This week, Deputy Prime Minister Najib Tun Razak called for an end to decades of disagreements with Singapore, saying that the neighbours should focus on cooperation in the face of growing regional economic competition.
"We must raise our political will to work together where we can, and accommodate each other in areas where we cannot. We have no real choice. The economic logic is as clear as day," Najib told a Malaysia-Singapore business forum in Kuala Lumpur.
Relations between Singapore and Malaysia have been testy since a brief union in the 1960s.Water supply has always been contentious, as Malaysia supplies the island with fresh water at a low price negotiated decades ago. The question of Singapore's military access to Malaysian airspace, the mutual suspicion that prevents joint projects such as an open skies agreement or a bridge to replace the causeway, land claims, and even ownership of Malaysian railroad tracks on Singapore soil have been points of tension.
Malaysia has long used Singapore as a benchmark to measure its own progress, and Singapore is given to occasional bouts of lecturing Malaysia.
But as Najib said this week, the two nations "must eventually move beyond the rhetoric, and focus on the underlying fundamentals which are of mutual interest to us."
In his view, there has been a palpable thaw in relations in recent years, and the two neighbours should take advantage of opportunities to tighten economic links.
The improved relationship is due in part to a change in the tone of diplomacy during the premiership of Prime Minister Abdullah Ahmad Badawi. This cordial style is in part why some sensitive issues of recent vintage, such as land reclamation, have been amicably settled.
But perhaps more important is the growing role of the private sector in improving bilateral ties. As businesses in both countries increase their profile and begin to look globally, the opportunities for linkages increase.
Indeed, tensions have been harmful economically for both nations. Instead of cooperating to attract foreign investment, the neighbours have often competed for the attention of the same investors, duplicating infrastructure, from state-of-the art airports and container docks to high-tech industrial parks.
The new reality of globalisation - which has pushed economic liberalisation and international integration to many corners of the world - is forcing Malaysia to look at how it can cooperate with its former rival. Countries in the region such as Thailand and Vietnam are quickly catching up, and the growth of China and India has drawn significant amounts of investment from the region.
Indeed, cross border investment between Malaysia and Singapore has continued to increase, particularly via the respective governments' investment arms. For example Singapore's Temasek acquired a stake in Telekom Malaysia while Alliance Bank and Malaysia's Khazanah bought a stake in Singapore's MobileOne in 2005.
Najib was keen to urge Singaporean authorities to exercise a greater degree of reciprocity in facilitating more Malaysian acquisition of assets in the island republic.
The incoming traffic of investments from Singapore into Malaysia had been significantly greater than flows in the other direction.
According to Najib, this can be explained, in part, by the difficulty Malaysian companies have in identifying suitable acquisitions in Singapore, given the structure of the Singaporean economy.
But this could also be due to fewer companies previously looking to invest abroad. This situation is rapidly changing as Malaysian companies mature, and it is likely that this imbalance in investment will no longer be an issue in ten years time. There are signs that it is changing already. Among the more high profile deals in the works is Malaysian leisure conglomerate Genting's bid for a Singapore Integrated Resort project.
The opportunities are there. Singapore has a larger and more developed services sector, constituting over 60% of the economy and a higher per capita GDP, whereas Malaysia continues to be a more prolific manufacturer and is a value proposition relative to its neighbour. This difference in relative wealth and specialisations opens the door for many areas of cooperation.
According to Najib, Singapore's government has been invited to participate in the future growth of Iskandar Development Region in south Johor. Capturing spillover from Singapore is one of the important components of the proposed South Johor Economic Region.
Mohamad bin Sa'elal, the managing director of Bandar Nusajaya Development, a new integrated city development project that will constitute the new administrative capital of Johor, told OBG, "We can't put ourselves in the cocoon of only Malaysia, as a lot of wealth can come into this region both from and via Singapore. We will use our cost advantages as a pull factor for investment, while leveraging on some of Singapore's infrastructure such as Changi Airport."
He added that "there are thousands of motorbikes crossing the causeway each day to work in Singapore. There is no reason why the traffic should not flow both ways."
