INAUGURAL LECTURE

PENERBIT UNIVERSITI MALAYSIA SABAHKota Kinabalu • Sabah • Malaysia

http://www.ums.edu.my2021

A Member of the Malaysian Scholarly Publishing Council (MAPIM)

Kasim Bin Mansor @ Md. Mansur

INAUGURAL LECTURE

Delivered as Universiti Malaysia Sabah Professorial Inaugural Lecture on 12 March 2021 via live streaming on Universiti Malaysia Sabah Facebook and YouTube Channel

© Universiti Malaysia Sabah, 2020, 2021

All rights reserved. No part of this publication may be reproduced, distributed, stored in a database or retrieval system, or transmitted, in any form or by any means, electronic, mechanical, graphic, recording or otherwise, without the prior written permission of Penerbit Universiti Malaysia, except as permitted by Act 332, Malaysian Copyright Act of 1987. Permission of rights is subjected to royalty or honorarium payment.

Penerbit Universiti Malaysia Sabah makes no representation – express or implied, with regard to the accuracy of the information contained in this book. Users of the information in this book need to verify it on their own before utilising such information. Views expressed in this publication are those of the author(s) and do not necessarily reflect the opinion or policy of Universiti Malaysia Sabah. Penerbit Universiti Malaysia Sabah shall not be responsible or liable for any special, consequential, or exemplary problems or damages resulting in whole or part, from the reader’s use of, or reliance upon, the contents of this book.

Perpustakaan Negara Malaysia Cataloguing-in-Publication Data

Kasim Mansur, 1961- Labour, Human Capital and Economic Development in Sabah / Kasim Mansur. (INAUGURAL LECTURE) Mode of access: Internet eISBN 978-967-2166-89-4 1. Labor--Malaysia--Sabah. 2. Human capital--Malaysia--Sabah. 3. Economic development--Malaysia--Sabah. 4. Government publications--Malaysia. I. Title. II. Series. 331.0959521

Typeface for text: CalibriText type and leading size: 11/13.2 pointsCover and layout designer: Nataniel EbinProofreader: Marshell Kanam GomborEditor: Lindsy Lorraine MajawatPublished by: Penerbit Universiti Malaysia Sabah Tingkat Bawah, Perpustakaan Universiti Malaysia Sabah Jalan UMS, 88400 Kota Kinabalu, Sabah

Kasim Bin Mansor @ Md. MansurFaculty of Business, Economics and Accountancy

Universiti Malaysia Sabah

ACKNOWLEDGEMENTS vi

SYNOPSIS viii

SINOPSIS ix

LIST OF ABBREVIATIONS x

INTRODUCTION 1

MODELS OF ECONOMIC GROWTHInvestment in Human Capital

2

SABAH ECONOMIC GROWTHSabah at a GlanceSabah PopulationSabah’s Socio-economy and Demography

12

LABOUR MARKET IN SABAHSabah Employment Trends and FactsLabour Productivity and Wages

26

HUMAN CAPITAL AND EDUCATIONLevel of Education among Selected Ethnics in Sabah and Their Roles towards Development

34

CHALLENGES IN SABAH’S ECONOMIC DEVELOPMENT 42

POLICY AND ACTION PLAN IN SABAH ECONOMIC DEVELOPMENTSabah Development Corridor (SDC)National Key Economic Area (NKEA)Zakat for Poverty Eradication

48

RECOMMENDATION AND CONCLUSION 57

BIBLIOGRAPHY 62

BIODATA 76

Contents

vi

In the name of Allah, the Most Gracious, the Most Merciful. All praises belong to Allah and His blessings for the completion of this book. I thank Allah for all the strength and opportunities

that have been showered on me to finish writing this book for my inaugural lecture. Selawat and salam upon the beloved Prophet Mohammad (SAW) peace and blessings be upon him whose way of life has been continuous guidance for me and the ummah. Very special gratitude goes out to all my fellow faculty members and Economic Research Group (ERG) for helping and providing excellent assistance to publish this book. Special thanks go to Dr Beatrice Lim Fui Yee, Dr Hajah Khairul Hanim Pazim, Puan Dayangku Aslinah Abd. Rahim, Puan Roslinah Mahmud, and Dr Siti Hajar Samsu for their commitment and sacrifices for the sleepless nights to prepare this book. I am also most grateful to them for their comments on an earlier version of the manuscript, although any errors are entirely my own. It has been fantastic to have the opportunity to work with most of my research team in the faculty. I thank them wholeheartedly. I am also grateful to all the previous Deans of the Faculty/School and all Deputy Deans for their unfailing support and assistance to get funding for research grants and other related academic engagements. To all dedicated non-academic staff in the Faculty of Business, Economics and Accountancy and the Department of Registrar of UMS, thank you so much, your commitment is simply superb! Without your precious support at the administration office, it would not be possible to reach this level. I would also like to express my gratitude to all UMS Vice Chancellors namely Professor Emeritus Tan Sri Dr Abu Hassan Othman, Professor Emeritus Datuk Dr Mohd Noh Dalimin, Professor Datuk Seri Panglima Dr Kamaruzaman Hj Ampon, Professor Datuk Dr Mohd Harun Abdullah, Professor Datuk Dr D. Kamarudin D. Mudin and the current Vice Chancellor Professor Datuk Dr ChM Taufiq Yap Yun Hin. They have shared their pearls of wisdom with me during my tenure at the university. It has been a great pleasure

