Data Centres Electronics Among Sectors Benefit Johor Singapore Special Economic Zone Dbs
A proposed Johor-Singapore Special Economic Zone (JS-SEZ) is expected to bring about significant benefits for the data centre, electronics, and renewable energy sectors. According to research by DBS, this agreement between the two states, first announced in October last year, could pave the way for cross-border economic activities. The memorandum of understanding signed in January is targeted to be finalized before the next leaders’ retreat in December.
The JS-SEZ, located in Malaysia’s Iskandar region, is expected to cover six districts and span a total area of 3,505 sq km. Johor Chief Minister Onn Hafiz Ghazi has reaffirmed that the proposed zone will encompass Johor Bahru, Iskandar Puteri, Pasir Gudang, Pontian, Kulai and Kota Tinggi. The initiative explores special tax arrangements, training incentives, passport-free clearance for smoother travel, and joint promotion events.
The biggest beneficiaries
While specific details on the industries and incentives targeted for the zone remain to be seen, DBS economist Chua Han Teng believes that the data centre sector will be a prime beneficiary. This would also benefit technology services firms. The 2024 Global Data Centre Index by DC Byte has ranked Johor as the fastest-growing data centre in Southeast Asia. Data centres in Johor have seen significant growth in the past three years, with an increase from less than 10MW to over 1.6GW. This was mostly driven by Singapore’s moratorium on data centres since 2019.
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Apart from the data centre sector, Johor’s electrical and electronics sector is also expected to benefit from the JS-SEZ. This sector is regarded as one of the 16 priority industries in the Progress Johor 2030 economic master plan. Currently, the state’s electronics manufacturing sector is the third largest in Malaysia, falling behind Penang and Selangor.
Additionally, the renewable energy sector is also likely to benefit, as it has been identified as a key area of cooperation between the two states. The establishment of the zone could further enhance existing collaborations 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 these different sectors pick up activity, the JS-SEZ is expected to spur more demand for industrial properties in Johor, according to Chua. He adds that in recent years, there has been a significant increase in the number and value of industrial property sales in the state. The completion of the Johor Bahru-Singapore Rapid Transit System at the end of 2026 will also significantly boost connectivity between Johor and Singapore. The RTS is expected to cut travel time between the two cities to as little as 15 minutes, facilitating faster and more efficient travel.
Leveraging complementary strengths
Chua notes that the JS-SEZ provides an opportunity to leverage the strengths of both Singapore and Johor. Johor’s size, at 3,505 sq km, is four times that of Singapore and is about the same size as the combined area of Shenzhen and Hong Kong in China. “Land-constrained Singapore could benefit significantly from the abundant land supply,” says Chua.
Johor also has favourable demographics, with a population of 4.1 million in 2023, making it Malaysia’s second most populous state after Selangor. Although Singapore currently has a larger population of about six million, Johor’s population is expected to grow faster over the decade. This would eventually lead to a larger workforce in Johor. Furthermore, companies in the JS-SEZ can benefit from lower labour costs. The median monthly wage in Johor as of June 2023 was approximately US$500, significantly lower than Singapore, where it was closer to US$3,500.
On the other hand, Singapore offers strong capabilities as a financial centre and business hub, allowing the proposed zone to tap into its business competitiveness. Singapore’s robust economic performance, government and business efficiency, and good infrastructure are major strengths that the proposed zone can leverage.
Businesses keen, but challenges remain
The JS-SEZ is expected to appeal strongly to Singaporean businesses. A survey by the Singapore Business Federation (SBF) earlier this year found that out 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 address current issues faced by Singaporean businesses in Johor. The SBF survey found that the majority of the companies cited manpower problems, such as challenges in employment pass applications and finding technical and skilled workers.
Businesses also pointed out challenges in the movement of goods between Singapore and Johor, such as unclear or inconsistent import and export tax rules, long cargo clearance durations and logistical challenges. To improve cross-border movements, businesses suggested special immigration lanes for residents and automated clearance using biometrics. Furthermore, 38% of companies believed that the high-speed rail to KL, on top of the Johor Bahru-Singapore RTS, would 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 emphasized the need for a unified one-stop service centre to assist investors. In December 2023, Johor took steps to address this by establishing the Invest Malaysia Facilitation Centre, a one-stop centre for investment-related matters.
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.