Written by Chris Tan Chur Pim

(Published on The Edge: City and Country, July 30 – August 5 2007)

Conceptualisation

The tipping point for the IDR is rather logical. Emulating the dream of the great Deng Xiaoping in extending the dynamism of Hong Kong to Shenzhen Special Economic Zone back in 1979, our Premier revisited such economic miracle by giving it a new rendition in this 21st century in the symbiosis between the city-nation of Singapore to the visionary Iskandar Development Region (IDR) (originally “South Johor Economic Region”).

However, that’s about the simplest part of the whole IDR chapter.

What is a Special Economic Zone (SEZ)?

It is a zone within a sovereign jurisdiction that offers special and better fiscal incentives as well as a business friendly environment to attract investment and concentration of business activities compared to the rest of the same sovereign jurisdiction.

Normally, it is operated and governed by a special purpose body/ institution that is autonomous in its decision-making and implementation; to enable its timely action and reaction through policy initiatives.

By such definition, SEZ is not new to Malaysia, including:

1. Free Trade Zones in the various industrial estates all over Malaysia (duty free plus technology transfer);
2. The MSC (Multimedia Super Corridor) Status accorded to the various ICT related enterprises located in certain identified location;
3. Without limiting the exact geographical location, the granting of the BioNexus status under Malaysia’s own agro and biotech agenda; and
4. The operation of the Malaysia Industrial Development Authority (MIDA) that grant and devise certain incentives to industrialists, local and abroad, within a general guidelines and empowerment including pioneer status for the technology and innovation leaders, matching grant in acquiring of equipment etc.

IDR: New Creature in Malaysia

Yet, the IDR is created afresh like no other before.

1. It focuses on the service sector rather than the manufacturing oriented in the past (it is a brown field development rather than the absolute green field of Putrajaya and Cyberjaya);
2. It tests the constitutional boundaries and political balances in getting the Federal Government, State Government and Local Government to actually work in tandem for common good, expanding across the Strait of Johore to Singapore; and
3. Most important of all, It is legislated – the enactment of the Iskandar Regional Development Act 2007 (IRDA 2007).

Key Aspects of the IRDA 2007

1. The formation of Iskandar Regional Development Authority (IRDA)

• Statutory body formed under the Act
• To develop IDR to a strong and sustainable metropolis of international standing
• To act as a principal coordinating agent for all required approvals in IDR – appointment of Federal and State commissioners to respectively deal with the various authorities at their respective level.
• To set direction, make recommendation, implement standards and policies, promote and facilitate in relation to the development of IDR.
• To prepare the Comprehensive Development Plan (CDP) and implement it.

2. Approval and Implementation Committee (AIC)

• Chaired by the Chief Minister of Johore with senior federal ministerial participation from Finance, Companies Commission, Immigration, International Trade and the State’s Land and Mines, State Planning and heads of all the local authorities within the IDR.
• Charged with the task of proposing the major or strategic investment in the IDR, coordinating and expedite implementation, solving problems etc. This shall ensure quick decision that ensures inter-agency coordination and cooperation.

3. Decision Making Process

• Composition of IRDA: equal representation from both the Federal and State respectively on a mirror image and co-chaired by the Prime Minister and the Chief Minister, thus joint casting-vote. Therefore, all or nothing – consensus decision ensured.
• Composition of the AIC ensures effective delivery at the operational level.

Cross-Border Sensitivities

By such unique propositions promulgated by the Act, cross-border sensitivities in this regard are two folds:

1. Internal (Federal and States within Malaysia)

Unlike Putrajaya recently or Kuala Lumpur in the 70’s, the IDR is not formed as a Federal Territory; but rather a zoning within the State of Johore thus subject to the State’s administration and embracing our constitutional fundamentals that land is a state matter after all. This is specifically qualified:

“… nothing in this Act (IRDA 2007) shall be construed as reducing or limiting the jurisdiction, power, and functions of the State Authority of Johore in relation to land and local government matters.”