ACKNOWLEDGEMENTS

vii

and honour to have full support from all. I wish to express my sincere thanks to three “anonymous” reviewers of this book for their insights, expertise and valuable comments and suggestions. To all my colleagues at UMS, IDS, SEDIA and UPEN, you have indirectly assisted this writing, although some of you may not agree with all the interpretations or conclusions of this book. To my late father Haji Mansor Awang Matasan and my late mother Hajah Fatimah Maseh, I owe it to both of you and my special do’a will forever be for you both. During my teenage years, I remember you were always keen to know what I was doing and how I proceeded in my endeavour and quest for knowledge. May Allah shower your souls with rahmah and maghfirah, Aamiin. I am also grateful to all my siblings who have provided me with moral and emotional support in this journey and my extended family members and friends far and near whom have supported me along the way. Last but not least, I would like to thank my beloved wife, Aidah, and my children, Fatimah, Mezi, Hisyam, Fehan and Hanis, for your understanding, patience and support, both morally and spiritually throughout my university tenure. May Allah SWT shower the above-cited personalities with success and honour in this worldly life and life in the hereafter. Thank you for all your encouragement!

viii

This book highlights some contemporary issues related to Sabah’s economic growth, including socio-economic, labour and human capital. These issues are linked to relevant economic

and growth theory approaches. Critical issues on the challenges in the development and the way forward to realise government policies such as the Sabah Development Corridor (SDC), the National Key Economic Area (NKEA) and the implementation of zakat to eradicate poverty will also be discussed. Economic development for Sabah is essential and is an ongoing effort to ensure that Sabah can compete in a gradually competitive economy. Implementing sound economic policies is vital in improving the social well-being and standard of living in the state. This book also explores socio-economic issues involving various ethnic groups in Sabah, especially improving human capital and infrastructure investment. The author identified that these elements are the key contributors and enablers to Sabah’s economic growth. Thus, economic growth and development are consistent agendas to ensure future generations can live comfortably in a conducive economic environment. Hence, this book re-emphasises the importance of knowledge workers in preparing the Industrial Revolution 4.0. The author also recommends that Sabah’s further economic development be attained through rigorous efforts from strong cooperation of state and federal government and firms, private sectors, industries, non-governmental organisations (NGOs) and the people. The development can be realised through investment and innovation. This book is significant to academics, students, policymakers, and community in increasing awareness of the importance of labour, human capital and economic development in Sabah. While adding to existing literature, this book can also be an additional reference about Sabah’s key economic characteristics and labour market.

SYNOPSIS

ix

Buku ini mengetengahkan beberapa isu kontemporari yang berkaitan dengan pertumbuhan ekonomi Sabah termasuk sosio-ekonomi, tenaga kerja dan modal insan. Isu-isu ini

berkaitan dengan pendekatan teori ekonomi dan pertumbuhan. Selain itu, buku ini mengupas isu-isu kritikal bagi cabaran dalam pembangunan dan hala tuju untuk merealisasikan dasar kerajaan seperti Koridor Pembangunan Sabah (SDC), Bidang Ekonomi Keutamaan Negara (NKEA) dan implementasi zakat untuk mengurangkan kemiskinan. Sehubungan dengan itu, pembangunan ekonomi Sabah adalah penting dan merupakan usaha berterusan demi memastikan Sabah boleh bersaing di ekonomi yang semakin kompetitif. Pelaksanaan dasar ekonomi juga penting untuk memperbaiki kesejahteraan sosial dan taraf hidup masyarakat terutamanya di Sabah. Buku ini juga meneroka isu sosioekonomi merangkumi kepelbagaian etnik di Sabah terutamanya dalam menambahbaikan pelaburan modal manusia dan infrastruktur. Penulis mengenalpasti bahawa elemen ini adalah penyumbang dan penggerak utama untuk pertumbuhan ekonomi Sabah. Oleh itu, pertumbuhan dan pembangunan ekonomi merupakan agenda yang berterusan untuk memastikan generasi masa hadapan boleh hidup selesa dalam suasana ekonomi yang kondusif. Seterusnya, buku ini juga menekankan kepentingan pekerja berpengetahuan dalam menghadapi Revolusi Industri 4.0. Penulis juga menyarankan bahawa lonjakan pembangunan ekonomi Sabah boleh dicapai melalui usaha rancak dengan kerjasama erat di antara kerajaan negeri dan persekutuan, termasuk juga sektor swasta, industri, organisasi bukan kerajaan (NGO) dan rakyat. Ini dapat direalisasikan melalui pelaburan dan inovasi. Buku ini sangat signifikan kepada para akademik, pelajar, pembuat dasar dan komuniti dalam meningkatkan kesedaran mengenai kepentingan tenaga kerja, modal manusia dan pembangunan ekonomi di Sabah. Selain menambah literatur sedia ada, buku ini juga boleh menjadi rujukan tambahan mengenai ciri-ciri ekonomi utama dan pasaran buruh di Sabah.

SINOPSIS

x

ASEAN Association of Southeast Asian NationsAI Artificial intelligenceBIMP-EAGA The Brunei Darussalam-Indonesia-Malaysia-Philippines

East ASEAN Growth AreaCOVID-19 Coronavirus disease 2019DOSM Department of Statistics MalaysiaDHS Demographic and Health SurveysERG Economic Research GroupFDI Foreign Direct InvestmentGDP Gross Domestic ProductGLC Government-Linked CompaniesGNI Gross National IncomeICT Information and Communications TechnologyIoT Internet of ThingsIPT Institusi Pengajian Tinggi [Institutions of Higher Learning]IR4.0 Industrial Revolution 4.0LFPR Labour Force Participation RateMTTP Malaysia Tourism Transformation PlanMUIS Majlis Ugama Islam SabahMyNDS Malaysian National Development StrategyNDP National Agricultural PolicyNEM New Economic ModelNEP New Economic PolicyNGO Non-Governmental Organisation NKEA National Key Economic AreaPLC Public Limited CompanyPMR Penilaian Menengah RendahSabah.LEAP Sabah Long Term Strategic Action PlanSDC Sabah Development CorridorSME Small and Medium-Sized EnterpriseSPM Sijil Pelajaran MalaysiaSTPM Sijil Tinggi Persekolahan MalaysiaRRJP2 Rangka Rancangan Jangka Panjang Kedua [Second Long

