhd in the telecommunications industry, and the Genting group in the leisure and hospitality sector.

“There has been an increasing number of Malaysian investors in Singapore because we are now operating in a globalised environment many are invested in Singapore, not so much for the Singaporean market, but to use Singapore as a launching pad to reach out to international markets,” Ong says.

He adds that Malaysian and Singaporean companies can form joint ventures to penetrate important markets like China, India and Vietnam.

Business collaborations

Significantly, the warming of bilateral ties between Malaysia and Singapore has encouraged the formation of joint ventures between companies from both sides of the Causeway.

The collaboration between government-linked companies (GLCs) Malaysia's Khazanah Nasional Bhd and Singapore's Temasek Holdings for one, can be regarded as one of the major breakthroughs in this aspect.

Political observers say it is a significant development that has set the right tone for the private sector to form collaborations between companies from both sides of the Causeway.

State investment arms Khazanah and Temasek in June 2011 formed a 60:40 joint venture, called M+S Pte Ltd, to develop landmark projects in Marina South and Ophir-Rochor in Singapore. These projects will be on the commercial land parcels, which were a swap from the Singaporean Government in return for Singapore railway land previously used by KTM.

Khazanah and Temasek has also formed a 50:50 joint venture, called Pulau Indah Ventures Sdn Bhd, to develop two wellness-related projects in Iskandar, with a gross development value of about RM3bil. These projects are expected to be completed between 2015 and 2018.

Other examples of Malaysia-Singapore business collaborations are CapitaLand Ltd with Sime Darby Property Bhd to develop a RM500mil mall in Kuala Lumpur; Ascendas Pte Ltd with UEM Land Bhd to develop a RM3bil integrated eco-friendly technology park in Nusajaya in Iskandar; and FASTrack Autosports Pte Ltd and UEM Land for the development of Motorsports City also in Nusajaya.

Rusdi says the close ties and collaborations between the public and private sectors of both countries are an important strategy to tap new opportunities in a globalised world.

Increased connectivity

In line with improved bilateral ties between Malaysia and Singapore, governments from both countries have shown resolve to enhance connectivity through the development of HSR, which is the highlight of the recent Leaders' Retreat involving Najib and Lee.

Similarly, both governments have agreed to go ahead with the development of the rapid transit system (RTS) linking Johor Baru and Singapore.

The RTS is expected to be completed by 2018, while the HSR, which is expected to cut travelling time between Kuala Lumpur to Singapore to 90 minutes, is expected to be completed by 2020.

“Infrastructure development makes sense for economic development,” Ong says.

The HSR, for instance, will not just serve for the economic good of Kuala Lumpur and Singapore, but it will also benefit areas along the lines.

“I think by having the HSR, we will send a positive signal to the marketplace and the people at large we're telling them we're committed to do more, and by having this kind of infrastructure development, we can contribute to the economic growth of both countries,” Ong adds.

The warming of Malaysia-Singapore ties is indeed a welcomed development. But as political observers put it, governments from both sides of the Causeway have to consistently demonstrate deep political will to ensure that they can build sustainable relations for the long-term good of both countries.

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