Malaysia expanding visitor options

With its stunning rainforests, beautiful beaches and rich biodiversity, Sabah’s potential as a tourist destination is undeniable. Yet while a series of incidents have slowed the sector’s development since 2014, there are abundant signs of a strong recovery, and decisive steps are being taken to position the sector for future growth.

In Figures

The year 2015 saw 3.17m tourists touch down on Sabah’s shores, a 1.7% drop from the 3.23m tourists that visited the state in 2014. Revenue also fell slightly in 2015 from RM6.63bn ($1.6bn) in 2014 to RM6.15bn ($1.5bn).

According to the Sabah Tourism Board, the bulk of the arrivals in 2015, close to 2.2m, were domestic, with the remaining 978,426 being international visitors. Of these international tourists, 36.8% arrived from South-east Asia – mainly Indonesians, Bruneians and Filipinos – whilst 49.9% came from North-east Asia – predominantly China and South Korea. The year-on-year (y-o-y) contraction in international tourist arrivals in 2015 was mainly felt within the north-east Asian (-6.8%) and European (-4.8%) segments. Despite negative growth in arrivals in 2014, there were bright spots among some segments. South-east Asian arrivals grew by 6.1%, led by over 202,000 Indonesian tourists, a 19.1% increase y-o-y. Within north-east Asia, Taiwan and South Korea bucked the trend, with arrivals increasing by 31.7% to over 41,000 and 21.6% to over 138,000, respectively.

Furthermore, 2015 saw a marked increase in cruise ships docking in Sabah. In 2015 this number rose to 29 ships, carrying 31,624 passengers, from 19 vessels and 13,261 passengers in 2014 .

Riding It Out

Yet there is no denying the difficulties the sector has faced in Sabah. The spectre of Malaysia Airlines flight MH370’s loss in 2014 cast a shadow over the industry, affecting in particular arrival numbers for Chinese tourists. Moreover, in June 2015, Mt. Kinabalu was rocked by an earthquake measuring 6.0 on the Richter scale, forcing one of Sabah’s main tourist attractions to close for the majority of the year. Also, since 2014 the state’s east coast has suffered from several kidnappings, with the most recent being the abduction of four Malaysians off the coast of Semporna, a city in Sabah’s southeast, by Filipino pirates. Such incidents have resulted in countries such as Australia and the UK placing travel warnings on the state, which have in turn been disputed by Malaysian policy makers as unjustified. In April of 2016 deputy minister of home affairs Nur Jazlan Mohamed told local press that the islands of East Sabah are strongly protected, with armed forces and police patrolling the area and providing escorts to as many as 1000 tourists per day traveling to these islands. General manager of the Sabah Tourism Board, Gordon Yapp, told OBG that while the travel advisories had not impacted individual tourists, package group travel to the east coast had fallen as the warnings voided their insurance coverage.

Still, things are undoubtedly looking up in the state. Mt. Kinabalu opened again in December 2015 with a new route, and tourists have once again flocked to the mountain, leading to long wait times and extended advance booking times.

Tourist arrivals also began picking up significantly in the final quarter of 2015 and into the first quarter of 2016. According to preliminary figures from the Sabah Tourism Board, total tourist arrivals in January and February 2016 increased by 8.3% and 12.2% y-o-y, respectively. This includes y-o-y increases of 65.6% and 53.6% within the crucial Chinese visitor segment, as well as y-o-y increases of 21.6% and 23.5% in international tourists.

These figures are very encouraging when one considers that average spending per tourist as of 2014, the latest available data, is RM3418 ($846) for international visitors as opposed to RM1576 ($390) for domestic tourists. As part of Sabah’s strategy to attract higher-yield tourism, a number of high-profile projects are gaining traction.

Business Tourism

An important pillar of the state’s development strategy is the expansion of Sabah’s meetings, incentives, conferences and exhibitions (MICE) infrastructure to ensure it has the capacity to net a larger share of an increasingly lucrative segment. Developed as one of the key entry point projects under the Sabah Economic Development and Investment Authority (SEDIA), the Sabah International Convention Centre (SICC) is designed to be a world-class facility and cornerstone of the state’s MICE industry. Located on the waterfront at the northern edge of the city, SICC spans six ha and will boast a 6000-sq-metre exhibition hall, a 6000-sq-metre convention hall and an auditorium with seating capacity for 1200 people. While the project has been hit with delays, work has now begun on the foundation, with an expected completion date slated for 2018. The project is also expected to have numerous add-on benefits to the city’s economy, including creating jobs, increasing flight connectivity and exposing the local population to the global expertise brought in through international conferences.

