Singapore, now an international financial city, is reputedly the world's most expensive city to live in. It draws world class talent to its economy, including people from Johor and also many other parts of Malaysia who go to school there or settle down and take up permanent residence or citizenship in Singapore. Singapore still relies, in part, on certain resources from Malaysia including water, (more recently) electricity, food and other commodities. Singapore is the second largest investor in Malaysia and one of its biggest trading partners. Johor Bahru still enjoys a lower cost of living although its economy is buoyed by people spending their Singapore sourced income.
The Johor-Bahru – Singapore Rapid Transfer System link between the two cities is scheduled to begin operations in 2026, adding one more land-based link to the existing causeway and a second bridge link.
Both countries are inextricably linked by their societies and common cultures and history. Each has pursued different paths of growth but continue to work symbiotically and complementarily, which has led to peaceful and progressive co-existence in the region.
So, this tale of two cities is not set against a backdrop of upheaval and unrest like Dickens' version but is a new modern tale of a shared legacy and cooperation, and the latest development promises a new chapter in the story.
Singapore and Malaysia's Memorandum of Understanding
The governments of the two countries signed a memorandum of understanding on 11 January 2024 to work together on the creation of the Johor-Singapore Special Economic Zone (JSSEZ) to be located in the state of Johor. Singapore's Minister for Trade and Industry and Malaysia's Minister of Economy signed the MOU, witnessed by the beaming Prime Ministers of both countries.
What now?
The hard work begins for the administration of both countries, now that wefies of the Ministers have been taken and posted on X.
On the wish list on the Singapore side is likely to be the establishment of a "one-stop business/investment service centre" in Johor Bahru to ease the application process of various approvals and licences necessary for Singapore businesses to establish themselves in the JSSEZ. In line with this, the participation of the Johor State government in the initiative is also crucial. Some important areas for the success of the JSSEZ (e.g., land grants and land administration, local council approvals for planning and construction, local transportation, water, waste treatment etc.) fall within the purview of the state government, separate from the Federal Government and federal agencies.
It is expected that both countries will also involve the private sector, including government-controlled corporations, to help spearhead the anchor projects in the area. New agencies with authority and mandate to develop and operate the JSSEZ will need to be established by the Malaysian side. And new laws may need to be passed to provide special privileges to businesses and people operating in the JSSEZ.
In recent times, the possibility of passport-free travel between Johor and Singapore using a QR code system has been mooted. The easier flow of travel between the two countries would be an added boon to the growth and success of the JSSEZ.
The further integration of the financial systems between the two countries would also allow the ease of deployment of financial capital, in addition to making travel easier to those commuting to and from JSSEZ.
Other things which may be considered include digitized processes for cargo clearance at the land checkpoints, and joint promotional efforts between Johor and Singapore to promote trade and investments into the JSSEZ.
What can businesses expect if they locate in JSSEZ?
Malaysia already has several special economic zones including the East Coast Economic Region, Northern Corridor Economic Region, and (in Johor itself) Iskandar Malaysia. In the case of Iskandar Malaysia, it is anchored on promoting nine promoted sectors including healthcare, education, tourism and food and agro-processing.
While the JSSEZ is still in its planning stages, from other existing special zones, we believe the incentives could include the following:
- Tax and customs duty incentives: Most economic zones offer a range of tax and customs duty incentives to attract businesses to operate within the zone. This can include exemptions or reductions in corporate and/or individual income tax for companies carrying on business and individuals employed within the zones, stamp duty exemption for relevant instruments, customs duty and sales tax exemptions on importation, as well as other tax facilitation such as the exemption from sales tax registration for manufacturers operating within the zones.
- Customs and trade facilitation: Economic zones may provide simplified customs processes to facilitate a rapid customs clearance process. Fast-track digitized customs clearance has been suggested, and if implemented, this will further accelerate the adoption of the ASEAN Customs Transit System which facilitates cross-border transit movement of goods via land within ASEAN, including Singapore and Malaysia. Other benefits typically offered by economic zones include the ability to import goods into the zones without import license, permit or conformity compliance documentation which may otherwise be applicable.
- Regulatory flexibility: Economic zones may have more relaxed regulations or specialized regulatory frameworks to encourage business growth. This can include simplified licensing and permit procedures, more flexible labor and immigration laws, and streamlined administrative processes.
