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Section A Framework for Comprehensive Development

Economic Development Strategies

Part 2 Development Strategies

CHAPTER 4

4chapter

4 - 1

Economic Development Strategies

4.1 Introduction

This chapter outlines the economic development framework and

strategies. The main focus of the economic component is on the

macroeconomic framework. The chapter should also be read

particularly in conjunction with chapter 5 on Social Development

Strategies. Detailed proposals of the development strategies described

here and the various strategic initiatives are also contained in the

Economic and Social Development Plan (ESDP) for SJER.

4.2 Macroeconomic Framework

A. SJER Population

The current population of SJER is estimated at 1.35 million or

approximately 43% of the Johor state population which stood at

3.17 million in 2005 (Figure 4.1). SJER has a multicultural society, with

the Malays representing the majority at 48%, the Chinese as the next

largest ethnic group at 36%, the Indians as a minority group at 9.4% and

followed by foreign immigrant workers, estimated at 6.6% (Figure 4.2).

SJER’s population is relatively young with those aged 15 years and

below forming about 30% of the SJER population. The population in SJER

is also well represented by the working-age population which accounts

for 66% of the area’s population (Figure 4.3).

B. SJER Economic Structure

The total GDP (at PPP) of the SJER is estimated at USD20 billion in

2005, or approximately 60% of Johor’s GDP (Figure 4.4). This translates

into a current GDP per capita of about USD14,790 for SJER, which is

higher than the Johor GDP per capita (Figure 4.5) but is only half of

Singapore’s.

The two main pillars of the SJER’s economy are services and

manufacturing, with services as the dominant sector, contributing about

half of the total GDP of SJER. Within the services sector, wholesale and

retail trade is the largest component with a share of 43%, followed by

tourism and hospitality at 17% and professional and business services

with a share of 15% (Figure 4.6).

The manufacturing sector is relatively large with a share of 45% of SJER’s

total GDP in 2005. It is dominated by electrical and electronic industries

(E&E) at 32%, followed by chemical and chemical products industries

at 12% and food and beverages industries at 11%. These, combined

with logistics and related services are the main economic drivers in SJER

currently.

An estimated 70% of total manufacturing establishments in Johor or

some 4,266 establishments are located in SJER (Figure 4.7). The majority

of them, or about 60%, are located within the Special Economic

Corridor (SEC) (Figure 4.8).

Figure 4.1: SJER Population Size (2005) – National And Regional Comparison

30,000.026,748.1

25,000.0

20,000.0

15,000.0

10,000.0

5,000.0(000, )

500.0

1,000.0

1,500.0

2,000.0

2,500.0

3,000.0

3,500.0

4,000.0

4,500.0

5,000.0

(000, )

Malaysia

4,234.0

1,353.2

3,170.0

Johor State SJER Singapore

Source: Projected from Census (2000) figures

4 - 2

SECTION A FRAMEWORK FOR COMPREHENSIVE DEVELOPMENT

Figure 4.2: SJER Ethnic Composition (2005) – National and Regional Comparison

SJER

Malay, 48.2

Indian, 9.4Foreigners, 6.6

Chinese, 35.8

Malaysia

Malay, 61.0


Chinese,24.0

Singapore

Chinese, 62.75

Malay, 11.36

Indian, 6.45

Foreigners, 18.3Other, 1.14

Johor State

Malay, 54.0


Chinese, 32.0

Figure 4.3: Composition of Age Structure (2005) – National and Regional Comparison

SJER

<15 years 15-64 years >64 years

3.1%30.5%66.4%

Malaysia


4.3%32.6%63.1%

Johor State


4.4%31.9%63.7%

Singapore


8.1% 16%

75.9%

Source: State/ District Data Bank 2005 Source: State/ District Data Bank 2005

Source: Ninth Malaysia Plan Source: Singapore Statistic (Sing-Stat)

Source: State/ District Data Bank 2005 Source: State/ District Data Bank 2005

Source: Ninth Malaysia Plan Source: Singapore Statistic (Sing-Stat)

ECONOMIC DEVELOPMENT STRATEGIES

CHAPTER 4 | PART 2

4 - 3

Figure 4.4: Total GDP (2005) – National and Regional Comparison (in USD Billion PPP)

276.0

20.033.4

127.0

�

��

��

��

��

��

��

Malaysia (a) JohorState (b)

SJER (b) Singapore (c)

Source: (a) Ninth Malaysia Plan (9MP) (b) Converted from UPEN-Johor GDP figures (c) International Monetary Fund/ IMF Database

Figure 4.5: GDP per Capita (2005) – National and Regional Comparison (in USD PPP)

USD(PPP)

Malaysia JohorState

SJER Singapore

10,757.0

14,790.0

29,937.0

10,318

0

5000

10000

15000

20000

25000

30000

Source: (a) Ninth Malaysia Plan (9MP) (b) Converted from UPEN-Johor GDP figures (c) International Monetary Fund/ IMF Database

Figure 4.6: Economic Structure (2005) – GDP by Major Economic Sectors

Services Sector50.0%

Manufacturing47.0%

GDP by Major Sectors In SJER, 2005

Agricultural3.0%

ServicesSector6.6%

Professional& Business

14.6%Wholesale and Retail

42.6%

Value Added of Services Industries in SJER, 2005

Transportrelated13.3%

MedicalEducational

6.1%

Tourism &Hospitality

16.8%

Value Added of Manufacturing Industries in SJER, 2005

Electronics andelectrical products

32.1%

Chemical andchemical product

12.1%

Food andbeverages

11.2%

Others44.6%

Source: SJER CDP 2025

4 - 4


Figure 4.7: SJER: Concentration of Manufacturing Establishments in SJER and outside SJER (2005)

76.42 76.03

63.66

47.7638.85 37.70

23.58 23.97

36.34

52.2461.15 62.30

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Chemicals andChemicals Products

Electrical and ElectronicProducts and

Machinery

Rubber and PlasticsProducts

Other Non-Metallic Food Products andBeverages

Fabricated MetalProducts and

Machinery

(%)

Johor Bahru Rest of Johor

Source: Johor Corporation, 2005

Figure 4.8: Percentage Distribution of Manufacturing Industries in SJER, 2005

Pulau Pulau Pulau Pulau Pulau Pulau Pulau Pulau Pulau UbinUbinUbinUbinUbinUbinUbinUbinUbin

Pulau Pulau Pulau Pulau Pulau Pulau Pulau Pulau Pulau TekongTekongTekongTekongTekongTekongTekongTekongTekong

Pasir GudangPasir GudangPasir GudangPasir GudangPasir GudangPasir GudangPasir GudangPasir GudangPasir Gudang

TG. LANGSATTG. LANGSATTG. LANGSATTG. LANGSATTG. LANGSATTG. LANGSATTG. LANGSATTG. LANGSATTG. LANGSATINDUSTRIAL INDUSTRIAL INDUSTRIAL INDUSTRIAL INDUSTRIAL INDUSTRIAL INDUSTRIAL INDUSTRIAL INDUSTRIAL

AREAAREAAREAAREAAREAAREAAREAAREAAREA

Proposed Senai-Desaru ExpresswayProposed Senai-Desaru ExpresswayProposed Senai-Desaru Expressway

Proposed Senai-Desaru ExpresswayProposed Senai-Desaru Expressway

Proposed Senai-Desaru ExpresswayProposed Senai-Desaru ExpresswayProposed Senai-Desaru Expressway

Proposed Senai-Desaru Expressway

KOTA TINGGIKOTA TINGGIKOTA TINGGIKOTA TINGGIKOTA TINGGIKOTA TINGGIKOTA TINGGIKOTA TINGGIKOTA TINGGIDISTRICTDISTRICTDISTRICTDISTRICTDISTRICTDISTRICTDISTRICTDISTRICTDISTRICT

To Kota TinggiTo Kota TinggiTo Kota TinggiTo Kota TinggiTo Kota TinggiTo Kota TinggiTo Kota TinggiTo Kota TinggiTo Kota Tinggi

Ulu T iramUlu T iramUlu T iramUlu T iramUlu T iramUlu T iramUlu T iramUlu T iramUlu T iram

T ampoiT ampoiT ampoiTampoiTampoiTampoiTampoiTampoiTampoi

JOHOR JOHOR JOHOR JOHOR JOHOR JOHOR JOHOR JOHOR JOHOR BAHRUBAHRUBAHRUBAHRUBAHRUBAHRUBAHRUBAHRUBAHRUT OWNT OWNT OWNT OWNT OWNT OWNT OWNT OWNT OWN

North-South Expressway








North-South ExpresswayKulaiKulaiKulaiKulaiKulaiKulaiKulaiKulaiKulai

KULAI KULAI KULAI KULAI KULAI KULAI KULAI KULAI KULAI INDUSTRIAL INDUSTRIAL INDUSTRIAL INDUSTRIAL INDUSTRIAL INDUSTRIAL INDUSTRIAL INDUSTRIAL INDUSTRIAL


SENAI SENAI SENAI SENAI SENAI SENAI SENAI SENAI SENAI INDUSTRIAL INDUSTRIAL INDUSTRIAL INDUSTRIAL INDUSTRIAL INDUSTRIAL INDUSTRIAL INDUSTRIAL INDUSTRIAL


