SABAH'S ECONOMIC STRUCTURE, PERFORMANCE AND CHALLENGES
A REVIEW OF MACRO-ECONOMIC PERFORMANCE AND STRUCTURE
A REVIEW OF MACRO-ECONOMIC PERFORMANCE AND STRUCTURE
Sabah has a very small and open economy that is susceptible to external cyclical swings. Over the last three decades, the State economy has expanded considerably from an estimated GDP of RM400 million (at current prices) in 1963 to RM12.1 billion in 1993. In the 1960s and 1970s, growth was sustained at a very rapid pace through timber extraction, large scale oil palm and cocoa plantations and the extraction of crude petroleum. These activities were also encouraged by the burgeoning primary commodity prices in the world market then.
For the 1961-69 and 1970-77 periods, the State’s economy grew impressively at average annual rates of 9.0 percent and 13.1 percent respectively. Since then, however, the rate of growth has slowed down to an average of around 5 percent per annum (see Table 2.1). The softening of primary commodity prices and lower production expansion were partly the reasons for the deceleration particularly at the end of 1970s and early 1980s.
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| Table 2.1 |
This performance has been less impressive relative to the rest of Malaysia. In 1970, the per capita GDP ratio of Sabah to that of the country as a whole was 1.19. According to the Mid-term Review of the Sixth Malaysia Plan, this ratio is expected to decline to 0.63 by 1995.
Similarly, the unemployment rate in Sabah, being persistently higher than Malaysia as a whole, has fluctuated considerably from a low of 4.1 percent in 1983 to a peak of 9.1 percent in 1987. In 1990, for example, the latest year for which data are available, while the rate for Malaysia was only 6 percent, that for Sabah was 8.9 percent. This is on top of the fact that Sabah’s economic expansion has been erratic and unpredictable as compared to the national economy (see Figure 2.1), reflecting the heavy dependence of the State’s economy on the production of primary commodities. Between 1985 and 1987, the adverse economic conditions were precipitated with, among others, severe cash flow problems in the private sector, deterioration in domestic demand following the decline in crude oil production and a glut in the construction industry.
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| Figure 2.1 |
Sources: Annual Bulletin of Statistics, Sabah; various issues
Annual Bulletin of Statistics, Malaysia; Various issues
1994/95 Economic Report, Malaysia
Despite all these, Sabah’s economy continued to grow in real terms in the 1990s. The buoyant economic activities at the growth centres in Peninsular Malaysia may have indirectly spilled over and contributed to the State’s economic growth. But the main contributors to growth in the 1990s have been increasingly from the agriculture and manufacturing sectors rather than forestry and mining. And this structural shift is expected to continue in the years ahead.
THE SUPPLY SIDE: DOMINANCE OF THE PRIMARY SECTOR
Since the early 1970s, the expansion of the primary sector played a crucial role in sustaining the growth of the State’s economy. Unlike the national economy, where the development of secondary and tertiary sectors played a critical role in its growth since 1981, the primary sector comprising forestry, agriculture, fishing and mining remained a vital component accounting for 53.0 percent of the State’s total output in 1993 (see Figure 2.2).
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| Figure 2.2 |
The primary sector grew at an average annual rate of 6.7 percent in 1980-89 and 0.8 percent in 1990-93. Prior to 1985, the major thrust contributing to the growth of the primary sector originated from forestry and mining. However, the forestry sector has given way to the agriculture sector since 1985. This is mainly attributed to the expansion in palm oil, cocoa and rubber production, contributing 43 percent to the growth of the economy between 1985 and 1989. In 1993, agriculture was the single largest sector accounting for 28 percent of the total GDP.
On the other hand, the forestry and logging sector declined from a 20.4 percent share of total GDP in 1980 to a mere 10 percent in 1993. Output from this sector has been highly erratic with a series of expansions and contractions. Annual growth can be as high as 42.5 percent (as in 1992) and contraction as severe as -22.8 percent (as in 1993).
As for the mining and quarrying sector, the main activities are the extraction of crude petroleum and copper ore. Its performance has been fairly erratic over the last decade. Nevertheless, the sector expanded by 48.5 percent from 1985 to 1989 contributing 31.8 percent to the overall expansion of the economy during the period. However, its share to total output has declined steadily from 21.3 percent in 1980 to 15.0 percent in 1993 as a result of declining production and depressed oil prices.
TRADE
The economy of Sabah has always been heavily dependent on the export of its primary and minimally processed commodities. These major export items include sawntimber, crude petroleum, plywood, crude and processed palm oil, cocoa beans, methanol and hot briquetted iron (see Table 2.2). The main imports of which include machinery and transport equipment, manufactured goods, mineral fuels and lubricants, and chemicals (see Table 2.3).
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| Table 2.2 |
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| Table 2.3 |
INVESTMENT
The ability of an economy to sustain its growth depends on its ability to save, to invest and attract foreign savings, principally in the form of foreign direct investment. The performance of Sabah in this area, as measured by the investment to GDP ratio, is not very satisfactory, both in relation to its own performance in the past and to the performance of the country. In 1980, the investment ratio in Sabah was 34.2 percent, compared to 31.0 percent for Malaysia as a whole. By 1985, the respective ratios were 26.4 percent and 29.8 percent. The performances for both had deteriorated but much more so for Sabah than for the country as a whole. By 1990, the ratios had increased to 27.3 percent for Sabah and 33.8 percent for Malaysia, again showing that Sabah’s performance had lagged well behind that of the rest of the country.
Since Sabah is rich in resources and the extraction of logs has been substantial, the relatively poor performance of the investment ratios suggests that revenue generated from resources has not been effectively reinvested.
SABAH’S CHALLENGES
The assessment of Sabah’s economic performance revealed that:
- The State’s economy has been growing out of tandem with the national economy
- The growth of the State’s economy has been very erratic
- The economy is still dominated by the primary sector
- Unemployment remains persistently high
- The investment ratio is low by national standard coupled with a probable massive outflow of funds from Sabah
- Rapidly depleting timber and petroleum resources
- Limited sources of economic growth
- Low value-adding economic activities
Given these problems, the immediate challenge for Sabah is to find a path that will generate high, stable and sustainable growth. To do so, the State Government will take a paradigm shift in accelerating industrial development which entails creating clusters of high value-added, knowledge-intensive and technology-based sectors so as to tap the vast opportunities arising out of a rapidly expanding and increasingly global economy.
