Singapore, Malaysia to develop border economic zone, in sign of 'collaborative' boost to ties

Plans to accelerate a cross-border economic zone are signs of a "diplomatic and collaborative" approach by Singapore and Malaysia to deepen relations, analysts said.

Prime Minister Lee Hsien Loong described the Johor-Singapore special economic zone as a "substantial and promising project" during a leaders' retreat with Malaysian counterpart Anwar Ibrahim in the city state on Monday, saying both countries expected to sign a memorandum of understanding as early as January.

Johor Bahru, capital city of the southern Malaysian state of Johor, is about 25km north from Singapore, and Lee said the project would enhance the flow of goods and people across the border and boost economic attractiveness.

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"We have great hopes. But first we have to do the feasibility study, and we have to negotiate the MOU, and we're hoping to have that done by early next year," Lee said during a press conference at the 10th Singapore-Malaysia Leaders' Retreat. "It's a lot of work ... but we would like to see it done as soon as we can."

Analysts said the tone and outcome of the leaders' retreat indicated that bilateral ties were headed in a positive direction, and were optimistic that both countries would be able to deepen cooperation in areas such as the special economic zone.

Hafidzi Razali, director at political risk consultancy BowerGroupAsia, said a joint statement issued after the retreat showed a clear "commitment to previously announced initiatives" such as better traffic management, cross-border electricity trade and improving water yields.

The statement also showed the Anwar administration had taken a more "diplomatic and collaborative" approach towards mutual interests compared to his predecessors, Hafidzi added.

The Johor-Singapore special economic zone is positioned to attract investors in areas such as healthcare, electronics and finance. With specific details yet to be fleshed out, analysts said the size indicated potential but it was too early to project on the likely economic dividends.

During the retreat - widely seen as a litmus test for bilateral relations - Lee and Anwar discussed a range of issues, including land connectivity and long-standing territorial disputes. Other areas prioritised for development include the Iskandar Malaysia project, a development corridor in Johor aimed at attracting foreign investors to Asean countries.

This is the first time Anwar is attending the annual two-day retreat as prime minister. Observers are watching the outcome closely, given former Malaysian leader Mahathir Mohamad's more hardline approach to bilateral negotiations. Thorny issues in the past included the price of untreated water, which Malaysia sells to Singapore under a 1962 agreement.

Anwar first visited Singapore as prime minister in January, during which the two countries signed bilateral agreements to deepen cooperation in the digital economy, green economy and cybersecurity.

Singapore and Malaysia have deep economic ties and the city state is also among the largest contributors of foreign direct investments in its northern neighbour, making up more than 8 per cent of its total foreign direct investment last year.

Development on the Johor-Singapore special economic zone also comes amid widespread concern about the US$100 billion Forest City property project - which observers have described as a ghost town - by the beleaguered Chinese real estate giant Country Garden.

Both leaders also discussed outstanding bilateral issues such as the Pedra Branca island row, a territorial dispute over a nearby island in strategic waterways, although Lee stressed that these issues "will not be allowed to colour and affect this overall relationship or detract from the many positive areas of cooperation".

Malaysia had in 2017 reopened a decades-long dispute with Singapore and urged the United Nations' top court to overturn a 2008 ruling which granted its neighbour sovereignty over the land. Malaysia then discontinued proceedings for the interpretation and revision of cases a year later.

BowerGroupAsia's Hafidzi said it was "encouraging that the diplomatic discussion will be based on the resolution, such as on maritime delimitation, a mechanism of international law".

On whether bilateral ties would be affected over public sentiment towards the Israel-Gaza war, Lee said despite the countries' different diplomatic approaches, "there should be no reason for that to cause a difficulty between Malaysia and Singapore".

Anwar, meanwhile, praised Singapore for supporting the recent UN draft resolution calling for a ceasefire in Gaza.

"Singapore and Malaysia supported the ... UN resolution on this ceasefire. And that is, to me, very critical for now," he said, noting that this was a position adopted by most countries.

Lee and Anwar also expressed confidence in Johor Bahru-Singapore Rapid Transit System Link, which can transport up to 10,000 passengers between Johor Bahru and Singapore every hour in each direction. The service is expected to begin in end-2026.

Lee said this would be the third land link between the two countries and would make travel more convenient, complementing existing efforts to alleviate congestion for travellers. The two Southeast Asian countries share one of the world's busiest overland borders, with more than 300,000 people travelling across daily.

On other means of improving travel flow, Lee said: "We've also started to redevelop the Woodlands Checkpoint to increase its capacity and meet the expected long-term growth and cross-border traffic. I'm glad that Prime Minister [Anwar] welcomes and supports Singapore's efforts."

Analysts who spoke to This Week in Asia noted, however, that there was no mention of the 350km high-speed rail line between Singapore and Kuala Lumpur.

The project, axed in 2021, would have cut travel time between both destinations to 90 minutes. Anwar revived talk about the 110 billion ringgit (U$23 billion) project earlier this year, and Singapore said it would be open to starting "from a clean slate".

"It has become a necessity between the two metropolises, which have seen some of the busiest air traffic in the world," said Oh Ei Sun, principal adviser at Pacific Research Center of Malaysia and senior fellow at Singapore Institute of International Affairs.

"Malaysia is not proactive in this because it cannot afford to at the moment, and not because it doesn't want to."

This article originally appeared on the South China Morning Post (SCMP).

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