Edgeprop Singapore – The proposed Johor-Singapore Special Economic Zone (JS-SEZ) is set to bring significant economic benefits to the data centre, electronics, and renewable energy sectors, according to a report by DBS.
The JS-SEZ, which aims to promote cross-border economic activities between Singapore and Malaysia, was first announced in October last year during the 10th Singapore-Malaysia Leaders’ Retreat. Both countries signed a memorandum of understanding in January to work on a comprehensive agreement for the zone, which is expected to be finalised before the next leaders’ retreat in December.
The JS-SEZ will be situated in Malaysia’s Iskandar region. Johor Chief Minister Onn Hafiz Ghazi has proposed that the zone cover six districts – Johor Bahru, Iskandar Puteri, Pasir Gudang, Pontian, Kulai and Kota Tinggi – spanning a total area of 3,505 sq km.
Among the initiatives under consideration for the zone are special tax arrangements, training incentives, passport-free clearance to facilitate smoother travel, and joint promotion events.
Key sectors expected to benefit from the JS-SEZ include data centre, electronics, and renewable energy, according to DBS economist Chua Han Teng. He believes that the data centre sector will be the primary beneficiary, which will subsequently benefit companies in the technology services industry.
Johor has been identified as the fastest-growing data centre hub in Southeast Asia, according to DC Byte’s 2024 Global Data Centre Index. Over the last three years, Johor’s data centre capacity has grown from less than 10MW to over 1.6GW, driven by Singapore’s moratorium on new data centres since 2019.
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The state’s electrical and electronics sector is also expected to reap benefits from the JS-SEZ. It has been designated as one of the 16 priority industries in the Progress Johor 2030 economic master plan. Currently, Johor’s electronics manufacturing sector is the third-largest in Malaysia, behind Penang and Selangor.
Moreover, the JS-SEZ is likely to give a boost to the renewable energy sector, as it has been identified as a key area of collaboration between the two countries. Establishing the zone could lead to further cooperation, such as the two-year electricity import trial between Singapore and Malaysia, which was announced last year. Under the agreement, Singapore will import 100MW of electricity from a gas-fired power plant in Johor.
As activity in these different sectors increases, the JS-SEZ is expected to drive demand for industrial properties in Johor, adds Chua. “We are already seeing a significant uptick in the volume and value of industrial property sales in the state in recent years.”
The completion of the Johor Bahru-Singapore Rapid Transit System (RTS) at the end of 2026 will give a significant boost to connectivity between Johor and Singapore. This will cut travel time between the two cities to just 15 minutes, paving the way for faster and more efficient travel.
Chua adds that the JS-SEZ presents an opportunity to leverage the strengths of both Singapore and Johor. For the latter, one of the main strengths is its ample space – the proposed zone is four times the size of Singapore and equivalent to the combined area of China’s Shenzhen and Hong Kong. “With limited land in Singapore, there is much to gain from the abundant land supply,” says Chua.
Johor also boasts of favourable demographics, with a population of 4.1 million in 2023, making it Malaysia’s second most populous state after Selangor. While Singapore’s current population is around six million, Johor’s population is expected to grow at a faster pace over the next decade, leading to a larger workforce.
In addition, companies operating in the JS-SEZ can take advantage of lower labour costs in Johor. As of June 2023, the median monthly wage in Johor was approximately US$500 (S$642), significantly lower than in Singapore, with a median monthly wage of around US$3,500.
On the other hand, Singapore offers strong capabilities as a financial centre and business hub, which will allow the proposed zone to utilise the city-state’s competitive business environment, supported by its robust economy, efficient government and infrastructure.
Singaporean businesses are expected to be drawn to the JS-SEZ, with 93 out of 160 companies surveyed by the Singapore Business Federation (SBF) earlier this year finding Johor appealing, while 50 have already established operations there.
However, the success of the JS-SEZ will ultimately depend on its ability to address the current challenges faced by Singaporean businesses operating in Johor. The SBF survey revealed that a majority of companies cited manpower issues, such as difficulties in obtaining employment passes and hiring skilled workers, as the biggest problems.
The survey also identified a number of challenges related to the movement of goods between Singapore and Johor, including unclear or inconsistent import and export tax rules, lengthy cargo clearance times and logistical hurdles.
To improve cross-border movements, businesses recommended special immigration lanes for residents and automated clearance using biometrics. Companies also believe that the high-speed rail project between Singapore and Kuala Lumpur, on top of the Johor Bahru-Singapore RTS, will further enhance cross-border traffic.
Another key concern for the JS-SEZ is the fragmented investment process in Malaysia, with firms reporting obstacles in acquiring necessary permits and licences. Companies surveyed highlighted the need for a single one-stop service centre to help investors. In December 2023, Johor set up the Invest Malaysia Facilitation Centre, a one-stop centre for investment-related matters.
Singaporean businesses have proposed the establishment of a joint investment promotion agency to market the JS-SEZ, as well as a business platform to facilitate collaboration and networking opportunities for companies entering Johor.