The Johor-Singapore Special Economic Zone has a compelling argument. But it may not be as transformative as it is touted to be.
Malaysia and Singapore launched the Johor-Singapore Special Economic Zone (JS-SEZ) in January 2025. Located in the Malaysian state of Johor and bordering the city-state, the JS-SEZ offers investors the ability to leverage the two countries’ different cost structures.
The underlying idea of the JS-SEZ is not new, as cross-border investment schemes have long been touted in the region. Singapore, Malaysia, and Indonesia launched the Singapore Johor Riau Islands (SIJORI) Growth Triangle as a marketing initiative in 1990. The three national governments along with Johor promoted the scheme, which put the region on the map. While the Asian Financial Crisis eventually eclipsed the initiative, key infrastructures such as the Malaysia-Singapore Second Link and industrial parks remained. SIJORI also showed that cross-border investment could work as international firms established factories in Johor or Batam in Indonesia and paired them with facilities in Singapore.
Malaysia drew on this idea again in 2006 with the launch of the Southern Johor Economic Region. Subsequently renamed Iskandar Malaysia (IM), this initiative saw vast tracts of Johor opened up for target industries ranging from logistics to tourism, and from electronics to film and finance. However, unlike SIJORI, Iskandar Malaysia was more focused on services, reserving its choicest incentives for health and education, logistics, finance and creative industries. In addition, the initiative was largely conceptualised and driven by the Malaysian federal government.
The JS-SEZ shares many features with these predecessors. Indeed, the JS-SEZ overlaps with Iskandar Malaysia, but has been expanded to encompass all of Johor’s southern coast. The JS-SEZ also targets sectors that are highly prized for their skill and technology, and that offer the possibility of climbing up the value chain. These include manufacturing, business services, digital economy, and finance. There are pledges of incentives or lower taxes for certain high-end activities, and stream-lined procedures for businesses.
The JS-SEZ has lofty targets. It aims to create 50 high value-added projects in the next five years, along with 20,000 high-skilled jobs. This investment will be managed by a new investor facilitation centre bringing together federal and state authorities to streamline procedures.
Certain aspects of the JS-SEZ are overblown. For example, some of the sectors have long been ‘targets’ and have yet to take off. An international financial sector and a new movie industry were touted in the early days of Iskandar Malaysia. Yet, they floundered as their skill-intensive and location-sensitive nature did not match the state’s comparative advantage. Indeed, it is likely that the JS-SEZ is targeting too many sectors, which has the potential to disperse demand for rare talent and undercut the bandwidth policymakers need to nurture fledgling industries. Talk of expedited visas for investors, lower tax rates for skilled workers, and streamlined procedures have also been around for many years. It is not clear that the investor facilitation centre will add much, as Malaysia’s federal system establishes separate responsibilities for different levels of government. Moreover, Iskandar Malaysia’s own regulatory agency was also meant to streamline and centralise procedures.
That said, the JS-SEZ does have a compelling argument — it just may not be quite as transformative as it is billed to be. Malaysia consistently does well for the ease of doing business, repeatedly ranking among the world’s top 20. Johor, for its part, has large tracts of flat land, two land connections to Singapore, and lower costs for utilities and construction relative to its neighbour.
Certain aspects of the JS-SEZ are overblown. For example, some of the sectors such as finance have long been ‘targets’ and have yet to take off.
These attributes are so compelling that the two most successful sectors in Iskandar Malaysia have been real estate and manufacturing. Of the total RM377 billion (US$85.05 billion) brought in over the 2006-2022 period, real estate accounted for almost half (RM196 billion, or US$44.21 billion), and manufacturing one-quarter (RM96.5 billion, or US$21.77 billion). Real estate was not one of Iskandar Malaysia’s target sectors, and manufacturing did not get any new incentives beyond those already on offer. Consequently, Johor’s appeal for certain activities is powerful, regardless of tax incentives.
There is also an argument for learning from history. Rather than targeting a wide array of sectors, the JS-SEZ may be better served by avoiding sinking resources into areas that have not taken off. Instead, more time and attention can be spent on sectors with a proven track record, like electronics or logistics.
More than the specifics of the JS-SEZ, its potential may be boosted by other more powerful forces. First, connectivity between the two territories will greatly increase when the Rapid Transit System (RTS) linking downtown Johor Bahru with northern Singapore becomes operational. Once issues such as parking and last-mile connectivity in Johor Bahru are addressed, the RTS will enable consistent and predictable transit times. Second, the unfolding trade war encompassing the US and its major trading partners and reconfiguring of supply chains look set to benefit Malaysia and Singapore. Investors could be very amenable to the cost opportunities that the JS-SEZ represents. Third, the JS-SEZ has long incorporated the Johor state government as well as Singapore into its planning (unlike Iskandar Malaysia, which was largely driven by the Malaysian federal government). This should improve policy-making and implementation. The Malaysian monarch, who is the Sultan of Johor, also supports the scheme, which should put it in good stead in the coming years.
There may well be exciting developments linking Singapore and Johor in the coming years, but the sectors that succeed the most will be those with a solid economic argument. Going by history, the manufacturing sector is likely to continue as one of the state’s economic motors.
Reference : https://fulcrum.sg/johor-singapore-special-economic-zone-transformative-or-tempting/