Term Perspective Plan Framework]UiTM Universiti Teknologi MARAUMS Universiti Malaysia SabahUPSR Ujian Pencapaian Sekolah RendahWFS World Fertility Survey10MP Tenth Malaysia Plan11MP Eleventh Malaysia Plan

LIST OF ABBREVIATIONS

Introduction

Economic growth is one of the most significant issues discussed today as economic growth impacts all, including individuals, businesses and governments. (Piętak, 2014). Despite the

criticism and shortcoming of its measurement, economic growth remains a universally accepted measure of prosperity and well-being. The level and rate of growth do not always reflect the real level of a population’s living standards. When used to describe the dynamics of economic processes in the country, these variables have several drawbacks. First, it does not record the volume of productive non-market activities obtained from the domestic activities and informal

by

Kasim Bin Mansor @ Md. MansurFaculty of Business, Economics and Accountancy

Universiti Malaysia Sabah

2

Inaugural Lecture | Professor Datuk Dr Kasim Bin Mansor @ Md. Mansur

market, known as the underground economy or “black market”. In general, the scale of underground economies varies significantly between nations and, in some cases, these activities make up a substantial percentage of a country’s economic output. This means that not all economic transactions are included in the total output. Second, economic growth does not include the amount of time spent on work, which affects social welfare in general. Many non-market activities can increase social welfare, and the aggregate of all productive non-market activities is undoubtedly significant. For instance, gross domestic product (GDP) does not account for any unpaid work regardless of how productive the activities are to the economy. Third, economic growth measurement excludes the negative impact of economic activities, such as environmental pollution and degradation. Therefore, the problem of economic growth has always been widely discussed and debated. Despite these drawbacks and limitations, economic growth remains the primary indicator of the socio-economic conditions of people of any nation. This section addresses the theoretical and conceptual context for economic growth. These theoretical and conceptual frameworks are useful as sources of reference in analysing issues about Sabah and Malaysia’s economy in general. The perspective of growth theory drives the discussions and analyses presented in this section.

Models of Economic Growth

The emphasis of the discussion in this section is, first and foremost, a review of the models of economic growth present in the literature. Subsequent issues of this section focus on the theoretical side of the growth theory associated with economic development applied at the federal and state level of Sabah. The review of models consistent with the state’s economic growth will also be explored. In the introduction, the author analyses economic growth theories,

3

Labour, Human Capital and Economic Development in Sabah

such as the classical theory of growth, neoclassical, Schumpeter’s, Lewis’s and Rostow’s theory. Besides, this book offers both theory and evidence on the connection between human capital formation and economic growth introduced by prominent economists such as Gary Becker, Paul Romer and Robert Lucas. Classical economists such as Adam Smith emphasised the role of increasing returns to scale or specialisation and contented that the determinants factors of production for economic growth are investments and improving production capacity. In the first half of the twentieth-century neoclassical economics identified three economic growth factors, namely land, capital and labour. Most capitalist countries have further expanded the theory to explain the causes of economic growth. The point is that the more these factors have been used, the greater the economic growth.

TP

TP1

TP2

L0

PG

R

H

MN

A

E

W

Source: Jones (1998)

Figure 1 Classical growth theory

4


It is noteworthy to start with the classical growth theory introduced by Adam Smith (Figure 1). Smith, considered the father of modern economics, is recognised with the idea of specialisation or division of labour as a critical factor in economic growth. The most notable aspect of his book was the ‘Theory of Economic Development’. Smith’s theory is based on the principle of ‘Laissez-Faire’ or ‘invisible hand’ concept that drives markets toward their natural equilibrium. This ‘invisible hand’ concept requires that the state not impose any restriction on an individual’s freedom. Smith recognised three factors of production namely labour, capital and land i.e. Q = f (L, K, N). Smith believed that it is safe to leave the economy to be propelled, regulated and controlled by ‘invisible hand’, i.e. the forces of competition motivated by self-interest be allowed to play their parts in minimising the volume of savings for development. Smith argued that the main driving force behind increased productivity was the specialisation of labour and technology advancement. He observed that the division of labour results from capital accumulation and gradual expansion of the market. Adam Smith (1776) in his book entitled ‘The Wealth of Nations’ highlighted three advantages of division of labour, also known as specialisation:

1. increases the skills of workers.2. saves the time required to produce commodities.3. invention of better machines and equipment.

Additionally, the idea of Adam Smith economic cycle is depicted in Figure 2. There are four processes for a prosperous economy. When labours receive high wages, they will enjoy more wealth. Individuals may have more money to spend on products and services or to invest in new businesses. Eventually, this will improve the economy, and the cycle will repeat. In an ideal economic system, the nation would gain prosperity through this process.

