Difficult 2020 for Sabah
Published on: Sunday, February 16, 2020
By: Datuk John Lo
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Unable to predict with acceptable degree of accuracy was the global uncertainties. Trump, after having been asked to resign by Tun M, may take punitive steps against Malaysia. For Sabah, this supposedly golden rat will be a rusty old rat.
I don’t mean to be an alarmist or a pessimistic. 2020 is not looking good for Sabah, likely to worsen. Let me provide some reasons hereunder.
Downturn of palm oil.
Already, there is very little economic benefits for Sabahans in the vast palm oil industry in Sabah. Sabah is the biggest palm oil state in Malaysia.
Apart from sale tax for Sabah Government, this industry has given only meagre direct and indirect spin offs – little employment, trading, reinvestments in downstream and new industry.
The little benefits that Sabahans get from palm oil are about to reduce further as the demand for this commodity will reduce. Demand from China will reduce due to –
[a] slowing Chinese economy and coronavirus.
[b] the 1st stage trade deal by US and China in which China is obligated to buy more agricultural products including soya and other edible oil related products.
[c] The Indian boycott of Malaysian palm oil. Trying to replace Indian market to Pakistan is a sham. The Pakistani economy is nothing compared to India’s. Its economy is poorly managed and is above water only because of the Chinese popping it up.
[d] Resolution of the Indian problem is unlikely in 2020.
Declining oil palm will see the plantation companies crying to the Sabah government asking for reduction of sales tax. These companies, which have reaped billions every year will be the first “cry-babies” whenever they face a little head win that can affect their bottom-lines which, in any case, are all booked in W Malaysia.
What little crumbs they throw down to Sabahans, they will reduce them in the name of cost cutting.
Oil and gas prospects not good in 2020.
The global economic uncertainties for the past 2 years will worsen in 2020 –
[a] Chinese economy will shrink because of the trade war and Corona virus. Bear in mind that China is now the world’s biggest importer/consumer of oil and gas.
[b] USA has become a net exporter of oil.
[c] Russia is increasing production of oil and gas. It has established pipelines to directly supply gas to Europe.
Palm oil and oil/gas have unexciting long-term prospects.
Sabah’s budget is highly dependently on palm oil and oil/gas. Palm oil –
[a] Persistent anti palm oil campaign by western countries and inability of Indonesia and Malaysia to counter act them.
[b] Europe is putting a brake on conversion of palm oil into biodiesel.
[c] Looking at current Indian/Malaysian relationship, it is most unlikely that India will resume buying Malaysian palm oil in 2020 and next several years.
Trade relationships such as between India and Malaysia which have been built over many long years, once broken, will be difficult to restore.
Oil and gas –
[a] 60pc of oil consumption is by vehicles. Electric vehicles will take over from fossil fuel vehicles completely within next 20 years. Europe will not register fossil fuel vehicle by 2030. UK by 2035. USA and China will follow suit.
[b] Over supply will eventuate as Saudi and other major producers are being forced to pump more in view of shortage of/declining revenue from oil/gas.
Tourism industry.
Though tourism does not feature highly in Sabah government’s revenue, however it is by far the most important in indirect economic benefits for Sabahans, like employment, investment and economic multiplier.
The corona virus has hit Sabah’s tourism down to almost zero. Very serious situation here. When and how tourism can be revived is a $60,000 question.
https://www.freemalaysiatoday.com/category/nation/2020/02/12/malaysia-has-lost-rm3-bil-in-tourism-business-due-to-covid-19-to-date/
Sabah’s major weakness in this downturn is lack of economic diversification.
The gloomy 2020 economy is further complicated by the lack of economic diversification. Sabah government needs to produce a road map on diversification immediately.
GDP growth for Malaysia and Sabah.
Malaysia’s GDP growth has already slowed to 3.6pc in 2019’s last Quarter. BNM is expecting further drop in 1st quarter 2020. W Malaysia has a diversified economy. What of Sabah?
All our main sources of revenue and economic activities are being hard hit in all fronts. Both palm oil and oil/gas are on long term decline.
If Corona virus can last 6 months or longer tourism will be zero. Sabah will be hard hit
https://www.freemalaysiatoday.com/category/nation/2020/02/12/coronavirus-to-impact-economic-growth-in-first-quarter-says-central-bank/
Federal government’s stimulus package.
Tun M and Lim Guan Eng have announced the introduction of a stimulus package to keep the Malaysian economy going on 27th February. Like the annual budgets, I am afraid Sabah will receive little attention in this stimulus package.
Unless our political leaders can press the federal government very hard for extra special treatment for us in the stimulus package, we are, to put it bluntly, going to be between the devil and the deep blue sea. Apart from spending the state reserves, Sabah has little or no other options to stimulate the economy.
Don’t waste time on political polemics, start thinking what we can ask from the federal government in the stimulus package to cushion Sabah’s impending economic fall.
Sabahans must remain prudent financially.
Sabahans have already been burdened by lack of economic development for years. Sabahans must remain prudent financially in 2020 and beyond. Spend only on necessities, don’t squander for money will be difficult to come by. Undertake financial planning now. Life will get tougher in 2020.
Time for all Sabahans to unite to overcome this economic challenge in 2020 and beyond and for political leaders to show they have economic leadership by producing some viable economic initiatives.
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