Singapore Must Prepare for Disruptions from the JS-SEZ

The new economic ecosystem in Johor offers opportunities, but there are also downsides for companies and workers based in Singapore.

- Vikram Khanna

The busiest land crossing in the world is about to get a lot busier. With an agreement on the Johor-Singapore Special Economic Zone (JS-SEZ) now in place, the stage is set for the two economies to create new synergies that could benefit both – as well as the region.

They complement each other well. Johor has cheap and abundant land – the JS-SEZ is roughly four times the size of Singapore – relatively low costs for labour and utilities, decent physical infrastructure and real estate prices that are at least one-third those in Singapore.

For its part, Singapore has high land and labour costs, but plenty of capital, high-level skills and sophisticated services, many of which Johor lacks.

It has hundreds of companies – both local and foreign – that are in land-intensive activities such as manufacturing, retail and warehousing, as well as a relatively strong currency.

COMPELLING OPPORTUNITIES BUT ALSO DISRUPTIONS

Given these complementarities, the opportunities that the JS-SEZ can create are obvious. Many companies can move operations there to reduce costs. Singapore’s service providers in areas that include banking, insurance, real estate, architecture, engineering and consulting can serve another market close by. Foreign investors that have avoided Singapore because of its high land and labour costs will have new options, which could attract more foreign investment to both Singapore and Johor.

More supply chains can be anchored in the JS-SEZ rather than elsewhere in the region. It is notable that Chinese investors have shown interest in the zone and are already investing in Johor rather than in, say, Penang or Vietnam in areas that include semiconductor materials, specialty chemicals and electronics.