This article was first published in The Edge Malaysia on May 24, 2024.


The excitement in Johor is palpable. The Sultan of Johor, His Majesty Sultan Ibrahim, has been sworn in as the new King of Malaysia, construction of the Johor Bahru-Singapore Rapid Transit System (RTS) Link is proceeding apace, and the signing of a memorandum of understanding (MOU) on the Johor-Singapore Special Economic Zone (JS-SEZ) has ignited hope for closer cooperation on industrial developments and other economic issues between Malaysia and Singapore.

The idea of a special economic zone in Malaysia is not novel and Johor hosts two of the country’s five economic corridors, Iskandar Malaysia and the East Coast Economic Region. Within these corridors, special measures such as tax breaks, investment incentives, regulatory flexibility, trade facilitation and infrastructure support are provided to attract foreign direct investment.

However, these economic corridors have had limited success in uplifting Johor’s economy. Can the JS-SEZ be a game changer?

Emerging data centre hub

The recent influx of investments into Johor provides a hint of optimism. Johor emerged as the top investment destination in Malaysia in 2022 and came in fourth last year, after Penang, Kuala Lumpur and Selangor. Most of these investments are in the services industry.

Johor has become a key hyperscale data centre hub for large technology firms, thanks to lower construction costs, cheaper utility tariffs and ample land. Johor has also benefited from Singapore’s decision in 2019 to enforce a moratorium on building new data centres due to energy sustainability concerns.

Notable investments in Johor include GDS Holdings’ RM14.33 billion data centres in Johor Bahru and Iskandar Puteri as well as YTL Power’s RM15 billion green data centre park in Kulai, not forgetting a potential partnership with Nvidia to develop artificial intelligence infrastructure.

Four challenges to overcome


The longstanding connectivity problem is a critical factor hindering economic development in Johor. The massive traffic congestion at the Johor-Singapore Causeway — one of the busiest border crossings in the world — must be addressed for the JS-SEZ to succeed.

More than 350,000 Malaysians commute to Singapore daily and they are often stuck in traffic for hours. The upcoming RTS Link, promising a five-minute journey between Bukit Chagar in Johor Bahru and Woodlands North in Singapore, aims to alleviate the bottleneck with its capacity of up to 10,000 passengers an hour.

Expected to be operational by late 2026, the RTS may not be sufficient to address the congestion during peak hours as the number of commuters will continue to grow. In this regard, the proposed passport-free QR code system to expedite immigration clearance is essential.

The poor connectivity in and around southern Johor also needs to be tackled. The state government’s plan to integrate the Johor Bahru Light Rail Transit (LRT) network and the recently resurrected Kuala Lumpur-Singapore High Speed Rail (HSR) — both still in the proposal stage — with the RTS, will be central to improving connectivity in the JS-SEZ.

Talent exodus

Another critical factor impeding Johor’s growth is the outflow of talents to Singapore. Of the 1.86 million Malaysians who have migrated overseas as at 2022, 1.13 million reside in Singapore. With the anticipated increase in tech-related investments in Johor, the government must come up with effective measures to retain or bring back talents, including raising wages.

Upon its completion, the RTS could potentially exacerbate brain drain since it will be easier for Malaysians to travel for work in Singapore. The state government needs to strike a delicate balance between brain drain and increased connectivity.

Ease of doing business

Administrative inefficiencies and bureaucratic hurdles represent another obstacle. A priority for Singapore is the establishment of a one-stop business and investment service centre in Johor to facilitate the application process for Singapore firms to set up in the JS-SEZ. The participation of and coordination between the state government and local authorities would be vital to the development, including land administration, construction, utilities and transport.

Real estate development

Real estate dynamics constitute another focal point in Johor’s economic narrative. Johor’s property overhang is still at elevated levels despite the recent moderation. The RTS Link and JS-SEZ are expected to be major catalysts in attracting interest from investors to Johor.

Iskandar Puteri is a key flagship development zone in Iskandar Malaysia. The region aims to become a vibrant metropolis with priority service sectors such as education, tourism and leisure, arts, and health and wellness. The JS-SEZ, if encompassing Iskandar Puteri, will play an important role in attracting investors and businesses, particularly multinational corporations to establish their regional headquarters in Johor Bahru.

The development of the megaproject, Forest City, has stalled due to its flawed strategy of targeting affluent Chinese buyers, which has failed to work due in part to China’s currency controls and the Covid-19 pandemic. Initially targeted to house 700,000 residents across four reclaimed islands by 2035, the project has come to a halt amid low occupancy and cash flow challenges. Only half of one artificial island has been developed, with around 9,000 residents living in the 28,000 completed residential units.

The recent designation of Forest City as a Special Financial Zone (SFZ), aimed at attracting investment with incentives such as lower income tax and multiple entry visas, could revive investor interest. Like Iskandar Puteri, enhanced connectivity is key to its development. The realisation of the HSR project will be crucial, especially if it is realigned to run through Forest City.

Malaysia’s Shenzhen

Johor Menteri Besar Datuk Onn Hafiz Ghazi has touted the state as a possible Shenzhen with the establishment of the JS-SEZ. The realisation of this ambition requires more than mere rhetoric. Beyond addressing challenges on connectivity and talent, strategic planning and coordinated implementation, an unwavering commitment from the local authorities and the governments of Malaysia and Singapore will be required to unlock Johor’s economic potential and make the “Shenzhen vision” a reality.