SENAISENAISENAISENAISENAISENAISENAISENAISENAIAIRPORTAIRPORTAIRPORTAIRPORTAIRPORTAIRPORTAIRPORTAIRPORTAIRPORT

PONTIAN PONTIAN PONTIAN PONTIAN PONTIAN PONTIAN PONTIAN PONTIAN PONTIAN DISTRICTDISTRICTDISTRICTDISTRICTDISTRICTDISTRICTDISTRICTDISTRICTDISTRICT

Pontian Tow nPontian Tow nPontian Tow nPontian Tow nPontian Tow nPontian Tow nPontian Tow nPontian Tow nPontian Tow n

Pekan NanasPekan NanasPekan NanasPekan NanasPekan NanasPekan NanasPekan NanasPekan NanasPekan Nanas

SenaiSenaiSenaiSenaiSenaiSenaiSenaiSenaiSenai

SkudaiSkudaiSkudaiSkudaiSkudaiSkudaiSkudaiSkudaiSkudai

PulauPulauPulauPulauPulauPulauPulauPulauPulauKukupKukupKukupKukupKukupKukupKukupKukupKukup

PTPFREE ZONE

NUSA NUSA NUSA NUSA NUSA NUSA NUSA NUSA NUSA JAYAJAYAJAYAJAYAJAYAJAYAJAYAJAYAJAYA

To Air HitamTo Air HitamTo Air HitamTo Air HitamTo Air HitamTo Air HitamTo Air HitamTo Air HitamTo Air Hitam

KLUANGDISTRICT

To KualaTo KualaTo KualaTo KualaTo KualaTo KualaTo KualaTo KualaTo KualaLumpurLumpurLumpurLumpurLumpurLumpurLumpurLumpurLumpur

13.55

46.77

23.659.52

0.120.05

0.02

6.32

MUKIMSUNGAIT IRAM

MUKIMPLENT ONG

MUKIMBANDAR

MUKIMT EBRAU

MUKIMSENAI-KULAI

MUKIMSEDENAK

MUKIMPULAI

MUKIMJERAMBATU

MUKIMJELUT ONG

MUKIMT ANJUNGKUPANG

MUKIMSUNGAIKARANG

MUKIMSERKAT

PTPPTPPTPPTPPTPPTPPTPPTPPTPZONEZONEZONEZONEZONEZONEZONEZONEZONE

PASIR PASIR PASIR PASIR PASIR PASIR PASIR PASIR PASIR GUDANGGUDANGGUDANGGUDANGGUDANGGUDANGGUDANGGUDANGGUDANG

ZONEZONEZONEZONEZONEZONEZONEZONEZONE

MBJB MBJB MBJB MBJB MBJB MBJB MBJB MBJB MBJB ZONEZONEZONEZONEZONEZONEZONEZONEZONE

NUSAJAYANUSAJAYANUSAJAYANUSAJAYANUSAJAYANUSAJAYANUSAJAYANUSAJAYANUSAJAYAZONEZONEZONEZONEZONEZONEZONEZONEZONE

SKUDAISKUDAISKUDAISKUDAISKUDAISKUDAISKUDAISKUDAISKUDAIZONEZONEZONEZONEZONEZONEZONEZONEZONE

PONTIANPONTIANPONTIANPONTIANPONTIANPONTIANPONTIANPONTIANPONTIANZONEZONEZONEZONEZONEZONEZONEZONEZONE

SENAI-SENAI-SENAI-SENAI-SENAI-SENAI-SENAI-SENAI-SENAI-KULAIKULAIKULAIKULAIKULAIKULAIKULAIKULAIKULAIZONEZONEZONEZONEZONEZONEZONEZONEZONE

TEBRAUTEBRAUTEBRAUTEBRAUTEBRAUTEBRAUTEBRAUTEBRAUTEBRAUZONEZONEZONEZONEZONEZONEZONEZONEZONE

6.32

Note : SJER - South Johor Economic Region

SEC - Special Economic Corridor

Source : Laporan T eknikal Sektor Perindustrian,Rancangan Tempatan Daerah Johor Bahru, 2003;

501-1000

101-500

<100Circle Scale

1001-1500

1501-2000

LegendProposed South Johor Economic RegionProposed Special Economic Corridor (SEC)Proposed Development Sub-Zone

Major Road

Proposed Highway/ Major Road

Mukim BoundaryPercentage of Existing Manufacturing Industries

Percentage of Manufacturing Industries

Area %

Within SEC 60.45

Outside SEC 39.55

Total Within SJER 100.00

Scale

0 km 5 km 10 km



CHAPTER 4 | PART 2

4 - 5

4.3 Global and Regional PerspectivesA. Global Perspectives

The world economy is expected to grow at an average of 4.9% in 2006

and global economic growth is expected to be sustained at 4.6% per

annum over the period between 2008 to 2011.

Future world output growth is expected to be driven by improved

productivity growth in the advanced economies and continued robust

growth in the developing countries. Developing countries are expected

to achieve an average annual growth rate of 6.3% where many are

expected to undergo internal restructuring, institutional and regulatory

adjustments. In contrast, the more advanced economies are expected

to grow by an average 2.8% annually. World population has reached

6.5 billion in 2000 and is expected to rise to 7.9 billion by 2025 according

to the United Nations (Figure 4.9).

B. Global Foreign Direct Investments (FDIs)

Global FDI inflows have risen by 2% from USD632.6 billion in 2003 to

USD648 billion in 2004 (UNCTAD, World Investment Report 2005). While

FDIs to developed countries declined by 14%, inflows to developing

Figure 4.9: Prospects for World Population Growth, 2025 (in million people)

countries rose by 40% to reach USD233 billion in 2004. The key recipients

of global FDIs are the USA, UK and China.

FDI into the Asia-Pacific region recorded a significant annual increase

of 55% in 2004. The increase was attributed to an overall favourable

conditions in Asia, particularly in China and India. China, Hong Kong

and Singapore are the key recipients albeit with the trend of inward

FDIs being unevenly distributed continuing. China has been the most

significant destination for FDIs over the past five years.

C. Asian and ASEAN Perspectives

Growth in the Asian region is expected to be robust, fuelled by

economic growth in China and India. China is projected to grow by

9.0% to 9.5% annually and India at 7.3% annually in the medium term.

Economic growth in the Association of Southeast Asian Nations (ASEAN)

region has benefited its members, and this is reflected in the rise of

real income in each country. Malaysia stands out with the highest per

capita income at purchasing power parity (excluding Singapore which

is considered a developed economy) (Figure 4.10).

812.5

31

2000

3675.8

315

522.9

728.5

905.9

33.1

2005

3905.4

330.6

561.4

728.4

1006.9

35

2010

4130.4

346.1

598.8

725.8

1228.3

38.9

2020

4553.8

375

667

715

1344.5

40.8

2025

4728.1

388

696.5

707.20%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Europe North America Asia Africa Oceania

Source: UN, Dept of Economic and Social Affairs, Population Division, World Population in 2003 (New York 2004)

4 - 6


35,000

30,000

25,000

20,000

15,000

10,000

5,000

Chi

na

Hong

Kon

g

GN

I per

cap

ital (

USD

) (PP

P)

Sing

apor

e

Kore

a

Mal

aysia

Thai

land

Ind

ones

ia

Philip

pine

ss

Ind

ia

0

2003 2004

billion in 2004, representing an average annual growth rate of 7.4%.

D. ASEAN, AFTA and Other FTAs

The ASEAN Free Trade Area Agreement (AFTA) is one of the many

bilateral and multilateral trade arrangements arising from world trade

liberalisation. Through AFTA, the ASEAN countries have been easing

towards complete trade liberalisation, with tariffs brought down to

five or zero percent for a wide range of products among the ASEAN 4

countries in 2005.

ASEAN is also forging ahead with bilateral trade agreements with

countries outside ASEAN. One such arrangement is the ASEAN+3 (China,

Korea and Japan) economic and trade cooperation. It has led to a

Framework Agreement between ASEAN and the Republic of Korea,

expected to come into effect in 2006.

During the period 2006-2007, the newly industrialised countries in Asia

are expected to experience strong growth of between 4.5% and 5.2%

annually. The ASEAN 4 countries (Indonesia, Malaysia, Philippines and

Thailand) are also expected to sustain growth at more than 5% per

annum in 2006 and 2007. Within ASEAN, Malaysia is expected to grow

at 6% annually over the 2005-2020 period as a result of growth in the

agricultural, manufacturing and services sectors.

ASEAN accounts for 4% of global FDI flows in 2004. Singapore is the main

recipient; taking 62% of FDIs into ASEAN, with Malaysia coming second

with an 18% share, and Vietnam in third at 6.3%.

The volume of trade (exports and imports) between ASEAN and the

world rose from USD589 billion in 2000 to USD763 billion in 2004, showing

an annual average growth rate of 6.7%. Within ASEAN, trade volume

has also increased tremendously from USD167 billion in 2000 to USD222

Figure 4.10: Gross National Income Per Capita (USD) (PPP) of Selected Asian Countries, 2003 & 2004

Source: World Bank, ‘World Development Report’, 2005 and 2006


CHAPTER 4 | PART 2

4 - 7

Others trade agreements include the ASEAN-Japan Comprehensive

Economic Partnership, which commenced in April 2005, and the

Framework Agreement for an ASEAN-China Free Trade Area (ACFTA)

in 2002. Since 2003, ASEAN trade with China has been growing rapidly,

exceeding the USD100 billion mark in 2004.

