In a world of global trade volatility and disruptions to multilateral trade flows, at the tip of Peninsular Malaysia, straddling the Straits of Malacca one of the world’s busiest shipping lanes, Singapore, Malaysia and Indonesia are strengthening their trilateral trading solutions.
With the Riau province of Indonesia in the south, the three contiguous countries of Indonesia, Malaysia and Singapore share common maritime, land borders and historical trade links with each other. In the late 1980s, the three countries created the Southern Growth Triangle trade network of Singapore – Johor (Malaysia)-Riau (Indonesia) or (SIJORI) (Hutchinson and Chong 2016). Geopolitical events that create more uncertainty in global trade including the impending second U.S. presidency of Donald Trump, has provided fresh impetus for this sub-regional trading network.
Similar sub-regional arrangements have existed in other regions in Western Europe, Guangdong-Shenzen-Hong Kong and North America. However, within Southeast Asia, the Growth Triangle concept was relatively new at the time (Sree Kumar, 1994).
Since the late 1980s, the SIJORI Growth Triangle partners have collaborated to advance sub regional development for their mutual benefit. Singapore has collaborated with Malaysia’s southern state of Johor in the Iskandar Region to create a new manufacturing and trade corridor (Rizzo and Glasson, 2012). The transborder economic cooperation was an example of innovative thinking under the “Growth Triangle” concept for regional development.
The concept was initially proposed by then First Deputy Prime Minister Goh Chok Tong of Singapore in December 1989. The purpose of the Growth Triangle was to enhance regional economic ties and maximize the synergy between the three neighbouring countries (Wong Poh Kam, 1993).
The SIJORI Growth Triangle, aimed to leverage the geographical proximity, diverse resource endowments, and robust logistics networks of these regions to offer investors a comprehensive opportunity. The conceptual plan was to integrate Singapore’s managerial skills, capital, technology, and infrastructure with the labour, land, and natural resources of Johor state and Riau province, its adjacent neighbours.
The Growth Triangle coalition was enhanced through the signing of a memorandum of understanding (MOU) on December 17, 1994, by representatives from the involved nations: Deputy Prime Minister Lee Hsien Loong of Singapore, Minister for International Trade and Industry Rafidah Aziz of Malaysia and Coordinating Minister for Trade and Industry Hartono of Indonesia.
Interestingly, the MOU was neither a treaty nor a development program but an understanding that all three SIJORI partners would leverage on their respective competitive advantages for mutual growth and benefit.
The Growth Triangle was envisioned to be a key component of the Singapore regionalisation scheme of the 1980s and 1990s but eventually proved contentious because primarily Singapore wanted to relocate its labour-intensive and “dirty” industries in manufacturing to the Iskandar region in Johor and the island of Batam in Indonesia. This regionalisation approach had to be reevaluated because Malaysia and Indonesia were not happy to merely accept the unwanted industrial sectors from Singapore and wanted more investment in advanced industries.
The SIJORI Growth Triangle had waned by the early 2000s, and a fresh impetus was called for to transform Singapore’s regionalisation plan from plans to offshore its labour-intensive industries towards more industry collaboration and human capital skills development among the SIJORI partners. Moreover, Malaysia and Indonesia are also keen to move up the value chain and move into high tech industry.
In June 2006, Singapore’s Minister for Trade and Industry, Mr Lim Hng Kiang and Indonesia’s Coordinating Minister for the Economy, Dr Boediono signed a bilateral trade agreement, to increase bilateral trade and economic cooperation (MTI Press Release, June 2006).
Conceived by the leaders of both countries, the Framework Agreement cements the Singapore-Indonesia partnership to establish special economic zones (SEZs) in Batam, Bintan and Karimun in the Riau province of Indonesia. The SEZs will lay the groundwork for both islands to become investor-friendly and cost-competitive manufacturing zones that can attract international flows of foreign direct investments.
Batam Island in Indonesia was one of the chief beneficiaries of the growth triangle concept as it grew into a manufacturing powerhouse in the ensuing decades. Today there are more than 1,200 foreign companies operating on the island that is part of the Riau Islands province. Home to 1.24 million inhabitants, Batam is part of the Riau islands Free Trade Zone (BBK FTZ), which also incorporates Bintan and Karimun.
Its total export value in 2016 reached US$8.41 billion while imports topped US$6.13 billion. Singapore accounted for US$3.89 billion of exports and US$2.1 billion of imports. Batam contributes 60 percent of the Riau islands gross domestic product and is ranked number 17 of more than 500 regencies and cities across Indonesia in terms of income contribution.