- Infrastructure support: Economic zones often provide infrastructure support, such as access to reliable utilities, transportation networks, telecommunications, and logistics facilities. This can help businesses operate more efficiently and reduce their operational costs.
- Investment incentives: Economic zones may offer investment incentives to attract foreign and domestic investments. This can include grants, subsidies, or financial assistance for capital investments, research and development activities, or training programs.
- Access to skilled labor: Economic zones may collaborate with educational institutions or provide training programs to ensure a skilled workforce is available to businesses operating within the zone. This can include vocational training, skills development programs, or partnerships with universities and technical schools.
Moreover, we believe that tailor made incentives to deal with the specific sectors of focus of the JSSEZ could be introduced. Also, for sufficiently high levels of investment or for strategic sectors, bespoke fiscal and non-fiscal incentives can possibly be negotiated and granted.
Who benefits the most?
If the project is ultimately well conceived and implemented, the JSSEZ would be – at the risk of hyperbole - a game changer. It would herald a new level of cooperation and amity between the two countries, lending continued stability in the region which oversees one of the world's busiest shipping routes. It would generate significant new investments for Johor and Malaysia, and allow Singaporean, and international businesses, to tap on both Singapore's international financial centre and access Johor's larger land mass, power, water, IT infrastructure and trained workforce. It would raise incomes on both sides of the Straits of Johor, and bring employment, technology and revenues to the state of Johor.
The Johor-Singapore free economic zone has the potential to benefit various industries in both regions. While it is difficult to predict the exact industries that will benefit the most, here are some sectors that could see significant advantages:
- Manufacturing, warehousing and distribution: The economic zone can facilitate the growth of manufacturing, warehousing and distribution industries by providing a conducive environment for production and trade, through leveraging cost-effective land and labor resources in Malaysia and the extensive and efficient logistics infrastructure in Singapore via some of the world's busiest sea and air ports. This includes sectors such as electronics, semiconductors, automotive, chemicals, and machinery.
- Logistics and Transportation: With the increased cross-border movement of goods and development of better infrastructure and connectivity, logistics and transportation industries are likely to benefit. This includes shipping, warehousing, freight forwarding, and related services.
- Tourism and Hospitality: The economic zone can attract more tourists and business travelers, leading to growth in the tourism and hospitality sectors. This includes hotels, restaurants, entertainment venues, and other tourism-related services.
- Innovation and Technology: The economic zone aims to promote collaboration in research and development, technology transfer, and innovation. This can benefit industries related to information technology, biotechnology, renewable energy, and other high-tech sectors.
- Financial Services: With increased economic activity and investment, the financial services sector, including banking, insurance, and investment firms, could see growth as businesses expand and require financial support.
- Retail and Consumer Goods: The economic zone can create opportunities for retail businesses and consumer goods industries. This includes shopping centers, supermarkets, and other retail outlets.
- Green technology and sustainability: With new standards of sustainability required for design and construction, the JSSEZ could be an area for sustainable projects and a green living environment. Renewable energy projects could also be promoted in the area in tandem with new aspirations of inclusion and sustainability.
- Real property development: The economic zone will serve as a catalyst to the real property sector in Johor. With the increase of economic activities, the property value of the real property located within the vicinity of the economic zone will improve and this will attract interest of property developers and investors to invest in various types of real properties including residential, commercial, hospitality and industrial properties in Johor.
Epilogue
Imagine a region where cross border travel to and from JSSEZ vis-à-vis Singapore is fast and easy. Singaporean and international business owners, professionals, workers, educationalists can travel freely and offer their capital, knowledge and skills to businesses set up in the JSSEZ. Singaporeans could live and play in the JSSEZ, and Malaysians can tap into the employment and higher income afforded by value added and high technology international businesses located at their doorstep in Johor. All in the interest of the common prosperity of both countries.
This tale of two ambitious cities has only just begun. There is much work to be done for it to have a felicitous ending, but the earnestness of the two countries and their shared traditions and ambition bode well for it.
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This client alert was issued by Wong & Partners, a member firm of Baker McKenzie International, a global law firm with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a "partner" means a person who is a partner or equivalent in such a law firm. Similarly, reference to an "office" means an office of any such law firm. This may qualify as "Attorney Advertising" requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome.
