Sabah’s costly living and economic future
Published on: Sunday, March 27, 2016
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By Datuk John Lo
IN wishing to compare cost of living, Sarawak is probably the best choice as it is our neighbouring sister state with more or less the same population, very similar in economic characteristics, especially in production of commodities.

Sarawak GDP per capita is higher than Sabah [reference: Malaysia Statistic Department] and somehow, the cost of living is lower and in some cases, much lower.

Decent hawker food in Kuching can still be got for RM3.50. Starting price in KK is around RM7.00 and in some places, it can go as high as RM10. Both prices are from decent, clean hawker venues. Likewise, the same price differential margin is true for housing.

Comparative housing like apartments, terrace and semi Ds in KK can be 30pc to 50pc more expensive than in Kuching.

Water, electricity and other government amenities are cheaper in Kuching too.

Higher prices in Sabah is not a recent phenomenon. Its root can be traced back to the timber booms in the 1960s, 1970s and 1980s. It seems to have a life of its own and has been able to withstand the onslaughts of economic downturns during these periods.

Prices, especially for housing, spiralled even more when the price of palm oil escalated to more than RM4500 per metric ton. Every oil palm man had cash flowing out of their ears. Property prices in Sabah, especially KK, shot up to unimaginable heights.

The whole thing was further fuelled by easy money from America when it injected tremendous cash to resuscitate its failing economy in late 1990s. Against expectations, prices in Sabah, including property prices have maintained very well in comparison to those in KL, Singapore and HK in current depressed times.

The staying power of property owners must be good. The only reason I can think of is that there is still a fair bit of cash in the Sabah economic system in the current less-than-rosy global and domestic economic outlook.

Pin pointing on one cause of higher prices is a wrong way to go about seeking a solution. There are a myriad of causes, some are complex, some are simple, some are historical, some are systemic. Whatever be their nature, we should be looking for economic and not political solutions though the ultimate decisions may rest with political leaders.

The problems of high cost of living in Sabah should be looked at from the economic and not political perspective.

There will be little hope for us to search for solutions in a political atmosphere.

I belabour this point because politicians have a great tendency to over-politicise and lose the objectives.

Or worse is for them to start the “blame” game. Let’s look at some economic factors that may have caused and/or are causing higher prices.

Historical expectation of high profit margin.

As I have mentioned earlier, the two major past factors that have contributed to higher prices in Sabah are the timber and oil palm booms that have stretched from early 1960s right up to 2013. Sabah’s economy was and is still today, too small to absorb huge influx of cash from these windfalls.

The result? Typical inflation caused by the proverbial “too much cash chasing too little supply”.

Past successive State Governments have done little to dampen it. This simple economic disequilibrium has set off a price soaring trend for the last 40 years. Businessmen in Sabah have been spoilt by these good times.

Their expectation is abnormal profit margin. Sarawakian businessmen are quite happy with a modest 10pc to 15pc profit margin whereas Sabahan businessmen want to set their eyes above 50pc or even 100pc.

Such high expectation can even be found in the coffee shops where profit margin for soft drinks and the humble, poor man’s cup of coffee is well over 100%. This abnormal high expectation of profit must be curtailed and brought under sensible parameters as soon as possible. Sabahan businessmen must change their attitude.

Lopsided Economic Development.

Logging had given us a temporary sense of wealth but it is all gone now. Sabahans have failed to convert what God has given us into a long term source of revenue.

We have squandered it away by mismanagement and expensive importation of manufactured goods.

Oil palm has gone awry too. All but a tiny fraction of ownership has gone from Sabahans’ hands.

Little downstream or value added industry has eventuated even though we are now the biggest oil palm state in Malaysia.

These oil palms are growing on our land but belong to non-Sabahans. How ironic! How ridiculous can this be?

