With a market size bigger than Sabah and Sarawak, there are a lot of opportunities that Sabah can further explore.
In relation to this, a proposal for road connectivity with North Kalimantan via Kalabakan is indeed a plan that may create huge potential benefits for both economies.
This article discusses the current bilateral economic ties, highlights the potential benefits of strengthening economic relations with Kalimantan and proposes the focus areas that can be considered by all stakeholders.
Malaysia and Indonesia have had a strong standing of bilateral economic ties. Both countries are integrated via the Asean Free Trade Agreement (AFTA) and the recent Asean Economic Community (AEC) initiative.
From the international trade perspective, bilateral trade is at increasing trend based on a 50 years’ time series data. For the case of Sabah, bilateral trade also is at an increasing trend. Table 1 shows the recent bilateral trade information between Sabah and Indonesia. Table 1 depicts that for certain years Sabah experienced trade deficit while in certain years Sabah faced trade surplus.
Sabah’s main export products to Indonesia include mineral products and chemicals.
Sabah’s main import products from Indonesia are animal and vegetable oils, food, chemical and manufactured goods.
In the context of Sabah’s trade with North Kalimantan, recent years’ data shows that there were bilateral trade transactions. However, there are still more rooms for further improvement should there be road connectivity.
Among the products being transported from the ports in Sabah to North Kalimantan are sugar, tobacco, clothing/footwear and iron/steel.
What are the potential benefits of strengthening economic relations with Kalimantan?
From the international trade perspective, Kalimantan’s market size is more than 4 times larger than Sabah, and this offers a lot of opportunities for Sabah.
Road connectivity could stimulate demand from North or East Kalimantan for Sabah’s products and this could increase Sabah’s export. In this regard, there are product categories where both have comparative advantage in.
Sabah should trade based on comparative advantage.
From the investment perspective, Sabah can do down streaming activities by processing products/resources where Kalimantan has abundant stock of natural resources. Road connectivity can lower cost of importation from Kalimantan.
Down streaming activities in Sabah will create more job opportunities and income. With road connectivity it will also open opportunities for Malaysian investors to invest in Kalimantan.
This products can be re-exported to Sabah if the production cost are much lower in Kalimantan.
From the Small and Medium Enterprises’ (SMEs) perspective, road connectivity will stimulate SMEs’ activities due to competition. In addition, it will complement the AEC, where there will be freer movement of goods and services, skilled labors and investment.
Consequently, it may stimulate demand for Sabah’s products if sufficient export promoting activities are to be undertaken.
Moreover, road connectivity would help Sabah exporters to achieve economies of scale.
One of among many possible reasons why trade occurs between countries is due to the fact that they want to achieve economies of scale.
The larger the production scale due to larger demand will lower the unit cost of production.
Therefore, road connectivity is expected to create new demand for Sabah’s products, hence would stimulate trade.
When there are more demand and trade, it has the potential of reducing the per-unit cost of production and hence expand Sabah’s SMEs.
Furthermore, road connectivity will add impetus towards the expansion of strategic sectors.
In this regard, our tourism industry can be further boosted. More tourists are expected to visit Sabah.
When there is connectivity, it may increase the possibilities of people from Kalimantan to acquire their quality tertiary education in Sabah. This will give a lot of return to Sabah’s education sector.
In addition, medical tourism can be further promoted when there is road connecting Sabah and Kalimantan.
Moreover, Sabah can be a gateway for Borneo if there are more direct flights from foreign countries.
This can boost Sabah’s tourism industry.
Apart from that, road will further increase the possibilities of increasing cargo traffic at Sapangar transshipment hub. Goods can be transported to North or East Kalimantan via road from Sapangar.
In addition, strengthening bilateral economic ties can further improve Malaysia’s trade balance position which recorded to be trade deficit most of the years. For the case of Sabah, it can also ameliorate Sabah’s trade balance position with Indonesia if we are able to harness the opportunities.
What should be our focus areas now? In my opinion, from the international trade perspective, Sabah must multiply its effort in promoting its products in Kalimantan. Promotion of products can be made based on comparative advantage.
The effort should be done even before the idea of road connectivity materialises. In this regard, MATRADE and business chambers can play more active role in promoting and looking for new market in Kalimantan.
Participation in activities such as international business expo must be conducted at more regular basis so that frequent business matching activities take place.
I believe MATRADE, local business chambers and NGOs such as Society Empowerment and Economic Development of Sabah (SEEDS) have played active role in promoting Sabah’s products abroad.
The recent effort/activity was the roundtable discussion involving business chambers in Sabah and government agencies organised/facilitated by SEEDS at Tabung Haji Hotel, Kota Kinabalu on March 24th, 2017 on strategizing ways to further strengthen Sabah-Kalimantan economic ties.
This noble effort must be supported and it requires the commitment from all stakeholders.
From the investment perspective, MITI and other relevant agencies must put effort in attracting investment from Kalimantan. Road connectivity if materialises shall create investment opportunities for both sides due to the fact that Asean countries have agreed to form Asean Economic Community.
To further strengthen ties, cargo consolidation talk must also be launched if we wish import of products from Kalimantan from rest of the world to be unloaded at Sapangar port.
This is important to position Sapangar port as transshipment hub.
To sum up, efforts for strengthening Sabah-Kalimantan bilateral economic ties must be further enhanced.
At the same time, identifying the potential costs of having road connectivity should also be looked at.
For this, feasibility study is one of the possible ways.
Identifying potential costs does not deter the process of strengthening but rather help stakeholders to design policies and strategy to mitigate or minimise all the potential risks/costs.