5


1

Figure 1: Classical Growth Theory

TP

W

𝐓𝐓𝐓𝐓𝟐𝟐

E 𝐓𝐓𝐓𝐓𝟏𝟏

Figure 2: Adam Smith’s Economic Cycle

Higher wages

More wealth

More money to spend on goods and services or invest in new

business

Prosperous economy

A

G

0

P

R N

H

M L

Source: McNulty (1973)

Figure 2 Adam Smith’s economic cycle

In 1957, Robert M. Solow in his writing, highlighted the insignificant share of land, capital and labour in the economic growth of the United States and pointed to the technical progress as the primary source of growth in the U.S. economy (Solow, 1957). On the one hand, the Harrod-Domar model states that the rate of growth depends on the function of the savings rate. Some growth theories place a large emphasis on promoting domestic savings. A large amount of savings provides the necessary funds to finance investment which creates further economic growth. In the past, savings has been a paramount factor behind the economic growth in most Asia nations, particularly Japan and South Korea. Solow’s model, like Harrod-Domar’s, concentrated on capital and labour inputs. Solow applied a Cobb-Douglas production function to explain the growth of the United States’ output, with the astounding result that increases in the input of labour and capital explained only about 13 per cent of the increase in output between 1909 and 1949. The remaining eighty-seven per cent (87%) of the increase in output is unexplained. Solow identified that the residual accounted for

6


virtually all economic growth; the residual was variously identified as “total factor productivity” (TFP), “technology” or “knowledge”. According to Solow, technological advancement, which increases capital and labour productivity, contributes to economic growth. Solow attributed this unexplained portion to improvements in technology, which he treated as being outside of the model; hence he introduced the term “exogenous technological change”.

Capital (Intensive)0

y

y*

y

k k*

Potential output

Required investment

Equilibrium

Savings = Actual investment

Source: Carlin and Soskice (2006)

Figure 3 Solow’s model

As illustrated in Figure 3, increasing capital produces an increase in output, but the relationship is not linear. After passing a certain point, increasing the capital stock will not increase the amount of output that each worker can consume, since it will have to be replaced quickly. The graph shows that it is true that if savings as a share of output were increased, then the economy would indeed settle at a higher rate of equilibrium consumption. However, with s/y at its present level, capital will necessarily settle at k*. A temporary increase in i (or ∆k/y) would increase k momentarily. Still, the economy would soon return to its former level of output and capital as the new capital resumed its usual rate of depreciation. From an empirical standpoint, perhaps the

7


most important consequence of the Solow’s idea was to shift economists’ attention from labour productivity to total labour factor productivity as the principal measure of economic efficiency or technological change. According to Sala-i-Martin (2006), the elements that determine economic growth are:

1. accumulation of physical capital, human capital and education.

2. diversity of institutions favourable to economic growth.3. free movement of capital, advancement in technology,

ideas innovation, foreign investment and the free flow of information.

Figure 4 shows that technological change shifts the production function upwards and allows more output per hour worked with the same amount of capital per hour worked. For example, on a production function with $50,000 in capital per hour worked, the economy can produce $575 in real GDP per hour worked. However, advancement in technology that shifts the production function upwards made it possible to produce $675 in real GDP per hour worked with the same capital per hour.

0

Real GDP per hour worked(y/L)

RM50,000 Capital per hour worked (K/L)

Production function 1




Technological change causes the per-worker production function to shift up

Source: Hubbard and O’Brien (2016)

Figure 4 Technological change increases output per hour worked

8


Walt Rostow (1959) opined that economic development depends on capital accumulation and distinguished five stages of development, as shown in Figure 5 and Figure 6. According to Rostow, the biggest hurdle for developing countries is to reach the third stage, called “take-off”. Most developing countries have similar problems or a “vicious circle”. Rostow proposed to solve the problem of “vicious circle” by accumulating capital. However, he realised that in cases where there was an absence of opportunities to increase internal accumulation, external support would be necessary. Moreover, according to Rostow, the transformation of the economy from agricultural to industrial will allow economic growth to spread across the country. In 1971, Rostow added a sixth stage of economic development, called “quality” – characterised by the continuous improvement in the quality of goods and services.

3

Figure 5: Stages of Growth

Figure 6: Rostow’s Model of Development

The traditional societyBased on subsistence,

farming, fishing, forestry and some

mining.

Pre-conditions for take off

Buliding infrastructure that is needed before development can take place, e.g. transport

network, money from farming power supplies and communications.

Take-offIntroduction and rapid

growth (industrial revolution) of manufacturing

industries, better infrastructure, financial investment and culture

change.

Drive to maturityNew ideas and

technology to replace older industries, economic growth

spreads throughout the country.

High mass consumption

People have more wealth, so buy services and goods (consumer

society). Welfare systems are fully developed, trade

expands.

Time

Dev

elop

men

t

Source: Rostow (1959)

Figure 5 Stages of growth

3

Figure 5: Stages of Growth

Figure 6: Rostow’s Model of Development

The traditional societyBased on subsistence,

farming, fishing, forestry and some

mining.

Pre-conditions for take off

Buliding infrastructure that is needed before development can take place, e.g. transport

network, money from farming power supplies and communications.

Take-offIntroduction and rapid

growth (industrial revolution) of manufacturing

industries, better infrastructure, financial investment and culture

change.

Drive to maturityNew ideas and

technology to replace older industries, economic growth

spreads throughout the country.

High mass consumption

People have more wealth, so buy services and goods (consumer

society). Welfare systems are fully developed, trade

expands.

Time

Dev

elop

men

t

Source: Rostow (1959)

Figure 6 Rostow’s model of development

9


As economic growth is dependent on a wide range of factors that change over time, economic growth models inherently apply such simplifications based on the economic environment. These simplifications consist of classification and aggregation of the causes of economic growth. In most models of economic growth, a depreciation rate for capital and growth of population are exogenous. In the case of the savings rate, the models can be divided into two groups. In the first group, the savings rate is exogenous, for example, in the Harrod-Domar’s model, models that use the production function AK, and the neoclassical models of Solow and Uzawa. The second group includes models with an endogenous savings rate, such as Ramsey’s neoclassical model and Kaldor and Pasinetti, based on John M. Keynes’s scientific achievements. Models can also be divided according to the capital ratio. The models of Harrod-Domar and the AK models assume its constant value. In turn, the ratio of capital to production in neoclassical models can change over time. Models of economic growth can be divided according to the criterion of time. Long-term models are primarily used to determine the path of sustainable growth. They characterise a pattern according to which the economy should grow (Piętak, 2014). Short-term models refer to the scientific achievements of John M. Keynes. Their primary purpose is to identify the possibility of actual production to the potential output level (Piętak, 2014). Roy Harrod and Evsey Domar came up with a new model that sought the possibility for sustainable growth. They extended the short-term Keynesian model that assumes the capitalist economy’s instability (Harrod, 1939; Domar, 1946). In the model of Harrod-Domar, growth is sustainable if three growth rates are equal: the actual growth rate, guaranteed growth rate, and natural growth rate. Harrod called such a situation the “golden age”, whereby the achieved macroeconomic balance ensures the maximum use of capital and labour.

