SPECIAL REPORT: Toe to toe with Singapore

The Iskandar Development Region is conceived as Malaysia's big push to close the shipping gap with the city-state. But it could end up boosting Singapore as well, Jaya Prakash reports.

What is turning heads in Malaysia's shipping industry this year is an extensive government scheme to turbo-charge its economy by developing its parts in the Iskandar Development Region. The ambitious blueprint is meant to promote Malaysia into a heavyweight boxing showdown with Singapore.

Through an ancillary port rationalisation plan, the IDR is part of what is seen as a mini-Marshall plan to improve Malaysia's global port competitiveness.

The key is the southern state of Johor. The Third Malaysia Plan (2006-15) will seek to build up nearly three times the present container throughput at its ports, to 36M teu from last year's 13.6M teu. Nazery Khalid, a senior fellow at the Maritime Institute of Malaysia, explains that Malaysia's competitiveness relies heavily on port activities.

For that reason, Prime Minister Abdullah Ahmad Badawi has already allocated $1.14Bn of the $14.29Bn budgeted for investment in the IDR.

Johor's port rationalisation initiative in particular focuses on plans to streamline and separate the operations of its two largest operators: Port of Tanjung Pelepas and Pasir Gudang.

Both ports, which are owned by MMC, have over the years engaged in wasteful "competition of attrition" by chasing the same cargo, Khalid tells, Fairplay. Now they will assuming distinctively different roles.

PTP, with its vast expanse of land and strategic location at the confluence of important sea routes, will concentrate on increasing its transshipment potential. Pasir Gudang will be building on its expertise in general cargo. Malaysia's port push is not officially billed as an in-your-face challenge to neighbouring Singapore's international maritime edge.

But a senior PTP official does tell Fairplay that the IDR plan is meant to be a calibrated enterprise to lure industries away form Singapore and give the island republic "a run for its money".

Deputy Prime Minister Datuk Seri Tun Najib Razak has hinted at the same goal, telling one of Malaysia's leading newspapers that port developments in Johor are meant to ensure that a "neighbouring country does not benefit." form cargo heading to Singapore.

Singapore grasps opportunity
Despite such rhetoric in Malaysia, Singapore has actually come to view the IDR as an opportunity.

Its founding father, former Prime Minister Lee Kuan Yew, has told Singapore newspapers that the city-state welcomes the IDR, even describing it as a "win-win" formula for both countries.

But Lee - who still functions as a mentor minister in the cabinet of his son, current Prime Minister Lee Hsien Loong - has also reportedly conceded that the IDR might put "pressure" on Singapore's maritime sector.

Still, other shipping analysts tell Fairplay that the long-term dividend of the IDR is that both countries will end up profiting from each other's prosperity.

The IDR push should be considered in light of past political hijackings of economic agendas that have taken place in Malaysia.

For example, former Prime Minister Mahathir Mohamad saw his successor, Badawi, shelving his pet project to build a bridge linking Malaysia to Singapore.

Badawi's popularity ratings are now running at an all-time low, sparking widespread predictions that he will be ousted in next year's elections.

Thus, the success of the IDR will be tied to how well all political contingencies can enable synergies involving regional and domestic ports.

Kahlid tells Fairplay: "As trade facilitators, PTP and Pasir Gudang will definitely benefit form this (IDR's) creation of economic activities, and hence of cargo derived (form) this visionary project."

Because the IDR abuts the southern growth nodes of Singapore, Malaysia and Indonesia, it should provide a practical setting for such synergies, characterized by a throughput spike.

Nowhere is that already more evident than at the two existing major international ports in the region. Both PSA International and PTP have wide-ranging connectivity to global ports and can facilitate the large-scale diffusion of international cargo. So the economic "dividend" described by Lee Kuan Yew is not only now within reach but perhaps logically inevitable.

Fairplay understands that a key component of the IDR is its balanced development within the South Johor Economic Region, which is a purpose-built initiative to promote efficiency.

Focusing developments
This region's role is to focus development in key sectors of Johor's economy, which will add value, as Singapore's cohesive policies have done.

Former Port Klang administrator Datuk M Rajasingam tells Fairplay that this approach helps to cultivate the proliferation of local cargo for export.

Therefore, it is hardly surprising to note that the development corridor of Nusajaya, Johor Baru and Pasir Gudang - where the two ports are situated - has been targeted for development under the IDR.

PTP chairman Datuk Sidik Mohd Osman tells Fairplay that tax and other incentives "encourage the attraction of industries to locate in IDR, which from a port perspective benefits PTP".

Such benefits should apply just as aptly to Pasir Gudang, Johor Port officials tell Fairplay.

Economic spin-offs are expected to derive form implementing proposed duty-free zones in Johor to lure international companies - which is what has happened in China's port of Shenzhen.

For a model, look to Shenzhen
If indeed history is a guide as to one port upstaging another, consider China's port of Shenzhen. It initiated economics strategies similar to what the IDR seeks today in terms of scope, reach and attractiveness.

That has revolutionised China's port sector, with Hong Kong and Shanghai struggling to cope.

Key tax incentives offered within the IDR
The Badawi administration is offering corporate income tax exemptions to industries building facilities within the IDR's 2,217km confines.

Prime Minister Abdullah Ahmad Badawi is also sweetening the deal with a withholding tax exemption on certain payments for a decade after operations begin within the IDR. Above all, there is an exemption form Malaysia's foreign investment rules and full carte-blanche for industries that attempt to secure investments from outside Singapore.

Badawi even endorses the "import" of foreign expertise.