JS-SEZ: Time to deliver

FOLLOWING up on the signing of the memorandum of understanding between Malaysia and Singapore to establish the Johor-Singapore Special Economic Zone (JS-SEZ) in January last year, leaders of both nations have finally signed and sealed the agreement early this week.

Covering an area of 3,505 sq km, JS-SEZ is the second lease of life for Johor after the launch of Iskandar Malaysia (IM) back in 2006 when the government established the first economic zone covering an area of 2,300 sq km.

The larger area now covers Forest City (which is also the Special Financial Zone), the Pengerang Integrated Petroleum Complex (manufacturing, logistics, and energy), and Desaru (tourism, food security, health, and education). Hence, in total, the government has expanded from the original IM, which comprises six zones, to JS-SEZ with nine zones.

JS-SEZ is an expansion of what IM has achieved, which has already surpassed all expectations in terms of approved and realised investments. Based on the latest data available from the Iskandar Development Authority’s website, IM has generated RM456bil in committed investments as at June 2024 and the target is now moved higher to RM630bil by 2030.

In terms of recorded investments, IM has generated some RM445bil in total investments, of which close to RM200bil is related to the property sector. Some RM116bil were channelled to the manufacturing sector, while financial and business services recorded investments worth some RM48bil. Some 52% of investments were domestic investments while foreign direct investments (FDIs) totalled RM215bil, of which RM80bil were from China and RM54bil from across the causeway. China and Singapore accounted for 30% of all FDI into IM.

New projects

According to a news report from Singapore, business interest in JS-SEZ has already grown by 25% ahead of the signing of the agreement. Businesses are keen to set up shop across the border for purely economic reasons, mainly due to the lower cost of production as well as access to new markets. The agreement is looking to attract 50 projects within the next five years, which is likely to be achievable.

However, this depends on the size of the projects as on an annual basis, the two governments have indicated a rather lowball figure of just 10 projects a year. Over 10 years, JS-SEZ is expected to attract some 100 new projects.

Devil is in the details

Attracting investments and capitalising on each other’s strengths is a winnable proposition. However, the key to JS-SEZ lies in the details as well as execution.

A day after the signing of the agreement, the Finance Ministry dished out tax breaks for those keen to set up shop in the JS-SEZ.

The 5% tax rate for up to 15 years for companies undertaking new investment in qualifying manufacturing and services activities, such as artificial intelligence and quantum computing supply chain, medical devices, aerospace manufacturing, and global services hub is attractive for global companies.

The introduction of a special tax rate of 15% for 10 years for eligible knowledge workers working in JS-SEZ is an added carrot for companies to attract the right talent in the economic zone.

Other than tax breaks as well as the rolling out of critical infrastructure to support Johor’s next phase of development is of course crucial. This includes the soon-to-be-ready Rapid Transit System that will connect Johor Baru to Woodlands via a dedicated rail service, capable of moving 10,000 commuters per hour.

In addition, the city council is also looking at a Light Rail Transit system as well as the elevated Autonomous Rapid Transit system to enhance connectivity and ease of travel.

Talking about travel, one cannot help but point out the current bottleneck, which is either crossing the causeway or the Second Link. Of course, both governments have been working hard to resolve the issue and with the setting up of the MyBorderPass mobile application, Malaysians, and soon Singaporeans and other foreigners, will be able to cross the borders without the need of their international passports.

Another sore point that perhaps both governments should consider is to have a one-stop centre for border crossings with the Johor Customs, Immigration and Quarantine (CIQ) acting as the exit point from Malaysia and entry point into Singapore, while the Singapore CIQ facilities are the exit point from Singapore and entry into Malaysia. In this way, the border crossing is a single point of entry/exit into both countries.

The next Shenzhen

Due to the proximity between Johor and Singapore, the setting up of IM and now JS-SEZ, has always been given the tag of the next Shenzhen as the Chinese city benefited tremendously, both on the economic front as well as development due to its close border to Hong Kong. Today, Shenzhen is the third largest city in China with a population close to 18 million and covering an area of almost 2,000 sq km.

Shenzhen’s GDP in 2023 stood at approximately 3.65 trillion yuan or US$500bil, equivalent to more than US$28,000 per capita. While JS-SEZ can certainly take a leaf out of what Shenzhen has achieved, it requires tremendous coordination among civil servants, the private sector, and foreign investors to ensure the success of JS-SEZ.

At the same time, while the property theme is strong within an area that has been earmarked for massive transformation as seen in IM over the last 18 years, which accounted for 45% of total investment inflows, it is hoped that JS-SEZ will be more than just a property play.

Malaysia needs investments that are value accretive to the economy and sustainable. The positive spillover effect on the property sector should be of natural consequence and not primary objective.

Next stop – HSR

At the signing ceremony of the JS-SEZ, Prime Minister Datuk Seri Anwar Ibrahim commented that the Kuala Lumpur-Singapore High-Speed Rail (HSR) can be a reality if there is full participation from the private sector, with minimal government involvement. In essence, the Malaysian government is looking at the private sector to drive the initiative with the government only likely providing support where needed especially with respect to land acquisition issues and deliberation at government-to-government level.

HSR is a crucial missing element for connectivity between KL and Singapore and will form the backbone of KL’s connectivity northbound towards Penang and en route to Bangkok. This will then be part of the larger agenda, which is the China Belt and Road Initiative that connects Kunming in China to the Laos capital of Vientiane and later to Bangkok, making it possible to travel by HSR from Singapore to China.

In conclusion, while JS-SEZ has been eagerly anticipated and the government has now sealed an agreement with Singapore, the key will be execution. While there may be bottlenecks along the way, the government from both sides must ensure that JS-SEZ will be a resounding success.

Only then can we label Johor as the Shenzhen of South-East Asia.