THE INDONESIA-MALAYSIA-SINGAPORE GROWTH TRIANGLE Outline of Presentation 1.

GROWTH TRIANGLES IN THE ASEAN CONTEXT * ASEAN membership * Major economic cooperation schemes - ASEAN Free Trade Area - ASEAN Growth Triangles - ASEAN Industrial Cooperation - ASEAN Investment Area - ASEAN Services Framework Agreement * Growth triangle versus free trade area * ASEAN growth triangles - pioneer Southern IMS-GT (Indonesia-Malaysia-Singapore) - Northern IMT-GT (Indonesia-Malaysia-Thailand) - Eastern BIMP-EAGE (Brunei-Indonesia-Malaysia-Philippines) - Mekong Sub region

2. RATIONALE & CHARACTERISTICS OF GROWTH TRIANGLES * Transnational economic zones * Objective to enhance economic competitiveness with exploitation of comparative advantage, economics of scale and clustering * Exploit synergies from geographical proximity & economic complementarily * Geographical proximity advantages - lower transaction costs, including transportation and information - facilitates production & distribution networks, JIT manufacturing - facilitates time-sensitive products and services delivery - facilitates SME investments * Economic complementarily advantages - immobile land and natural resources and mobile capital and labour - exploits different factor endowments, factor prices and cost structures - enables specialisation, economies of scale, enlarged market

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Governments as facilitators - remove political and policy impediments - provide institutional framework - facilitate physical infrastructure development - provide incentives to private sector involvement Infrastructures as facilitator - availability of transportation & telecommunications for movement of goods, people and information Private sector as driving force

3. FEATURES OF IMS-GT * Very much smaller in scale than Hong Kong-South China economic zone * Strong historical Singapore-Johor-Riau links * Earlier economic links more developed on Singapore-Johor sector, less developed on Singapore-Riau sector and Johor-Riau sector * Crucial October 1989 meeting of Singapore and Indonesian political leaders * Original geographical coverage of SIJORI - Singapore, Johor (Malaysia), Riau (Indonesia) - Singapore city state of 4 million, short of land and labour - Johor, north of Singapore, is 2nd largest and one of the most developed states in Peninsular Malaysia with 18,986 km2 and 2.5 million population - Riau islands, south of Singapore, are part of the larger Riau province, one of Indonesias largest producers of oil and natural gas. Tiau archipelago has over 3000 islands, and the larger islands of Batam, Bintan and Bulan are sparsely populated. Riau province includes Central East Sumatra and Natuna Islands and has 3.5 million populations. * Extended geographical coverage of IMS: - Singapore - Malaysian state of Johor plus contiguous states of Negeri Sembilan, Malacca and Pahang - Indonesian province of Riau and contiguous provinces of West Sumatra, South Sumatra, Bengkulu, Jambi, Lampong and West Kalimantan - Total IMS area of 334 thousand km2 and population of 35 million * 1994 MOU on Economic Cooperation formalised the tripartite IMS framework: - development of IMS to be private-sector-led and market-driven - Government to support, encourage and facilitate flow of goods, services, investments, people

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Official and private sector committees in IMS - National coordinating authorities are the economics, trade and industry ministers - Joint Ministerial Meeting review progress and resolve policy issues - 6 Sectored Working Groups on industry, services, agriculture, infrastructure, human resources and tourism - Senior Officials Meeting function as liaison between MM and WGs - Joint Business Council of the private sectors

