0. Sabah Development Corridor 2008-2025
Briefing
EU Economics & Commercial Counsellors
IDS Conference Room
14th May 2009

1. Key development challenges:
High cost of doing business – poor infrastructure and high freight costs
Shortage of critical mass of human capital
Highest incidence of households living in poverty
2. High cost of doing business mainly due to high shipping costs and poor infrastructure
Shipping costs: low originating cargo, low ship call frequency and double handling
Unreliable electricity supply and shortage of water supply
Poor road and rail connectivity leading to high transportation costs
3. Shortage of talents in strategic sectors; and heavy dependence on foreign labour
4. Largely rural, with a poverty rate of 23% (6.5% hardcore poor).
5. Gross Domestic Product: Sabah’s GDP of RM15.1 Bn is 7th largest in Malaysia
6. GDP per capita in 2005: RM5,100 ; Malaysian average: RM9,800
7. Monthly household income in 2004: RM2,487; Malaysian average: RM3,249
8. Unemployment is currently at 5.8%; Current workforce is million (2006),
9. Population: 3.1 million (2006)
10. Education: 79% of persons aged 6 and over attended school (national av: 90%)

2. Sabah Development Corridor 2008-2025:
The National Context: Issues and Benefits
Narrow-base of national export: too dependent on electronics, oil & gas and palm oil
Relatively weak resource-based industries
Widening income inequality
Employment growth lagging behind economic growth
Relatively weak linkage between economic growth and poverty incidence
Lack of human capital in strategic sectors
Heavy dependence on foreign labour in agriculture and construction 2 2

3. KLSE COMPOSITE INDEX: JANUARY-DECEMBER 2008
39% Decline over the period

4. WORLD ECONOMY ‘WEAKEST SINCE 30’s:
the United Nations
The United Nations says “the world economy faces its worst downturn since the Great Depression... [and] expects world economic output to shrink by as much as 0.4% in 2009, due to a slump among developed countries - particularly the US and in Europe. …
“This would mark the world economy's first year of contraction since the 1930’s”
(Source: the BBC)
“The eurozone economy will shrink 1.9% in 2009 and grow by only 0.4% in 2010….”
(the European Commission, 2009)

5. Sabah Development Corridor 2008-2025
The vision for Sabah is to be a vibrant, economically successful and liveable state -
SDC is underpinned by 3 key principles
Capture higher value economic activities
Promote balanced economic growth with distribution
Ensure sustainable growth via environmental conservation
Phase 1 ( )
Building the foundation
for growth
Phase 2 ( ) Accelerating
economic growth
Phase 3 ( )
Expansion
Catalysing future growth via infrastructure as well as high economic impact and poverty eradication projects
Higher order value-add activities, the presence of global companies and a strong base of local SMEs
An attractive destination for FDIs with strong supporting infrastructure, global companies and knowledge workforce 5 5

6. Sabah Development Corridor 29 January 2008
The vision for Sabah is to be a vibrant, economically successful and liveable state by creating and articulating a set of 5 unique attributes that will mould the future of Sabah:
A preferred gateway for trade, investment and leisure for leading businesses and talent from around the world in key areas
A happy and cohesive community that lives in harmony and prosperity regardless of race, language or religion
A tech-savvy state that uses and showcases technology in enhancing quality of daily life
A place of opportunity where residents and foreign talents find rewarding employment opportunities
Amongst the most liveable place in Asia with culture, heritage, quality of life and clean environment 6

7. Sabah is blessed with excellent Location, Resources and Bio-diversity which it can build on…
Gateway for regional trade
Ideal for transhipment and value add for cargo between Kalimantan–South Philippines and North Asia (China, Japan, Korea)
Capitalise on market deregulation of AFTA
Location
Rich in natural resources (oil & gas, fertile agriculture land, minerals, forestry)
Capture high value add downstream activities such as oleo chemicals, gas processing plant, oil refineries and wood based products
Position Sabah as centre of excellence for agriculture
Resources
Rich bio-diversity (flora-fauna and marine life)
32 ethnic groups spawning diverse cultural backgrounds
Capture knowledge from international researchers
Stimulate biotech activities
Cultural and
Bio-diversity

