(July 25): We are just over halfway through 2024 but it is already shaping up to be one of the most exciting years for Johor’s economy.

The memorandum of understanding for the Johor-Singapore Special Economic Zone (SEZ) was signed in January. Proposed initiatives include passport-free travel, digitised clearance for goods, cooperation in renewable energy and more.

This comes as Johor sets its sights to become a developed state by 2030.

Under the Maju Johor 2030 (Progress Johor 2030) economic masterplan, the state government targets to raise Johor’s gross domestic product (GDP) to RM260 billion by 2030, up from RM148.2 billion last year.

To achieve this, the state needs to grow by an average of 7.8% every year from now till 2030 - higher than the average pre-pandemic growth rate of 5.1% between 2016 and 2019.

In line with this, Johor’s Chief Minister Datuk Onn Hafiz Ghazi visited Singapore on 1 July to meet with UOB and various business organisations. The parties discussed collaboration initiatives under the planned Johor-Singapore SEZ.

The state government has said on several occasions that quality investments must be injected quickly in order to achieve its ambitious targets.

In line with this, Johor has been making headlines by attracting investments from a wide range of industries - including data centres, life sciences, medical technology, advanced manufacturing and aerospace engineering. It is also banging big on the green economy by courting investments in renewable energy, electric vehicles and the like.

With the wind in its sails, the Johor government is confident of surpassing last year’s committed investment total of RM43 billion. 

What is equally important, however, is to be able to attract sufficient numbers of talented workers to power economic growth.

Without skilled workers for factories, laboratories and data centres, investors will struggle to achieve healthy returns on their investments. The danger is that further investments may slowly dry up.

As a country, Malaysia has long faced a brain drain, leading to a study put out in February by the Department of Statistics Malaysia and the Ministry of Economy. They warned of the "adverse effects" of the brain drain as skilled workers leave the country.

As the state closest to Singapore, Johor is the most impacted by the phenomenon. Over 350,000 travellers use the crossings at Woodlands and Tuas daily, with most of them being Johoreans working in Singapore. Not included in the statistics are the workers who rent accommodation in Singapore to save on travel time - but they are likewise deducted from Johor’s labour pool.

The issue of talent was highlighted on 11 July by the Johor-Singapore SEZ Singapore Business Working Group as it released a list of recommendations for the authorities to consider. It stated that about 60% of businesses polled reported difficulties in sourcing skilled workers in Johor, with additional challenges in attracting Singaporean talent to work across the border.

The Working Group’s suggestions included mutual investment in workforce development by Johor and Singapore and a talent acquisition programme - with job fairs, marketing campaigns and the like - to attract skilled labour to Johor.

While the recommendations should be seriously considered, Johor can go further to reverse its brain drain. In that regard, it should take a leaf out of Shenzhen’s book. Shenzhen’s rise to achieving the second-highest per capita GDP in China - only behind Beijing - is down largely to its successful labour policies.

These include a set of tax incentives that make it attractive to live and work in Shenzhen and the provision of affordable housing for workers in prime real estate locations.

The Shenzhen government allows firms much flexibility in hiring and wage policies.

Drawn by competitive wages, skilled labour has congregated in Shenzhen, turning it into a centre of knowledge. The innovative culture driven by a large migrant population has contributed to its success as a base for high-tech industries, making Shenzhen the Silicon Valley of China.

Just like in the original Silicon Valley in America, the bright minds in Shenzhen bounce ideas off one another, leading to greater productivity and higher wages - a network effect of talent. These workers are also consumers, spending on everything from accommodation to food and transport - generating a secondary network effect of consumption.  

If Johor could implement the right policies to stem or even reverse its brain drain, Singapore would benefit from a win-win situation with industries being able to extend their operations into Johor to develop “two economies and one ecosystem”. There is potential for parts of Johor to be developed for Singaporeans to work and live in.

Importantly for Johor itself, getting its talent pipeline right is the secret sauce for its ambitions to become a developed state by 2030.

Julia Goh is senior economist (Malaysia) at UOB.

https://www.theedgemarkets.com/node/720438