Malaysia’s Borneo States

The national territory of Malaysia includes the two provinces, Sabah and Sarawak that lie in Borneo, shared also with Brunei and Indonesia, along with the Federal Territory of Lebuan, a small duty-free island at the mouth of Brunei Bay. Together the Malaysia’s Borneo states, also known as Eastern Malaysia, possess abundant natural resources, breathtaking landscapes and rich opportunities for foreign investors looking for new opportunities in Asia.

Sabah and Sarawak are located on the northern coast of Borneo, the third largest island in the world. The island’s division between Malaysia and Indonesia lies in the legacy of colonial competition between the British and the Dutch and also includes the small Sultanate of Brunei lying between the two Malaysian provinces. Borneo itself is remarkable, containing the highest peak in Southeast Asia, Mt Kinabalu, the world’s largest tropical tree, the largest underground cave chamber, the world’s oldest rainforest and one of the globe’s widest, densest regions of biodiversity. Sabah and Sarawak hold the last remaining natural reserves of Orang Utans. In addition, the island offers incredible cultural diversity with as many as 170 indigenous languages being spoken. Malaysia’s Borneo states comprises about 60% of the total land size of the country but contains only around 20% of the national population of 33.5 million people.

Until recently much of the business in the island has been about extracting resources and replacing the rainforest with palm oil and rubber plantations, however this is changing now under fresh policy and direction from the respective capitals. The new Indonesian political centre is being relocated to east Kalimantan (read about that here) while Kuala Lumpur also is focusing considerable effort into developing Malaysia’s Borneo states. Under Malaysia’s 12th Master Plan (2012 – 25), the country offers a wide variety of incentives covering major industry sectors. These include pioneer status (PS) and investment tax allowances (ITA) in manufacturing, agricultural, construction, education and tourism and that participate in a promoted activity or produce promoted products. PS is given by way of exemptions from corporate income taxes of 70% of the profit for five years while ITA is granted for 60% of the qualifying capital expenditure for a five-year period. Further special incentives are available and small-scale companies may enjoy favourable application criteria. There are further incentive schemes available for reinvestment, relocation, export orientation and for approved special projects in specific areas such as logistics, communications, energy, utilities etc.

In March 2021, the Sabah state government launched a five-year development plan as a roadmap to generate long term growth in three key sectors – agriculture, industry and tourism. This plan will see the government investing heavily in the agricultural production and value chain while optimising the use of technology, innovative practice and with an emphasis on sustainability. The state government is actively seeking international partnerships in each aspect of these. H.E. Mr Hajiji Noor, Sabah’s Chief Minister and state minister of finance, spoke to the press “I have stressed from the onset that we want to be investor-friendly, and we will ease all hurdles to facilitate investment.” It’s worth noting that in some matters, Malaysia’s Borneo states enjoy a certain level of autonomy, for example in immigration and each has their own Chief Minister.

Further the construction of the new Indonesian capital precinct, Nusantara, in nearby East Kalimantan province will lead to significant new opportunities for Malaysia’s Borneo states, with planned extensions of roads, ports, airlinks, industrial parks and development of rural districts and border towns. The new Pan Borneo Highway connecting Sabah and Sarawak along the northern coast is due for completion by 2025. The province’s shipyards, previously optimised for coastal and river transportation, are now receiving investment in capacity as Borneo’s port facilities are being upgraded. Borneo’s proximity to the major shipping lanes in the region offers an important logistical advantage.

Malaysia’s Borneo states offer significant opportunities for energy. With major reserves in oil and gas and offering untapped opportunities in hydropower, the government has recently released the National Energy Policy 2022 – 2040, a comprehensive action plan that codifies key actions, milestones and responsibilities. It states “the energy sector is the main driver for Malaysia’s socioeconomic development” and reinforces a clear intention to reduce dependence on imported coal and the use of fossil fuels, while increasing the proportion of renewable power generation towards their Low Carbon Nation Aspiration 2040. Malaysia’s Borneo states offers a particular opportunity in hydro, including mini-hydro as well as solar and biomass power generation.

The pandemic took a toll on the states’ tourism receipts, but this has climbed rapidly back towards pre-pandemic levels. The provinces are blessed with a stunning natural environment, particularly appealing to eco-tourism and adventure-tourism as well as towards those who prefer to look beyond the established main tourism attractions of Southeast Asia. Both Sabah and Sarawak hold tourism promotion bureaus that offer various incentives for businesses that invest in the tourism sector, including tax breaks, grants and access to subsidised land deals.

The population of Malaysia’s Borneo states is also predominantly young and educated, offering a skilled labour force for sectors requiring professional workers. Each province has a public national university, while there are many other private campuses, teacher colleges and joint venture campuses with international institutions. As the government seeks to encourage greater inclusion from the many indigenous groups, special programmes have been designed to include these people in higher level education, while also developing agencies to assist the various groups of undocumented workers that have developed in rural areas.

Malaysia’s Borneo states holds immense promise to international companies and investors. The abundance of natural resources, strategic location, supportive government policies and the expanding tourism sector makes these states attractive – to work and to live.

For more details on the opportunities available in Malaysia’s Borneo states, Asian Insiders offers insight, understanding and assured engagement in the market. For a no-obligation call, please contact Jari Hietala, Managing Partner: jari.hietala(at)asianinsiders.com or Germain Thomas, Malaysia Partner: germain.thomas(at)asianinsiders.com

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