Friday 01 Dec 2023
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This article first appeared in Forum, The Edge Malaysia Weekly on September 25, 2023 - October 1, 2023

It has been 60 years since the formation of Malaysia, and while the country is on track to achieve high-income economy status by as early as 2025 by some estimates, Sabah has been flagged in a 2022 World Bank report as a lagging state, most pronouncedly in socioeconomic development. It is almost certain that business as usual will only mean that Sabah will continue to lag. But under the new era of Malaysia Madani, can we dare to imagine a future where Sabah is no longer lagging?

The federal government of today has shown a keen understanding that the future of growth is green — from winning over Tesla to the latest National Energy Transition Roadmap and the New Industrial Master Plan — where initiatives to transition to a green economy are currently underway. Here is where we believe Sabah presents an interesting opportunity. Sabah has a nascent manufacturing industry at 7.6% of gross domestic product, compared with Malaysia’s 24% average. Further, its energy and water sectors are underdeveloped especially when compared with Malaysia as a whole. In addition, as highlighted by the World Bank report, its lack of human capital development and hard infrastructure are key factors that have contributed to its lagging performance.

However today, there is a global realisation that growth at all costs has not been ideal, and the conversation has shifted towards sustainable development characterised by the UN Sustainable Development Goals. We believe Sabah’s current underdeveloped state might actually present opportunities for the development of a green economy, or dare we say, leapfrogging into a sustainable future.

While other states need to invest substantial amounts to transition to a green economy, for example, changing their power generation capabilities to cleaner alternatives, Sabah’s energy shortage means it can invest directly into green sources of energy today with relatively lower transition costs and risks. While the northern region of Peninsular Malaysia and Selangor face water supply shortages and insufficient clean energy for its industries to stay ahead in the game for foreign direct investment, Sabah can invest directly into clean energy supply and sustainable water management and distribution to grow its economy.

In terms of sustainability, Sabah is no stranger to initiatives to protect the ecosystem and manage its resources sustainably. Like many other resource-rich states, Sabah did walk down the path of unsustainable exploitation of natural resources to the detriment of its environment and orang asal communities. Yet, it has also made great strides to rectify the situation. The Deramakot forest reserve in Sandakan is the first Forestry Stewardship Council (FSC)-certified tropical forest in the world. Sabah is also one of the first and one of the most advanced in the Roundtable for Sustainable Palm Oil Jurisdictional Approach (RSPO-JA) certification process, widely acknowledged as the gold standard in sustainable production of palm oil. Sabah’s targets for environmental protection and resource management can be considered ambitious — for example, it aims to protect and conserve 30% of its land area by 2025, while the global target is by 2030 and the national target is 20%.

While Sabah certainly has a lot of catching up to do in terms of infrastructure, logistics, human capital development and industrialisation, its strong initiatives in natural and cultural preservation are true assets to be capitalised on. Instead of seeing Sabah as a lagging state, Malaysia has on its hands a potential model of true sustainable development, one that brings reasonable prosperity to its people through preservation of its biodiversity and culture.

However, this road less travelled requires a delicate balancing act. Sabah’s situation of energy deprivation has sparked calls for the development of more heavy polluting energy sources with the view of providing cheap and reliable power. Sabah’s energy mix has been relatively clean, with 80% of its energy coming from natural gas and zero reliance on coal. Recent interest from energy-heavy industries to invest in Sabah such as E-Steel, Kibing and SK Nexilis, the energy situation is even more urgent, ramping up Sabah’s energy demand to an estimated 2000mw by 2030.

It is not wrong for a state like Sabah to want cheap power to develop itself, given years of underinvestment in its economy. Climate justice has long been an issue in the global climate dialogues, resulting in massive transfers of wealth from the global north to the global south, to ensure more just and inclusive development.

Today, underdeveloped nations can tap ample resources in the form of funding, technology and know-how to develop in a sustainable manner, including Sabah. More importantly though, is whether Malaysia can realise the potential presented by Sabah and make the necessary investments to that end.

