Authors: Mega Valentina, Angelica Ortega, Logan Carnicelli
Johor-Singapore Special Economic Zone (JS-SEZ) Agreement Establishes Key Investment Gateway for Southeast Asia
On January 7, the governments of Malaysia and Singapore announced the signing of a bilateral agreement to establish a special economic zone (SEZ) in the southern Malaysian state of Johor. Plans on the Johor-Singapore SEZ were first unveiled in 2023 at the 10th Singapore-Malaysia Leaders’ Retreat and are expected to begin roll out in 2025. Through the JS-SEZ, Malaysia and Singapore will promote and facilitate investments in 11 sectors: manufacturing, logistics, food security, tourism, energy, the digital economy, the green economy, financial services, business services, education, and health. In a joint press conference, Singapore Prime Minister Lawrence Wong and Malaysian Prime Minister Anwar Ibrahim highlighted that the JS-SEZ aims to (i) create 20,000 skilled jobs, (ii) support the expansion of 50 projects in the first 5 years, and (iii) improve the flow and movement of goods and people, ultimately strengthening the business ecosystem within the region.
Incentive, Investment, and Industry
The JS-SEZ will consist of nine flagship zones (see image) encompassing the southern half of Johor state, allowing investors to structure their operations to take advantage of lower trade barriers, business expertise, and cost benefits.
Figure 1. Johor Singapore SEZ Map 2025. The Business Times.
Manufacturers anticipate that tax incentives and streamlined approval processes will be catalysts in making the region more economically competitive and attractive to foreign investments. Companies undertaking new investments in select manufacturing and service sectors can benefit from a tax rate of 5% for up to 15 years. This will mainly be offered for those developing projects in critical sectors, including artificial intelligence & quantum computing supply chains, medical devices, and aerospace manufacturing.
The JS-SEZ is expected to boost Johor’s GDP by USD 28 billion by 2030. Key sectors such as renewable energy, transportation, and health are poised for substantial growth. The partner countries will work on projects to accelerate renewable energy trading for civilian use as well as powering high energy demand industrial development (e.g. semiconductor fabrication facilities and data centers) meant to support AI infrastructure. Fulfilling such needs could also serve as incentivization to plan, develop, and utilize renewable energy parks and hybrid-grid solutions at mass scale within the JS-SEZ.
To support the logistical, ancillary service, and infrastructure demands of the JS-SEZ, transport authorities are encouraging cargo shipping companies to store and transport goods through newly available lots and routes throughout the nine zones. Prime Minister Wong and Prime Minister Anwar also noted they welcomed proposals from their respective private sectors linking the JS-SEZ to the proposed construction of a high-speed rail connecting Singapore to Kuala Lumpur via Johor. Discussions between both countries also highlighted how the JS-SEZ could enhance access to better healthcare services, through specialized healthcare services and centers of excellence, promoting medical tourism.
Cross-Border Cooperation and Regional Integration
Singapore is Malaysia’s top export destination, and Malaysia is Singapore’s third largest trading partner. In 2023, the total value of trade between both countries reached USD 79.6 billion. As the JS-SEZ forwards fiscal incentivization and eased cross-border movement across both counties, it is expected to enhance economic integration and support sustainable growth in Southeast Asia. The Johor-Singapore SEZ is also set to deepen regional economic integration in ASEAN by fostering stronger collaboration between Malaysia and Singapore in key areas such as infrastructure development, workforce upskilling, and technological advancement, serving as a model for similar initiatives across ASEAN. The successful development of the JS-SEZ would strengthen ASEAN’s global economic competitiveness by showcasing the region’s ability to deliver complex, high-impact projects that enhance the region’s attractiveness as a global business destination.
