The Report: Sarawak 2015

Economy

While oil and gas production, timber harvesting, and agriculture continue to dominate Sarawak’s economic DNA, significant improvements in transportation and utility infrastructure are now giving rise to an era of economic diversification led by new heavy industries. The state’s relatively small population, large geographical area and diversified economy are providing job opportunities for the state’s inhabitants. The state compares quite favourably to its peers in terms of per capita GDP at $12,507, up from $12,288 in 2012 and $9,150 in 2009. While early investments are primarily being made in energy-intense sectors such as basic metal refining and production, the application of more value-added services focused on the state’s renewable resources has already yielded two large food processing plants and is expected to lead to further development in related fields such as timber and other wood-based manufacturing, advanced ceramics, biotechnology and aquaculture, as well as further downstream applications for the palm oil industry and the wider agriculture sector.

This chapter contains an interview with Awang Tengah bin Ali Hasan, Minister of Resource Planning and Environment, Minister of Public Utilities and Minister of Industrial Development.

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Trade & Investment

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Financial Services

From large, multinational funds to local Malaysian banks, national and international players have historically been drawn to the state in large part by the opportunities available in financing its substantial oil, gas, timber and palm oil industries. Today, they are being drawn by the state’s major development plan, the Sarawak Corridor of Renewable Energy, and other mega-projects currently being implemented. A huge amount of capital investment will be required for the state to meet its development goals, and it is looking to source this in part by issuing conventional and Islamic bonds. Finance-related activity in Sarawak is likely to grow in importance and intensity over the coming years. While a great deal of work remains to be done in order for Sarawak to make good on its promise of development for everyone in the state, its increased visibility and popularity among investors and financiers, domestic and international, is a sure sign that it is headed in the right direction.

This chapter contains interviews with Wong Soon Koh, Minister of Finance II and Minister of Local Government and Community Development; and Rauf Rashid, Country Managing Partner, EY Malaysia.

Score

One of the five regional economic corridors being developed throughout the country, the Sarawak Corridor of Renewable Energy (SCORE) is part of the federal government’s national agenda to propel the country into achieving high-income status by 2020. SCORE’s game plan for transitioning Sarawak into a high-income state is premised on transforming its economic base towards advanced industry by more effectively using and adding value to its vast natural resources. At the same time, clean and affordable power provides a competitive advantage for attracting energy-intensive investment. The impetus now is on the state to ramp up its educational efforts and streamline immigration procedures to ensure that the stock of human capital keeps pace. Port projects are being monitored closely, as not only does capacity need to be expanded, but the construction of purpose-built storage facilities is also required to cater to new materials being produced by companies in SCORE such as aluminium products, pulp and paper, bio-diesel, downstream timber products and agro-produce.

This chapter contains interviews with Wilson Baya Dandot, CEO, Regional Corridor Development Agency (RECODA); Takeo Suzuki, President, Tokuyama Malaysia; and Isaac Lugun, CEO, Samalaju Industries. 

Energy & Utilities

Blessed with an abundance of hydro, coal and gas resources that one would be hard pressed to find elsewhere, Sarawak has a comparative advantage that is being leveraged to produce bulk power at competitive prices in order to attract capital-intensive investments in heavy industry. Already a net exporter of liquefied natural gas (LNG), new hydroelectric projects position the state with the potential to become a central provider of power in the proposed ASEAN Power Grid, and supply agreements have already been signed with  neighbouring Indonesia, while discussions with Peninsular Malaysia, Sabah and Brunei Darussalam are ongoing. Malaysia’s vision for 2020 calls for Sarawak to attain the status of a high-income state by the turn of the decade via transitioning its production base away from basic commodities into more value-added manufacturing. Further unlocking sustainable and competitively priced energy is critical to achieving this goal.

This chapter contains interviews with Torstein Dale Sjotveit, CEO, Sarawak Energy; and Zulkifle Osman, Managing Director, Sarawak Hidro.

