The dam runneth over


  • Business
  • Saturday, 27 Mar 2010

anita@thestar.com.my

FOR long, the schism between Peninsular Malaysia and Sabah and Sarawak has been the subject of heated debate and every now and then, politicians have used it to woo the electorate. Truth is, there is a yawning gulf between the two, given their widely-divergent socio-economic tapestry.

There are many things about Sarawak that pique the interest and curiosity of its “other half” in the peninsula and lately, that has been largely centred on its mammoth catalytic corridor development plan, quite accurately labelled SCORE. (See also page 21). But that’s not to say that Peninsular Malaysia does not have its fair share of corridor projects, in fact, it has three of its own – Iskandar Malaysia, ECER (East Coast Economic Region) and NCER (Northern Corridor Economic Region).

Bursting with multi-billion ringgit worth of business opportunities with the promise to raise the bar on its people’s living standards by creating plenty of job opportunities and upgrading infrastructure, SCORE spans right up to 2030.

On the back of that, it is of little surprise that many Sarawak based/owned companies listed on Bursa Malaysia are gradually owning a bigger space in investors’ radar screen.

Who stands to score the most?

Given such abundant opportunities, players in countless sectors, namely the power, construction, property and infrastructure businesses can be forgiven for rubbing their hands with glee at the sheer thought of a slice of all that action landing on their lap.

With over RM200bil of potential investments, Sarawak planners say the corridor development is “big enough for everybody in Sarawak to participate.” The biggest beneficiaries, of course, would be home-grown Sarawak companies or those with close ties to them.

The potential jobs galore has led many equity analysts to issue favourable research reports on the usual stalwarts in the state, namely infrastructure company Naim Holdings Bhd, construction firm Hock Seng Lee Bhd, utility company Sarawak Energy Bhd (it was recently privatised) and construction and steel fabrication unit KKB Engineering Bhd, among others.

These companies’ earnings trajectory are likely to gain traction as the development within Sarawak’s growth corridor intensifies, says an analyst.

“SCORE is massive. It provides 1MDB with many attractive opportunities ...,” says Shahrol Halmi, managing director and chief executive officer of 1Malaysia Development Bhd (1MDB).

“We want our projects in SCORE to spawn supporting industries and high-value downstream activities in the long run. We expect the increased economic activity to create jobs and generate new business as well as trade. We will explore every potential, including heavy industries, real estate and tourism. All this will benefit long-term sustainable economic development as well as promote the inflow of FDI,” he tells StarBizWeek.

To drive home the point, 1MDB not too long ago had joined forces with State Grid Corp of China to explore investment opportunities worth US$11 bil provided by SCORE. According to Shahrol, an office has been set up in Kuching to jointly pursue projects.

“As they involve multiple projects, there are a lot of details to work out. There is potential in SCORE to help open the floodgates for huge investments from China and globally into Malaysia,” he says, adding that the plans will be announced at the appropriate time.

In addition, the state has some 28,000MW of power potential, 70% of which stems from its hydro power, just waiting to be harnessed. Such eye-popping data has drawn many companies, local and abroad, to shop around in the state “to drink from the dam of opportunities”, as one observer succintly puts it.

But the issue of energy supply in the state appears to have caused some unease among some. Will Sarawak sell part of its power from Bakun as well as other dams to the peninsula or will it be used to cater to the needs of its energy-intensive industries like aluminium smelters or be sold to other countries? No doubt, the multiplier impact on the state’s economic growth would be far higher if it were to do the latter. Still, that’s an issue that will need to be addressed, not urgently, but eventually in the medium term.

Getting ready to Score

To tap the sheer potential that SCORE has to offer, some companies have undertaken several corporate exercises. One of them is Cahya Mata Sarawak Bhd, which sold its 37% stake in UBG Bhd early this year to a Middle East company PetroSaudi International Ltd.

Two factors got people to sit up and take notice of the deal. Firstly, CMS is the flagship listed asset of Sarawak Chief Minister Tan Sri Abdul Taib Mahmud’s family.

Secondly, PetroSaudi had a little earlier tied up with 1MDB to explore investment opportunities in the state as well and so, it was hard to beat speculation that everyone was in it together. It was eventually denied that there was any link between CMS’ sale of UBG to PetroSaudi and the latter’s tie up with 1MDB. “They are two separate deals,” PetroSaudi had said.

CMS’ sale of UBG is largely premised on raising funds to invest in certain SCORE projects, one of which includes an aluminium smelter in Samalaju, Sarawak.

Publicity-averse tycoons

If you simply go by the headlines on Sarawak businessmen, you can be forgiven if you form the impression that there are largely only two kinds of tycoons bred in Sarawak – timber tycoons and/or media barons.

Truth is, over several decades, Sarawak’s rich timber resources has resulted in the emergence of many wealthy businessmen. In fact, if you take a look at our “Sarawak Shakers” (next story), over half of them built their sprawling business empires on the high profit margin business and once that got off the ground, they ventured out into other activities such as shipping, shipbuilding, plantations and so forth.

Generally speaking, Sarawak tycoons appear averse to the spotlight, preferring instead to do their wheeling and dealing “far from the madding crowd”.

They are mostly salt-of-the-earth type of entrepreneurs from poor or humble beginnings who through sheer force of entrepreneurial spirit have made it to big business.

But hide, some of them can’t, for they and their sprawling business empires have been tracked down by the widely-followed enviable wealth indices of Forbes Rich List.

The macro angle

Sarawak is Malaysia’s largest state. Its economic activity is mostly dominated by mining, agriculture and forestry sectors. Other sectors like manufacturing, wholesale, retail trading and construction also contribute significantly to the state’s income.

These primary sectors make up some 40% of the state’s total real gross domestic product (GDP), followed by the secondary sector (i.e. manufacturing and construction) with about slightly more than 30%.

Sarawak is blessed with an abundance of natural resources. LNG and petroleum have provided the mainstay of the state’s economy for decades and it is also one of the world’s largest exporters of tropical hardwood timber.

However, the state government has imposed strict log-production quotas over the recent years to ensure sustainable forestry management.

Still the state, it has been reported, produces approximately 9 to 10 million cu m of logs annually.

The time has come

For political watchers, this is an interesting year for the state given its fast-approaching state elections which is due by mid-2011.

The biggest question – will Taib, 74, decide to stay on or pass the baton? Having been in office for 28 years, he holds the rank as the longest serving chief minister in the country. The next big question – who is next in line?

Political pundits say the current government’s strongest selling point is this second wave of development.

While the term of the current government expires in July next year, pundits expect the chief minister to call for an early election given the economy is currently recovering and the general feel good factor of the development agenda.

For analysts, it means more good news. “We expect the pace of job flows to intensify in the coming months, especially with the state elections,” says an analyst.

Related stories: Sarawak shakers Second wave of development

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