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Malaysia Country Report 2014

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Discovery Reports

SDC offers winning formula for business

PUBLISHED : Monday, 24 March, 2014, 3:05pm
UPDATED : Wednesday, 10 June, 2015, 3:51pm

It is an exciting time for business in Sabah. The United States-based restaurant giant Darden has started a US$1.6-billion pilot project to grow lobsters in the Malaysian state. As this unfolds, ready-built factories in the Kota Kinabalu Industrial Park (KKIP) have been sold out, prompting the government to develop more with the private sector. Real estate prices have also been upbeat. With inquiries from investors worldwide, especially from Hong Kong, property quotes in Kota Kinabalu have remained robust. Land values along the Sembulan River, for example, continue to strengthen.

Investors find it difficult to pass on a generous fiscal incentive package. For selected industries, the government offers full income tax exemption for 10 years or an investment tax allowance of 100 per cent on qualified capital expenditures for five years. The investment tax allowance can be offset against 100 per cent of statutory income. To top the offer, businesses may also apply for exemption from import duties, sales tax, stamp duties on land acquired for development and other costs.

Investors flock to Sabah not just for the fiscal incentives. They would like to partake in the ingenious master planning of the Malaysian state. The government created the Sabah Development Corridor (SDC) in 2008 to transform Sabah into a prime business and leisure destination by 2025. Launched the following year to completely manage SDC, the Sabah Economic Development and Investment Authority (SEDIA) has come up with a winning formula that leverages Sabah's natural endowments.

"We have co-located specific activities into economic clusters and have put in place strong infrastructure and fiscal incentives to ensure the growth of such businesses," says Dr Mohd Yaakub Johari, president and CEO of SEDIA.

With this approach, SEDIA promotes many projects focusing on tourism, oil and gas, palm oil, agriculture, education, manufacturing and logistics.

"Our programmes are bound to bring in new markets and help complete supply chain linkages," Johari says. "We want companies that can bring in new technologies and help us capture higher value-added sectors and increase efficiencies."

Years of research, planning and government-industry collaborations have yielded the following flagship projects, among others, where investors may choose to participate.

Kinabalu Gold Coast Enclave (KGCE)

Stretching about 100km from the state capital at Kota Kinabalu to the northwestern tip at Kudat, KGCE covers 78.5 square kilometres of prime coastal tourism development spanning 15 years. With high-quality beaches and coastal assets, KGCE seeks to attract long-staying visitors, prime eco-adventure tourists and second-home buyers of luxury holiday villas.

KGCE is a lucrative business venture considering the exciting market opportunities. Tourist arrivals in Sabah double every four years, while tourist spending in the Malaysian state is the highest nationwide. Sabah's Ministry of Tourism, Culture and Environment, in particular, sees total earnings from tourism reaching 16.8 billion ringgit (HK$39.7 billion) by 2020, accounting for 10 per cent of national tourism receipts. Other tourism projects in SDC include the Semporna Resort, Sipadan Mangrove Resort and Danum Valley.

Palm Oil Industrial Clusters (POICs)

Another SDC focus is the POICs in Lahad Datu and Sandakan. With access to a deepwater port, Lahad Datu is strategically located near other industry players in the Philippines and Indonesia. The cluster features major infrastructure including two biodiesel plants. SDC is also developing the Sandakan cluster to capture higher value-added downstream processing of palm oil. To help investors operate with ease from Sandakan, SDC has set up infrastructure and amenities such as a liquid cargo jetty, port for export and import activities, access roads, telecommunications networks and waste treatment systems.

Sandakan Education Hub (SEH)

Foreign universities may also find interesting opportunities as SDC ensures a steady pool of highly skilled workers for Sabah. As SDC's key initiatives are dedicated to world-class higher learning, SEH will cover 500 hectares to accommodate 5,000 students. Overall, private institutions in Sabah aim to double their student capacity to around 20,600 by 2020, with international students comprising at least 20 per cent of the student population. SDC also plans to build close to 300 high-quality private preschools and capture the untapped early childcare market in strategic districts across Sabah.

Keningau Integrated Livestock Centre (KILC)

Covering 834 hectares, KILC will be the biggest livestock cattle farm in Malaysia with 2,000 cattle producing six million litres of milk annually. The project will be developed in three phases, starting from breeders, moving on to multipliers then to commercial farms. The first phase has been completed. Fiscal incentives are given to investors going into downstream activities covering the manufacture of cattle feed and dairy and meat products.

Sapangar Bay Manufacturing and Logistics Cluster (SMLC)

Housing KKIP and the Sapangar Bay Container Port (SBCP), SMLC is an economic area specifically designed to enhance Sabah's manufacturing competitiveness by harnessing the state's geographical advantages. About half of KKIP's 717-hectare industrial reserve land is still available for high-value added manufacturing industries such as vehicles, rubber and furniture. It has a reliable and adequate power supply. SBCP, meanwhile, will be developed as a regional transshipment hub as it secures the participation of main-line operators.

Sabah Agro Industrial Precinct (SAIP)

As an emerging centre of excellence in agro-biotechnology, SAIP will produce higher value-added food and speciality products based on botanicals, aquatic plants and animals. The site promotes the production of a wide range of items from pharmaceutical and food ingredients to cosmetics and industrial enzymes. SAIP provides entrepreneurs with incubator support, management services, market access and assistance in processing, packaging, post-harvest handling and logistics. The area has a dedicated Halal Park.

Greater Kota Kinabalu (Greater KK)

Encompassing the surrounding towns of Penampang and Putatan, Greater KK offers investment opportunities arising from modernising the largest urban centre in Sabah. Covering

351 square kilometres, the project offers opportunities in education, health care, tourism, real estate and waste management. Projects include the Sabah International Convention Centre and the Aeropod, a mixed commercial and transport hub at Tanjung Aru.

Sipitang Oil and Gas Industrial Park (SOGIP)

Located on a 1,600-hectare site, SOGIP will serve as a new point for oil and gas investments within the Sabah, Brunei and Labuan economic centres. The park will promote industries such as industrial chemicals, plastic, fertilisers, pharmaceutical products and packaging materials. Managed by Sipitang Oil and Gas Development, the site will have world-class logistics infrastructure and residential, commercial and retail developments. Fiscal incentives will be given to a wide range of activities, from urea and ammonia production to shipbuilding and power generation.

Regional influence

"We've seen a lot of investments coming in the last five years and there's still much room left for investors keen on partaking in the opportunities here," Johari says.

Overall, investments into Sabah have reached 127 billion ringgit. Petronas Chemicals, for instance, will build a US$1.5-billion ammonia urea plant in Sipitang. The venture will position the company as the second largest urea producer in Southeast Asia, and will export US$4.8 billion annually.

SBC and Suria Capital, meanwhile, are teaming up in Kota Kinabalu for the Jesselton Quay project, which will add some

600 metres of private marina waterfront to the existing city coastline. Considered as the new Riviera of Southeast Asia, the site will be the longest waterfront city boardwalk in the region. With these developments and many others, Sabah is shaping up to become a major regional influence.