Malaysia's new economic corridor gives tailwinds to shelved rail project

The economic corridor from Kuala Lumpur to Johor will likely run parallel to the HSR’s alignment.

Whilst the fate of the massive Kuala Lumpur-Singapore High-Speed Rail (HSR) hangs in the balance as the neighbouring governments sort out cost issues, the proposed establishment of an economic corridor stretching from Kuala Lumpur to Johor in Peninsular Malaysia could provide tailwinds to the rail project, according to Fitch Solutions.

The Malaysian government plans to implement the proposal next year, with a time horizon of five to 10 years. “Investments will likely take the form of enhanced inter-city transportation links such as improving the southern segment of the North-South Expressway (E2), and real estate development within these cities. The state of Johor is already home the Iskandar Malaysia Economic Corridor, which in February 2019, had doubled the size from 2,217 sq km to 4,749 sq km after approval from the federal government,” said Fitch Solutions.

The proposed economic corridor will likely run parallel to the proposed alignment of the HSR project, and as such should the proposed economic corridor move forward, this will boost the HSR business case and present tailwinds to its implementation, it said.

However, the HSR project is still suspended, with an announcement expected to be made in May 2020 regarding its fate. “We note that a decision on the HSR project will still be heavily contingent on the government's ability to lower the project cost, although the economic development linked to the corridor certainly presents a more attractive overall business case for its implementation,” Fitch Solutions added.

The proposed economic corridor itself will also have to overcome several hurdles before it receives formal approval from the federal government. Project costs have been the major factor in the suspension and cancellation of a number of high-value infrastructure projects in Malaysia over the last few years. Fitch Solutions added that the proposed economic corridor will not get the government’s approval if funding requirements are too high.

“Furthermore, even if the proposed economic corridor was to be implemented, the pace of development will likely be lacklustre in the near term, especially in Johor, given that attention is currently centred on the development of the existing Iskandar Malaysia Economic Corridor, which itself is suffering from a few setbacks including a lack of funding and investor interest,” it said.