An settlement on the Johor-Singapore Special Economic Zone (JS-SEZ) was introduced in early January, after a number of months of negotiations. The challenge encompasses a big a part of the southern Malaysian state of Johor, and is meant to extend financial ties between Malaysia and Singapore, whereas additionally attracting funding into precedence sectors like manufacturing, logistics, tourism, clear power, and the digital economic system.
Malaysia has made no secret that it needs to play a much bigger position in international semiconductor and clear power provide chains, and the federal government has additionally been advertising the nation as a pretty place to construct information facilities. The JS-SEZ settlement may help Malaysia understand these ambitions, whereas offering complementary advantages to neighboring Singapore.
A giant chunk of the settlement covers the motion of products and folks, aiming to make it simpler for Malaysians and Singaporeans to cross the border with passport-free QR codes and improved immigration and customs clearance services and procedures. One other characteristic is that Malaysia has opened a one-stop funding heart to make doing enterprise within the SEZ simpler, and there are plans for a tax incentive scheme and so forth. The settlement is ready to be formally ratified later this 12 months.
In its reporting on the deal, the Monetary Occasions framed this settlement in broad geopolitical terms, writing that the SEZ “has been designed to assist [Malaysia and Singapore] stand up to more durable international financial buying and selling circumstances.” Which may be a part of the impetus. However geopolitics however, there are some easy financial rationales at play as effectively. Malaysia has sure endowments that Singaporean companies want, corresponding to land and labor. And Singapore has issues that Malaysia needs, the important thing one being it’s a serious supply of finance and funding. So it’s pure to mix this stuff in a Particular Financial Zone.
This isn’t actually a brand new thought. The Indonesian island of Batam, a brief ferry trip from Singapore, was recognized as a possible industrial improvement zone back in the 1970s. It was given the standing of a tax-free bonded zone for exports in 1978 and the federal government started churning out grasp improvement plans. However large-scale industrialization on Batam didn’t actually kick off till the early Nineteen Nineties, when Singapore grew to become extra immediately concerned.
Joint ventures between Singapore and Indonesia just like the Batamindo Industrial Park, which was totally supported by the Singaporean authorities, grew to become a profitable template for offshoring Singaporean manufacturing to a neighboring nation. These days, Batam has one of many increased ranges of per capita GDP in Indonesia and, according to authorities, the financial zone attracted about $2 billion of funding in 2023, principally from abroad. Singapore stays the most important, although removed from solely, supply of international funding in Batam.
The Johor-Singapore SEZ is a extra specific joint improvement being performed underneath the umbrella of stronger bilateral ties between Singapore and Malaysia. But it surely’s pushed by the identical fundamental financial logic that spurred industrial improvement on Batam. And despite the fact that the settlement has not been formally ratified, we are able to already see a few of the results.
A lot of the realm that can kind the Johor-Singapore SEZ is a part of the Iskandar Malaysia funding hall, established in 2006 and managed by the Iskandar Regional Development Authority. Over practically 20 years, Iskandar Malaysia has attracted funding primarily in manufacturing and actual property, with a number of current inflows coming from China. But it surely hasn’t been a whole success, with controversial projects like Forest Metropolis being labeled a “Chinese language-built ghost metropolis” by the BBC. The Iskandar Growth Authority reported in 2022 that the overall cumulative international funding since 2006 was roughly $34 billion.
The thought for the JS-SEZ was first introduced in 2023, adopted by the signing of an MoU in 2024. Nearly instantly, funding surged into the area with the Iskandar Regional Growth Authority recording $13.5 billion in new international funding commitments from January 2023 to June 2024. The vast majority of these are from Singapore and China. We should wait a few years and get extra information, however the preliminary experiences point out traders and companies, particularly from Singapore, are responding positively to the thought of the Particular Financial Zone.
This has some in Indonesia worrying that the Johor-Singapore SEZ may siphon funding away from Batam. However Indonesia’s Coordinating Minister for Financial Affairs Airlangga Hartarto took it in stride, telling reporters: “We can not bar different nations from copying us. What we are able to do is compete towards them.”
I feel he’s in all probability proper to downplay the risk this poses to Batam. Deeper financial integration between Singapore, Malaysia, and Indonesia is just not one thing to be feared, for each financial and geopolitical causes. And so long as the area retains rising as it’s projected to do, it’s a superb wager that there might be ample financial output and alternatives to assist SEZs in Batam, Johor and past within the years forward.
