JOHOR - SINGAPORE SPECIAL ECONOMIC ZONE (SEZ) - It's special alright - Overview by Nik Zafri

Note and Disclaimer : This article is part of a private online recent discussion between myself and interested parties. No confidential information, such as plans, drawings, or VR simulations or the likes are being disclosed in this article. I am sharing this piece voluntarily to promote Special Economic Zones (SEZ) to professionals and firms who may be exploring opportunities in this area. Additionally, I may serve as a key speaker on the subject. Inquiries and speaking invitations from any party are welcome, subject to terms and conditions.

The Johor-Singapore Special Economic Zone (SEZ) is a proposed cross-border economic zone that aims to integrate the economies of Johor, a state in southern Malaysia, and Singapore. This initiative is meant to promote closer economic cooperation and development between the two regions, capitalizing on their proximity and complementary economic strengths. 

In 2023, total trade between Malaysia and Singapore reached US$79.6 billion. Malaysia’s exports to Singapore were US$ 31.53 billion. The main exported goods were electrical and electronic equipment (US$9.38 billion), mineral fuels, oils, distillation products (US$9.73 billion), machinery, nuclear reactors and boilers (US$2.66 billion), pearls, precious stones, metals, coins (US$1.68 billion), and plastics (US$1.09 billion). 

Meanwhile, in the same year, Malaysia’s Exports to Singapore reached US$48.09 billion, and the main exported goods were electrical and electronic equipment (US$22.20 billion), mineral fuels, oils, distillation products (US$7.82 billion), machinery, nuclear reactors and boilers (US$4.69 billion), optical, photo, technical, medical apparatus (US$1.64 billion), and pearls, precious stones, metals, coins (US$0.89 billion). 

Source : ITC Trade Map

On January 11, 2024, Minister of Economic Affairs, Rafizi Ramli and Singapore’s Trade and Industry Minister signed a Memorandum of Understanding (MoU) outlining proposed joint initiatives to develop the region. The signing was witnessed by Malaysia's Prime Minister YAB Dato' Seri Anwar Ibrahim and Singapore's Prime Minister Lee Hsien Loong.

KEY FEATURES OF SEZ

Cross-Border Integration 

The Johor-Singapore SEZ is designed to foster greater economic integration between Johor and Singapore. This includes encouraging investment, trade, and labour movement across the border.

FOCUS AREAS AND SECTORS

The SEZ is expected to target specific sectors where Johor and Singapore can complement each other.

Manufacturing and Logistics

Johor’s Iskandar Malaysia Region already focuses on these sectors, benefiting from lower land and labour costs compared to Singapore.

Electronics and Electrical (E&E) Manufacturing 

This is one of the largest manufacturing sectors in Iskandar Malaysia, involving the production of semiconductors, consumer electronics, electrical components, and home appliances. For example, companies like Panasonic and Vishay Intertechnology have set up operations in Johor, producing components like capacitors, resistors, and sensors that are exported globally.

Automotive and Aerospace Manufacturing 

Iskandar Malaysia serves as a hub for automotive parts and component manufacturers. The region produces items like engine parts, electronics, tires, and other components. Companies like Berjaya Group and Toyota Tsusho have established facilities in Johor. Aerospace component manufacturers such as Upeca Aerotech also operate in Johor, producing parts for global aerospace giants like Boeing and Airbus. 

Food and Beverage (F&B) Processing

The food processing industry in Iskandar Malaysia involves processing raw agricultural products into packaged foods and beverages for export and local markets. This includes halal food production, given Malaysia's strength in the halal industry. For example, Nestlé has a significant presence in Johor, producing products like Milo, Maggi, and Nescafé for Southeast Asia.

Petrochemical and Chemical Manufacturing 

The region is also home to several petrochemical and chemical manufacturing plants, such as those producing plastics, resins, fertilizers, and industrial chemicals. Companies like Petronas have significant operations in Johor, particularly at the Pengerang Integrated Petroleum Complex (PIPC), which focuses on petrochemical and refinery activities.

