Analysis: Need for Malaysia, Singapore authorities to strike balance on key issues for SEZ in Johor to succeed
KUALA LUMPUR: As plans to launch the Johor-Singapore Special Economic Zone (JS-SEZ) gain momentum and more details emerge on its scope and goals, both sides will need to strike the right balance on key issues for it to succeed, say analysts.
These include how to attract “high-end” investments from all over the world while being cognisant of the need to minimise bureaucracy and red tape.
Beyond that, they added that both countries must be in tandem with one another in decision-making, and especially between the Johor state government and its federal counterpart.
Malaysia’s Economy Minister Rafizi Ramli told reporters on Wednesday (Jul 10) that the proposed JS-SEZ aims to attract “cutting-edge” firms backed by venture capital (VC) and private equity (PE) investors that move nimbly.
This, he said, would require minimal bureaucracy in the zone, a task experts described as challenging given it is expected to cover an area in Johor four times bigger than Singapore with multiple local and federal authorities involved.
Dr Shankaran Nambiar, an economist and visiting fellow at Australia National University’s Crawford School of Public Policy, said Singapore and Malaysia should work together to address such issues in a bid to attract “global players” to the JS-SEZ.
“Technically, Singapore and Johor offer the best blend of competencies and advantages that will benefit both nations,” he told CNA, referring to Singapore’s expertise in attracting high-value investment and Johor’s lower cost of doing business.
Dr Nambiar stressed that Malaysia’s state and the federal agencies will need to match up to Singapore's demands in terms of the ease of doing business.
“Agencies in Singapore will set the tone on procedures and timelines, but if Malaysia cannot draw in the investments on its own heft, it will have to depend on Singapore's strength in doing so,” he added.
CUTTING RED TAPE
But for this to effectively happen, analysts said Johor must first ensure its business processes are streamlined across the six local councils of Iskandar Puteri, Johor Bahru, Pasir Gudang, Kulai, Pengerang and Pontian.
In a JS-SEZ clarification session in parliament on Jul 11, Mr Rafizi confirmed that the 3,505 square kilometre zone will cover these five areas and part of Pontian.
“I agree that our main challenge is to harmonise the issuing of business permits by these six councils and related federal agencies, so that they can match up to the level of efficiency Singapore offers,” he said.
Mr Rafizi said this can be achieved through a one-stop centre for approval of business and other licences in the JS-SEZ, first mentioned in January when both countries signed a memorandum of understanding to set up the zone
“This is being consolidated at the Johor state government level, together with federal agencies, at the Iskandar Malaysia Facilitation Centre,” he said, using the official name for the one-stop centre.
Findings of a report from the Singapore Business Federation released on Jul 11 found that 58 per cent of Singaporean businesses polled - out of some 160 firms - had expressed a desire for a one-stop service centre or contact point in Malaysia to facilitate investor engagement.
Dr Ong Kian Ming, a former deputy minister of international trade and industry in Malaysia, said this type of centre will “significantly reduce” red tape for both Singaporean businesses and other investors that wish to set up or expand their operations in the JS-SEZ.
“This would require the cooperation of the Johor state government, for example, setting up a special approval body to process and approve the business licences required by the various local councils in the Greater Johor Bahru area,” he said.
Authorities should also agree on a common tax rate for skilled workers in the PE and VC ecosystem to stimulate this sector’s growth in the JS-SEZ, said Dr Ong, who is also pro vice chancellor of external engagement at Taylor’s University.
Despite that, Dr Ong said the Johor state government is “not used” to having such a multi-stakeholder centre operate at the level of transparency that Singaporean or Singapore-based companies have grown used to.
The federal government might also be unfamiliar with introducing special processes that would make the JS-SEZ an attractive investment destination, he said, citing the example of proposed investment incentives in the zone that must still be approved at the federal level.
Meanwhile, Dr Francis Hutchinson, Malaysia Studies Programme coordinator at the ISEAS-Yusof Ishak Institute, believes that while reducing bureaucracy is important, “too much focus” is placed on financial incentives.
“What is often too overlooked is the detailed follow-up that comes after an investment has been made,” he told CNA.
Dr Hutchinson highlighted that a large part of increasing the JS-SEZ’s value chain and sophistication of operations involves existing investors deciding to increase their investments and carry out more complicated tasks.
“Thus, liaison agencies must have the discipline to consistently follow-up with their current firms, and not just focus on attracting new ones,” he said.
Also more important than incentives is for the JS-SEZ to get an adequate supply of skilled workers, uninterrupted power and water, and reliable international connections, he said.