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Investment in Human Capital

The Oxford dictionary defines human capital as “stock of skills that the labour force possesses and is regarded as a resource or asset”. Investment in human capital encompasses the notion that investments in people (e.g. education, training and health) increases an individual’s capacity, capability and productivity. Schooling, any form of training courses, seminars, awareness of healthy lifestyle, knowledge on the virtues of accountability, punctuality, integrity and honesty are also categorised as capital. These elements of soft skills can raise income, improve physical health, or add to a person’s good habits over much of his lifetime. Therefore, economists consider expenditure on schooling, training, health care, and other forms of personal enrichment as an investment in human capital. They are called human capital because people cannot be separated from their knowledge, skills, health, or good values in the way they can be separated from their financial and physical assets. Paul Romer and Robert Lucas placed greater emphasis on the concept of accumulation of human capital. Workers with more practical knowledge skills (soft and hard), education and training, can increase technological advancement rates. Theoretically, human capital affects income levels that leads to economic growth. Many empirical studies confirm that education and training are the most critical investments in human capital and significantly raise a person’s income and improve well-being. According to Becker (1975), the global economy cannot succeed without considerable investment in human capital by all nations. Richer and developed countries specialised in high-end products and services, while poorer developing countries specialised in lower-skilled and raw materials – labour-intensive products. However, investments in human capital are prerequisite and necessary in poorer developed countries if they are to have a chance to escape from poverty.

11


0

$

Time(years)

B

A

C 22 35

A > B + C

Income path of a bachelor’s degree graduateA = Financial bene�itsIncome path of a high school graduateB = Foregone incomeC = Tuition

Source: Krasniqi and Topxhiu (2016)

Figure 7 Human capital investment model

As shown in Figure 7, an individual can enter the labour market after finishing high school (A-Level or Grade 12) generally at the age of 18. They can also pursue their education further by enrolling in college or university and sacrifice wages or salaries they would receive if working (opportunity cost). After graduation from the college or university, entering into the labour force will benefit the individual most in higher wages and opportunities to hold better positions. Figure 7 shows region A that represents the difference in profitability during age 22 to 35. An individual graduating from college will enjoy incremental earnings (A) and higher annual income during their working life. The cost of human capital investment is equal to B+C, where (B) represents foregone income and (C) is the cost of tuition. An individual will weigh the cost and benefit of such investment. In a nutshell, A must be greater than B plus C or no student will opt for further schooling.

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In particular, the models of economic growth by Smith are adopted and used in this book. Until today, the economic growth theory is still relevant. Many studies have benefited from Smith’s point of view, especially on the division of labour, education, human capital, technological change, and government role in the economy. The theories proposed by Rostow (1959) and Gary Becker (1975) are blended wherever suitable. Even if Malaysia’s development policies are not on the same wavelength as Smith’s, it is still crucial to revisit Smith’s views on the determinants of economic growth to create a better economic and political climate for economic agents increase the prosperity of the nation. Sustainable development has to meet present needs without the risk that future generations will not meet their needs. In 1992, at the United Nations Conference on “Environment and Development” in Rio de Janeiro, Brazil, representatives from 176 countries signed Agenda 21, which determined sustainable development principles and laid out a strategy for its achievement (Piętak, 2014). The writing of this book deals with the macro dimensions of economic development in Sabah. The primary objective of all the research conducted over the last 20 years is to examine the state’s economic growth and development and its effects on society’s welfare. In general, most of the studies carried out were focused on classical and contemporary economic growth theories. Significant references are primarily based on Adam Smith, the Wealth of Nations founder, which contributed to individuals and societies’ welfare.

Sabah Economic Growth

In the case of Malaysian economic growth, many studies have adopted theories proposed by most prominent scholars mentioned in the previous section. These theories have shed light on the growth experienced by Malaysia. One of Rahmah Ismail’s (1999) studies using the neoclassical growth model shows that the savings rate does not determine output growth, but the labour force rate

13


constrains it. Therefore, to increase output growth higher than the labour force, factors other than savings rate such as technology and labour productivity must be improved. Since independence in 1957 (then Malaya), later Malaysia’s formation in 1963, this country has developed successive five-year plan for economic growth. Initially, this five-year plan primarily aims to spur rapid economic growth emphasising the rapid development of agriculture, especially in rural areas. The first five-year plan, which started from 1951 to 1956, successfully met its objectives. In the early 1970s, much of the government economic development policies concentrated on the manufacturing sectors. The New Economic Policy (NEP), introduced by the second Prime Minister, the late Tun Abdul Razak Hussein in 1971, was primarily to curb socio-economic imbalances within the Malaysian society. This policy was conceived with two aims, firstly to reduce ethnic inequalities that close the income gap between the Bumiputera, also known as ‘son of the soil’, with that of the non-Bumiputera. The second plan was to eradicate poverty, irrespective of race. In practice, the NEP has had its successes but has also been widely debated of its shortcomings. Over the past five decades, hardcore poverty has been largely eliminated. The middle class has grown, the economy has been diversified, and Malaysia has achieved an upper-middle-income nation’s status. For the first plan to be realised, the country had strategised to have a high employment rate. Thus, the protectionist policy had to be enforced to promote and protect infant industries so that they can survive and sustain, and at the same time, secure the job market. The ugly side of the NEP is where the country, in general, suffered some economic setbacks. Income gap among different races persist, the disparity in terms of necessary infrastructures between states are still visible, and the standard of living among states continue to widen. Sabah and the neighbouring state, Sarawak were affected the most. Most schools in the interior of Sabah have many challenges. Due to its distance and dilapidated conditions, achieving excellent examination results in UPSR, PMR, SPM and STPM were considered far-fetched. The primary and secondary students in the interior spend many hours walking to school on foot daily. Past research indicates that comfortable classroom temperature and noise levels