8. Vision & Sectoral Focus

9. SDC VISION To be a leading economic region in Asia by being the preferred gateway for trade, investment and leisure
Physical infrastructure
Sector-specific visions
Soft Infrastructure
Agriculture:
Services:
Manufacturing:
Structured infrastructure development in transportation, utilities and communication to enhance living standards and enable commercial activities
Systematic skills upgrading of existing workforce in key industries, retain talented Sabahans and targeted import of foreign talent in professional and managerial positions
Highly productive
Premier eco-tourism
High value jobs
Food self-sufficiency
High value add downstream
Second home
Sustainable and safe
Low cost of business
Successful pool of SMEs
Social
Harmonious and Cohesive society
No Hardcore Poverty
Confident and Independent
Environment
Pristine and well conserved
Renowned worldwide

10. Sabah Development Corridor is made up of 3 sub-regions
Characteristics of Sabah Development Corridor
SDC is made up of 3 sub-regions
Western Sub-region: Kudat, Kota Belud, Tuaran, Kota Kinabalu, Penampang, Papar, Beaufort, Kuala Penyu, Sipitang
Central Sub-region: Pitas, Kota Marudu, Ranau, Tambunan, Keningau, Tenom, Nabawan
Eastern Sub-region: Sandakan, Beluran, Kota Kinabatangan, Tongod, Lahad Datu, Kunak, Kalabakan, Semporna, Tawau
Sabah consists of 5 administrative divisions*, subdivided into 24 sub-divisions (or districts)
32 officially recognised ethnic groups
Area = 73,997 km2 (22.4% of Malaysia); Population = 3.1 million**
* 1. West Cost Division: Kota Belud, Kota Kinabalu, Papar, Penampang, Ranau, Tuaran; 7,588 km2, popn.=953, Interior Division: Beaufort, Nabawan, Keningau, Kuala Penyu, Sipitang, Tambunan, Tenom; 18,298 km2, popn.=420, Kudat Division: Kota Marudu, Kudat, Pitas; 4,623 km2, popn.=189, Sandakan Division: Beluran, Kinabatangan, Sandakan, Tongod; 28,205, popn.=676, Tawau Division: Kunak, Lahad Datu, Semporna, Tawau; 14,905km2, popn.=756,800
** Department of Statistics Malaysia (2006)
Source: IDS Concept Paper; Team analysis

11. Core Components of Sabah Development Corridor
Sub-Regions

12. CURRENT URBAN HIERARCHY AND LINKAGES FOR SABAH
Sub-Regions
KUDAT (11):
27,443
KOTA BELUD (10):
31,001
TUARAN (8):
35,499
SANDAKAN (2): 268,821
Secondary Regional Growth
Centre
KOTA KINABALU (1):
Regional Growth Centre
323,817
RANAU (12):
22,425
Penampang (4):
81,867
PAPAR (6):
42,598
KENINGAU (9):
32,754
LAHAD DATU (5):
71,176
SEMPORNA (7):
41,624
TAWAU (3): 155,099
Sub-Regional Growth Centre

13. Sub-Regional
Growth Centre
Urban Growth
Centre
Sub-Regions
Rural Growth
Centre
Secondary Regional
Growth Centre
KOTA KINABALU
CONURBATION
Regional Growth Centre
THE PROPOSED URBAN HIERARCHY AND LINKAGES TO REDUCE SUB-REGIONAL AND RURAL-URBAN GAP
Sub-Regional
Growth Centre

14. Services
Tourism &
Logistics

15. TOURISM: Sabah’s beauty and rich cultural and bio diversity
Tropical Research Centre of Excellence
odop
odop
Eco-Certification
odop
One District One Product
odop
odop
Tropical Research Field Station
Poring Hot Spring Spa
odop
Tourism Skills Training Centre
odop
odop
odop
odop
Danum Valley
odop
odop
Maliau Basin
odop
odop
Arts & Culture Development Fund
Keningau Handicraft Production Village
odop
odop
odop