4. FACTORS IN IMS-GT * Strong political support from governments, mainly bilateral until 1994 - different state/federal and provincial/central relations - early strong commitments of governments of Singapore, Indonesia, Johor, while Malaysian federal government support came later - Indonesia-Singapore Ministerial Committee for Riau and the Johor-Singapore Joint Committee on Business Cooperation established in March 1989 to coordinate ongoing cooperative efforts. - 3 bilateral Singapore-Indonesia agreements in 1990 for joint development of Riau in infrastructure, industry, services, tourism and water resources * Indonesian policy liberalisation to facilitate investment in Batam - Batam declared a duty-free zone since 1978 - 100% foreign ownership - foreign and domestic private enterprise in industrial estate development - Batam office for investment and licensing approval - Lengthening of land lease * Economic complementarily - Singapore: capital, expertise, world class infrastructure, market - John and Riau: land, natural resources, labour * Geographical proximity - time and cost savings - Singapore and Johor linked by 1 km causeway - Singapore-Batam 50 km distance linked by 30 minute ferry ride - Singapore-Bintan linked by 45 minute ferry ride * Available facilitating infrastructure - causeway and ferry connections facilitate people and goods movement in JohorBatam-Bintan - Singapore has extensively developed world class infrastructure - Johor has well developed infrastructure, including industrial estates, free trade zones and port and airport facility - Riau has relatively poor infrastructure, hence Singapore-Indonesia joint ventures for infrastructure development, with involvement of Singapore GLCs in development of industrial estates and tourism facilities 5. BENEFITS OF IMS-GT * Singapore: Riau and Johor provide extra economic space: - relocation of land and labour intensive industries - development of nearby recreational facilities - reinforcement of business headquarters and regional hub role - securing future water supplies - outward expansion for GLCs and SMEs

Indonesia: Singapore provide development resources for regional periphery - development of industrial, commercial and tourism infrastructures - attracting foreign investments - creation of export industries - development of oil and gas resources, agribusiness, tourism - Batam has achieved the highest per capita income in Indonesia Johor: twinning with Singapore to exploit the metropolitan spill over effects and facilitate catch-up - Johor is one of the most developed states in Peninsular Malaysia

6. LINKAGES ON SINGAPORE-INDONESIA SECTOR * Investments from Singapore (including foreign MNCs based in Singapore) are the major sources of FDI in Batam. There are near 400 foreign manufacturing plants in Batam, of which about 70% involve Singapore * Involvement of Singapore GLCs and Indonesian private enterprise to develop infrastructure including industrial estates and tourism resort in Batam and Bintan * 4 flagship projects are the Batamindo Industrial Park, Bintan Industrial Estate, Bintan Beach International Resort, and Karimun marine and industrial complex. These projects have attracted over US$4 billion in foreign investments, created employment for about 100,000 Indonesians and generated export earnings of US$2.5 billion in 2000 * US$400 million Batamindo Industrial Park (BIP) opened in 1991, as joint venture between Singapore GLCs and Indonesian conglomerate Salim Group - self-contained industrial township with factories, power and water supply, sewage system, telecoms facilities, housing, and commercial centre - 89 companies invested more than US$1 billion producing goods with export value of over US$2 billion in 2000 and employed over 80,000 workers - logistics and freight door-to-door services by BIP who arrange shipment through Singapore and onwards - private ferry services and smartcard immigration processing * Bintan Industrial Estate is modelled after the Batam Industrial Park - self-sufficient infrastructure, self-contained development and one-stop service centre - covers 4000 ha of industrial land, of which 110 ha currently developed by consortium led by Singapore GLCs and Indonesian conglomerate - linked to Singapore by 1 hour ferry ride and then 5-minute care ride to Singapore Changi Airport - offers 100% foreign ownership, duty-free import of raw materials and equipment, preferential exports under GSP, no value added tax for exports, 25% of exports permitted for Indonesian domestic market - logistics and freight door-to-door services by BIE Bintan Beach International Resort being developed by the same groups for BIP and BIE - easy access to Singapores 7 million visitors and 26 million air passengers, and Singapores 4 million resident population - direct ferry connections with Singapore * Karimun Marine and Industrial Complex being developed by Singapore GLCs and Salim Group - shipyard, petroleum storage and refining * Water supply for Singapore - 1991 agreement to develop Bintans water resources to meet Bintans industrial and tourism needs and to supply Singapore in the longer term - private sector to take the lead in negotiating a deal

