What would a Johor-Singapore economic zone entail for Malaysians and Singaporeans?

Some state that not all businesses may be equipped to take part and thereby, benefit

The Malaysian city of Johor Bahru, with heavy traffic on the Johor-Singapore Causeway at dusk, illustrating talks on establishing a special economic zone.
Singapore and Malaysia are in talks to establish a special economic zone (SEZ), but what exactly does it mean for citizens? (Photo: Getty Images)

By D. Kanyakumari

MALAYSIA has long been Singapore's largest trading partner. And with a large portion of trade focused on the southern state of Johor, it's no surprise that there was much buzz following Singapore’s National Development Minister Desmond Lee's announcement in July of advanced talks between the two countries to set up such a special economic zone (SEZ).

But how beneficial will such a zone, that’s expected to feature developed industrial spaces and financial incentives, actually be to driving economic growth and strengthening bilateral connectivity and collaboration?

According to experts we spoke to, on the surface, the proposal has many benefits. Nevertheless, the devil is in the details.

Important first steps

"Both countries have had a long-standing symbiotic relationship. Singapore is a small (rich) island and Johor is the fourth richest state in the country. The two can really complement one another," said Lee Heng Guie, the executive director of Malaysian think tank Socio-Economic Research Centre (SERC).

"(But) to get this really up and running, both countries have to first look at immigration processes and focus on how to get everything as streamlined and seamless as possible because that is what investors will be (focused on)."

Lee added that while infrastructure-wise, port and highway connectivity already exists, Malaysia and Singapore must also determine the industries that would participate in an SEZ.

Dr Lim Kim Hwa, a fellow in finance at the University of Cambridge and a director at Penang Institute, explained that SEZs are powerful tools to attract foreign investment, which is why more than 5,000 such zones exist around the world; from China to the Middle East and North Africa.

He, too, said it is crucial for the parameters of cooperation between Malaysia and Singapore to be set from the get-go.

"The timing (also) needs to be opportune for both parties. (And) this opportunity is caused by many factors including macroeconomics, geopolitics as well as local politics," he said.

Political profits

Timing, no doubt, can make or break deals. And the potential resurrection of the Kuala Lumpur-Singapore High-Speed Rail (HSR), a project terminated in 2020 by a previous Malaysian government, offers proof of this fact.

Hence, there was much speculation about whether the SEZ announcement, made in the run-up to the Aug 12 elections in the Malaysian states of Kedah, Kelantan, Negeri Sembilan, Penang, Selangor and Terengganu, was actually intended to entice voters.

Observers, though, point out that a southern trade zone has been a long time coming, and something similar was, in fact, first mooted some 20 years ago.

"It doesn't necessarily have to do with who is leading the country now or what is happening politically, because if you look back, (an) SEZ was established during former Malaysian prime minister Abdullah Ahmad Badawi's time," said Dr Jeniri Amir, a senior fellow of Malaysia’s National Council of Professors.

"The conversation is (nevertheless) happening now because both sides (Malaysia and Singapore) feel that this is the best time for this commitment. Further delays would not do any good."

Still, he noted, the smooth establishment of the SEZ would certainly cast Malaysia’s Prime Minister Anwar Ibrahim in a good light.

"The rakyat would view it as Anwar walking the talk and managing to come up with this agreement with Singapore. It (would show) that he is not just committed in terms of policies but bilateral relations as well," Jeniri said.

"It is also essential that this is not just the effort of the PM or Economy Minister Rafizi Ramli. The whole Cabinet needs to cooperate and work towards making the SEZ a success."

On the flip side, Dr Oh Ei Sun of the Singapore Institute of International Affairs cautioned that the political blame game could begin if things don't pan out as hoped. This is why the neighbouring countries have to work even closer, not least in easing some of the administrative procedures in immigration and customs.

"Any policy, domestic or international, that could stimulate the flagging economy is likely to be welcomed by both the business sector and population at large. (And to be fair) Malaysia and Singapore always look for sectors where they can collaborate despite their differences."

Cause for cautious celebrations

In any case, businesses, especially those based close to the Causeway say they are excited to see the SEZ materialise.

Sim Lee Zen, who runs a handful of boutique hotels in Johor, said such a region, if it is anything like the economic zones established in other countries, could offer exciting benefits to both business owners and investors, including tax exemptions and investment allowances.

"What's more, with inflation and talk of recession, something like this could boost investor confidence in both countries," he said.

Meanwhile, Ashwini Chelliah, who runs several businesses in Johor, including beauty parlours and wellness centres, notes that an agreement of this scale could change the tourism playing field for not just Johor, but Malaysia as a whole.

"The type of opportunities an agreement like this could grant us, especially small business owners who are dependent on tourists, is endless. On top of getting investors interested in local business opportunities, the potential infrastructural upgrade would also ease the movement of clients in and out of both countries," she said.

Of course, while optimistic, Ashwini stated that not all businesses may be equipped to take part and thereby, benefit.

In any event, the general feeling is positive, with a spokesperson from Singapore-based employment solutions company Interisland Manpower noting that the SEZ could even serve to further rev the economies of both countries following the Covid-19 pandemic.

"Yes, the reopening of the economy has got everything back to speed. But the effect of the pandemic, including its impact on supply chains, can't be discounted. (So) an agreement like this would open up so many more avenues, with an almost guaranteed growth and expansion trajectory," he said.

The big question, nevertheless, is if and how soon the top-level discussions will morph into something tangible.

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