Trade Links
Since 2014, Singapore has been one of the top foreign investors in Indonesia. From 2019 to June 2024, Singapore invested US 63.17 billion USD, or 29.8% of the total foreign investment in Indonesia. In 2022, the total trade between Singapore and Indonesia was US $38 billion with Singapore exporting US$22.5 billion and Indonesia exporting US $15.5 billion.
In Batam, electronics manufacturing and heavy industries such as shipbuilding have been the traditional drivers of the economy. In recent years, the digital service sector has been growing and software companies have sprouted, offering services from developing mobile applications and websites to building software and automating the assembly and manufacturing facilities in factories.
While Batam has enjoyed great success as a manufacturing and heavy industries hub in the past, it currently faces some critical challenges. Investment in the Batam special economic zone (KEK) has been stagnant since 2009 due to a lack of infrastructure and the absence of a new Masterplan for the island.
Many companies that are currently located in Batam have also raised concerns about rising labour costs and growing unrest. The concept of the Growth Triangle has lost some relevance as companies located in Batam are now increasingly eyeing the growing Indonesian domestic market.
Batam also faces steep competition from other industrial enclaves in the region such a Malaysia’s Johor state, Vietnam and China. While the island’s proximity to Singapore was an initial advantage, as evident by the large number of Singapore companies located on the island, that model needs refreshing.
Trilateral Trade and Investment
Singapore and Indonesia continue to share robust trade and investment ties. Indonesia and Singapore are amongst each other’s largest trading partners, with bilateral trade amounting to US$52 billion in 2023. In addition, in 2023, bilateral trade between Indonesia and Malaysia reached US$24 billion.
In 2023, total trade between Malaysia and Singapore reached US$79.6 billion. Malaysia’s exports to Singapore were US$ 31.53 billion. The main exported goods were electrical and electronic equipment (US$9.38 billion), mineral fuels, oils, distillation products (US$9.73 billion), machinery, nuclear reactors and boilers (US$2.66 billion), pearls, precious stones, metals, coins (US$1.68 billion), and plastics (US$1.09 billion).
Challenges to Greater Trade Integration
To strengthen trade and economic cooperation, the Singapore business community has identified the lack of skilled labour, the need for unhindered movement of labour and goods, and investment support as key areas that policymakers need to address.
In this regard, Singapore and Malaysia are moving towards creating the Johor-Singapore Special Economic Zone (JS -SEZ). The draft JS-SEZ joint agreement is due to be signed at the 11th Malaysia -Singapore Leaders’ Retreat in December 2024.
The business community, investors and other key stake holders have highlighted the need for integrated logistics infrastructure and transportation. Infrastructure will naturally have a longer gestation period. One of the proposed ideas worth studying is how leaders can build transport hubs and industry nodes nearer to the immigration checkpoints to facilitate movement between Singapore and Malaysia at the Causeway, one of the world’s busiest land crossings with about 400,000 people movement daily.
There are many other obstacles, for example, what should be the fair share of contribution of funds for infrastructure development between both countries. Another key issue is on the supply of skilled workers to companies looking to expand their operations in the JS-SEZ.
Conclusion – SIJORI Growth Triangle Refreshed
Sub-regional economic development initiatives like SIJORI provide alternatives to the multilateral trading order. Leveraging on the Riau islands, Indonesia is collaborating with Singapore to boost the sub – regional economy and attract foreign investors. For example, a growing number of software companies have sprouted in Batam. Many Singapore and Indonesian start-ups are utilizing Batam for establishing operations and servicing Singapore-based companies. Batam also has plans for creating a new logistics hub that can serve the fast-growing e-commerce industry.
The SIJORI Growth Triangle model has advanced and Batam can also serve as an innovation hub where ideas can be tested before being applied in other regions of Indonesia. For example, the first prototype of sustainable housing for tropical climates was developed in Batam by a team of researchers at the Future Cities Laboratory. Called “Rumah Tambah”, it has specially designed foundations and roof that allow it to expand as the family grows.
The ability of the SIJORI Growth Triangle to attract talent and drive innovation shows the potential of the sub-regional model of development. With the political backing available, for example, the Johor Sultan has been made the Agong or King in Malaysia, providing influence and drive for the implementation of the JS-SEZ.
The JS-SEZ bilateral agreement is aimed for signing and more will be highlighted after the Leader’s Bilateral Retreat meeting at the end of 2024. For example, the Johor Bahru – Singapore Rapid Transit System (RTS) link to be completed by end 2025 will enhance connectivity between both countries and aims to transport 150 000 people daily, easing the congestion at the Causeway.