Industry & Retail

Manufacturing accounts for 27.4% of Sarawak’s economy and employs about 11.2% of the workforce. The sector is expected to grow 5% per annum until 2030. Endowed with forests and vast plantation resources that are at risk of being depleted in the long term, the state is aiming to transition its production base away from basic resources and commodities extraction into value-added manufacturing as part of Malaysia’s Vision 2020 mandate to attain high income status by the turn of the decade. With an abundant and cost-competitive energy mix, proximity to key Asian markets, and a proactive local government that offers attractive incentive packages to investors, Sarawak possesses the key ingredients to become a significant industrial player.

This chapter contains interviews with Paul Koon, Group CEO, Press Metal; Aaron Toh Chee Ching, Group Managing Director and CEO, Sarawak Cable Toh, Sarawak Cable Berhard; and Sarudu Hoklai, General Manager, Sarawak Timber Industry Development Corporation. 

Plantations & Agriculture

As Sarawak’s largest employer, providing a livelihood for about one quarter of the population, the agriculture, forestry and fisheries sector stands as one of the state’s key engines, even with the gains in economic diversification made in recent years. Sarawak also plays a central role in Malaysia’s agriculture sector as a whole, producing foodstuffs for local consumption and cash crops to export. Industrialisation within the Sarawak Corridor of Renewable Energy will provide greater demand for agricultural inputs as downstream food processing activity expands. Raw timber exports and the rapid expansion of plantations, particularly of oil palm, are likely to slow over the next decade due to stricter government regulation and enforcement, although downstream industries fed by sustainable timber plantations should continue to thrive. Strong global demand, together with ongoing efforts to modernise and mechanise processing of food crops such as rice, fresh produce and spices, should also contribute to sustained growth in these sectors.

This chapter contains a viewpoint from Dr James Jemut Masing, Minister of Land Development; and an interview with Grunsin Ayom, Director-General, Malaysian Pepper Board.

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Transport & Infrastucture

The state’s once underdeveloped transportation infrastructure is transitioning from a maligned weakness to a position of strength as improvements to air, sea and land connections continue to ease the flow of goods and people within Sarawak and abroad. For an island state whose inland waterways also still serve as the primary conduit for moving people and cargo internally, water transportation remains a key element in Sarawak’s logistical network and its further augmentation remains a focal point for future development. Road interconnectivity has been a high priority of federal development plans and a prerequisite of the Sarawak Corridor of Renewable Energy. Major investments in Sarawak’s transportation network are providing a substantial leap in capacity and capability, which should provide a strong base for the expected growth in coming years.

This chapter contains interviews with Michael Manyin Jawong, Minister of Infrastructure Development and Communications; Mior Ahmad Baiti, CEO, Bintulu Port Holdings; and Ritzerwan Rashid, CEO, MASwings.

Construction & Real Estate

Steady economic growth, increased industrialisation, rapid urbanisation and one of the highest foreign investment rates in the country are all contributing to fuel a strong performance in Sarawak’s construction industry. The private and public sectors are doing their part to fill up the order books and, as a result, the construction industry has nearly doubled in productivity over the five-year span of 2009-13, during which the annual value of completed projects spiked from $1.5bn to $2.4bn. The myriad of factors influencing Sarawak’s real estate market have resulted in a mixed bag for the sector, with property growth, value and transaction activity all varying widely by region. Despite the regulatory uncertainties giving property developers and purchasers pause on a national level, the real estate market looks set to continue its strong run in Sarawak, due largely to a robust investment pipeline that should help fuel demand for the foreseeable future.

This chapter contains interviews with Richard Curtis, Group Managing Director, Cahya Mata Sarawak; and Joseph Wong Kee Liong, President, Sarawak Housing and Real Estate Developers Association.