ASEAN is also actively looking at establishing other economic ties with

more countries. Among them are Russia and India. The first ASEAN-

Russian Federation Summit was held in December 2005, and the ASEAN-

India Free Trade Area (AIFTA) is currently under negotiations.

The US is also interested in setting up bilateral FTAs with individual

countries of ASEAN in view of the fact that two-way trade between

ASEAN and the US has increased considerably to USD123 billion in 2003.

Thailand is among the first to do this (2004), followed by Singapore

(2005) while Malaysia began negotiations in 2006.

4.4 The Singapore – Indonesia Factor

Johor’s closest international neighbours are Singapore and Indonesia.

The development within these countries will have significant impact on

the development of SJER.

A. Singapore

Singapore is now one of Asia’s most developed economies. It has an

estimated population of about 4.2 million (2005) and a GDP of USD127

billion (at PPP). Its per capita GDP is estimated at USD29,936 in 2005, or

almost three times that of Malaysia at USD10,318.

The strategic thrusts of Singapore’s economy are all geared towards

orientating it to the global arena as well as to enhance human

resources, to nurture innovation, to promote national teamwork, and

to reduce economic vulnerability. To achieve this goal, Singapore

has adopted the cluster strategy in its development thrust into the 21st

century, emphasising the need to develop high-tech and high value-

added manufacturing and services sectors to be the twin engines of

growth.

It has developed a world-class transportation and telecommunications infrastructure, facilities and services to link the city-state with major cities

and ports in the region and throughout the world. Key industry clusters that it is pursuing include electronics, engineering, chemicals, life sciences, education and healthcare, communications, media, leisure and tourism, transportation and logistics.

Population growth prospects for Singapore indicate that its current population would rise to 5.4 million by 20251. Its GDP is targeted to grow at between 3.7% per annum to 4.6% per annum from now to 2025, implying its GDP in USD (PPP) could reach USD262 billion to USD312 billion by 2025. This would translate to per capita GDP of USD57,800 at current prices.

Singapore has nearly reached the physical limits of both sea-front land and sea space. Its strategy is believed to be to transfer the development of its more labour and land intensive and lower value added industries to Johor and Batam, mainly through the growth triangle (IMS-GT) and the Johor-Singapore-Indonesia (JSI) node. This would enable it to take advantage of the much larger land resources offered by Johor and Indonesia (primarily Riau Islands).

B. Indonesia

Indonesia has the largest population and economy in ASEAN, making it an important factor for Johor and SJER in their future growth directions. At present, Indonesia is an important source of labour supply for Johor’s manufacturing and services sectors. Scope for future cooperation could lie in logistics, especially in the development of air links between Sumatra and Senai and in other growth areas such as tourism, agro-processing, construction and port services.

Indonesia’s population of 223 million in 2005 is expected to rise to 280 million in 2025. Its’ GDP of USD899 billion (at PPP) in 2005 is targeted to grow at 6% per annum to reach USD2,829 billion by 2025. By then, its per capita GDP is expected to rise from USD3,700 to USD10,000.

Of interest to Johor is the forging of stronger economic ties with Batam and Bintan Islands and other parts of Riau province and the rest of central and Southern Sumatera.

1 Recent reports indicated that this target population has been raised to 6-7 million by 2020.

4 - 8


4.5 National and State Perspectives

A. National Population

Malaysia’s national population of 26.75 million (2005) is expected to

increase to 28.96 million in 2010 and to 39.5 million by 2025 (Figure 4.11).

The projected average annual growth rate between 2000 and 2010 is

2.1%. While there is no official projection for Malaysian population for

year 2025, it is assumed that the growth rate between 2005 to 2025 will

on average be 2.0% as the natural growth rate is expected to decline.

But as the proportion of foreign population in Malaysia is expected

to increase, especially among the more skilled professional and

managerial category, the 2.0% percent growth rate seems reasonable.

Labour force is estimated at 11.29 million in 2005 and is projected to rise

to 12.41 million in 2010, supported by a higher labour force participation

rate of 67.3% as opposed to the current rate of 66.7%. The higher overall

rate is due to increased male and female labour force participation

rates.

In the long term, the overall participation rate could reach 70%,

supported by a continuously rising female labour force participation

rate. Employment is expected to rise at an average annual rate of 1.9%

to reach 17.2 million in 2025. A total of 5 million new jobs would have to

be generated to meet demand for employment.

Figure 4.11: Long-Term Prospects in the Supply and Demand for Labour in Malaysia, 2005-2025

11,290.512,406.8

17,814.016,880.0

18,420.0

23,678.026,748.1

28,960.0

39,549.3

3.5 % 3.5 % 4.0%

17,173.0

11,976.010,894.8

-

5,000.0

10,000.0

15,000.0

20,000.0

25,000.0

30,000.0

35,000.0

40,000.0

45,000.0

2005 2010 2025

(in '0

00)

Unemployment Employment Labour Force Working Age Population Population



CHAPTER 4 | PART 2

4 - 9

4.6 National Economic Structure

The Malaysian economy registered real GDP growth of 5.3% in 2005,

brought about by a strong growth of 7.3% in the services sector. A major

contribution to the growth came from the expansion of the tourism

industry which impacted strongly on the wholesale and retail trade and

on the hotels and restaurants sub-sectors.

The Ninth Malaysia Plan has targeted an average annual economic

growth rate of 6% up to 2010. Although long term national growth

targets are unclear given global uncertainties and risks, the government

is likely to aim for an achievable growth scenario in the long term. A

possible target growth rate of 6% could be assumed from 2011 to 2025.

A. Johor State Population

The current Johor state population of 3.17 million is relatively young, with

median age estimated at 25 years. Dependency ratio is also low at 57%,

indicating a sizeable working population capable of supporting the

young and the aged in the state.

Ethnic composition shows that Bumiputeras made up 54% of the

population; the Chinese 32%, Indians 7% and non-citizens, 6%. The

state population is expected to rise to 3.5 million in 2010. By 2025, the

state population is projected to increase to 5 million. This represents

an average growth rate of 2.3% which means that the growth rate for

the 2000 to 2010 period will be sustained by natural growth rate and in

migration from within and outside Malaysia.

Employment is targeted to rise from 1.3 million in 2005 to 2.21 million by

2025. The rate of growth is higher in Johor at 2.9% per annum compared

to the national growth rate. The labour force would increase to 2.28

million as a result of rising labour force participation rate in Johor.

Figure 4.12: Long-Term Prospects in Demand and Supply of Labour Force in Johor, 2005-2025

2,213.4

3,182.63,170.03,460.0

5,000.0

3.0% 3.2% 3.6%

1,468.01,262.8

2,281.9

1,309.81,516.0

2,262.72,019.5

0.0

1,000.0

2,000.0

3,000.0

4,000.0

5,000.0

6,000.0

2005 2010 2025

(in '0

00)

Unemployment Employment Labour Force Working Age Population Population


4 - 10


B. Johor Economic Structure

Johor achieved a GDP growth rate of 8.1% in 2004 and 6.5% in

2005. Both the manufacturing and services are key sectors of equal

importance in the state economy. Future trends indicate that services

will emerge as the largest source of GDP growth in Johor.

Between 2001 and 2005, Johor received manufacturing investment

proposals totalling RM19.0 billion, of which approximately 70% were to

be located within the SJER. Between 1994 and 2005, the average ratio

of FDI to total investment was 70%. These manufacturing investments

(2001-2005) are expected to generate a total of 117,993 new jobs.

Johor aims to be fully developed by 2020. This is to be achieved through

structural transformation. Services would increase its share to more than

56% while that of manufacturing would decrease from the current share

of 44% and stabilise at 37% by 2025 (Figure 4.13).

The target growth rate of Johor GDP for the period 2005-2025 is 7%

although under the Ninth Malaysia Plan period (2006-2010), its economy

is targeted to increase at 6.2% per annum. Under this growth scenario,

its per capita GDP would more than double, rising from USD10,800 in

2005 to USD25,800 by 2025.

Over the longer term it is expected that Johor’s GDP will grow above

the national average growth rate. Its share of national gross output

meanwhile is also expected to rise from 12.4% in 2005 to 14.9% in 2025.

4.7 SJER Economic Structure

The two main economic growth sectors in SJER currently are

manufacturing and services.

The key sectors in the manufacturing sector that drives the SJER

economy are electrical and electronic (E&E), chemical and chemical

products (petrochemical, plastics, oleo chemicals) and food processing

sub-sectors (Figures 4.14 and 4.15). They contribute 60% of the total

value-added in manufacturing.

The electrical and electronic sector (E&E) is the dominant sector

with the highest concentration of workers among the main industrial

sectors. It alone accounts for about 50% of the total value added of the

manufacturing sector within SJER.

Spatial distribution of manufacturing clusters in SJER shows that the E&E

cluster is dispersed from Tebrau, Majlis Bandaraya Johor Bahru (MBJB),

Pasir Gudang, Senai-Kulai and Skudai zones while the petrochemical

industries are concentrated in Pasir Gudang and MBJB zones.

The oil palm processing and oleo-chemical industries are highly

concentrated in Pasir Gudang and the other chemical industries are

found mainly in Pasir Gudang, Tebrau and MBJB zones.