Pharmaceutical and Biotechnology Manufacturing 

Iskandar Malaysia has been growing its footprint in pharmaceuticals and biotechnology, with companies involved in the production of generic medicines, medical devices, and biotech research. Biocon, an Indian biopharmaceutical giant, has established a large facility in Johor to manufacture insulin products for global markets.

LOGISTICS OF ISKANDAR MALAYSIA

Logistics involves the transportation, warehousing, distribution, and supply chain management of goods. The region benefits from its strategic location next to Singapore, access to ports, highways, and railways, and a growing network of logistics hubs.

E-COMMERCE FULFILLMENT CENTRES

The rise of e-commerce has led to the establishment of fulfillment centers in Iskandar Malaysia, where goods are stored, packed, and shipped to customers in Malaysia, Singapore, and the broader Southeast Asian region. Companies like Lazada and Shopee have invested in logistics infrastructure in Johor to support their operations.

Singapore and Malaysia are distinguished as leading mature e-commerce markets in Southeast Asia, characterized by high internet and smartphone penetration, affluent and tech-savvy consumer bases, sophisticated logistics and payment infrastructure, and supportive government policies. The e-commerce sector in Singapore is projected to grow at a Compound Annual Growth Rate (CAGR) of 11% over the next five years, while Malaysia's market is expected to experience a 14.32% growth rate during the same period.

Source : Growthops.Asia

TECHNOLOGY, SYSTEM AND PLANNED IMPLEMENTATION

Technology and Innovation - Leveraging Singapore’s status as a tech and innovation hub.  Technology and Innovation are key drivers of growth in both Johor’s Iskandar Malaysia and Singapore. Each region leverages its unique strengths to foster technological advancements and innovation, often complementing one another in areas like digital transformation, smart cities, artificial intelligence, and green technologies.

Data Centers and Cloud Computing - Iskandar Malaysia is emerging as a hub for data centers, benefiting from its strategic location, lower operating costs, and availability of land. Companies such as Bridge Data Centres and Keppel Data Centres have established facilities in Johor to cater to growing demand from Southeast Asia. These data centers support cloud computing, data storage, and disaster recovery services, catering to regional businesses and multinational corporations.

Smart City (Urban Intelligence) Initiatives - The Iskandar Malaysia is implementing smart city with elements of Urban Intelligence initiatives to improve urban living through technology. The Smart City Iskandar Malaysia (SCIM) framework focuses on smart governance, smart economy, smart mobility, and smart environment. Examples include the use of intelligent traffic management systems, energy-efficient buildings, and smart waste management solutions.

Innovation and Research Centres - Several innovation hubs and research centres in Iskandar Malaysia focus on advanced technologies. For instance, the Crescendo-HELP International School's Innovation Center fosters research in robotics, artificial intelligence (AI), and STEM education. The University of Southampton Malaysia Campus in Johor is involved in research and development (R&D) in engineering and technology.

Green Technology and Sustainability - Iskandar Malaysia promotes sustainable development and green technology through initiatives such as the Iskandar Malaysia Low Carbon Society project, which aims to reduce carbon emissions through the adoption of renewable energy, green building practices, and sustainable transport systems. The region also hosts solar panel manufacturers and other companies focused on clean energy solutions.

Advanced Manufacturing and Automation - The region is home to advanced manufacturing plants that use automation, robotics, and the Internet of Things (IoT) to enhance productivity and reduce costs. For example, companies in sectors like electronics, automotive, and aerospace are adopting Industry 4.0 technologies, such as D&S Solution (M) Sdn Bhd, which focuses on precision engineering and automation solutions.

Smart Nation Initiative - Singapore’s Smart Nation Initiative aims to transform the city-state into a leading digital economy and smart city through the integration of technology in governance, healthcare, transportation, and urban planning. Examples include a nationwide network of sensors and smart devices for public safety, autonomous vehicle trials, and digital payment systems.

