Is The Johor-Singapore SEZ A Game Changer?

The proposed Johor-Singapore Special Economic Zone (SEZ) has been billed as a potential “game changer,” particularly for Johor. There is strong impetus from both Malaysia and Singapore to make the SEZ a success, as greater economic integration, with freer movement of people, goods and capital, will open up fresh opportunities that tie in with long-term policy goals. Maybank IB in its analytical report said it has identified 6 reasons why this time it could be different and how the SEZ could spur the flow of trade, labor, investments and energy. Lets look at the highlights.

Six Catalysts for Success

1 Strong Support from Both Governments & the King: Relations between Malaysia and Singapore have improved significantly under Malaysia PM Anwar. Johor’s Sultan Ibrahim wants to “produce a win-win outcome with tangible benefits for their people and businesses.” Sultan Ibrahim was elected as the current Malaysian King for a five year term from 31 Jan 2024. Singapore is keen to boost trade, investment and connectivity, and ease the constraints on land, labor and renewable energy.

2 Greater Land Connectivity: The upcoming Johor-Singapore RTS Link is expected to have a capacity of over 100K passengers a day when it commences end-2026, improving connectivity and reducing congestion on the Causeway by 35%. There are plans for an Autonomous Transit System (ART) network in southern Johor, which would ease the congestion in Johor Bahru town center. The High-Speed Rail may be revived.

3 Capturing MNCs’ Supply Chain Shifts Amid US-China Rivalry: The SEZ can be a formidable competitive advantage in attracting FDI by integrating Singapore’s financial, logistics and advanced manufacturing capabilities with Johor’s competitive costs, energy resources and abundant land. Transparent and clear rules for cross-border goods and people flows will enhance supply chain resilience, a key consideration after pandemic-era disruptions. Joint developments of more industrial parks can leverage on the Singapore brand and expand the range of MNCs, replicating the success of Capitaland-UEM Sunrise’s Nusajaya Tech Park.

4 Lower Operating Costs & Competitive Ringgit: Johor offers a steep cost advantage, which is amplified by a favorable exchange rate. Salary levels are more than 80% lower than Singapore for manufacturing, and 40% lower for hospitality. Businesses are not subject to high foreign worker levies and strict quotas they would face in Singapore. Electricity tariffs are about 60% lower for businesses; and 80% lower for households. Rents in Iskandar are 75% lower than Singapore for offices, and 85% lower for housing.

5 Easing Talent & Labor Shortages: The SEZ will create high-value added jobs, build up Johor’s human capital, and stem the “brain drain.” A potential SEZ residency pass and/or long-stay visa scheme will allow Singaporeans or foreigners to live in the SEZ and work in Singapore. Shorter travel time will increase the supply of Malaysian workers willing to commute without the pressure on Singapore housing supply and rents. A concessionary My Second Home Scheme for Singaporeans (lower fixed deposit & income requirements) could increase investments and spending in Johor.

6 The Green Transition: The SEZ will benefit from Singapore’s green energy transition, as Singapore targets to import 30% of its energy mix from renewable sources by 2035. Malaysia lifted its renewable energy export ban in 2023, and plans to export up to 300MW of renewable energy to Singapore for a start. Massive investments in data centres are already being built in Johor, partly to serve the Singapore market.

The Johor-Singapore SEZ has received much fanfare, billed as a potential “game changer,” especially for Johor as more investments will land in the SEZ. However, sceptics point out that policy flip-flops and U-turns had been made after much
excitement on cooperation projects in the past, such as the Kuala-LumpurSingapore High Speed Rail.

Maybank IB said it is optimistic that the creation of a SEZ will drive a step-up jump in the cross-border flow of goods, people and investments. There is a strong impetus from both the Malaysia and Singapore governments and the King to make the
SEZ a success, given that it offers win-win opportunities that tie in with longterm policy goals.

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