16. Four main strategies under the tourism sector...
Tourism Strategy
Rationale 1
Position Sabah as the premier eco-adventure destination
Leveraging on Sabah’s natural endowment
Tapping on fastest growing segment of tourism industry; eco-tourism growth of 20% compared to 7% for overall tourism1
Develop new tourism products anchored by signature resorts 2
Moving towards high-yield market
Leveraging off their marketing efforts and loyal customer base
Market Sabah as the exclusive holiday home destination 3
Increasing demand for exclusivity among the rich and famous – Sabah is still largely undeveloped unlike Phuket and Bali
Extending length of stay of high-end visitors
Encourage rural participation through community-based tourism 4
Enhancing rural income
Encouraging entrepreneurship
1 The International Ecotourism Society, Ecotourism Fact Sheet (September 2005)

17. Agriculture

18. AGRICULTURE: Focus on food sustainability, high value export to North Asia and poverty eradication
Bengkoka Rubber Resettlement
(2,500 families)
Jatropha Site
Palm Biotech R&D Centre
Integrated Collection Centre
Jelapang Padi Programme
(7,000 families)
R&D Centre
Permanent Food Crop Production Parks
Upgraded fishery landing sites E
Sandakan Education hub
Sabah Agro-Industrial Precinct
Aquaculture zones E
National Marine Aquaculture Centre
Seafood Terminal
Livestock cluster
Agrifood production zones
Agrifood industrial zones
Jatropha Pilot Site
Keningau Integrated Livestock Centre

19. Three main strategies for the agricultural sector...
Agriculture Strategy
Rationale
Develop high-value, high-potential products 1
To move towards high value markets
Leveraging off the natural biodiversity strengths of Sabah from both sea and land
Potential enhancement via increased R&D and marketing
Enhance food-based agriculture sub-sectors 2
To reduce Sabah’s food import requirement
To enhance involvement and income of rural community
Potential enhancement via increased technical and financial support
Position Sabah as the centre of excellence for oil palm 3
Sabah is the single largest contributor to the oil palm industry in Malaysia
Sabah has high potential in downstream activities for palm oil

20. Manufacturing

21. MANUFACTURING: Sabah will focus on leveraging its natural resources as feedstock to capture value in downstream activities
Industrial Corridor
Wood-Based Industry Cluster
POIC Sandakan
Sabah Oil and Gas Terminal
Minerals Based Industry
Energy Intensive Cluster
POIC Lahad Datu

22. MANUFACTURING: Integrated Petrochemical Complex at the Kimanis landing site will generate RM5bn of private investments and create high value jobs
From landing site…
…to an integrated gas or petrochemical complex, attracting investments and spawning high value jobs
LPG
LPG bottling plant
Export
Tank farm
Hydrogen peroxide
Crude oil
Stabilisation unit
Ammonia/ urea
Condensate
Off gas
GPP
Future
NPK plant
Slug catcher and gas conditioning
Natural gas
Gas
300MW
Power plant
Compressor station
Gas pipe to Bintulu LNG plant
Source: Interviews with Oil & Gas expert

23. Three main strategies for manufacturing sector...
Manufacturing Strategy
Rationale
Enhance basic infrastructure, focus on reducing cost of doing business 1
Basic infrastructure is crucial to operational efficiencies of manufacturers
Cost of doing business is fundamental to investors’ choice of location
Invest in human capital for existing and new industries 2
Skilled manpower is key to manufacturing competitiveness
Systematic approach to matching industry needs with supply of human capital via fine-tuning current education and training courses
Attract world class companies in high value add downstream activities 3
Leverage Sabah’s natural resources as feedstock raw materials
Elevate the standards of local SMEs supplying to world class companies
Serve as a draw for talent and quality FDIs (management and technical knowhow) into Sabah 23 23