The plastic industries and food processing industries are dispersed in

Tebrau, MBJB, Senai-Kulai, Pasir Gudang and Skudai-Kulai zones.

In the services sector, the key sectors are international logistics and

related services, tourism and related services. Tertiary education and

international medical services are already in existence and do export

their services to other parts of the state and the country and overseas.

But their influence on SJER’s economy at present is rather limited. The

educational and health service industries have the potential of being

developed into major drivers to the SJER’s economy.

These key sectors lead to the emergence of supporting or induced

sectors such as retail, wholesale, hotels, restaurants and finance. In

manufacturing, the induced sectors include fabricated metal products,

non-metallic products and transportation equipment.

Figure 4.13: Comparison of Long-Term Structural Changes in GDP of Malaysia and Johor, 2025

100%90%80%70%60%50%40%30%20%10%0%

Malaysia Johor

67.6%

24.2%

8.0%

56.1%

37.3%

6.6%

Primary Secondary Services



CHAPTER 4 | PART 2

4 - 11

Figure 4.14: Key Drivers and Induced Sector Activities in SJER Economy

Aa1 Electrical/Electronica2 Chemical and Chemical Productsa3 Food Processing

60 (%)

KEY SECTORS (Exporting)

Bb1 Logistic and related servicesb2 Tourismb3 Tertiary Educationb4 Specialist Medical services

30 (%)

SUPPORTING AND INDUCED SECTORS(Local Market)

Cc1 Fabricated Metal Productsc2 Non-Metallic productsc3 Transport Equipmentc4 Publishing, Printing and Paper Productsc5 Wood Products and Furniturec6 Clothingc7 Others

40 (%)

Dd1 Retail and wholesale traded2 Financed3 Constructiond4 Utilitiesd5 Local Governmentd6 Primary and Secondary Educationd7 Health servicesd8 Professional business and domestion services

70 (%)


4.8 Strategic Economic Thrusts (SET)

A combination of seven strategic economic development thrusts is

needed to accelerate growth of SJER during the CDP period. The thrusts

are as follows :

SET 1. Strengthen the Existing Main Economic Drivers and Diversity Into

New Economic Growth Sectors

SET 2. Strengthen Supporting Industries and the Basic Foundation

SET 3. Strengthen International Linkages

SET 4. Build on Existing Strength in Respect of Resource Endowment and

Lever on Singapore’s Strength

SET 5. Optimise Spatial Distribution of Economic Activities

SET 6. Adopt the Cluster Approach

SET 7. Provide the Right type of Incentives and Support

SET 1. Strengthen the Existing Main Economic Pillars and Diversify Into New Growth Sectors

Diversification shall be achieved by including four additional ‘pillars’

to further strengthen the main ’pillars’ as shown in Figure 4.15. This is to

attain greater long term growth and stability for the SJER economy. The

four new ‘pillars’ are proposed to be healthcare, educational services,

financial services and creative industries (Figure 4.15).

Increase in both local and foreign direct investment (FDI) into the

existing and new main pillars is required. While before 1986, the official

policy was to attract FDI by offering incentives based on employment

and investment size, the Promotion of Investment Act of 1986 began to

emphasise technological upgrading.

Now, with the tightening of the labour market and the need to

enhance competitiveness in a more globalised market through increase

in productivity and rapid movement up the value chain, the Ninth

Malaysia Plan currently places emphasis on driving innovation through

the application of knowledge and technology. Accordingly, the FDI

that the government now wishes to attract are those that are able to

bring high technology, drive innovation and increase productivity.

Local entrepreneurs, including SMEs must play a major role in the

development of SJER. Large local companies and SMEs need to

synergise with one another as well as with the large multinational

companies (MNCs) and SMEs. SMEs are required to build the supply

chain requirements of both MNCs and large local companies within

SJER.

4 - 12


Figure 4.15: Present and Future Structure of SJER Economy

Stable political, social environment

Excellent working and living environment

Excellent physical, infrastructures, including IT

World-class professionals and technical work force

Strong supporting industries (education, R&D, government, private and social institutions, communication andcoordination system )

Strong supporting industries (metal products, engineering, non-metallic, manufacturing related services (MRS))

Electricaland

electonics

Petrochemical

andoleo

chemical

Food andagro

processing

Logisticand

relatedservices

Tourism Healthservices

Educationalservices

Financialservices

ICT &Creativeindustries

SJER Economy

“Strong, Diversified, Dynamic and Global”

(Five existing “Pillars” shall be reinforced)

The Vision

TheMain

Pillars

Supportsysterm

BasicFoundation

(Four new “Pillars” to be added)


Soft infrastructure includes skilled human resources, good public safety,

good governance, law and order, quality environment and other

amenities that improve the overall quality of the business, working

and living environment. The hard infrastructure refers to public utilities,

transportation network, etc.

With respect to the ’hard’ infrastructure provision, a vital component is

the enhancement of international connectivity, especially in respect

of air transportation. While progress continues to be achieved at Senai,

to reach a critical mass in terms of international connectivity will be

attained only over a relatively long period. As such, the enhancement

SET 2. Strengthen Supporting Industries and the Basic Economic Foundation

The main pillars of the economy are underpinned by numerous

supporting industries, most of which are SMEs. These have to be

strengthened in order to ensure that the key industries are able to

develop without undue constraints.

It is also important to strengthen supporting institutions (public, private

and social) and the basic ‘hard’ and ‘soft’ infrastructural foundation

upon which economic growth is dependent.


CHAPTER 4 | PART 2

4 - 13

of connectivity through the larger international logistic nodes of

Singapore and Kuala Lumpur is still to be given high priority over the

short and medium term.

Human resource development is another key component of this

thrust. In addition to enhancing the capacity and capability of the

educational and training institutions, a liberal policy with respect to

foreign skilled and professional workers needs to be adopted. Critical

gaps that has appeared and shall appear in the local supply must be

quickly filled by the importation of foreign skills and expertise.

With respect to the provision of ‘soft’ infrastructure, SJER should take full

advantage of the resources that it is well endowed with such as land

and labour. For instance, strong emphasis should be placed on the

provision of ‘parks and gardens’ to offer a unique living and working

environment and lifestyle that fully exploits the availability of space in a

manner that those less endowed with land cannot provide.

The long term objective must be to equip the whole of SJER with a

‘world class’ hard and soft infrastructure. The implementation, given

limited resources, must however be in phases. An important strategy is

to identify high impact projects that can be implemented over the short

term (up to three years) without incurring high cost and within certain

strategic zones where a complete world class infrastructure can be

provided within a period of three to five years from now.

SET 3. Strengthen International Linkages

Industries within SJER need to strengthen their position within the global

value chain in order to obtain market access, reap the benefits of

economies of scale and benefit from technology and innovations.

This thrust for SJER is part of the overall national thrust as contained in the

Ninth Malaysia Plan which stresses on the importance of strengthening

strategic integration with the global economy.

The Ninth Malaysia Plan stated that;

“in the rapidly changing global environment and the increasing trends

towards growing strategic alliances and networking among a number

the national players, it will become imperative for Malaysian investors

to form greater partnership with foreign affiliates, as well as venture

out on their own, to make inroads into targeted growth areas both at

home and abroad. This will enable Malaysian industries to become a

crucial part of the international economic chain and produce goods

and services that create new demand and market opportunities. In

this regard, initiatives to facilitate these industries to meet these new

challenges will include:

■ Facilitating investment in new sources of industrial growth and

wealth creation that require extensive global partnering to reap

economies of scale, expend exports and increase access to

markets.

■ Promoting the expansion of FDI in the country as well as facilitating

joint ventures and strategic alliances between Malaysian firms

and MNCs.

■ Assisting domestic industries to enhance core competencies,

especially in ICT design and engineering skills as well as

management and technical expertise to benefit from regional

and international production networks.

■ Developing and pursuing high standards of product quality and

service performance to sustain market share and create new

market opportunities; and

■ Building the necessary infrastructure and facilities including

dedicated industrial parks in specific locations that have the

potential to attract investment.”

SET 4. Build on Existing Strength in Respect of Resource Endowment and Lever on Singapore’s Strength

Being located contiguous to Singapore, and being part of the strongest

regional agglomeration node that is centred in Singapore that extends

to Johor mainly SJER and the Batam and Bintan islands in Indonesia, the

Johor-Singapore-Indonesia (JSI) node in short, the international linkages

of SJER to the rest of the world are largely with and through Singapore.

The linkages with Singapore (Figure 4.16) are mainly as follows:

A. Manufacturing Sector

■ Vertical linkages – This type of linkages currently exist mainly in

the Electrical and Electronic sector. In this case, the value added

and more skill- and knowledge- intensive activities are located

in Singapore while SJER contains the lower value added and

4 - 14


manufacturing end of the value chain.

■ Consumption linkages are also important since SJER exports

consumer products to Singapore and Johoreans do shop in

Singapore and make use of the airlines and other services in

Singapore.

■ Horizontal/parallel developments have also developed within

SJER. They are mainly resource-based industries such as petro-

chemical, oleo-chemical, and some components of food

and agro-processing industries that that process raw materials

obtained from Johor and other parts of the country for the

domestic and export market.

■ Horizontal development and integration in high technology

industries has yet to take place.

B. Service Sector

Linkages with Singapore are strong for Tourism and Logistics, while

tourism is largely a complementary development. For Logistics,

Singapore sea port is still an important outlet for exports from SJER and

Changi airport is an important international gateway for SJER residents

and visitors. However, both PTP and Senai Airport are developing as

largely horizontal system to those in Singapore.

