A Paradigm Shift in Regional Cooperation
When Malaysia’s Investment, Trade and Industry Minister Tengku Zafrul Abdul Aziz declared that Singapore and Malaysia are “better as friends than rivals,” he articulated a fundamental truth that has eluded bilateral relations for much of the past six decades. His emphasis on the Johor-Singapore Special Economic Zone (JS-SEZ) as the embodiment of this friendship represents more than diplomatic niceties—it signals a pragmatic recalibration of how both nations approach their intertwined destinies in an increasingly complex global landscape.
For Singapore, this shift carries profound implications that extend far beyond the 3,571 square kilometers of southern Johor designated for the SEZ. The initiative touches upon core strategic concerns: economic competitiveness, regional integration, supply chain resilience, and the city-state’s perpetual challenge of transcending its physical limitations.
Historical Context: From Separation to Interdependence
The Singapore-Malaysia relationship has long been characterized by what scholars call “competitive coexistence”—a delicate balance between cooperation born of geographic necessity and rivalry rooted in political separation. Since Singapore’s exit from the Malaysian Federation in 1965, the bilateral relationship has oscillated between periods of tension and pragmatic collaboration, marked by disputes over water supplies, airspace, railway land, and maritime boundaries.
Yet beneath the occasional diplomatic friction lies an inescapable economic reality: Singapore and Malaysia are among each other’s most important trading partners. In 2024, bilateral trade exceeded US$90 billion, with Malaysia consistently ranking as Singapore’s second-largest trading partner globally. More than 350,000 Malaysians cross the Causeway daily to work in Singapore, while Singapore remains one of the largest foreign investors in Malaysia.
The JS-SEZ formalizes what has always been implicit—that both nations’ prosperity is fundamentally linked, and that competitive posturing ultimately serves neither party’s interests.
The JS-SEZ Framework: Architecture of Integration
Announced in January 2025, the JS-SEZ represents the most ambitious attempt yet to create a genuinely integrated cross-border economic zone in Southeast Asia. The framework encompasses several key elements:
Geographic Scope: Covering southern Johor’s industrial heartland, the zone strategically positions itself as an extension of Singapore’s manufacturing and logistics ecosystem while leveraging Johor’s land availability and lower operational costs.
Sectoral Focus: The emphasis on advanced manufacturing, logistics, technology, and the digital economy aligns with both nations’ aspirations to move up the value chain and capture emerging opportunities in Industry 4.0.
Facilitation Mechanisms: Simplified customs clearance, harmonized regulations, and improved connectivity for people and goods address longstanding friction points that have hindered deeper integration.
Incentive Structures: Targeted tax incentives aim to attract global investors who can benefit from operating across both jurisdictions seamlessly.
Singapore’s Strategic Imperatives: Why the SEZ Matters
1. Spatial Constraints and Economic Expansion
Singapore’s most fundamental challenge has always been land scarcity. With a total area of just 734 square kilometers and one of the world’s highest population densities, the city-state faces acute constraints on industrial expansion, warehousing, and manufacturing facilities. Land costs in Singapore are among the highest globally, making it increasingly difficult for companies engaged in land-intensive operations to remain competitive.
The JS-SEZ offers Singapore businesses a valve to release this pressure. Companies can maintain their strategic headquarters, R&D facilities, and high-value operations in Singapore while relocating land-intensive manufacturing, assembly, and logistics functions to Johor—without sacrificing connectivity or regulatory certainty.
This isn’t about Singapore “hollowing out” its economy, as Zafrul clarified by emphasizing the zone targets global investors rather than merely shifting existing operations. Instead, it’s about creating an integrated economic ecosystem where both territories play complementary roles. Singapore retains its position as a high-value command center while Johor provides the physical space for operations that require land at scale.
2. Supply Chain Resilience and Diversification
The COVID-19 pandemic and subsequent geopolitical tensions exposed dangerous vulnerabilities in global supply chains. For Singapore, heavily dependent on international trade and serving as a critical node in regional supply chains, resilience has become a strategic priority.
The JS-SEZ contributes to this resilience in several ways:
Geographic Diversification: By enabling businesses to operate across two jurisdictions simultaneously, the zone reduces single-point-of-failure risks. If disruptions affect one location, operations can potentially shift or continue across the border.
