Malaysia's Grand Economic Plan Hit By Politics, Apathy

Malaysia's plan for a showpiece economic zone in its south is in doubt because of the uncertain fate of the country's prime minister and a lukewarm response from big investors in nearby Singapore.

On paper, Prime Minister Abdullah Ahmad Badawi's pet project to develop the 2,200 sq kms (850 sq miles) of land in southern Johor state into a economic zone to complement the rich but land-scarce city-state of Singapore looks good.

The area has so far drawn $10.5 billion in investment, much of it from the Middle East, riding on investor hopes the area will become a hinterland for the city-state the way that China's booming Shenzhen, once a tiny fishing village, complements neighbouring Hong Kong.

The Iskandar Malaysia zone, three times bigger than Singapore, would be Malaysia's largest economic zone. The government says it should create 800,000 jobs and attract $100 billion in investment over 25 years.

Its proponents say it could be Southeast Asia's answer to China's Pearl River delta, a manufacturing heartland that turns out more than a quarter of China's worldwide exports.

But Malaysia's track record in getting such grand projects off the ground is patchy and Singapore developers are looking to booming China and India instead, worried the plans will be shelved if Abdullah loses power.

"It's Abdullah's project. If he's not around, no one knows what's going to happen as different prime ministers will have different priorities," said Suan Teck Kin, an economist at Singapore's United Overseas Bank (UOB).

Abdullah's position weakened after the poor showing of his ruling coalition in March polls and speculation is rife he may be forced to resign.

"Given this kind of political vacuum in Malaysia, I don't think anyone will be rushing into Iskandar," said Song Seng Wun, a Singapore-based economist at Malaysian bank CIMB.

Expensive government development projects have been for years Malaysia's answer to regional economic disparities in a country spread over the Malay peninsula and parts of the island of Borneo.

Their success has been mixed at best. UOB's Suan cited a proposed IT zone near the capital Kuala Lumpur as an example of a project that is struggling after its sponsor and Abdullah's predecessor, Mahathir Mohamad, left office.

SINGAPORE WARY

State investment arm Khazanah Nasional, which has opened a marketing office in Singapore to promote the Iskandar zone, brushed off political concerns and said investors are committed to Malaysia.

Mainly Muslim Malaysia has been a magnet for Middle Eastern investors flush with petrodollars who have been snapping up banks, hotels and malls.

Abu Dhabi investment arm Mubadala Development Co is leading a consortium to develop a multi-billion dollar city within Iskandar. Kuala Lumpur has also established itself as a leading centre in Asia for the burgeoning Islamic Finance market.

But state-linked Singapore developers have been cool to Iskandar. Many analysts say for it to really take off, it needs Singapore firms such as CapitaLand to develop on land that costs as little as 1/30th of Singapore land.

"Singapore investments could be very crucial for Iskandar," said Malaysian political analyst Khoo Kay Peng. "Malaysia needs investments in high-technology areas such as biotech, rather than just a pure real estate play," he said.

Singapore developers are wary after they got burned by frequent and unexpected policy changes during Mahathir's reign, said the head of investments at one Singapore firm.

The two countries have a long history of strained relations dating back to 1963 when they gained independence from the British as a federation only to split up two years later.

At the time Singapore feared it could not survive on its own with no natural resources and squeezed into an area half the size of Greater London. But since then the island has established itself as a major Asian business and finance centre competing with Hong Kong.

However, it lacks a readily available pool of land and labour that booming southern China offers to Hong Kong, and south Malaysia's development plans aim to fill that void.

Yet rather than counting on its neighbours, Singapore has tried to overcome the lack of space by reclaiming land from the sea and shifting factories to the neighbouring Indonesian island of Batam.

Local firms in their quest for profits and growth are also looking further afield to booming economies of China, Vietnam and India. For example, a group of Singapore government-backed firms led by Keppel Corp is building an "eco-city" in China, while state firm Ascendas manages business parks in five Indian cities.

And despite Malaysian lobbying, Singapore's official response to the project did not go beyond forming a joint committee with its neighbour.

The plan also has its critics in Malaysia.

Mahatir, who still pulls considerable weight in local politics, recently described the blueprint as "a platform for Singapore to expand its sovereignty."

"In the end the area ... will be filled with Singaporeans and populated only with 15 percent of Malays," he said. (Reuters India)