Expansion

Connected via a skybridge to SICC will be Mah Sing’s Kota Kinabalu Convention City (KKCC), currently under construction. KKCC is an integrated, multi-use development comprising commercial, residential and retail space. The project has a gross development value (GDV) of RM1.4bn ($346.5m), is expected to be completed by 2020, and is being marketed as Sabah’s answer to the Kuala Lumpur Convention Centre.

Complementing the SICC in the long term, and filling the gap until 2018, is the International Technology and Commercial Centre (ITCC), listed as a private sector initiative by SEDIA under the Sabah Development Corridor. Developed by Sabanilam Enterprise, ITCC is a mixed-use development equipped with fibre-optic technology and including of a four-storey shopping mall, hotel facilities, a convention centre with a 2972-sq-metre banquet hall, 295 apartment units, and a 16-storey office tower. With modern facilities and proximity to both the airport and city centre, it will be well equipped to cater to larger international and domestic events and conferences. Construction is already under way, and the complex is currently on track to open at the beginning of 2017.

SICC and ITCC will add MICE capacity for a city currently limited to small and medium-sized events. “While our hotels are well equipped for MICE events catering to 1000 people or fewer, once the convention centres launch we will be able to target events involving 3000 to 5000 people,” Sabah Tourism Board’s Yapp told OBG. Despite the lack of a large convention centre, Sabah has nearly doubled the number of MICE tourists over the last decade, from 38,003 in 2006 to 67,497 in 2015.

Rooms With A View

Another sign of investor confidence in Sabah’s tourism sector is the growing number of hotels and resorts in development. The four-star Hotel Grandis opened in 2015, while in September 2015 the Shangri-La Group announced the development of Sabah’s first Hotel Jen, to be located in Pacific Sanctuary Holding’s PacifiCity integrated development. The hotel is expected to open its doors in 2018. In addition, construction of AccorHotel’s Mercure Hotel is well under way and expected to open in September 2016, while the Hilton Kota Kinabalu is currently slated for completion by the end of 2016, and Best Western in ITCC Penampang is planning a 2017 opening. As a consequence of the raft of new supply in the pipeline, the Hyatt Hotel Kinabalu completed renovations in 2015 to ensure its position in this increasingly competitive market.

Eco-Offerings

Also in the pipeline is the Tanjung Aru Eco Development (TAED), a major state project chaired by Chief Minister Musa Aman, which is set to transform Tanjung Aru Bay on the outskirts of Kota Kinabalu. Tanjung Aru beach is important for the city and has traditionally been a community meeting point and leisure spot for Sabahans. Unfortunately the area has fallen into disrepair over the past 30 years, and pollution has grown considerably. TAED is looking to both revive this area of the city and also provide a major boost to the tourism sector and wider local economy.

A huge undertaking, the project has a GDV of RM7.1bn ($1.8bn), and under the current master plan will comprise six hotels, a golf course, a marina, retail space, 150 villas, 475 houses and 4500 apartments. The development is aiming to attract high-end tourists and investors interested in holiday properties. It is expected to be a huge boon to Sabah’s tourism sector. Yet the project is not without controversy and has come under critique from local conservation groups who claim it could negatively impact the local ecosystem.

Striking A Balance

Regardless of the veracity of such claims, given the importance of the environment to current and potential tourism revenues, it does highlight the fine line that Sabah must tread between development and conservation. It is a fact the government is well aware of, with the state’s chief minister acknowledging in his 2016 budget address that “the catalyst for tourism sector development lies in the state’s diverse biodiversity”. There are numerous successful examples of this balance being struck, such as Danum Valley Conservation Area, a nature reserve that successfully entwines conservation and scientific research with tourism.

Sabah’s forestry department is also stepping up environmental protection efforts, with 1.8m ha now classified as totally protected area, with a target of 2.2m ha, or 30% of the state by 2025. The private sector has also recognised how crucial environmental stability is, and this is reflected in their social responsibility initiatives. Gayana Eco Resort, for example, launched its Marine Ecology Research Centre, which works to preserve and restore underwater ecosystems, while also running an environmental education programme for school children and the public at large. Yet while there are examples of conservation work being undertaken by the public and private sectors, many challenges remain, the most visible of which is the issue of waste disposal. The trash problem in Sabah is ubiquitous, although the government is working to address it. While these efforts are still in progress, they are all useful indicators that positive growth for the sector may be on the way.