Always welcome: From nature treks to medical treatments, the state has something to offer every visitor

Possessing the highest mountain in Malaysia, along with its deepest canyon, Sabah offers visitors some truly spectacular attractions. Its forests contain unique flora and fauna, its coasts world-renowned beaches, and its vibrant towns and cities offer a welcoming and multi-cultural panorama. Leveraging these gifts with increasing success in recent years has been a tourism sector that is also benefitting from increased state and federal attention, as well as private sector investment. Numbers are up, and as long as security concerns can be allayed, the sector is looking forward to some strong future growth.

Touching Down

The year 2013 was a watershed one for the tourism sector in Sabah, with the state welcoming a record 3.38m tourist arrivals, which marks a 17.6% increase over 2012. Figures from the Sabah Tourism Board (STB) show that around 1.09m (32.2%) of those travelling to the “Land Beneath the Wind” were international visitors, with the remaining 2.29m (67.8%) coming from domestic locations. Overall, international arrivals grew in 2013 by almost 15.6%. Breaking the numbers down further, according to the STB, domestic and East Asian travellers accounted for the majority of the increase in arrivals in 2013. Among East Asian visitors, the largest sending countries were China and Hong Kong (86.7%), South Korea (32.1%), Japan (25%) and Taiwan (15%).

In May 2014 Masidi Manjun, Sabah’s minister for tourism, culture and environment, said that he also expected the number of arrivals in 2014 to reach as high as 3.5m-3.6m, far exceeding the targets set by the government. Indeed, as of May 2014 overall arrivals had already reached 1.35m visitors – an increase of 8.7% compared to the same period in 2013, according to the STB. Of this, domestic visitors numbered 907,676 and international visitors totalled 448,896. In addition, the first quarter of 2014 saw Sabah admit 145 chartered flights carrying 21,422 visitors, mostly from Japan, China and South Korea. In 2013 the total number of chartered flights was 262, up from 164 in 2012. Masidi told the local press, “I believe this is the highest number of chartered flights recorded in the country.”

With arrival numbers up so significantly, Sabah also brought in more in tourism receipts in 2013 than the previous year. Earnings from visitors reached a total of RM6.35bn ($1.98bn), compared to RM5.5bn ($1.72bn) in 2012. In addition, total investment in the sector in 2013 equalled RM7.03bn ($2.19bn), according to the Malaysian Investment Development Authority. To encourage even more development, the government has also put in place a set of financial and tax-related incentives for developers of and investors in hotels and resorts in Sabah.

The scope of these incentives runs from full-tax exemption on statutory income for 10 years, or a 100% Investment Tax Allowance on qualifying capital expenditure for five years (this can be offset against 100% of statutory income), to exemptions from paying import duty, sales tax and stamp duty on land acquired for development.

A Room With A View

Double-digit growth does present some challenges, however. A shortage of hotel rooms and other guest accommodations is one such result of growth that is now becoming increasingly apparent. The state’s tourism ministry estimates that up to 2000 more guestrooms are required just in the capital, Kota Kinabalu, to end the shortage. During peak travel periods, most hotels in the state are recording occupancy rates close to 100%. During shoulder and low seasons, the rates are still high at about 92%. This shortage, particularly prevalent in the high-end segment, creates the potential for some negative feedback, as travel agents become reluctant to include Sabah in their itineraries for fear that hotel rooms will not be available. At a local exhibition in November 2013, Masidi also emphasised the need to ensure a diversity of offerings for the wide variety of visitors the state cater to. While many tourists from China often opt to stay on the islands, beaches or resorts, visitors from Europe are more likely to stay in areas that offer a chance to enjoy Sabah’s diverse flora and fauna.

To The Rescue

Helping address this issue are a number of state and federal-backed programmes. These initiatives include the Economic Transformation Programme (ETP), a nationwide development plan that includes a RM20bn ($6.24bn) facilitation fund to further a public-private partnership (PPP) programme intended to spur investment in strategic areas, such as tourism. In 2012 Malaysian Prime Minister Najib Razak announced the creation of 31 entry point projects (EPPs) for Sabah under the ETP, many of which are meant to stimulate and build the state’s tourism industry.

