KUCHING: Separated from major routes by land and sea, Sarawak has always been rather left out in terms of foreign investment and trade.
However, as shown time and time again in world history, open trade policies and initiatives are essential in building up strong economies in a region.
For Sarawak, our main exports have always been bolstered by timber, palm oil, and oil and gas industries.
These industries have been the backbone of our state since the olden days.Today, these commodities are hampered by their sustainability issues in the longer-term and negative perceptions in the global market.
However, this is no deterrent to Sarawakians. This can be seen as trade between Sarawak and China rose by 16.8 per cent to RM18.91 billion last year with exports from the state recording RM12.07 billion and imports at RM6.8 billion.
Sarawak?s major exports to China were liquefied natural gas (LNG), vegetable oils, electrical machinery, and apparatus.
The imports were chemical products, coke, lignite, carbon, aluminium ore, base metals, and other commodities.
Deputy Chief Minister Datuk Amar Awang Tengah Ali Hasan attributed the growth in Sarawak-China trade to the state?s stable government, business-friendly environment with the aim of protecting the interest of investors.
?Recent investments from China include a RM1.05 billion silicon manganese plant by Pertama Ferroalloy (Hong Kong), RM2.18 billion integrated solar manufacturing plant by LONGi Technology and the RM17 billion high-grade steel plant by WenAn Steel.
?The latest foreign direct investment to come is Dongjin Semichem from South Korea, investing US$133 million for producing foaming agent used widely in household products, electronics, and automotive sectors,? he said.
Agriculture-wise, Awang Tengah said Guangken Rubber Group Co Ltd from Guangdong had formed a joint venture with the Sarawak Farmers? Organisation to establish the US$20 million Standard Malaysia Rubber (SMR) factory in Debak, Sri Aman.
Sarawak offered many comparative advantages, remaining among the top preferred investment destinations in Malaysia.
Figures from the Malaysian Investment Development Authority (Mida), Sarawak was the third spot for investment destination in the country, receiving RM8.6 billion in value from January to December 2018.
?Work together to develop Sarawak?s global trade?
As purely relying on a few main industries to support out local economy is not a feasible solution, state-wise, our government has also been pushing for more growth and development in other industries such as mining and quarrying, manufacturing and agriculture.
Minister of International Trade and e-Commerce Dato Sri Wong Soon Koh made the call for both government and non-governmental organisations (NGOs) to work hand-in-hand to develop Sarawak?s international trade.
He pointed out that the world looks to Southeast Asia, including Sarawak, as the area of upcoming boom.
?There have been many interests, demands and opportunities for our local products to penetrate the global market,? he said after chairing a Sarawak International Trade Development Committee (SITDeC) meeting earlier this week.
The committee ? a first of its kind ? is composed of members from both government and NGO sides to highlight issues and challenges as well as matters pertaining to Sarawak?s international trade development.
The committee was set up to provide avenue for thorough discussion on international trade matters among industry players and relevant government agencies as well as recommend proposals on policy directions, strategies, programmes and projects to promote trade development in Sarawak.
Malaysian trade on the rise
Nation-wide, Malaysia?s trade is growing. It saw its highest month-on-month (m-o-m) export growth since April 2010 when exports in March this year grew by 26.2 per cent while total trade surged by 25.9 per cent.
Based on the data released by the International Trade and Industry Ministry (MITI), imports and trade surplus expanded by 25.4 per cent and 30 per cent respectively, with higher trade registered with China, Saudi Arabia, Taiwan, Australia and the United States.
?Exports of manufactured goods in March 2019 which accounted for 84.2 per cent of total exports expanded by 1.5 per cent to RM70.81 billion.
?This was attributed to higher exports of petroleum products, optical and scientific equipment, chemicals and chemical products, processed food as well as paper and pulp products,? it said in a statement on Friday on trade performance for March 2019 and the period of January to March 2019.
Compared to February 2019, exports of manufactured, mining and agriculture goods surged by 26.8 per cent, 24.2 per cent and 22.2 per cent, respectively.
?During the first quarter (1Q) of 2019, exports of manufactured goods expanded by 0.3 per cent to RM196.88 billion compared to 1Q 2018, supported by higher exports of electrical and electronics (E&E) product, chemicals and chemical products, jewellery, optical and scientific equipment, paper and pulp products as well as processed food,? it said.
As for mining goods exports, it increased by 3.8 per cent to RM21.97 billion, contributed by higher exports of LNG while exports of agriculture goods contracted by 12.5 per cent to RM15.59 billion, owing mainly to lower exports of palm oil and palm oil-based agriculture products.