14


are crucial to student success. (Arnold, 2004; Marwan, Sumintono, & Mislan, 2012; Holloway, 2002; Kline, 2002). The phenomenon confronted by most rural schools in Sabah was consistent with past studies where school facilities’ inadequate condition negatively impacted student performance and teacher effectiveness.

Sabah at a GlanceSabah is a Malaysian state located on the northeast part of Borneo (Figure 8). The state stretches along the South China Sea in the west, the Sulu Sea to the north-east, and the Sulawesi Sea to the south-east. Before 1963, Sabah was under British colonial rule and was known as the British North Borneo. It then gained independence, became one of the Malaysian states on 16 September 1963, and changed its name to Sabah. Besides having a multi-racial and religious community, the state has a stable political environment, conducive infrastructure, modernity and richness in various cultures and natural resources.

Source: Moore (2018)

Figure 8 Sabah map

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Based on the Department of Statistics Malaysia, the land area in Sabah is approximately 73,904 km2 excluding the Federal Territory of Labuan Island (Department of Statistics, Malaysia, 2017, Jan 7). This area places Sabah to be the second-largest state in Malaysia after Sarawak. The total population is 3.9 million, the second-highest after Selangor (Department of Statistics Malaysia, 2018, October, p.18). In the early 1970s, Sabah recorded the highest economic growth compared to other states in Malaysia and has ranked among the top in terms of revenue. In the mid-1980s, Sabah’s economic growth has declined (Yusof, Mansur, & Itam, 2006). However, the state’s economic performance has changed significantly. Sabah has achieved a great deal in terms of economic growth. Sabah’s trade has also increased dynamically in the last four decades, with more diversified export goods (Idris & Mansur, 2020). The economic situation of the state has jumped to a more sustainable and competitive position in Malaysia. The state of Sabah generally has many advantages over other states in Malaysia. One of Sabah’s key advantages is the strategic geographical position on the East Asian continent, Australia and the Asia-Pacific Circle. In the context of the regional economic allies of Brunei Darussalam, Indonesia, Malaysia, and the Philippines, known as the East Asian Growth Area (BIMP-EAGA), the state’s geographical position is also strategically located. Most of the economic sectors in Sabah have developed since 1963. The economic sectors involved are agriculture, manufacturing, tourism, construction, health and education. Based on Malaysia’s economic growth, Sabah has not been left behind and has experienced rapid growth over the past 50 years. Sabah’s economy depends on exports of primary commodities such as palm oil, cocoa, rubber, petroleum, timber and plywood. The export sector accounted for 70 per cent of Sabah’s total production. In recent years, Sabah is the leading producer of palm oil in Malaysia. Apart from the agriculture sectors, the manufacturing and tourism sectors are also increasing and play an essential role as the state’s leading source of income.

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Historically, after independence, the Sabah State Development Plan was introduced from 1965 to 1970 to generate robust economic growth and human resources development. The plan aims to reduce social inequalities with improved living standards and social welfare (Mat, Mansur, & Mahmud, 2015). In the Tenth Malaysia Plan (10MP), Sabah aimed to increase productivity and economic quality through technology and innovation supported by the government and private sector, particularly human capital investment (Mat et al., 2015). Sabah recorded the highest poverty incidence, with 34.2 per cent in 1990, 20.1 per cent in 1999 and 19.7 per cent in 2009 (Lim & Mansur, 2015). However, this figure decreased significantly to 8.1 per cent in 2012 and 2.9 in 2016 (Department of Statistics Malaysia, 2017, January 9; Department of Statistics Malaysia, 2017, October 9; Miwil, 2018, January 14).

Sabah PopulationIn 2018, Malaysia’s total population was 32.38 million (Department of Statistics Malaysia, 2019, July 24). Sabah has the second largest population in Malaysia (3.90 million people) as indicated in Figure 9. The life expectancy at birth is 72.7 years for males and 76.2 years for females in 2019, as shown in Table 1.

Source: Department of Statistics Malaysia (2019, July 24)

Figure 9 Malaysian population

17


Table 1 Population growth and life expectancy in Sabah (2015-2019)

2015 2016 2017 2018 2019

Area (km2)5 73,904 73,904 73,904

Population (million)

Total 3.72 3.8 3.86 3.9 3.903

Male 1.94 1.99 2.01 2.04 2.043

Female 1.78 1.82 1.84 1.86 1.863

Average annual population growth rate (%) 1.4 1.5 1.4 1.1 0.13

Birth and death (per 1,000 population)

Crude birth rate5 14.7 13.7 13.6

Crude death rate 3.4 3.4 3.6

Total fertility rate4 1.6 1.4 1.4

Life expectancy at birth (years)1

Male 72.3 72.7 72.6 72.7 72.72

Female 75.8 76.2 76.4 76.2 76.22

Note:1. Includes FT Labuan2. Preliminary3. Estimate4. Total fertility rate: The rate per woman aged 15 – 49 years5. Source: Department of Survey and Mapping Malaysia

Source: Department of Statistics Malaysia (2017, January 7)

Table 1 shows that the average annual population growth rate for Sabah indicates a decline from 1.4% in 2017 to 1.1% in 2018. The male population in Sabah was higher than the female population from 2015 to 2018, as indicated in Figure 10.

