Sabah Development Corridor 2008-2025

1. Sabah Development Corridor 2008-2025 Briefing EU Economics & Commercial Counsellors IDS Conference Room 14th May 2009

2. Key development challenges: • High cost of doing business – poor infrastructure and high freight costs • Shortage of critical mass of human capital • Highest incidence of households living in poverty • 2. High cost of doing business mainly due to high shipping costs and poor infrastructure • Shipping costs: low originating cargo, low ship call frequency and double handling • Unreliable electricity supply and shortage of water supply • Poor road and rail connectivity leading to high transportation costs • 3. Shortage of talents in strategic sectors; and heavy dependence on foreign labour • 4. Largely rural, with a poverty rate of 23% (6.5% hardcore poor). • 5. Gross Domestic Product: Sabah’s GDP of RM15.1 Bn is 7th largest in Malaysia • 6. GDP per capita in 2005: RM5,100 ; Malaysian average: RM9,800 • 7. Monthly household income in 2004: RM2,487; Malaysian average: RM3,249 • 8. Unemployment is currently at 5.8%; Current workforce is 1.198 million (2006), • 9. Population: 3.1 million (2006) • 10. Education: 79% of persons aged 6 and over attended school (national av: 90%)

3. Sabah Development Corridor 2008-2025: The National Context: Issues and Benefits • Narrow-base of national export: too dependent on electronics, oil & gas and palm oil • Relatively weak resource-based industries • Widening income inequality • Employment growth lagging behind economic growth • Relatively weak linkage between economic growth and poverty incidence • Lack of human capital in strategic sectors • Heavy dependence on foreign labour in agriculture and construction

4. KLSE COMPOSITE INDEX: JANUARY-DECEMBER 2008 39% Decline over the period

5. WORLD ECONOMY ‘WEAKEST SINCE 30’s: the United Nations “The eurozone economy will shrink 1.9% in 2009 and grow by only 0.4% in 2010….” (the European Commission, 2009)

6. Sabah Development Corridor 2008-2025 The vision for Sabah is to be a vibrant, economically successful and liveable state - • SDC is underpinned by 3 key principles • Capture higher value economic activities • Promote balanced economic growth with distribution • Ensure sustainable growth via environmental conservation Phase 1 (2008-2010) Building the foundation for growth Phase 2 (2011-015)Accelerating economic growth Phase 3 (2016-2025) Expansion Catalysing future growth via infrastructure as well as high economic impact and poverty eradication projects Higher order value-add activities, the presence of global companies and a strong base of local SMEs An attractive destination for FDIs with strong supporting infrastructure, global companies and knowledge workforce

7. Sabah Development Corridor 29 January 2008 The vision for Sabah is to be a vibrant, economically successful and liveable state by creating and articulating a set of 5 unique attributes that will mould the future of Sabah: • A preferred gateway for trade, investment and leisure for leading businesses and talent from around the world in key areas • A happy and cohesive community that lives in harmony and prosperity regardless of race, language or religion • A tech-savvy state that uses and showcases technology in enhancing quality of daily life • A place of opportunity where residents and foreign talents find rewarding employment opportunities • Amongst the most liveable place in Asia with culture, heritage, quality of life and clean environment 6

8. Sabah is blessed with excellent Location, Resources and Bio-diversity which it can build on… • Gateway for regional trade • Ideal for transhipment and value add for cargo between Kalimantan–South Philippines and North Asia (China, Japan, Korea) • Capitalise on market deregulation of AFTA Location • Rich in natural resources (oil & gas, fertile agriculture land, minerals, forestry) • Capture high value add downstream activities such as oleo chemicals, gas processing plant, oil refineries and wood based products • Position Sabah as centre of excellence for agriculture Resources • Rich bio-diversity (flora-fauna and marine life) • 32 ethnic groups spawning diverse cultural backgrounds • Capture knowledge from international researchers • Stimulate biotech activities Cultural and Bio-diversity