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Tourism

Slightly more off the beaten path than South-east Asia’s mainstream holiday destinations, Sarawak has plenty to offer those seeking a slightly less conventional travel experience. The state is positioning itself as a culture, adventure and nature destination and also looks to increase its share of the globally lucrative meetings, incentives, conferences and exhibitions market as organisers and planners pursue more unique and exotic locales to stage their events. While shortcomings in connectivity remain an obstacle to growth, the government has never pursued uncontained growth, as turning the state into a mass-market tourism destination would erode the natural attractions that appeal to visitors in the first place. Tourism has thus been identified as a vehicle to be prioritised for the contribution it can make toward a more inclusive model of economic growth.

This chapter contains interviews with Mike Cannon, Managing Director, Sarawak Convention Bureau; and Charlene Chan, Manager, Citadines Uplands Kuching. 

Education & Training

The Malaysian government is committed to transforming the country’s education system to produce a cadre of graduates armed with the creative and critical thinking skills necessary to thrive and lead in the 21st century’s increasingly international workplaces. The approach is tailored to each area of the country. In Sarawak, which has a higher proportion of rural schools than Peninsular Malaysia, the ministry is prioritising support by providing funds for upgrades to the state’s education infrastructure, among other programmes. Policymakers and educators are clearly on course in planning for the changes Sarawak Corridor of Renewable Energy and other projects will bring to the people of Sarawak. Implementation is key and it is crucial that all of the state’s people gain from the private and public investment now being made in the state’s education system.

This chapter contains interviews with Professor Abdul Rahman Arshad, Chancellor of UCSI University; and Mohamad Abu Bakar bin Marzuki, Director, Yayasan Sarawak.

Telecoms & IT

The development of high-tech industries is a key part of the Malaysian government’s long-term development strategy, the Economic Transformation Programme. Numerous programmes have been launched in Sarawak to develop ICT, with participation between public and private sector players recognised as a key component of success. While Sarawak’s ICT sector is clearly moving towards the goals set for it by the overall national development plan, government ministers recognise that more needs to be done in order for the sector to really take off. As the state continues to build the basic infrastructure and market improvements necessary to bring its ICT sector up to par – setting down fibre-optic networks, building more communications towers and laying submarine cables – the businesses that power Sarawak’s ICT sector will be anticipating the opening of the next level of the communication highway.

This chapter contains an interview with Sudarnoto Osman, CEO, SACOFA.

Health & Environment

In common with governments around the world, issues such as rising costs, demographic shifts, technological advances in care and delivering equitable health care to both rural and urban populations are posing challenges to Sarawak’s health authorities. Of the state’s inhabitants, 44% were considered rural in 2013. Yet it has only one major public hospital, Sarawak General, located in the capital Kuching. It is thus important for authorities to devise alternative modes for delivering care. Within the health care sector, the need to address the persistent urban-rural divide and create incentives to attract and retain qualified medical practitioners is likely to be prioritised. As costs rise, the requirement for health care insurance for some workers should energise the state’s insurance industry. There is also much promise for bioprospectors to discover new medical compounds in Sarawak’s rainforests, which could act as a key accelerator for the state’s biomedical economy.

Tax

This chapter gives an overview of taxation in Sarawak, which is governed by the general policies of the Malaysian federal government. Key areas of focus include double taxation agreements, corporate tax, investment tax allowance, incentives and green technology tax exemptions.

Legal Framework

This chapter examines the legal framework environment for doing business in Sarawak, focusing on new sales and purchase agreements, goods and services tax, foreign property investment, minimum wage policy and the variety of visa options available to foreigners. It also contains a viewpoint from Alvin Wong, Managing Partner, Sia, Alvin Wong & Partners.

The Guide

This chapter contains hotel listings, phone numbers for state government ministries, foreign missions, consultancy and accountancy services, and other important contacts, as well as useful facts for visitors.

It also contains a features piece on efforts to preserve the local batik-making tradition, a woven art that traces back centuries, which is currently integrating skilled artisans into Sarawak’s evolving economy.

Table of Contents

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