Situated on some of the most important trade routes in the world and positioned to capitalise on raw resources of energy and minerals flowing to Asia from Africa and the Middle East, as well as exports out of the region, Sarawak is poised to take advantage of the massive flow of goods steaming past its doorstep. More than half of the world's annual merchant fleet tonnage passes through the Strait of Malacca to the west and the Sunda Straight and Lombok Straight in Indonesia to the south, with the majority continuing on to the South China Sea past Borneo.
So important are these shipping routes off Borneo’s north-western coast that control over them has caused numerous international disputes in recent years between regional rivals China, Taiwan, Vietnam, the Philippines, Malaysia and Brunei Darussalam. While much of the dispute stems from the potential energy resources thought to be in undersea deposits, control over the shipping lanes is also of vital importance, with many countries heavily dependent on oil and gas shipments plying these waters. Not coincidentally, the bulk of Sarawak’s largest purchasers of exports are situated along the South China Sea. China is the top importer of raw materials from Sarawak such as timber and palm oil, while Japan, South Korea and Taiwan are the state’s primary destinations for energy exports in the form of liquefied natural gas (LNG).
KEY TRADE ROUTE: Almost one-third of global crude oil and more than half of global LNG trade passes through the South China Sea, making it one of the most strategically important trade routes in the world. An estimated 15.2m barrels of oil per day passed through the Strait of Malacca in 2013 – the shortest sea route between African and Gulf suppliers and Asian markets – notably to China, Japan, South Korea and the Pacific Rim. To this is added approximately 6trn cu feet of LNG, or more than half of global LNG trade, which traversed the South China Sea in 2011.
Increasingly, manufactured goods are complementing Sarawak’s trade in hydrocarbons, creating new markets for transport firms. “There are several sectors driving logistics demand in Sarawak, but the largest is the electronics industry. Sarawak has over the past decade seen a significant increase in foreign investment in electronics,” Michael Tan, managing director of East Coast Freight Forwarders, told OBG.
REGIONAL OPPORTUNTIES: In addition to crucial energy trade, other regional trade has also been steadily increasing in recent years as trade barriers have been lifted. Trade and the transportation logistics that support it continue to expand in Sarawak and in other members of the ASEAN bloc as the partnership closes in on its overall goal of creating a single market complete with cross-border free flow of goods and services. As of 2014 the ASEAN6, consisting of Brunei Darussalam, Indonesia, Malaysia, the Philippines, Singapore and Thailand, has applied zero tariff rates for intra-ASEAN trade in more than 99% of tariff lines since 2010. Progress has also been made in the newer ASEAN members, including Cambodia, Lao PDR, Myanmar and Vietnam, where zero tariff rates have been applied to 72.6% of tariff lines in 2013, a significant increase from only 45.9% in 2010.
This has contributed to rapid growth in cross-border business over the past decade as intra-ASEAN trade increased at a faster rate than either overall ASEAN trade or extra-ASEAN trade, with annual expansion averaging 10.5% between 1993 and 2013 compared with 9.2% and 8.9%, respectively, in the same period. Intra-ASEAN trade now makes up 28.1% of all Malaysian exports, followed by regional destinations China (13.4%) and Japan (11.1%), along with the EU (9.1%) and the US (8.1%). Sarawak has benefitted from this partnership as a major producer of five of the ASEAN’s top 10 export commodities: petroleum oil other than crude (ranked 2nd), petroleum gases (3rd), crude oil (6th), palm oil (7th) and natural rubber (9th).
BIGGER FISH IN A SMALLER POND: While ongoing trade liberalisation through ASEAN will open up opportunities for Sarawak in a much larger economic bloc, the state may have a larger immediate impact in the smaller sub-region of Brunei Darussalam, Indonesia, Malaysia, the Philippines-East ASEAN Growth Area (BIMP-EAGA). Established in 1994 to address the socioeconomic progress of less developed, marginalised and far-flung areas, as well as to narrow the development gaps across and within the sub-region, the cooperative includes relatively wealthy Brunei Darussalam and some of the less affluent regions of the other ASEAN countries. In addition to the Malaysian states of Sarawak and Sabah, and along with the federal territory of Labuan, BIMP-EAGA also includes nine provinces in Kalimantan, Sulawesi, the island chain of Maluku, Papua (Indonesia), the entire island of Mindanao (26 provinces), the island province of Palawan (Philippines), as well as Brunei Darussalam.
