Historical overview

Located at the tip of Peninsular Malaysia, south Johor has long played a key strategic role in the history and development of Malaysia and the local region beyond. The execution of this role has been heavily influenced by Johor’s well-established international perspective, forged from centuries of interaction with a variety of external merchants and settlers, including Arabs, Indian-Muslims, the Portuguese, the Dutch, the Buginese and the British.

Following national independence from the UK in 1957, growth and development abounded in Johor, particularly in the transport and industrial sectors. The subsequent jobs created helped to attract growing numbers of migrants from across Malaysia and surrounding countries to the region.

Today, the south Johor conurbation is one of the largest economic areas in the country, with a diversified local economy and growing clusters that have emerged around the electrical and electronics, logistics, food and agroprocessing, tourism, and oil and petrochemical industries. Its strategic location along one of the world’s busiest shipping routes, as well as its close proximity to the international hub of Singapore and other large markets such as Indonesia, China and India, plus its rich endowment of natural and human resources, have all underpinned south Johor’s past successes and underscore its future potential.

In this context, and following the proposal established by the Malaysian Government’s Ninth Malaysia Plan 2006-2010 to develop five regional economic areas to catalyse national growth, the South Johor Economic Region was earmarked as the southern development corridor. This economic region later became known as the Iskandar Development Region and, subsequently, Iskandar Malaysia.

Following a 2005 feasibility study conducted by Khazanah Nasional Berhad to assess the proposed development of an economic corridor in the area, Iskandar Malaysia was officially launched in 2006. The Iskandar Regional Development Authority (IRDA) was subsequently established by new legislation, the IRDA Act 2007 (Act 664), to facilitate the promotion, planning, processing and infrastructure development of the new economic region.

Iskandar Malaysia now covers 2,217 square kilometres of land and, crucially, the key authorities involved in its ongoing development continue to pursue the same open and outward-looking approach that has characterized southern Johor for centuries.

 

Timeline


1300s    Islam first introduced to south Johor by Arab and Indian-Muslim merchants

1528      Sultanate of Johor officially founded by Sultan Alauddin Riayat Shah

1957      Malaysian independence from the UK

2005      Khazanah Nasional Berhad feasibility study into a proposed economic corridor in south Johor

2006      Ninth Malaysia Plan (2006-2010) published

2006      Official launch of Iskandar Malaysia

2006      Comprehensive Development Plan 2006-2025 devised as strategic developmental blueprint

2007      Iskandar Regional Development Authority Act 2007 passed, creating IRDA

2014      Comprehensive Development Plan ii 2014-2025 published

2015      Halfway-mark reached in terms of final cumulative committed investment target

2025      Projected year by which Iskandar Malaysia will become self-sustaining


 

State of the market

Under Iskandar Malaysia’s developmental blueprint, the Comprehensive Development Plan 2006-2025 (CDP), the main drivers of the economic corridor are apportioned into five distinct flagship zones (see fig. 1). In turn, and to foster growth within these zones, development is centred around nine key service and manufacturing industries, known as the promoted sectors (see fig. 2). The overarching objective is to attract ongoing investment to these sectors for them to subsequently perform as the engines of growth that will drive Iskandar Malaysia to become a strong and sustainable metropolis by 2025.

Since its inception, approximately 60 per cent of Iskandar Malaysia’s overall investment target of MYR385 billion to 2025 has been secured via cumulative committed investment. As such, multiple projects have been implemented across all five flagship zones and all nine promoted sectors, with investment largely driven by the private sector. Local investors account for approximately 60 per cent of all investment to date, with the remainder coming from foreign investors from a diverse range of countries, particularly Singapore, China, Japan, the U.S. and Spain.

The real estate sector has been the major recipient of much of the investment since 2006. However, authorities are now keen to attract investment to foster additional catalytic developments and improvements to general infrastructure, including the realisation of an efficient and integrated transport network. Significantly, improved infrastructure will facilitate the flow of goods and people within and beyond Iskandar Malaysia and, moreover, allow authorities to take full advantage of the economic corridor’s strategic location adjacent to Singapore.

From the Malaysian Government perspective, further emphasis is being placed on the development of the education, healthcare, creative, logistics, and business and financial services sectors. The strategic objective in this regard is to create spin-offs in these industries that will then impact inter-related sectors, including wholesale and retail trade services, hospitality, and food and beverage subdivisions. This all feeds into the overall target of creating 310,625 direct job opportunities in Iskandar Malaysia by 2025.

