THE mid-term review of the 11th Malaysia Plan (2016-2020) includes a new reform agenda, plans, and approaches for economic development. The revised RMK11 also comes out with six new pillars of focus on development, one of which addresses uneven development in the country, particularly in East Malaysia. Though the details of how the Pakatan Harapan government wants to solve the issues in Sabah remain vague, perhaps the details will be laid down in the upcoming annual budget. Typically discussed among pundits is why Sabah cannot attain meaningful economic transformation and tends to stall despite being endowed with resources. Although the long-serving Umno-led Barisan Nasional in Sabah has brought some economic development, it is still far from impressive, despite the state being rich with resources.

Sabah’s gross domestic product has grown almost four times from 2.7% in 2011 to 8.2% last year, higher than the national figure of 5.9%. The total GDP recorded is RM79.9 billion, the three main sectors contributing to such growth being service (mainly tourism-related industries) at 39.9%, quarry and mining at 31.1%, and agriculture at 18.7%. Sabah is one of the five states that contributes significantly to Malaysia’s GDP.

Although Sabah’s GDP has grown significantly, what is puzzling is that the income per capita has not shown a significant increase and job creation remains limited. Based on the recent trend, median household income went up from RM3,745 in 2014 to RM4,110 in 2016. The wage increase per year of RM182.5 does not commensurate with the increasing cost of living in Sabah. Different districts in Sabah can earn more than RM2,000, especially in more urbanised areas, but findings show that considerable numbers of people still earn below RM2,000. Worse still, the Gini coefficient shows significant income disparities in Sabah. While most peninsular states and Sarawak have managed to reduce to 0.399, Sabah has gone up to 0.402, giving the state one of the most uneven income distributions.

Recent findings from the Statistics Department indicate a 5.7% unemployment rate in Sabah. Again, the figure is the highest in the country. Even Kelantan recorded 3.6%. There is a paradox in economic development – though GDP is high, there is less job creation, especially among youth or fresh graduates. Youth unemployment was recorded at 13.5% in Sabah, higher than the national average of 11.1%. This reveals a mismatch of labour supply and the types of job created in Sabah.

To improve Sabah’s economic development, we must prioritise our resources in key sectors that can generate economic growth, i.e. in the industrial sector or downstream activities. One important caveat here is that other sectors like service (tourism), agriculture, quarry and mining, and construction do contribute to development, but they should not be handmaidens to promoting growth. Voluminous research on development has pointed out that the key to economic growth is investing in industrial sectors. This sector is linked to manufacturing sectors (downstream processes), which involves turning goods or materials to semi-finished or finished activities. It requires semi-skilled and skilled workers. Converting our resources to semi-finished and finished products requires substantial labour force (not just low but also skilled workers). Value-added activities can increase the state’s productivity, thus improving income and providing vast job opportunities. In Sabah, the economic profile does not seem to show the state prioritising the manufacturing sector as the key to promoting growth; rather, it focuses on resource extraction activities, which makes the state a “captive market” for low-end production activities.

The manufacturing sectors in Selangor and Sarawak are one of the main contributors to their GDP. In past decades, Sarawak focused on resource extraction activities, but as the state shifted to investing in the manufacturing sector over the years, eventually reduced the unemployment problem and improved the income per capita. Needless to say, Selangor is one of the leading states in manufacturing and has higher salaries. While Sabah’s manufacturing constituted 7.3% of its total GDP, most activities in that sector only focused on low- to mid-end activities. Limited growth of manufacturing sector is unable to give a wide spin-off effect, nor does it help reduce employment and increase wages in the state.

It is time for Sabah to put things in the right place with their existing resources. The government needs to avoid mismatching priorities in its economic development plan. The new government needs to prioritise the manufacturing sector as the primary engine of growth. Investment on downstream activities is crucial for the state to use its existing resources effectively, hence creating more progressive economic growth.

Manufacturing doesn’t mean heavy industries. It is associated with downstream industries that can be linked to food processing, carpentry, packaging, etc., as long as it involves value-added activities. Sabah’s new government has to prioritise the state’s economic development. The state government needs to move away from being a “captive market” and move up the value chain. An industrial policy needs to be formulated to coordinate our resources and investment plan for industries to grow, otherwise this state will continue to lag behind. – October 26, 2018.

* Firdausi Suffian is a lecturer at UiTM on political economy and policy analysis. 

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.