Impact of Covid-19 on Sabah economy


YEARS back in China, the severe acute respiratory syndrome (SARS) first infected humans in Guangdong province, in November 2002. The outbreak was brought to an end the following July, with approximately 774 deaths in nine months. It was estimated to cost the global economy more than US$30 billion (RM124 billion). Meanwhile, the 2019 novel coronavirus (Covid-19) that first surfaced in December 2019 in Wuhan, Hubei province, China has killed more than 1,100 people as of this morning. As reported by the World Health Organisation (WHO), SARS had a higher fatality rate compared to Covid-19, at 9.6% and 2.1%, respectively. 

Covid-19 is not as lethal as SARS, but that may change as it reaches its peak in mid-April or mid-May, as mentioned by Gabriel Leung, the University of Hong Kong chair professor of public health medicine. 

Covid-19 is more contagious than SARS. There were 8,096 cases reported for SARS and 44,200 cases reported for Covid-19 as of today. It affects human movement across the borders. As the number of cases and the death toll from Covid-19 mount, the economic impact is also starting to become more apparent. The most obvious is the effect on the hospitality industry in Southeast Asian countries. In Sabah, Chinese tourists spend on hospitality products such as hotel, retail, transport, food and beverage, entertainment, telecommunications, and many more. 

In consideration of the contagious nature of the coronavirus, Sabah is temporarily halting all direct flights from China. This effort is sound. However, it will induce a considerable drawback to the Sabah tourism industry, which heavily depends on the Chinese tourist demand as the most significant visitors that hit 40.7% of international visitors in Sabah that approximately 598,566 people, followed by South Korea that 396,660 people in 2019.

As the oil stockpiles are not drying up, but the oil price drop to US$49.55 per barrel as of February 10, 2020, from its peak US$63.27 per barrel at January 6, 2020. The 21.68% drop in oil price within five weeks. The economy is a networked system that facing many pressures. Similar to the hospitality industry, the heat from Covid-19 will burden the oil and gas industry as a leading contributor to Sabah exports in 2018. The Sabah exports represented by 52.7% equivalent to RM56.5 billion of its total exports. This oil price drop is an immediate effect from the oil demand shock from China’s industrial activity that is slowing down, halting in the transport industry, and cancellation flight due to Covid-19, and other factors such as US-Iran tension and US-China trade war. The lower the price, the pressure of the oil and gas industry. The Sabah government should closely monitor this pressure as it reflecting the gap between the selling price of oil and the cost of oil production, including taxes and reinvestments.

Covid-19 fears continue after the WHO declared as a public health emergency of international concern leading to depreciate in ringgit for about 1.1% to 4.17658 on December 1, 2019, from 4.12994 on February 6, 2020, against the US dollar. Theoretically, depreciate in ringgit will attract more tourist arrival in Sabah.  However, this case is different as speed and depth of technology to transmit the information should not be disregarded. The 16 confirmed cases in Malaysia as of February 8, 2020, will make the potential tourist think twice. Moreover, depreciate in ringgit seems too favourable to the exports volume leading to the surplus in the official settlements. However, the outbreak of Covid-19 causes a broken global manufacturing supply chain. This outbreak leading to unfavourable in export volume as the severity is still unknown. In 2018, Sabah’s total exports and imports were RM56.50 billion and RM30.70 billion, respectively. The total trade is RM87.10 billion and recorded surplus in official settlement for about RM25.80 billion. Among the Sabah total exports, there are RM4.01 billion (7%) exports to China. The highest export to China is animal and vegetable oils and fats that contribute to 64% or equivalent to RM2.58 billion. Meanwhile, Sabah imports from China mainly on machinery and transport equipment, which equivalent to 0.77 billion of its total import. The outbreak of Covid-19 is not having a significant impact on the manufacturing and agricultural sectors in the short-run. Nevertheless, the moment of truth is yet to come in the long run.

Covid-19 will give Sabah tourism industry such a wallop primarily on-demand sided as less demand on ringgit from Chinese tourists for them to spend on the hospitality product. Moreover, the Sabah governments should work hard beside the ever measure to curb the effect from Covid-19 towards their revenue and royalties from the oil and gas industry. The Visit Malaysia Year 2020 (VMY2020) campaign that targeted 30 million tourist arrivals and at least RM100 billion tourism receipts should be revised by the federal government consider Covid-19 outbreak. The Pakej Rangsangan Ekonomi Mini should be focusing more on the state that contributes to domestic and international tourist arrivals such as Selangor, Sabah, Sarawak, Wilayah Persekutuan Kuala Lumpur, and Pahang. 

*Abdul Aziz Karia is a UiTM lecturer on business economics.

* 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.


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Comments


  • " ... contributes to domestic and international tourist arrivals such as Selangor, Sabah, Sarawak, Wilayah Persekutuan Kuala Lumpur, and Pahang. ...."

    Pahang??? Or is it Penang you meant? Personally, I don't consider Selangor and Sarawak (except for its music festivals, eg. Rainforest Music Festival) attractive domestic and international tourist destinations.

    Maybe Sabah should learn from Saudi Arabia and organize something akin to MDL Beast festival 2019 (or better) when Covid-19 subsided.

    After all the many ethic races can modernize their dances and music (electronic music, performing arts and culinary craft), something unique for the world, and performed at the foothills of Mt. Kinabalu.

    Better still like Woodstock 1969!!!!

    Posted 4 years ago by Malaysian First · Reply