Eastern Corridor

Malaysia

Economic News

22 Jul 2010
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The official launch of Malaysia's East Coast Economic Region (ECER) will be announced by Abdullah Badawi, the prime minister, at the end of October. The ECER's primary goal is to reduce poverty in the eastern states of Kelantan, Terengganu, Pahang and the district of Mersing. The plan is part of the government's overall vision for more balanced and equitable wealth distribution across the country.



The ECER is the third economic development region launched in the past year. In July, Malaysia officially announced the Northern Corridor Economic Region (NCER), a $51bn development plan to turn the country's mainly agricultural northern states into logistics, food processing and tourism centers. Last November, the Iskandar Development Region (IDR) was launched, a two-decade blueprint to transform the southern area of Johor into an industrial, services and tourism zone.



Malaysia's eastern province states cover 66,736 sq km of land, accounting for roughly half of all peninsular Malaysia. The region is home to 3.5mn people and rates amongst the poorest areas in the country, with 30% of the nation's lowest incomes.



National oil company Petronas has been tasked with devising the master plan for the ECER's development. Petronas is already involved in major oil and gas projects along the east coast. According to analysts, successful international ventures and strong revenues from high oil prices over the past few years make them well positioned to undertake a project of this size and importance.



Peter Wentworth, CEO of BP Malaysia, told OBG, "Petronas is widely respected as one of the best-run national oil companies in the world. It takes its role as a Malaysian multinational very seriously and likewise its contribution to the national agenda, so it makes sense that they have been appointed with this task."



According to Hassan Merican, CEO of Petronas, the company's role will be solely as master planner and once the plan is in place, they will step down and continue to operate as usual in the region.



While analysts originally anticipated the corridor's development to be focused primarily on oil, gas and petrochemicals, Petronas has identified other key sectors for development, including tourism, education manufacturing and agriculture. Citrus fruit and pineapple have been identified as the most suitable crops. Rubber tree forests will also be set up, as the timber harvested will in turn enable furniture factories to be set up in the region.



According to Petronas, the project will cost more than $33bn over a span of 12 years and will raise income and reduce poverty through the introduction of high impact employment projects. Petronas has stated that under the ECER, the region's GDP will grow at a rate of 7.2%, compared with 6.3% for the whole of Malaysia, in the years leading up to 2020. They expect the creation of 561,000 jobs and an increase in average monthly household income from $672 to $1550 by 2020. It is expected that 47% of the projected investments will be financed by the private sector.



Of the three corridors announced in the past year, the ECER is widely anticipated to be the most challenging. It is the most underdeveloped in terms of infrastructure and covers a large geographical area with a politically sensitive population.



One of the primary obstacles currently facing the eastern states is a lack of proper road connection to the rest of the country, where the majority of economic activity takes place. Costs to develop transportation infrastructure will take up more than 40% of the allocated $33bn.



Another challenge is that 40% of the potential land development area is Malay reserve land, where ownership is restricted by law to Malays only. A proposal to acquire Malay reserve land under a trust fund has been put forward.



With general elections widely expected to be called in the first half of next year, the ECER, home to 15% of Malaysia's population, is considered a key voting constituency for the country's ruling party UMNO. UMNO has traditionally relied on rural support to achieve its parliamentary majority, and the eastern states are considered the "Malay heartland", where Bumiputras (ethnic Malays) make up 87% of the population.

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