Prioritise critical infrastructure

Federal spending must unlock Sabah and Sarawak’s industrial potential

KUCHING: Sabah and Sarawak need more than higher federal allocations in Budget 2027, with infrastructure spending required to directly support industrialisation, investment and higher-value jobs.

Universiti Teknologi MARA (UiTM) Sabah political economist Associate Professor Dr Firdausi Suffian said infrastructure should be the main federal priority for both states as the foundation for wider economic transformation.

“Infrastructure spending should be tied to economic transformation, particularly by improving connectivity and supporting industrial parks and higher value-added activities,” he told Sarawak Tribune.

While business financing, tax incentives, skills and productivity support were also important, Firdausi said these measures could not substitute for adequate physical and digital infrastructure.

He cited the Pan Borneo Highway as an example of how better connectivity could facilitate business transactions, while industrial parks required supporting facilities capable of meeting the demands of more sophisticated industries.

“Our infrastructure development must suit investor requirements, especially those related to mid to high value-added activities,” he said.

Firdausi said Sabah and Sarawak continued to face disparities in infrastructure, income, investment and connectivity, with gaps extending to roads, hospitals, schools, water supply and technical and vocational education and training (TVET).

Although progress had been made through projects such as the Pan Borneo Highway, he said development in other areas had remained slow.

He called for higher development funding for both states, arguing that federal spending should be used to unlock rather than merely support their economic potential.

“Sabah and Sarawak have all the ‘economic ingredients’, from resources to human capital,” he said.

However, Firdausi said both states faced limitations in their fiscal capacity because financial resources remained concentrated at the federal level.

He said stronger infrastructure should form the foundation for a broader industrialisation drive, particularly through downstream activities.

“Manufacturing is important to modernising both economies because it requires substantial investment involving technology and capital while creating demand for semi-skilled and skilled workers,” he said.

For Sarawak, Firdausi identified semiconductors, renewable energy including hydrogen, carbon capture, utilisation and storage (CCUS), and other downstream industries as areas with further development potential.

For Sabah, he pointed to the Blue Economy initiative, including expansion of the Blue Economy Industrial Park and Ocean Thermal Energy Conversion.

He said both states should also capture more downstream activity from their oil and gas resources.

“Further downstream development in the oil and gas sector is also needed in Sabah and Sarawak, given the resources available in both states,” he said.

Firdausi said such industrial expansion would have to be matched by human

capital development.

He called for greater investment in TVET and university disciplines including computer science, data analytics, artificial intelligence, medicine, engineering and accounting.

“Investment entering the country should match the skills being developed and ensure technological spillovers into the domestic economy,” he said.

He estimated that only about 25 per cent of jobs in the labour market were skilled positions, with most of the remainder concentrated in middle- and low-skilled employment.

“Our investment must match the skills and graduates we produce,” he said.

Firdausi said greater decentralisation was also needed to allow Sabah and Sarawak to pursue development strategies suited to their respective economic strengths.

He cited gas distribution rights, recognition of the technical role of the Public Works Department for projects below RM50 million and other administrative functions as examples of progress.

“The state knows best what is good for them based on their strengths,” he said.

However, he said the degree of decentralisation achieved remained insufficient to fully empower both states to determine their economic direction.

At the national level, Firdausi estimated Budget 2027 could increase by about 4.5 per cent to around RM440 billion, making it moderately expansionary.

He said the federal budget should also address purchasing power, wages and access to decent employment under the broader “ekonomi rakyat” agenda.

Firdausi called for an increase in the minimum wage and greater attention to the Madani Economy objective of raising the wage share to at least 40 per cent of gross domestic product.

“Addressing household economic pressures cannot be separated from sustaining economic growth,” he said.

He said existing frameworks including the 13th Malaysia Plan, the New Industrial Master Plan 2030 (NIMP 2030) and the National Semiconductor Strategy had already established much of the policy direction required.

“Economic success does not lie in vision but in execution,” he said.

For Sabah and Sarawak, Firdausi said a meaningful Budget 2027 response would be reflected in continued efforts to close regional development gaps, particularly in rural and interior areas where basic infrastructure remained inadequate.

He said development strategies should also reflect the different strengths and economic conditions of individual states.

That consideration should extend to fuel subsidy rationalisation, particularly diesel, given the geographical and economic differences between East Malaysia and Peninsular Malaysia.

“Maintaining diesel subsidies at a reasonable litre quota would help ease the burden on people in Sabah and Sarawak,” he said.

Firdausi said Budget 2027 should ultimately maintain momentum in infrastructure, renewable energy, digital development, TVET, science, technology, engineering and mathematics, artificial intelligence and investment through Sabah and Sarawak’s economic corridors.