Maintaining investor confidence given priority

With key programmes aimed at boosting edu­cation and rural devel­opment gaining pace, Sabah’s government will be hoping that its move to calm investors by setting up a regional security zone following an incursion in February proves effective.

On March 28, Kuala Lumpur approved an initial allocation of RM200 million (US$64.76 million) to fund the Eastern Sabah Safety Zone (Ess-zone), which was put in place a week earlier to protect the area from further intrusions in the wake of an offensive launched by Philippines-based rebels.

Officials said they were prepar­ing to purchase unmanned aerial vehicles, attack helicopters and speedboats. Once fully imple­mented, the Ess-zone is expected to send out a message of reassur­ance to investors and tourists, although experts remain divided on the long-term impact the in­cursion could have on Sabah’s economy.

A total of 24 development projects worth nearly RM1 billion (US$0.32 billion) are currently under construction as part of the Sabah Development Corridor (SDC) initiative, led by the RM247 million (US$80 million) Palm Oil Industrial Cluster, which is being rolled out in Sandakan.

“Setting up the Ess-zone will definitely boost the security level in east Sabah in the best possible manner,” Chief Minister Musa Aman told local media in March.

“This will simultaneously uplift the confidence of tourists and foreign investors to visit and carry out economic activities in Sabah.”

The leadership will also be keen to relay recently published data on the Government Transforma­tion Programme (GTP), which indicates that its commitment to modernising Sabah is producing results.

Under the GTP, 1,900 kilometre (km) of roads are set to be built throughout Sabah and Sarawak. Public transport is earmarked for an overhaul, and pre-school edu­cation will also receive a boost.

Although the government schemes are spearheading much of the new development, an Invest­ment Incentive Package for the SDC, which was given the green light last December, is set to pave the way for the private sector to play a greater role in driving economic growth.

The package aims to boost investment in tourism, manu­facturing, agriculture and major industries.

The incentives included full tax exemption on statutory income for up to 10 years and an investment tax allowance of 100 per cent on qualifying capital expenditure for five years. Under current policy, the state also offered full exemp­tion on import duty and sales tax exemption, local media said.

The state’s leaders expected Sabah’s gross domestic product (GDP) per capita to increase three-fold on the back of the SDC, with total growth forecast to quadruple by 2025.

Sabah has notched up about RM114 billion (US$36.92 billion) in investment since the initiative was launched in 2008.

However, there were fears that investment levels could fall follow­ing February’s incursion.

Malaysian Rating Corpora­tion’s chief economist, Nor Zahidi Alias, acknowledged tourism and retail could experience fall-out from the conflict, but said Sabah would likely ride out any turbu­lence long term.

“My feeling is that the cur­rent incidents will not have a significant impact on the state’s economy as (this event) was a localised problem. As long as it doesn’t lead to a contagion effect, it will not have an adverse effect on the state’s economy,” he told Malaysian newspaper The Star on March 8.

Experts such as CIMB Invest­ment Bank’s economic research head, Lee Heng Guie, however, remained more cautious. “There will likely be some impact on the sectors that Sabah has been leveraging on but it’s hard to quantify at this point,” he told the newspaper.

Optimists viewed the Ess-zone, which would cover the 10 districts of Kudat, Kota Marudu, Pitas, Be­luran, Sandakan, Kinabatangan, Lahad Datu, Kunak, Semporna and Tawau, as a well-aimed re­sponse from the government that was likely to bring wide-sweeping benefits to the areas.

The member of parliament (MP) for Silam, Salleh Kalbi, told local media that the security zone would boost property prices, cre­ate jobs and ease any concerns among tourists, particularly in the Lahad Datu area where the incursion took place.

“After Eastern Sabah Security Command, I am confident the tourist arrivals (in Lahad Datu) will increase as they will feel safer,” he said.

Ess-zone is expected to play a key part in shoring up confidence among investors.

However, the government will need to ensure it maintains the focus on private sector initiatives while pushing ahead with its se­curity efforts, since these will be instrumental in steering Sabah’s long-term growth.