World trade is now under the threat of tariff escalation and fearing supply disruption. Many supply sources are desperately looking for suitable relocation to avoid tariff target countries, including China and Vietnam. In the meantime, Malaysia and Singapore have come forward to set up an alternative business area, taking this tense trade situation as a new scope and opportunity. If their project is implemented according to the plan, there will be a massive business area in Asia and a new opportunity for investment.

Reportedly, the governments of Malaysia and Singapore held a discussion for establishing a business area under a joint venture programme. The two governments have officially signed this joint venture agreement at the beginning of this year. The main objective of establishing the special economic zone (SEZ) is to attract billions of dollars in investment with the opportunity of building manufacturing plants in various sectors ranging from AI (artificial intelligence) to the ever-fast-growing data centre.

The economic zone, which is called the “Johor-Singapore Special Economic Zone,” will be established in the southern part of Malaysia. According to trade experts, this economic zone may turn into the most successful and attractive investment hub because, in recent history, Malaysia and Singapore have set up instances of excellent cooperation in growing businesses.

Singapore has the advantages of wealthy resources, capital, and high technology, while Malaysia has the advantages of vast land, cheap labour and adequate energy resources. So, it is expected that this SEZ will be the world’s largest and the most modern investment hub.

Some analysts and experts have expressed high optimism about the success of this SEZ because they opined that this SEZ is being developed in such a time when world trade needs a place for diversifying their production as well as supply sources. Trade tension is escalating across the world because of President Trump’s threat to impose higher tariffs, which will invite retaliatory measures from many countries.

Under this likely trade war situation, the world is in desperate need of a place that can be kept out of trade tension and can be used as a good potentiality for diversifying the supply chain. Initially, the SEZ authority has planned to set up fifty projects, which are expected to generate twenty thousand employments.

Detailed features of Johor SEZ, particularly the special benefits and incentives, are not known yet because the responsible authority has decided to gradually release those features commensurate with the progress of developing the SEZ.

However, some special incentives in relation to tax have already been indicated. There will be tax parks for investment opportunities in this SEZ. It is learned that the hub will offer preferential treatment to some employees with a personal income tax rate of 15% for 10 years. This SEZ authority has identified some priority sectors for this special area, which include aerospace, chemicals, electrical and electronics, medical devices and pharmaceuticals.

Singapore has agreed to provide support for relocating its many manufacturing facilities from their mainland to this new ESZ in Johor (state of Malaysia). With this supportive role, Singapore will be able to free up precious land in their own country and Johor City in Malaysia will be able to woo many manufacturing facilities from different parts of the world because of their cheap operating expenses and low construction costs.

However, there may be some impediments as well. Hundreds and thousands of people move between two countries using the very short border in the Johor area between Singapore and Malaysia. So, establishing a huge investment hub may create heavily congested traffic movement in this area.

Johor has already emerged as a catchy place for many tech companies. Microsoft and the owner of TikTok are in contemplation of building the computing power in an AI area in Johor. One investment bank has estimated that these data centres, as expected to be developed in this SEZ, may bring $3.8 billion in investment. Media reported the Malaysian government has described this joint venture deal as not a zero-sum game, but rather a win-win situation between two countries.
This proposed special economic zone will undoubtedly have a dual impact of threat and scope for the entire region, including Bangladesh.

The SEZ may pose some threat regarding foreign direct investment as some FDI which is supposed to come to Bangladesh will then divert to the new SEZ in Malaysia. At the same time, some opportunities may also be created for Bangladesh, which include (I) employment opportunity for skilled workers, (II) opportunity of exporting raw materials, and (III) setting up factories and exporting from there. However, this opportunity will not automatically come.

Instead, it will require good preparation. Skilled manpower should be developed with extensive training and education in the fields of pharmaceuticals and IT. Besides, some policy change will be required to facilitate capable businessmen to invest in SEZs for exporting to other countries. We believe government policymakers and business leaders will keep a close eye on the development of SEZ and prepare to seize the opportunities it creates.
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The writer is a certified anti-money laundering
specialist and banker based in  Toronto, Canada.
Email:[email protected]