Malaysia, Singapore cement strategic alliance

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As the incoming administration of US President Donald Trump prepares to announce tariffs, Malaysia is seeking greater alignment with Singapore, and stability and economic resilience at the start of an uncertain era for South East Asia (SEA) and the planet.

As global trading networks become less stable, Malaysia has turned to the joint creation of a Special Economic Zone (SEZ). Malaysia’s economy minister has emphasised better integration of Singapore and Johor, Malaysia’s southernmost state, and where it borders its more prosperous neighbour. In recent years, Johor has been an engine for Malaysia’s economic growth attracting companies including Microsoft and Nvidia, creating thousands of jobs, as a hotspot for data centres.

Rivalry replaced by cooperation

Malaysia and Singapore have been rivals since the former country expelled the latter in 1965. Since then, bilateral relations have been characterised by suspicion and competition, as Singapore emerged as a global finance hub. However, the growing US-China trade war has brought a rethink of their bilateral relationship, which is increasingly seen as crucial for future prosperity.

The economic disparity between the two countries is stark: Singapore’s GDP per capita is over USD 94,000, to Malaysia’s USD 14,400. While Malaysia is positioning itself as an industrial player, particularly in AI, semiconductors, and high-tech manufacturing, Singapore has financial and logistical strengths.

By leveraging Malaysia’s competitive edge in land, labour and energy, the new SEZ will combine Singapore’s financial prowess with Johor’s lower-cost manufacturing capabilities, hoping to offer investors an alternative location to northern Asia.

To entice investors, Malaysia is offering substantial incentives, including low corporate tax rates and favourable conditions for high-tech companies. Malaysia’s ambition is clear: by 2030, the SEZ could contribute an annual USD 26bn to its economy, generating over 20,000 skilled jobs and 50 new projects. The initiative is part of a broader plan to position Malaysia as a key player in meeting the global demand for emerging technologies such as AI and quantum computing.

Regional model

The two countries have plans to work together on infrastructure, green energy, digitalisation and cross-border electricity trading initiatives, and their partnership could serve as a broader vision for a more integrated SEA, capable of navigating a new global economic era.

There are also efforts to improve transport links across the Strait of Johor, one of the world’s busiest borders.