MITI also said that trade with China which made up 16.5 per cent of total trade of the country rose by 13.6 per cent year-on-year (y-o-y) to RM25.44 billion in March 2019, while in 1Q 2019 it has expanded by 4.5 per cent to RM72.02 billion compared to 1Q 2018.
?Exports grew by 11.8 per cent to RM11.67 billion steered by higher exports of petroleum products, E&E products, chemicals and chemical products, LNG as well as metalliferous ores and metal scrap,? it said.
Thus, in this edition of BizHive Weekly, we take a look at each of these aforementioned industries and expectations of how they will fare in the longer term.
Push needed to address slowing timber exports
The timber industry has especially faced much controversy.
The industry has since slowed down significantly in recent years, but continues to be a major contributor in Sarawak?s GDP as palm oil, sawlogs and sawn timber account for 9.0 per cent collectively.
Going forward, the industry?s future appears bleak as the Sarawak Timber Association (STA) has reported that some plywood mills in the state are currently operating as low as 10 per cent of their installed capacity.
In fact, STA forewarned that for 2019, plywood production will drop by 13.5 per cent to an average of 120,000 cubic metres per year ? a marked drop from 138,430 cubic metres in 2018.
Sawn timber mills are also facing similar problems as about 50 per cent of sawn timber mills are currently not in operation as of February 2019.
And for those still in operation, the STA has reported that they are only utilising between 30 and 50 per cent of its actual capacity.
This drop in plywood and sawn timber productions have been attributed mostly to a reduction of log supply in natural forests compounded by high operational and production costs.
According to the STA, our state government?s policy towards sustainable forest management has brought on timber premiums of RM55 per cubic metre, which in turn has forced the cost of logs to increase by an additional RM110 per cubic metre ? incurring higher costs for local timber firms by 25 to 30 per cent.
Increasing labour costs in the labour dependent industry is also being cited as a factor as the recent national minimum wage rise from RM920 per month to RM1,100 for both local and international workers is said to have caused an increase of at least RM40 per cubic metre in timber firm operations.
The industry has been dealt with further crippling blows as the shift of levy payment from workers to employers also played its part, alongside an additional six per cent on service tax on foreign workers recruitment fee and a 10 per cent withholding tax.
But besides these inhibiting policies, our local timber industry has and still is plagued by issues of restrictive transportation costs arising from development in local infrastructure such as ports and roads.
?Port handling charges are high in inland ports, from Bintulu Port, the charge is between US$700 to US$800 due to double handling and expensive terminal charges.
?There is also a lack of direct calls from liner and vessels where transits are required through Singapore or Port Klang, which further increases costs,? the STA explained.
And for road transportation, the STA also points out that Sarawak firms also experience higher costs compared to timber firms in other regions as the standard load weight allowed in the state is only 22 tonnes, a far cry from the average 42 tonne load weight seen in other regions.
Losing its edge in the global platform
The amalgamation of said issues is believed to have caused Sarawak to lose its market competitiveness on the global stage.
According to the STA, this is evidenced by the downward trend of Sarawak?s plywood and sawn timber exports to its main countries over the past two years.
According to figures of plywood exports from Sarawak in 2017 and 2018, there was a 15 per cent drop in export value to Hong Kong (-63 per cent), United Arab Emirates (-46 per cent) and South Korea (-44 per cent).
The drop in the Middle East?s demand was due to Sarawak plywood?s lack of competitiveness against plywood from China, Vietnam and Russia.
Plywood from China flooded into traditional export markets following the US? imposed anti-dumping and countervailing duties, as well as the trade war.
Also, the US market is right now overstocked with Indonesian plywood as the latter shifted from the European Union to the US.
?Sarawak?s plywood cannot compete in terms of price with Indonesian plywood,? STA warned.
For sawn timber, exports from Sarawak to its main countries of destination also dropped between 2017 and 2018.
Thailand?s demand for Sarawak?s sawn timber led the pack at -39 per cent, followed by the Philippines (-27 per cent) and Bahrain and Yemen, both dropping by 25 per cent.
?For the Philippines, demand for sawn timber dropped due to Philippine importers buying from West Malaysia as the price is averagely cheaper by RM200 compared to Sarawak,? STA noted.
?West Malaysia has also taken Sarawak?s market share to the Middle East due to the quality of timber, transportation fees and cheaper prices by RM200 per tonne.?
And as long as Malaysia fails to ratify the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), STA forewarns that we will lose out to Vietnam in terms of tariffs.
