Johor-Singapore SEZ to spur investments from mainland China, Taiwan, UOB says

A managing director at the bank believes investors will want to take advantage of tax incentives offered within the special economic zone

Malaysia

Joseph Sipalan

Published: 4:21pm, 16 Aug 2024

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The electrical and electronics industry in the Malaysian state of Johor is expected to see a surge in investments from mainland China and Taiwan once the Johor-Singapore Special Economic Zone (JS-SEZ) becomes operational later this year, a senior banker said, as semiconductor firms adjust supply chains around the US-China trade and tech war.

There is intense competition across Southeast Asia to attract tech companies looking to establish new manufacturing sites for their chips, as escalating sanctions by Washington on China’s tech industry disrupt supply chains for various goods such as smartphones and electric vehicles.

Johor has already secured potential investments totalling around US$380 million from China earlier this year, with more likely to pour in to take advantage of tax incentives in the JS-SEZ, according to Lim Lay Wah, a managing director at Singapore bank UOB.

“We see the Taiwanese, not just China plus one … also want to tap on that as well,” Lim said, referring to the investment strategy where firms run parallel operations in China and a second country to diversify sources of supply and production.

Last month, Malaysia’s Economy Minister Rafizi Ramli said that plans are progressing to finalise a deal with Singapore to develop the JS-SEZ by September, one month ahead of the annual retreat of leaders from both nations.

A welcome sign stands in front of residential flats in Chinese developer Country Garden’s Forest City in Johor Bahru, Malaysia. Photo: EPA-EFE

Talks on the JS-SEZ were started last year by Malaysia’s Prime Minister Anwar Ibrahim, who had initially proposed to turn the US$100 billion Forest City project into a special financial zone to tap investments from Singapore to rescue the troubled project.

However, some critics have expressed concerns about the success of the special economic zone, particularly if Malaysia does not promptly address logistical issues such as border crossings and connectivity within the JS-SEZ to manage the expected increase in traffic to what is already one of the world’s busiest land crossing.

Johor has struggled to revive its local economy post-pandemic. Many businesses were forced to fold when the causeway was closed for nearly two years, cutting them off from their wealthy Singaporean clientele, who would spend enough on weekend jaunts to cover the week.

UOB’s Lim said the governments on both sides have been sending the right signals to investors, especially Malaysia’s recent pledge to pump in 120 billion ringgit (US$25.3 million) in direct domestic investments across the country by local pension funds and institutional investors.

Motorists coming from Malaysia’s state of Johor form a queue as they approach the immigration checkpoint to enter in Singapore. Photo: AFP

“That’s very powerful because you are telling investors that we want to make sure your investments are safe … but at the same time we also put our anchor capital to support the synergy,” she said on Wednesday.

The special economic zone is also expected to drive more demand from the data centre sector, as industry players look to set up resource-intensive facilities in locations that can provide sufficient land and power.

Johor is well-positioned in this regard, with a large land bank and surplus power, all close to Singapore. Many multinational firms like the Princeton Digital Group (PDG), a leading developer and operator of internet infrastructure, are headquartered there.

“Those factors make Johor already a viable data centre [hub], even before the special economic zone started taking shape. The special economic zone will definitely give further impetus to our business,” said Rangnath Salgame, PDG chairman and chief executive officer.

More than 40 data centres are currently operating in Malaysia, mainly in Selangor and Johor states, with dozens more in the pipeline or under construction.

PDG currently runs a 54MW facility at its campus in Johor, with another 120MW capacity expected to come on line within the next 12 months.

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