Economic Update

Malaysia: Ties that bind

Asia | 6 Feb 2012

The recent strengthening of bilateral ties between Malaysia and Singapore bodes well for their construction sectors, as several planned projects between the two countries should bring lucrative business opportunities to both. A foreseen labour shortage in Malaysia, however, could stymie some projects’ development.

The construction and services sectors are expected to be the Malaysian economy’s main growth drivers in 2012 amid a forecasted drop in exports due to the difficult global economic environment. The government has targeted growth of 7% for the construction sector in 2012.

“Thus, construction projects will be a key economic stimulus due to their multiplier effect,” said Kwan Foh Kwai, the president of the Master Builders Association Malaysia (MBAM), when speaking with local media outlets at the end of December.

On January 5, the leaders of Malaysia and Singapore announced plans to boost transport links between the two nations, with a road tunnel and water taxi service the first of many projects.

Plans are already under way for joint operations to begin building projects worth $9.8bn and a mass-transit railway system linking Malaysia’s southern Johor state and Singapore that could begin operations by 2018. The leaders said they are also now looking to partner in areas such as aviation, with Malaysia’s Senai International Airport potentially cooperating with Singapore’s Changi Airport.

“There are many more areas for potential cooperation,” Malaysian Prime Minister Najib Razak told reporters in early January after talks with Singaporean Prime Minister Lee Hsien Loong. “All the current agreements that both countries have managed to reach will pave the way for stronger bilateral ties.”

The agreement was widely seen as symbolic of continued improvements in relations between the two neighbours, which between 1963 and 1965 formed one nation. Relations improved in 2011 when a decades-old land usage dispute was resolved, which saw Malaysia agree to relocate its railway station away from Singapore’s central business district.

Both governments appear to be eager to continue the process. “There should be more new initiatives taken between both countries,” the Singaporean prime minister told local reporters.

Examples of these new initiatives are many. Last year, Khazanah Nasional and Temasek Holdings, the state-owned investment companies of Malaysia and Singapore, respectively, announced plans to cooperate on property projects, including $8.67bn of retail and residential developments in Singapore’s downtown area. These developments will incorporate the former site of Malaysia’s train station.

The two investment firms also plan to jointly construct RM3bn ($968.73m) of projects in Malaysia’s southern Iskandar economic development zone region that will include retail and residential offerings. Located adjacent to Singapore, at the apex of Malaysia’s East Coast Economic Corridor (ECER), Iskandar is a territory of around 2217 sq km.

“The development of Iskandar and its success is very important for Singapore as it will benefit both sides in many ways,” said the Malaysian prime minister.

The planned railway linking southern Johor state and Singapore will make Johor Baru City — long the entry point for many visitors to Malaysia from neighbouring Singapore — something of a satellite city for Singaporeans, who are keen to take advantage of Iskandar’s much lower cost of living.

However, there has recently been a shortage of foreign labour in Malaysia, causing some to question how all these projects will get built – and causing some sector leaders to call for immigration changes to address this issue.

Foreseeing such an industry-wide labour shortage on the horizon, the MBAM appealed on January 20 to the Home Ministry to lift a temporary suspension of workers’ quota applications.

MBAM’s Kwan said the ministry has not allocated a new foreign workers’ quota, which means contractors have been unable to secure enough workers for their projects.

“The construction industry is facing a severe shortage of manpower resources as too many construction companies in Malaysia are competing for a limited supply of talent,” Kwan said in a statement. He added that the shortage of foreign workers could undermine the many construction projects planned under the 10th Malaysia Plan and the Economic Transformation Programme.

“We face a shortage in terms of volume and quality of skilled workers, technicians and supervisors,” said Kwan, adding that he hopes the government will relax the policy involving the entry of new foreign construction workers.

With the bulk of the country’s economic performance for the year hanging in the balance, the Home Office will likely be under increasing pressure to act quickly on the quota issue. However, with elections widely expected in March, the hot-button issue may well be one that is not easily solved. Meanwhile, builders and investors on both sides of the Straits of Johor will no doubt be eager to break ground on the many contracts that have now been signed.

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