On Tuesday, the Prime Minister of Malaysia and Singapore signed an agreement to establish a special economic zone at the border of both nations, with a goal of attracting 50 projects in its first five years of operation.
Anwar Ibrahim and Lawrence Wong, Prime Minister of Malaysia and Singapore respectively, joined together in a ceremony on 7 January for the economic zone in Malaysia’s southernmost state of Johor, a state which borders Singapore and houses one of the world’s busiest border crossings.
Both countries vowed to expedite 100 projects within the first ten years after its inauguration, relying on incentives such as special tax rates to entice new investment.
Officials in Johor are said to expect the zone to create up to 100,000 new jobs and bring in $26 billion into the Malaysian economy annually before the end of 2030. The majority of the investment would likely come from new investment and Singaporean companies expanding or moving their production into Johor, seeking to benefit from more land and a bigger labor pool.
The special economic zone would have a territory spanning over 3,500 sq.km. and is predicted to be almost twice that of China’s Shenzhen, which is the city that has become the blueprint for the zone.
However, many have remained skeptical over Malaysia and Singapore’s new collaborative project, as both countries still struggle to handle traffic at their border, which saw at least 300,000 people crossing every day for work, resulting in traffic jams that cause hours of delays.
Previous efforts to ease the bottleneck at border crossing and bring two countries together include a $20 billion high-speed rail project, which was interrupted by disagreements over costs and other difficulties.
Rafizi Ramli, Malaysia’s Minister of Economic, said in a briefing earlier this week that both countries’ top priority is to alleviate traffic bottlenecks that hinder the movement of people and goods, ensuring smooth business operations in both Singapore and Johor.
Asrul Hadi Abdullah Sani, a partner at strategic advisory firm ADA Southeast Asia, said before the signing that there are concerns over bureaucratic capacity and management of expectations for businesses moving to Johor.
Johor’s location encompassing the entirety of Singapore’s north and western border has become one of its greatest strengths. Highlighted by the recent boom in data centers in the region, which is spurred by Singapore’s halting of new data center construction from 2019 to 2022 over concerns about energy supplies.
Both countries have provided a few details absent in those described in a memorandum of understanding signed the previous year. The arrangement has laid out a clear goal of expediting border crossing, which includes passport-free travel and a QR code clearance system.
However, Malaysia was caught lagging behind Singapore on both digital vehicle entry permits and QR-code clearances, which the latter has only started its trial phase.
It remains unclear whether both countries have made enough progress in streamlining their tax policy and investment process to lure investment into the region, with Singapore’s lower corporate income tax of 17% compared to Malaysia’s 24%.