24. Infrastructure
and Human Capital

25. SDC infrastructure vision
Key targets by 2025 1
CONNECT SABAH
Ensure connectivity to enable productivity via roads, rail, sea and air
61% of all roads are still gravel & earth roads
80% of all gravel roads to be sealed by 2025
Focus on enabling intercity connectivity and SDC projects 2
POWER UP SABAH
Provide sufficient & reliable electricity for Sabah
Current coverage is 67%
90% of population covered by 2010
Enhance rural electrification
Increase capacity and strengthen grid 3
QUENCH SABAH’S THIRST
Provide sufficient water to keep pace with demand
Current demand outstrips supply by 23%
Supply to meet demand by 2010
Reduce NRW from current levels of 57% to 25% by 2025 re 4
EMBRACE TECHNOLOGY
Enhance data connectivity
Current broadband penetration is 4.9%
65% of population connected by 2025
Enable businesses and move towards a knowledge based economy 5
INVEST IN SABAH’S TALENT
Build human capital to provide skilled talent pool
3.95% of population with tertiary education in 2000
15% of population with tertiary education by 2025
Using companies and MNCs to develop talent 25

26. Environment

27. Nature at its Best Adventure Experience… Heart of Borneo
Mt. Kinabalu
Mt.
Tambayukon
Mt. Trusmadi
Imbak Canyon
Maliau Basin
‘Sabah’s Lost World’
Crocker Range
Danum Valley
Nature at its Best
Heart of Borneo
Adventure Experience…
of Pristine Wilderness in Primeval Rain Forests 27

28. By 2025, most liveable place in Asia
ENVIRONMENT: Conservation is necessary to preserve our heritage, boost tourism and export of agriculture related products
Forests
Clearly demarcate boundaries and regulate forest reserves
Restore degraded forests
Education and awareness
Educate public on recycling, cleanliness, conservation of biodiversity, preservation of clean river system, etc.
Biodiversity
Preserve marine and wildlife
Preserve flora and fauna
G2G agreements on protection of highly migratory species
By 2025, most liveable place in Asia
Infrastructure
Manage sewage and solid waste
Protect settlements, river systems, mangrove
Physical conservation
Shoreline management
Conserve World Heritage sites
Sustainable development
Promote certification of agriculture produce to comply with credible sustainable standards (s.a. RSPO)
Source: Team analysis

29. Implementation & Expectation

30. Measure of successful implementation
Key tenets need to be in place for SEDIA to have the best chance to successfully deliver the programmes planned in the SDC Blueprint
Key tenets for SEDIA
The Sabah Economic Development and Investment Authority (SEDIA) Enactment 2009
Joint Working teams comprising of federal and state agencies to expedite approvals
Commitment and obligation on all parties concerned to meet set service levels
Permanency to stay the course of the Blueprint
Right management structure and enablers
Measure of successful implementation
Impactful programmes
Targeted resource delivery
Balanced socio-economic

31. SDC INVESTORS
“The government will put in place policies to make it easier to do business here ... We will not compromise on the environment and our culture"-
DATUK SERI PANGLIMA MUSA AMAN
SEDIA
Company Registration
Licence Approval
Work Permits
Land Matters
Planning Approvals
Utility Approvals
Incentives 31

32. Reduces poverty by creating new business and employment opportunities
Moves the economy up the value chain and promotes economic growth by optimising the utilisation of Sabah’s factor endowments, locational advantages and competencies
Rationalises the spatial distribution of Sabah’s population and facilitates the integration of Sabah sub-regional economies, thereby reducing regional imbalance
Enhances human capital thereby improving the quality of life and thus reducing social imbalances
Attracts private investments, tourists, highly skilled workers as well as scientific researchers
Offers Sabah and Malaysia generally, to participate in the vibrant knowledge-based economy driven by S&T convergence
Reduces poverty by creating new business and employment opportunities
Mega biodiversity, relatively unaffected by the Ice Age
Kinabalu Park – Malaysia’s first World Heritage Site (UNESCO: Dec, 2000)
Danum Valley Research Centre and Sepilok Orang Utan Rehabilitation Centre
Islands (esp. Sipadan), Maliau Basin, Tabin Wildlife, Caves (Gomantong & Madai)
Valuable ethnobotanical knowledge from the indigenous communities
Infrapro & Deramakot (since 1992,FSC cert.) carbon sequestration model
Multi-racial society with rich cultural heritage (Tingkayu Valley archeological sites
Largest oil palm plantation area in Malaysia;
Fertile soil, adequate rainfall and conducive climate
Relatively clean and unpolluted natural environment
Livestocks free from foot and mouth disease
Access to deep water and sheltered ports

