Five of the nine flagship areas within the Johor Singapore Economic Zone (JS-SEZ), which spans 3,571 sq km of southern Johor, will be dedicated to the manufacturing sector, the largest allocation for any industry. Analysts, including Thilan Wickramasinghe from Maybank Securities, have highlighted the partnership’s “significant potential to drive value creation” for both countries, painting a promising outlook for one of Johor’s key industries.
According to a Jan 7 report by the Malaysian Industrial Development Finance Berhad (MIDF), manufacturing was the second-largest contributor to the state’s GDP as recently as 2023, at 29.8%. Of this, electrical, electronic and optical products made up the lion’s share of the sector, at 10%. Johor was also the third-largest contributor to national GDP, with the state’s 2.8% growth in manufacturing GDP beating out Malaysia’s increase of 0.7% in 2023.
Across the Causeway, Singapore’s manufacturing GDP contracted by 4.3% y-o-y, contributing 18.6% to the nation’s economy, the steepest decline of any sector. While the industry has since rebounded to a growth rate of 4% for 2024, confidence could be further strengthened with the establishment of the JS-SEZ, with the Singapore and Malaysia governments setting a target of attracting 100 projects in 10 years across various sectors.
“While details on incentives and execution are still limited, conceptually, it (JS-SEZ) can leverage Singapore’s global finance and logistics centre capabilities with Johor’s access to competitive land, labour and energy to deliver a differentiated proposition — especially for supply chains looking for alternatives to North Asia amidst the US-China trade war,” writes Wickramasinghe in his Jan 7 note.
Solving the challenge of labour in Singapore’s manufacturing sector could be a key selling point for companies. The agreement aims to create 20,000 skilled jobs within the zone, likely driven by lower wage costs compared to Singapore. Wickramasinge adds: “We believe more labour-intensive and lower-margin manufacturing processes could shift to Johor, further solidifying Johor’s position as a hub for electronics manufacturing services (EMS) and assembly, test and packaging (ATP).”
Tax incentives are another draw for companies relocating to the zone. The Malaysian government has already confirmed that investors in the SEZ will enjoy a reduced corporate tax rate of 5% for 15 years, alongside a special worker’s tax rate of 15% for 10 years, compared to the current corporate rate of 24%.
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With attractive tax incentives and a more accessible labour pool, analysts like Jarick Seet of Maybank Securities believe manufacturers in key priority sectors such as life sciences, aerospace and electronics will stand to benefit. Singapore-listed companies in this sector include electronics manufacturers Aztech Global and Venture Corporation , alongside semiconductor-focused firms like Grand Venture Technology and Frencken Group .
In its Nov 29, 2024 note, DBS Group Research suggests that while these manufacturers’ front-end processes are likely to remain in Singapore, their lower-margin back-end and downstream processes could shift to the JS-SEZ.
“Johor is the third-largest electronics manufacturing state in Malaysia. Johor’s electronics industry primarily focuses on components and electronic manufacturing services, unlike other parts of Malaysia such as Kedah, which covers a broader part of the value chain, including semiconductor fabrication.”
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“Thereafter, we believe that companies who have expanded to the Singapore-Malaya region are likely to establish or reconfigure regional supply chains, potentially bringing Singapore tech companies on board as new suppliers,” adds DBS.
Another key advantage for Singapore manufacturers entering the JS-SEZ is their existing familiarity with the region. Aztech and Frencken already operate facilities in Johor, while 10 of Venture’s 13 manufacturing sites in Malaysia are based in the state. Although the specifics of how companies with a presence in the zone will benefit from the JS-SEZ are still being finalised, observers anticipate expansion as demand for higher capacity grows.
