Sabah: Year in Review 2012

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Solid investment figures and praise for the state’s financial management have been among the highlights in a year that has seen stable economic growth for Sabah. The focus will now shift to ensuring that budget programmes designed to build on those achievements are implemented properly.

In November, Deputy Prime Minister Muhyiddin Yassin characterised Sabah’s financial performance as “extraordinary”, noting that RM255.7m ($83.69m) from the country’s rural transformation programme – some 26% of the overall figure – was being invested in more than 2000 transformation projects.

Private sector investments increased to RM94bn ($30.85bn) in 2011, up 19.4% compared to 2010, Muhyiddin said, and foreign direct investment (FDI) reached RM32.9bn ($10.79bn) last year, up 12.3% from the RM29.3bn ($9.6bn) seen in 2010.

This momentum continued into 2012: from January to September, the state saw investment of RM4.84bn ($1.58bn), the second-highest total among the 13 Malaysian states (Selangor came first). In addition, some RM114bn ($37.31bn) worth of investment had been recorded in the state since the 2008 launch of the Sabah Development Corridor, which aims to triple the state’s GDP per capita and increase total GDP four-fold by 2025. In the same month, Musa Aman, the chief minister of Sabah, noted that some $20bn worth of oil and gas projects had been implemented in 2012.

A recently approved Investment Incentive Package for the SDC is expected to further increase investment activity in the state. The incentives cover investment in tourism, manufacturing, agriculture and major industries, and are available in designated strategic development areas and projects such as Kinabalu Gold Coast Enclave, Sabah Agro-Industrial Precinct (SAIP), Sandakan Education Hub, Sabah Oil and Gas Industrial Park, Interior Livestock Valley, Marine Integrated Cluster and the Lahad Datu Palm Oil Industrial Cluster (POIC).

“The incentives will vary based on the focus areas, offering incentives such as full tax exemption on statutory income for up to 10 years, investment tax allowance of 100% on qualifying capital expenditure for five years, and full exemption on import duty and sales tax exemption, subject to current policy,” Musa said in December.

Major chemical and bio-organic operations also set up shop in the state’s POICs in 2012. A stand-out was a RM4.5bn ($1.47bn) fertiliser plant planned by national oil firm Petronas, which is expected to almost double its fertiliser output from 1.4m tonnes to 2.6m tonnes annually. With some 1.36m ha under cultivation and RM16.75bn ($5.48bn) worth of palm oil exports for the first nine months of 2012, the state is regarded as the world’s third-largest producer of palm oil.

It is also hoped that the manufacturing sector will benefit from further investment. The Malaysian Investment Development Authority (MIDA) revealed in September that the sector had received RM4.8bn ($1.57bn) in investments during the first nine months of 2012, with Sabah being the country’s second-most preferred investment destination for manufacturing activities. The state welcomed RM921.4m ($301.56m) in investment in the sector throughout 2011.

To further encourage industry growth, in 2012 MIDA offered Sabah enterprises a RM1bn ($327.28m) fund for research and development, as well as training and acquisition of foreign and domestic technology. The key investments eligible for the fund include the Kinabalu Gold Coast Enclave, SAIP, Lahad Datu POIC, Sabah Oil and Gas Terminal, Sandakan Education Hub and Marine Integrated Cluster.

In late October, the state revealed its largest-ever budget, totalling RM4.09bn ($1.34bn), with some RM764m ($250.05m) allocated to the construction of roads, bridges, ports, harbours and rail service. There are also plans for a public transport system to be built in the capital, Kota Kinabalu, as part of federal urban transformation plans.

Increased state spending is likely to lead to continued economic expansion: the state’s economy recorded an average growth of 5.3% between 2007 and 2010, which is 1.1% higher than the national growth rate over the same period, Musa said. He expects the state’s economic growth to be between 5% and 6% this year.

The state’s fiscal responsibility has not gone unnoticed. In September, local agency RAM Ratings reaffirmed the “AAA” rating of the state government’s bonds for a fourth consecutive year. “The rating reflects Sabah’s rich natural wealth, which remains key to spurring economic growth, the government’s strong revenue-adjustment capacity, its healthy fiscal position, and its supportive relationship with the federal government. These strengths balance the challenge of unlocking Sabah’s long-term development potential,” wrote RAM Ratings.

The state is working to segue this potential into playing a key role in the Brunei Darussalam, Indonesia, Malaysia, Philippines-East Asia Growth Area (BIMP-EAGA) initiative, with Musa noting in October that significant improvement in Customs and trade procedures had been achieved among the members in 2012. Sabah aims to focus on agriculture, tourism, manufacturing, and oil and gas in the initiative.

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