OBG Event

10 Jul 2011

Good Morning Ladies & Gentlemen, Our Valued Partners, Members of Media,

Selamat datang!

It gives me enormous pleasure to be back here in Kota Kinabalu, in the beautiful  “Land beneath the wind” as many people call it, to launch the first ever Oxford Business Group Report  on Sabah.

I have had the privilege of leading a team of our analysts for nearly six months in preparing this first investment and business guide on one of Malaysia’s most dynamic states.

Blessed with natural beauty and resources, Sabah has long attracted visitors and investors from far afield.  As we advance through the second decade of 21st Century, Sabah faces a number of challenges and opportunities which we highlight in our inaugural report.

Before I share with you the key findings of our Report I would like to thank His Excellency  Musa Aman, Chief Minister of Sabah for inviting us to prepare the first ever Report on Sabah by Oxford Business Group.

I would also like to thank our valued partners:  Sabah Economic Development and Investment Authority, Maybank, McMillan Woods and Jayasuriya Kah & Co – for their invaluable support and editorial contributions.  We could not have completed this effort without your help and dedication. Thank you.

Now, as is traditional at Oxford Business Group we would like to share with you some of the highlights from this first ever Report on Sabah.

It is worth stating at the outset that the reason our Publishing Group decided to come here was because we discovered there are attractive investment opportunities for both domestic and foreign investors, some of which are overlooked by mainstream investors. 

Our basic thesis expressed in this Report is that Sabah is a well positioned to benefit from recent growth in ASEAN and is well located in the Borneo region to attract Foreign Direct Investment in the next 5-10 years.

We have found there are a number of sectors outside traditional tourism, agri-business and energy which could benefit from greater involvement of private sector and investment. We think the policy momentum created by Malaysia’s 10th Development will fuel fresh interest from smart investors looking to locate in the country’s most progressive regions, with Sabah offering most compelling cases.

In terms of numbers we think Sabah will increase its overall share in Malaysia’s GDP from 6% to 10% in the next five years as it will grow faster than more saturated Peninsular Malaysia.  Growth in new service sectors will likely push total GDP to 12bn USD with average annual growth above 5%.

Our analysts argue in this Report that Sabah had the fortune of being insulated from the great financial crisis thanks to its resource-based sector that continued to enjoy financial strength and solid balance sheets throughout the crisis. 

One of the challenges going forward will be to reduce the dependence on commodities and tourism sectors which combined continue to dominate economic activity in the State.

One of the key growth areas is likely to be service-related sectors that offer support services to established plantations, agriculture, energy and manufacturing industries.  

Even though the rise of commodities prices recently offer attractive returns to local businesses, we found it very encouraging the State managed to post 6.8% growth in services which will help to diversify the overall economic mix of Sabah’s economy. It is our firm belief that to achieve sustainable growth and to achieve the advanced economy status included in Malaysia 2020 Vision, Sabah needs to focus on creating alternative sources of growth by focusing its efforts on education, research and innovation.

Just like other Malaysian States, Sabah is in competition for young talent that will determine its competitiveness in the future.  Retaining this talent within the State will be key to further productivity growth and advancing the economy beyond natural resources.

Meanwhile, Sabah’s exports in 2011 continue to be dominated by palm oil, palm kernel oil, rubber, crude petroleum and processed woods. We believe that these will continue to provide income momentum in the next 5-10 years.

Looking at trade data we found a high share of processed fuels, lubricant and mineral which accounted for 18.3% of the total in 2011. This confirms our view there is still huge investment opportunities in the downstream segments, especially in oil and gas sectors with Sabah in a good position to become one of the leading downstream processing centers in Borneo.

We also see upside in logistics sector with Sabah well positioned to cater for remote regions of East Asian with the Sapangar Bay Container Port well placed to become one of the leading trans-shipment centers in BIMP-EAGA.

Supported by rising world palm oil consumption, Sabah’s ports have returned to full capacity after weathering he global economic crisis. 

One of the long-term structural issues that will need to be addressed is cabotage and along with Malaysia’s hub-and-spoke transport policy. A number of businesses interviewed by OBG said that the logistics operating costs in Sabah are higher than those in the Peninsular, which undermines the State’s competitiveness. 

OBG was encouraged, however, to learn that the State is now addressing the vital issue of external and internal connectivity through infrastructure upgrade investment. Through the Sabah Development Corridor (SDC) programme, the government is implementing road and rail projects across the state that will have substantial benefits for both movement of goods as well as tourism sector. We note already Kota Kinabalu enjoys advanced air connectivity with a high frequency of both domestic and international flights.

As I said at the beginning of my speech, we see compelling investment opportunities in Sabah that we have tried  to spell out in our first ever Report. As we continue our coverage, we hope to provide even more detail and insight. 

Our base case scenario is that Sabah’s economy will continue to outperform other Malaysian states with GDP per capita increases helping to drive rural and urban development across the entire state with new growth sectors coming on stream in next 5-10 years.

 The programme outlined in the 10th Malaysia Plan and the Economic Transformation Programme will play a crucial role in setting policy targets with Sabah Development Corridor, one of the main engines for involving private participation and foreign investment.

Its location and resources make Sabah a natural choice for many industries and a contender for the status of sub-regional capital.  With effective implementation of the initiatives now under way, this may be a prize soon captured by the Land Beneath the Wind.

And on this note I would like to thank again everyone for coming here today and look forward to your feedback on our first Report on Sabah.