Singapore and Malaysia to Conclude Vast Economic Zone Agreement
Malaysia and its neighbour Singapore are in talks to finalise an agreement that will create a vast economic zone linking both border regions. Though it has faced its fair share of delays since 2023, the vast economic zone is expected to create 100,000 jobs and contribute $26 billion annually to Malaysia’s economy by 2023.
The agreement is expected to attract investment and encourage Singapore-based companies to expand into Johor, which has more land and a larger workforce.
A Streamlined Regulatory Process
The agreement aims to streamline regulatory processes, ensure transparency, and offer tax incentives. The vast economic zone will span 3,500 square kilometres, much larger than Singapore and nearly twice the size of Shenzhen, China.
The project did experience delays, as previous efforts to strengthen ties between Johor and Singapore have struggled. Still, Johor’s proximity to Singapore has long been an asset, highlighted by a boom in data centres after Singapore’s moratorium on new centres from 2019 to 2022, partly due to energy concerns. Thus, with enhanced bureaucratic capacity and prudent expectations management, the SEZ will be highly beneficial for businesses crossing the border into Johor.
A Move to Streamline Investments
Malaysia has struggled to implement a digital vehicle entry permit system and only recently began trials for QR-code clearances, which Singapore has already rolled out. In January 2024, a memorandum of understanding was signed that outlined goals for facilitating cross-border movement, including passport-free travel and QR-code clearance systems.
However, analysts question whether both countries have made enough progress on streamlining investment and tax policies to truly attract fresh investment. Singapore’s corporate tax rate is the lowest in the region at 17%, compared to Malaysia’s 24%, and experts believe tax incentives will be key to drawing businesses to Johor as a regional supply chain hub.