Supplier Network Expansion: As Zafrul noted, the “queen bee approach” will draw SMEs into supply chains supporting larger anchor investors. For Singapore, this means access to a broader, more diversified supplier base in close proximity—critical for industries requiring just-in-time manufacturing or rapid prototyping.
Regulatory Arbitrage Benefits: Different regulatory environments in Singapore and Malaysia can be advantageous. Companies can choose optimal locations for specific operations based on regulatory fit while maintaining integrated operations across the zone.
3. Competitive Positioning in Southeast Asia
Singapore faces intensifying competition from regional rivals. Thailand has positioned itself as a manufacturing hub, Vietnam has emerged as a favored destination for companies diversifying from China, and Indonesia is leveraging its massive domestic market to attract investment. Even within Malaysia, Penang and Kuala Lumpur compete for the same high-value investments Singapore seeks.
The JS-SEZ transforms this competitive dynamic. Rather than Singapore and Johor competing for the same investors, the integrated zone offers a value proposition that neither could provide alone: Singapore’s world-class infrastructure, legal system, financial services, and connectivity combined with Johor’s land availability, lower costs, and access to Malaysian and ASEAN markets.
For multinational corporations evaluating Southeast Asian investment locations, the JS-SEZ presents a compelling package that addresses multiple needs simultaneously. A company can establish its regional headquarters in Singapore, benefit from the city-state’s extensive network of free trade agreements and double taxation treaties, while conducting manufacturing in Johor at competitive costs—all with streamlined cross-border movement of goods and people.
4. Talent Circulation and Labor Market Integration
Singapore’s tight labor market and high wage costs present ongoing challenges, particularly for industries requiring large workforces. Meanwhile, Malaysia possesses a substantial pool of skilled and semi-skilled workers, many of whom already commute to Singapore daily.
The JS-SEZ’s emphasis on improved connectivity and facilitated movement of people addresses this asymmetry. For Singapore businesses, this means:
Expanded Labor Pool: Access to Malaysian talent without requiring relocation to Singapore, reducing recruitment costs and alleviating housing pressures.
Wage Cost Management: Operations in Johor can employ workers at Malaysian wage levels while maintaining Singaporean management and oversight.
Knowledge Transfer: Singaporean companies can more easily establish training programs and knowledge-sharing initiatives with Malaysian partners and employees, raising productivity across the zone.
Reverse Flow Opportunities: Malaysian professionals working in Singapore can more easily establish businesses or take leadership roles in Johor operations, facilitating knowledge transfer and entrepreneurship.
5. Technology and Digital Economy Development
Zafrul’s emphasis on the digital economy within the JS-SEZ framework aligns with Singapore’s ambitions to be a leading digital economy hub. The zone provides a testing ground for cross-border digital initiatives that could have broader regional implications:
Digital Trade Facilitation: The zone will likely pioneer digital customs clearance, blockchain-based supply chain tracking, and electronic documentation standards that could become models for broader ASEAN integration.
Data Connectivity: Harmonized data governance frameworks within the zone could facilitate cloud computing operations, data analytics services, and AI development that leverage resources and markets in both countries.
Fintech Innovation: The zone offers opportunities to test cross-border payment systems, digital currencies, and financial services innovations that navigate different regulatory frameworks.
Smart Manufacturing: The combination of Singapore’s advanced technology ecosystem and Johor’s manufacturing base creates ideal conditions for Industry 4.0 implementation, IoT integration, and smart factory development.
The SME Dimension: Catalyzing Smaller Enterprises
Zafrul’s reference to the “queen bee approach”—where large anchor investors attract SMEs into their supply chains—holds particular significance for Singapore’s SME sector, which comprises over 99% of enterprises but often struggles with internationalization.
The JS-SEZ lowers barriers for Singapore SMEs to expand regionally:
Reduced Risk: Operating in nearby Johor, with streamlined regulations and Singapore’s legal protections, presents less risk than expanding to more distant markets.
Supply Chain Integration: SMEs can become suppliers to larger companies operating in the zone without requiring independent market entry.
Scaling Opportunities: SMEs can test expansion strategies and build operational capabilities in a controlled, supportive environment before venturing further afield.
Government Support: Both Singapore and Malaysian governments are likely to provide targeted support programs, financing, and advisory services for SMEs participating in the zone.
