Since its inception six years ago, Iskandar Malaysia has become one of the country’s fastest growing special economic zones. Located in South Johor, at the southern tip of Malaysia, Iskandar forms part of the government’s agenda to decentralise Malaysia’s areas of growth. With more than $23.5bn-worth of investments already committed, according to estimates from the Iskandar Regional Development Authority (IRDA), the development is already in full swing.
“Iskandar Malaysia is a 20-year project which [encompasses] an area of 2217 square kilometres,” says Ismail Ibrahim, chief executive of IRDA. “Its development is guided by the Comprehensive Development Plan (CDP), which details Iskandar’s roadmap from 2006 until 2025.”
In its push to make Malaysia a mature economy by 2020, special economic zones have become an important tool in the government’s economic arsenal to spread growth across the country. With 13 free zones and 18 industrial zones located in Malaysia, according to data from the Malaysian Investment Development Authority, special economic zones have been used to improve the business environment in smaller cities, whose growth rates have historically lagged that of Kuala Lumpur, the country’s capital.
Located just off the Straits of Johor, which separate Malaysia from Singapore, Iskandar was launched as part of the government’s CDP, to create an inclusive and sustainable rate of growth in the South Johor economic region. With the aim of maintaining a GDP growth of 8% annually to 2025 in South Johor, the IRDA was created as the economic region’s investment promotion agency. Hoping to attract investment worth $115.7bn during this period, Mr Ibrahim is confident that Iskandar will be able to achieve this goal.
“With the [current] economic uncertainty, Iskandar will remain competitive due to its advantage. [For example], its mature industrial value chain, which has existed for more than 30 years, its competent talent pool and its global connectivity [make it] competitive.
“Additionally, with the full backing of the federal and state government, we are able to offer attractive incentive packages to potential investors. Moreover, IRDA, as the federal government agency responsible for promoting, facilitating and undertaking the development in Iskandar, [will] work hand in hand with all our strategic partners to improve connectivity, [especially] in customs and immigration, [as well as] supply chains to ensure business transactions are fast, seamless and convenient.”
A strategic location
The IRDA has made considerable progress in developing Iskandar. During the first phase of development, which ran from 2006 to 2010, the IRDA secured $21.8bn-worth of investments, which was 148% above the $14.7bn target set for that period, according to data from the IRDA.
“FDI in Iskandar grew from $7.2bn in 2006 to $10.7bn in 2011, says Mr Ibrahim. “Iskandar attracted a commendable $4.8bn of new committed investments in 2011 alone, and that already represents 21% of the 2011 to 2015 targets. The growth over the past five years has put Iskandar on a strong footing in its second phase of development, between 2011 to 2015, with 2012 seen as a [major] year for more catalyst projects coming on stream.”
Furthermore, when examining greenfield FDI projects in Malaysia between 2003 and 2012, according to data from greenfield investment monitor fDi Markets, Johor ranks second behind Kuala Lumpur for the number of projects attracted. Out of a total of 1565 greenfield investment projects recorded during this period, Johor attracted 53 projects. However, this is still a long way behind Kuala Lumpur, which attracted 423 projects. Nonetheless, Johor hosts 4.6% of all foreign companies to have invested in Malaysia, and has received $4.2bn-worth of investments in the 2003 to 2012 period. The sectors that have performed particularly well are manufacturing, property development, utilities, leisure and tourism.
A team effort
According to Mr Ibrahim, Iskandar’s success stems from both the government’s efforts and investments into improving the special economic zone’s business environment, as well as its geographical positioning.
“Iskandar provides a world-class business location with a competitive cost of doing business and living, coupled with state-of-the-art infrastructures for seamless connectivity to all parts of the world,” says Mr Ibrahim.
“Iskandar is within reach of a global market of some 800 million people. [Due] to its strategic location, as well as its accessibility to leading Asian cities, and a range of attractive fiscal incentives [that IRDA offers], Iskandar has attracted an exciting influx of foreign and high-level corporate investments, as discerning investors look to benefit from its high growth potential.
“Furthermore, [Iskandar has a] relatively low cost of operations when compared to other countries such as Singapore. As costs in Singapore rise, Iskandar offers [firms] a logical business solution.”
Nonetheless, being highly reliant on FDI to maintain its growth, Iskandar is faced with the same concerns that continue to threaten Malaysia’s economic development. The protracted economic slowdown currently affecting Malaysia’s principal trading partners, such as the US and the EU, could cause a decline in FDI to Iskandar. Mr Ibrahim is keen to point out that rising trade ties with emerging partners offers Iskandar an alternative source of income, and the relatively cheaper costs of doing business in Johor will mean that developing countries will look to Iskandar as a cheap place to do business that is close to them geographically.
“We are witnessing growing interest from developing and emerging economies, and one example is China, which is now Malaysia’s largest trade partner,” says Mr Ibrahim. “We hope to have more Chinese companies investing in the areas of education, healthcare and the creative sectors. The closer banking ties between our central bank and China’s banking authority, together with new policies on financial instruments and trade products, will continue to facilitate trade and investment [between China and Malaysia]. Besides China, we also have ties with Indonesia and India.
“There will be challenges along the way, but with Iskandar’s strategic location, and its pool of talented workers, we are in an investment-ready climate. Despite the global financial crisis, total committed investments [have] surpassed our targets. There remains strong investor confidence in Iskandar, among both foreign and local investors.”