There had never been any serious attempt to ensure ownership of any factor of production is retained with Sabahans until Datuk Musa came along. This is why it is important for him to continue pressing for greater ownership and/or control or more economic activities to be retained/owned by Sabahans. If we fail in this effort, Sabahans will become economic refugees in our own State. Nobody is to blame except Sabahans for failing to become the masters of our own economic destiny. We have failed ourselves and our future generations.

What has that got to do with higher prices? Simple, Sabahans have been spending big – all the billions and billions of sales receipts from logging and selling away oil palm land to non-Sabahan individuals and companies. Sabahans have sold their souls and spent our future away. Sabahans have failed to invest these revenues and generate more income for our own economy and future generations.

The hard fact of the matter is that this will eventual catch up with us. Musa’s approach is the right direction in making sure Sabahans can take more economic ownership.

Towards this end, the State Government can now put in place a policy with the following provisos:

[a] ownership of all plantation land on expiry of lease is to be reverted back to State Government.

[b] The State Government will parcel the land into smaller portions say 1,000 acres or less each.

Oil palm is an extremely land-inefficient crop. Over time, we need to replace oil palm with intensive cultivation of high value crops to overcome labour problems.

This is the future of our agriculture.

[c] The State Government will auction the land to the highest bidders with a genuine majority control by Sabahans only.

Sabah will continue to suffer from higher prices if there is little effort to dismantle many man-made economic blockages and bottle necks.

These nasty economic “inconveniences” serves to enrich the few and inflict untold burden on the general public especially the most vulnerable poor, sick, pensioners and single mothers.

Cabotage policy comes to mind straight away. Now the beneficiaries of this policy have been given further “iron clad” protection by the block exemption from competition” under the recent Competition Act.

Monopolies in steel bars, cements, sugar and rice are other examples. Inordinate delays in getting approvals for 1,000 and 1 things unless $ has been paid “for services renderd”. Legal requirements and regulations, which are supposed to assist the public, are being used to cause delays and inconveniences to the public. This is a serious source of inefficiency and loss of productivity.

GST and Taxes. When government increases or introduces a new tax like GST, the cost will be passed down to the public in the end. Expecting anything less is fooling oneself. It is therefore silly for government ministers to yell till kingdom come to keep prices down after GST.

Corruption: The mother of all problems pertaining to high price is corruption of all kinds which has created a huge underground economy. The effect of corruption is so patently obvious that I will not bother to bore you with it.

Imported Inflation: Nothing much we can do about it except to avoid these items and consume those whose prices have either gone down or are deemed to be affordable.

Higher prices are inevitable facts of life. It is all about how much can be acceptable. Deflation is also bad for the economy as Japan has found out in the last few years when its economy has over stagnated.

The “Abenomics” to reflate has met with failures consistently as the Japanese population has lost confidence to spend.

The ultimate and ideal solution is to have a long term equilibrium between rising prices and increase in effective real disposal income.

It is a great bonus if income can overtake rising prices like Singapore, South Korea, Taiwan and other countries that have experienced higher standard of living.

High Prices and Sabah’s Economic Future: There is in existence a sizeable gap between rising prices and income with the latter stalling behind in Sabah. If left unresolved within next 10 years, serious economic and social problems will emerge with adverse impacts on the middle class and poor Sabahans.

Therefore, some genuine efforts must be made to rein in high prices in Sabah and/or to increase income.

Failure to do so will mean present and future Sabahans having to suffer a rapidly declining standard of living.

As I have mentioned earlier, high prices in Sabah require economic, not political solutions.

The Musa administration has put the house in order in as far as the state government departments and agencies are concerned. The annual reports of Auditor General are the testimony to that. This should help a lot.

High price problem is for all Sabahans to resolve. Now for a suggestion to combat the high price problems.

[a] Sabah should set up a tripartite committee with high power representatives from government, private sector and relevant NGOs.

[b] Terms of reference should be confined to two subjects only – finding real causes of high prices and solutions to combat them and ways to increase Sabah’s GDP per capita. [c] This committee should report directly to the Chief Minister for his consideration and implementation.

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