Sabah is 22pc of land but 6pc GDP: Tangau
Published on: Sunday, November 17, 2019
By: Kan Yaw Chong
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IS THIS the future Sabahans want – stay an economic midget the way it is now?

Deputy Chief Minister cum Minister of Trade and Industry Datuk Seri Wilfred Tangau did not say it in those terms but it is clear that’s what he meant.

Occupying 22pc of Malaysia’s total land mass, Sabah contributes only 6pc of the GDP – rm80 billion out of RM1 trillion, he lamented at Timber Association Sabah (TAS) Forum on Forest Plantation, Processing and Sabah’s Economic Future, last Monday at the Palace Hotel.     

In jest, he noted the oddity to the packed audience of TAS leaders, leading timber businessmen including some top guns from Peninsula Malaysia, heads of government departments, NGOs, FMU concessionaires etc.

“Welcome to mainland Malaysia,” he said, jokingly.      

“This land Sabah is 74,000sq km, and our neighbouring state Sarawak is 124,000sq km. That’s about 200,000 sq km and peninsula Malaysia only about 130,000sq km or 40pc of land Malaysia but 60pc of total land in Malaysia is here in Sabah and Sarawak. So welcome to mainland Malaysia,” quipped Tangau. 

So, he said: “This forum I am going to talk about the future of the Sabah economy and I must congratulate TAS and in particular, Norman Wong (TAS President) for organising this.”


Industrialise to lift lowly economy

Noting that the 200 or so participants were selected and invited actors in the in industry, Tangau began to paint a picture of the Sabah’s lowly economy “so that you know why among the first few decisions that we had made was to ban the export of round logs  soon after the new State Government was formed.  

“Why?” and answered it himself. “Because the only way we can drive the economy is to industrialise.” 

That is, a robust manufacturing sector.

But where is manufacturing in Sabah? Infantile, the statistics show it.


A mere 7.2pc from manufacturing 

“When we look at the Sabah economy, 40pc is from services, largely represented by tourism, 31pc from mining, largely represented by petroleum, 18pc from agriculture and manufacturing is a mere 7.2pc and the whole Sabah economy is only about RM80 billion within the Malaysian economy which is about RM1 trillion.

“So, RM80 billion is a mere 6pc contribution to the Malaysian economy from a state made up 22pc of Malaysia’s total land and this is indeed a very, very small contribution.

“But if you look at the contribution of the other states, such as Selangor, the Federal Territory of Kuala Lumpur, they contribute 40pc of the Malaysia GDP. The State of Johor with a land area of only 9,000sq km or the same size as the Sabah’s Beluran District, Johor contributes 13pc of the Malaysian economy and here we are Sabah, 22pc of total land is here but why are we contributing only 6pc?” 

In principle, the difference between wealthy and poor countries have been analysed by lots of people.

The fundamental causes of wealth or poverty 

Most scholars attribute the difference to 50pc state of the institutions, 20pc culture – what goes on in a people’s minds, their outlook and beliefs, 10pc connectivity, 10pc latitude and 10pc geological good fortune. 

Tangau cited the irony for a large Sabah with a tiny 6pc GDP.


Ecosystem for investment not established in Sabah 

“This is because of the ecosystem for investment here that is not quite established. 

If you look at Selangor, the whole ecosystem of investment is there.

“Firstly, you have logistics in Port Klang and then of course you have the industrial hinterland of Selangor, the Klang Valley and you have other forms of logistics like the airport Kuala Lumpur International Airport and of course you have the human resource, decision making in capital Putrajaya and similarly for Johor, the ecosystem for investment, you have the Port Tanjung Pelepes  now handling 10 million TEU (20ft Equivalent Unit) and of course Pasir Gudang you have now Pengarang and you have the industrial hinterland, you have a dedicated Perbandaran Pasir Gudang which is essentially a municipality handling  and managing an industrial park,” Tangau noted.   

”But over here in Sabah, our port Sepanggar  we handle a little more than 300,000 TEU a year. So what is that compared to 10 million TEU of Johor’s Port Tanjung Pelepes which has a wharf 5km long and more than 12 metres wide?”

“What we have in Sepangar Port is only a wharf about 500m long and 11m wide, a lack of cranes to handle loading and unloading whereas Port Tanjung Pelepas have something like 45 cranes so we can’t achieve something demanded by mainline shipping operators who need to handle 25 boxes in an hour but I believe we can’t do that here.” 


‘We are struggling in Sabah’ 

So, Tangau conceded: “We are not quite in there but we are working very hard to establish the ecosystem that is needed and that is why the Prime Minister announced this new vision – Shared Prosperity Vision 2030 and the first part of it is to establish that ecosystem. 

“This is what we are struggling in Sabah, we are struggling in Sabah, we need more funds to put in the infrastructure for our logistics and things like that.”

So, who is to blame for Sabah’s midget economy, 56 years after the formation of Malaysia? 

Tangau said: “We are not going to blame anybody including the Federal Government but we are hoping, we are asking the Federal Government to fulfil and implement our demand for at least RM1 billion to build our ports.”

But there is a problem, he said. 

“All the ports in Sabah are State-owned and, therefore, we will have to do it ourselves and by the way all the money we are getting now is in the form of loans. In my Ministry of Trade and Industry all the funds we  are getting from Federal we have to pay them back, at 4pc interest rates.”

“So what difference does it make? I can get from some banks, some of you might be able to give me loans at 3pc. So it doesn’t make any difference anymore.” 