A major focus of Sabah’s tourism-related EPPs is the development and modernisation of the greater Kota Kinabalu area into a thriving hub that will attract visitors from around the world. This in turn will spawn a host of other developments, such as improved mobility around the city and the development of medical centres, boosting Kota Kinabalu’s emerging health tourism industry. Through the PPPs, the federal government has approved approximately RM500m ($156.05m) in facilitation funds for EPPs in Sabah. These include the Integrated Jesselton Waterfront, the Sabah International Convention Centre (SICC) and the Gleneagles Medical Centre.

Another programme in progress since 2008 is the Sabah Development Corridor (SDC), which dovetails with the ETP aiming to modernise Kota Kinabalu. A major contributor to this development is the Kota Kinabalu City Waterfront (KKCW) project, which is half of the overall redevelopment of the waterfront area, along with the Jesselton Quay development. The KKCW project will see the city’s waterfront area transformed with the addition of the new environmentally friendly Oceanus Waterfront Mall, a 2-km-long boardwalk spanning the distance from Anjung Senja to the Hyatt Regency, restaurants and five-star accommodations. The project is expected to provide attractions for a wide range of people, from locals to foreigners looking for second homes.

Mix It Up

A host of hospitality and retail outlets that entails four mixed-used developments are also being planned, including a 10-storey shopping arcade, a 10-storey luxury waterfront condominium, themed retail outlets and an international bazaar. The KKCW project, which is scheduled for completion in 2014, is being developed by Sunsea Development in partnership with DBKK Holdings.

The other half of the waterfront development, the RM1.8bn ($561.78m) Jesselton Quay project, will be constructed on 16.25 acres of port land just north of the KKCW. In a May 2014 loan-signing ceremony, Suria Capital and developer SBC Corporation (SBC) introduced the Jesselton Quay master plan to the public. It detailed the development’s extension of KKCW’s luxury accommodation choices, while also adding more waterfront condominiums, a shopping mall, office space and marina facilities to incorporate a clubhouse, a maritime museum and an aquarium. RHB Bank is providing financial backing to SBC for the Jesselton Quay development. The first phase of this is expected to begin in 2014, with an overall development period of about eight years.

New Links

A key element in the ongoing works in the greater Kota Kinabalu area is the new international cruise terminal (ICT). The ICT project dovetails with the ETP’s cruise tourism EPP, which aims to create a Straits Riviera in Malaysia. Part of this will be accomplished by improving infrastructure, operations and the appeal of six of Malaysia’s ports, with Kota Kinabalu being one of those included.

Sabah is expected to profit from the EPP’s estimated generation of RM35.8bn ($11.17bn) in GNI, as well as the creation of some 143,920 jobs by 2020. The construction of the new cruise terminal is intended to bring tourists directly into the waterfront area and will be the second entry point, after Kota Kinabalu International Airport (KKIA), for Sabah-bound international tourists, according to the agency in charge of implementing SDC, the Sabah Economic Development and Investment Authority.

Suria Capital, which operates ferry terminals and ports in Sabah, including the Jesselton Point Ferry Terminal, is developing the new entryway in two phases. The ICT will not only boost the city’s berthing capacity by adding a marina containing 300 multiple-length berths, it will also be home to a duty-free retail complex and an entertainment centre.

The ICT is also intended to serve as a homeport for cruise liners. The area already benefits from being a popular port of call. Star Cruises’ SuperStar Aquarius is the first international cruise line to homeport here, beginning its deployment with Kota Kinabalu in 2013. Cruise ships visiting the ICT are also exempt from Malaysia’s controversial cabotage policy under which only Malaysian-flagged vessels are allowed to ply domestic routes.