In terms of market growth, critical mass is being generated throughout the economic region. Moving forward, additional investment as well as collaboration between multiple agencies, stakeholders and players across all levels, on both the supply side and the demand side, is crucial. An ongoing commitment to such an approach is fundamental to ensuring the economic region continues advancing its strengths, to 2025 and beyond.

 

How the market operates

A number of authorities are involved in implementing the strategic development of Iskandar Malaysia. The main entities are as follows:

Iskandar Regional Development Authority (IRDA)

IRDA is a federal statutory body established under the IRDA Act 2007. Its primary objective is to regulate and drive the various stakeholder groups, from both the public and private sector, towards realising the Iskandar Malaysia vision: to become a strong and sustainable metropolis of international standing by 2025. IRDA’s role is to plan, promote and facilitate development in the economic region, as well as to ensure that it maintains a business-friendly environment without compromising the elements required to foster a holistic and low-carbon lifestyle conducive to sustainability.

Johor State Government

The state government of Johor is responsible for development across the region and envisions the transformation of Johor into Malaysia’s next economic powerhouse. Iskandar Malaysia is playing a fundamental role towards that end and, therefore, state authorities work in close collaboration with IRDA and the federal government to fulfill joint strategic objectives. In particular, this includes attracting investment to both the economic region and Johor state as a whole via a range of policy frameworks and investment facilitation initiatives.

Khazanah Nasional Berhad (Khazanah)

Khazanah is a sovereign wealth fund of the Malaysian Government that holds and manages the commercial assets of the State to undertake strategic investment initiatives across different sectors. Khazanah has invested substantial resources in Iskandar Malaysia since 2006 via a number of its investee companies. All such investments are deployed on the basis of potential investment returns, high economic multipliers, job creation and capacity and capability building across the board.

Iskandar Investment Berhad (IIB)

Incorporated in November 2006, IIB is a strategic developer of catalytic projects aimed at stimulating and securing the long-term development of Iskandar Malaysia. Via a combination of joint ventures and investment partnerships, IIB focuses on high impact projects in the education, tourism and leisure, creative, and health and wellness sectors in Iskandar Puteri, in addition to the development of key infrastructure.

 

Investment climate

To encourage the continued expansion of Iskandar Malaysia, the Malaysian Government and its key strategic partners, including IRDA and Khazanah, are prioritising specific growth sectors for catalytic development, such as transport, while also driving investment in commercial projects.

The primary investment incentives towards this end include the Flagship Incentives Iskandar Malaysia (FIM) scheme, which targets service-sector activities, and the Incentive Support Package (ISP), which provides a range of incentives to encourage the physical development of Medini. These stimulus packages include a range of incentives, such as corporate tax exemption, investment tax allowance, import duty and sales tax exemption on machinery and equipment used, and flexibility to recruit foreign knowledge workers, among others.

Incentives are not only geared towards attracting investors to Iskandar Malaysia, but also workers. As of 2010, knowledge workers active in the promoted sectors, whether returning Malaysians or new expatriates, who plan to live and work in Iskandar Malaysia, are eligible to apply for their employment income to be taxed at a preferential flat rate of 15 per cent.

 

Main players and market share

Iskandar Malaysia authorities have prioritised the development of nine strategically targeted sectors in order to maximise the economic region’s long-term sustainable growth. Physically, all development initiatives are located throughout five geographically distinct flagship zones.

The number and size of actors working across the promoted sectors is extensive and includes a large number of micro, small and medium-sized enterprises. There are also numerous larger companies operating in Iskandar Malaysia, as well as certain multi-national corporations. Among the renowned international brands to have established operations in the economic region include BMW Group, Citibank, Flex (formerly Flextronics), Frost & Sullivan, Hershey’s, IKEA Southeast Asia, LEGOLAND® Malaysia, Pinewood Iskandar Malaysia Studios, and the University of Reading Malaysia. Key Malaysian entities with either pre-existing or new operations in Iskandar Malaysia include Johor Corporation, Johor Port, KPJ Healthcare Group, Medini Iskandar Malaysia, Rhizophora Ventures, Sunway Iskandar and UEM Sunrise.

All companies operating in Iskandar Malaysia, whether large or small, are highly valued and each of them is contributing directly towards the realisation of the Iskandar Malaysia vision: to transform the economic region into a strong and sustainable metropolis of international standing.