Malaysia attracting further investment in critical sectors

The Sabah Development Corridor (SDC) was launched in 2008 and covers the whole of Sabah. It is now entering its third phase of development, which is likely to create more opportunities for foreign investors, particularly in the areas of tourism, hydrocarbons and palm oil-related ventures.

By 2025 the goal is that the initiatives under the SDC will have tripled Sabah’s GDP per capita and increased total GDP by four times. The Sabah Economic Development and Investment Authority (SEDIA), which is driving the SDC project, says the target is to push the state’s average growth rate to 9% a year. According to the Malaysian Investment Development Authority (MIDA), the total committed investment for the SDC was RM150.7bn ($37.3bn) by the end of September 2015. Of this, RM55.1bn ($13.6bn) has been deployed. These investments include completed high-impact projects and those undergoing construction within the tourism, oil, gas and energy, palm oil, agriculture, education, and manufacturing and logistics sectors, as well as those within Greater Kota Kinabalu, the largest urban centre in Sabah.

Visitors 

The tourism sector is one of the most important income generators for Sabah. Tourism projects under the SDC aim to position Sabah as a premier eco-destination, but also as a place for conventions and luxury getaways. Notable developments include world-class island resorts such as YTL Corporation’s Gaya Island Resort, just off Kota Kinabalu, as well as improvements to the city, including pedestrianisation and cycle path projects. The Sabah International Convention Centre, due for completion in 2018, is designed to serve as a catalyst for the meetings, incentives, conferences, and exhibitions segment in the state, and is part of the Jesselton Waterfront Development project, which will include luxury apartments and villas as well as a terminal for international cruise ships.

The development of the state capital is one of a number of economic sectors that is a central focus of the SDC’s activities. Other key areas of investment include tourism, agriculture, oil, gas and energy, education, manufacturing and logistics and palm oil. All of these sectors offer a variety of incentives to investors, including income-tax exemptions, investment-tax allowances and exemptions on import duties and sales taxes. The incentives apply to project applications made before the end of December 2020. SEDIA says the first two phases of the SDC involved laying the groundwork for the corridor and then accelerating the implementation of the SDC by attracting more private investment. The second phase (2011–15) was “instrumental in accelerating the development of Sabah and mobilising greater private sector participation”, SEDIA officials told OBG.

Resources

There have also been a number of major investments into oil and gas. The national oil company, Petronas, which is the lead partner on all oil field development, is the primary investor. Petronas has invested significantly in the 300-MW gas-fired Kimanis Power Plant, Sabah’s largest independent power plant, and the 512-km Sabah-Sarawak Gas Pipeline. Petronas has also taken the lead at the Sipitang Oil and Gas Industrial Park, which is part of the company’s plan to optimise the value of Sabah’s oil and gas wealth through the development of downstream industries.

The palm oil industry has also grown considerably under the SDC. The Palm Oil Industrial Cluster (POIC) in Lahad Datu had attracted investment of up to RM9bn ($2.2bn) as of January 2016, according to SEDIA, with the most notable investment being a bio-refinery complex that is a joint venture between the US-based Elevance Renewable Sciences and Genting Plantations. The RM2bn ($495.1m) project involves the development of a refinery with the capacity of 240,000 metric tonnes. POIC Lahad Datu, which has both a dry-bulk port terminal and a liquid terminal, is envisaged as a centre for the development of a biomass industry. A RM450m ($111.4m) container terminal is due for completion by the end of 2016. A biodiesel plant, the largest in the world, has been operating in the cluster since 2007. It was originally as a joint venture between POIC Sabah, South Korea’s Eco Solutions and Sabah-based Suria Sama Resources.

POIC Expansion

Further up the east coast at Sandakan, a region where 40% of Sabah’s palm oil is produced, another POIC is under development. Malaysia-based Hap Seng Consolidated is investing RM1bn ($247.5m) to build a refinery complex in the park in three phases, while construction is under way to build a pier to facilitate the transport of raw materials, pumping facilities and storage tanks for liquid palm products with a capacity of 21,800 metric tonnes. The pier, developed by units of Malaysia’s Sawit Kinabalu and Kretam Holdings, is expected to be operational by 2018.

Although both sites are near plantations, POIC Sabah admits biomass refining is expensive because the material needs to be transported by truck, adding to costs at a time when lower oil prices are making plastic products more competitive. The cluster is looking into ways to ensure a regular and stable supply of biomass to factories, and the government has recently provided financing to build a network of collection centres which may allow the development of satellite POICs. Talks are also underway to establish joint ventures with palm oil mills to supply biomass on a long-term contract, giving them the option to participate in the business. Some 16 mills have already agreed terms.

Environment

Given tourists’ interest in experiencing Sabah’s natural wealth, protecting the state’s environment – even as it seeks to develop the palm oil industry – is one of the key principles of the SDC. Sabah’s totally protected areas currently amount to around 1.77m ha or 24% of the state’s entire landmass. It has also enhanced the protection and conservation of the forest around the Danum Valley and Maliau Basin.

An Environmental Impact Assessment (EIA) has been mandatory for all agricultural development in Sabah since 1999. Oil palm plantations are designated as a “prescribed activity” and all companies wanting to undertake such developments are required to lodge an EIA report with the director of the Environmental Conservation Department for approval. The state government has decreed that by 2025 all palm oil from Sabah’s plantations must be certified by the Roundtable on Sustainable Palm Oil (RSPO), POIC Sabah’s Bilson Kurus told OBG.

In the second phase of the SDC, under the 11th Malaysia Plan (11MP), hundreds of Sabahans were able to participate in skills-based training, including technical training for 800 in agri-based industries, and 20 graduates joining courses to retrain in hospitality. The University College Sabah Foundation, in collaboration with SEDIA, also provided creative content training to 600 people under the Sabah Animation Creative Content Centre.

The 11MP identifies tourism and downstream palm oil processing as priority areas for the SDC, and also stresses the importance of improving road, sea and air links within the regional corridors. The construction of the Pan-Borneo Highway, which is due to start in Sabah in 2016, will link the SDC to the Sarawak Corridor of Renewable Energy, the regional development corridor in neighbouring Sarawak. The federal government has set aside RM800m ($198m) to expand the Sapangar Bay Container Port, increasing capacity from 500,000 twenty-foot equivalent units (TEUs) to 1.25m TEUs. “The port is located along the main shipping route of the East Asian sea trade, as well as being at the centre of the BIMP-EAGA region,” SEDIA officials told OBG. “The port’s proximity to Kota Kinabalu allows the state’s manufacturing centre to enhance its competitiveness in a more open environment, brought on by trade liberalisation, the introduction of the ASEAN Economic Community and the Trans-Pacific Partnership Agreement.”

In the 11MP the authorities reported that, on average, only 56.8% of committed investment in the country’s development corridors had been realised, and that it was critical for agencies leading the plans to improve the investment delivery mechanism, especially around investor facilitation, mobility and commercialisation of research. The plan called on regional economic corridor authorities to do more to help investors obtain approvals across multiple agencies, solving land issues and related matters to ensure committed investments are fully realised. Regional economic corridor authorities need to ensure that the growth projects are in line with national development goals.