Nothing happening in dedicated timber hub  

“Back here in forestry, we have banned logs export in the last one year, we have now decided we have a dedicated inclusive timber hub in Sandakan managed by Sawit Kinabalu where we wanted all the players to be able to go there. 

“The infrastructure is there essentially but until today nothing is happening, we have done the promotion, we got started talking to potential investors, including from overseas, from China, the big players and they came back here they start talking, those people are dealing with the upstream resources, the timber resources: I want the raw material supply, and apparently they are still having challenges and situations.” 

“Actually we banned the export of round logs largely because this was also the demand of the timber industry in Sabah who were complaining of not having enough raw materials to process in their factories and yes we have done that but we want to see more happening.”


Serious about industrialisation    

“Remember we have forgone some revenues for going into this policy and forgone state revenues but  we are very focussed, we are serious about industrialisation, we are serious about industrialisation because we believe in order to  have sustainable economic growth to catch up with the rest, we have no choice, we simply have to undertake industrialisation.

“And how do we start?

“We will start by going into downstream processing of all our natural resources, we have timber remember, Sabah was rich because of timber but it was an extractive economy for us, we cut down timber for expert just like that and somebody else made the money , kept their money in Hong Kong or something like that.”


The paradox-rich natural resources can cause real troubles

Paradoxically, poor countries which tend to be rich in natural resources which can turn out to be a source of real troubles.

These natural resources are what economists call intensifiers which help countries with good institutions become richer but countries with bad institutions get even poorer, precipitating in what they call ‘the resource trap’. 


One classic example of elite resource grab 

For example, the Democratic Republic of Congo is one of the world’s most mineral-rich countries holding most of the world’s coltan which any mobile phone has a bit of it but the rich natural wealth did not make Congo rich because it only helps the elites who license themselves to grab the wealth without requiring the co-operation of the whole society.

On the other hand, if the only way to grow wealth is to assemble high-tech aeroengines, that will need the whole society to buy into the project but if people just need to extract a few minerals to enrich themselves only they can do so with a small labour force maybe guns and an airstrip is enough to ferry out to the market. 

So what happened is the wealth from coltan keep the Democratic Republic of Congo armed rebels in guns and corrupt every level of society.

The point is rich  natural resources is not necessarily the deciding factor but can instead become a curse if the institutions are weak and a culture riddled with self interest and clan-based thinking reign supreme.  

So even though Sabah had all the best natural forest logs in the world in the hey-days, it did not result in the establishment of a robust downstream industry.      

‘Don’t waste your time’

Until now, Tangau says people still persuade him “don’t waste your time.” 

“When I began to serve in the Malaysian Timber Industry Board in Kuala Lumpur and we had this national timber industrial policy, they told me that even plywood and sawn timber are not value-added timber, it is still a commodity, and we still have to go down further like furniture, moulding, and things like that and so when I began to talk to forestry people that time they said don’t waste your time, you are not going to go anywhere.” 

At this juncture of his speech, Tangau reiterated that the new Government leadership believes that going downstream processing not only will create wealth, it will also create jobs and a sustainable industry. 


The ‘how’ question 

“The question now is how are we going to do it?” he asked. 

Noting the presence of more than 20 owners of the FMU, the Sabah Foundation, the Sabah Timber Industry Association, entrepreneurs, industrialists who are undertaking the downstream processing and now the State is going to have the Sabah Timber Industry Council - something like that in we Peninsula Malaysia, Tangau still asked: “Will downstream processing happen by just having this new organisation?”

He cited a recent biomass conference organised by the POIC, Lahad Datu.

“It was organised in a similar fashion as you have done today, there were selected participants from all over the world, there were those guys who own technology, there were those guys with the financing, those guys who were investors, I was telling them you have it all here in this room, all the players are here. 

“The stakeholders are here but everybody was waiting.  Who is going to start? I said get the dots connected, let’s connect the dots but who is going to connect the dots? Who is going to integrate these people, get ourselves organised and just do it.” 


‘Bold decision’ 

Tangau maintained that the State Government’s decision to ban the export of round logs was a “bold decision” although TAS had once argued that the low local market log price discourage industrial tree planting and in the end knock out the whole idea of downstream processing. 

“We are very serious. If we can do that, we will do the same what ever you need just to make sure that we actually are able to create wealth and create jobs out of the resources that we have.”


The new Lombok-Makassar sea lane 

On the future, Tangau said very soon the new Lombok-Makassar sea lane is going to be a very important sea lane.

“I am referring to the Sulu sea right down to East Kalimantan and to Lombok Indonesia, as the existing Straits of Malacca sea lane of is already congested.”

The stimulus has come from the Indonesian Government’s decision to shift its capital to East Kalimantan, he said.

“We are really looking forward to a bigger landing place for our container port in Lahad Datu which has only a 300m long wharf but at 33 metres, it the deepest port in Malaysia. “


Industrialisation of Sabah will happen in East Coast   

“We want to position Lahad Datu as hub not only to serve BIMP-EAGA in terms of logistic but we want to look at it as a place that can service shipping, we have already started collaborating with working together with some of the biggest potentials,” Tangau said.

“So for those of you who are going to connect the dots, you will have a look at the East Coast.” 

Industrialisation of Sabah is going to happen in the East Coast because of the new sea lane of the Lombok-Makassar. I am not saying it is not going to happen in the West Coast but the Lombok-Makassar is a new potential for us to look at,” he noted. 

“We want to tell the world that the decision we have taken to ban the export of round logs is the right decision and that because of that decision we are going to see more and more downstream processing in line with what we are doing now – embracing the 4th Industrial Revolution.”


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December 20, 2014