Singapore’s Joint Development Zones with Indonesia & Malaysia

Apr. 29 – Singapore is Asia’s regional financial, services and, as the world’s largest port, shipping hub. At the moment, however, it does not have the land capacity to develop its own development zones. To help mitigate this, it has partnered with both Indonesia and Malaysia to provide development zones for international businesses needing to re-badge or re-package products for exports to other Asian markets. These are as follows:

Batam Export Zone (Indonesia)
Sited just 20 kilometers from Singapore’s south coast, the Batam zone is export processing driven, with the majority of its businesses being in the precision engineering, electrical components and electronics manufacturing industries, as well as the marine and offshore supporting industries.

Its main benefit for foreign investors is its status as an Export Processing Zone, meaning value added is conducted via cheap Indonesian labor, with the product then being shipped on elsewhere. Unsurprisingly, Singaporean companies have taken advantage of the Batam zone to manufacture and export across South-East Asia and beyond as part of the ASEAN free trade agreement (FTA). Wages in Batam are lower than those in China, yet productivity issues to some extent still remain. These are improving, however, under Singaporean management techniques.

Iskandar Development Zone (Malaysia)
Sited just across the causeway from Singapore in Johor Bahru, Malaysia, the Iskandar Development Zone was formed in 1996 and has now been co-invested by the Singapore Government. It is modeled after zones in China’s Pearl River Delta.

The main component parts are under five “Flagship Zones”, of which four are in the “Special Economic Corridor” (SEC) of Nusajaya-Johor Bahru-Pasir Gudang. The corridor includes the significant ports of Tanjung Pelepas, Pasir Gudang, and Tanjung Langsat. This gives access to Malaysia and other South-East Asian markets,  many of which are duty free under the ASEAN relationship. Of these five zones the most important for foreign investors is Flagship Zone C. This free trade zone, also labeled as the Western Gate Development, focuses on the Port of Tanjung Pelepas and provides a second transportation link for Malaysia and Singapore.

Flagship Zone D, or the Eastern Gate Development, focuses on various ports and industrial zones, such as the Pasir Gudang Port, Tanjung Langsat Port and the Tanjung Langsat Technology Park. In the Senai-Skudai zone, focus is currently on the development of the Senai International Airport, hubs for cargo and knowledge and the MSC Cyberport city.

Singapore companies dominate the firms setting up factories in Iskandar. According to the Iskandar Regional Development Authority (IRDA), Singapore companies account for around 15 percent of the US$10.7 billion committed to Iskandar as of June 2012. Malaysian wages in the zone are considered cheaper than those in China, and productivity is close to Chinese standards.

The interesting factor concerning these zones is their proximity to Singapore, and the fact that international companies can take advantage of ASEAN Free Trade Agreements simply by incorporating a company in the ASEAN zone. Lower wages and reduced import duties in these zones, together with Singaporean management standards and the ability to source locally made Indonesian or Malaysian components for assembly, mean that these zones are rapidly becoming highly competitive.

With companies sited in ASEAN also able to sell onto markets in China (7,000 products) and India (4,500 products) these zones provide an excellent base from which to reach out to the rest of Asia – or the world – while being situated just a stone’s throw away from Singapore.

Our ASEAN Briefing website contains the full details and downloadable copies of the ASEAN Free Trade and Double Tax Treaties Singapore enjoys internationally.

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