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4. Total fertility rate: The rate per woman aged 15 – 49 years 5. Source: Department of Survey and Mapping Malaysia


In Table 1, the average annual population growth rate for Sabah shows a decrease from 1.4 per cent

in 2017 to 1.1 per cent in 2018. The male population in Sabah was higher compared to the female population

from 2015 to 2018 as indicated in Figure 10.

Sources: Department of Statistics Malaysia (2017, January 7)

Figure 10 Sabah population 2015 – 2018 (million)

3.72 3.8 3.86 3.9

1.94 1.99 2.01 2.041.78 1.82 1.84 1.86

0

1

2

3

4

5

2015 2016 2017 2018

Total Male Female


Figure 10 Sabah population 2015 – 2018 (million)

18


Malaysia is a multi-racial country, and it is even more so in Sabah. Sabah has 33 different ethnic groups in a population of over three million that communicates in over 50 different languages and 80 different ethnic dialects (David & Dealwis, 2008; Chan, 2015, February 13). The different races in East Malaysia are even more diversified compared to other states in West Malaysia. Sabah is a melting pot of cultures and people. This harmonious environment can be seen playing out in many parts or districts of Sabah, where people of different races and religions can be seen happily chatting together at the local kopitiam or eating outlets. Inter-marriages among different races are the highest in Sabah compared to other states in the nation, where the difference of Bumiputera (natives or ‘son of the soil’ in Sanskrit) and non-Bumiputera (non-natives) are becoming quite indistinct. Sabahans also are recognised to be one of the friendliest people in Malaysia, and most Sabahans are multilingual and can speak at least three languages. Bahasa Melayu is the national language, English is commonly spoken, and its ethnic or mother tongue is widely spoken. (David & Dealwis, 2008). Coastal and lowland areas are mainly inhabited by Bajau Samah, Brunei Malay, Bugis, Cocos, Malay, Iranun, Kadayan and Suluk, who have traditionally worked as fishermen and farmers. Meanwhile, high land areas and interior are inhabited mostly by Kadazandusun, Murut, Lundayeh and their sub-groups. Based on Figure 11 and Table 2, Kadazandusun is one of the largest ethnic groups in Sabah with 17.82 per cent followed by Bajau (14.01%), Chinese (9.11%), Malay (5.71%), Murut (3.23%) and other Bumiputera (20.56%) that consist of Bruneian Malay, Cocos, Iranun, Kadayan, Suluk, and others. Sabah is not only endowed with rich natural resources, but the state also inherited a diverse ethnic background. All ethnic groups respond positively to the need for development in the state.

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5

Figure 11 Ethnicity in Sabah (%)

17.823.23

14.01

5.71

20.56

9.11

0.23

1.51

27.82

Population in Sabah by ethnics (2010 Census)

Kadazandusun MurutBajau MalayOther Bumiputera ChineseIndian Other non-BumiputeraNon-Malaysian citizens

Source: Department of Statistics Malaysia (2011, December)

Figure 11 Ethnicity in Sabah (%)

Table 2 Sabah population by ethnicity in 2010

Bumiputera 1,911,943

Kadazandusun 555,647 (17.82%)

Bajau 436,672 (14.01%)

Murut 100,631 (3.23%)

Malay 178,029 (5.71%)

Other Bumiputera 640,964 (20.56%)

Chinese 284,049 (9.11%)

India 7,171 (0.23%)

Other non-Bumiputera 47,052 (1.51%)

Total 2,250,215

Non-Malaysian citizens 867,190 (27.82%)

Total 3,117,405Source: Department of Statistics Malaysia (2011, December)

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Sabah’s Socio-Economy and Demography

Almost 1/7 of the areas in Sabah is suitable for agricultural activities. In terms of land use, 12.9% were used for agriculture, 42.9% were for forest conservation, 1.2% for fisheries, 2.6% wildlife, 3.6% for sector parks and 36.8% for others (Department of Statistics Malaysia, 2011, October 17). The agriculture and tourism sectors have been the largest contributors to Sabah’s gross domestic product (GDP) since the 1960s to the present day because of Sabah’s large land area and natural resources. Sabah has beautiful flora and fauna with the standard of world-class nature. These resources are the state’s niche area and a catalyst for the agriculture and tourism sectors to prosper. The government has formulated and implemented policies to develop the agricultural and tourism sector. Sabah’s key policy areas are the National Agricultural Policy (NDP) and the New Economic Model (NEM), which help these sectors become more developed. These policies have a positive impact on Sabah’s overall economic growth.

Table 3 Gross domestic product (GDP) of Sabah

Gross domestic product (GDP) 2015 2016 2017 2018

GDP at constant 2015 prices (RM million) 73,776 77,518 79,900 84,960p

GDP per capita at current prices (RM) 19,830 21,169 24,636e 25,861p

GDP growth (%) 5.1 8.2 1.5p

Notes:e = Estimatep = Preliminary


The manufacturing sector is also one of the key sectors contributing to Sabah’s GDP growth. The manufacturing sector in Sabah has expanded in line with the Malaysian government’s goals of becoming a developed country (Mat et al., 2015). Thus, the state government has extended the manufacturing sector and other

21


sectors by developing new policies. For example, the Malaysian government has formulated the National Industrial Policy to make the manufacturing sector a catalyst for industrial growth, promoting full use of natural resources and raising the level of local technology research and development as the basis for Malaysia’s industrial nation. With these policies, the manufacturing sector in Sabah can be expanded rapidly (Ali & Rasiah, 1996).

