M’sia launches east coast special economic zone

8/5/2009 — Business Times

In a bid to hasten developmental activities in Malaysia’s eastern economic corridor, Prime Minister Najib Razak has announced the establishment of a special economic zone (SEZ) stretching from Kertih in Terengganu to Pekan in Pahang.

Mr Najib: The SEZ aims to attract RM90 billion and 200,000 new jobs by 2020. He did not specify the incentives but The Star reported that they include a 10-year tax exemption, 100 per cent investment tax allowance, and exemptions from import and export duties —
‘For the first time, investors will be offered incentives that can be customised specially for them,’ Mr Najib said yesterday in Pekan at the launch of the SEZ.

He did not specify the incentives, but The Star reported that they include a 10-year tax exemption, 100 per cent investment tax allowance, and exemptions from import and export duties.

Malaysia is banking on the ‘integrated SEZ’ which would be served by four ports and two airports – Kuantan port acting as the main gateway – to attract investments of some RM90 billion (S$37 billion) and over 200,000 new jobs by 2020.

The SEZ covers only 6 per cent of the land mass in the Eastern Corridor Economic Region (ECER), a 12-year development masterplan which covers the states of Kelantan, Terengganu, Pahang and the district of Mersing in Johor, launched in 2007 to bring development to the rural east.

Petrochemicals, manufacturing and agro-based industries, tourism, and education, are the ECER’s focus sectors but given that national petroleum company Petronas is overseeing the master-plan, most analysts view petrochemicals as the sector with the greatest chance of success.

RAM Holdings chief economist Yeah Kim Leng said the new incentives could result in a loss of revenue to the government, but would be helpful in attracting companies, especially those in the downstream processing activities, to establish their operating or research and development centres in the SEZ.

The ECER said it is also exploring the possibility of a second SEZ near the Tok Bali-Besut area along the Kelantan-Terengganu border.

Malaysia has been looking at areas to draw new investments following the global economic slump which has led to a dramatic fall in foreign direct investments and a near collapse in exports, and appears more prepared to forgo a part of taxes if it brings investments and jobs.

Earlier this year, the government embarked on a gradual liberalisation of the services sector and recently made it more attractive for companies to list and easier for foreigners to buy commercial property.

Over the past few years, the country has launched five ambitious regional development corridors to attract hundreds of billions of dollars over the next decade or two, with Iskandar Malaysia in South Johor seen as the likeliest to get off the ground owing to its proximity to Singapore.

Government officials say that Iskandar Malaysia which fancies itself as a potential financial centre has attracted over RM40 billion in planned investments, and the ECER RM25 billion to date.

However, many are anxious to see when the proposed investments will be implemented. ‘Even in normal times studies show only 85 to 90 per cent of approved investments are implemented. During an economic slowdown it’s closer to 70 per cent,’ Dr Yeah said.

In addition to basic incentives, the federal government does provide wider incentives, the extent often depending on the size and value-added of the planned investment.

It is unclear how different the SEZ incentives are from those extended to Iskandar Malaysia investors who if they invest in the five specified areas of creative, education, financial advisory and logistics, receive a 10-year corporate tax exemption and the sourcing of foreign workers without restriction.