This article first appeared in The Edge Malaysia Weekly on November 2, 2020 - November 8, 2020

IN the third wave of the Covid-19 outbreak in the country, Sabah has emerged as the most infectious state, with the total number of infections overtaking the combined total cases in Selangor and Kuala Lumpur in mid-October. As at Oct 30, it had recorded 14,519 positive cases, making up almost half the total cases in Malaysia.

The situation has been so dire that when Semporna emerged as the state’s worst-hit district in mid-October, it was reported that doctors were calling the place “Little ­Wuhan” — the Chinese city where the virus was first detected.

It is said that Sabah has become the country’s Covid-19 battleground due to its ­socioeconomic conditions — poverty, a lack of development and poor infrastructure in the vast state. All this means many do not have easy access to hospitals and, to some extent, explains its people’s resistance to change.

Sabah was the sixth largest contributor to Malaysia’s GDP in 2019. Its GDP per capita of RM25,326 is the third lowest in the country, just ahead of Kedah’s RM22,412 and Kelantan’s RM14,300.

In 2019, based on the revised poverty line of RM2,208 in monthly income (from RM980 previously), Sabah had the highest poverty rate at 19.5%, according to the Department of Statistics Malaysia.

“Despite being resource-rich in forestry, agriculture and oil and gas, it has not received the necessary investments in infrastructure, education, water and sanitation, and economic growth,” Institute for Democracy and Economic Affairs (IDEAS) CEO Tricia Yeoh tells The Edge.

According to her, Malaysia’s highly centralised federalism — in which political and policy decisions are made by the federal government — has several implications. “For one, centralised decision-making over economic growth, development and investments done in Putrajaya means that Sabah has not been fully empowered to make its own decisions, which over time has eroded its negotiating powers vis-à-vis the central government.

Second, an unsustainable federal-state financing system, where states are not empowered to raise their own finances — such as through the issue of bonds or on the stock market — without the prior approval of the federal government compounds the problem, says Yeoh.

“With enhanced politicking, unstable parties with numerous individuals moving from party to party over the years, this has not resulted in a strong, stable state that has been able to invest in the necessary policies for long-term economic opportunities. Ultimately, the impact is seen in poor economic growth and development as well as poor facilities that perpetuate the poverty that is prevalent to this day,” she points out.

It is a known fact that Sabahan youths typically leave home for better job opportunities in the Klang Valley, Johor and other cities in Peninsular Malaysia as the state offers limited potential for career advancement.

“The unemployment rate in Sabah has been among the highest in the country all this time, rising to 5.8% in 2020. Even before the Covid-19 pandemic, it was challenging for workers to secure jobs and vice versa for employers. There are no large-scale industries here and most investors are only small and medium sized,” says Datuk Prof Dr Kasim Md Mansur, dean of Universiti Malaysia Sabah’s (UMS) Faculty of Business, Economics and Accountancy.

Lee Heng Guie, executive director of the Associated Chinese Chambers of Commerce and Industry of Malaysia’s Socio-Economic Research Centre (SERC), points out that the competitive job market — owing to the high number of undocumented migrants in the state as well as slowing economic growth and a lack of employment opportunities — has forced many Sabahans to seek jobs in Peninsular Malaysia.

With the country’s borders closed since March, Sabah’s tourism industry has been suffering and the current health crisis could prove to be a fatal blow to the state’s fragile economic recovery. Note that its services sector, which includes tourism, made up almost half of the state’s GDP in 2019.

The hotel occupancy rate — which had recovered to between 10% and 25% in August after the country transitioned to the Recovery Movement Control Order (RMCO) — has now sunk to 5% and below, according to SME Association of Sabah president N K Foo.

According to UMS’ Kasim, thousands of jobs in the tourism sector have been lost. Despite the state government’s efforts to encourage domestic tourism, it nevertheless relies on the federal government for funding.

An upgrade of infrastructure as well as travel subsidies are much needed as the cost of transport is too high for locals, Kasim points out. “If there can be free shuttle bus services to stimulate tourism in Putrajaya, there should be similar subsidies in Sabah to gradually rejuvenate and restore tourism here. There are just no overnight solutions.”

In Sabah’s capital city of Kota Kinabalu today, shops are allowed to open during the Conditional MCO. But about 30% remain shuttered as business owners and workers alike are concerned about the high rate of infection.

“There is a fear that if they open today, the next day may bring an Enhanced MCO notice. Businesses will then need to retrace their steps. The high mobilisation cost of operating business [on thin levels of patronisation] is not worth it,” explains Datuk Dr Pang Teck Wai, former CEO of POIC Sabah Sdn Bhd, a developer of palm oil refineries, biofuel and fertiliser plants, and producer of oleochemicals and biomass.

As for eateries, an estimated 70% are open. “Major eateries are open but many in shopping centres are shuttered and the normally bustling streets now see 80% less traffic than usual. The situation is very severe,” he observes.

Meanwhile, the Malaysian Estate Owners Association (MEOA) had appealed to the state government to extend the working hours of its workforce in the plantations as restrictions posed by the standard operating procedures (SOPs) could potentially cause a monthly loss of RM900 million to the state’s oil palm sector. Sabah is the country’s largest palm oil producing state.

As with other economic sectors, the palm oil segment was restricted to only 50% of its workforce capacity in attendance, with processing supply chain daily working hours shortened to 6am to 6pm.

MEOA appealed that it be allowed to revert to normal working hours, as the short 12-hour window on mill operations would add to the massive backlog and long queues at palm oil mills. It warned that the reduced processing capacity could leave crops rotting in the fields, leading to unsellable palm oil and kernels.