While vertical and consumption linkages such as in E&E industries,

logistic services, tourism, food and agro processing industries will

continue and strengthen, future focus will be on further horizontal

developments, especially in high technology, knowledge-based as well

as resource-based industries. This will include educational and health

services, niche financial services and the ICT & creative industry. (Figure

4.16).

C. Human Resource Linkages with Singapore

It is estimated that 150,000 Malaysians are working in Singapore. Of this,

about 41,000 are commuting daily (mostly from areas within SJER). In

1989, the total number was around 24,000. About 51% of the commuting

workers are employed in the E&E industries.

Their main characteristics are:

■ 60% of the commuters are Johor-born.

■ Unlike those Malaysian workers that reside in Singapore who

are mainly in the skilled professional and managerial class, the

majority of commuting workers are unskilled and semi-skilled

(general workers and machine operators).

■ Only 16% are skilled workers – 10% are employed as technicians

and 6% in managerial or administrative positions.

The major attraction for these workers is the wage differential between

Singapore and Johor. The salary differentials for Malaysian workers in

Singapore could range from at least two to three times higher than that

in Johor. The phenomenon has enabled Johor, especially SJER to keep

its unemployment rate low.

Figure 4.16: Horizontal and Vertical Linkages within the Johor-Singapore-Indonesia (JSI) Agglomeration Node (Present and Future)

Logistic Service System

Petrochemical

Pharmaceutical

Financial/Other Services

Tourism Products

Logistic andOther ServicesFood & Other

Agricultural Product

Electrical &Electronicsand Other

Industries

Singapore

BatamIndonesia

Electronics/ElectricalProducts

Other Product

ICT and Creative Industries

Food & Agro Processing

Logistic Service Systerm

Education & Health

Niche Financial Services

Petrochemical & Oleochemical

Existinc Parallel/HorizontalDevelopment Regionaland Global Market

KEY

Future Parallel/HorizontalDevelopement

Vertical, Horizontal andConsumption Linlkages

JSIAGGLOMERATIONNODE

SJER



CHAPTER 4 | PART 2

4 - 15

▼ Positioning SJER within the JSI Node and Internationally

Given the above linkages and the strength of Singapore with respect

to the provision of hard and soft infrastructure especially its international

connectivity, manufacturing related services and other supporting

industries and SJER’s relative weakness in these areas, it is clear that a

principal strategic thrust is to complement and leverage on Singapore’s

strength while building vigorously on SJER’s own strength such as the

resource endowment in respect to land, labour and other natural

resources. (Figure 4.17)

Figure 4.17: Singapore and SJER – Leveraging on The Strength of Singapore and Developing Own Strength


SJER has to strengthen the hard and soft infrastructure and supporting

industries and institutions to combine these with its inherent strength in

natural resources including land and labour to develop a strong, highly

diversified, dynamic and globally orientated economy.

By reducing its weaknesses (Figure 4.17, quadrant B1) and combining it

with its strengths (Figure 4.17, quadrant B2) and improving access to the

strengths of Singapore, SJER can offer the ‘best’ combination to attract

potential investors. Given its resource endowment and large home

market base, SJER has the potential to eventually develop into a more

stable economic entity.

▼ Strengthening the Economic Linkages within the JSI Node and to

Other Major Global and Regional Agglomeration Nodes

SJER, by virtue of its contiguity with Singapore, and the linkages and

opportunity for leveraging as described, must strengthen its position

within the JSI node which has the potential to develop into a strong and

outstanding international agglomeration node.

From the point of view of international investors seeking to locate their

production, management, control, procurement, distribution centres

and other service centres east of Suez, especially within the Asia-

Pacific region, the JSI node is a major option among other competing

international nodes which include Hong Kong – Shenzhen, Sydney,

Bangkok, Manila and even Dubai and Bangalore.

As investors tend to select among major agglomeration nodes rather

than countries, a strategic stance for SJER to take in the global arena is

to compete as part of a JSI node rather than “going it alone.”

Figure 4.18: Development Perspective within JSI – Further Development of Horizontal/Parallel and Vertical Linkages

Form & Integration within JSI

Existing Main Exporting Industries That Must Be Developed Further

New International Oriented Industries Need to be Developed

Horizontal/ Parallel

Development

Manufacturing• Petrochemical• Oleochemical & Biodiesel• Agro products & Food

Processing

Services• Integrated International

Logistical Services

Attract Larger ‘Development “Flagship” Firms’ to Create New Products in:• Electrical/ Electronics

– Development of high end component of value chain and more value network

• Creative Industries• International Health Services• International Educational

Services• Entrepot BusinessVertical and

Demand Linkages

Electrical and Electronics Industries

Food

Logistic

Tourism

• Produce more high end products

• Enhance complementarities


STRENGTHHard and Soft Infrastructure• Highly efficient integrated global logistic

system• Strong supporting industries including MRS• Excellent internal infrastructure• Good supply of skilled workforce• Highly efficient and strong government

support• International lifestyle• Good security• Good environment quality

RELATIVEResource Endowment• No raw material• Small income market• Small labour pool• Shortage of land• High cost of living

RELATIVEHard and soft InfrastructureLack of:• Highly efficient integrated global logistic

system• Excellent internal infrastructure• Good supply of skilled workforce• Highly efficient and strong government

support• International lifestyle• Good security• Good environment quality

STRENGTHResource Endowment• Good suply of raw material• Access to large labour market• Low cost of living• Plentiful supply of land

Singapore

SJER

A1 A2

B1 B2

4 - 16


▼ Site for High Technology and Knowledge Based Dynamic Clusters

The main drawback at present is that SJER is viewed as the low cost

hinterland to Singapore where cheap resources and cheap labour can

be obtained for the low-end manufacturing activities. This image must

change.

SJER must strive to build itself as a dynamic sub-set of the larger and

stronger international JSI node. It must develop its own character and

strength and be able to attract and support the development of

dynamic and high technology industrial clusters.

SJER can achieve this given its resource endowment and its willingness

and ability to invest heavily to upgrade its hard and soft infrastructure

to a world class standard, at least to the level already attained by

Singapore.

▼ International Positioning of SJER

The International Positioning of SJER can therefore be seen as consisting

of four tiers

TIER ONE – Positioning among Regional and Global Nodes

SJER should present itself as an integrated part of a strong, high profile

and internationally visible and marketable JSI node to attract major

global flagship companies in the higher technology industries by

offering more skilled workforce and expertise. It should also complement

developments with other major nodes and regions via sourcing and

outsourcing.

TIER TWO – Positioning within the Johor-Singapore-Indonesia node

SJER shall:

■ Develop as a major subset within the strong JSI node and global

node.

■ Create strong direct and indirect linkages with other major

regional and global development nodes.

■ Capitalise on its relatively strong resource endowment to

develop its own unique character and enhance its competitive

advantage within the regional and global settings.

■ Strive to attain a seamless physical integration and maximum

international accessibility within the JSI node but must also be able

to spotlight on its unique character and develop its own strength.

■ Develop strong synergistic economic relationship within the

JSI Node through vertical integration while developing its own

horizontal/parallel industrial clusters.

TIER THREE - International Positioning of Major Industrial Clusters

Each of the major industrial clusters needs to be clearly positioned within

the international context. For instance, the E&E cluster needs to position

itself to develop horizontal clusters with strong linkages to the global

chain and not remain at the low end tail of the Singapore cluster.

TIER FOUR – Positioning of its major firms and major institutions in relation

to firms and institutions within SJER, Malaysia, JSI Node and the Regional

and Global setting.

This would include key players such as PTP, Senai Airport, main public

institutions of higher learning, and health care centres. In addition,

world-class facilities and companies in various sectors including leisure

and tourism, ICT and creative industries needs to be targeted.

SET 5. Optimise Spatial Distribution

To meet the efficiency and equity objectives of the Plan by focussing

development on the South Economic Corridor and the northern node

at Senai-Kulai. This subject has been discussed in the chapters on

the Physical Plan of SJER while in the socio-economic context, the

relevance of this strategy particularly in ensuring growth with equity is

also discussed further in the chapters on the Socio-Economic aspects of

development.


CHAPTER 4 | PART 2

4 - 17

Figure 4.19: International Positioning of SJER within the SJI Regional Node

Sydney

Other

ManilaPhilippines

ShanghaiChina

Hong KongShenzhen

BangkokThailand

BangaloreIndia

DubaiUAE

Singapore

Batam

SJER

KlangValley

NorthernCorridor Eastern

Corridor

JSI REGIONALDEVELOPMENT

NODE

Major RegionalDevelopment Nodes


SET 6. Adopt the Cluster Approach

A cluster can be defined as a geographically proximate group of

interconnected companies and associated institutions in a particular

field, linked by commonalities and complementariness. Clusters may

take varying forms depending on their level of maturity. They can

include end products and services, suppliers of components, parts,

machinery, financial and professional services and other related

activities. It can also include specialised infrastructure providers,

government and other institutions providing specialised training,

education, information, research and technical support.

