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Impact of Iskandar’s economic development on small businesses

Where business made easy

SINGAPORE: The development of the Iskandar region in Johor has attracted debate among politicians seeking to be elected to office in Malaysia.

Iskandar has attracted around S$40.5 billion (US$32.9 billion) of foreign investments so far.

It has accelerated economic growth in the southern Malaysian state and created jobs, but also resulted in asset inflation.

Small businesses told Channel NewsAsia that they want politicians to make sure the fruits of economic development reach them.

Mega projects in Iskandar are largely undertaken by government-linked companies such as UEM Land.

They usually have a common parentage in Khazanah Nasional - Malaysia's sovereign wealth fund which is driving investments into the Iskandar region.

Singapore firms and property investors have also invested in the region, and prices have risen.

With the rapid pace of development, many small businesses have said they are facing higher costs that could outweigh the economic dividend.

Teh Kee Sin, national president of the Small & Medium Industries Association of Malaysia, said: "Recently we are seeing many property sales launches. Within days, within hours - all (the units are) fully taken up.

"This has never been seen in the past. We call it the Iskandar Malaysia phenomenon or rather the Singapore phenomenon. While we are looking at this positively, somehow it has already impacted our lives - (in terms of) the cost of living, the cost of doing business."

Chinese voters like Mr Teh make up little more than a third of Johor's 3 million population.

Forty-seven per cent of the population is Malay and nine per cent is Indian.

Most Chinese and Indians run their own businesses and control a significant stake in the economy.

Analysts have said the Chinese and Indians are likely to be swing voters in the elections.

Vathumalaai, CEO of G&G Dessert Products, said: "The racial thing has to go out, if you ask me. The government is doing a lot of things but the only thing is that it is not reaching to the deserving SMEs (small and medium enterprises). I think there is going to be a change... Everybody is talking about that."

At this point, observers said it is unlikely the ruling Barisan Nasional will lose majority control of Johor. Some are predicting that the opposition Pakatan Rakyat coalition may win - at most - one-third of the votes.

Mohd Nawab Mohd Osman, a research fellow at S Rajaratnam School of International Studies, said: "Generally, it is a numbers game... Even if there is a small shift in the Malays going to (vote for) the opposition, it is very difficult for them to capture the state, unless of course they can capture 80 per cent or more than 85 to 90 per cent of the Chinese vote, which is not so easy."

The key to their vote could lie in the economic vision of the respective parties.

Mr Teh said: "We are mostly in the supporting industries... Some of us are in the OEM (original equipment manufacturer) or contract manufacturing business. We are very passive in terms of business development because we depend on the FDI (foreign direct investment) that is coming in. So if the FDI does not come in, the foreign investor does not come in, the SMEs won't have a good life."

Loh Liam Hiang, president of the Johor Bahru Chinese Chamber of Commerce & Industry, said: "Whether we have a two-party system or not, economic development should continue. This has to be regardless of who is in power, because the economy is of utmost importance to a country."

While voters are more concerned with day-to-day cost of living issues, economists have said that post election, the first thing the government will need to do is to get its finances in order.

Rahul Bajoria, regional economist at Barclays Capital, said: "Irrespective of whoever wins, the first thing that they need to try and do is to control the fiscal spending that has been increasing in the last six months in the run-up to the elections.

"Over the medium term, I think if they can increase their revenue base, particularly the tax revenues, that would be a very significant positive."

Malaysia has been running a budget deficit for 14 years, and economists said raising taxes or increasing the tax base could help to reduce it.

Currently, only 6 per cent of Malaysians pay tax, compared to 20 per cent for other Asian economies.

- CNA/ms