Last Thursday, state Local Government and Housing Minister Datuk Seri Masidi Manjun said cocoa, rubber and oil palm plantations, among others, in the state were now allowed to operate throughout the CMCO, as long as they complied with the Ministry of Health’s (MOH) SOPs.

Taking all the hits to Sabah’s major industries into consideration, industry observers forecast a substantial fall in the state’s GDP this year.

“Since there could be several MCOs before a vaccine is available, the government needs to be prepared for as many aid packages as lockdowns. Hence, the need for sufficient financial resources to get through [several] rounds of MCO,” says Pang.

Essentially, this means the response principle and approach should be calibrated to provide short-term support for individuals and businesses.

“It cannot be overemphasised that the aim is to keep businesses solvent and afloat so that they will be able to stage a quick recovery when the pandemic is over. This demands that the government take on a clear leadership role — first, crisis management during the MCO; second, determine how to go about opening the social and economic system after the MCO so that widespread infection can be avoided; and third, how to address the impending economic recession or perhaps a depression,” Pang stresses.

While the federal government has rolled out four economic stimulus packages amounting to RM315 billion in the last eight months, many SMEs in Sabah were unable to access the funds, says SME Association of Sabah’s Foo. Those who did have their applications approved — such as the RM600 monthly subsidy for workers — had not received the full disbursement of funds even three months later.

With poor internet infrastructure and a lack of digital education, 76% of micro-enterprises — mostly based in the city fringes and interiors — did not even have the relevant accounts to make applications before the provisions were fully utilised.

“Therefore, a targeted economic relief package for Sabah should be provided, largely aided by the federal government. In addition to a moratorium on bank loans for Sabahans only, options can include more support for small and medium enterprises (SMEs) in the form of wage support or a universal basic income for all citizens to encourage more to be tested and quarantined. Note that a reliance on daily wages reduces the willingness of citizens to access healthcare,” says health systems, health policies and global health practitioner Dr Khor Swee Kheng.

Social relief can be provided via food banks, grants to on-the-ground non-governmental organisations to deliver aid, and mental health support for residents or frontliners, he adds.

In addition to a Sabah-centric stimulus package, the SME Association of Sabah is urging the state government to tweak the SOPs to allow for monetary flow in the economy. For example, it should allow business meetings to be held in hotels and convert some hotels into quarantine centres at a daily rate of RM150, including three meals.

“This will bring much-needed income to the hospitality industry,” says Foo, who elaborates that basic infrastructure upgrades such as road and bridge repairs in rural areas should be carried out in the open air with minimal risk of workers contracting the coronavirus during the CMCO as this would provide workers with income. “These activities will be a much-needed cash infusion into the local economy, with multiplier effects that will save jobs and SMEs. SMEs in Sabah need to see the government’s active implementation of the economic revival plans.”

Ensuring business continuity while containing the pandemic is a delicate balance, but it must be done.

“This is the only way to ensure Sabah SMEs have a higher chance of surviving this pandemic. At the moment, there is very little cash flow from the private sector and from outside Sabah. If the local government does not increase [development] spending, the local market will lag. As it is, many businesses are struggling to survive,” says Foo, adding that there should be an automatic and blanket extension of loan moratoriums for SMEs by another six months.

By extending the loan period, commercial banks will not be disadvantaged as loan interest will still be charged. Also, the moratorium extension will give businesses much-needed room to solve cash flow problems in their quest for survival.

“Were banks to foreclose on borrowers now, the auctioned securities may not attract any bids or, at best, terribly low prices that may not even cover the amounts owed to the banks. Why don’t banks negotiate with the SMEs for mutually beneficial solutions instead?” says Foo.

The fight against Covid-19 and efforts to revive the economy should be given equal emphasis. Thus, the government should seek more effective ways to do both, says Datuk Michael Lui Yen Sang, president of the Kota Kinabalu Chinese Chamber of Commerce and Industry.

He urges the government to facilitate a number of measures for businesses in the state. These include providing an extension of the wage subsidy programme for another six months and loan repayment moratorium for those in CMCO areas for another three months; a discount on the levy on foreign workers, as well easing access to financing facilities and reducing their interest rates.

For the longer term, SERC’s Lee expects the state to benefit from the Pan Borneo Highway project in terms of better connectivity and accessibility between Sabah, Sarawak and Kalimantan. While the state budget focuses on local socioeconomic development programmes and projects, it is reliant on the federal government’s annual budget and five-year Malaysia Plan to partly finance large-scale public infrastructure projects, including the Sabah Development Corridor (SDC), he adds.

The SDC — launched by Malaysia’s fifth prime minister, Tun Abdullah Ahmad Badawi, in 2008 — is a joint initiative by the federal and Sabah governments to develop the state into a gateway for trade, investment and leisure.

Meanwhile, it was reported on Oct 28 that the Sabah government had approved a RM160 million Bantuan Prihatin Covid-19 fund — in addition to the RM50 million approved earlier this month — to be disbursed through ministries in the form of cash aid.

Sabah Chief Minister Datuk Seri Hajiji Noor said the funds would go to “those in the agriculture, tourism and transport sectors, as well as hawkers, orphans and single mothers, among others”. Also, RM1 million is being channelled through universities to help students at institutions of higher learning. He also announced the establishment of the Sabah Economic Council — comprising captains of industry, businessmen, non-governmental organisations and academicians — to discuss the way forward for the state’s economic recovery. The membership of the council will be announced soon.

With Perikatan Nasional winning control of the state in the Sept 26 election — now fingered as the super spreader event — many are waiting to see whether the coalition’s Aku Janji manifesto will come to fruition. The manifesto is a nine-point delivery pledge covering infrastructure, economy, employment, civil service, health, prosperity, education and human capital, security, and youth and women development, including resolving the sensitive issue of state rights under the Malaysia Agreement 63.

But right now, the outbreak must be brought under control.

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