Toll increase to further erode Iskandar’s cost advantage, say experts

BN MP for Pulai Datuk Nur Jazlan Mohamed said the toll rates need to be reasonable for Iskandar and JB to flourish, Sept 15 , 2014. — Yusof Mat Isa
BN MP for Pulai Datuk Nur Jazlan Mohamed said the toll rates need to be reasonable for Iskandar and JB to flourish, Sept 15 , 2014. — Yusof Mat Isa

SINGAPORE, Sept 15 — Businesses here looking to relocate some of their operations to Malaysia’s Iskandar special economic zone may have to rework their sums, following the increase in tolls announced by the Land Transport Authority (LTA) on Friday, and the higher transport costs will further erode the shrinking cost advantage, economists told TODAY.

Additional costs incurred by firms that have a presence in both Singapore and Malaysia when the higher tolls kick in on Oct 1 would likely be passed on to consumers, they added.

However, they said the impact on both nations’ economies, including on tourism, would be minimal as commuters and businesses are expected to adjust to the hikes.

For example, Singaporeans may choose to take public transport instead of drive across the Causeway, while firms may locate more operations in one country or ship their goods instead.

The LTA’s announcement came after several earlier pronouncements that it would match toll increases by Malaysia, which took effect on Aug 1.

Over the weekend, some Members of Parliament in Johor raised concern that the higher tolls would have an adverse impact on Iskandar.

Singapore is the largest source of foreign investment for Malaysia’s southern economic corridor, contributing about RM11 billion (S$4.35 billion) as of April in the areas of manufacturing, education and property development.

“Malaysia and Singapore need to consider this hike, so business in Iskandar Malaysia can flourish … (The toll rates) cannot be too expensive for cars to enter Singapore and Johor Baru or Iskandar won’t be a success,” said Datuk Nur Jazlan Mohamed, Barisan Nasional chief for Pulai.

However, economists whom TODAY spoke to said toll charges might not be the single factor that tilts the equation for Iskandar. CIMB economist Song Seng Wun said: “In the short term, if trips to and fro can’t be avoided, it’s more likely costs will be passed on to consumers. What does this mean to you and me? Maybe, an egg will cost a fraction of a cent more. Things like that are inevitable.”

He added: “Businesses will have to take this into account in the bigger scheme of things, but I don’t think it’s such an important factor to dissuade them either way.”

UOB economist Francis Tan agreed, adding that the two biggest cost factors often cited by companies here are rental and manpower. “I think transport costs are something they can manage. It may lead to some companies deciding not to move but, at this point, it’s hard to determine how big that number will be,” he said.

Association of Small and Medium Enterprises president Kurt Wee reiterated that the availability of labour and rising property costs are some of the bigger reservations firms here have about moving to Iskandar. He said that before the toll charges were raised, the savings of 15 to 20 per cent Singapore firms had enjoyed from operating in Iskandar were not great.

Singapore Business Federation chief operating officer Victor Tay added: “If both (countries) keep catching up with each other, those that have part of their production facilities in Iskandar have to relook their calculations and decide to move the whole supply chain there and export their goods from ports in Johor, while those with sub-contracting or outsourcing arrangements to Iskandar may think twice about shifting things over.”

Mr Tay added that should toll charges rise further, the local economy in Johor might be affected should Singaporeans go there less often, while supply of Malaysian workers to Singapore firms — which are facing a manpower crunch — might shrink.

On Saturday, Malaysian transport minister Liow Tiong Lai said the government would take measures to reduce the effect of the rise and identify measures to mitigate the impact. “This includes holding negotiations with the authorities in the country to ensure those working in Singapore and Malaysia are not burdened,” he was quoted as saying in The Rakyat Post.

Malaysian works minister Datuk Fadillah also issued a statement, saying that Singapore, as a sovereign state, “is entitled to make its own policy decisions which it deems correct”. — Today

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