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The Business Times: An SEZ with Johor could be a Game Changer

21 Nov The Business Times: An SEZ with Johor could be a Game Changer

When the leaders of Singapore and Malaysia met at end-October, a broad agenda appropriately reflected the breadth of ties. Notwithstanding this, or that it was the first leaders’ retreat held with Anwar Ibrahim as Malaysia’s Prime Minister, there is something that deserves special attention and a degree of optimism. This is the proposal for a Special Economic Zone (SEZ) with Johor.

Some may long for a high-speed railway to Malaysia’s capital, Kuala Lumpur, but that has now been twice derailed. An SEZ with Johor may prove more feasible and immediate. Details are pending about the scope and focus. But the SEZ can potentially go beyond incremental improvements to be a game changer.

Baselines and additional dynamics

Interactions are already substantial and have grown from the 1990s, when then prime minister Goh Chok Tong sought better links with the proposal of a Singapore-Johor-Riau (SIJORI) Growth Triangle. More recent Malaysian initiatives like Iskandar Malaysia have added to the partnership. Economic and people-to-people interdependencies and supply chains of goods and services run thick.

This is far from seamless however. Witness the daily and often long border crossing queues on one or both sides. Note how, when borders closed during the pandemic, both sides suffered with many workers, families and businesses dislocated.

There are additional dynamics, post-pandemic. Given Sino-American tensions, many companies look to de-risk dependencies on China and are keen on manufacturing and supply chains elsewhere. Asean, while not without challenges, is performing above global norms and there is much for Malaysia and Singapore to offer and gain.

Malaysia already sees benefits, especially in and around Penang, and the Anwar government has ambitions to spur growth in economic corridors and nationally. For Singapore, many major investors look to it as a hub. Yet, while anchored here, businesses need to link to sites in other countries for resources, parts and right-priced services. In this context, an SEZ with Johor could have appeal.

This is especially for supply chains that are critically concerned with the span of control in management to closely ensure quality and reliability. For Singaporean companies – especially local small and medium enterprises –- familiarity with language and conditions in Malaysia are another boon. There is a clear logic to build from the current baseline. Additionally, there are potentially factors and dimensions that could make an SEZ a game changer.

Speed and resilience

Enhancing speed and connectivity would be critical. Efforts are being made to improve current border arrangements but this will have to deal with very high volumes and the broadest range of travellers. For the SEZ, targeted measures can turbocharge the point-to-point movement of goods and people.

The measures could include, for instance, pre-registration of regular visitors, with passes and special lanes, as well as efficient pre-clearance of products and parts that are vital to supply chains to minimise time and effort taken for inspections. Digitalisation documentation – which both countries are working on – would be another boon. Depending on location and other factors, additional links via ferries or other infrastructure can also be considered.

On top of speed, another key factor is resilience. Pandemic border closures were the starkest reminder that cross-border movement is both important and yet fragile. Now, even without such a crisis, some countries are imposing border controls on goods and people. Recent examples that hit consumers include palm oil exports from Indonesia, rice from India, and chicken from Malaysia to Singapore. In the technology and manufacturing space, the United States has prevented data chips and technical experts from going to China, and more measures may come.

Cross-border interactions cannot be completely inured. But transactions within an SEZ can be made more resilient, rational and predictable. Rules and guidelines under the World Trade Organization can be adopted and enhanced, with protocols to quickly review any ban. Combining speed and resilience could make an SEZ appeal to many companies and industries.

There is also a newer and specific cluster that can be highlighted. This is for data centres and for renewable energy.

Green and digital

As digital platforms and services grow across the region, the enabling infrastructure, and especially data centres, are needed. Surveys show a great demand to host these centres in Singapore, as the hub closest to the major data centres. That proximity allows the fastest speed for data to flow across the various networks between businesses and also with consumers, and for rapid calculation of complex algorithms that underpin digital platforms.

However, data centres are also large energy consumers and can drive up carbon emissions unless they are powered by renewable energy. With climate change concerns and limited access to renewables, Singapore has tightly budgeted energy use in this sector. A moratorium on new data centres was only recently lifted and, even so, this was for just four projects – far fewer than the market demands.

This limit for Singapore can provide a special win-win opportunity for a Johor SEZ. Data centres could be built there and proximity can minimise the lag effects compared to other destinations. This advantage can be enhanced by ensuring these SEZ centres connect to those in Singapore as seamlessly and reliably as possible.

High speed and secured digital connectivity can allow teams of companies in the SEZ to work together, irrespective of where they are located. In the event of technical problems and outages, for example, technical staff would be allowed to travel urgently from Singapore into the SEZ across the border.

The SEZ data centres can also be powered by new renewable energy projects. Additionally, production capacity could also be ramped up to supply renewable energy to connected data centres in Singapore.

Selling renewable energy across the border is already a reality, with hydroelectric power from dams in Laos being transmitted through the existing grids via Thailand and Malaysia. There are also proposals for undersea cables to link to countries like Vietnam and Australia, despite the considerable distance.

Transmission from Johor and the proposed SEZ would be more proximate and feasible. Earlier statements in Malaysia showed reluctance to explore exporting renewable energy. Given Malaysia’s own needs to meet climate change commitments, this is understandable and will need to be resolved.

Part of that resolution is to recognise that Singapore’s considerable demand and willingness to pay market prices for green power can spur more projects. The higher demand and projected revenue — on top of local demand — can be critical in making renewable energy generation more profitable and bankable.

With a profitable and larger generation capacity, a win-win formula can then be reached to supply both Malaysia and Singapore, for both data centres and other users. This can help the SEZ grow beyond a more typical industrial cluster, to be part of the emerging green and digital economy

Jam or go faster

The hope is that the two governments can propel a SEZ forward as a rational and mutually beneficial next stage of cooperation and integration. Yet obstacles to going further and faster should be expected. The common experience at the Causeway and other crossings provides an analogy for the journey facing traffic jams.

Much depends on the physical scope and sectoral focus of the SEZ. Much also depends on the mentality and politics. Both Singapore and Malaysia must embrace the win-win logic of enhanced cooperation in the world today.

From a Singaporean perspective, another factor is around questions about the longevity and unity of the current coalition led by PM Anwar and the ability to reliably deliver on undertakings. Within this, the balance of interests between the federal authorities and the Johor state will be another key dynamic.

This and many factors are outside Singapore’s control, and proponents for an SEZ with Johor should ally optimism and economic logic with empathy and perseverance.

In this regard, Singapore would be well served to continue discussions with others. Engaging Indonesia and its nearby islands can offer a competitive dynamic to go faster and integrate more closely. Exploring options further afield can yield benefits too, especially as technological advancements stretch current horizons.

While making every effort with Malaysia, Singapore must continue to pursue other potential alternatives if, despite all the factors in its favour, the road to a Johor SEZ is truly jammed.


Simon Tay is chairman of the Singapore Institute of International Affairs (SIIA).

This article is part of a series of SIIA column on “The Politics that Matter to Business” for The Business Times. It was first published on 21 November 2023.