Should Indonesia be ‘very worried’ about Malaysia-Singapore SEZ?

Experts warn the new economic zone will be a ‘serious threat’ that could exacerbate Indonesia’s struggles to attract top-tier investments

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Shipyards in Batam, Riau Islands province. Indonesia has 24 SEZs, six of which are in the Riau Islands. Photo: Reuters

Published: 6:06pm, 14 Jan 2025

A landmark pact between Malaysia and Singapore to establish a special economic zone in Johor has set off alarm bells in Jakarta, with experts warning it could exacerbate Indonesia’s struggles to attract top-tier investments as its neighbours leverage the zone’s strategic location and investor-friendly policies.

On January 7, Malaysia and Singapore signed an agreement to develop the 3,500 sq km Johor-Singapore Special Economic Zone (JS-SEZ) in the Malaysian state’s southern and eastern regions. The JS-SEZ will house facilities from a range of sectors including data centres, manufacturing and tourism.

“This will be a serious threat to Indonesia’s prospects for capturing new investment, as well as relocation [of factories], particularly when a US trade war is looming,” said Bhima Yudhistira, executive director at Jakarta-based think tank Centre of Economic and Law Studies (Celios).

“Many manufacturers are looking for new industrial areas, especially in countries that have free trade agreements with the US.”

Singapore Prime Minister Lawrence Wong walks with his Malaysian counterpart Anwar Ibrahim in Putrajaya, Malaysia, on January 7. Singapore and Malaysia signed an agreement to develop the 3,500 sq km Johor-Singapore Special Economic Zone Photo: Pool via Reuters

Achmad Nur Hidayat, an economist at the Veteran National Development University (UPN) in Jakarta, said some firms in the electronics and hospitality industries had already moved their operations from Indonesia’s Batam to Johor, even before the JS-SEZ agreement was finalised, meaning Indonesia “should be very worried” about its formation.