An international metropolis 13 years in the making

As Iskandar Malaysia enters its 13th year of development, it appears right on track to achieve its 2025 investment targets. But what does the future hold for the region?
14 January 2019

Before the Iskandar Malaysia development project was conceived, all that could be seen around the area were palm trees, recounted Wan Ahmad Saifuddin, Executive Vice President, Iskandar Investment Berhad (IIB), who was speaking at the opening of the Global Center of Excellence (GCOE) in Iskandar Malaysia in December 2018.

Following more than a decade of development, what was once swathes of palm oil plantations has since evolved into Iskandar Malaysia, a special economic zone that houses residential and commercial developments alongside the infrastructure and facilities essential to the creation of a conducive ‘Invest, Work, Live and Play’ environment.

Leveraging its strategic location a stone’s throw away from Singapore, the economic development corridor in southern Johor — also dubbed “Malaysia’s Shenzhen” — has grown significantly as it seeks to establish its status as an alternate manufacturing location for multinational brands.

There is still huge potential for further growth as it remains on track to achieve its investment target of RM383 billion (€80.5 billion) by the year 2025.

As it is, Iskandar Malaysia is already outperforming the country’s four other major economic corridors with the highest value of realized investments totaling RM154 billion. Among the top countries with the highest cumulative investments were China, Singapore and the US.

New opportunities ahead

In its quest to becoming the “new economic powerhouse in the region”, Iskandar Malaysia has encountered a few speed bumps despite the steady influx of domestic and foreign investments.

The slowdown in property demand, China’s capital controls to clamp down on overseas investments and the cancellation of major developments in recent years have led to a slightly less optimistic industry sentiment, and a slew of negative publicity on the progress within the special economic zone.

Initially touted as a key selling point to attract investments, the cost advantage of Iskandar Malaysia over neighboring Singapore has been impacted due to inflation. For businesses looking to set up shop in the region, the higher labor costs and the availability of highly skilled personnel have emerged as causes for concern.

A steady and reliable workforce is one of the key factors necessary to build up and maintain a company’s day-to-day business operations. With reports surfacing of locals struggling to cope with inflation, the hiring and retaining of manpower will continue to trouble companies should the unfavorable conditions persist.

As Ku Swee Yong, chief executive of International Property Advisor, suggests, the region might have placed “the cart before the horse“.

People working in Iskandar — a new township with no shared history or sense of community — need an economic or social reason to move in. Without the adequate social infrastructure, there might be little impetus to stay or work in the area, Ku added.

Having the “right geography, environment and ecosystem” is crucial, and will ensure the sustained success of Iskandar Malaysia, Wan added.

To mitigate these challenges, the state government is already looking to engage with major companies to understand their issues with hiring manpower.

Building a connected Iskandar Malaysia

Equally critical to the growth of Iskandar Malaysia as an economic zone is the connectivity that enables the flow of goods and people within and out of the region.

That is why the importance of logistics was identified early on in the formulation of the Comprehensive Development Plan (CDP) 2006-2025 by the Iskandar Regional Development Authority (IRDA).

Under the plan, logistics was earmarked as one of the nine key promoted sectors — including electrical and electronics, petrochemical, oil and gas, food and agro-processing and tourism — to realize the region’s vision of becoming a strong and sustainable metropolis of international standing.

“With rapid growth in flagship sectors like technology and manufacturing, and alongside heightened interests from major trading partners like China, Korea and Japan, Iskandar Malaysia must be ready with its own in-house, high-quality logistics services that can connect it to the rest of Asia and ultimately, the world,” said Datuk Ir. Khairil Anwar Ahmad, President and Chief Executive Officer of Iskandar Investment Berhad (IIB), echoing the same sentiment on the importance of logistics.

From left: Datuk Ir. Khairil Anwar Ahmad, President and Chief Executive Officer of Iskandar Investment Berhad; YB Jimmy Puah Wee Tse, the Johor State EXCO for International Trade, Investment and Utilities; Philip Chu, Managing Director, Global Center of Excellence Iskandar Malaysia

Establishing a strong collaborative relationship between the public and private sector is crucial to speed up and streamline this process for businesses.

One such partnership, the first of its kind in Malaysia, is the newly-launched Global Center of Excellence (GCOE) Iskandar Malaysia jointly established by DHL and Iskandar Innovations Sdn Bhd, a wholly-owned subsidiary of IIB.

Global Center of Excellence (GCOE) Iskandar Malaysia

The GCOE consolidates supply chain consultancy services and logistics design for many of Iskandar Malaysia’s focal industries including Automotive, Energy, Engineering & Manufacturing, Life Sciences & Healthcare and Technology.

Established by DHL in partnership with Iskandar Innovations Sdn Bhd, a wholly-owned subsidiary of Iskandar Investment Berhad (IIB), with joint seed investments exceeding US$2 million, the GCOE is the interchange connecting key stakeholders in the ecosystem to support businesses operating out of the special economic zone, particularly those looking to expand throughout Asia rapidly.

As a catalyst in Iskandar Malaysia, IIB is collaborating with DHL — offering access to its global network, industry expertise and innovations, and marketing capabilities — to put Iskandar Malaysia on the global logistics map.

“We envisage Iskandar Malaysia as a gateway between Asia and the rest of the world; one which will rely on resilient and adaptive logistics connectivity to reach its full potential,” said Mr. Philip Chu, Managing Director, Global Center of Excellence Iskandar Malaysia.

A role model for success

Although the GCOE Iskandar Malaysia is still in its infancy, the concept behind the partnership is not entirely unheard of.

“The GCOE acts as the integrated platform connecting authorities, ecosystem partners and chambers of commerce through a joint value proposition to support potential investors,” explained Chu.

In early 2018, a similar joint initiative was launched in partnership between DHL and the Government of Panama as part of the country’s National Logistics Strategy 2030 to strengthen its logistics assets.

The GCOE in the Central American country advises multinational companies to establish their logistics centers in Panama, which is strategically positioned as the gateway to the Latin America market.

Panama offers multimodal connectivity and logistics services that make it easy for large multinationals to establish value-added and distribution processes, said Augusto Arosemena, Panama’s Minister of Commerce and Industries.

“By adopting the GCOE playbook in Panama, Iskandar Malaysia has a massive opportunity to replicate similar success in South Johor,” added Chu on the bright future ahead of Iskandar Malaysia.