MALAYSIA'S plan to develop south Johor into a thriving metropolis called the Iskandar Development Region (IDR) is a most intriguing idea. Brilliant, in fact, as I said to an official from Khazanah, Malaysia's Temasek equivalent, whom I met on a trip to Danga Bay in the IDR in March.
Malaysian media reports say Prime Minister Abdullah Badawi conceived of the IDR while attending an international conference in Hong Kong in May 2005. He reportedly lamented: 'Why can't Johor, which is only a strip of water away from Singapore, be as prosperous and progressive as the city-state?'
The announcement to proceed with what was then called the South Johor Economic Region was made the following March when the Malaysian government released its latest five-year economic blueprint, the Ninth Malaysia Plan. The name was changed later in honour of Johor's Sultan Iskandar.
Why do I consider the IDR a brilliant idea? Not because of the economics but because of the politics.
In terms of economics, the IDR is a no-brainer. Land and labour in Johor cost much less than in Singapore. If Shenzhen could succeed in attracting investments from Hong Kong, Johor should be able to with Singapore. Indeed, a number of Singaporean companies already have manufacturing operations in Johor.
What is significant is that the IDR's ambitions do not stop there. No, sir, the IDR is not a Kaesong - the development zone on North Korea's border with South Korea which is essentially a low-cost manufacturing zone for South Korean companies. The IDR aims to be a Shenzhen, as PM Abdullah has reiterated several times.
This is what makes the IDR brilliant: It is an economic vision that also achieves political purpose. The plan places Singapore on a knife edge, much as Shenzhen's growth kept Hong Kong - democratic Hong Kong as opposed to the communist mainland - in check politically.
Shenzhen took off by leveraging on its proximity to Hong Kong. Manufacturing companies were soon joined by logistics, education, financial, legal and other services.
The flip side to Shenzhen's growth - and that of the Pearl River Delta in general - was that it led quite rapidly to the hollowing out of Hong Kong's economy following the handover of the former British colony to China in 1997. Unemployment soared and property values plunged as once-prosperous Hong Kong got mired in six years of deflation.
Only in mid-2003 did its fortunes start to improve, and this thanks to restorative measures introduced by Beijing.
Beijing did two things: One, it opened up the border between Shenzhen and the HK Special Administrative Region (SAR). The influx of millions of tourists from the mainland led to a dramatic turnaround in Hong Kong's economy.
Two, Beijing initiated the Comprehensive Economic Partnership Agreement (Cepa) with the SAR in January 2004. This gives favourable treatment to goods made in Hong Kong that meet origin rules and to services companies certified as Hong Kong Service Suppliers. Cepa-qualified enterprises and individuals enjoy earlier access to the mainland market and in some instances more concessions than even China's World Trade Organisation commitments.
Now consider Singapore and the IDR. For the IDR to take off, Singapore's participation is crucial. Malaysian leaders know it, and that is why they have been making nice with Singapore in recent months.
Singapore, however, knows that if the IDR takes off, some of it will be at Singapore's expense. The IDR is gunning for 'quality investments', as a Malaysian minister has said. The six sectors it is eyeing - creative industries, educational, financial advisory and consulting, health care, logistics and tourism - overlap very much with those that Singapore is wooing.
But still, Singapore has to participate in the IDR, not for the sake of being nice but because the long-term economics dictate it: If you don't, you might be left behind. An integrated region is Singapore's - and Asean's - best bet against losing out to India and China.
Singapore knows this, and Malaysia knows Singapore knows this, and hence the durian diplomacy on display in Langkawi two weeks ago: two erstwhile rivals forced together by the compelling logic of economic cooperation.
Prime Minister Lee Hsien Loong spoke candidly in Langkawi when he said Singapore had looked closely at the IDR proposal and decided that it would be 'fundamentally good' for Singapore if it succeeded, because it would complement Singapore and provide opportunities on both sides.
'Our cooperative interest far outweighs any competitive concerns,' he added.
What has been left unsaid so far is this: Will the IDR grow more durians, or will it redistribute durians from Singapore to Johor? If Singapore suffers a hollowing out the way Hong Kong did, who can be counted on to come to the aid of the Lion City?
Whatever happens, at the moment the biggest obstacles facing the IDR are within Malaysia itself.
Prime Minister Abdullah has a tough job just convincing his own countrymen that Singapore's involvement will not undermine Malaysia's sovereignty. As the hostile ground response to the setting up of the Joint Ministerial Committee made clear, there remains a large swathe of Malaysians who are deeply suspicious of Singapore. Some of them are in very high places.
Malay ethnic nationalism and the Malay sense of entitlement to economic privileges have become so entrenched that replacing pro-Malay business regulations with more investor-friendly ones will be a Herculean task.
Foreign direct investment into South-east Asia has climbed in recent years, following a dip after the 1998 financial crisis. But that into Malaysia remains sluggish, lagging behind even Indonesia's.
As a commentator in a Malaysian newspaper said, 'Malaysia's past habit of fiddling with its policies has caused unease with many foreigners'.
Singapore investors, for example, will not have forgotten the Clob saga in the 1990s or rule changes related to property ownership.
In recent weeks, Malaysian leaders and IDR officials have been going on extensive roadshows in Singapore promoting investment opportunities in the IDR. I wish them well, for even as I recognise the risks the IDR poses to Singapore, I believe the IDR will be good for both Singapore and Malaysia.
What then might help the IDR become a Shenzhen faster? Speaking to the Khazanah chap in Danga Bay, I suggested, tongue in cheek, a merger between Singapore and Johor. I don't know if he was amused or bemused.
(Straits Times 2 June 2007)