Artificial Intelligence (AI) Development - Singapore is a regional leader in AI development, with government-led initiatives such as AI Singapore driving innovation. AI Singapore works on projects ranging from natural language processing to AI-driven healthcare solutions. Companies like Grab use AI to optimize ride-hailing and food delivery services.

Fintech and Digital Banking - Singapore is a global fintech hub, fostering innovation in digital banking, blockchain, and payment systems. Startups like Revolut, Nium, and TransferWise operate in the city, and major banks such as DBS and OCBC have launched digital banking platforms and robo-advisors.

1) Collaborative R&D and Innovation

Johor can serve as an extension of Singapore’s innovation ecosystem by providing space and cost advantages for research and development (R&D) facilities. For example, joint research initiatives in areas like AI, advanced manufacturing, and biotechnology could benefit from the resources and talent pools in both regions. 

2) Cross-Border Digital Economy

The close proximity and digital connectivity between Singapore and Johor enable cross-border digital trade, e-commerce, and fintech innovation. Singaporean startups and companies can leverage Johor’s infrastructure and workforce for regional expansion.

3) Smart City Development/Urban Intelligence 

Both regions can share best practices and collaborate on smart city solutions, such as intelligent transport systems, sustainable urban planning, and energy-efficient technologies, creating a seamless cross-border smart city ecosystem.

4) Supply Chain Optimization

Manufacturing and logistics hubs in Johor can support Singapore’s technology and innovation ecosystem by providing supply chain and distribution solutions for high-tech products, enabling cost-effective and efficient regional supply chains.

5) Education and Healthcare

Johor can serve as an expansion area for Singapore's education and healthcare services.

6) Tourism

Both regions aim to enhance tourism through shared marketing and improved connectivity. This will make the SEZ more viable, there are plans for infrastructure projects that improve connectivity between Johor and Singapore. For example:

 7) The Johor Bahru-Singapore Rapid Transit System (RTS) Link

A rail link connecting Johor Bahru and Singapore, set to ease traffic congestion and promote daily commuting.

8) Enhanced Road and Port Facilities

Upgrades to current road networks and port facilities to facilitate the movement of goods and people.

9) Simplified Regulations and Incentives

As a special economic zone, the SEZ may offer unique incentives to attract investors, such as tax breaks, streamlined regulations, and ease of doing business. These incentives would be designed to attract businesses that can benefit from a cross-border operational model, leveraging the advantages of both jurisdictions.

10) Labor Market and Workforce Synergy

The SEZ will likely include policies to promote the efficient movement of labor between Johor and Singapore, such as simplified visa processes or special permits for cross-border workers. This could help both regions address labor shortages and create a more dynamic workforce.

RELATION TO ISKANDAR MALAYSIA

The Johor-Singapore SEZ concept is closely related to the Iskandar Malaysia development, which is already a significant economic growth corridor in southern Johor. Iskandar Malaysia’s focus on industrial development, logistics, property development, and international education aligns well with the objectives of the SEZ, positioning it as a key component of this larger cross-border strategy.

CURRENT STATUS

While the idea of the Johor-Singapore Special Economic Zone has been discussed and promoted in various bilateral forums, it is still largely in the conceptual stage. Key projects like the RTS link are already underway, but a comprehensive, formal agreement defining the specifics of the SEZ, such as its regulatory framework, incentives, and governance structure, has not yet been finalized.

CONCLUSION

The Johor-Singapore Special Economic Zone is a proposed initiative to create a tightly integrated cross-border economic region between Johor in Malaysia and Singapore. It aims to capitalize on their geographic proximity and economic complementarities to drive growth, enhance connectivity, and foster bilateral cooperation. While the concept is promising, its full realization depends on continued negotiations and strategic planning between both governments.

PREVENTING ECONOMIC RECESSION OR SLOWDOWN

Preventing economic recession or slowdown is one of the most complex issue not only in Malaysia but also around the globe. In my humble opinion which I think many would agree, some of the most effective strategies always started from the policies itself.

