The special economic zone of Iskandar Malaysia was established in 2006, but it is only in the past two years that interest among Singapore SMEs has heated up.
Warming relations between the two countries and completion of infrastructure and property projects are among the factors that may have attracted investor interest.
Rising costs and the ongoing economic restructuring in Singapore have also benefited the Iskandar region.
More Singapore firms have been drawn into the region in search for a more viable place to operate — some to provide supporting services to existing businesses, and others to take advantage of lower land and electricity costs. That has reflected in the growing volume of business loans to Iskandar.
Singapore is into the third year of its restructuring drive to raise productivity growth and the pressure to shape up or ship out has never been greater.
In the last two years, OCBC Bank said there has been a four-fold increase in the number of local SMEs expanding overseas. Over the same period, rival bank UOB said loans extended to these companies have grown close to 50 per cent.
The Singapore SME already has operations in Kuala Lumpur and Penang, and is considering branching out to Iskandar.
Many staff working in the companies are Malaysian and all from Johor — every morning they commute to Singapore. But now that the amount of interest, the amount of investment in Iskandar, the properties being built, and everybody is moving. There is now an awakening and everything is developed and all the Singaporeans are coming in to invest.
The overseas expansion of SMEs is also partly driven by restructuring in the Singapore economy, which has raised labour costs. Even so, Singapore SMEs are starting to find the window for land price arbitrage narrowing. This is as prices of industrial parks in the Nusajaya, the area in Iskandar closest to Singapore, gets bidded up. That has pushed SMEs to seek industrial properties further inland within Iskandar.
OCBC said it expects loan commitments by Singapore SMEs expanding into Iskandar to grow by S$200 million by the end of this year, and assets to grow three times in the next two years. The bank has been in Iskandar since 2007 and said that one in three Singapore SMEs in Iskandar bank with them.
Beyond business loans, some economists said more can be done at the government-to-government level to generate greater value for Singapore’s relationship with Iskandar.
For instance, DBS bank said the Iskandar region could be allowed to tap into Singapore’s existing Free Trade Agreement network to attract and benefit companies there.
The most of the enhancements made on connectivity between the two states thus far have focused on the “hardware elements”, such as the mass rapid transit link and high-speed rail link. This is likely to include the harmonization of custom clearance procedures to speed up transfers of humans, goods and services between the two states, a mutual recognition of standards, and comprehensive and in-depth investment and intellectual property protection agreements.