The notion of a cross-border SEZ being a novel and cutting-edge concept, the project’s planners took specific inspiration from the strategic placement of China’s Shenzhen SEZ. This metropolitan tech and innovation hub also holds the title of being China’s third most populous city after only Beijing and Shanghai, and it is considered the most successful and prosperous of China’s numerous SEZs and free trade zones. The success of Shenzhen can be attributed in large part to the resources, investment, and expertise it draws from the neighboring Hong Kong Special Administrative Region. This utilization of the best aspects of two sovereign entities is what drove Shenzhen’s growth and inspired Malaysian and Singaporean leaders to build a similar model for Johor. Yet the JS-SEZ will encompass twice the land area of Shenzhen and aims for even further growth in the future.
SEZs at large are nothing new to ASEAN, as the bloc’s emerging economies have established and leveraged them for decades to attract investors, create jobs and increase export earnings. The ASEAN Secretariat even issues its own “ASEAN Guidelines for Special Economic Zones (SEZs) Development and Collaboration.” The Bayan Lepas Free Industrial Zone in Penang, Malaysia has become host to one of ASEAN’s premier technological innovation clusters; the Batam Free Trade Zone in Indonesia has transformed the area into a global maritime and cargo hub; and “green” industrial technology parks in Vietnam are key to the government’s FDI promotion strategy.
These projects and the JS-SEZ, serve as examples of the continued materialization of the ASEAN Economic Community (AEC), a broader initiative established in 2015 to facilitate cross border trade and investment, including manufacturing and logistics, across Southeast Asia. For example, Singapore’s advanced infrastructure will complement Malaysia’s cost-effective labor which will hopefully be expanded into a wider ASEAN-wide value chain. With these dual advantages, the JS-SEZ is unique as the first cross-border SEZ in ASEAN and could very well serve as a “pilot” or model for even further collaboration and joint development among neighboring ASEAN economies.
Geopolitical Implications
Proponents predict that initiatives such as JS-SEZ will help strengthen ASEAN’s geoeconomic resiliency in an era of increased uncertainty and change in the global economy. Several nations in ASEAN including Malaysia have an elevated risk of being targeted by the incoming Trump Administration’s tariff proposals, given that it runs the third largest trade surplus in Southeast Asia with the United States. During his recent campaign, President Trump vowed to impose tariffs as high as 20 percent on imports from countries with large trade surpluses.
Throughout Trump’s first term, many ASEAN states saw a reactionary outflow of resources due to fears around the targeted and transactional nature of the President’s trade policy. Yet countries like Malaysia also saw an intake of investment and manufacturing from foreign developers fleeing China due to U.S.-led counter-China trade policies. For these next four years, however, trade wars are expected to become even more politicized, as President Trump anticipates targeting the region as whole in order to take on tariff circumvention.
On the other hand, the United States is the largest source of foreign investment in Singapore. With a business-to-business approach, businesses in the JS-SEZ could design their operations to tap Singapore’s free trade agreement with Washington. These factors may serve to insulate the JS-SEZ from concerns of trade wars and sweeping tariffs. This special status then would serve as an example of the broader appeal of promoting and investing in ASEAN, superseding the ebbs and flows of geopolitics.
Opportunities for the Private Sector
The JS-SEZ provides a platform for private sector innovation and collaboration, driving regional growth while ensuring profitable returns. Multinational corporations, specifically those already operating in Malaysia and Singapore, are looking to capitalize on harmonized regulations, streamlined cross-border logistics in the JS-SEZ to fuel greater efficiency and scalability. According to the Singapore Business Federation, more than 60 companies have already expressed interest in joining an upcoming business mission to the SEZ.
Furthermore, the JS-SEZ offers a wide range of opportunities for the private sector across various industries: renewable energy development, logistics & supply chain optimization, healthcare & biotechnology, technology & innovation, real estate & infrastructure, and tourism & hospitality. Businesses can take advantage of the incentives within JS-SEZ to establish operations, expand existing ones, and invest in high-growth sectors.
As both governments intensify efforts to establish a workable framework and secure greater buy-in from potential investors, private sector needs are expected to shape policies on JS-SEZ. The involvement and input from the private sector will be vital. In a statement, Prime Minister Wong emphasized that the success of the SEZ depends on businesses and how businesses respond.