Politically Proofing the Johor-Singapore Special Economic Zone for Credibility and Durability

In January 2024, Malaysia and Singapore signed a memorandum of understanding (MoU) to develop the Johor-Singapore Special Economic Zone (JS-SEZ) to improve economic connectivity. The two governments envision the JS-SEZ as enhancing the movement of goods and people across the border and further developing the business ecosystem within the zone in southern Johor, to make it more attractive to foreign investors. The announcement of this “potential game-changer” has generated a lot of excitement among the business community, especially in Singapore.

The signing of the agreement to finalise the JS-SEZ, originally scheduled for September 2024, was first delayed to December to coincide with the annual leaders’ retreat. The highly anticipated meeting of the two countries’ prime ministers and the signing of the JS-SEZ agreement, however, have been rescheduled to January 2025. Despite the delays, the Malaysian federal government and the Johor state government have been actively promoting the JS-SEZ to potential investors.

On the surface, the JS-SEZ has all the elements to succeed, including strong and stable bilateral relations and widespread support from Singapore’s business community. Domestically, the Johor government and the federal administration are united behind the proposal. Still, for the JS-SEZ to succeed in the long term and remain credible, the initiative will require “political proofing”. This is to ensure that future administrations in Malaysia do not unravel the JS-SEZ for domestic political reasons.

The current Malaysian government is arguably the most stable federal administration the country has had in six years. Yet, it is already halfway through its five-year parliamentary term and the same stability beyond the next general election (GE) is not guaranteed. With a short runway before the expiry of the Anwar Ibrahim administration’s existing mandate, politically proofing the JS-SEZ will be challenging.

Partisan politics is not the only challenge to the JS-SEZ’s potential success. The ambitious planned zone will be unlike Malaysia’s existing free trade and industrial zones. Changes to existing Malaysian immigration laws may be necessary to allow seamless movement of people between Singapore and Johor. The shortage of skilled workers in Johor could potentially be addressed by incentivising the relocation of Malaysian talent to Johor and even amending foreign employment regulations to facilitate the transfer of foreign nationals to the zone.

With a short runway before the expiry of the Anwar Ibrahim administration’s existing mandate, politically proofing the JS-SEZ will be challenging.

In addition, the proposed zone’s potential coverage of about 3,500 square kilometres will come under the jurisdiction of six local councils. This reality may require new local laws to ensure the uniformity of zoning and planning regulations, to improve the ease of doing business and provide certainty for business owners and residents. Fortunately, the current political unity and stability at the federal and state levels could facilitate the necessary legislative changes.

Putting new laws in place to operationalise the JS-SEZ, however, will not be sufficient to protect the initiative from divisive partisan politics. The JS-SEZ must be operationalised, with the Malaysian public tangibly benefitting from it well ahead of the next GE. In the next two years, the Malaysian government must ensure that it would be politically unviable for any future administration to unravel the JS-SEZ. The aborted Kuala Lumpur-Singapore High Speed Rail (HSR) is a cautionary example. The change of federal government in 2018 eventually led to the cancellation of the HSR project, which was mooted by former prime minister Najib Razak.

Although there has not been any credible political opposition to the JS-SEZ, a Member of Parliament (MP) from the ruling coalition, Jimmy Puah, has raised the possibility that the new data centre investments in Johor could become politically contentious if existing businesses and the local population have to compete for resources like electricity and water. Another Johor MP, Suhaizan Kaiat — representing Pulai constituency, which is part of the proposed special zone — has called for more financial allocation for water infrastructure. Suhaizan told Parliament on 25 November 2024 that the government’s investment in the water supply did not match its aggressiveness in promoting Johor as an investment destination for data centre operators. Although the data centre investments are not directly linked to the JS-SEZ, the potential competition for water in southern Johor could lead to domestic opposition to any investment promotion initiatives, including the JS-SEZ, if inadequately addressed.

The opposition Perikatan Nasional (PN) has not communicated a clear position on the JS-SEZ. However, PN has criticised the federal government’s decision to lift the ban on the export of renewable energy, announced in May 2023. (The ban was introduced in 2021 when PN was leading the then Ministry of Energy and Natural Resources.) The lifting of the export ban led Malaysia to agree to supply renewable energy to Singapore. This agreement may not be the most crucial element of the JS-SEZ but should domestic politics force Malaysia to someday cancel the agreement, it could send the wrong message to foreign investors. Having an opposition alliance that is predisposed against the JS-SEZ could jeopardise the zone’s continuity as the next GE draws closer.

When the JS-SEZ agreement is finalised in January 2025, the challenge for Malaysia will not just be to ensure the business community remains excited about the initiative. More crucially, the Madani administration needs a clear roadmap on how Malaysians, especially voters living in the zone, will benefit. Without sufficient political proofing, the JS-SEZ will not be viable in the long term.

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