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An agreement on the Johor-Singapore Special Economic Zone (JS-Sez) was announced at the beginning of January, after a few months of negotiations. The project includes a large part of the southern Malaysian state of Joor and is intended to increase the economic ties between Malaysia and Singapore, while also investing in priority sectors such as production, logistics, tourism, clean energy and the digital economy.
Malaysia has made no secret that it wants to play a greater role in the global semiconductor and clean energy supply chains, and the government has also put the country on the market as an attractive place to build data centers. The JS-SEZ agreement can help Malaysia realize these ambitions, while it offers additional benefits to neighboring Singapore.
A large part of the agreement includes the movement of goods and people, with the aim of making it easier for Malaysians and Singaporese to cross the border with passport-free QR codes and improved immigration and customs depositing facilities and procedures. Another feature is that Malaysia has opened a one-stop investment center to make doing things in the SEZ easier, and there are plans for a tax stimulus plan and so on. The agreement will be officially ratified later this year.
In its report on the deal, the Financial Times framed this agreement in wide geopolitical termswriting that the SEZ ‘was designed to help [Malaysia and Singapore] resistant to more difficult global economic trade conditions. “That can be part of the onset. But despite geopolitics, there are also some simple economic rationales in the game. Malaysia has certain donations that Singaporean companies need, such as country and labor. And Singapore has things that Malaysia wants, the most important thing is that it is an important source of finance and investments. So of course it is to combine these things in a special economic zone.
This is not really a new idea. The Indonesian island of Batam, a short ferry ride from Singapore, was identified as a potential industrial development zone back in the seventies. It was given the status of a tax -free bound zone for export in 1978 and the government began to select the plans for master development. But large -scale industrialization on Batam did not really start in the early 1990s, when Singapore became more directly involved.
Joint Ventures between Singapore and Indonesia such as the Batamindo Industrial Park, which was fully supported by the Singaporean government, became a successful template for the offshoring of Singaporean production to a neighboring country. Nowadays Batam has one of the higher levels of GDP per head of the population in Indonesia and,, According to the authoritiesThe economic zone attracted around $ 2 billion in investments in 2023, usually from abroad. Singapore remains the largest, although far from alone, source of foreign investments in Batam.
The Johor-Singapore SEZ is a more explicit joint development that is carried out under the umbrella of stronger bilateral ties between Singapore and Malaysia. But it is powered by the same basic economic logic that has stimulated industrial development on BATAM. And although the agreement is not officially ratified, we can already see some effects.
Much of the area that will form the Johor-Singapore SEZ is part Iskandar Regional Development Authority. For almost two decades, ISKANDAR has attracted Malaysia investments, mainly in production and real estate, with a lot of recent inflow from China. But it has not been complete success, with controversial projects Such as Forest City as a “Chinese built ghost city” by the BBC. The Iskandar Development Authority reported in 2022 that the total cumulative foreign investments since 2006 was around $ 34 billion.
The idea for the JS-SEZ was first announced in 2023, followed by the signing of a MOU in 2024. Almost immediately, investment rose in the area With the Iskandar Regional Development Authority that registers $ 13.5 billion on new foreign investment obligations from January 2023 to June 2024. The majority of this comes from Singapore and China. We will have to wait a few years and get more data, but the first reports indicate that investors and companies, especially from Singapore, respond positively to the idea of the special economic zone.
This Some in Indonesia worry that the Johor-Singapore Sez could transfer the investments away from Batam. But the coordinating Minister of Economic Affairs of Indonesia Airangga Hartarto took it in motionReporters say: “We cannot forbid other countries to copy ourselves. What we can do is compete against them. ‘
I think he is probably right to play down the threat that this forms for Batam. Deeper economic integration between Singapore, Malaysia and Indonesia is not something to fear, both for economic and geopolitical reasons. And as long as the region continues to grow as it is expected to do, it is a good gamble that there will be enough economic output and possibilities to support SEZs in Batam, Joor and further in the coming years.