An AirTrunk data centre in Australia. DBS research shows the data centre, electronics and renewable energy sectors will benefit most from the Johor-Singapore Special Economic Zone (Photo: Bloomberg)
SINGAPORE (EDGEPROP) - The biggest beneficiaries of the proposed Johor-Singapore Special Economic Zone (JS-SEZ) are likely to include the data centre, electronics and renewable energy sectors, according to research by DBS.
The JS-SEZ, which aims to facilitate cross-border economic activities between the two states, was first announced last October during the 10th Singapore-Malaysia Leaders’ Retreat. In January, the two countries signed a memorandum of understanding to work on a full-fledged agreement for the zone, which is targeted to be finalised before the next leaders’ retreat in December.
The JS-SEZ will be located in Malaysia’s Iskandar region. Johor Chief Minister Onn Hafiz Ghazi has said that the state government has proposed the zone to cover six districts (Johor Bahru, Iskandar Puteri, Pasir Gudang, Pontian, Kulai and Kota Tinggi) with a total area of 3,505 sq km.
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Initiatives currently being explored for the zone include special tax arrangements, training incentives, passport-free clearance to enable smoother travel and joint promotion events.
While specific details on the industries and incentives targeted for the zone remain to be seen, DBS economist Chua Han Teng believes the data centre sector will be a prime beneficiary, which will, in turn, benefit firms in technology services.
According to DC Byte’s 2024 Global Data Centre Index, Johor is the fastest-growing data centre in Southeast Asia. Johor’s data centres have grown from a baseline of less than 10MW of live supply to over 1.6GW in the last three years, bolstered by Singapore’s moratorium on data centres since 2019.
Johor’s electrical and electronics sector is also anticipated to benefit from the JS-SEZ. It has been identified as one of the 16 priority industries in the Progress Johor 2030 economic master plan. Presently, the state’s electronics manufacturing sector is the third largest in Malaysia, trailing behind Penang and Selangor.
Renewable energy is also likely to benefit from the JS-SEZ, as the sector has been identified as a key area of cooperation. Establishing the zone could deepen collaborations already in place, such as the two-year electricity import trial between Singapore and Malaysia, which was announced last year. Under the agreement, the city-state will import 100MW of electricity from a gas-fired power plant in Johor.
As activity in these different sectors picks up, the JS-SEZ will likely stimulate more demand for industrial properties in Johor, says Chua. “We already see a strong pick-up in the number and value of industrial property sales in the state in recent years.” Connectivity between Johor and Singapore will get a significant boost with the completion of the Johor Bahru-Singapore Rapid Transit System (RTS) at the end of 2026. The RTS will cut travel time between the two cities to as little as 15 minutes, paving the way for faster and more efficient travel.
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Chua adds that the JS-SEZ offers the opportunity to leverage the strengths of both Singapore and Johor. For the latter, one of these strengths is space — at 3,505 sq km, the proposed JS-SEZ is four times the size of Singapore and roughly equivalent to the combined area of China’s Shenzhen and Hong Kong. “Land-constrained Singapore could benefit significantly from the abundant land supply,” Chua said in the report.
Johor also has favourable demographics. Its population was 4.1 million in 2023, making it Malaysia’s second most populous state after Selangor. While the city-state currently has a larger population of about six million, Johor’s population is expected to grow faster than Singapore’s over the decade, which will trickle into a larger workforce.
Additionally, companies in the JS-SEZ can benefit from lower labour costs. As of June 2023, the median monthly wage in Johor was approximately US$500 (S$642), significantly lower than in Singapore, where it was closer to US$3,500.
On the other hand, the city-state offers strong capabilities as a financial centre and business hub, allowing the proposed zone to tap into the city-state’s business competitiveness, backed by economic performance, government and business efficiency and good infrastructure.
The JS-SEZ is likely to appeal strongly to Singaporean businesses. A survey by the Singapore Business Federation (SBF) earlier this year found that of the 160 firms surveyed, 93 found Johor attractive, while 50 already have operations there.
However, the success of the JS-SEZ will also depend on its ability to tackle issues currently faced by Singaporean businesses operating in Johor. The SBF survey found that a majority of companies cited manpower problems such as challenges in employment pass issues and sourcing technical and skilled workers.
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Businesses also highlighted challenges in the movement of goods between Singapore and Johor, such as unclear or inconsistent import and export tax rules, long duration for cargo clearance and logistical challenges.
To improve cross-border movements, businesses suggested special immigration lanes for residents and automated clearance using biometrics. A total of 38% of companies also believe that the high-speed rail to KL, on top of the Johor Bahru-Singapore RTS, will enhance cross-border human flow.
Another challenge facing the JS-SEZ is the fragmented investment process in Malaysia, with businesses reporting obstacles in obtaining necessary permits and licences. Most firms surveyed highlighted the need for a unified one-stop service centre to assist investors. Johor has taken steps to address this by establishing the Invest Malaysia Facilitation Centre, a one-stop centre for investment-related matters, in December 2023.
Singaporean businesses have also suggested a joint investment promotion agency to market the zone and a business platform to facilitate collaboration and networking opportunities for companies entering Johor.