9. Vision & Sectoral Focus

10. SDC VISIONTo be a leading economic region in Asia by being the preferred gateway for trade, investment and leisure Physical infrastructure Soft Infrastructure Sector-specific visions Agriculture: Services: Manufacturing: Structured infrastructure development in transportation, utilities and communication to enhance living standards and enable commercial activities Systematic skills upgrading of existing workforce in key industries, retain talented Sabahans and targeted import of foreign talent in professional and managerial positions Highly productive Premier eco-tourism High value jobs High value add downstream Food self-sufficiency Second home Sustainable and safe Low cost of business Successful pool of SMEs Social Harmonious and Cohesive society No Hardcore Poverty Confident and Independent Environment Renowned worldwide Pristine and well conserved

11. Sabah Development Corridor is made up of 3 sub-regions Characteristics of Sabah Development Corridor • SDC is made up of 3 sub-regions • Western Sub-region: Kudat, Kota Belud, Tuaran, Kota Kinabalu, Penampang, Papar, Beaufort, Kuala Penyu, Sipitang • Central Sub-region: Pitas, Kota Marudu, Ranau, Tambunan, Keningau, Tenom, Nabawan • Eastern Sub-region: Sandakan, Beluran, Kota Kinabatangan, Tongod, Lahad Datu, Kunak, Kalabakan, Semporna, Tawau • Sabah consists of 5 administrative divisions*, subdivided into 24 sub-divisions (or districts) • 32 officially recognised ethnic groups • Area = 73,997 km2 (22.4% of Malaysia); Population = 3.1 million** * 1. West Cost Division: Kota Belud, Kota Kinabalu, Papar, Penampang, Ranau, Tuaran; 7,588 km2, popn.=953,900. 2. Interior Division: Beaufort, Nabawan, Keningau, Kuala Penyu, Sipitang, Tambunan, Tenom; 18,298 km2, popn.=420,800. 3.Kudat Division: Kota Marudu, Kudat, Pitas; 4,623 km2, popn.=189,500. 4.Sandakan Division: Beluran, Kinabatangan, Sandakan, Tongod; 28,205, popn.=676,000. 5. Tawau Division: Kunak, Lahad Datu, Semporna, Tawau; 14,905km2, popn.=756,800 ** Department of Statistics Malaysia (2006) Source: IDS Concept Paper; Team analysis

12. Core Components of Sabah Development Corridor Sub-Regions

13. CURRENT URBAN HIERARCHY AND LINKAGES FOR SABAH Sub-Regions KUDAT (11): 27,443 KOTA BELUD (10): 31,001 TUARAN (8): 35,499 SANDAKAN (2): 268,821 Secondary Regional Growth Centre KOTA KINABALU (1): Regional Growth Centre 323,817 RANAU (12): 22,425 Penampang (4): 81,867 PAPAR (6): 42,598 KENINGAU (9): 32,754 LAHAD DATU (5): 71,176 SEMPORNA (7): 41,624 TAWAU (3): 155,099 Sub-Regional Growth Centre

14. Sub-Regional Growth Centre Urban Growth Centre Sub-Regions Rural Growth Centre Secondary Regional Growth Centre KOTA KINABALU CONURBATION Regional Growth Centre THE PROPOSED URBAN HIERARCHY AND LINKAGES TO REDUCE SUB-REGIONAL AND RURAL-URBAN GAP Sub-Regional Growth Centre

15. Services Tourism & Logistics

16. TOURISM: Sabah’s beauty and rich cultural and bio diversity Tropical Research Centre of Excellence odop odop Eco-Certification odop One District One Product odop odop Tropical Research Field Station Poring Hot Spring Spa odop Tourism Skills Training Centre odop odop odop odop Danum Valley odop odop Maliau Basin odop odop Arts & Culture Development Fund Keningau Handicraft Production Village odop odop odop

