BALANCING DIVERSITY

Malaysia 2016 | SABAH | REVIEW

Major investment initiatives in support of the government's vision for the future of Malaysia have placed Sabah at the center of attention as a dynamic hub for economic and social development.

The state of Sabah has long been Malaysia's primary source of oil and natural gas production. It was from national energy corporation PETRONAS' offshore petroleum operations in Sabah that it erected the famous Twin Towers in Kuala Lumpur. The state is also known for its palm oil and timber production. Current economic planning in both the public and private sectors is largely guided by Malaysia's Vision 2020, which sets the target of achieving a developed-nation status by the year 2020. In support of this vision, the federal government designated Sabah's capital, Kota Kinabalu, as one of four cities on the “economic hit list" under the 11th Malaysia Plan (MP11), committing resources to the diversification and development of local infrastructure, social services, communications, and environmental preservation.

The goals outlined by the Vision 2020 and the MP11 are being achieved not only through innovation and strategic repositioning by firms in the private sector, but also through public initiatives aimed at improve the wellbeing of much of Sabah's economically underserved population. Around 77,000 residents of Sabah currently benefit from recent government social development policies, including minimum wage reform, affordable housing, government assistance for single-parent families, and increased accessibility for the disabled. However, as a part of the Sabah Strategic Long-Term Action Plan (Sabah LEAP), state officials are looking for ways to provide not merely temporary relief for the economically underserved, but a means by which to create new conditions that will sustain long-term prosperity for the population.

Much of Sabah's traditional economic model has relied on the utilization of a few key features of the region's natural resources, namely oil and gas, timber, rubber, cocoa, and palm oil, the topic of much recent discussion. The recent push of diversifying away from reliance on commodities and more toward knowledge-based investment initiatives (as demonstrated by the rising number of SMEs) has placed a renewed focus on using improved technology to take advantage of Sabah's natural resources while still preserving their long-term value. Sabah, at one time, produced over $1 billion worth of timber per year. That figure dropped to between $120 and $140 million in 2014 as a result of government policies. This greatly constricted the capacity of timber industry in order to protect the region's rainforests, some of the oldest in the world and a key pillar of Sabah's tourism industry, which rose to $6.3 billion in revenues during that same period according to Sabah's Minister of Tourism, Culture, and Environment.

The agricultural economy is comprised of the two distinct areas: industrial agriculture and food production. Biotechnology firms are demonstrating new ways of monetizing a sustainable reforestation market. Halal is also an area of particular attention, where innovations in production methods are improving the efficiency of local producers, allowing them to more effectively market Sabah halal products worldwide. A partnership between Ever Nexus and Yayasan Sabah together Darden Restaurants, the world's largest restaurant enterprise, developed the Integrated Lobster Aquaculture Park (ILAP) in Semporna, a first of its kind project that covers 9,300 aquatic hectares and makes Malaysia the first country in the world to operate a sustainable integrated lobster farm and hatchery.

Sabah is already Malaysia's largest contributor of palm oil, producing 30% of the national total. Growing concern over the potential blowback of traditional palm oil production methods has led to innovative projects in Sabah. Its Palm Oil Industrial Clusters (POIC) cover a total area over more than 3,000ha at their two locations in Lahad Datu and Sandakan and offer a number of incentives for attracting investors to the region. In total, 41 companies have invested in the POICS thus far and those who have plants in operation have been pleased with the improved capacity of these facilities. The increased value-added from many of palm oil's downstream runoffs, such as biomass energy generation, has also benefited the companies. Sabah has more land available for agricultural development compared to peninsular Malaysia and continued investment in sustainable innovation within this sector demonstrates a major opportunity for attracting not only local enterprise but also foreign investors as well.

The official target of 2015 was set for the foundation of the ASEAN Economic Community (AEC) at the 13th ASEAN Summit in Singapore and its implementation guidelines place great importance on creating an equitable and integrated economic marketplace for the entire region of Southeast Asia. This stands to benefit the state of Sabah greatly, which enjoys a position of logistical importance and abundant natural resources. However, the emphasis on implementing the AEC Blueprint in a timely manner puts Sabah under pressure to quickly upgrade much of its infrastructural framework, an area that has hindered both economic potential and quality of life for years.

The development of many new projects plays a key role in putting into action the plans laid out by the AEC and Malaysia's vision for 2020. These projects cover a wide variety of industries and are being implemented by both the public and private sectors. Sabah's minister of special tasks, Y.B Datuk Teo Chee Kang, pointed to the Sabah LEAP as an example of how the region is responding to current challenges. In line with the provisions of the AEC Blueprint, Sabah LEAP outlines specific initiatives for improving the state's infrastructure and moving away from reliance on traditional commodities toward becoming a regional hub as a knowledge-based innovation economy. Plans have been announced for the development of the Pan-Borneo Highway, which will span more than 1,000km and form the backbone of Sabah's interior infrastructure. With an estimated completion date of 2023, the project will improve local accessibility, a key catalyst for social and economic development. The project's developers point out the positive impact the highway will have on agriculture, tourism, manufacturing, property development, and a range of service sectors, lowering logistic costs and therefore increasing the benefits of businesses investing in Sabah. The government has also allocated MYR8.84 million for the development of the Kudat Port project, a sign of the increased role that the maritime economy will play within the AEC.

TOURISM

Tourism is one of the highest growth industries in Sabah. The sector employs more than 82,000 workers and is the state's third largest economic contributor. There have been major improvements in 2015 to Sabah's capacity to leverage its future potential as a tourism economy, such as the Sabah Development Corridor and the Entry Points Project. In addition to the promise of general tourism as a sustainable foundation for the future of Sabah's economy, the state is quickly becoming a destination of choice within niche of the MICE sector. MICE on peninsular Malaysia has long benefited from Kuala Lumpur's state-of-the-art facilities as well as its close proximity to many of South-East Asia's corporate headquarters. With the announcement of major development projects such as the Kota Kinbalu Waterfront project and the Sabah International Convention Center, Sabah will soon match its already world-class hospitality training centers with the necessary infrastructure capacity to secure at its place at the forefront in the minds of major corporate players.

Sabah has long been a cornerstone of South-East Asia as a world-class tourist destination. With a clearly outlined economic vision and development projects already in place, the region is quickly becoming an attractive hub not just for business visitors, but also for serious investors keen on tapping into a promising market for innovation and sustainability.