?Countries such as China, Indonesia and Vietnam have competitive edge over Sarawak because of favourable policies, strong government support and abundant manpower,? STA added.
Sarawak moving towards total ban of log exports
All this is happening on the back of the state government moving towards a total ban of export of logs.
According to Deputy Chief Minister Awang Tengah Ali Hasan earlier this year, this move is to ensure higher value for processed products and ensure the continued sustainability of the timber industry.
?However, it is difficult to set a deadline for the total ban. We will gradually reduce the number of logs exported.
?We need to give local industry players some time to make adjustments.
?It won?t be fair if we totally ban exports without giving them a proper time frame,? he said during a Sarawak Timber Industry Development Corporation (STIDC) staff assembly in January.
Awang Tengah said based on the current log reservation quota, 80 per cent of the logs are for local processing and the remaining 20 per cent are exported.
?We also want those involved to expedite development of forest plantations,? he said.
Awang Tengah said the government wanted industry players to venture into the production of high-value added timber products to sustain the industry.
He said the state was presently exporting 20 per cent of some 5.1 million cubic metres of logs harvested a year. In 2018, Sarawak exported RM773mil worth of logs, mainly to India and Japan.
Sarawak?s log production from natural forest, according to STIDC general manager Hashim Bojet, is on a downward trend, with 5.7 million cubic metres recorded in 2017 against 10 million cubic metres in 2010.
At the peak in the early 1990?s Sarawak produced as high as 19 million cu m of logs a year.
The state authorities launched a major crackdown on illegal logging activities under then Chief Minister Tan Sri Adenan Satem several years ago.
The campaign is still on-going with seizures of unauthorised logs.
The yearly reduction in timber harvesting from natural forests is in line with the government?s sustainable forest management policy.
Fight for palm oil exports still ongoing
The sight of stretches of oil palm trees is common for those who grew up in Sarawak. To us, palm oil is one of our national products ? many we know may work in the industry, used its products commonly in anything we might use and consume, from food to cosmetic products.
But to the rest of the world, palm oil has been extensively demonised due to contribution for deforestation in the last two decades.
Said to have caused about eight per cent of the world?s deforestation between 1990 and 2008, it is of little surprise that the palm oil industry has a bad rep in the global market as wide spread burning of our region?s forests to clear areas for palm oil has destroyed the environment and affected local species such as orangutans, rhinos, elephants and tigers.
While some may argue that not all regions have participated in the detrimental forest burning practice, overall it has caused a rather unpopular opinion of palm oil and its associated products.
Despite this, the use of palm oil has continued due to its long and stable shelf life and high efficiency in production ? allowing it to account for 35 per cent of the world?s vegetable oil market.
Despite the sustainable and environmental friendly qualities of palm oil, its negative perception continues to haunt it and has caused countries and regions to place restrictive policies on its use and import.
Most recently, the proposed EU RED Act was tabled to ban the use of palm oil as biofuel in EU countries by 2030.
The ban is expected to dampen the region?s palm oil industry, including Sarawak and has drawn heavy criticism from palm oil producing countries and associations as many believe that the ban on palm oil as biofuel is a move to protect the oil seeds industry in EU from competition from palm oil which mostly only grows in tropical regions.
According to the Sarawak Oil Palm Plantation Owners Association (Soppoa), the EU proposed ban on palm oil is based on questionable reports on unsustainable production and destruction of habitats.
?Both these accusations are not scientifically proven and methodology used in the reports are not internationally acceptable as scientific models.
?What the report did not mention is that palm oil is the most productive, cheapest and readily available oil in the market and any substitution will surely result in greater land degradation, higher cost of production and greater poverty in Asia where smallholders will not be able to sell their palm oil,? said the association.
However, in response to the ban, both Malaysia and Indonesia which make up around 84 per cent of the market share of palm oil production in the world has begun retaliating, both proposing import policies that are unfavourable to the EU.
Meanwhile, Indonesia who is the world largest producer of palm oil has already begun placing limitation on imports from EU countries such as spirits as a retaliatory measure to the ban.
?There will definitely be more such retaliatory measures being taken by other palm oil producing countries in the future should the proposed ban be adopted and trade between EU and Asian partners will surely suffer as a result.
?It should be clear to EU nations that the world?s population will still need affordable oil in the years ahead as population grows and majority of these people are in Asean region.
?The EU risk being isolated as a regional grouping with limited resources and purchasing power which will lead to their own downfall,? said Soppoa.
