JS-SEZ: From south to regional growth, prosperity
07 Feb 2025
by IFAST RESEARCH TEAM
Malaysia, Singapore pledge financial support to promote JS-SEZ’s development
THE Johor-Singapore Special Economic Zone (JS-SEZ) was formalised through a memorandum of understanding in January 2024, and a formal agreement has now been signed between Malaysia and Singapore.
With increasing clarity on its development, we are confident that JS-SEZ will be instrumental in driving regional economic expansion.
We believe it will be a transformative force for domestic economic growth and a key investment theme that investors should closely watch in the near future.
In addition to the initially proposed six key zones, JS-SEZ now includes three additional areas: Forest City, Pengerang Integrated Petroleum Complex and Desaru. The zone covers a wide range of sectors, including business services, the digital economy, healthcare, manufacturing, energy, logistics, education, tourism, food security, financial services, aerospace, electrical and electronics, chemicals, medical devices and pharmaceuticals. These sectors build upon those previously highlighted by the Iskandar Regional Development Authority (IRDA) in the earlier phase of Iskandar Malaysia.
Plans for implementing QR code clearance and passport-free travel to streamline cross-border movement and reduce delays at checkpoints are still under consideration. Meanwhile, the Malaysian government has confirmed various financial incentives, such as reduced corporate tax rates for companies investing in the zone and preferential personal income tax rates. Additionally, both Malaysia and Singapore have pledged financial support to promote the development of JS-SEZ.
Poised to Become Johor’s Economic Growth Engine
In 2023, Johor’s GDP stood at RM148.2 billion, making up about 9.6% of Malaysia’s total GDP. The manufacturing and service industries contributed nearly 80% of this figure. Through the Maju Johor 2030 economic plan, the state aims to boost its GDP to RM260 billion by 2030. This target requires an annual growth rate of 8.4% from the 2023 level, notably higher than the five-year average growth rate of 5% between 2019 to 2023.
Nonetheless, we hold a sanguine view that the target growth rate is achievable as JS-SEZ that fosters closer collaboration between two nations could serve as an engine to boost economic growth.
Also, we foresee increased foreign direct investment (FDI), enhanced trade opportunities and the creation of high-value jobs as key outcomes. Additionally, the focus on infrastructure development and streamlined regulatory processes will likely attract both multinational corporations and local enterprises.
Key sectors such as aerospace, electronics, and pharmaceuticals are expected to play a significant role in achieving this goal. With the help of strategic policies and incentives, Johor hopes to foster economic growth and replicate the success of prominent special economic zones around the world.
The strategic collaboration, supported by fiscal incentives, infrastructure development, and streamlined regulatory processes, will not only benefit Johor’s economy but also enhance the economic ties between Malaysia and Singapore. As such, these sectors’ earnings could be propelled by the greater connectivity between the two countries.
Malaysian Banks, Construction and Property Lead as Biggest Winner
The development of JS-SEZ is expected to benefit Malaysian banks by driving demand for loans from both local businesses and multinational corporations involved in infrastructure and commercial projects. Government incentives for small and medium enterprises (SMEs) expanding in the zone could further boost SME financing. Additionally, the influx of businesses and high-net-worth individuals will create opportunities in wealth management and investment services. Overall, the heightened economic activity will enable banks to generate more non-interest income from advisory, transaction banking and cash management services.
Focusing on public transportation will also benefit contractors involved in railway construction and solar panel installation. We believe the construction sector will be the primary beneficiary, with many local firms likely to secure more contracts, unlike projects such as Forest City, which were largely developed by Chinese companies.
The revival of private investment, supported by key public sector initiatives, offers substantial medium-term opportunities for order book expansion in the construction sector. Despite the high-speed rail announcement being perpetually postponed until further notice, we opine the orderbook from data centres and city development-related projects may continue to boost the sector’s earnings in the next couple of years.
The property market, especially those with significant land reserves in the southern region, is set to gain from enhanced cross-border mobility, driving increased demand for properties in the area. Additionally, the basic materials sector is expected to see a boost from these construction projects, with cement being our top pick due to its strong domestic market presence.
Singaporean Banks, Manufacturers have New Opportunities
Similar to Malaysian banks, we posit Singaporean banks will benefit from the development, too. Over the past five to six years, Singaporean banks have focused on regional integration of wholesale and retail banking, positioning themselves to support supply chain shifts from North Asia to ASEAN. A strategic partnership between Johor and Singapore, aimed at improving business operations, labour mobility and capital flows, could open new opportunities for banks to leverage their integrated platforms.
Initiatives for multinationals and government-funded SME expansions in JS-SEZ are expected to drive credit demand and non-interest income through advisory services, transaction banking and cash management. Additionally, increased cross-border spending should boost credit card fee revenues, while shifting back-office operations to Johor could enhance cost-to-income ratios due to lower labour and rental expenses.
We remain optimistic about Singaporean technology and industrial manufacturers. The zone’s cost-efficient infrastructure, improved connectivity and focus on green investments and semiconductors are expected to benefit manufacturers. Singa-pore-listed firms could gain from tax incentives by establishing production in JS-SEZ, accessing a more affordable talent pool.
Priority sectors such as life sciences, aerospace and electronics are also likely to benefit from tax advantages and other incentives, enhancing their growth prospects.
Key Takeaway
We believe JS-SEZ could draw inspiration from the success of the Shenzhen SEZ. This economic cooperation between Malaysia and Singapore is poised to benefit both nations significantly. As export-oriented countries and major tourist destinations, the enhancements in trade flows and incentives provided by JS-SEZ are expected to stimulate economic activities in both nations.
Furthermore, their relatively neutral geopolitical stance may offer a haven for companies looking to diversify their supply chains amid escalating geopolitical risks.
Although JS-SEZ has been highly anticipated and the agreement with Singapore is now finalised, the execution part will still be crucial. Besides, the final missing puzzle — Kuala Lumpur-Singapore HSR is still undergoing discussion as the government is collecting proposals from private companies to revive the project, which could be the next game changer for JS-SEZ if it materialised.
Source: The Malaysian Reserve
