Who benefits more from Johor-Singapore economic zone?

Analysts have urged caution that a new special economic zone packed with numerous incentives for businesses could disproportionately favour Singapore over Malaysia, despite being dubbed a "gamechanger" by government supporters.

The Johor-Singapore Special Economic Zone (JS-SEZ) was launched in January with a number of initiatives, including the removal of red tape for Singapore companies to set up in Johor, passport-free clearance at checkpoints and digitised cargo management.

But one expert said that while foreign direct investment (FDI) brings economic opportunities, Malaysia also faces risks such as a possible debt trap, loss of high-value industries and an imbalance of benefits between the two countries.

Maritime analyst Nazery Khalid emphasised that infrastructure projects play a key role in the development of the JS-SEZ, but warned that Malaysia’s financing of these projects could lead to financial risks if not mitigated.

"These risks include significant debt exposure as incurred by several countries that are part of the One Belt, One Road initiative,” he said, referring to Beijing's ambitious plan to connect cities around the world by land to facilitate trade with China.

Nazery warned that Singapore may be able to dictate terms through its funding of certain projects.

"It could potentially have significant influence and greater say in decision-making on certain issues, which could compromise Malaysia’s interests," he said

The JS-SEZ covers an area of 3,505 sq kms in Johor and includes nine key areas such as the Iskandar Development Region, Forest City Special Financial Zone and the Pengerang Integrated Petroleum Complex (PIPC).

The government said it aims to create over 20,000 skilled jobs and attract high-value investments in manufacturing, logistics, digital industries, healthcare and education.

However, critics drew a parallel with Malaysia's experience with the now cancelled high-speed rail project that was supposed to connect the two countries.

 HSR’s asset management company AssetsCo was to be jointly controlled by Malaysia and Singapore, even though only 15km, or just 4%, of the 350km line runs on Singaporean soil.

Nazery said this was one of the reasons why the previous government cancelled the project.

Joint control would have given Singapore an equal say in all operational and future management decisions, even though 96% of the trackage was to be in Malaysia.

Nazery, an adjunct professor at three local universities, said Malaysia must ensure that its own labour force benefits from JS-SEZ.

"We must not compromise on the national agenda of developing local talent especially in value adding, highly skilled and innovation driven fields. Token representation must not replace genuine job opportunities," he said.

Another analyst also expressed scepticism about JS-SEZ’s ability to create high-value investments for Malaysia, agreeing that its blueprint "primarily benefits Singapore".

"Companies don’t set up their headquarters in Malaysia; they establish low-cost manufacturing hubs here due to cheaper energy, water, and land," said Ibrahim Abdullah Zaik of the IRIS Institute.

He said that while Malaysia could collect tax revenue from the manufacturing sector, the actual revenue flowed to Singapore.

"High-value processes such as front-end manufacturing take place there. Products are tested in Johor but will be exported via Changi rather than through ports in Johor."

Ibrahim also warned of the strain that data centres in JS-SEZ could put on Malaysia’s energy and water supply.

"A single data centre alone can consume as much energy as an entire district," he said.

Apart from economic control, Ibrahim pointed out the potential impact of the rising number of luxury flats in Johor, especially if demand from Singapore increases.

Although Johor has the highest number of unsold homes in the country, there is a sharp increase in luxury properties, he said.

"As a result, the stock of affordable housing will shrink, making home ownership increasingly difficult for low-income Malaysians," he said.

Nazery, meanwhile, said there is no free lunch when it comes to transfer of technology.

He said it was naive to expect Singapore companies to share patented technologies even with their strategic partners.

"Singaporean companies have conducted extensive research and development and are unlikely to share their findings freely.

"The Malaysian government agencies responsible for the transfer of know-how and technology must be closely involved in the projects to ensure that our interests are safeguarded," he added.