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A lot has been said recently about the state of Sabah’s economy. This short article gives an overview of the recent changes in Sabah’s economic indicators and the outlook for the year 2019. We will answer two questions, namely:

1. How has Sabah’s economy perform in the past few years?

Let’s look for answers in some of the main macroeconomic indicators. Sabah’s Gross Domestic Product (GDP) growth, which is the proxy for production or income growth was recorded at 8.2% in 2017 (Borneo Post Sabah, 10 Aug 2018).

This is considered good when in general, many countries, including developed countries, grew at a slower rate which is less than 4%. For instance, in 2017, Australia grew at 2.0%, Japan at 1.7%, Korea at 3.1%, Singapore at 3.6%, Spain at 3.1%, Thailand at 3.9%.

Investments in Sabah Development Corridor (SDC) has clearly gained traction that by 2017, Sabah recorded its annual GDP growth at 8.2 percent, the fastest in Malaysia overtaking all the other states in Malaysia and surpassing the national average at 5.9%.

Despite world economic slowdown, the strengthening of US dollar and decline of world oil price, Malaysia in general grew to a 6.2% GDP growth at Q3 2017, while Sabah specifically was able to grow between 4-6%. 

In terms of unemployment rate, the percentage of people who are unemployed in Sabah are reported to be about 5.4% in 2018. This is generally a median with many other countries making it hence acceptable. For instance, the unemployment rate of Australia, Philippines and France in 2016 were reported to be at 4.0%, 5.4% and 8.8% respectively. 

In terms of cost of living, Sabah recorded generally low inflation rate. In 2016, inflation rate was reported to be at 0.7% (Department of Statistics, 2017). This is relatively low, compared to some countries. Hence, generally acceptable. However, the lack of new job creation or higher wages will definitely impact Sabah negatively. The new Warisan-led government has also not been able reduce cost of living resulting in the fact that generally people are feeling there is a rise in cost of living especially for essential items. 

How about poverty rate in Sabah? Poverty rate has reduced significantly by 2017. Poverty rate was 33.1% in 1984, 19.7% in 2009, while in 2016, the poverty rate had reduced to 2.9% (Department of Statistics, 2017). While the latest numbers are not out yet, poverty rate in 2018 is not expected to go down as there has not been any new initiatives or support for on-going programmes by the current government for the hardcore poor in Sabah.

How has Sabah’s external sector performed? Despite the slowing down of the world economy, Sabah’s export grew at 1.38%, while import falls by 18.3%. Sabah’s trade balance position has improved where the trade surplus amount expanded by more than 100%. The drop-in imports could partially be attributed to the depreciation of ringgit.

2. What is our view on Sabah’s economic outlook 2019?

With the previous years’ record, despite the slowing down of world economy, Sabah has been able to grow within the range of 4-6%. Given the budget announcement for 2019 by YAB Chief Minister, Sabah’s economy will be facing a lot of challenges ahead.

It very much depends on various factors such as world economic condition, the China-US trade dispute, fluctuations of oil price, fluctuation of other world commodity prices, exchange rate fluctuations, law changes, policy changes, as well as security and stability among others that may affect Sabah economy in general and the demand for Sabah’s export products. Even the tourism industry, once a bright spot, may see a decline. The number of empty service residences, shopping malls and low occupancy in hotel rooms throughout Sabah is a clear indication of this.  

The current political situation and unnecessary interference by the new Sabah government in business as a result of politics will also negatively impact investor sentiment and creation of new jobs. It is pertinent to note that domestic driven private investments in the state economy is crucial to drive continued GDP growth.

Reliance on only China investments will not realize the stimulus the state economy needs as it will be a ROI-led, short term play. Furthermore, the imposition of strict capital outflow regulations in China will severely impede any hopes to bring in new large-scale investments.

The issues around Brexit and slowing world growth will also challenge any new investments from the EU, Japan and Korea.

The Warisan-led Sabah state government must look at encouraging domestic investments, perhaps even allowing incentives for JVs with foreign companies to continue the economic growth and job creation momentum. This is time for pragmatic decision-making for the benefit of the workforce and graduates in Sabah.

Sabah Economic Alliance

1 May 2019

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