17. 2 Develop new tourism products anchored by signature resorts 3 Market Sabah as the exclusive holiday home destination 4 Encourage rural participation through community-based tourism Four main strategies under the tourism sector... Tourism Strategy Rationale 1 Position Sabah as the premier eco-adventure destination • Leveraging on Sabah’s natural endowment • Tapping on fastest growing segment of tourism industry; eco-tourism growth of 20% compared to 7% for overall tourism1 • Moving towards high-yield market • Leveraging off their marketing efforts and loyal customer base • Increasing demand for exclusivity among the rich and famous – Sabah is still largely undeveloped unlike Phuket and Bali • Extending length of stay of high-end visitors • Enhancing rural income • Encouraging entrepreneurship 1 The International Ecotourism Society, Ecotourism Fact Sheet (September 2005)

18. Agriculture

19. AGRICULTURE: Focus on food sustainability, high value export to North Asia and poverty eradication Bengkoka Rubber Resettlement (2,500 families) Jatropha Site Palm Biotech R&D Centre Integrated Collection Centre • Jelapang Padi Programme • (7,000 families) R&D Centre Permanent Food Crop Production Parks Upgraded fishery landing sites E Sandakan Education hub Sabah Agro-Industrial Precinct Aquaculture zones E National Marine Aquaculture Centre Seafood Terminal Livestock cluster Agrifood production zones Agrifood industrial zones Jatropha Pilot Site Keningau Integrated Livestock Centre

20. 3 • To move towards high value markets • Leveraging off the natural biodiversity strengths of Sabah from both sea and land • Potential enhancement via increased R&D and marketing Position Sabah as the centre of excellence for oil palm 1 Develop high-value, high-potential products 2 Enhance food-based agriculture sub-sectors • Sabah is the single largest contributor to the oil palm industry in Malaysia • Sabah has high potential in downstream activities for palm oil Three main strategies for the agricultural sector... Agriculture Strategy Rationale • To reduce Sabah’s food import requirement • To enhance involvement and income of rural community • Potential enhancement via increased technical and financial support

21. Manufacturing

22. MANUFACTURING: Sabah will focus on leveraging its natural resources as feedstock to capture value in downstream activities Wood-Based Industry Cluster Industrial Corridor POIC Sandakan Sabah Oil and Gas Terminal Minerals Based Industry Energy Intensive Cluster POIC Lahad Datu

23. MANUFACTURING: Integrated Petrochemical Complex at the Kimanis landing site will generate RM5bn of private investments and create high value jobs …to an integrated gas or petrochemical complex, attracting investments and spawning high value jobs From landing site… LPG LPG bottling plant Export Tank farm Hydrogen peroxide Crude oil Stabilisation unit Ammonia/ urea Condensate Off gas NPK plant GPP Future Slug catcher and gas conditioning Gas Natural gas 300MW Power plant Compressor station Gas pipe to Bintulu LNG plant Source: Interviews with Oil & Gas expert

24. Three main strategies for manufacturing sector... 1 Enhance basic infrastructure, focus on reducing cost of doing business 2 Invest in human capital for existing and new industries 3 Attract world class companies in high value add downstream activities Manufacturing Strategy Rationale • Basic infrastructure is crucial to operational efficiencies of manufacturers • Cost of doing business is fundamental to investors’ choice of location • Skilled manpower is key to manufacturing competitiveness • Systematic approach to matching industry needs with supply of human capital via fine-tuning current education and training courses • Leverage Sabah’s natural resources as feedstock raw materials • Elevate the standards of local SMEs supplying to world class companies • Serve as a draw for talent and quality FDIs (management and technical knowhow) into Sabah 23