New Scenic Routes

Back on land, another development, which aims to improve mobility in the state’s capital and draw in visitors, is the 24-km Coastal Pedestrian Walkway and Cycleway, currently in the second phase of its construction. This will allow visitors to walk or bike along a route from Tanjung Aru beach to Universiti Malaysia Sabah. Along the way, the track will pass through the city’s central business district, as well as heritage sites, such as Australian Place and Atkinson Clock Tower. The pathway will afford scenic views of the seafront, with refreshment and workout stations located in strategic areas along the way. The route is being developed in four phases, with completion expected in 2017.

Furthermore, there are already signs that the hotel shortage will be short-lived. At the end of 2014 a new JW Marriot Hotel is expected to open in Kota Kinabalu, while a new Hilton should also be in operation in the city by 2015. Also in the construction pipeline for Sabah’s capital city is a mixed-use development, C Park, being developed by the Chang Cheng Group at a gross development value of RM500m ($156.05m). When completed, C Park will feature a hotel called SkySuites, which will be fitted with an infinity pool, as well as a shopping mall and office space. At 28 storeys (108m), C Park will be one of Sabah’s tallest buildings, adding to the transformation of the capital’s skyline.

Another large-scale redevelopment is the RM3bn ($936.3m) Aeropod project in Kota Kinabalu being developed by SP Setia. Being built on 40 acres around the old Tanjung Aru railway station opposite KKIA, Aeropod will eventually encompass three hotels, residential towers, a shopping mall and boutique retail space. The development will also dedicate 20 acres of open space for public use.

Rail Romance

Sabah is unique in Borneo for possessing the island’s sole railway line. While this still operates as a normal passenger service for some commuters around Kota Kinabalu, it also has a highly successful tourism element. Travellers nostalgic for the era of steam-powered rail travel can board the North Borneo Railway for a special journey from Tanjung Aru to Papar. Operated by Sabah State Railway, the line is also in the process of upgrading its existing facilities and track to accommodate more passengers and extend its service times.

Meet The People

One area that has been able to take advantage of the state’s recent hotel room shortage, as well as its unique culture offerings, is the homestay segment, which has been doing a thriving business. There are currently 16 homestay outfits registered with Sabah’s tourism ministry, covering almost every region in the state. Homestays afford visitors a chance to interact with Sabah’s multi-ethnic populace and to experience local food and culture firsthand. The homestay programme also offers benefits to local families and communities by allowing them to gain from tourism more directly.

The Sabah Homestay Association (SHA) has been reporting above-average demand from both tourists and local families to participate in the programme. According to the association, homestays cleared RM4.3m ($1.34m) in tourism receipts in 2013, and the SHA is optimistic that this trend will continue in 2014. The bulk of Sabah’s homestay clientele come from Peninsular Malaysia and regional neighbours such as China, Hong Kong, Singapore and Japan, but visitors from Europe are also well-represented.

Although the government is usually trying to encourage middle- and upper-end hotel development, a new hostel is set to become one of Sabah’s most popular destinations.

Located in Laban Rata on Mount Kinabalu, the 28-room hostel will offer climbers and visitors a low-cost alternative for accommodation close to Kinabalu Park. The hostel is being constructed and managed by Sabah Parks, with indications that it may be the first of several.

Getting Around

With 17 direct international flights, the two-terminal KKIA is the busiest airport in Malaysia, after Kuala Lumpur International Airport, according to figures from STB. Owned by Malaysia Airports Holdings Bhd. (MAHB), the airport has been undergoing a RM1.4bn ($436.94m) expansion and renovation project since 2005, with 2014 seeing the final stages of this. The runway was extended from 2988 metres to 3780 metres with an instrument landing system. The main airport terminal was also enlarged to accommodate four Boeing 747s, one Airbus A330, seven Boeing 737s, three Fokker 50s and three Dorniers, as well as 12 jetways for passenger use. According to the 2013 MAHB annual report, total passenger movements in 2013 in the state of Sabah totalled 9.94m, an increase of 17.9% over 2012. KKIA in particular saw 1.69m international passenger movements throughout 2013, of which 71.1% were from North-east Asia and 28% were from South-east Asia. Passengers from the South-west Pacific and the Middle East made up the remainder.

