Sabah: Maintaining investor confidence given priority

With programmes aimed at boosting education and rural development gaining pace, Sabah’s government will be hoping that its move to calm investors by setting up a regional security zone following an incursion in February proves effective.

On March 28, Kuala Lumpur approved an initial allocation of RM200m ($64.76m) to fund the Eastern Sabah Safety Zone (Ess-zone), which was put in place a week earlier to protect the area from further intrusions in the wake of an offensive launched by Philippines-based rebels. Officials said they were preparing to purchase unmanned aerial vehicles, attack helicopters and speedboats.

Once fully implemented, the Ess-zone is expected to send out a message of reassurance to investors and tourists, although experts remain divided on the long-term impact the incursion could have on Sabah’s economy. A total of 24 development projects worth nearly RM1bn ($0.32bn) are currently under construction as part of the Sabah Development Corridor (SDC) initiative, led by the RM247m ($80m) Palm Oil Industrial Cluster, which is being rolled out in Sandakan.

“Setting up the Ess-zone will definitely boost the security level in east Sabah in the best possible manner,” Chief Minister Musa Aman told local media in March. “This will simultaneously uplift the confidence of tourists and foreign investors to visit and carry out economic activities in Sabah.”

The leadership will also be keen to relay recently published data on the Government Transformation Programme (GTP), which indicates that its commitment to modernising Sabah is producing results.

Under the GTP, 1900 km of roads are to be built throughout Sabah and Sarawak. Public transport is earmarked for an overhaul, and pre-school education will also receive a boost.

Although the government schemes are spearheading much of the new development, an Investment Incentive Package for the SDC, which was given the green light last December, will pave the way for the private sector to play a greater role in driving economic growth. The package aims to boost investment in tourism, manufacturing, agriculture and major industries.

The incentives include full tax exemption on statutory income for up to 10 years and an investment tax allowance of 100% on qualifying capital expenditure for five years. Under current policy, the state also offers full exemption on import duty and sales tax, local media said.

The state’s leaders expect Sabah’s GDP per capita to increase three-fold on the back of the SDC, with total growth forecast to quadruple by 2025. Sabah has notched up about RM114bn ($36.92bn) in investment since the initiative was launched in 2008. However, there were fears that investment levels could fall following February’s incursion. Malaysian Rating Corporation’s chief economist, Nor Zahidi Alias, acknowledged tourism and retail could experience fall-out from the conflict, but said Sabah would likely ride out any turbulence long term.

“My feeling is that the current incidents will not have a significant impact on the state’s economy as [this event] was a localised problem. As long as it doesn’t lead to a contagion effect, it will not have an adverse effect on the state's economy,” he told Malaysian newspaper The Star on March 8.

Experts such as CIMB Investment Bank’s economic research head, Lee Heng Guie, however, remain more cautious. “There will likely be some impact on the sectors that Sabah has been leveraging on but it's hard to quantify at this point,” he told the newspaper.

Optimists view the Ess-zone, which will cover the 10 districts of Kudat, Kota Marudu, Pitas, Beluran, Sandakan, Kinabatangan, Lahad Datu, Kunak, Semporna and Tawau, as a well-aimed response from the government that is likely to bring wide-sweeping benefits to the areas.

The member of parliament (MP) for Silam, Salleh Kalbi, told local media that the security zone would boost property prices, create jobs and ease any concerns among tourists, particularly in the Lahad Datu area where the incursion took place. “After ESSCOM, I am confident the tourist arrivals [in Lahad Datu] will increase as they will feel safer,” he said.