Singapore and Malaysia, two countries with a shared history and a common border, have historically been closely linked economically. To further enhance this connection, the two countries recently signed a Memorandum of Understanding (MOU) on 11 January 2024 to create a new Johor-Singapore Special Economic Zone. The primary goal of this initiative is to boost economic interactions and transactions across their border.
What is an SEZ, and how will its establishment near the border benefit the people of both Singapore and Malaysia?
What Does A Special Economic Zone Do?
A Special Economic Zone (SEZ) is a designated area within a country where the business, trade, and legal regulations differ from the rest of the nation. This concept gained prominence in the 1980s when China, amid its economic liberalisation and opening to international markets, established SEZs in certain areas, particularly along its southern coast.
These SEZs, notably in cities like Shenzhen, Shantou, and Zhuhai, played a pivotal role in attracting foreign direct investment (FDI) to China. This influx of investment was a major factor in transforming the country into one of the leading global manufacturing powerhouses.
In the context of Singapore and Malaysia, the recent MOU signed marks the initial phase in their collaboration to formulate a framework for a legally binding agreement on a SEZ, named the Johor-Singapore Special Economic Zone (JS-SEZ). As of now, specific details such as the economic sectors that will be the focus of cooperation and the precise geographic area covered by the JS-SEZ are still under development.
While the MOU was officially signed by Singapore’s Trade and Industry Minister Gan Kim Yong and Malaysia’s Minister of Economy Mohd Rafizi Ramli, the presence of Singapore’s Prime Minister Lee Hsien Loong and Malaysian Prime Minister Anwar Ibrahim as witnesses at the signing ceremony underscores the significance and indicates a serious intent to ensure the successful establishment and operation of the JS-SEZ, reflecting the potential for it to foster closer economic ties and mutual benefits for Singapore and Malaysia.
Benefits That The Johor-Singapore Special Economic Zone Will Provide
The signing of the MOU between Singapore and Malaysia highlighted several promising areas for collaboration. A key focus is the enhancement of “seamless and expedited” movement of goods between the two countries. At the Malaysia-Singapore leaders’ retreat in October 2023, Singapore’s Prime Minister Lee Hsien Loong mentioned initiatives like special tax arrangements and the use of bonded warehouses. Bonded warehouses are facilities where goods can be stored without being subjected to import duties, thereby facilitating smoother trade.
Another significant area of proposed cooperation is the simplification of travel for citizens of both countries. A notable development unveiled at the MOU ceremony was the possibility of introducing a passport-free, QR code-based clearance system at land checkpoints between Singapore and Malaysia. This innovation, aimed at easing congestion at the busy Causeway checkpoints, could greatly benefit frequent travellers and workers, reducing travel time and inconvenience.
Additionally, Prime Ministers Lee and Anwar attended an event to celebrate the progress of a crucial infrastructure project: a 4-kilometer light rail link connecting Johor Bahru (JB) in Malaysia and Singapore. This cross-border rail project, which will link Woodlands North in Singapore to Bukit Chagar in JB, is currently 65% complete. Anticipated to begin operations by December 2026, this rail link is poised to significantly improve cross-border connectivity.
A Brighter Future, Together
The signing of the MOU between Singapore and Malaysia is a crucial first step towards establishing the JS-SEZ, a move set to deepen the economic ties between Singapore and Malaysia. Last year, bilateral trade reached a notable S$153 billion between the two countries.
Particularly for Johor, Singapore’s role as its second-largest foreign investor in the first half of 2022, accounting for about 70% of Johor’s total FDI in manufacturing, highlights the significant economic connections.
The JS-SEZ aims to emulate the success of China’s renowned SEZs, creating a vibrant business ecosystem that is attractive to international investors. This initiative is poised to enhance the existing robust economic relationship and position the JS-SEZ as a global hub of innovation, trade, and industrial growth, further elevating Singapore’s and Malaysia’s global economic standing.
Read Also: Why Is The Singapore Dollar (SGD) Constantly Appreciating Against The Malaysian Ringgit (MYR)?
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