Malaysia’s poorest state is ironically flushed with cash

By Sebastian Lee

Ancient seafarers of the Sulu Sea that separates Malaysia’s northern-most Borneo island state from The Philippines often sought shelter along the eastern coast of Sabah from the treacherous monsoons and typhoons. So they nicknamed this former British colony “The land below the wind”. The resource-rich east Malaysian state has since lived up to its sobriquet in more ways than one. Amid a global recession, Sabah is ironically booming – well-sheltered from the financial storms that have battered many world economies since last year’s credit crunch.

As workers in America, Europe, Japan and elsewhere join the long unemployment queues in droves, employers in Sabah decry a shortage of manpower. Sabah’s property and construction sector is experiencing an unprecedented boom while the building industry around the world collapses. New building complexes are sprouting everywhere, particularly in the Kota Kinabalu state capital. And more are planned for the next five years.

It is hard to keep up with the money spent. It runs into billions of ringgit. At the last count, property and infrastructure development has cost about 10 billion ringgit ($2.8 billion). This includes sprawling ultra-modern multi-storey office and shopping complexes, a new international air terminal, expanded runways, a low-cost air terminal, highways and flyovers in Kota Kinabalu alone. Another five billion ringgit worth of new buildings are being constructed in the state capital of 450,000 ethnic Chinese, Malays and indigenous Kadazandusuns.

Not a day passes by without the Sabah government announcing multi-million ringgit spending on new building projects:

• Five billion ringgit for gas and hydro power generating plants
• Three billion ringgit for a new dam and water treatment plant to ease water shortages.
• 2.3 billion ringgit for houses and flats for low- and medium-income earners
• One billion ringgit for an irrigation scheme for planting rice
• One billion ringgit for roads and sewerage
• 100m ringgit to upgrade the Sandakan airport
• A deep-water port modeled on the Rotterdam’s for shipping palm oil and ancillary products costing billions of ringgit.
• A proposed mono-rail to ease traffic congestion in Kota Kinabalu as part of a master plan to improve transportation throughout Sabah is likely to run into a few billion ringgit.

Private property developers advertise new multi-million ringgit shopping and office complexes as well as luxurious mansions and condominiums for the super rich.

Such a frenetic pace of money-guzzling developments seems rather surreal in the face of a worldwide credit squeeze. Money is in short supply elsewhere, but not in Sabah. Paradoxically, Malaysia’s poorest of 13 states is indeed flushed with cash. This brings back fond memories of its lost glory as Malaysia’s richest in the 1970s. [Read From riches to rags to riches: Countdown to zero]

In the last four years, the federal government has spent more than 10.5 billion ringgit on Sabah’s development. There is still eight billion ringgit yet to be expended under Malaysia’s 9th five-year plan which ends next year. While federal and state initiatives seem to explain for much of the building boom, private contributions are also a significant complement to public spending. Industry sources say they account for about a third of all expenditure helped by cheap loans from local banks with a stockpile of cash that is begging for borrowers. Private investment lending by commercial banks totaled 27 billion ringgit at the end of June, a 7% increase over last year’s figure.

Optimism in the Sabah economy was boosted when more than 142.7m ringgit of business deals were concluded at the Sabah International Expo last year. This was eight times that of those done in 2006.

Sabah’s paradoxes unfortunately are lost on most Sabahans. Most of them do not believe the good times they are in. The global recession has gotten the better of their imagination and their expectation of hard times has driven them to save more and spend less. To their chagrin, their self-imposed austerity has not stopped consumer prices from rocketing. Sabahans complain of high food, housing and transport costs. Yet, officially, inflation rate is a modest 6%, two percentage points above the national average of about 4%.

Unemployment remains relatively low (5.4%) and retrenchment is almost unheard of. In fact, the number of new job vacancies shot up almost three folds from about 8,000 in 2007 to slightly more than 23,000 last year. Bank savings interest rates have fallen to an all time low of 0.1% indicating that banks have too much surplus cash. The base lending rate is as low as 5.3%. Yet, there are complaints from businessmen that bank loans are hard to come by. Bankers however dismiss any talk of a credit squeeze in Sabah as ludicrous. But they concede that lending strategies and criteria have changed. More stringent credit vetting to minimize loan risks has given rise to public perception that banks are reluctant to lend.

But the man behind Sabah’s spectacular and extraordinary economic transformation is its chief minister, Musa Aman, 58. His aim is to turn Sabah – rich in oil, natural gas, timber, minerals and other resources – into the most developed Malaysian state in six years from now. Since taking office in 2003, Mr Musa has been steadfast in his quest. He has set the momentum for economic opulence for Sabahans and reduced Sabah’s poverty rate from 24% to 16% [Read From riches to rags to riches: Countdown to zero] An ambitious national initiative to turn Sabah into a gateway for trade, investment and tourism under the Sabah Development Corridor will provide ample business opportunities for Sabahans. It expects to attract 105 billion ringgit of investment over 18 years. The SDC will provide 900,000 jobs for Sabah’s three million people. -- Insight Sabah