It therefore tested the Balance of Power between the needs of economic progress and benefits against the preservation of sovereignty:

The manner in which the Local, State and Federal Governments work in tandem is crucial for the success of IDR, especially on issues like the special land rules on foreign ownership in Johore that are more stringent compare to the rest of Malaysia; reconciliation of influence, power and authority between the town councils within the IDR and the IRDA; the need of being consultative against the need for timely decision making, etc.

 

It is interesting to note that Section 26 of the IRDA 2007 imposes a statutory duty on all government entities to act in a manner that is consistent with the approved CDP. A federal legislation that called for cooperation between the federal and state is subject to many tests to come.

2. External (Malaysia and Singapore)

There is a sense of the inevitability to observe the recent development of the Joint Ministerial Committee between Malaysia and Singapore (JMC).

While the official terms of reference have yet to be finalized, the consultative JMC jointly chaired by our YB Dato’ Seri Effendi Norwawi and Minister Mah Boh Tan of Singapore is set to look at the use of Smartcard to reduce passage time at the checkpoints and joint promotion of tourism as a common destination. The key is on the change of mindset in setting aside the differences for common gain.

Comparison with Shenzen

This is how the IDR is set up against Shenzen, the tipping point:

	Hong Kong-Shenzen	Singapore-IDR
Jurisdiction	Ultimately same country	Different contries
Decision making	Authoritarian	Consultative
Business potential	Market & Labour	Speculative
Movement of goods, services &  people	Fluid & accomodative	Controlled

Feel Good Continues ….

IDR is a strategic move in consolidating the recent feel good factors to announce Malaysia’s arrival as an international real estate destination for investment:

• Relaxation of the Foreign Investment Committee (FIC) rulings;
• Improvement of Delivery System in the Approval Process for property related matters.
• Indefinite Suspension of the Real Property Gain Tax (RPGT);
• Recent amendments and new enactments on property related legislations in:

1. protecting homeowners and investors by improving enforcement (Commissioner of Buildings);
2. reducing investment risk (expanding the role of the Ministry of Housing and the jurisdiction of the Home Buyers Tribunal);
3. improving efficiency (replacing the need of consent with that just notice), increasing the governance and transparency (the introduction of the JMB - Joint Management Body as a bridging measure pending the formation of the Management Corporation); and
4. stimulating the financial sectors in innovation of new products (increase competition through the influx of the Islamic Financial Institutions and the 10/90 built and sell financing model); and
5. Determined promotion of “Malaysia My Second Home” program; shall all augured well in making Malaysia visible within the radar of international property investors.
   

First of its Kind

This is definitely a pioneering model for the other to follow – the Northern Corridor (scheduled to be announced end July), the East Coast Gateway, the Sabah SEZ and the Sarawak SEZ. These are all to be set up with different focuses with essentially same operation.

Are we looking at a Malaysia SEZ ultimately? That would truly make Malaysia competitive and stay ahead the race to be truly globalised.

Stage is set?

All these are pointing towards the commitments of the Government in ensuring the realization of the ultimate Vision 2020.

However, a huge change of mindset is first required. We must move up the value chain in exploring meaningfully into the tertiary industries of services.

All concerned must give to ensure a win-win, and an effective “Partnership” at work, both internally and externally.

The IRDA 2007 laid the best foundation possible in this matter, a blue print to be built on; given the constitutional constraints and political reality. It ensures the stewardship is driven by the same goal and direction as it implied a 100% consensus all the time based on statutory obligation to work together. It is flexible enough to allow for operation refinement from time to time.

Naturally, it’s a new game with a new rules across all political and economical spectrum, we are still doing the talking and only recently seen the active involvement of Singapore started by “Durian Diplomacy” recently in Langkawi that lead to the formation of the JMC on a cross government basis.

The IRDA 2007 is not going to be the single or the last piece of legislation in relation to the IDR; but certainly a great milestone moving forward. All eyes are on the Incentives and Support Program (ISP) scheduled to be announced in the next few months.

The stage is set.

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