Earlier this week, Malaysia Prime Minister Mahathir Mohamad confirmed that Malaysia will drop the Kuala Lumpur-Singapore high-speed rail project (HSR) as it is not beneficial to Malaysia.
The HSR project between Malaysia and Singapore would have materialized into a rail track across four states in Malaysia to provide seamless travel between the capital cities. The terminal stations would be located at Kuala Lumpur’s Bandar Malaysia and Singapore’s Jurong East. It was expected to cut travel time to 90 minutes.
“It’s going to cost us a huge sum of money. We’ll make no money at all from this arrangement. (The HSR) is only a short track. It is only going to save people one hour by taking the HSR,” said Prime Minister Mahathir Mohamad.
According to him, this move was necessary to “avoid being declared bankrupt”. He made the decision to “do away with unnecessary projects” such as HSR which would “cost (Malaysia) RM 110 billion (US $28 billion)”. Their new transport minister Anthony Loke also shared that the priority of the government is to pay their debts and the ability to repay their debts. Their number one priority is to ensure their finances are healthy.
– Why Malaysia Should Change Their Mind? –
As much as we empathise with their financial circumstances, here are some reasons why they should reconsider pulling out.
#1 It’s A Money Making Investment
The Singapore-Kuala Lumpur air route is the busiest international route in the world. There were 30,537 flights between both cities in 2017. With large yearly passenger numbers, we already know that this HSR will be frequented by passengers across both borders.
Just like the prosperous Taiwan HSR between Taipei and Kaohsiung and the Tokaido Shinkansen between Tokyo and Osaka, this HSR project can benefit from the economic multiplier effect. What’s that? To put it simply, it’s when an amount of spending is injected into the economy to meet a demand and reap greater economic benefits in the long run.
With the spending on infrastructure, the country stands to create more jobs and higher quality of life through urbanisation. This creates employment and economic output. In return, when the citizens earn more, they will continue to spend more. With an economy’s circular flow of income, this means that their spending will contribute back to the constant flow of the country’s economy. Spending on this HSR project can set of a chain reaction of economic growth.
A study by the research body Institute of Developing Economies, Japan External Trade Organisation (IDE-JETRO) found that the HSR would deliver a US$1 billion (RM4 billion) economic gain to Malaysia every year upon operation. It’s a sustainable inflow that should not be dismissed.
#2 Cancel It And Lose Out Financially and Socially
To give a rough gauge, Malaysia will lose an estimated RM209 billion in gross national income and lose the potential to create 70,000 jobs if the Kuala Lumpur-Singapore High-Speed Rail is called off. It is also expected to create about 5,000 sub-contract packages where 40 per cent in value will be allocated to Bumiputera companies. That’s a lot of people’s incomes involved.
Over 35,000 local Malaysian responses were also collected to feedback on this project and 95% of them were supportive. It proves that there has been overwhelming support for it. Dropping out of the HSR project could potentially cause social friction among citizens.
#3 Malaysia Becomes Less Attractive To Foreign Investors
With the HSR plans in public, China, Japan, South Korea and even Europe have expressed their interest to bid for this project. For example, Japan proposes a “comprehensive financial package” that will reduce financial burden to both nations. Japan is also open to the transfer of technology and human capital. This is great news considering that they invented the bullet train technology and operated Shinkansen for almost 50 years without any fatal accident or human capital problems.
By withdrawing from this project, Malaysia loses a possible international tie and technological gain. It will disappoint foreign investors as the project could have acted as a catalyst for rapid pace growth in the future.
#4 Abortive Costs
Nothing in life comes free, including bailing on agreed plans.
Chief executive officer of MyHSR Corp, Mohd Nur Ismal Mohamed Kamal, said, “It has been eight years of many man and woman hours that went in to make sure this is done well in terms of delivery in a way that will ensure maximum benefits are realised.”
“If we don’t do it, not only we have to incur abortive cost in our own border, we also may have to provide compensation to Singapore. This, even though it is quite big, is minuscule compared to huge opportunities we are going to miss.”
Mahathir also commented, “The terms of the agreement (for the HSR) are such that if we decide to drop the project, it will cost us a lot of money. So we are going to find out how we can reduce the amount of money we have to pay for breaking the agreement.” This may be counter-productive.
You have to also bear in mind that if this project does not happen now and both nations choose to do it years later, the cost would only be higher and debt burden even greater. This will not gel well with Harapan government’s aim to reduce national debt.
– What’s In It For Singapore? –
#1 Economic Growth and Employment
Apart from saving time when we want to travel to Kuala Lumpur, the rail link was expected to bring back RM21 billion (S$6.7 billion) in GDP to Malaysia and Singapore. 111,000 jobs would be available by 2060. Not only does Malaysia lose out, but Singapore loses out too.
#2 Save The Environment
With more road users opting to take the HSR when travelling to Malaysia, it would ultimately reduce fuel and and carbon dioxide emission savings. By the 10th year of operation, about 19 million litres of fuel will be saved from fewer vehicles on the road.
With the HSR being electric-powered, it will also reduce greenhouse gas emissions from vehicles. This means 55 million kilograms of carbon dioxide emissions saved!
#3 If Malaysia Wants Out, Singapore Could Gain Compensation
Part of the abortive costs incurred would be the compensation paid to Singapore for the termination of the agreement. Although this does not equate to the financial gains of a full-fledged HSR project, it would cushion the loss of man hours over the years leading up to this.
Besides, Singapore could still gain from the Rapid Transit System (RTS) Link due to be built by 2024. The rail project connects Johor Baru to Singapore in 30 minutes and could reduce the traffic on the Causeway by up to 15%.
All in all, every action taken has its pros and cons but no action should be taken without careful deliberation. TehTarik will stay tuned for any future developments.
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