Malaysia Airlines’ (MAS) current international destinations departing from KKIA include Hong Kong, Perth, Shanghai, Taipei and Tokyo. Visitors from Singapore, Jakarta and Manila can reach KKIA in only two hours, while those from Hong Kong are only three hours away. KKIA’s proximity to these Asian hubs is important as they provide the bulk of Sabah’s international travellers. The list of airlines using KKIA has also been growing. Royal Brunei Airlines, Dragon Air, Korean Air, Asiana, Cebu Pacific and Silk Air all fly direct international connections to KKIA.

Several low-cost carriers, such as AirAsia and Malindo Air, also operate out of KKIA, with AirAsia in the process of developing KKIA as a hub. Masidi told local press that he hopes MAS will also reinstate a defunct Osaka–Kota Kinabalu route. Sabah’s other airports are located in Lahad Datu, Tawau and Sandakan. These regional hubs only handle domestic flights, however, with MAS’s subsidiary MAS Wings being the prime operator here.

Regional Grouping

Sabah is also strategically positioned within the Brunei Darussalam-Indonesia-Malaysia-Philippines East ASEAN Growth Area (BIMP-EAGA). This sub-regional grouping includes Palawan and Mindanao in the Philippines; Sabah, Sarawak and Labuan in Malaysia; and Sulawesi, Kalimantan, Maluku, West Papua and Papua in Indonesia, making the potential market for tourism within the ASEAN community enormous. However, a lack of secure transport links from Sabah to these areas has so far hindered greater development.

A small but important recent exception to this rule is the upgrade of a new ferry line between Sabah and the Philippines, along with a new immigration centre to process tourists who are crossing from one country to another.

The Kudat-Palawan ferry service is part of a BIMPEAGA initiative to operate a service from Brooke’s Point in Puerto Princesa to Kudat in northern Sabah. Tourists and locals will now be able to pass easily and quickly from Sabah to Palawan, opening up the prospect of new cross-border tourism packages that will benefit both areas.

The service was made possible in part by a RM20m ($6.24m) investment by the Malaysian government in 2013 for the construction of a roll-on/roll-off ramp for the ferry. This service, along with other transport facilities, could also benefit from the creation of a single visa regime for tourists visiting BIMP-EAGA sub-regions or an ASEAN single-entry visa, two possibilities that have been recently proposed by various policymakers in the region.

Meanwhile, the room for expansion in the aviation sector is huge, as are the potential profits for investors with a long view. MAS Wings does make a few stops in the BIMP-EAGA region: Indonesia’s Tarakan in Kalimantan, the Philippines’ Puerto Princesa in Palawan and Brunei Darussalam’s Bandar Seri Begawan. When the ASEAN Economic Community comes into being in 2015, both economic and transport links will likely be strengthened even further.

Meeting Up

Convenient and reliable air links to and from Sabah are crucial to developing the meetings, incentives, conferences and exhibitions (MICE) segment in the state. Currently, MICE venues in Sabah can only handle small- to-medium-sized events of about 500-600 delegates. However, the completion of the SICC in 2017 should change all that. The SICC, in development by the Yayasan Sabah Group, is expected to provide 10,000 indirect job opportunities in different fields and direct employment for between 700 and 1000 workers during the construction period. “SICC is expected … to position Sabah as a leading MICE destination by 2025,” said Rosmawati Lasuki, the general manager of Yayasan Sabah Group, in July 2014, speaking at the 3rd Global Tourism Cities Conference.

Building Up

According to the 2013 annual report from the Performance Management and Delivery Unit, the agency in charge of implementing the ETP, there has been much progress made in establishing an Eco-Nature Integrated Resort in Karambunai, north of Kota Kinabalu. This EPP is expected to generate GNI of RM706.6m ($220.5m) and 7733 jobs by 2020. Karambunai Corporation (KRC) won the rights to develop the eco-resort and began development planning in 2011. So far, a RM4.9m ($1.53m) restaurant has been completed. KRC is now in the process of gaining the required approval to finalise the remainder of the project’s plans.

