Investors from the Middle East pledged Wednesday to pump RM4.2 billion (US$1.2 billion) into a new economic region in Johor, the first major foreign investment for the project.

Firms from Gulf Cooperation Council countries will initially invest the money in land and infrastructure in the Iskandar Development Region.

Azman Mokhtar, chairman of South Johor Investment Corporation Bhd (SJIC), hailed the agreement a milestone for the economic zone, which the government hopes will eventually transform into a new Asian metropolis.

"This is a historic and strategic landmark transaction between our two regions," he said at the signing ceremony. "By far, this is the biggest single foreign investment ever made in Malaysia."

Mubadala Development Company, the investment arm of Abu Dhabi, has committed US$520 million. The rest of the money is coming from Al-Nibras 2 Ltd, a subsidiary of Kuwait Finance House, and Abu Dhabi's Millennium Development International Company.

The project will be managed by Abu Dhabi-based developer AldarProperties PJSC.

Muslim-majority Malaysia has embarked on an ambitious development plan to spread growth and jobs in Johor, and has been keen to attract investment from the Middle East.

Prime Minister Abdullah Ahmad Badawi hopes to attract RM50 billion (US$14.2 billion) to the Iskandar Development Region over five years.

But analysts have said Malaysia will struggle to lure the dollars away from other nearby growing economies like Thailand, Vietnam, India and China.

Foreign investment decline

Malaysia, Southeast Asia's third largest economy, has seen foreign direct investment steadily declining. In 2006 it amounted to an estimated US$3.9 billion dollars, compared to US$5.5 billion dollars in 2001.

Abdullah today said the deal proved that Malaysia was still attractive to foreign investors.

"Everybody is looking at the Gulf investors these days and the fact they have the confidence in us will allow other investors to follow suit," he said.

Malaysia and its partners aim to transform the Iskandar Development Region - which the government says is three times the size of Singapore - into a thriving hub for trade, tourism and investment.

A glossy brochure promises "iconic buildings" and "choice waterfront homes" in a zone complete with theme parks and hospitals, but Johor's Chief Minister Abdul Ghani Othman said first crime would have to be cut by 50 percent.

SJIC will hold a 30 percent stake in all the projects announced Wednesday through its subsidiary Rim City Sdn Bhd.