Fiscal policy such as tax cuts, increased spending on infrastructure and targeted stimulus package. Consumer spending is very important. However, there is a disadvantage as well where authorities must be on a look out for sudden demand from providers to increase the price of goods and services. 

Tax cuts for businesses can also boost investment in new equipment, technology and expansion, leading to increased productivity and jobs. Unfortunately, we need to find alternative materials to manufacture new equipment so that it wouldn't be too pricy and ensure we are helping potential business to expand.

Stimulus packages are some of the good ways to offset the decline in private sector spending and investment, stabilizing the economy and preventing a deeper downturn.

Another policy is the monetary policy where interest rates need to be adjusted properly, some quantitative easing (QE) is required, or engage in open market operations to manage the money supply and influence borrowing spending and investment.

Here I am going to touch about QE - something that many of us laymen are unaware of. The Banks should help in purchasing government bonds, mortgage-backed securities, or other financial assets to inject money into the financial system, increasing the money supply and lowering long-term interest rates. QE can also enable banks to expand their balance sheets where the influx of liquidity into the financial systems can encourage lending and investment. The asset purchases on longer term securities may reduce the long term interest rates - also potentially impact the borrowing costs for mortgages, business loans and other long term investments.

Regulations - we still need to double up our efforts in enforcement to safeguard financial markets and ensure responsible lending practices. We need more micro forensic techniques to prevent corruption, scams, crime, frauds etc.

Innovation and Productivity must start by investment on education and skills especially on the subject of boosting entrepreneurship. The common principles of entrepreneurship is in dire need of revamp. The use of AI must be included as well.

International Cooperation is one of the key - currency exchange rates, trade policies, financial regulations and some others can help mitigate possible negative impacts from war, oil price, global warming etc.

We need to address NOW the underlying structural issues such as income inequality, unsustainable debt level and structural imbalances in economy.

True, prevention is better than cure but in reality it's always about firefighting.

We need an early warning systems with economic indicators, identify potential risks, take preemptive action to prevent recession or mitigate their impact.

Malaysia Reserve : Unlocking Malaysia’s global automotive potential

Source : https://themalaysianreserve.com/2024/02/26/unlocking-malaysias-global-automotive-potential/

Monday, February 26th, 2024 at Economy | News | Wheels

Entries by international EV companies signal a significant move towards EV transition, and longstanding local players also play pivotal roles

by SHAUQI WAHAB

Proton started its BEV journey with the introduction of the smart model, distributed through its subsidiary, Pro-Net, in 2023 (Source: smart Malaysia)

MALAYSIA’S automotive sector is embarking on its next revolutionary phase with the introduction of electric vehicles (EVs)

EV companies such as Tesla Inc and BYD Auto Co Ltd entered Malaysia’s market with a big statement towards the transition, aligning with a mission to champion the cause for environmental sustainability.

Noma SWO Consult associate partner and Gerson Lehrman Group’s (GLG) council member Nik Zafri Abdul Majid, alongside Proton Holdings Bhd deputy CEO Roslan Abdullah, shared perspectives on recent partnerships, government initiatives and Malaysia’s position in the global shift towards EVs.

Nik Zafri emphasised the pivotal roles of longstanding industry players, highlighting DRB-Hicom Bhd’s position through Proton.

“DRB-Hicom has been a long-standing player, in which Proton is the branding and monument for its success,” he told The Malaysian Reserve (TMR).

He said the collaboration with international brands like Suzuki, Honda and Mitsubishi has propelled DRB-Hicom to a leadership position in domestic production.

Nik Zafri says although Malaysia is still in the early stages of the EV revolution, there is significant potential for growth

“Most importantly, the car parts are imported and (then) assembled locally (complete knock-down [CKD]) which promotes domestic production, job creation and vendor development,” he said.

He also believed that broad experience, domestic production, job creation and vendor development are four key elements of how DRB-Hicom influenced the market trends, making it more competitive with appealing local vehicles.