While Dr Hutchinson acknowledged that the Causeway and Second Link - plus the upcoming Rapid Transit System Link - connect Singapore and Johor, he said more could be done.
The Causeway, for one, has become one of busiest land crossings in the world, with an estimated 300,000 commuters passing through daily. And this figure is expected to grow with Singapore’s Immigration and Checkpoints Authority projecting traffic volume at the Causeway to increase by 40 per cent by 2050.
“It may be worth considering another link between Pasir Gudang in Johor, which has lots of factories, and Changi, as this would allow heavy vehicles to use this connection and lighten the load on the Causeway,” he said.
WHAT KIND OF JOBS WILL BE CREATED?
Dr Hutchinson noted that Johor, long a producer of consumer electronics, intends to expand its capabilities and carry out higher value-added activities.
This comes amid a high demand for the production of semiconductors, due to the spread of cloud computing and the advent of artificial intelligence.
But Dr Hutchinson warned that as production tasks get more sophisticated, and traditional manufacturing operations increasingly blur into services, the number of jobs generated by each subsequent investment in the JS-SEZ is likely to be smaller.
“Huge investments that generate 5,000 jobs, including low-, middle-, and high-skilled jobs are increasingly rare. Now, you may have a high-end investment that generates 200 to 300 jobs, most of which are high-skilled,” he said.
Johor Chief Minister Onn Hafiz Ghazi previously said that the JS-SEZ aims to create 400,000 new high-income job opportunities and lift household incomes to RM13,000 (US$2,760) a month.
Dr Ong expressed concern that other companies could try to take advantage of the high-value ecosystem in the JS-SEZ by bringing in lower-value added economic activities, especially in heavy manufacturing and recycling of paper and metal products.
To combat this, he proposed better alignment between the federal and state governments and stricter enforcement by relevant authorities, like the ministries of trade and investment.
“Even in some of the higher value-added economic activities space such as data centres, the value proposition in terms of the number of middle- to high-income jobs needs to be assured,” he said.
Mr Rafizi told parliament on Jul 11 that he hopes the JS-SEZ will reverse Johor’s brain drain by attracting high-value industries to set up in the state and encourage skilled workers to return and be employed in these companies.
In response to parliamentarians who questioned if the JS-SEZ will pull workers away from local companies, Mr Rafizi said the zone only targets skilled workers instead of lower-skilled employees in local firms.
“With that said, I believe the higher salaries offered in the JS-SEZ will spur economic growth and enable local companies that are part of this value chain to similarly offer a more competitive package,” he said.
“This is actually our hope for secondary towns like Kluang and Muar, that these benefits will spill over to other local companies in the value chain.”
ATTRACTING COMPANIES WORLDWIDE
In the bigger picture, Mr Rafizi said it is important that the JS-SEZ realises its potential of attracting international investors.
“There will be companies from Singapore coming to Johor, but the bigger potential is companies from all over the world coming to Johor with a view of having the best of both worlds,” he said, referring to Singapore’s sophistication and Johor’s lower costs of operations.
Mr Rafizi pointed out that companies with such intentions, including those keen to navigate geopolitical tensions while finding a base in Southeast Asia, have previously turned to Vietnam.
“With the JS-SEZ, we can place Malaysia as a competitor to shift investors who previously went to Vietnam to enter Johor and Singapore,” he said.
While Dr Hutchinson agreed that countries like Vietnam and India could be considered competitors with their hunger for investment, industrial parks and skilled labour, he said a more important yet subtle competition is taking place within the high-value companies themselves.
He cited how affiliates of a multinational firm operating in different locations that wish to move into a new product, in this case in the JS-SEZ, must first convince the company’s headquarters that they should be allowed to take on this particular task or function.
“Consequently, (the JS-SEZ) having a good track record in terms of stability, capability, and responsiveness, and having an existing base of firms is very important,” he said.
“This allows the investors that you already have to produce more and carry out more activities.”
Dr Ong feels that Vietnam, with its focus on lower-value added manufacturing activities that require a much larger and lower-skilled labour force, is not the JS-SEZ’s competitor.
Malaysia’s “strategic position” in the economic value chain is that it can attract companies that want to carry out higher value-added activities in niche areas of the manufacturing and digital economy space, without the high costs in Singapore, he said.
“When it comes to Southeast Asia, I don’t think there are any other competitors in the SEZ space,” he said, suggesting that companies looking to offshore their manufacturing in a natural hinterland for Singapore will see Batam and Bintan as alternatives to Johor.
“Hence, the urgent need for Malaysia to get our position right and quickly for the JS-SEZ.”