Long-term prospects still intact
While the EU ban of palm oil has left many skittish on the fate of one of our national products, analysts believe that the industry?s long-term prospects are still intact.
According to a sector report oulook by the research arm of Kenanga Investment Bank Bhd (Kenanga Research), it was reported that CPO prices are expected to return to a recovery trajectory one the negative news flows subside in the coming months.
?Over the next three months, key positive factors that we are monitoring closely are as follows easing stockpiles in both Malaysia and Indonesia, higher exports to China given its pledge to buy 50 per cent more palm oil from Malaysia, and further clarity on new biodiesel initiatives (B30 in Indonesia and B20 in Malaysia).
?Nevertheless, we believe these positive factors have been largely priced in with the KLPLN index staging a handsome 11 per cent recovery from the low in December 2018,? it added.
?Should the biodiesel initiatives and palm oil offtake from the Chinese pan out better than expected, we would relook our valuation basis with an upward bias. On the other hand, if the EU and the Philippines? palm oil biodiesel ban escalates further, we are likely to downgrade our CPO price assumption,? Kenanga Research said.
Looking ahead, the research team expect the upcoming results season in May to see a sequential recovery in most planters? earnings as improvements in CPO prices likely outweighed a seasonal drop in FFB output in 1QCY19.
?This has also been verified by several planters under our coverage.
?Furthermore, from our observation of the movement of daily futures curves in the past two quarters, we believe the average CPO price realised by planters could have improved by five to six per cent or more in 1Q19,? it added.
?Palm oil exports to China to rise again?
Malaysia is likely to reverse the trend of declining palm oil export to China, which has persisted for the past six years.
This follows Malaysia signing a memorandum of understanding to enhance palm oil trade with China this afternoon, prior to the start of the second Belt & Road Forum last month.The signing ceremony was witnessed by Malaysian Prime Minister Tun Dr Mahathir Mohamad and China?s Premier Li Keqiang.
Under the MoU, the countries agree to an additional supply of a minimum of 1.9 million tonnes of palm oil to China over a five-year period, starting from 2019. The volume is valued at RM4.56 billion, based on an average price of US$600 per tonne.
This is in addition to the four purchase contracts signed in March for the export of 1.62 million tonnes of palm oil from Malaysia to China, worth an estimated US$891 million (RM3.64 billion) in total.
China was Malaysia?s second biggest importer of palm oil and palm-based products in 2018, during which Malaysia exported 3.07 million tonnes of palm oil and palm products valued at RM8.38 billion to China ? up 7.3 per cent from the 2.86 million tonnes (worth up to RM9.39 billion) recorded in 2017.
In the official meeting with Li at Diaoyutai State Guesthouse, Dr Mahathir told China?s premier if each Chinese take a spoonful of palm oil a day, Malaysia will be very rich, given China?s sizable 1.4 billion population.
Malaysia?s annual palm oil export volume to China shrank to below three million tonnes after 2015. The volume was at 3.76 million tonnes in 2011, which was more than Indonesia?s 2.04 million to China.
But since 2015, Indonesia has overtaken Malaysia in terms of export volume of palm oil to China, with the former?s exceeding three million tonnes, while Malaysia?s dropped to 2.44 million tonnes.
Growing steps for agricultural exports
Despite a sizeable land mass, agriculture efforts in Sarawak have not been as prevalent as compared to other industries.
With the exception of commodity crops such as palm oil, rubber and pepper, agriculture efforts in the state is usually limited to production for local consumption and sale.
However, efforts to change this have begun as the state government has aims to turn the state into a net food exporter by the year 2030.
While there has been no announcement of an official blue print for this goal, several agriculture industries have already been identified as champion industries to focus on as they offer the best commercial potential.
Deputy Chief Minister Datuk Amar Douglas Uggah Embas detailed that these selected agriculture industries by the Ministry of Modernisation of Agriculture, Native Land and Regional Development (Manred) would be promoted in the immediate term.
The selected industries are commodity crops such as oil palm, rubber, pepper and sago; food crops such as pineapple, durian, banana, coconut and paddy; agro-based industry focussing on food processing such as cattle, buffalo, goats and edible birds? nest; and finally, aquaculture industries such as shrimp and fresh water fish.
To encourage development of these industries, Uggah who is also the Minister of Manred guided that the Ministry would undertake Public-Private Sector Partnerships with anchor companies that deal in food manufacturing or packaging to help create more demand for edible crops and animal by-products.
Processing and packing centres, agro-parks, livestock farming areas, aquaculture industry zones and plantation development have also been earmarked for development throughout the state, added Uggah.