The SDC is overseeing the development of the Kinabalu Gold Coast Enclave (KGCE), which includes a series of sustainable and environmentally friendly tourism clusters being incentivised on a stretch of coast between Tuaran and Kota Belud. The KGCE will comprise four areas – Sulaman-Lema’as, Ambong Bay and its environs, Usukan Bay and its environs and the Northern Eco Coast – covering 78.5 sq km in total. The development of the KGCE, which aims to attract RM11.95bn ($3.73bn) in private sector investment and provides for benefits from SDC tax incentives, will be steered by the Coastal Tourism Master Plan. The enclave is expected to generate RM1.75bn ($546.17m) in GNI by 2020. The master plan also provides for the development of selected areas for lower mid-range and community tourism assets. Jamili Nais, the director of Sabah Parks, told OBG, “Although attracting high-spending tourists is an important part of our work, we also need to ensure that there is something available for everyone so the locals can enjoy our parks as well.”

Staying Healthy

Under the ETP’s Tourism National Key Economic Area, the health tourism sector has also been singled out as a potentially profitable sub-sector. Globally, the industry is worth approximately $40bn, according to Patients Beyond Borders, a publisher of guidebooks for international medical travel. After the investment of more than RM500m ($156.05m) in three private medical centres in Kota Kinabalu, Sabah is now positioning itself to take a greater share of that revenue. These centres include KPJ Healthcare’s acquisition of the Sabah Medical Centre; the Jesselton Medical Centre, which is set to begin operations in 2014; and IHH Healthcare’s Gleneagles Kota Kinabalu Medical Centre, scheduled to begin providing services in the first quarter of 2015 at the Riverson complex. The latter will have some 250 beds and six operating theatres.

The opening of more high-quality health centres also means more jobs for highly skilled Sabahans. The potential to boost local employment opportunities through this segment was highlighted by Masidi in an April 2014 ceremony to commemorate the completion of Gleneagles’ hospital. “With Gleneagles coming up here, it also represents an opportune time for my fellow Sabahans to find good jobs with the hospital,” the minister said. Medical tourism may therefore be invaluable in stopping brain drain from Sabah in health and other related sectors.

Furthermore, the opening of the Swiss Wellness Centre in 2014 should draw travellers who want to include spa time and wellness treatments in their Sabah holiday. In addition to these therapies, the centre offers treatments for congestive heart disease, diabetes, and kidney, liver and auto-immune disorders. These medical and wellness centres are intended to establish Sabah on the health tourism map. Offering many of the same procedures for significantly less money, Sabah’s institutions could tempt clients away from established medical tourism centres in Singapore, Kuala Lumpur (KL) and Penang. The state’s offerings could also prove popular with clients coming from nearby locations in BIMP-EAGA, which has a population of about 60m and where standard health care can often be sub-par.

Training Up

A recurring challenge for Sabah’s tourism sector relates to the service industry requirement to staff and train current and future hospitality personnel. The unfortunate trend has been that, once trained, many workers leave Sabah for better compensation and more opportunities in larger cities, such as KL and Singapore. To address this issue, several local institutions are stepping up to tackle the need to build up a home-grown skilled workforce in Sabah’s tourism industry.

Offering both diplomas and certificate courses in areas such as culinary and pastry arts, tourism operation and management, and diving and resorts management, Asian Tourism International (ATI) College produces graduates who enter the workforce equipped with the skills necessary to handle real-world working environments. Most students graduate with a fluency in English, as well as knowledge about how to manage conventions and facilities, marketing, accounting and transport. ATI College has been offering Sabahans tertiary education for 17 years and has earned the Ministry of Higher Education’s five-star rating. Its location in Kota Kinabalu makes it possible for students to remain near their families while getting an education, with the goal being to encourage them to remain in Sabah in order to pursue their careers, adding to the reservoir of skilled tourism staff and management in the state.

