Thursday 28 Mar 2024
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(Apr 30): Malaysia-Singapore economic integration may take a leap if ambitions to build a high-speed rail link are realized. Greater collaboration is emerging out of economic necessity. Malaysia’s abundant land and larger population offers Singapore a natural avenue to overcome its geographical and manpower constraints. Malaysia also needs more foreign investment, as the oil & gas price collapse is hurting growth and fiscal revenue. For Malaysia's Prime Minister Datuk Seri Najib Razak politically, the high-speed train will offer a way to rescue and lift 1MDB asset values. This opportunity comes at a time when both Japan and China – armed with ready infrastructure funds - are showing keen interests in the project. With the ASEAN Economic Community (AEC) set to start end-2015, the fast train will complement ambitious train projects connecting Thailand and the Greater Mekong region.

High-speed train – stops & starts

News on the High-Speed Train (HSR) has been lacking, but the upcoming leaders meeting in May will hopefully offer some signs of progress. Realization of the KL-Singapore High-Speed Train will be an important milestone for economic integration. In Sept 2010, Prime Minister Najib announced the Kuala Lumpur-Singapore High-Speed Rail project, which could cut the travel time between the two cities to just 90 minutes. In Feb 2013, Singapore Prime Minister Lee Hsien Loong and Prime Minister Najib officially agreed to build a high-speed rail link by 2020, although delays are likely. A committee was tasked with looking at the feasibility and modalities of the project. The RM40bn (US$11bn) infrastructure investment will offer a significant economic boost, at a time when exports are faltering and investment is slowing.

The Kuala Lumpur stop will likely be Bandar Malaysia, a 1MDB development, site of a current military airport. The HSR link should help boost 1MDB’s asset values and Johor (with three stops). Malaysia has already announced the seven “stops” in Oct 2014. These are [1] Kuala Lumpur; [2] Putrajaya; [3] Seremban; [4] Ayer Keroh: [5] Muar; [6] Batu Pahat; and [7] Nusajaya (Iskandar). For Singapore, Prime Minister Lee had said that the terminal could be at [1] Tuas West; [2] Jurong East; or the [3] Downtown Core. Placing the HSR stop downtown will however increase the costs significantly. We believe Jurong East will be the preferred option, given decentralization efforts and costs.

Economic links and integration between Singapore and Malaysia have seen a volatile past. Malaysia-Singapore relations have been far from smooth and were especially rocky during Malaysia's former Prime Minister Tun Dr Mahathir Mohamad’s time. Dr Mahathir’s proposed “crooked bridge” to replace the causeway was the epitome of that tense relationship. Only when Malaysia's former Prime Minister Tun Abdullah Ahmad Badawi took over the premiership in 2003 was there a warming of bilateral ties. Since then, we have witnessed greater cross-border investment and resolution to some outstanding issues, including the KTM railway land in May 2010. Khazanah and Temasek are currently jointly developing two prime land parcels in downtown Singapore in exchange for the railway land (Marina One & DUO).

Singapore's cumulative direct investment into Malaysia has doubled to S$27.2bn in 2013 from S$13.5bn in 2003, the year when Prime Minister Badawi took over the premiership from Dr Mahathir. Malaysia is the fifth largest direct investment destination, accounting for about 7% of total. Investment flows have improved both ways. Malaysia's FDI into Singapore also shows a significant turn and increase since 2003. Bilateral trade however continued to slide lower over the last 10 years, with Malaysia accounting for about 11% of trade compared to about 18% a decade ago.

Politically, the high-speed train will offer a way for Prime Minister Najib to partly rescue and lift 1MDB asset values. The high-speed train will stop at Bandar Malaysia, a 495-acre 1MDB site in Sungai Besi, south of Kuala Lumpur. The government also recently announced that the RM23bn MRT Line 2 will instead go through Bandar Malaysia (rather than Pandan). This will help the connectivity of the fast train with MRT network, but could delay the project by 3-6 months and cost four times the surface equivalent because of going underground. 1MDB will also benefit from the government's land acquisition for the MRT 2 line, likely to be higher than the original costs. These moves will not silence critics, but may buy more time and financial space for 1MDB to restructure its massive RM42bn debt. Dr Mahathir may not be impressed, but a high-speed train is a far more important step for economic integration than a crooked bridge.

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