UMW Holdings Bhd, synonymous with Toyota, offers diversified options to consumers.

“The influence of UMW on consumer choices and market trends are diversified options and established international brands,” he added.

Nik Zafri also noted that Tesla’s entry into Malaysia signals a significant milestone in the government’s push towards Sustainable Development Goals (SDGs), particularly in the EV domain.

“Tesla’s presence with EVs raises awareness and interest, which may influence the future direction of market trends, where the plan is to establish supercharger networks and service centres, which will boost the EV ecosystem,” he said.

Strategic Initiatives and Partnerships

Proton’s collaboration with DRB-Hicom and Zhejiang Geely Holding Group Co Ltd, as shared by Roslan, plays a crucial role in shaping Malaysia’s automotive trajectory.

Proton has recently made progress with the development of the Automotive High-Tech Valley (AHTV) project in Tanjung Malim, Perak.

“The project is a major initiative which is expected to energise the Malaysian automotive industry and attract RM32 billion in investments over the next 10 years, while creating job opportunities and helping Malaysia become a regional leader in the production of next-generation vehicles (NxGVs),” Roslan told TMR.

He also said that Proton’s transition into battery electric vehicles (BEVs) positioned the company at the forefront of Malaysia’s EV revolution, gaining valuable insights and contributing to the digital transformation journey associated with EVs.

“Proton started its BEV journey with the introduction of the smart model, distributed through its subsidiary, Proton New Energy Technology Sdn Bhd (Pro-Net), in 2023,” he said.

In regards to AHTV, Nik Zafri resonated with Roslan’s statement, adding that it will boost domestic production.

“We can expect transfer of technology in the future which will encourage the localisation of EV technology and components, hence reducing imports,” he said.

DRB-Hicom’s partnership with Geely further emphasises Malaysia’s commitment to boosting domestic production, localising technology and fostering a sustain- able automotive ecosystem.

“As at the end of 2023, the company has introduced 31 models and cumulatively sold 4.98 million units, so we are approaching another milestone in 2024,” said Roslan.

Meanwhile, Nik Zafri said the Malaysian Investment Development Authority’s (MIDA) collaboration with Perusahaan Otomobil Kedua Sdn Bhd (Perodua) would lead to the launching of the MIDA-Perodua Digital Transformation Ecosystem Programme.

“The aim is to upgrade the local automotive suppliers with state-of-the-art technologies and advanced machinery, digitising manufacturing processes (upgrade of the prevailing material requirements planning [MRP]/enterprise resource planning [ERP] system) and for a more affordable vendor development programme for Perodua,” he noted.

Investments in research and development (R&D), coupled with digitisation efforts, underscore the industry’s dedication to modernisation and innovation.

NAP2020 and Tax Initiatives

Government initiatives and incentives, crucial catalysts for growth, play a vital role in Malaysia’s automotive sector.

The government’s launch of the National Automotive Policy 2020 (NAP2020) was aimed at enhancing Malaysia’s automotive industry in the era of digital industrial transformation.

The goal is to cultivate the NxGV technology ecosystem to position Malaysia as a regional hub for NxGV production, enhancing the involvement of the domestic automotive industry in the sector. This initiative not only emphasises technology advancement but also encompasses the overall transport ecosystem.

The policy aimed to modernise the domestic automotive industry in line with the Industrial Revolution 4.0 (IR4.0) and ensure that consumers, domestic industry and the government benefit from NxGV implementation.

Furthermore, the policy was also aimed to reduce carbon emissions from vehicles by improving the fuel economy level in Malaysia by 2025 in line with the Asean Fuel Economy Roadmap of 5.3 litres of gasoline equivalent (Lge)/100km.

Concerning fuel economy level, it was reported in October 2023 that Malaysia’s refined fuel consumption is projected to grow at a much slower pace than anticipated over the next 10 years, averaging at around 1.5% from 2023 to 2032.