The advantage of clustering can be summarised as follows:

“Hard” Benefits of ClustersAsset BenefitsLocal supply chains Design efficienciesSpecialised workforce Higher productivitySpecialised services Faster and easier accessChoice of inputs Lower costs, higher qualityRange of firms Joint ventures, network opportunities

“Soft” Benefits of ClustersAsset Benefits

Association Collective vision, planning, influenceTrust, Loyalties (social capital) Inter-firm collaboration and networks

LearningTechnology transfer and innovation, tacit knowledge and know-how

4 - 18


The clusters within SJER currently are mostly not well developed. The

most developed is the E&E cluster which as noted, is actually an integral

part of the Singapore E&E cluster, though the part within SJER occupies

the lower end of the value chain.

Cluster upgrading and development is therefore a major objective

of SJER development policy and strategy. The main thrust is the

transformation of truncated and embryonic clusters into a dynamic

set of clusters able to generate its own innovation and increase

productivity.

The main strategic component of this thrust is the enhancement of

the network cohesion in each cluster so that all firms and institution in

the private and public sectors connect and coordinate smoothly their

demand and supply requirements.

An important initiative to attain this systemic cohesion is the formation

of cluster associations for each of the major industrial clusters. The

membership of this association shall be opened to all those in the

private and government sectors, education, training and R&D

institutions, other intermediary organizations that are involved directly or

indirectly in the supply and demand of related products and services.

SET 7. Provide Right Type of Incentives and Support• Incentives

Strong incentives currently exist under the Cyber City/Cyber Centre Bill

of Guarantees (BoG) and Free Zone Act 1994. The Ninth Malaysia Plan

also proposes more focused Incentives for High Value Added Industries

such as:

i. Pre-Package Incentives to encourage:

□ R&D, technology transfer, job creation (especially E&E digital

context, biotechnology)

□ existing industries to diversify into high-end industries as well as

related services

□ strategic Investment Incentives for New Growth Area

□ amount RM600 million

□ quality investment in “knowledge-incentive, labour saving, high

technology” involving R&D, intellectual property development,

and human capital enhancement

ii. Skill Upgrading Incentives (under – Pre-Package)

The objective is to upgrade skills especially in the SME sector in

areas such as ICT integration, utilization of bioinformatics, virtual

engineering service for high end design activities (Total allocation

RM463 million)

iii. MRS Industry

□ Logistics, business services etc

□ Soft Loan RM220 million

iv. Automation Fund

v. Industrial Adjustment Fund

Given the proposed Cyber Cities and Cyber Centres for SJER and the

existence of a Free Zone near Tanjung Pelepas, generous incentives

are and shall be available within SJER. The package incentives are

also available for companies in SJER that meet the qualifying criteria.

Additional incentives for SJER have also been proposed and is

elaborated further in Chapter 6.

4.9 FUTURE GROWTH SCENARIO, 2005-2025

A. Indicative Targets

The future development scenarios, expressed in terms of indicative

“targets” such as total population, total GDP, average income as

reflected in GDP per capita within SJER and the immediate catchment

area that includes SJER itself plus other parts of Johor State, and

Singapore, are necessary to attain the critical mass for the eventual

development of SJER into a major growth node within the national, JSI

and international context (Figure 4.19).


CHAPTER 4 | PART 2

4 - 19

The attainment of the critical mass will render viable many costly

physical and social infrastructure proposals including the proposed fast

train from Kuala Lumpur to other parts of Malaysia, internal fixed track

transportation system, the provision of various public goods such as

regional parks and various recreational facilities such as museums, art

galleries, libraries and theatres.

B. Attaining the Critical Mass

The total population of 5 million projected for Johor, with a total GDP

of about USD129 billion (PPP) or a projected per capita GDP of about

USD25,800, should provide a large enough catchment for Senai Airport,

enabling it to attain a passenger flow of around 10 million per annum or

more.

Taking the projected population of Singapore and Johor in 2025 which

is expected to reach about 10 million or more and a passenger flow of

at least 60 to 70 million for Changi annually, Senai can by then justify its

position as the second regional airport, given the limited land and air

space in Singapore.

The future scenario for SJER should include:

■ A well developed, internationally and internally integrated, strong

and efficient logistic system giving it a high level of national and

international accessibility and internal mobility,

■ A strong base for vertically and horizontally integrated dynamic

manufacturing and service clusters. With well developed external

linkages to major regional and global development nodes.

■ A sizeable foreign residents (about 12-15%) with high skills and

income would render viable the various international class social

and educational, health, recreational and other facilities that

are necessary for an international class ‘life style’ which is vital to

attract and retain the inflow of international investment and highly

skilled managerial and professional workforce.

To attain these would require considerable efforts in terms of planning,

investment, management from both the private and public sectors and

the political will to push development to a level where the momentum

of growth and the critical mass could be attained to sustain rapid

development.

▼ Population Growth Targets, 2005-2025

Johor population is targeted to grow from 3.17 million in 2005 to 3.46

million under the Ninth Malaysia Plan. From 3.46 million in 2010, the state

population is expected to increase to 3.9 million in 2015, 4.4 million in

2020, and to 5 million by 2025. By then, the size of Johor population will

be about the same as Singapore’s projected population (Figure 4.21).

From 2005 to 2025, the state population is targeted to grow at an

average annual growth rate of 2.3% (the same growth rate attained

over the decade from year 2000 to 2010. A higher population growth in

the state is anticipated beyond 2010 because of derived impact from

targeted economic growth in SJER.

4 - 20


Figure 4.20: Future Scenario of SJER, 2025 – Critical Mass for Transportational Linkages and Interrated Diversified Manufacturing and Service Activities

South Johor

Critical mass for Senai to be the secondairport of the region by 2025 - Sea

port to build strong domestic cargo andstrong international services

(a)

(b)

(c)

Changi Airport

3rd crossing2nd crossing

Johor PortTg. Pelepas

Strong road and raillinkages to Singapore

Critical mass for thedevelopment of morediversified vertical andhorizontally integrated

manufacturing andservice activities

Stronger air and sea linksto East Malaysia and

Kalimantan

Stronger air and sealinks to other ASEAN and

East Asian countries

Enhanced air, sea, railand road links to the rest

of Malaysia

Strengthen air/sea linksto Sumatra and other parts

of Indonesia

Proposed Fast trainfrom Kuala Lumpur

Batam

Well diversified resourceand knowledge based

manufacturing andservice industries

Johor 5.0 MillionSJER 3.0 MillionSingapore 5.4 MillionJohor & Singapore 10.4 MillionSJER & Singapore 8.4 Million

Johor 129.1SJER 93.3Singapore 312.0Johor & Singapore 441.1SJER & Singapore 405.1

Population (2025F) GDP (PPP) USD billion (2025F)



CHAPTER 4 | PART 2

4 - 21

Figure 4.21: Development Scenario - A Comparison of Population Growth, 2005-2025

Malaysia

Johore

SJER

SingaporeJohor & Singapore

SJER & Singapore

26,748.1

2005

3,170.0

1,353.2

4,300.07,470.0

5,653.2

39,549.3

2025

5,000.0

3,000.0

5,400.010,400.0

8,400.0

2.0

Average AnnualGrowth Rate (%)

2.3

4.1

1.11.7

2.0

26,748.1

5,000.0

10,000.0

15,000.0

20,000.0

25,000.0

30,000.0

35,000.0

40,000.0

45,000.0

2,000.0

4,000..0

6,000.0

8,000.0

10,000.0

12,000.039,549.3

Malaysia

3,170.0

5,000.0

1,353.2

3,000.0

4,300.0

5,400.0* 7,470.0

10,400.0

5,653.2

8,400.0

Johor State South Johor Singapore Johor State &Singapore

South Johor &Singapore

2005 2025

2005 2025

Notes: *This projection is based on UN forecast and appears to include foreigners since the based year figure data didinclude foreigners. But a recent article on Singapore population seems to indicate that targeted figure for year 2020 hasbeen drastically in increased to 6-7 million.

Projected Population (000’)


The proportion of non-citizens is expected to increase from 6% in 2005 to

11% by 2025. The population in SJER is targeted to expand at an annual

rate of 4.1%, thereby reaching 1.54 million in 2010, 1.91 million in 2015, 2.4

million in 2020, and 3.0 million in 2025 (Figure 4.22).

Growth will be fuelled mainly by migration into SJER, not only from

neighbouring districts in Johor, but also from other parts of Malaysia,

and from other countries. The proportion of foreigners is expected to

increase, especially in the more skilled professional and managerial

category, from the present 6.6% to between 12% – 15%. The population

in SJER will represent 60% of the state in 2025, making it the dominant

economic region in Johor.

4 - 22


Figure 4.22: Projected Population in Johor and SJER, 2005-2025

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

2005 2010 2015 2020 2025

1,353,2001,536,900

1,396,200

3,000,000

1,912,600

Johor StateSJER

Population Median age (years)

3,170,0003,460,000

3,870,400

4,399,700

5,000,000

0

5

10

15

20

25

30

35

2005 2010 2015 2020 2025

SJER Johor State

26

25

2827

30

28

32

29

3330


In line with international and national trends, the share of the aging

population would also increase. In Johor, its share is projected to rise

from 4.4% in 2005 to 10% by 2025. In SJER, its share would rise from the

present 3% to 9% by 2025 (Figure 4.23).

A. Future Population Profiles, 2005-2025

In SJER, the current median age is estimated to be 26 years and it is

anticipated to rise to 33 years by 2025 (Figure 4.22). This is expected to

be slightly higher than that for Johor which is estimated at 30 years. The

higher median age shows that in SJER, the in-migration of workers, highly

skilled and educated, would result in a trend towards an older, more

matured population structure.