33. “Big ticket” items for remaining 9MP*
Roads
Replicate Agropolitan
Sea Port
POICs (Sandakan and Lahad Datu)
Human Capital: Sandakan Education Hub
Biodiversity Conservation: Heart of Borneo, wildlife, marine eco-syst
Agri-Business Accelerator: eg SAIP, Integrated Fisheries Compl
AgriExcel Outreach: Food Security and High Value Crops
Direct assistance (hardcore)
Tropical Biodiversity Research: Sabah Bio-X
Mini Estet Sejahtera (MESEJ)

34. Tourism targets
Increase average tourist spending from RM2,517 in 2006 to RM3,383 by 2012 and RM5,364 by 2025
Increase tourism receipts from RM2.88 billion in 2006 to RM8 billion by 2012 and RM48.5 billion by 2025
Increase rural community tourism receipts (handicrafts and homestay) from RM139 million in 2006 to RM 432 million by 2012 and RM4.5 billion by 2025
Agriculture targets
Multiply GDP contribution by 4.1 times from RM4.1 billion to RM 17 billion by 2025
Increase total value of exports from RM9.1 billion to RM60 billion
Reduce negative balance of trade of food by 60% from RM955 million to RM353 million
Manufacturing targets
Increase capital investments from RM208 million (2006) to RM2.96 billion by 2025
Enhance employment in manufacturing sector from 135,000 to 228,704 by 2025
Increase proportion of manufacturing workforce with tertiary education from under 10% (2005) to 45% by 2025
Infrastructure targets
Roads: all major towns and rural collection centres are connected by sealed roads
Electricity: 90% of population is connected with SAIDI of 500 minutes (from 2,540 currently)
Water: Reduce NRW from 57% to 25% and increase capacity to meet supply
Data connectivity: Broadband penetration of 35 per 100 inhabitants from 4.9 currently
Talent: Skilled talent pool for all targeted industries in Sabah

35. Expected Outcome
Enhancing The Quality Of Life, And Reducing Regional Imbalance And Poverty Incidence In A Sustainable Manner
HUMAN
CAPITAL
DEVELOPMENT
IMPROVE
RURAL-URBAN
LINKAGES
ENHANCE SUPPLY
CHAIN EFFICIENCY
ATTRACT
INVESTMENTS TO
TARGETTED AREAS
AND ECONOMIC
SECTORS
OPEN UP NEW
ECONOMIC
OPPORTUNITIES:
THE PRODUCTION
POSSIBILITY
FRONTIERS
CREATING
EMPLOYMENT
OPPORTUNITIES
REDUCE POVERTY
HIGHER
QUALITY
OF LIFE
REGIONAL
BALANCE
REDUCING
INCOME
INEQUALITIES
SUSTAINABLE
DEVELOPMENT
PRODUCTION
AREAS
FACTOR
ENDOWMENT
BUSINESS
OPPORTUNITIES
FOR
FARMERS
EXPEDITE
ECONOMIC
GROWTH
BUSINESS
OPPORTUNITIES
FOR
SMEs
BASIC INFRA.
UTILITIES &
SERVICES
REDUCING
RURAL-URBAN
GAP: REDUCING
MIGRATION
INCENTIVE
SCHEMES TO
ATTRACT
INVESTORS
BUSINESS
OPPORTUNITIES
FOR LARGE
CORP & GLCs

36. 2.9x Sabah GDP per Capita (1987 constant prices) (RM) 14,784 11,363
With SDC
Sabah GDP per Capita (1987 constant prices) (RM)
9MP growth target
2.9x
14,784
11,363
5,100
GDP (RM’bn)
15.1
21.9
32.0
45.7
63.2
20.3
27.1
36.3
48.6
* ADB forecast a growth of 5.5% for Malaysia for Constant growth is based on 6% in line with 9MP. SDC model in Appendix
Source: Team analysis; Asian Development Outlook 2006 36

37. Thank You
******INSTITUTE FOR DEVELOPMENT STUDIES SABAH ****** 37