SABAH ECONOMIC UPDATE 2011

By : OXFORD BUSINESS GROUP

IT HAS been an eventful year for Sabah, characterised by growing streams of investment flowing into the state, enhanced economic cooperation, improved trade relations and several significant offshore oil discoveries, including one announced in November by the national oil corporation, Petronas.

Discovering oil in waters off Sabah’s west coast, 100 km from Kota Kinabalu, Petronas announced that it expected in-place reserves of more than 227m barrels of oil equivalent (boe). This is viewed as a harbinger for the next growth industry in Sabah, with oil and gas taking the place of oil palm and timber as the state’s major export commodities.

One spin-off from offshore discoveries earlier like the one in November has been calls to review the 5% fixed oil royalty the state currently receives from the federal government.

Petronas has also been proceeding with several upstream and downstream oil and gas projects, including the Sabah Oil Gas Terminal (SOGT), the Sabah Ammonia and Urea Project (Samur) and the Sabah-Sarawak gas pipeline (SSGP). Together, these are expected to bolster value-added capabilities in the sector.

SOGT’s importance as a depot for most of Sabah’s offshore oil and gas was highlighted by an announcement that a new offshore gas field with pipeline links to SOGT is being developed. The Kebabangan field will be linked via pipeline to SOGT, under construction at Kimanis.

Meanwhile, pipes are still being laid for the SSGP. When completed, the line will link Sabah and Sarawak’s gas sectors, running 500 km to the liquefied natural gas (LNG) plant run by Petronas at Bintulu, Sarawak.

Elsewhere, an announcement in January buoyed investor confidence in the Palm Oil Industrial Cluster (POIC) in Lahad Datu. News the cluster had secured a long-term supply of wet empty fruit bunches was seen as an important step towards making Sabah the centre of Malaysia’s oil palm biomass industry.

The Lahad Datu area also drew public attention when, in February, the chief minister announced plans to build a controversial coal-fired plant there had been scrapped.

Meanwhile, the government announced the Sabah Development Corridor (SDC) had entered its second phase in 2011. The Chief Minister announced cumulative planned investment in the SDC had reached RM57bn ($17.9bn) – almost four times the target value set in 2010. During this phase, which will run until 2015, the SDC will be pursuing an ambitious list of development projects to generate employment and income for Sabahans and to help jump-start sustainable economic growth.

Sustainable growth is also behind efforts to preserve the state’s rich biodiversity – the main asset attracting tourists to Sabah. With this in mind, the state government has begun to limit the number of visitors to pristine natural areas such as Semporna, which was found this year to be biologically the richest marine area in the world.

Sabah’s tourism sector is nonetheless expected to outstrip its current 10% share of the state’s GDP within the next five years. In 2011, the Ministry of Tourism, Culture and Environment was targeting tourist arrivals of 2.63m and tourism receipts of RM4.704bn ($1.48bn). This looks to be on track, with statistics from Sabah’s tourism board showing total arrivals of nearly 2.1m from January through September.

There was some gloomy news in 2011, mainly in the transportation sector. The much-anticipated Firefly services to Kuala Lumpur, and the MAS direct flight from Sandakan to Kuala Lumpur were both cancelled. This caused worry both for tourism officials and those concerned with national integration.

Furthermore, calls for liberalisation of the federal cabotage policy – under which all goods imported into the state are allowed to be transported only by local shipping companies – have yet to reach a final conclusion. Many Sabahans feel the policy hits the state’s businesses and consumers hard, with customers in Sabah often paying much higher prices for imported goods than fellow Malaysians on the peninsula. On a brighter note, programmes intended to spur industrial development by leveraging investments in the state’s manufacturing sector were seen to be bearing fruit.

Meanwhile, Sabah continued to position itself as a main contender in becoming a gateway for regional investments, especially in the Brunei Darussalam, Indonesia, Malaysia, Philippines-East ASEAN Growth Area (BIMP-EAGA).

Helping in the effort to attract such foreign investment, the Kota Kinabalu Industrial Park (KKIP) continued to be a valuable bargaining chip, with executives touting the park’s connectivity to BIMP-EAGA’s 60m people and beyond to regional and global markets. KKIP is already emerging as a regional distribution hub for logistics companies, automobile makers, biotech firms and halal-oriented outfits.

While a lot of work still remains to be done on issues such as raising the state’s educational standards, bridging urban-rural technological and income divides and boosting value-added capabilities for the state’s natural resources, Sabah appears to be in fighting form as 2012 arrive.