Piece by piece, Malaysia builds new metropolis by Singapore

ISKANDAR, Malaysia Thu Jul 7, 2011 12:57am EDT

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ISKANDAR, Malaysia (Reuters) - Like a giant Lego project, Malaysia is assembling the pieces of an investment zone that is destined to become a metropolis about three times the size of neighboring Singapore.

An area of mostly rubber and oil palm plantations covering 2,217 square km (855 square miles) in the southern state of Johor is being turned into international schools, hospitals, hotels, theme parks, luxury homes and a financial district.

One of the first pieces of the development, appropriately enough, is a Legoland theme park. Due to open next year, it will offer 40 interactive shows and rides, along with 15,000 giant lego models of famous buildings. It will be the first of three planned theme parks in Iskandar Malaysia, named after the late sultan of Johor.

Launched on November 4, 2006, Iskandar is one of five "economic growth corridors" Malaysia is developing over the next decade. They are part of an "Economic Transformation Programme" that aims to propel Malaysia into a fully-developed nation by 2020 by lifting per-capita incomes to $15,000 from $6,900 in 2009.

"At the moment, manufacturing contributes 70 percent of the region's economy," said Ismail Ibrahim, chief executive of the Iskandar Regional Development Authority (IRDA). "We hope upon reaching maturity at 2025, the main contributing sector would be the service sector."

Far from being a rival to Singapore, Iskandar is courting investment from the rich city-state just across the Straits of Johor. Incentives include corporate and personal income tax breaks, and exemptions from the so-called "bumiputra rules" -- foreign investors are allowed to own 100 percent of their businesses, with unrestricted hiring of foreign "knowledge workers."

Like different colored Lego blocks, Iskandar will feature various zones -- financial, creative media, tourism, education and healthcare in the service sector; electrical and electronics, petrochemical and food processing among others in manufacturing.

It had already attracted RM 69.43 billion ($23 billion) in promised investment by last December. About 38-39 percent of that sum has been "realized," Ismail told reporters in May.

Iskandar is targeting another RM 13 billion annually and a total of RM 73.3 billion over the next five years following the completion of key infrastructure, education and tourism projects by next year. Foreign investment has accounted for about 41 percent of the total so far.

Improving relations between Singapore and Malaysia are key to the Iskandar investment climate as the island state is expected to be the single biggest investor in the development.

Singapore left the Malaysian Federation in 1965 and ties since then have hit many a rough patch. But last year they signed agreements to settle long-standing issues, including railway land bisecting Singapore owned by Malaysian rail operator Keretapi Tanah Melayu (KTM).

CIMB research regional economist Song Seng Wun said that Singapore's private sector companies have been the biggest and oldest investors in Johor, but what was missing was strong participation from government-linked companies.

"Singapore Inc. has been cautious about investing in Johor," Song said. "They are taking it one step at a time, looking for policy consistency from Malaysia and Johor, and observing how Singapore and Malaysia work together on transfer of railway land and other previous agreements."

Britain's Newcastle University Medical School is one of six colleges planned in an "Educity" complex in Iskandar, and will admit its first batch of students later this year. British boarding school Marlborough College will open this year, as well.

A 355-acre (144-hectare) financial district will host corporate office towers, premium hotels, high-end residential properties, premium retail complexes and luxury service apartments.

Malaysia is also aiming to get a piece of the growing Asian film production market with the new Pinewood Iskandar Malaysia Studios, a joint venture between Malaysia sovereign wealth fund Khazanah and Pinewood Shepperton, the British film studio behind the Batman and James Bond movies.

Khazanah will also work with Singapore's sovereign wealth fund Temasek Holdings to develop a wellness township in Iskandar, offering medical facilities, holistic health services and alternative medical treatment.

(Editing by Bill Tarrant and John Chalmers)

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