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Natural gas supply for Singapore - Singapore signed 2 multi-billion-dollar gas deals with Indonesia, with an annual of US$775 million to Indonesia - 22-year agreement signed between Singapores SembGas and Indonesias Pertamina to buy US$8 billion worth of natural gas from West Natuna. Some 325 million cu ft per day will be delivered through a 640 km submarine pipeline from 2002 - 20-year agreement signed between Singapore Power and Indonesias Pertamina to buy US$9 billion worth of natural gas from the Asamera gas fields in South Sumatra, Some 325 million cu ft per day will be delivered through a 500 km submarine pipeline from 2003

Food supply for Singapore Singapore looking to import food, including pigs, seafood and vegetables Bulan island being developed as food production centre for Singapore Plan for experimental farm to be owned by local farmers, with technology and training by Singapore private sector * Tourism development in Indonesia * Bintan resort * Direct air access established between Singapore and 5 Indonesian locations in Lombok, Menado, Ujung Pandung, Solo and Padang * Singapore to establish consulate at Riau provincial capital of Pekan baru to oversee growing number of projects and strengthen Singapore-Riau links. Riau and South Sumatra will set up information offices in Singapore 7. LINKAGES ON SINGAPORE-MALAYSIA SECTOR * Singapore-Johor linked by geography, history and strong trade, investment and tourism relations * Singapore-Johor linked by 2 causeways, ferry and rail transport * Johor is Singapores third largest trading partner after US and Japan, and accounts for half of Singapores trade with and 60% of Singapores investment in Malaysia * Singapores investment in Johor reached RM5.85 billion for 662 manufacturing projects during 1990-96. Most of Singapores firms are SMEs * Johor is the main source of Singapores land visitor arrivals from Malaysia * In 2000, over 3 million visitors entered Johor from Singapore, of which Singaporeans made up nearly 70%. With the North-South Highway, Johor acts as the gateway for Singaporeans travelling to all parts of Peninsular Malaysia. Johor checkpoint statistics reported an average of 800,000 Singaporeans crossing the Causeway to Johor every month * Construction of second land link between Singapore and Johor by Singapore government and Malaysian conglomerate Renong Group. The new and second checkpoint at Tuas has 196 clearance lanes and designated decks for different modes of transport * Since July 1999, new immigration clearance facilities at Woodlands Checkpoint operates under a multi-agency team and leverages on the latest IT systems to provide effective and efficient clearance while ensuring tight border controls. At opening of the new checkpoint, volume of people traffic reported to reach 118,000 comprising of truck drivers, motorcyclists and other individual travellers * During 1967-1999, Singapore travellers across the causeway could use either the Singapore Restricted Passport (SRP) or the international passport. The SRP was

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discontinued after 1999 Under discussion is a smartcard to replace the passport for Singapore-Johor travel Malaysian plan for the Southern International Gateway comprising a new 1.5 km bridge with capacity for 200,000 vehicles per day and connect the expressways of Singapore to Malaysias North-South Expressway Johor supplies Singapore with 214 million litres of raw water a day, or more than half of Singapores daily water needs. Singapore buys the raw water under two water agreements signed in 1961 and 1962 and which will run out in 2011 and 2061. In turn, Johor buys an average of 37 million gallons per day of treated water from the Singapore treatment plant in Johor

8. LINKAGES ON MALAYSIA-INDONESIA SECTOR * Johor-Riau links remain limited with lack of economic complementarily. * Establishment of the 616 hectare Padang Industrial Park in West Sumatra by Johor Corporation and West Sumatra government in 1997. Total development costs of the 616 ha park estimated at RM225 million. Second industrial park joint venture in Dumai in Riau province * Ferry service between Pasir Gudang-Batam and Pasir Gudang-Tanjung Pinang (Bintan) * Malaysian investments in oil palm plantations in South Sumatra and Riau 9. SOME ISSUES AND CHALLENGES IN IMS-GT DEVELOPMENT * Impact of Asian financial crisis - deteriorated business environment - political uncertainties - Indonesian and Malaysian conglomerates * Broader bilateral relations impinging on IMS-GT * Continuing impediments to cross-border flows of goods and people * Migration and social issues * Land lease and land compensation