Figure 4.23: Age Structure of Population of SJER and Johor, 2005-2025

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

10.0

20.0

30.0

40.0

50.060.070.0

80.0

90.0

100.03.1

66.4 67.3 68.0 68.4 68.0

30.5

4.0

28.8

5.6 7.8 9.0

26.5 24.3 23.0

2005 2010 2015 2020 2025<15 Years 15-64 Years >64 Years

(%)

SJER

4.4

63.7 65,4 64.3 64.2 63.7

31.9

5.2

29.4

6.7 8.2 10.0

28.7 27.6 26.4

2005 2010 2015 2020 2025<15 Years 15-64 Years >64 Years

(%)

Johor State



CHAPTER 4 | PART 2

4 - 23

▼ Labour Force and Employment Growth Targets, 2005-2025

The size of the working-age population in Johor State is expected to

increase from 2.0 million in 2005 to 2.3 million in 2010, and to 3.2 million

by 2025. About 64.0% of them would be in SJER. This means that by 2025,

SJER would have around 2 million people in the working-age group.

The working-age population in SJER would increase progressively from

about 900,000 in 2005 to 1.3 million in 2015 and 2.0 million in 2025. The

expansion of the working-age population in both Johor and SJER would

lead to a rapidly growing labour force and hence, a relatively large

group of people seeking employment especially when the labour force

participation rate (LFPR) is projected to increase significantly to 72% by

2025. Reflecting the profile of a developed economy, people above 64

years in SJER is expected to remain in the workforce in the future and

continue to work.

The expanding labour force demands a higher economic growth

in SJER, especially in the creation of jobs and in keeping down the

unemployment rate to a range of 3% to 4%.

This means that employment in SJER needs to increase at an average

annual growth rate of 4.3% during the period 2005-2025. The rate has to

be higher than for Johor which is expected to experience an average

annual growth rate of 2.9% during the same period.

Based on the targeted growth rate, employment in SJER is projected to

increase to 752,100 in 2010, 928,500 in 2015 and to 1.4 million by 2025.

This projected growth would also raise the employment level in Johor

(Figure 4.24).

The Services sector will be the major source of employment in SJER. It

would increase its share of total employment from 56% in 2005 to 63% by

2025. This is higher compared to the 55% share envisaged for Johor.

The Manufacturing sector remains important, maintaining its share at

about 39% of employment but its demand for workers would change,

moving towards more knowledge-intensive and higher skilled workers

as the clusters undergo internal restructuring and up scaling in terms of

technology and capital investment.

▼ Economic Growth Targets, 2005-2025

Total GDP for Johor, as a whole, is targeted to reach USD129 billion (PPP)

or RM235 billion (at constant 2005 price) in 2025. Its targeted growth

takes into consideration the Ninth Malaysia Plan’s target of 6% GDP

growth for Malaysia during 2005-2010 (Figures 4.25 and 4.26).

Figure 4.24: Total Employment in Johor State and SJER, 2005 - 2025

500,000

1,000,000

1,500,000

2,000,000

2,500,000

2005 2010 2015 2020 2025

10,400752,100

1,150,700

1,427,9001,262,900

1,453,1001,671,900

928,500

1,923,6002,213,400

Johor StateSJER


4 - 24


Figure 4.25: Economic Growth and Structure of Johor and SJER, 2005 – 2025

20.0

40.0

60.0

80.0

100.0

120.0

140.0

2005 2010 2015 2020 2025

USD

(BBi

llion)

20.029.0

63.5

93.3

33.445.2

62.8

43.1

89.8

129.1

Johor StateSJER

GDP of Johor State and SJER (USD PPP) Economic Structure of SJER

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

50.0

5.0

42.0

3.11

53.8

4.2

39.3

2.7

57.6

3.6

36.5

2.3

61.1

2.8

34.0

2.1

65.0

2.3

31.0

1.8

2005 2010 2015 2020 2025

Agriculture etc ManufacturingConstruction Services

(%)


Figure 4.26: GDP (PPP)(in USD billion), 2005 and 2025

MalaysiaJohorSJERSingaporeJohor & Singapore

SJER & Singapore

276

2005

33.420.0

127.0

160.4

147,0

876

2025

129.193.3

312.0

441.1

405.3

6.0


7.08.04.6

5.2

5.2

276.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

900.0

1000.0

50.0

100..0

150.0

200.0

250.0

300.0

350.0

400.0

450.0

500.0879.0

Malaysia

33.4

129.1

20.0

93.3127.0

312.0

160.4

441.1

147.0

405.3



2005 2025



CHAPTER 4 | PART 2

4 - 25

share is expected to decline from the present 42% to 31% – a pattern

consistent with present-day structures of developed economies where

services such as insurance, finance, professional services and other

services dominate their economies.

In the process of restructuring, many of the manufacturing activities will

undergo many changes leading to the emergence of manufacturing-

related services (MRS).

Per capita GDP in SJER in 2025 is expected to double, rising from USD

14,790 in 2005 to USD31,100 in 2025. It would be 1.2 times that of the

state per capita GDP in 2025 of USD25,800 (Figure 4.27).

Options for alternative growth paths were considered for both Johor

and SJER taking into consideration the targeted growth of SJER. The

long-term growth rate adopted for Johor for the period 2005-2025 is an

average of 7% per annum.

Growth of GDP in SJER is targeted at a minimum of 8% per annum

during the period 2005-2025. This would raise SJER’s GDP from its current

level of USD20 billion to USD93.3 billion by 2025 or almost five times its

current level. In Ringgit terms (at constant 2005 price), this means that

GDP in SJER would rise from RM35 billion in 2005 to RM163 billion by 2025.

In terms of internal structure, the services sector in SJER would increase

its current share of 50% to 65% by 2025 while the manufacturing sector’s

Figure 4.27: GDP per Capita (USD), 2005 and 2025

MalaysiaJohoreSJERSingaporeJohor & SingaporeSJER & Singapore

10,318.0

2005

10,757.014,790.029,936.921,664.026,311.1

22,225.4

2025

25,818.531,100.056,111.141,298.147,261.9

3.9


4.53.83.33.33.0

5,000

10,000

15,000

20,000

25,000

10,318

22,225.4

Malaysia

10,757.0

25,818.0

14,790.0

GDP PER CAPITA (PPP), 2005

31,100.0 29,936.9

57,777.8

21,664.0

41,298.1

26,311.1

47,261.9



2005 2025


4 - 26


Economic growth is accompanied by improved labour productivity.

In Johor, the average annual growth rate in productivity for Johor is

estimated at 4% per annum (Figure 4.28).

In SJER, labour productivity is expected to double within the period

2005-2025, rising from RM57,122 in 2005 to RM113,808 in 2025. The

average increase in labour productivity is 3.5% per annum. This higher

productivity levels should lead to higher per capita GDP for both Johor

and SJER (Figure 4.29).

Targeted developments in SJER are expected to provide mutual

benefits to the outlying areas, in particular, the rural areas. The provision

of urban-based jobs (potentially with higher incomes) releases pressures

on agricultural land to provide employment and stable income, leading

to higher agricultural productivity levels and returns on land.

Figure 4.28: Comparison of Labour Productivity Growth in Johor and SJER (at Constant 2005 price) 2005 and 2025

20,000

40,000

60,000

80,000

100,000

120,000

2005 2010 2015 2020 2025

(RM

)

48,38356,116

67,01182,624

106,126

57,12267,233

80,858

96,274

113,808

Johor StateSJER

Figure 4.29: SJER - Labour Productivity & Per Capita GDP (RM) at 2005 Constant Price 2005 and 2025

20,000.0

40,000.0

60,000.0

80,000.0

100,000.0

120,000.0

2005 2010 2015 2020 2025

(RM

)

25,766.323,567

28,946.9

35,124.6

46,980.048,383

56,116

67,011

82,624

106,126Per Capita GDP (RM)Labour Productivity

JOHOR

20,000.0

40,000.0

60,000.0

80,000.0

100,000.0

120,000.0

2005 2010 2015 2020 2025

(RM

)

25,766.3

32,858.5

39,253.946,232.4

54,168.757,122

67,233

80,858

96,274

113,808Per Capita GDP (RM)Labour Productivity

SJER




CHAPTER 4 | PART 2

4 - 27

▼ Investment Requirement

A. Total Investment

The total investment required to attain the Johor State and SJER

projected growth in GDP is estimated based on incremental capital

output ratio (ICOR) for Malaysia .

The results are given in Figure 4.30(a) and Figure 4.30(b). A total of

about RM47 billion will be required between 2006 and 2010 to attain the

projected growth rate of 8% for SJER and about RM61 billion to attain

a growth rate of 7% for Johor. Over the subsequent 5 year period, the

corresponding figures are expected to increase to about RM73 billion

and RM91 billion respectively.

B. Manufacturing Sector

Out of the total of about RM47 billion in investments required for SJER,

almost RM16 billion will be needed directly (excluding investment in

related infrastructure) for the manufacturing sector. This will be an

increase over the 2001 – 2005 figure of about RM13.3 billion (Figure

4.31(a) and Figure 4.31(b)).

