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InsiderTAPS (15 April 2007)

Insider TAPS Issue 06 - Malaysia's Southern Johor Economic Region

The Iskandar Development Region (IDR), previously known as the Southern Johor Economic Region (SJER), launched on 4 November 2006 by Malaysia's Prime Minister, Datuk Seri Abdullah Badawi, will be the focus of development and growth under the Ninth Malaysia Plan. It is envisioned to be a "strong, sustainable metropolis of international standing".



Background
The IDR covers a logistics triangle of Senai Airport to the north, Port of Tanjung Pelepas (PTP) to the southwest and Johor Port (JPort) in Pasir Gudang to the southeast and has an area of 2,217 square kilometres.

The Iskandar Regional Development Authority (IRDA) was incorporated in 2007 and under its Comprehensive Development Plan (CDP), the immediate focus will be to "generate sufficient momentum through investments for the first five years (2006-2010)". To date, there have been several investment commitments namely:
  1. An agreement between South Johor Investment Corporation Berhad (SJIC), Danga Bay Holdings Sdn Bhd and Kumpulan Prasarana Rakyat Johor Sdn Bhd to form an integrated waterfront development company called Kota Selat Tebrau ("KST") that will develop 4,500 acres of land.

  2. A total of RM4.3 billion from the Government of Malaysia will be spent under the Ninth Malaysia Plan to carry out, upgrading of security, improvement of highways and roads, river cleaning, amongst other key catalyst projects.

The CDP is also focusing on developing health, educational and financial services and ICT and creative industries in the IDR, which is reflected in the Incentive and Support Package (ISP) announced on 22 March 2007. Under the ISP, companies providing within the creative, educational, healthcare, logistics, tourism, financial advisory and consulting services sector may apply for IRDA-status to enjoy exemption from:

  1. Foreign Investment Committee rules;

  2. Corporate tax for a period of 10 years from commencement of operations; and

  3. Withholding tax on royalty and technical fee payments to non-residents for a period of 10 years from commencement of operations.

Commentary
Johor Bahru's draw to its foreign investors has mainly been its comparatively lower operating costs. Currently, most of Johor Bahru's foreign direct investments (FDI) are from the US and Singapore. This is in part due to the stronger Singapore and US Dollar versus the Malaysian Ringgit.

A lower operating cost has also been the main draw of other developing parts of Asia, such as China and Vietnam. With such competition, investors in the Asian region have been spoilt for choice. The Malaysian Government has recognised the need to go beyond the bottom line and to place more emphasis on other areas in which Johor Bahru is able to maximise and improve on its strengths, such as its strong connectivity to regional and international centres via its 2 ports (PTP and JPort), links within Peninsula Malaysia via the North-South Expressway and airports (Senai and Kuala Lumpur International Airport). In fact, Changi Airport in Singapore has often been thought of as the third airport due to its proximity and accessibility via the Causeway and the Second Link, which also serves the active movement of goods to and from the republic.

The advent of the IDR will only serve to improve Johor Bahru's existing infrastructure to give foreign investors more reasons to locate or relocate their operations within the IDR. With such a vast amount of commitment for investment pledged by the Malaysian Government towards the IDR, these will be exciting times indeed for Johor Bahru.