According to the BIMP-EAGA Implementation Blueprint 2012-16, the four main strategic development goals are: enhancing connectivity within BIMP-EAGA and with other outside regions, establishing BIMPEAGA as the food basket for ASEAN and the rest of Asia, promoting BIMP-EAGA as a premier regional tourism destination; and ensuring the sustainable management of the environment.
MAKING A CONNECTION: In order to support this boom in trade and bolster strategic connections within BIMP-EAGA, Sarawak and other member territories have been undertaking to upgrade their physical linkages to create cheaper, more efficient means of transporting goods and people. With this in mind, much of Sarawak’s existing transportation infrastructure has been developed to facilitate regional interconnectivity, with future projects designed to further enhance these links. One of the most obvious examples is the construction and expansion of the LNG plant and shipping terminals in Miri and Bintulu.
But as Sarawak continues in its economic diversification efforts, new attention is being paid to serving the growing export demand as a result of the development of industrial parks around the state led by the Sarawak Corridor of Renewable Energy. While the project is indeed powered by renewable hydropower, the tenants of this new site have thus far gravitated towards heavy industry, primarily in base metal production such as aluminium, as well as silicon and other inputs for high-tech manufacturing and, to a lesser extent, processed food. The vast majority of the manufactured goods rolling off these new assembly lines now require purpose-built ports at Samalaju and Tanjung Manis, along with connecting road links.
Progress is also being made on international links by establishing a network of seamless interconnectivity between regional markets in terms of communications, institutional procedures and the physical movement of goods and labour. Seeking to prioritise the numerous steps that need to be taken to create more robust connections, a Master Plan for ASEAN Connectivity (MPAC) was launched in October 2010 at the 17th ASEAN Summit in Hanoi, Vietnam, which laid out a roadmap to be implemented in 2011-15.
KEY PROJECTS: A total of four high-priority projects emerged from the launch of the MPAC: portions of the ASEAN Highway Network (AHN); further development of a regional nautical highway system within the BIMP-EAGA sub-region via the expansion of a rollon/roll-off ferry network at priority ports; the proposed BIMP-EAGA submarine fibre-optic cable; and the Sarawak to West Kalimantan Power Interconnection Project, which runs between Malaysia and Indonesia. Located within the West Borneo Economic Corridor, Sarawak is associated with three of these projects and has made substantial progress in recent years in terms of the implementation of its road linkages. These include better road interconnections along the Pan-Borneo Highway with neighbouring Brunei Darussalam, which were singled out in the MPAC plan for priority development as part of the AHN.
The first of these projects is the Pandaruan Bridge, also known as the Friendship Bridge, which connects Brunei Darussalam’s Temburong District and Sarawak’s Limbang District. inaugurated in December 2013, the 189-metre-long, 14-metre-wide crossing represented the final missing link to be completed in the roughly 2000-km Pan-Borneo Highway. Designated as AH150 within the AHN, the road link is in the midst of substantial upgrade works, which are expected to continue through at least 2025. The second major recent project is an $8m upgrade of the Kuala Lurah border crossing facility located between Sarawak and Brunei Darussalam completed in 2012.
In addition to these border links, the federal government allocated RM27bn ($8.21bn) for work on the Pan-Borneo Highway in 2015, while other plans are in their early stages to build Borneo’s first major railway – the 4440-km Trans-Borneo Railway. Once these and other major cross-border transportation infrastructure projects are completed, the cost and distance associated with trading with island states such as Sarawak will shrink considerably for ASEAN members and other countries and territories, thus creating a more level playing field with mainland markets.
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