Time to revisit cabotage policy liberalisation in Sabah

This is especially prominent in Sabah, a Malaysian state with a relatively higher cost of living. The Sabahans should know this as the cabotage policy was implemented in Sabah and Sarawak for a whole range of foreign goods and services, not just undersea cable repairs prior to 2017.

Even though the cabotage policy was rescinded in 2017 in Sabah and Sarawak which allow foreign vessels to land at Sabah ports directly, this still does not result in a lower cost of living.

The reason is there is still not enough cargo returning to Peninsular Malaysia from Sabah, so foreign ships from the Far East such as South Korea, Japan, Taiwan and China with smaller export quantities of imports destined for Sabah still had to transit in Port Klang, the national shipping hub first before heading to Sabah.

This implies a higher cost as the foreign cargo meant for Sabah has to go through a longer supply chain which includes shipping agents and forwarders, truckers and shipping lines.

As a result, the prolonged process of delivering goods from the Far East to Sabah has, in turn, dampened the cost competitiveness, still raising the cost of living in Sabah up to 30 per cent compared to the prices in Peninsular Malaysia due to higher shipping freight costs.

Besides a smaller trade volume, other factors contributing to a higher price in Sabah are weak distribution channels, high handling charges, inefficient inland transportation, the inefficiency of port operations and underdeveloped infrastructures in Sabah.

In this sense, nothing really changes in Sabah with the exemption of the cabotage policy in 2017. Coming to the issue of the cabotage policy with regards to undersea cable repairs in Malaysian waters, Malaysia currently does not have sufficient capacity of cable repair ships to support the necessary capacity and capability of submarine cable invested by the Over the Top (OTT) content providers such as Facebook and Google.

Former transport minister, Anthony Loke and former communications and multimedia minister, Gobind Singh also are particularly concerned the repair could take up to 27 days if exemption from the cabotage policy which was given during Pakatan Harapan administration is revoked, as it is now.

The fear is this might further dampen the cost competitiveness in Sabah, given that Malaysia only has one vessel to carry out undersea cable works.

The cabotage policy also represents a barrier for the restoration of submarine cable failures – indirectly indicating the failure of Malaysia’s effort to attract foreign investment into the country.

What makes the issue very critical is Sabah recorded 81.2 per 100 inhabitants for broadband penetration in the first quarter of 2020 – lower than the national average of 127.4, according to the Malaysian Communications and Multimedia Commission (MCMC).

This adds insult to injury among Sabahans as the increased delays in underseas cable repairs would severely affect the internet stability, quality and speed to customers and industries in Sabah.

Coupled with expensive electricity tariff and poor infrastructure, it might hinder industrialisation growth in Sabah. As of 2019, the contribution of the manufacturing sector was only 7.6% of the Sabah’s GDP due to lack of downstream processed product available for export.

As Sabah had to rely on imported raw materials and machinery, the cost of construction in Sabah is estimated to be at about 20 per cent higher than in Peninsular Malaysia. This is also reflected in the property prices in Sabah, the highest in the country.

Although the issue of cost of living has been brought up by industrial players, opposition parties and even non-governmental organisations (NGOs) in Sabah for years, the price disparity between Sabah and Peninsular Malaysia still persists.

There is also a concern that Sabahans would not realise the benefits from the recent launch of Gerbang Sabah, an undersea fibre optic landing station at Tanjung Aru in Kota Kinabalu due to prolonged repair time of undersea cable.

The following are the digitalisation initiatives that are being promised by the current administration:

• The undersea cable will be upgraded from 4Tbps to 12.8Tbps in 3 years. It replaced the old Malaysian Domestic Submarine Cable System (MDSCS) which was deployed in 1995 and has a limited capacity of 400Gbps;

• Jendela will be implemented in two phases, involving the construction of 41 new telecommunication towers and upgrading the 924 existing communication transmitters to 4G under the Universal Service Provision (USP) programme;

• 35 new towers and 1,048 communication transmitters in existing towers will also be commercially upgraded by service providers to increase 4G coverage; and

• A total of 190,115 premises in the state will also be provided with access to fibre optic communications.

Therefore, for Sabah to benefit from digital transformation besides normal prices of goods, EMIR Research has several policy suggestions for the federal government to look into:

1. Upgrade Sabah’s Sepanggar Bay Container Port (SBCP) as a National Load Centre (NLC) by creating a dual gateway policy, with Port Klang covering the western hemisphere and Sabah covering the east;

2. Develop Lahad Datu POIC (Palm Oil Industrial Cluster) Port as a regional shipping entrepot due to its proximity to resource-rich areas such as Sulawesi, Irian Jaya, the maritime resources of the Celebes Sea, Sulu Sea and the shipping potential of the Lombok-Makassar Straits. Once Indonesia's capital city relocates to East Kalimantan by 2024, POIC Port would be the second port in Sabah to realise regional growth;

3. Focus on downstream and value-added processing activities to generate investment opportunities, moving towards a high-pay, high-income economy in Sabah;

4. Work with the Federation of Sabah Industries (FSI) to ensure economic progress of the state;

5. Implement a freight equalisation programme like Tasmania, Australia to reduce the price of goods in Sabah.

By utilising Sabah’s strategic position in the South China Sea, it serves not only the Brunei-Indonesia-Malaysia-Philippines East Asean Growth Area (BIMP-EAGA) region but also exports from the Far East can land in SBCP or POIC Port.

With shorter repair time of undersea cable, Sabah would be able to capture numerous new and enormous opportunities related to oil palm, biomass, shipping, oil & gas, manufacturing, logistics and other resource-based industries.

---

Amanda Yeo is Research Analyst at EMIR Research, an independent think tank focused on strategic policy recommendations based on rigorous research.