25. Infrastructure and Human Capital

26. INFRASTRUCTURE SDC infrastructure vision Key targets by 2025 1 CONNECT SABAH Ensure connectivity to enable productivity via roads, rail, sea and air • 61% of all roads are still gravel & earth roads • 80% of all gravel roads to be sealed by 2025 • Focus on enabling intercity connectivity and SDC projects 2 POWER UP SABAH Provide sufficient & reliable electricity for Sabah • Current coverage is 67% • 90% of population covered by 2010 • Enhance rural electrification • Increase capacity and strengthen grid 3 • Current demand outstrips supply by 23% • Supply to meet demand by 2010 • Reduce NRW from current levels of 57% to 25% by 2025 QUENCH SABAH’S THIRST Provide sufficient water to keep pace with demand 4 • Current broadband penetration is 4.9% • 65% of population connected by 2025 • Enable businesses and move towards a knowledge based economy EMBRACE TECHNOLOGY Enhance data connectivity 5 • 3.95% of population with tertiary education in 2000 • 15% of population with tertiary education by 2025 • Using companies and MNCs to develop talent INVEST IN SABAH’S TALENT Build human capital to provide skilled talent pool

27. Environment

28. Adventure Experience… of Pristine Wilderness in Primeval Rain Forests Mt. Kinabalu Mt. Tambayukon Mt. Trusmadi Crocker Range Danum Valley Imbak Canyon Maliau Basin ‘Sabah’s Lost World’ Nature at its Best Heart of Borneo

29. ENVIRONMENT: Conservation is necessary to preserve our heritage, boost tourism and export of agriculture related products • Forests • Clearly demarcate boundaries and regulate forest reserves • Restore degraded forests • Education and awareness • Educate public on recycling, cleanliness, conservation of biodiversity, preservation of clean river system, etc. • Biodiversity • Preserve marine and wildlife • Preserve flora and fauna • G2G agreements on protection of highly migratory species By 2025, most liveable place in Asia • Infrastructure • Manage sewage and solid waste • Protect settlements, river systems, mangrove • Physical conservation • Shoreline management • Conserve World Heritage sites • Sustainable development • Promote certification of agriculture produce to comply with credible sustainable standards (s.a. RSPO) Source: Team analysis

30. Implementation & Expectation

31. Key tenets need to be in place for SEDIA to have the best chance to successfully deliver the programmes planned in the SDC Blueprint • Key tenets for SEDIA • The Sabah Economic Development and Investment Authority (SEDIA) Enactment 2009 • Joint Working teams comprising of federal and state agencies to expedite approvals • Commitment and obligation on all parties concerned to meet set service levels • Permanency to stay the course of the Blueprint • Right management structure and enablers Measure of successful implementation Impactful programmes Targeted resource delivery Balanced socio-economic

32. SDC INVESTORS “The government will put in place policies to make it easier to do business here ... We will not compromise on the environment and our culture"- DATUK SERI PANGLIMA MUSA AMAN SEDIA Incentives Licence Approval Work Permits Land Matters Planning Approvals Utility Approvals Company Registration

33. Mega biodiversity, relatively unaffected by the Ice Age • Kinabalu Park – Malaysia’s first World Heritage Site (UNESCO: Dec, 2000) • Danum Valley Research Centre and Sepilok Orang Utan Rehabilitation Centre • Islands (esp. Sipadan), Maliau Basin, Tabin Wildlife, Caves (Gomantong & Madai) • Valuable ethnobotanical knowledge from the indigenous communities • Infrapro & Deramakot (since 1992,FSC cert.) carbon sequestration model • Multi-racial society with rich cultural heritage (Tingkayu Valley archeological sites • Largest oil palm plantation area in Malaysia; • Fertile soil, adequate rainfall and conducive climate • Relatively clean and unpolluted natural environment • Livestocks free from foot and mouth disease • Access to deep water and sheltered ports • Moves the economy up the value chain and promotes economic growth by optimising the utilisation of Sabah’s factor endowments, locational advantages and competencies • Rationalises the spatial distribution of Sabah’s population and facilitates the integration of Sabah sub-regional economies, thereby reducing regional imbalance • Enhances human capital thereby improving the quality of life and thus reducing social imbalances • Attracts private investments, tourists, highly skilled workers as well as scientific researchers • Offers Sabah and Malaysia generally, to participate in the vibrant knowledge-based economy driven by S&T convergence • Reduces poverty by creating new business and employment opportunities

