Tapping into mutual comparative advantages: Johor-Singapore Special Economic Zone

The Johor-Singapore Special Economic Zone (SEZ) was officially launched on January 7, 2025. Expansion plans are taking shape in past few months, from tech giants like Microsoft and Nvidia to battery makers. Given heightened global uncertainties and trade fragmentation, this is positive news for Singapore and Malaysia, especially for Johor although there are some tail risks which need to be considered.For Singapore, Johor - being 26 times bigger than Singapore -offers a solution to the lack of space for a few key sectors, such as data centers and, potentially also access to energy. This should help Singapore tackle the surge in prices due to the lack of space and resources (from real estate to electricity, water, etc).For Johor, the SEZ should bring investment, not only for Singapore but also from multinationals which see the opportunity of expanding business within the Singapore ecosystem but at a much lower cost. The Johor-Singapore SEZ is part of an overall New Industrial Master Plan 2030 (NIMP 2030) to promote investment in Malaysia in sectors such as aerospace, chemical, electrical and electronics, pharmaceutical and medical devices, as well as four new growth areas such as advanced materials, electric vehicles, renewable energy and carbon capture, utilization and storage (CCUS).Among these sectors, the most obvious immediate one to benefit is data centers but also green energy and advanced manufacturing. How much progress there will in these sectors will very much depend on the amount of FDI received from multinationals and Singaporean companies but also the degree of support of the Singaporean government as far as joint infrastructure projects are concerned.In the same vein, how important Johor’s development will be for Malaysia will depend on the amount of investment received but also on whether this new SEZ can avoid growing geopolitical risks in the Asian region and globally. If this is the case, Johor could become the new Penang of Malaysia.