Investments in Sarawak's resource-based and service industries kept the Borneo island state ahead in 2014, with economic growth set to continue in 2015. However, new initiatives will be needed to diversify the economy and add more value across the oil and gas product chains.
The government is projecting 5% growth in Sarawak's economy for 2014, compared with 4.7% in 2013, driven by energy exports and strong domestic demand. Manufacturing, services and construction sectors all experienced growth during the year.
The state has seen GDP soar in the past two decades and now contributes around 10% of Malaysia’s total GDP. It is trying to capitalise on its relative political and economic stability to become the richest state in the country by 2030 and a high-income state by 2020.
Major investments were led by the Sarawak Corridor of Renewable Energy (SCORE), which seeks to leverage the state's hydropower potential. The development project, set to become Sarawak's primary economic powerhouse within two decades, attracted RM7.5bn ($2.24bn) in FDI in the first five months of 2014, according to the latest figures.
In terms of upcoming supply, the Balingian coal-fired power plant, an RM3bn ($894m) investment with a 600MW capacity, was recently awarded. By 2015, one of the two large-scale hydro projects, the Baram and Baleh dams, will begin operations, each supported by a 1200-MW hydropower plant.
Elsewhere, in the oil and gas industry, Malaysian oil major Petronas signed a deal in December worth up to $1bn to develop a new offshore gas field. Phase one of the K5 field is expected to start production by 2018.
Palm oil, timber strong
Aside from hydropower, Sarawak is also looking at other sources for renewable energy to meet the growing demands from energy intensive SCORE. Palm oil production is a major growth activity, taking advantage of rising demand as land available in West Malaysia and Sabah is almost exhausted.
Purchases of palm oil land in Sarawak are seeing record prices, with international palm oil giant Felda Global Ventures setting a new benchmark at RM74,300 ($20,800) per ha for its proposed acquisition of 24,622ha from London-listed Asian Plantations Ltd, according to industry observers.
Overall, the agriculture sector is projected to have grown 4.8% in 2014, mainly due to higher output from crude palm oil. Palm oil exports were worth some RM40.1bn ($11.2bn) from 2007 until June 2013, and the Land Development Ministry reported in May that, by end-2013, the area planted with oil palm in Sarawak had increased to 1.2m ha.
The timber industry also had a positive year, with leading Sarawak timber companies benefitting from rising prices of tropical logs after Myanmar banned log exports.
Major local firm Jaya Tiasa recorded an 18% increase in the average selling price in the 12 months to end-June. Despite lower sales volume year-on-year, the log segment’s contribution to pretax profit rose to RM63.8m ($17.9m) in the 2014 fiscal year from RM23m ($6.4m) a year earlier.
The government has earmarked rural transformation as one of the key focuses in the state development agenda, allocating nearly RM4bn ($1.12bn) for rural development and other related projects in the 2015 budget. Long-term initiatives such as the RM27bn ($7.6bn) upgrade of the 1,663km Pan Borneo Highway have been welcomed as a key step towards boosting investment outside SCORE and into new areas.
“Attracting private investment to the rural areas is a daunting task unless the basic infrastructure especially roads are first put in place to provide accessibility and connectivity to these areas," Chief Minister Datuk Patinggi Tan Sri Adenan Satem said in November.
He noted that the state's Rural Transformation Programme included basic infrastructure, socio-economic programmes, private investment, as well as the development of new towns, service centres and human capital.
Yet critics say more efforts are needed to boost diversification and value-added industries. Unless Sarawak increases its processing capacity for assets such as natural gas, it will continue to lose out on profits traded out of the state.