4/5/23, 7:19 AM Relations between Singapore and Malaysia continue to thrive

Malaysia
August 8th 2012

Relations between Singapore

and Malaysia continue to
thrive
Bilateral ties between Singapore and Malaysia have improved in recent years. The close working
relationship between both countries' prime ministers, Lee Hsien Loong of Singapore and Najib Razak
of Malaysia, has set the trend for positive joint-government efforts on a range of issues. Under their
watch, the legacy issue of the Malaysian railway land in Singapore was resolved, while both countries'
sovereign funds, Temasek Holdings and Khazanah Nasional respectively, have signed deals on joint-
property projects in both Singapore and Malaysia.

One key underlying factor for the improvement in ties perhaps overlooked is that Singapore has become
significantly less dependent on Malaysia for its water needs in recent years. Water supply had always been a
tetchy issue between the two countries, and Singapore has worked towards achieving greater water security
since being expelled from the Malaysian federation in 1965. The efforts of the Singaporean authorities have
been so successful that there was hardly a ripple when one of two water supply pacts with Malaysia expired at
the end of August last year. With this overhang mostly off the table, the Singaporean authorities appear more
comfortable in their dealings with their Malaysian counterparts.

The strength of these ties was tested recently when allegations were made in Malaysian blogs that Singaporean
diplomats took part in an electoral reforms rally (commonly referred to as Bersih 3.0—Bersih is a local civil
rights group) in the Malaysian capital, Kuala Lumpur, in April. This incident had the potential to become ugly
because Bersih 3.0 is supported by Malaysia's opposition coalition, Pakatan Rakyat, but was resolved in the
highest echelons of government by the response of Singapore's foreign affairs minister, K Shanmugam, which
sets a benchmark for future tests to bilateral relations. He responded in parliament in July by saying that ties
between Singapore and Malaysia remain "very strong", and noting that he had telephoned his Malaysian
counterpart, Anifah Aman, twice to indicate to him that the Singaporean diplomats in question had not
participated in Bersih 3.0, but had only been present as impartial observers as diplomats are allowed to do.

Iskander Malaysia becomes a residential and investment hub for Singaporeans

At the moment, it can be argued that the most visible manifestation of the strong ties between the two
countries is the Iskandar Malaysia (IM) development zone, an area three times the size of Singapore that lies
in the southern Malaysian state of Johor. The Iskandar Regional Development Authority (IRDA) said in July
that Iskandar Malaysia secured M$10.7 bn (US$3.5bn) of new committed investment in the first half of this
year, bringing total cumulative investments in the southern Malaysia economic region to M$95.5bn since the
zone was launched. Overall, Asia accounted for 42% of foreign capital inflow, followed by Europe (40%) and
the Middle East (14%), according to IRDA. No specific figures were given for the size of Singaporean
investments, but IRDA noted that Singapore has maintained its position as the largest foreign investor in the
region since December last year.

For a long time after the IM zone was launched in November 2006, many Singaporean companies were
hesitant to commit to the region. This is because they appeared to be waiting for a government-linked
company to make a concrete move into the region, which would have indicated that the Singaporean
government had given its blessing to invest in the zone. That signal came in June last year when Temasek and
Khazanah announced that they had identified two sites in Iskandar Malaysia to carry out major joint
development projects. The floodgates then opened. Investments by Singaporean companies are in sectors such
as education, healthcare, manufacturing and property development.

Singaporeans have been steadily purchasing homes in property developments in the IM zone since its launch.
Growing numbers of Singaporeans have also decided to live in the region and commute to work in Singapore.
They are attracted by the affordability of housing—a semi-detached house can be bought in Iskandar for the
price of a three-room government flat in Singapore—as well as the lower cost of living in Singapore dollar
terms. More Singaporeans might see this as a viable option going forward, especially if connectivity between
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4/5/23, 7:19 AM Relations between Singapore and Malaysia continue to thrive

Singapore and Johor improves. An MRT line from Singapore into the city of Johor Bahru is expected to be in
operation by 2018. As Malaysia is one of Singapore's main trading partners, such moves to improve
connectivity will enhance economic integration between the two countries.

From an economic perspective, the investment commitments shown by the likes of Temasek and other
Singaporean companies in Iskandar can be viewed in the context of the city-state continuing to develop its
external economy to augment its limited domestic economy. Amid gloomy economic growth prospects in its
three top trading partners, the US, Europe and China, the Singaporean government has been looking closer to
home for investment opportunities. Singapore's strong relations with Malaysia as well as other countries in the
Association of South-East Asian Nations (ASEAN) provide platforms for investment opportunities that bring
the external economy closer to home. This trend is likely to continue as long as the global economy remains
sluggish.

Relations are set to strengthen

Finally, ahead of Malaysia's general election, which has to be held by April next year, it is likely that the
Singaporean government will maintain a neutral and pragmatic stance on the eventual outcome. It would have
been somewhat surprised by the results of Malaysia's last general election on March 8th 2008 when the
Internet played a huge role in causing the ruling Barisan Nasional (BN) coalition to lose an unprecedented
number of seats. It is unlikely that the government will be surprised again. The administration in Singapore is
on familiar terms with members of the opposition Pakatan Rakyat as well as the government. Bilateral ties
between Singapore and Malaysia are unlikely to be affected if either of these powerful coalitions wins the
election.

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