SABAH now stands at a critical juncture, hovering between economic revival and further decline. 

Questions remain if this resource-rich state can free itself from its cycle of economic despair, with the blue economy emerging as a beacon of hope.

Blue economy refers to economic activities associated with the oceans and seas.

After Malaysia eased Covid-19 pandemic restrictions in March 2022, Sabah seemed to be on the path to recovery, recording RM11.34 billion in investments and experiencing a surge in tourism in 2023.

However, beneath the progress lies a troubling economic reality, which experts describe as the state being stuck in a “doom loop” due to its persistent economic challenges.

To date, Sabah grapples with the highest unemployment rate in the country at 7.7%, with 75% of its 1.9 million working population engaged in the informal economy.

A large proportion of its workers are self-employed or small-scale producers who lack legal protections, earn meagre incomes and face job insecurity.

Bank Negara Malaysia said that Sabah’s growth has consistently lagged behind other states and is significantly below the national average. Poor infrastructure, unreliable electricity and water issues further exacerbate the problem.

Economic analyst Yap Cheen Boon attributes Sabah’s economic woes to both external and internal factors.

He said Sabah’s weak infrastructure, vague policies, inefficient administration and low-skilled labour supply and demand are significant issues.

“The current state blueprint is vague and can only be construed as a slogan – Sabah Maju Jaya. Administration is not as efficient as states in Peninsular Malaysia in certain aspects and at times lacks transparency,” he said.

According to Yap, Sabah also has a weak economic structure.

For instance, he said 50% of the services sector is of low value, 20% of the oil and gas sector comprises non-Sabahan workers, while 30% of the oil palm activities are in the low-value upstream. 

Regarding external factors, Yap said Sabah lacks trade linkages and the existing shipping sector is inefficient and slow, leading to bottlenecks in the flow of goods.

Cycles of boom and bust

Sabah’s economic journey in the 1960s initially centred on logging activities, continuing throughout the 1970s and 1980s. However, the 1990s brought significant changes in the forestry sector, leading to a sharp decline in logging activities due to forest degradation and environmental concerns. 

The Asian financial crisis in 1997 further destabilised the state economy, prompting its pivot to palm oil cultivation. 

Despite challenges, Sabah’s economy rebounded by converting former logging sites into cash crop plantations. Revenues from palm oil spurred rapid development, leading to numerous shopping complexes and residential buildings in the first decade of 2000. 

Institute Development of Sabah’s chief executive officer associate professor Ramzah Dambul said the economic pivots had caused a massive socioeconomic disparity in Sabah. 

“47% of the state’s economic share is controlled by the top 20, while the B40s only get a small slice of the cake, merely 17%. This is a very serious gap,” he said.

The Asian financial crisis also triggered the economic migration of Sabahans to Peninsular Malaysia, with a significant number of Generation X becoming economic migrants.

There are over 200,000 Sabahans now living on the peninsula, with thousands leaving annually for better opportunities.

However, Sabah’s population surged from 955,712 in 1980 to 2,468,246 in 2000, largely due to refugees fleeing unrest in the southern Philippines and the inclusion of Indonesian migrants.

These migrants have been a crucial labour force in Sabah’s oil palm and construction sectors, and by 2020, a third of the state population comprised foreigners.

Locals, meanwhile, dominated the services sector as tourism has emerged as a major contributor to the state economy since the early 2000s.

However, all three sectors – plantation, construction and tourism – do not pay well and lack job security. In 2014, the average household income stood at only around RM2,000 a month, the lowest in the country.

The construction boom also started to lose momentum as property prices soared by up to 500% over the last three decades. 

In 2021, property overhang in Sabah was valued at RM1.2 billion. Many of its locals are forced to live with their parents, even when both partners work, even after starting their own families.

The Covid-19 pandemic further strained the local economy, with unemployment peaking at 8.8% and dropping to 7.7% in 2022.

Over 151,000 Sabahans are without work, aggravating consumer spending and welfare costs for the state.

Sabah’s heavy reliance on low-value services and natural resources has trapped it in a cycle of low productivity.

The Malaysia Economic Planning Unit indicates that the service sector, alongside agriculture and natural resources, dominates the local economy, limiting Sabah’s growth potential.

Efforts to improve youth enrollment in vocational and higher education programmes are still in their infancy.

But political analyst Kanul Gindol pointed out that Sabah is not without skilled talent but noted that capable individuals are not in the system.

“For a long time, no good and qualified persons are positioned at the top and bottom of the current processes,” he said.

Despite over RM7 billion in revenue, the state government has also failed to generate high-impact projects or programmes, he said.

The absence of national representation and a dedicated Sabah human resource ministry further exacerbates Sabah’s economic challenges.

Embracing blue economy

At a crossroads, Sabah is turning to the blue economy as a potential lifeline. This initiative aims to leverage Sabah’s rich marine resources, including fisheries, aquaculture, renewable energy, and blue carbon.

“The blue economy holds immense potential to revive Sabah’s economy across multiple sectors,” said Chief Minister Hajiji Noor.

The strategy involves the sustainable development of marine resources, ensuring that economic growth does not come at the expense of environmental health.

This strategic pivot is essential as Sabah seeks to break free from its past economic constraints.

In the process, Sabah plans to halt further expansion of palm oil planting and instead focus on emerging industries that promise sustainable growth.

With this, Sabah aims to create high-value jobs, ensure environmental sustainability and foster long-term economic resilience.

In March this year, Sabah launched the blue economy initiative and is expected to hold the Sabah International Blue Economy Conference in September.

The state is also on the verge of launching its own version of the Malaysia MySecond Home programme, which would address the existing property overhang and improve investments.

The state is also looking into job creation as it woos fresh investments like RM6.09 billion from E-Steel and RM12.2 billion from China’s Kibing group.

Commenting on the blue economy, Ramzah said the state needs to grapple with the realities of its socioeconomic situation to ensure a balanced economic outcome.

“Whether it is the green economy or the blue economy, both are riding on the environmental, social and governance and the sustainable development goals.

“We must realise that it is not just about being environmentally friendly but also human-friendly development. Development based on protection of the ecology and socioeconomic justice must come simultaneously,” said Ramzah, adding that only then can Sabah close the income disparity between the T20 and B40 groups, as well as the rural development gap. – July 1, 2024.