For Singapore, developing internationally competitive SMEs is crucial for economic resilience and innovation. The JS-SEZ provides a practical pathway for SMEs to gain international experience and scale their operations.
Challenges and Critical Considerations
Despite its promise, the JS-SEZ faces significant implementation challenges that could affect Singapore’s ability to realize anticipated benefits:
Regulatory Harmonization Complexity
While simplified regulations sound appealing, harmonizing two distinct legal and regulatory systems poses formidable challenges. Singapore’s legal framework is based on English common law with highly transparent, efficient regulatory processes. Malaysia’s system incorporates civil law elements with different enforcement mechanisms and bureaucratic procedures.
Achieving genuine harmonization requires:
- Alignment on standards, certifications, and compliance requirements
- Coordinated regulatory agencies with compatible enforcement approaches
- Resolution of conflicts when regulations genuinely diverge due to different national priorities
- Ongoing management as regulations evolve in both countries
Political Risk and Stability Concerns
Malaysia’s political landscape has been notably volatile in recent years, with frequent government changes and policy uncertainties. Zafrul himself acknowledged uncertainty about his political future, noting his Senate term ends in December 2025. Singapore businesses considering significant investments in the zone must factor in political risk—the possibility that future Malaysian governments might alter policies, renegotiate terms, or shift priorities.
Infrastructure Development Timeline
The zone’s success depends heavily on infrastructure development—expanded border checkpoints, improved road and rail links, digital connectivity, and utilities. These projects require substantial investment, lengthy planning and construction timelines, and coordination across multiple agencies in both countries. Delays could frustrate early participants and dampen enthusiasm for the initiative.
Competition vs. Collaboration Balance
Despite rhetoric about collaboration, underlying competitive dynamics persist. Malaysian politicians may face domestic pressure to ensure the SEZ benefits Malaysian workers and businesses rather than primarily serving as an extension of Singapore’s economy. Singapore policymakers must ensure the zone genuinely creates value for Singapore rather than simply shifting activities across the border without net benefits.
Broader ASEAN Context: The JS-SEZ as Regional Model
Zafrul situated the JS-SEZ within Malaysia’s broader ASEAN chairmanship priorities for 2025, emphasizing regional integration through upgraded trade agreements (ATIGA) and digital economy frameworks (DEFA). For Singapore, the JS-SEZ represents both a bilateral initiative and a potential model for deeper ASEAN integration.
Singapore has long championed ASEAN economic integration, viewing a prosperous, connected region as essential for its own success. The JS-SEZ demonstrates practical mechanisms for achieving integration:
Concrete Implementation: Rather than abstract commitments to integration, the zone shows how specific mechanisms—customs facilitation, regulatory harmonization, targeted incentives—can achieve tangible results.
Scalability: Lessons learned from the JS-SEZ could inform similar cross-border economic zones elsewhere in ASEAN, potentially linking Singapore to multiple neighbors through integrated economic corridors.
Digital Integration: As Zafrul noted, DEFA aims to double ASEAN’s digital economy to US$2 trillion by 2030. The JS-SEZ’s digital economy focus provides a testing ground for region-wide digital trade facilitation, data governance, and e-commerce frameworks.
Political Demonstration Effect: If the JS-SEZ succeeds, it demonstrates to other ASEAN members that sovereignty concerns can be addressed while achieving genuine economic integration—potentially accelerating broader regional initiatives.
Geopolitical Dimensions: Navigating Great Power Competition
The JS-SEZ cannot be divorced from broader geopolitical dynamics. Southeast Asia increasingly finds itself at the intersection of intensifying U.S.-China competition, with both powers seeking to shape regional economic architecture through initiatives like the Indo-Pacific Economic Framework and the Belt and Road Initiative.
For Singapore, the JS-SEZ offers strategic advantages in this environment:
Strategic Autonomy: Deeper economic integration with immediate neighbors strengthens ASEAN’s collective position, reducing dependence on any single external power.
Investment Diversification: The zone can attract investment from diverse sources—American technology companies, European manufacturers, Japanese logistics firms, Chinese producers—without forcing exclusive alignments.
Neutral Platform: Singapore’s carefully maintained neutrality, combined with Malaysia’s non-aligned stance, positions the JS-SEZ as a relatively politics-free investment destination compared to locations more clearly aligned with either the U.S. or China.
