SABAH CLUSTERING INVESTMENT

OBG Talks to Dr Mohd Yakub Johari, C.E.O, Sabah Economic Development and Investmen Authority (SEDIA)

By : OXFORD BUSINESS GROUP

OBG : WHAT is SEDIA doing to encourage investment from both Peninsular Malaysia and abroad?

YAAKUB: We aim to promote Sabah asan unrivalled destination for business, culture and nature through the Sabah Development Corridor (SDC) initiative. To this end, we have been putting in place strategic soft and hard infrastructure and plan to attract anchor companies or investors into key SDC projects, which include a range of economic clusters for oil and gas, palm oil ' and agro-industry.

We believe these offer investors a number of opportunities to participate in unlocking the unique value creation potential of Sabah, Since agriculture is the primary driver of the state's economy, one of our key strategies is to restructure and transform the sector: especially the palm oil segment.

Our aim is to capture higher-value activities while pro- viding a safety net for smallholders in line with the National Food Security Policy (e.g, by rearing livestock in mature oil palm and rubber plantations). Sabah is the largest contributorto national palm oil production, and there is significant investment opportunity in the higher-value-added downstream processing industry.

We are also promoting new sources of growth in line with the National Key Economic Areas (NKEAs). We want to make use of Sabah's natural endowments, especially in clean and renewable energy eco-friendly products, waste treatment and biopharmaceuticals products from Sabah biodiversity resources.

Science and technology will drive new sources of growth as we speed up the adoption and diffusion of new technologies and innovations in lCT biotechnology and other relevant areas, This will be achieved through the provision of specialised support and incentives. especially in the commercialisation of research and development (R&D) activitiesin the economic clusters.

ln the tourism secton the preservation of its natural environment makes Sabah an unrivalled eco-adventure travel destination. Signature resorts and holiday homes, wellness and convention facilities, as well as the creative industries and handicrafts will also be promoted.

We also plan to attract investments into the logistics and transportation sectors in order to enhance supply chain efficiency and reduce the cost of doing business, especially in port services and post-harvest handling and packaging facilities. Investment here will also support the development ofthe oil and gas industry.

We envision Sabah emerging as a regional port hub, linking the rapidly developing Brunei-lndonesia-Malaysia-Philippines East ASEAN Growth Area (BlMP-EAGA) region with the wealthy north-east Asian economies. We believe this vision carries much weight in viewof Sabah’s strategic geographical location along major shipping lanes and with good air connectivity, combined with the availability of key resources such as palm oil, oil and gas and biodiversityresources.

To expedite the provision of strategic infrastructure, SEDIA will promote public-private partnerships more aggressively especially in transportation and logistics, energy and utilities, as well as education and health care.

OBG : How are the palm oil industrial clusters (POlC) out-lined in the SDC expected to develop?

YAAKUB: The creation of industrial facilities based on the clustering concept has been our first step, and we would like to follow this by attracting investments into downstream palm oil and related processing facilities at POIC Lahad Datu and Sawit Kinabalu, Sandakan.

A key to this continued development is the provision of attractive tax and investment incentives toboth domestic and foreign investors. We would like to customise special package incentives for the SDC, New investments that we would like from downstream activities include biomass-related products, fertiliser and animalfeed. and higher-value-added products such as biofuel, food ingredients and pharmaceutical products.

OBG : How will the SDC contribute to the development of Sabahs resource-based manufacturing sector?

YAAKUB: The vision for 5abah's manufacturing sector is to be the location of choice in Asia for resource-based manufacturing by 202 5. In this, we are fortunate that Sabah's rich natural resources-provide readily available raw materials for these activities.

Significant amounts of oil and gas, palm oil. timber minerals and other agriculture-related commodities such as rubber and cocoa are available to be used as feedstock in downstream manufacturing. We have identified several challenges to be addressed in promoting Sabah in this secton which the SDC will help overcome.

First among these challenges is in improving infrastructure. Apart from the SDC funding committed to improve infrastructure as part of the 10th Malaysia Plan, development can also be initiated through public-private partnerships. Work is currently under way to provide the following: an efficient transportation and logistics infrastructure; reliable electricity to support industries;sufficient quality power supply; and lCT infrastructure to enhance competitiveness in manufacturing and narrow the urban-rural digital divide.

Second, the government delivery system will be improved further to make it more investor friendly. Cumbersome and lengthy bureaucratic procedures will be removed so that the government functions as an efficient facilitator to attract investment. Thus, the government machinery has to be streamlined and market-focused, providing a supportive regulatory framework.

To this end, a Government Transformation Programme has been introduced and SEDIA entrusted as a one-stop authority to assist in fast-tracking investment into SDC. We also need to think about improving logistic services to reduce the cost of doing business in Sabah.

The federal government has thus decided to Iiberalise the cabotage policy on a selective basis. Measures to enhance the efficiency and productivity of the components ofthe logistics services in Sabah, such as courier services, road freight transport, sea transport, shipping and forwarding services. cargo handling and stevedoring and port services will be put in place.

Finally, we need to enhance science and technology infrastructure and develop human capitalto prepare the state to enter knowledge-intensive industries. Sabah can move up the value chain by offering high-value resource-based products to meet manufacturer's bio and nanotechnology demands.

Emphasis will also be placed on human capital development in targeted sectors, and assistance will be offered to strengthen R&D collaboration and commercialisation activities.Technical and vocational training should be emphasised equally with academic education to produce skilled workers needed by the industry To support biotechnology SEDlA will create a Sabah Bio-Xchange network to facilitate the sharing of expertise and scientific resources.

OBG : How will the SDC encourage balanced economy growth that reaches all parts of Sabahan society?

YAAKUB: ln order to promote balanced economic growth, Sabah had been divided under the SDC into three sub-regions; western, central and eastern. These have further been camecl into strategic development areas (SDAs).

Each SDA is driven by one or more economic clusters, acting as a locomotive pulling the lagging areas. For example, the Kinabalu Gold Coast will eventually be driven by the tourism secton while the Sandakan-Beluran-Kina batangan Bio-Triangle will be led by the agro-bio and palm oil industries.

The increase in economic activities within these clusters should translate into greater demand for services, create more high-wage jobs and widen business activities throughout the relevant SDAs.

The proposed oil and gas processing hub in Sipitang and the Sabah Oil and Gas Terminal in Kimanis. as well as the POlCs in Lahad Datu and Sandakan are poised to bring Sabah's industrialisation to the next level.

Currently, Malaysia earns about RM69.3bn ($22.8bn) from palm oil exports, with Sabah as the biggest producer in the country, contributing about 30% ofthe output. Additionally the current industrial sector’s contribution to the state’s GDP is estimated to be about 12%, compared with the national average of about 32%. There is clearly much room for expansion in the agro-industrial sub-sector.