Malaysia adopts 'special economic zone' approach

One of the factors behind rising economic growth in Malaysia has been its success as a low-cost manufacturing zone. An important element in this has been Malaysia’s Iskandar economic zone, which has seen a huge influx of investment from Singapore.

The Malaysian government has been lobbying to attract companies to Iskandar, a 2,200sq km economic zone three times the size of Singapore, which is separated from the wealthy Southeast Asian city-state by a narrow strip of water. In some ways it is to Singapore what Shenzhen is to Hong Kong, and as Singapore moves up the value chain, it is moving its manufacturing facilities out to Iskandar.

It sells itself as being within six to eight hours flight radius from Asia’s burgeoning growth centres such as Bangalore, Dubai, Hong Kong, Seoul, Shanghai, Taipei and Tokyo, and within reach of a global market of some 800 million people. It also has three major ports nearby.

For their part, the Singaporeans are happy to keep the investment in the region, rather than see it go to low-cost environments such as China. Among the European firms to opt for Iskandar are theme park Legoland and Britain’s Marlborough College.

The Singapore government-linked firm Ascendas recently said it would help build a $1.2 billion industrial park in Inskandar. It will join Malaysia’s UEM Land Holdings to develop a 519-acre site that will cater to industries including electronics and pharmaceuticals.

Singapore companies make up the lion’s share of those firms setting in Iskandar, accounting for around 15 per cent of the 32.7 billion ringgit (€8.28 billion) committed as of June, according to data from the Iskandar Regional Development Authority (IRDA).

Iskandar’s electricity and labour costs are half what they are in Singapore, and land prices are obviously much cheaper.

The success of the zone has created about 54,000 jobs, most of them in the electrical and electronic sub-sector. Singapore leaders have promised to improve causeway links and plans are underway to connect Singapore to Johor via a high-speed rail link in 2018.