Blog

MALAYSIA’S plan to finalise the Johor-Singapore Special Economic Zone (JSSEZ) agreement by September will have to be aborted, as negotiations continue over several sticking points.

The discussions are set to take place until the 11th Singapore-Malaysia Leaders’ Retreat that is likely to be held in December, The Straits Times (ST) has learnt.

Among the issues where both sides have yet to bridge the gap are contributions to a facilitation fund for companies looking to expand operations to Johor and skilled workforce provisions, according to sources in the know.

While Singapore and Malaysia had signed a memorandum of understanding in January targeting a deal by the end of 2024, Malaysia’s Minister of Economy Rafizi Ramli said in July that the final agreement was expected to be inked in September.

“The agreement between both the countries will now be signed during the annual leaders’ retreat at the end of the year and this has been the understanding between both Malaysia and Singapore,” said Lee Ting Han, chairman of Johor’s state investment, trade and consumer affairs committee.

“We want to make the JSSEZ more impactful, which will require more negotiations about policies and incentives before an agreement can be drafted between both countries,” he told ST on Aug 14.

Johor Menteri Besar Onn Hafiz Ghazi said on Aug 15 that an official three-day workshop between Malaysian and Singapore officials is scheduled to take place in Johor from Aug 28 to 30. It is aimed at completing most of the negotiations, which will pave the way for the drafting of the agreement.

On the timeline for the deal, Datuk Onn said: “We are looking at the end of the year, but before that we are doing a lot of engagements. I have been to Singapore a few times now, meeting up with the captains of the industries to get their feedback.”

Official sources in Malaysia told ST the workshop itself was delayed from early August. Both governments’ Attorney-General’s Chambers will then have to verify the legal requirements of the agreed proposals.

The JSSEZ, which was officially announced in October 2023 during Malaysian Prime Minister Anwar Ibrahim’s visit to Singapore for the 10th leaders’ retreat, is an integrated zone for business and investment to ease the movement of people and goods across the border.

The project is likely to cover Iskandar Malaysia and Pengerang, spanning 3,505 sq km across southern Johor, more than four times the size of Singapore.

Although the JSSEZ is expected to lure new investments, spur trade and generate employment opportunities, persistent challenges in ironing out negotiations have affected the deadline initially set by Malaysia, said sources who did not want to be named.

A source close to the matter said discussions are ongoing to establish a “facilitation fund” that will allow Malaysia and Singapore to allocate funds to help companies in Singapore expand their operations in the JSSEZ. There has also been a proposal to set targets for the number of companies in Singapore setting up shop in the SEZ.

“There are many challenges to get this passed. For instance, what should be the fair share of contribution of funds between both the countries,” said the source.

Another key negotiation is on the supply of skilled workers to companies looking to expand their operations in the JSSEZ, said an official source.

“We want this project to have a ‘wow factor’, distinct from our efforts in Iskandar. So we want to develop training programmes to upskill workers in Johor with an aim to supply skilled talent to meet the needs of various industries, including artificial intelligence and renewable energy,” said the source.

A survey of 160 businesses done by the Singapore Business Federation has shown that Singapore companies are keen to invest in Johor but face challenges such as talent shortages, cross-border movement needs and a fragmented investment landscape.

Although the findings, announced in July, showed that 93 per cent of respondents view Johor as an attractive investment destination, talent shortages were a major concern. Nearly 60 per cent of the businesses reported difficulties in sourcing skilled workers in Johor.

Malaysia’s Ministry of Economy did not respond to ST’s queries regarding the potential plans for the JSSEZ.

Singapore’s Ministry of Trade and Industry, which is negotiating with its Malaysian counterparts on the JSSEZ, has not given a timeline on a deal. In a May parliamentary reply, Minister of State for Trade and Industry Alvin Tan noted that updates on the progress will be provided at the Singapore-Malaysia leaders’ retreat later in the year.

Previously, the Johor state government had also proposed an additional ferry service between Puteri Harbour and Tuas to ease travel between Johor and Singapore.

The proposal to establish the JSSEZ comes after Iskandar Malaysia, which was conceptualised as an economic growth corridor in 2006, failed to hit investment targets, particularly after Covid-19 pandemic border restrictions.

On the JSSEZ, potential concerns in the Malaysia-Singapore negotiations may include the security impact of faster border clearance, short-term effects such as tax disparities arising from tax incentives to facilitate movement of people and businesses, as well as commitments on infrastructure funding and co-investment opportunities, said Ong Kian Ming, board member of the Malaysian Investment Development Authority.

“I believe that something substantive can be agreed on by year end, and some of the more intractable issues can be put forward on a future date when the JSSEZ gains some momentum.” he told ST.

Analysts say potential projects should include the construction of a third bridge connecting the heavy industrial area of Pasir Gudang in Malaysia to Singapore’s Changi Airport, potentially unlocking wider export markets for both countries.

Other underexplored areas include joint research in modern agriculture and urban farming by higher education institutions of both countries and leveraging Johor’s abundant land to enhance food security, said Socio-Economic Research Centre economist and executive director Lee Heng Guie. THE STRAITS TIMES