Sarawak: Year in Review 2011

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Sarawak’s economy thrived in 2011, with record inflows of investment and a revving of the state’s growth engines sparked by projects such as the Bakun Dam and the Sarawak Corridor of Renewable Energy (SCORE).

Indeed, Sarawak took the top spot among Malaysian states in terms of foreign direct investment (FDI) for the first nine months of 2011. According to figures from the Malaysian Industrial Development Authority (MIDA), the hornbill state attracted a total of RM7.3bn ($2.33bn) during the period.

This was widely attributed to the state’s lower electricity rates, which benefitted the industrial sector. The tariff was set at RM6.25 ($2) per KWh for electricity from the Bakun Dam after it came online in August.

In 2011, Sarawak thus passed a major landmark on the road to fulfilling its long-term goals as the Bakun Dam became ready to power up SCORE, the state’s development plan. With electricity available in large quantities and at a lower cost, various heavy industrial projects, such as those to be located at the Samalaju Industrial Park (SIP), can begin in earnest.

The SIP was specifically designed to house energy-intensive industries that will draw their power supply from the dam. Approximately 60 km away from SIP is Bintulu port – the deepest draught port in Malaysia – which is home to Petronas’ Liquefied Natural Gas (LNG) Complex and is set to be connected to the Sabah Oil and Gas Terminal (SOGT) by pipeline.

Bintulu is also set to become a hub for Asia Minerals’ (AML) manganese ore operations and for the expansion of the Shell middle distillate synthesis (MDS) wax plant.

2011 saw Gulf International Investment Group Holdings (GIIG) sign up to a joint venture with the Aluminium Corporation of China (CHINALCO) to build a $1.6bn smelter at SIP. Additionally, Press Metal, which owns and operates an aluminium smelter at Mukah, announced an agreement to invest RM5bn ($1.6bn) in another aluminium smelter with a 240,000 metric tonne capacity at the SIP.

Further investments were made when the Australian company OM Materials announced plans to build a manganese and ferro-silicon alloy smelting plant at the park, and Tokuyama Corporation of Japan is investing RM3.72bn ($1.19bn) to build a polycrystalline silicon plant at the SIP.

All this FDI has given a boost to the state’s coffers. Indeed, Sarawak’s proposed 2012 budget predicted a surplus of RM79m ($25.2m), the state’s chief minister, Taib Mahmud, announced on November 14. The projected revenue in the budget represents an increase of RM139m ($44.3m), or 4% over the estimated revenue of RM3.9bn ($1.2bn) in 2011.

On the back of this projected surplus, Sarawak went against the trend that many Western economies have not been able to avoid: investment agency downgrades. Indeed, on November 30, Sarawak’s “Baa1” issuer rating was placed under review for a possible upgrade by Moody’s Investors Service, a reflection of the state’s strong record of positive financial performance and increasing budget flexibility due to its accumulation of ample reserves.

Oil palm was also an important contributor to the state’s coffers last year, with Sarawak Oil Palms on track to see its highest production on record, with reported earnings in the first nine months of 2011 at RM199.7m ($63.6m).

Another major source of industry revenue, timber, experienced mixed successes. After an April lull caused by the March tsunami and earthquake that hit Japan – Sarawak’s biggest plywood market – the state’s plywood prices soared in May to an average $600 per cu metre. This was up from $400 per cu metre in April.

By mid-December, average plywood prices had dropped by around 10%, however, to between $560 and $580 per cu metre, compared with $600 and $630 per cu metre in the third quarter. However, in December the Sarawak Timber Association forecast that 2012 would bring increased demand.

For the near future, training a skilled workforce to staff the SCORE development machine has become a priority. Some 343,000 engineers, technicians, semi-skilled workers and professionals in the corridor by 2030 – the bulk of who will be local workers – will likely be needed. A new technical college in Miri, the Sunderland College of Sarawak (SCS), is scheduled to be built by 2013 to fulfil this requirement, offering subjects including engineering, oil and gas management, plantation management, construction and tourism.

Tourism itself continued a healthy upward tick, meanwhile, with the Ministry of Tourism and Heritage recording 2.72m visitor arrivals between January and September, a year-on-year increase of almost 17%. With regard to MICE tourism, the state focused on bidding for high-yield trade-linked conventions, hosting 48 such events during the year and attracting more than 14,000 delegates.

As a result, 2011 has been a particularly encouraging one for Sarawak’s economy. It is likely that 2012 will bring accelerated progress on the road towards meeting the targets set out for the state’s future development.

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