OBG talks to Ismail Ibrahim, CEO, Iskandar Regional Development Authority (IRDA)

Interview: Ismail Ibrahim

To what extent can Iskandar Malaysia mitigate a potential slowdown in manufacturing and factory output in the Asia region?

ISMAIL IBRAHIM: We have completed the first phase of planning and implementation for Iskandar Malaysia, which is the main southern development corridor in Johor, Malaysia. We are now entering the second phase in 2012, which aims to capitalise upon the foundation that has been built since 2006. This second phase will be complete in the next seven years. We are confident that the groundwork now in place will create a multiplier effect for investment. There are several projects that have been laid out to spur the formation of clusters, which will result in exponential growth. The challenge will be devising a strategy to sustain growth, given the state of the global economy. Iskandar Malaysia will be a benefactor of free trade agreements that Malaysia is hoping to finalise in 2012 with Australia, Turkey, the EU and the members of the Trans-Pacific Partnership. From a broader perspective, Iskandar Malaysia will need to become a location of choice for investment, and this is not done by offering incentives but rather through the provision of hard and soft infrastructure. This requires cooperation with government to ensure that the region can offer the sophisticated infrastructure required to meet the needs of high-value investment.

How can the investment incentives on offer be adjusted to increase competitiveness?

ISMAIL : Looking at successful economic zones worldwide, it is our belief that financial incentives are only a small portion of the equation when investors are doing comparative analysis on various destinations. The focus is on the complete package. Nonetheless, IRDA will routinely revisit existing incentives to improve upon them, as well as looking at new incentives to complement development. Given the specificity of the nine economic sectors that IRDA is promoting, general incentives are not applicable in many clusters that we are forming as they require significant customisation.

What factors has Iskandar Malaysia taken into account when analysing other economic zones?

ISMAIL : We have seen examples across the globe where comparable development corridors have gone through a rapid pace of physical development at the expense of the government. Zoning and planning lessons can be learned from the accomplishments and shortcomings of other special economic zones such as Shenzhen and Hong Kong. Shenzhen started as a greenfield site and Hong Kong as a brownfield site.

Some 30 years later, Shenzhen has reached saturation and lacks the capacity for further development, whereas Hong Kong still has significant room for expansion.

How will the investment mix change in Iskandar Malaysia’s next phase of development?

ISMAIL : In the first five years the manufacturing sector accounted for 39% of committed investments in the region. Service sectors such as tourism, health and education will continue to aid in the building of human capital; however, capital-intensive manufacturing investments will remain the cornerstones of employment generation. Some 60% of investments came from domestic sources over the past five years. We would like to see this ratio maintain its current level. Malaysia is finding itself in an increasingly competitive atmosphere in ASEAN. The advantages that the country benefitted from in terms of unskilled and semi-skilled labour have long since departed, which is forcing the country to move into another playing field. Iskandar Malaysia could become a microcosm of this progression, moving into capital-intensive businesses which utilise highly skilled labour. Malaysia’s central agencies are still operating with a more traditional approach to investment; however, as the development in the region takes hold, it is our hope that this will usher in an overhaul of the entrenched mentality. We are anticipating a great deal of interest among manufacturers with a focus on product development and research, as opposed to the more traditional labour-intensive industries.