Assuming that the historical 70% average ratio of FDI to local investment

is maintained in the manufacturing sector (Table 4.9), SJER shall need to

target about RM11.3 billion in FDI in manufacturing sector over the five

year period.

However, since the actual implementation rate is only about 70% – 80%

of “approved” investment value, a much higher target of ‘approved’

investment value must be targeted for 2006 – 2010 period. In other

words, to attain an actual FDI target of RM11.3 billion in the 2006-2010

period, a target for FDI approvals of between RM14 billion to RM16

billion is required over the period. This will be an increase of about 50%

over the total FDI approved between 2001 and 2005 which was about

RM9.3 billion.

It is clear that a much more aggressive and vigorous promotional

effort to improve the enabling factors, including the hard and soft

infrastructure, is necessary over the next five years. The major strategic

thrusts and initiatives proposed in this chapter and other chapters are

designed to attain this objective.

Figure 4.30(a): Estimate of Capital Investment Required to attain a GDP Growth Rate of 7%, Johor State (at constant 2005 price) 2005 and 2025

50,000

100,000

150,000

200,000

250,000

2006 - 2010 2011 - 2015 2016-2020 2021-2025

RM m

illion

61,316(USD 16,753)

91,482(USD 24,995)

140,697(USD 38,442)

227,895(USD 56,476)

ICOR (at3.00)

Figure 4.30(b): Estimate of Capital Investment Required to attain a GDP Growth Rate of 8%, SJER(at constant 2005 price) 2005 and 2025

20,00040,000

60,00080,000

100,000

120,000140,000

160,000

180,000

2006 - 2010 2011 - 2015 2016-2020 2021-2025

RM m

illion

47,098(USD 12,868)

73,533(USD 20,091)

107,115(USD 29,266)

155,172(USD 42,397)ICOR (at3.00)

Figure 4.31(a): Estimate of Investment Required in Manufacturing Sector in Johor State, 2005-2025 (at Constant 2005 price)

5,00010,00015,00020,000

25,00030,000

35,000

2006 - 2010 2011 - 2015 2016-2020 2021-2025

RM m

illion

22,704

15,120

6,584

26,370

18,723

7,547

28,770

20,427

8,343

32,220

22,876

9,344

Johor State FDI Local

Figure 4.31(b): Estimate of Investment Required in Manufacturing Sector in SJER, 2005-2025 (at Constant 2005 price)

5,000.0

2006 - 2010 2011 - 2015 2016-2020 2021-2025

RM m

illion

10,000.0

15,000.0

20,000.0

25,000.0

15,892.8

11,284

4,608.9

18,459.0

13,106

5,353.1

20,139.0

14,299

5,840.3

22,554.0

16,013

6,540.7

SJER FDI Local





4 - 28


▼ Balancing Development Between SJER and The Rest of Johor

It is clear that development within SJER will have profound implications

on the rest of Johor State. For this reason, the issue of equity

considerations is raised in chapters relating to social and holistic

development in order to address the need to balance the targeted

growth in SJER with developments in the surrounding areas outside it.

The rapid development of SJER and its higher average wage rate will

continue to draw labour and population away from the rest of Johor

State resulting in a population growth rate of only 0.5%. This will be

accompanied by a rapid growth in productivity especially in the non-

plantation agricultural sector which is targeted for modernisation and

rapid productivity growth over the Ninth Malaysia Plan.

Average wage rate and income will grow more rapidly in the rest of

Johor State than in SJER, albeit from a lower base. The faster the growth

in productivity within the area outside SJER, the faster will be the growth

in GDP per capita for the area and the more rapidly the income gap

between SJER and the rest of Johor will close, and the faster will be the

overall growth rate for Johor State as a whole (Figure 2.32).

Since the rest of Johor is still very much dependent on plantation

agriculture (palm oil and rubber) and since productivity growth in

this sector is not likely to be very rapid, a conservative estimate of

productivity growth for the rest of Johor at 4.1% is projected assuming

rapid productivity growth in the non-plantation agricultural sector and

other sectors including manufacturing and services. This growth rate is

higher than the 3.5% productivity growth rate projected for SJER.

However, should productivity growth rate for the area outside SJER

be pushed to about 6.1% and GDP per capita at 6.5%, the per capita

income gap will be considerably narrowed by 2025 (from 56% in 2005 to

94.5% in 2025) and Johor GDP can grow at 7.6% if the growth of SJER is

maintained at 8% (Figure 4.32).

Figure 4.32: GDP per Capita (PPP) of SJER and Rest of Johor, 2005 and 2025 (at constant 2005 price)

16,000

14,000

12,000

10,000

8,000

6,000

4,000

2,000

SJER

USD

(PPP

)

14,790

8,288

Rest of Johor


5,000

10,000

15,000

20,000

25,000

30,000

35,000

USD

(PPP

)

31,100

20,774


26,54229,411

R of J : Rest of JohorJS : Johor State

GDP percapitaGrowth RateSJER : 3.8%

GDP perCapitaGrowth Rateof R of J : 4.7%JS:4.5%GDP GrowthRate forJS: 7.0%

GDP perCapitaGrowth RateR of J : 6.0%JS: 4.9%GDP GrowthRate for JS :7.4%

GDP per CapitaGrowth RateR of J : 6.5%JS:5.0%GDP GrowthRate of JS:7.6%

4.10 The ‘With” and “Without” SJER Scenario

Strong efforts are needed to enhance the quality of hard and soft

infrastructure within SJER. This will aggressively promote SJER as an

efficient economic development node among local and foreign

investors, and will accelerate economic development and income

growth not only within SJER but also in the rest of the State. The South

Johor Authority (SJA) is a proposed new regulatory, planning and

planning approval facilitation entity which will be created to be the

principal vehicle that will regulate SJER development and facilitate

the highest degree of coordination between the State and Federal

Governments, and between various government institutions, the private

sector and the educational and training institutions. The strong regional

focus and the cluster strategies facilitate close systematic interactions

among the key stakeholders and enabling agencies. In addition,

a commercial and investment vehicle, the South Johor Investment

Corporation Berhad (SJIC), to drive the development of key catalyst

projects, will be incorporated with key Federal and State investment

agencies, Khazanah Nasional, EPF and KPRJ as shareholders

An aggressive development drive and efficient coordination are

needed to attain the targeted growth rates. The necessary rapid

upgrading of the strategic and critical hard and soft infrastructure,

including the enhancement of public sector efficiency will be

achievable with the existence of close and strong support from the

Federal Government, via the new authority to be created.



CHAPTER 4 | PART 2

4 - 29

Close coordination among various government agencies, educational

and training institutions, and other industries can be facilitated by this new

entity. This will coordinate an efficient development of human resource

to facilitate existing local industries to move up the value chain, and to

adopt more efficient technology, innovate and attract new investors in

high technology industries.

Without this, the potential loss in the future of low-end labour-intensive

assembly industries (as experienced by Johor where about 15,000 jobs

were lost between 2002 and 2005 through company closures) may not

be fully compensated quickly enough by new high technology and

higher value added industries. This is especially so given the strong and

increasing competition from lower cost countries such as China, Vietnam,

the Philippines and Indonesia.

The consequences are likely to be difficulties in attaining and maintaining

a high level of local and foreign investment required to stimulate the

growth of dynamic clusters. To attain accelerated growth within SJER,

a total investment of around RM60 billion will be required over the next

five years. This will require not only enhanced inflow and more efficient

allocation of public sector fund, but also aggressive promotion of private

investment. The total inflow of FDI over the next five years (2006-2010)

must be enhanced by about 40-50 percent higher than the amount

attained over the 2000-2005 period, assuming that the proportion of local

investment will not be dramatically increased.

Table 4.1: Growth Rates / Selected Economic Indicators

Indicator2005-2025 Note Johor

State (%) SJER (%) Rest of Johor (%)

GDP Growth Rate

With SJERWithout SJER

7.05.5

8.06.0

5.24.7

GDP Per Capita Growth Rate


4.63.4

3.83.0

4.73.5

Productivity Growth


4.03.0

3.31.7

4.22.8

Employment Growth


2.82.3

4.33.0

0.91.8

UnemploymentRate


(3.5)-3.0(3.5)-6.2

(2.2)-2.1(2.2)-5.2

(4.8)-4.6(4.8)-6.7

Population Growth


2.32.1

4.12.9

0.51.4

Note: Figures in bracket refer to unemployment rate in 2005Source: Economic and Social Aspect Report, 2006

With Sjer Without SJER

Population Size 3.0 Mil 2.3 Mil

GDP (PPP) in USD billion 93.3 64.1

GDP per capita (PPP) in USD 31,100 26,694

Labour Force 1.46 Mil 1.16 Mil

Employment 1.43 Mil 1.0 Mil

Unemployment 1.8% 5.2%

Employment Productivity in USD Mil PPP 30.5 25.1

Table 4.2: With and Without SJER Intervention

Source: Economic and Social Aspect Report, 2006

2005 2025Population Size 1.353 Mil 3.0 Mil

GDP (PPP) (in USD Million) 20 93.3

GDP per capita (PPP) in USD 14,790 31,100

Labour Force 0.624 Mil 1.46 Mil

Employment 0.610 Mil 1.428 Mil

Unemployment 3 - 4% 1.8%

Jobs Created -Not Applicable- 817,500

Table 4.3: Projected Benefits of SJER

Source: Economic and Social Aspect Report, 2006

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