Supply Chain Reconfiguration: As companies diversify supply chains to reduce geopolitical risk, the JS-SEZ offers an attractive alternative that maintains proximity to China while providing geographic separation.
Looking Ahead: Success Factors and Strategic Imperatives
For Singapore to maximize benefits from the JS-SEZ, several factors will prove critical:
1. Sustained Political Commitment
Both governments must maintain consistent support through political transitions and evolving circumstances. Singapore’s political stability provides assurance on one side, but Malaysia’s political environment requires careful cultivation of bipartisan support for the initiative.
2. Rapid Implementation of “Quick Wins”
Early, visible successes—streamlined border crossings, major anchor investments, successful SME expansions—will build momentum and confidence. Delays or false starts could undermine enthusiasm and allow skeptics to gain influence.
3. Inclusive Benefits Distribution
Both Singaporean and Malaysian stakeholders must perceive tangible benefits. If the zone is seen as primarily benefiting one side or only large corporations, political support will erode. Deliberate attention to SME participation, worker benefits, and balanced outcomes is essential.
4. Infrastructure Investment at Scale
Both governments must commit substantial resources to physical and digital infrastructure. Half-measures will result in half-results. The infrastructure must genuinely enable seamless cross-border operations, not merely reduce friction at the margins.
5. Adaptive Governance
The JS-SEZ requires ongoing governance mechanisms that can adapt to emerging challenges, resolve disputes, and evolve policies as circumstances change. Rigid frameworks will fail when confronted with unforeseen complications.
Conclusion: From Rivalry to Interdependence
Zafrul’s statement that Singapore and Malaysia are “better as friends than rivals” reflects hard-won wisdom accumulated through decades of bilateral friction and occasional cooperation. The JS-SEZ represents an attempt to institutionalize this wisdom—to create structures and incentives that make cooperation the natural, rational choice rather than an occasional exception to competitive dynamics.
For Singapore, the stakes are high. Success could provide a template for regional integration, alleviate critical constraints on economic expansion, enhance supply chain resilience, and strengthen the city-state’s competitive position as a regional hub. Failure could waste resources, damage bilateral relations, and reinforce skepticism about ASEAN integration prospects.
Yet perhaps the most significant impact lies in a subtle shift in strategic thinking. For much of its independent history, Singapore has operated from a mindset of vulnerability—a small nation surrounded by larger neighbors, dependent on its wits and efficiency to survive and prosper. The JS-SEZ embodies a different approach: that Singapore’s prosperity increasingly depends not on standing apart but on standing together with its neighbors, leveraging complementarities rather than competing in zero-sum contests.
This doesn’t mean rivalry disappears or competition ends. Both nations will continue to pursue their distinct interests and occasionally clash over specific issues. But the JS-SEZ creates institutional incentives for managing disagreements constructively and finding mutual gains rather than seeking unilateral advantages.
In an era of fragmenting global trade, rising protectionism, and intensifying geopolitical competition, small and medium powers like Singapore and Malaysia face a choice: compete with each other for scraps from great power tables, or collaborate to create their own economic dynamism and strategic autonomy. Zafrul’s emphasis on friendship over rivalry, embodied in the JS-SEZ, suggests both nations increasingly recognize that their futures are more promising together than apart.
For Singapore specifically, success in making this partnership work could prove as strategically significant as any initiative since independence. It would demonstrate that despite profound differences in political systems, governance approaches, and historical grievances, pragmatic cooperation can yield substantial mutual benefits. It would show that Singapore’s constraints—particularly land scarcity—need not limit its economic ambitions when addressed through creative regional integration. And it would establish Singapore not merely as a sovereign city-state, but as the nucleus of a broader integrated economic ecosystem that leverages the complementary strengths of multiple territories.
The JS-SEZ is ultimately an experiment in transcending the Westphalian logic of territorial sovereignty to create functional economic integration across borders. If it succeeds, it will change not just Singapore’s relationship with Malaysia, but Singapore’s understanding of what it means to be a successful small state in a complex, interconnected world.
The question is no longer whether Singapore and Malaysia are better as friends than rivals—Zafrul is manifestly correct on this point. The question is whether both nations can build and sustain the institutional frameworks, political will, and practical mechanisms to make friendship work in practice, delivering tangible benefits that justify the trust, compromise, and coordination that genuine partnership requires. The JS-SEZ will provide the answer.