Economists positive on Johor-S'pore Special Economic Zone, but call for clarity on tax incentives and infrastructure progress

• The economists' comments followed the signing of the long-awaited JS-SEZ agreement on Tuesday between Prime Minister Datuk Seri Anwar Ibrahim and Singapore Prime Minister Lawrence Wong. The JS-SEZ was first announced in October 2023 during Anwar’s visit to Singapore.

KUALA LUMPUR (Jan 7): The Johor-Singapore Special Economic Zone (JS-SEZ) holds significant potential to boost employment in Johor, but economists stressed the need for clarity on tax incentives and the development of necessary infrastructure as crucial factors for the zone's attractiveness to investors.

OCBC senior Asean economist Lavanya Venkateswaran said that Malaysian authorities are expected to introduce a tax incentive package for the JS-SEZ, which may include offering a special corporate tax rate to companies making new investments.” These details will be important for investors to assess the attractiveness of the JS-SEZ,” she said in a note.

In addition to the Johor-Singapore Rapid Transit System (RTS) Link, which is expected to be operational by the end of 2026, Lavanya stressed the importance of clear progress in enhancing physical infrastructure in Johor. Improvements in road, bus, and rail connectivity are needed, as it will further boost the region’s appeal, she said.

She also pointed out that the timely establishment of the Invest Malaysia Facilitation Centre-Johor (IMFC-J) will be essential for capitalising on the initial interest generated by the JS-SEZ.

“Overall, we remain optimistic about the prospects for the JS-SEZ,” Lavanya said. “While such a large undertaking will undoubtedly face challenges, we see this as a work-in-progress, with adjustments being made to better meet investor needs.”

Meanwhile, MIDF Research noted that increased economic activity within Johor, the country’s fourth-largest state by economic size, will create more business opportunities, leading to better employment prospects.

“The employment opportunities will create a diaspora towards the JS-SEZ region, which will potentially spur consumption within the region. We think this will trickle down to the small and micro businesses growing in the region, as the population is expected to increase due to the pickup in business activities,” MIDF stated.

Maybank Investment Bank also highlighted the potential for the JS-SEZ to leverage Singapore’s global finance and logistics expertise, combined with Johor’s competitive advantages in land, labour, and energy. This could offer a differentiated proposition, especially for supply chains seeking alternatives to North Asia amid ongoing US-China trade tensions.

The economists' comments followed the signing of the long-awaited JS-SEZ agreement on Tuesday between Prime Minister Datuk Seri Anwar Ibrahim and Singapore Prime Minister Lawrence Wong. The JS-SEZ was first announced in October 2023 during Anwar’s visit to Singapore.

Initiated through a memorandum of understanding signed in January 2024, the JS-SEZ aims to strengthen trade and connectivity between Malaysia and Singapore, promote technology transfer, and stimulate growth across various sectors.

Key focus industries for the JS-SEZ include logistics, financial and business services, tourism, food security, education, healthcare, the digital economy, energy, and manufacturing, with a target of creating 20,000 skilled jobs in the first five years.

Sector beneficiaries

MIDF identified five sectors likely to benefit most from the JS-SEZ initiative. Property stocks, such as Mah Sing Group Bhd (KL:MAHSING) and Matrix Concepts Holdings Bhd (KL:MATRIX), are expected to benefit from the recovery in buying sentiment and catalysts from the JS-SEZ and RTS.

Construction firms, including Gamuda Bhd (KL:GAMUDA) and IJM Corp Bhd (KL:IJM), will see benefits from major infrastructure projects, such as the RTS, the potential Johor Bahru Light Rail Transit (LRT), and extensive data centre developments.

Power utilities companies, such as Samaiden Group Bhd (KL:SAMAIDEN) and Sunview Group Bhd (KL:SUNVIEW), will gain from Johor’s growing data centre sector.

Situated along an international maritime trade route, the JS-SEZ is also expected to positively impact the energy industry, particularly the oil and gas midstream sector. Pasir Gudang, already a hub for shipbuilding and maritime solutions, along with the Johor and Tanjung Langsat ports, will serve as key nodes for shipping vessels passing through the Tebrau Strait, including general cargo ships, oil tankers, and liquefied natural gas (LNG) carriers.

In the oil and gas sector, MIDF favoured Malaysia Marine and Heavy Engineering Holdings Bhd (KL:MHB), citing its strong order book, diverse portfolio, and strategic partnerships with major oil and gas companies. MIDF also noted MHB’s involvement in renewable energy through offshore wind farm construction and opportunities within its maintenance division for LNG carriers.

In the transport and logistics sector, MIDF said that Swift Haulage Bhd (KL:SWIFT) could benefit from its involvement in container haulage and freight forwarding operations in Johor. Swift Haulage holds a market share of around 5% based on the number of containers it hauls at both the Port of Tanjung Pelepas and Johor Port.

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