34. “Big ticket” items for remaining 9MP* • Roads • Replicate Agropolitan • Sea Port • POICs (Sandakan and LahadDatu) • Human Capital: Sandakan Education Hub • Biodiversity Conservation: Heart of Borneo, wildlife, marine eco-syst • Agri-Business Accelerator: eg SAIP, Integrated Fisheries Compl • AgriExcel Outreach: Food Security and High Value Crops • Direct assistance (hardcore) • Tropical Biodiversity Research: Sabah Bio-X • Mini Estet Sejahtera (MESEJ)

35. Tourism targets • Increase average tourist spending from RM2,517 in 2006 to RM3,383 by 2012 and RM5,364 by 2025 • Increase tourism receipts from RM2.88 billion in 2006 to RM8 billion by 2012 and RM48.5 billion by 2025 • Increase rural community tourism receipts (handicrafts and homestay) from RM139 million in 2006 to RM 432 million by 2012 and RM4.5 billion by 2025 • Agriculture targets • Multiply GDP contribution by 4.1 times from RM4.1 billion to RM 17 billion by 2025 • Increase total value of exports from RM9.1 billion to RM60 billion • Reduce negative balance of trade of food by 60% from RM955 million to RM353 million • Manufacturing targets • Increase capital investments from RM208 million (2006) to RM2.96 billion by 2025 • Enhance employment in manufacturing sector from 135,000 to 228,704 by 2025 • Increase proportion of manufacturing workforce with tertiary education from under 10% (2005) to 45% by 2025 • Infrastructure targets • Roads: all major towns and rural collection centres are connected by sealed roads • Electricity: 90% of population is connected with SAIDI of 500 minutes (from 2,540 currently) • Water: Reduce NRW from 57% to 25% and increase capacity to meet supply • Data connectivity: Broadband penetration of 35 per 100 inhabitants from 4.9 currently • Talent: Skilled talent pool for all targeted industries in Sabah

36. Expected Outcome Enhancing The Quality Of Life, And Reducing Regional Imbalance And Poverty Incidence In A Sustainable Manner IMPROVE RURAL-URBAN LINKAGES ENHANCE SUPPLY CHAIN EFFICIENCY ATTRACT INVESTMENTS TO TARGETTED AREAS AND ECONOMIC SECTORS OPEN UP NEW ECONOMIC OPPORTUNITIES: THE PRODUCTION POSSIBILITY FRONTIERS HIGHER QUALITY OF LIFE REGIONAL BALANCE REDUCING INCOME INEQUALITIES SUSTAINABLE DEVELOPMENT REDUCE POVERTY HUMAN CAPITAL DEVELOPMENT CREATING EMPLOYMENT OPPORTUNITIES PRODUCTION AREAS FACTOR ENDOWMENT BUSINESS OPPORTUNITIES FOR FARMERS EXPEDITE ECONOMIC GROWTH BUSINESS OPPORTUNITIES FOR SMEs BASIC INFRA. UTILITIES & SERVICES REDUCING RURAL-URBAN GAP: REDUCING RURAL-URBAN MIGRATION BUSINESS OPPORTUNITIES FOR LARGE CORP & GLCs INCENTIVE SCHEMES TO ATTRACT INVESTORS

37. 2.9x 63.2 36.3 45.7 20.3 48.6 27.1 15.1 32.0 21.9 With SDC Sabah GDP per Capita (1987 constant prices) (RM) 9MP growth target 14,784 11,363 5,100 GDP (RM’bn) * ADB forecast a growth of 5.5% for Malaysia for 2006-2010. Constant growth is based on 6% in line with 9MP. SDC model in Appendix Source: Team analysis; Asian Development Outlook 2006 36

38. Thank You ******INSTITUTE FOR DEVELOPMENT STUDIES SABAH ******