Wong Khen Thau, CEO of ATI College, told OBG he believes there is great potential in specialising in Asian-oriented cuisines, which he calls “chopstick service”, and hospitality, as well as halal services. “Sabah tourism training should focus on its strengths rather than try to emulate the UK ‘fork and spoon’ service model,” Wong told OBG. “There is potential for chopstick service and halal service specialisation.”

In a similar vein, the government-funded Sabah Skills & Technology Centre (SSTC) provides training programmes to upgrade the skill levels of the Sabahan workforce, including hospitality personnel. SSTC is a collaborative, public-private partnership in which the government provides funding and organisation, while the industry provides leadership and support. For hospitality personnel, SSTC offers a nine-month course in front-office skills for hotel staff, as well as culinary and pastry arts for restaurant workers. After completing a nine-month course, students are attached to an appropriate hospitality organisation for three months of on-the-job training.

Even more hospitality and culinary sector training is available from Kota Kinabalu’s Ascot Academy. Ascot offers programmes accredited by two authorities that grant different qualifications. Students may choose to pursue either set of qualifications for the training they require. Malaysia’s Ministry of Human Resources accredits Ascot’s courses and on completion grants students a Malaysian Skills Certificate. The other authority is the UK’s City & Guilds, a vocational education organisation that functions as an international examination and accreditation body for various industry sectors, including the hospitality sector. Ascot’s City & Guilds students are granted the City & Guilds International Vocational Qualification for Hospitality upon graduation.

Ascot’s curriculum includes six- and 12-month courses in culinary and hospitality management. These courses prepare students with hands-on training, using simulated environments such as front offices and kitchens in which students are prepared for real-world situations. After completing the entire three-level course of study, students can either go into employment or continue their education at university. In addition, Ascot holds day-long seminars in skill building such as resume writing, interviews, interpersonal and communication skills, customer service, professional image, business etiquette and event planning. Ascot’s industry partners include companies that own resorts and hotels across Sabah where employment is much sought after by prospective employees, such as Sutera Harbour Resort, Shangri-La Rasa Ria Resort, Novotel 1 Borneo, Kota Kinabalu and Hyatt Regency. This eases the transition from study to work and creates a ready supply of well-trained employees for these companies.

“Hospitality training is not only about teaching basic skills. It is also about creating well-rounded employees with strong English proficiency and instilling them with motivation and confidence,” Abdul Razak Egoh, CEO of Ascot Academy, told OBG.

Keeping Safe

One issue directly affecting tourism that the state and federal authorities are keen to address specifically in Sabah is that of security, following several recent kidnappings on Sabah’s east coast and an incursion by Sulu militants in 2013. The Malaysian government has since tightened security enforcement and deployed more maritime patrols to Semporna and Lahad Datu, establishing the Eastern Sabah Security Zone to protect the coastline.

Making sure that tourists feel secure is, of course, a number one priority, with the scale of the damage such events can cause evident in the fact that 76 flights to Kota Kinabalu from China were cancelled as a result of the incident. The net effect on tourism due to a curfew imposed in coastal areas in July 2014 to help secure Sabah’s east coast was not yet known, although government ministers suggested that tourists were beginning to return by early August.

To further protect the state’s image and its tourism industry, the Malaysian Association of Tour and Travel Agents (MATTA) has called on authorities to close loopholes in the 1992 Tourism Industry Act by stepping up the prosecution and fining of unlicensed tour agents and illegal tour transporters and guides, as well as installing closed-circuit television cameras at airports and jetties to identify such illegal operators.

Outlook

The state’s tourism sector appears to be exceedingly resilient as the number of arrivals continues to grow. Meanwhile, promoting the state’s many tourism attractions to a wider overseas and domestic audience is also crucial for future development. Sabah faces the challenge of sustainable growth in a place where the environment is very much a part of what makes the state attractive. Infrastructure development may be necessary if visitors are to come, but such development must not be at the expense of what they have come for. As long as the government maintains environmental sensitivity, Sabah tourism stands to benefit greatly from its wide range of attractions in the years ahead.

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The Report: Malaysia 2014

Sabah chapter from The Report: Malaysia 2014

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