SINGAPORE: As the joint agreement for the Johor-Singapore Special Economic Zone (SEZ) approaches signing on Tuesday, January 7, excitement among businesses has heightened by as much as 25%. Banking and legal consultants have reported a notable increase in inquiries from firms eager to capitalize on this economic endeavor aimed at enhancing cross-border trade and connectivity between Singapore and Malaysia.

The SEZ, initially discussed in a memorandum of understanding signed last January, is seen as a crucial step toward fostering a conducive environment for businesses looking to circumvent existing challenges in international trade. Experts indicate that companies are particularly attentive to developments given the previous postponement of the 11th Malaysia-Singapore Leaders’ Retreat, where the deal is set to be finalized.

Cost Savings on the Horizon

Firms within the food manufacturing and logistics sectors are optimistic about the SEZ’s potential to reduce operational costs and open new markets. A variety of incentives, including tax breaks and regulatory reforms, are anticipated to facilitate the expansion of businesses into Malaysia and solidify their existing bases.

OCBC Bank has proactively established specialized teams to assist enterprises in navigating this new landscape, connecting them with potential partners. “We’ve observed a surge of interest mainly from mid-sized manufacturing and logistics firms,” said Mr. Julian Chua, executive director at OCBC’s global commercial banking division. Notably, there is significant interest from foreign-owned businesses, particularly from Chinese firms seeking to utilize Singapore as a stepping stone into ASEAN markets.

The impending launch of the Johor Bahru-Singapore Rapid Transit System (RTS) Link at the end of next year is expected to further stimulate engagement, enhancing travel and trade efficiency between the two regions.

Expanding Regional Footprints

Companies like South Korean bakery Paris Baguette are keen to leverage the SEZ to increase their regional footprint. The bakery, already operating its first halal-certified factory in Johor, is looking to broaden its market reach, particularly towards Muslim consumers. Currently occupying 16,000 square meters of manufacturing space, Paris Baguette plans to expand further with the acquisition of an additional 24,000 square meters.

CEO Ms. Hana Lee highlighted the need for streamlined regulatory processes, emphasizing that operational simplifications could foster growth and innovation within the SEZ. She noted that operational costs in Johor are significantly lower, making it a more attractive option for businesses than Singapore.

Mr. Chua further elucidated that many companies are considering Malaysia for expansion to benefit from reduced labor and rental costs, which ultimately could enhance Singapore’s economy through increased trade activities.

Navigating Regulatory Challenges

Despite the optimistic outlook, legal experts caution that aligning regulations across both nations could take time. "With different tax rates—Malaysia's at 24% and Singapore's at 17%—the landscape of doing business will be complicated," noted Mr. Chia Kim Huat from Rajah & Tann Singapore. The necessary harmonization could pose challenges, particularly as Malaysia has diverse regulatory frameworks across its states.

Furthermore, political factors remain a pivotal consideration. Mr. Lim Chong Kin from Drew & Napier cautioned that the success of the SEZ may hinge on stable government relations between Malaysia and Singapore. He recalled the abrupt cancellation of the Kuala Lumpur-Singapore high-speed rail project, which fell victim to political shifts post-2018. Therefore, businesses are advised to formulate exit strategies should political climates regress.

Looking ahead, if the SEZ proves to be a success, it could serve as a model for similar initiatives in other Malaysian states, drawing more foreign firms into the fold, enhancing regional economic resilience, and streamlining supply chains for greater efficiency.

In conclusion, the Johor-Singapore SEZ holds the promise of transforming the economic landscape between the two countries, but navigating the complexities of politics and regulation will be crucial for its long-term success. The business community is undoubtedly watching closely, eager to seize opportunities that may arise.