The agreement between Malaysia and Singapore to establish a special economic zone (SEZ) in Malaysia’s Johor state, which lies across the Johor Strait from Singapore, could help turbocharge growth on both sides of the border, argues Adrian Ashurst, CEO of Worldbox Intelligence.
Malaysia and Singapore agreed in January to develop a special economic zone (SEZ) in the southern Malaysian state of Johor, with the aim of attracting investment and increasing the movement of goods and people across their shared border. The Johor–Singapore Special Economic Zone (JS-SEZ) will allow Malaysia to tap Singapore’s vast bank of investment capital and cutting-edge technology, while also opening up Malaysia’s abundant supply of land and human resources to Singaporean businesses.
The JS-SEZ marks another step in both governments’ efforts to connect Singapore and Malaysia’s economies more closely. The two countries are developing a Johor Bahru–Singapore Rapid Transit System (RTS) link, with passenger services due to start in 2026. A light-rail connection stretching 4km and costing around US$2.2 billion, the RTS promises to ease traffic congestion on the Johor–Singapore Causeway, a combined railway and motorway bridge that currently provides the only land link between the two countries.
Expanding transport links
Around 350,000 people commute from Malaysia to Singapore across the Causeway each day, making it one of the busiest border crossings in the world. It can take an average of two hours for vehicles to cross the border at present, and up to five hours at peak times – before a festive season, for example.
Malaysia has also revived plans to build a high-speed rail link between Kuala Lumpur and Singapore. Local and international firms have been asked to submit proposals for the rail line, which would cut the current 4-hour-plus drive time between the cities to a journey of just 90 minutes. Malaysia is hoping it will be able to finance the US$20 billion-plus project by attracting private investment instead of using public funds towards its construction.
Singapore and Malaysia recently agreed to collaborate on joint developments in renewable energy and cross-border electricity trading, as both countries eye sustainable sources of power amid a greater urgency to fight climate change. The two countries have upgraded a number of existing power cables to increase energy flows. Last October, the Malaysian clean-energy provider Gentari, a subsidiary of the state-owned energy group Petronas, signed an agreement to explore the construction of a pipeline from Malaysia to Singapore for the import of hydrogen into Singapore, as part of the island republic’s plans to reduce dependence on high-carbon energy supplies.
New growth engine
Malaysian Economy Minister Rafizi Ramli believes the JS-SEZ will become a new engine of growth for the country as it strives to transition away from natural resources to become a high-tech economy. For example, the zone should provide impetus to the government’s push for an energy transition, given the expected rise in demand for renewable energy from the technology sector and heavy industry in both Johor and Singapore. Malaysia also hopes the JS-SEZ will attract firms in the tech, electrical and electronics, medical equipment, food-processing and data-centre sectors.
The real-estate sector in Johor could be another beneficiary. A considerable overhang of properties is currently weighing on the market in the state, but the new zone and improved transport links could boost investment by Singaporeans and other foreigners in the local property market. Some agents report that property values in some parts of Johor Bahru are already beginning to increase ahead of the RTS project’s completion by the end of 2026.
Singaporean firms have long operated in Johor, but congestion on the Causeway is a considerable problem. The RTS should help, but both countries are exploring other initiatives, including a passport-free QR-code system to speed up immigration clearance. There are also plans for a one-stop business and investment service centre and digitised cargo clearance at land checkpoints. Digitised cargo clearance could cut down the current clearance process from 15–20 minutes per truck to under five minutes, a significant saving given that some businesses may have large numbers of trucks crossing the border each day.
Singaporean businesses would also like to see financial incentives to operate in the JS-SEZ. One business told Singapore Today that the various grants the Singapore government extends to local businesses to lower costs or encourage productivity should be extended to the zone. Another suggested lower tax rates and incentives “for employees and business owners alike”.
However, there have also been some highly favourable responses from Singaporean businesses to the zone. One company told Singapore Today that, following a carbon-tax hike in Singapore, more energy-intensive companies may consider relocating some lower-value-added economic activities nearby and focus their attention on higher-value-added activities in Singapore. Others pointed to the constraints imposed by Singapore’s ageing population, high healthcare costs and manpower shortages.(1)
Overall, the JS-SEZ plus the other initiatives aimed at boosting integration between Singapore and Malaysia can only boost trade flows and foreign direct investment (FDI). Singapore and Malaysia are already each other’s second-largest trade partners, with bilateral flows reaching US$83.53 billion in 2022. Singapore is also one of Malaysia’s top sources of FDI, contributing 8.3% of its total investments in 2022.
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