Singapore’s sophistication, Johor’s cheaper cost create ‘best of both worlds’ for SEZ between both sides: Rafizi

KUALA LUMPUR: The upcoming Johor-Singapore Special Economic Zone (JS-SEZ) is looking to attract high-tech companies backed by investors that conduct deals in an “agile” manner, Malaysia’s Economy Minister Rafizi Ramli said, touting an environment with less red tape and bureaucracy.

“What we need to refine and iterate as we go along is … to meet their expectations because things do happen very quickly for them,” he told reporters at an investor forum for the JS-SEZ on Wednesday (Jul 10).

“So if things are slowed down by bureaucracy and red tape, or if there's too much planning imposed on them, I think that that's the kind of thing that we have to be careful (about).”

In January, Singapore and Malaysia signed a Memorandum of Understanding (MOU) on the JS-SEZ, which is expected to offer both fiscal and non-fiscal incentives like tax breaks and easier travel between the two countries.

Johor Chief Minister Onn Hafiz Ghazi had previously proposed 16 economic sectors for the JS-SEZ, including electrical and electronics; medical and pharmaceutical; aviation; specialty chemicals; logistics; healthcare; and education.

Mr Rafizi on Wednesday said the signing of the JS-SEZ agreement is on track for September, with officials from both sides “burning the midnight oil” to iron out the finer details ahead of the Malaysia-Singapore Leaders’ Retreat that month.

Malaysia has presented its framework to Singapore and is awaiting a response, Mr Rafizi said, stressing that negotiations should be kept behind closed doors and that specific details, including the JS-SEZ’s geographic scope, can only be announced after the signing of the agreement.

Following that, Malaysia hopes to present its financial package for the JS-SEZ, including fiscal and non-fiscal incentives, in October’s Budget speech, he added.

The JS-SEZ will offer investors the “best of both worlds”, Mr Rafizi said, referring to access to the “sophistication” of Singapore and the cost and resource advantages of Johor.

Investors are also attracted to the JS-SEZ as a “launchpad” for the Southeast Asian market, Mr Rafizi said, adding that the market is going to be “very influential” in the next five to 10 years and is poised to overtake Europe.

“A lot of the companies that we would like to welcome, because they are the ones in high-tech, in the cutting edge of technology, a lot of them are PE- and VC-backed,” he added, referring to private equity and venture capital firms.

“And when it comes to PEs and VCs, capital movement is an issue that we will have to recalibrate, and we will also see how to remap to make sure that the ecosystem can keep abreast with how such businesses operate.”

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But investors at the forum on Wednesday had requested that the SEZ be largely “private-driven”, the minister said.

“The kinds of companies that we want to encourage to come and build the ecosystem in JS-SEZ are precisely the high-tech driven, high-value content industries that we are lacking, and they are almost entirely interconnected with the PE and VC funds,” he said.

These investors, Mr Rafizi said, do not necessarily conduct business in a traditional sense, or as a huge part of a conglomerate’s expansion, but they move in a  “very much agile” manner.

“And therefore, speed, flexibility and exit (are issues) for them as well,” he added.

Mr Rafizi said Malaysia would focus on creating a business-friendly environment instead of fixating on the sale of land in the JS-SEZ.

“The plot will sell by itself if you convince the investors and the ecosystem to come,” he said.

Mr Rafizi said his recent trip to China, where he pitched the JS-SEZ to 100 companies, including PE and VC firms that have funded the growth of Chinese industries for the past two decades, had yielded a “really good” response.

Both Chinese and Western investors see Southeast Asia as a very large and important market, and hence welcome the JS-SEZ as a way to integrate the Southeast Asian market, he said.

“That value proposition is perhaps the best-selling point of JS-SEZ,” he said.

Mr Onn Hafiz said on Wednesday that Johor authorities will take feedback from the banks, chambers and potential investors who attended the investment forum on Wednesday with “an open heart”.

“This is to ensure that what we will implement in the future will not only benefit investors, but also the people of Malaysia,” he said.

JS-SEZ LOCATION

Mr Onn Hafiz had told Johor’s legislative assembly in May that the state government is proposing the JS-SEZ to likely cover Johor Bahru and stretch as far as Iskandar Puteri - which includes the beleaguered Forest City development - in the west and Pengerang in the east.

The proposed 3,505 square kilometres land mass for the JS-SEZ - more than four times the size of Singapore - will involve the local authorities of Johor Bahru, Iskandar Puteri, Kulai, Pasir Gudang and Kota Tinggi.

But Mr Onn Hafiz said on Wednesday that the actual geographical scope of JS-SEZ will only be announced after the agreement with Singapore is signed.

Both Malaysia and Singapore are significant players and partners in the semiconductor ecosystem, and the JS-SEZ will strengthen both countries’ position in the electrical and electronics sector, UOB analysts wrote in a June commentary for CNA.

Singapore has leading companies carrying out research and development as well as wafer fabrication work in the country, while Malaysia plays a critical role in the assembly and testing of chips.

While Mr Rafizi declined to elaborate on discussions with Singapore, he dismissed the notion of a special Malaysia-Singapore currency exchange rate in the JS-SEZ.

“Currency is currency, that was not discussed at all. I don't think there will be a ‘Johor ringgit’. Each country would like to maintain a monetary policy,” he said.

“The focus is very much about the free flow of people, goods and services to be able to harness Singapore and Johor to integrate as one economic unit.”

With land scarcity and rising costs in Singapore, the JS-SEZ allows talent from Singapore to travel quickly to Johor, helping the exchange of ideas and best practices, the UOB analysts said.

This can be supported by plans for a passport-free QR code clearance on both sides, facilitating faster clearance of people at land checkpoints.

When asked to elaborate on passport-free clearance for the JS-SEZ, Mr Onn Hafiz said “all options are being discussed”, with the QR code method being one of them.

Currently, car travellers arriving in and departing Singapore at the Woodlands and Tuas land checkpoints are able to clear immigration with QR codes.

Meanwhile, Malaysia is testing a proof-of-concept testing for QR code clearance for Malaysians crossing the Johor-Singapore Causeway for a period of three months.

Mr Rafizi said “more specific plans” for different areas in the JS-SEZ, including people movement, will be revealed after the agreement is signed in September.

“But I think it's quite obvious the whole idea is, in phases, we would like to see a free flow of people movement and services between Singapore and Johor,” he said.

“What needs to be ironed out and planned is the sequencing and phasing, because it cannot be done immediately. But once the two countries have committed to de-bottleneck (the checkpoints), then the respective agencies for both governments will have to deliver on those details.”

Mr Onn Hafiz previously said that the target is for the JS-SEZ to create 400,000 new high-income job opportunities and lift household incomes to RM13,000 (US$2,760) a month.

The zone should also have a gross domestic product of RM260 billion through an annual growth rate of 7 per cent.

Mr Rafizi said on Wednesday that previous figures referred to the “cumulative potential” of what the JS-SEZ can offer, and that he hopes to share more concrete numbers on the value of investment attracted moving forward.

“But the focus now is to sign the agreement, get all the nitty-gritty in place and then work earnestly to get investors coming,” he added.