?We have also allocated a venture capital of RM100 million. All these efforts are being undertaken to achieve our goal of making Sarawak a net exporter of food product by 2030,? he said in his keynote address at the Agriculture for 2019 programme earlier this year.
Not yet ready for large scale export
But while there have been efforts to develop our food products industry have been thorough, International Trade and e-Commerce Minister Datuk Seri Wong Soon Koh shares that it might still be a while before the state is able to begin exporting to major consumer markets like China on a large scale.
?Food items are in high demand in China and they want them in huge volumes and consistent sipply, as they need to distribute them throughout China.
?There is huge demand for products such as Tongkat Ali, Birds nest, marine products and durians, however, we cannot produce enough volume on a consistent basis to fulfil the demand.
Thus, China is not keen on trading with (Sarawak on food items),? Wong detailed during a high tea media session.
?Most products from local farmers are produced in a traditional agricultural manner. So, we need to look into commercial farming if we want to produce in huge volume regularly,? Wong explained.
Plenty of support for local sales
It may still be a way away before the state adopts more modernised farming strategies so for now, Sarawak agriculture and food products is expected to be mainly for local and neighbouring markets such as Singapore, Indonesia and West Malaysia.
However, to supplement this, the federal Agriculture and Agro-based Ministry has begun several intitaitves aim to help rural Sarawakian farmers market their produce through the Contract Farm Programme, the Direct Sales from Farm (JTDL) Programme and the MyBVest Buy (MBB) Programme.
Deputy Agriculture and Agro-Based Minister Sim Tze Tzin said through the Contract Farm Programme, rural farmers were guaranteed a market for their products through an agreement with the Federal Agriculture Marketing Authority (Fama).
?In 2018, a total of 160 farmers were registered with the Contract Farm Programme to produce vegetable commodities in 269.82 hectares of land, with a sales value of RM15.23 million.
?For fruit commodities, 333 farmers were registered as participants in the programme which covered 626.7 hectares of land, with a sales value of RM26.36 million,? he said during a question-and-answer session in the Senate in April.
Sim said the ministry also encouraged farmers to sell their produce directly to consumers through Fama programmes like the JTDL and MBB at the Satok Trading Area, farmers? markets and Fama outlets like the People?s Agrobazaars throughout Sarawak.
He added that last year, the ministry, through Fama, also provided marketing guidance to 5,821 farmers in Sarawak and recorded sales worth RM180.77 million.
He also urged farmers in the country, especially in the rural areas to take advantage of the digital advancement to market their produce directly to consumers through online sales.
?In China, a village in the interior areas produced 100 millionaires after they marketed their products which were given added value on the ?Alibaba? business platform?so I see the potential for farmers in the interiors area of Peninsular Malaysia, Sabah and Sarawak to market their products online directly to consumers.?
Modern farming the way forward
While it might still be a far goal to turn Sarawak into an international food exporter at the moment, Wong believes that the only way forward with this plant is through thorough implementation of modern farming techniques and practices.
To this end, Wong believes that collaboration with agri-tech rich China would be on eof of our best bets in modernising our agriculture efforts.
Coming back from a recent Belt and Road CEO conference iun Beijing China in April, Wong detailed that officials from China?s Centre for International Agriculture Research are currently looking into a potential collaboration and technology transfer in Sarawak.
Deputy director of the Centre for International Agriculture Research, Zhao Ruixue, said an office dealing with overseas matters has been set up to promote all projects under the Belt and Road Initiatives.
She hoped that the park in Sarawak can help enhance the production of tropical fruits and processing technology in the state. Towards this end, research director of the Centre for International Agriculture Research, Zhang Xuebiao, and his officers are expected to conduct a working visit to Sarawak next month.
An idea mooted by Wong, the proposed Modern Agriculture Technology Park in Kuching/Samarahan has already been approved and will be a collaboration between Jiangxi Huamei Food Industry Ltd Co and local vehicle Zongyah Haoxiang International Sdn Bhd.
With state-of-the-art technology and information system in agriculture as well as confidence from investors, China is capable of assisting Sarawak promote the park and other relevant collaborations, guided Wong.
Hoping that the agriculture development in Sarawak will be brought to a new level and that the park will develop in a smooth manner, Wong hoped that subsequent work on the product of Halal food would soon follow suit.
With global recognition already in place as a reliable producer of halal food products, Wong believed Sarawak would be able to leverage on this reputation and its already functioning hall hub in Tanjung Manis to produce and promote halal food products to Middle East countries.
Source: Borneo Post