Hence, it is a good time for Malaysia to transition towards the government’s Environmental, Social and Governance (ESG) goals with the usage of EVs, and the development of Kulim Hi-Tech Park in the northern region of Malaysia.

Nik Zafri said the commitment to attracting investments, promoting technological advancement via grants and funding programmes, developing infrastructure, foster- ing workforce competencies, encouraging localisation and supporting vendor development created an enabling environment for industry players to thrive.

For example, tax exemptions offered by the government, such as investment tax allowances and pioneer status, would attract more foreign direct investors (FDI) into the automotive industry.

It will reduce the initial investment costs for companies, making Malaysia a more attractive destination for establishing or expanding their manufacturing operations.

“For individuals, income tax relief of up to RM2,500 on EV charger rental, purchase, and installation; and for companies, this applies to the tax deductions on EV rental, in which both of these incentives will be extended until 2027,” he said.

Initiatives like NDTS combine classroom learning with on-the-job training, improving graduates’ employability in the automotive sector (pic: Bloomberg

Training More Skilled Workers

Nik Zafri also touched upon the government’s initiative to introduce the National Dual Training System (NDTS).

“Initiatives like NDTS combine classroom learning with on-the-job training, providing graduates with practical experience and improving their employability in the automotive sector,” he said.

Subsequently, Investment, Trade and Industry (MITI) Minister Tengku Datuk Seri Zafrul Abdul Aziz said during his speech at a recent BYD launching ceremony that MITI would collaborate with other ministries to fulfil the industry’s demands.

“MITI will continue to collaborate with the Human Resource, Education and Higher Education Ministries to ensure that the industry’s requirements for skilled workers will be fulfilled,” he said.

Last year, MITI set up the National EV Steering Committee, which is a Cabinet committee comprising key ministries to address top concerns in the industry.

“This 400% increase in BEV adoption signifies our strong policy push that has generated a strong trend in the shift from internal combustion engine (ICE) to EV among Malaysian consumers,” Tengku Zafrul added while complimenting BYD for achieving the highest number of units of EV cars brought into Malaysia.

Meanwhile, Roslan said Proton’s alignment with government aspirations and its focus on connectivity, autonomous, shared mobility and electrification (CASE) technologies echoed this commitment.

He also noted the government’s active participation in the promotion of EVs, which aligned with the Net-zero Carbon Mobility blueprint.

“The government must make the policies clear to the public to address the various concerns regarding the usage of EV cars such as range anxiety, financing facilities, as well as the second-hand value of EV cars,” he said.

Roslan notes the govt’s active participation in EV promotion, which aligns with Net-zero Carbon Mobility blueprint (pic: MUHD AMIN NAHARUL/TMR)

Malaysia’s Position in the EV Revolution

Nik Zafri said although Malaysia is still in the early stages of the EV revolution, there is significant potential for growth.

Challenges such as limited EV production and infrastructure gaps exist, but strong government support through initiatives like tax breaks and subsidies signals a promising future for EV adoption and production.

With these challenges, he said Malaysia is likely to face tough competition for at least one to two years, given the head start in EV development and production enjoyed by countries like China and South Korea.

However, he was hopeful about Malaysia’s trajectory in its EV development.

“Partnerships and investments with Geely and Tesla can bring in expertise and technology, accelerating Malaysia’s EV development,” he said.

Nik Zafri believed that leveraging expertise, partnerships and financial support, Malaysia, including Proton, is poised to emerge as a key player in the regional EV market by 2025.

As for Roslan, he supported the government’s targets towards transitioning to EVs, notably achieving 15% EV of new car sales by 2030.

“Proton views these targets to be in line with the ICE-to-EV transition period as it may require some time to convince consumers and stabilise the industry,” he noted.

However, he said that ICE and hybrid EV (HEV) cars are expected to prevail until 2030, followed by the decline of volumes for ICE vehicles.

• This article first appeared in The Malaysian Reserve weekly print edition