If Malaysia wants to continue to grow at rates above steady states of 3%, it must look for new opportunities to tap. Sabah is one such engine that has yet to be fully unleashed. It should move away from merely exporting primary resources into manufacturing, given its strength in raw materials and proximity to consumer markets of North Asia, Indonesia and the Philippines.

To realise this vision, we present a strategy consisting of four pillars. The first pillar consists of the commitment to building a green economy for Sabah. As elaborated in the Arup and Oxford Economics Green Economy Report 2022, the shift towards a net-zero emissions environment by 2050 is projected to contribute US$10.3 trillion (RM48.3 trillion) to the global economy. The economic activities that comprise the Green Economy are of two types: the activities whose sole purpose is to “green” polluting industries and current industries; and the activities that are completely green in their nature on purpose, such as green finance, carbon trading or protecting the earth’s diversity.

Here Sabah’s economic structure and uniqueness presents it with advantages in both types. There is potential to tap the areas of clean energy, biomass, green manufacturing as well as the generation of carbon credits and development of payment for eco-system services. There is already interest from local and international companies in developing green industries and technologies in Sabah; the focus now should be on further supporting and crowding in such talent, know-how and funding with policies, incentives and interventions.

The second vital pillar is the downstreaming of Sabah’s rich natural resources.

The state unfortunately suffers somewhat from the resource curse. It describes a resource-rich economy where the public and private sectors benefit from natural resource extraction activities without the need to develop its hard and soft infrastructure beyond what is needed to support such extraction. As mining, plantation and logging do not require a highly educated workforce, or much beyond a dirt road to connect to ports, other infrastructure development tends to suffer and human capital development lags behind. Hence downstreaming, which is an activity that requires skilled labour, technology transfers and better connectivity, will be vital to Sabah. Three main industries lend themselves naturally to downstreaming in Sabah — palm oil, forestry and fisheries.

It follows that the third and fourth pillars required to support these two main pillars are the availability of clean, affordable and reliable renewable energy and the provision of modern infrastructure and connectivity. Sabah has significant potential that has yet to be fully explored in the area of renewables, such as solar power, ocean thermal, geothermal, hydropower and biofuels. It is interesting to note here that the Netherlands, with a lower solar irradiation and land mass area than Sabah, has an installed solar capacity reaching 20gw.

Further, as a key exporter of oil palm and timber, the potential for energy derived from biomass is yet to be fully tapped. This will require tailoring of supportive market policies, investments into energy grids, collection centres and other relevant infrastructure. With a strong commitment to only clean energy for Sabah, it can build a first-mover advantage and leverage exciting green economy developments over in Nusantara.

The fourth and probably most vital pillar for Sabah is the development of modern infrastructure and connectivity, which also includes the soft infrastructure required for economic and societal advancement. The Southern Energy Grid is of utmost urgency to unleash the potential of the secondary industry on the East Coast, benefiting the many local Sabah enterprises and communities situated there. Rural electrification initiatives based on clean energy and improved connectivity, coupled with access to healthcare, government services, education and jobs will greatly improve the basic well-being of marginalised communities.

These two pillars are tightly connected and should be rightly planned to facilitate and enable the development of green industries and downstreaming in the most efficient and effective manner possible, underpinned by sustainable development objectives.

The road to a brighter future is never easy. It is a mission that the world needs to embark on whether it wants to or not, in the face of the existential crisis of climate change that is already underway. Yet, the green economy presents an opportunity for growth, while sustainable development provides a road map for holistic advancement, instead of a cost or detriment to the economy. In our quest for Malaysia Madani that represents prosperity, inclusivity and renewed trust among Malaysians, Sabah is the country’s untapped diamond waiting to be unearthed.

For a deeper dive into Sabah’s energy situation, see the newly released Sabah Energy Roadmap and Master Plan 2040. For further information on the four pillars, please refer to the Strategy Lonjakan Ekonomi Sabah 2023 report.

Datuk Seri Panglima Masidi Manjun is Sabah’s finance minister and Phoong Jin Zhe is state minister of industrial development and entrepreneurship

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