33


Figure 12 Economic growth by state

5.9

4.6

4.5

8.2

4.9

7.2

5.1

5.1

2.2

7.1

5.7

8

4.5

7.4

5.9

5.6

4.1

2.6

3.9

4.2

3

5.1

5.3

3.3

6.8

2.5

1.5

2

6.7

6.6

9.6

3.3

1.8

3.1

3.4

4.1

6.7

5.4

0.4

23.7

2.6

6.2

9.7

16.1

0.5

0 5 10 15 20 25

Johor

Kedah

Kelantan

Melaka

Negeri Sembilan

Pahang

Pulau Pinang

Perak

Perlis

Selangor

Terengganu

Sabah

Sarawak

WP Kuala Lumpur

WP Labuan

% Share 2018 2017


Figure 12 Economic growth by state (%)

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Recent data shows an improvement in terms of Sabah’s economic scenario. In 2017, Sabah’s economy recorded a GDP growth of 8.2 per cent to reach RM79.9 billion (Table 3). Sabah’s economy grew at a faster pace than the national growth of 5.9 per cent in 2017. The state’s economic performance in 2017 has improved compared to previous years, and the State’s economy is now ranked the fifth-largest among all the states in Malaysia. Sabah’s income per capita has also increased to RM24,363 in 2017 from RM21,169 in 2016. Figure 12 shows that Sabah is one of the six leading states contributing to the bulk of the national GDP in 2018. Sabah reported slower growth of 1.5 per cent in 2018 compared to a strong growth of 8.0 per cent in the previous year.

Table 4 Malaysia’s economic growth by state

AgricultureMining

and quarrying

Manufacturing Construction Services Import duty

GDP (%)

Malaysia 0.1 −2.6 5.0 4.2 6.8 −11.5 4.7Johor 0.5 4.8 5.1 9.6 7.3 −11.5 5.6Kedah 0.2 3.9 3.0 9.2 5.4 −8.4 4.1Kelantan −1.0 15.8 0.3 −38.7 5.1 −3.1 2.6Melaka −1.1 6.4 4.6 −14.2 6.2 −7.8 3.9Negeri Sembilan

0.3 2.4 3.3 10.6 5.8 −10.6 4.2

Pahang 1.2 −5.5 5.8 −25.8 6.5 −19.4 3.0Pulau Pinang

−3.1 4.8 5.4 −3.8 6.2 −12.1 5.1

Perak 0.7 1.9 4.2 9.5 6.6 −14.7 5.3Perlis 1.2 6.7 1.5 20.5 4.2 −12.3 3.3Selangor 5.7 5.2 7.3 6.6 7.6 −13 6.8Terengganu −2.5 2.0 3.7 −9.2 3.6 −38.9 2.5Sabah −0.3 −5.6 2.3 24.1 5.6 −8 1.5Sarawak −1.4 −2.4 2.2 1.1 6.3 −9.6 2.0FT Kuala Lumpur

~~ 0.5 -0.1 6.8 7.3 −7.4 6.7

FT Labuan* 5.8 − 5.3 11.2 7.5 −19.9 6.6

*Includes FT Putrajaya~~ Not applicable


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In 2018, both the mining and quarrying sectors and the agriculture sector in Sabah recorded negative growth, far less than the national average (Table 4). The fall in crude oil, natural gas and oil palm production triggered the extreme contraction of both industries. However, the positive growth in the services sector of 5.6 per cent (2017: 5.5%) and the rebound in the construction sector to double-digit growth of 24.1 per cent supported the overall economic momentum in 2018 (Department of Statistics Malaysia, 2019, July 24). Table 5 shows the GDP per capita at the national level increased to RM44,682 in 2018 as compared to RM42,834 in the previous year. Sabah also recorded a growth in GDP per capita of 4.97 per cent compared to last year. In terms of ranking by state, Sabah was placed 12th among all the states in Malaysia. However, this figure is below the national average.

Table 5 Malaysia’s GDP per capita by states in Ringgit Malaysia

State 2017 (RM) 2018 (RM)

FT Kuala Lumpur* 113,182 121,293

FT Labuan 70,820 74,337

Pulau Pinang 51,115 52,937

Sarawak 50,149 52,301

Selangor 49,013 51,528

Melaka 46,799 47,960

Negeri Sembilan 41,733 43,047

Johor 35,322 36,394

Pahang 35,754 35,554

Perak 29,335 30,303

Terengganu 29,855 30,216

Sabah 24,636 25,861

Perlis 23,611 24,442

Kedah 20,960 21,410

Kelantan 13,700 13,668

Malaysia 42,834 44,682* Includes FT Putrajaya


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Some economic reasons may explain this scenario: very few high-paying companies are available in Sabah, as most Public Limited Companies (PLC) and Government-Linked Companies (GLC) are located in Kuala Lumpur or Federal Territory of Putrajaya. This includes major plantation companies operating in Sabah, where the headquarters are situated in Peninsular Malaysia. Sabah experiences low employment prospects and weak business opportunities. Most foreign direct investment (FDI) is concentrated in better infrastructure locations such as Klang Valley, Johor, Penang and Kulim industrial areas in Kedah. Major industries such as electrical and electronics, construction and the automotive industry are all located West Malaysian states. These three sectors and its sub-sectors alone employed almost 40 per cent of Malaysia’s total labour force.


Figure 13 Labour force statistics for selected states, 2018

As of September 2019, Malaysia’s workforce increased by 2 per cent to approximately 15.75 million, compared with 15.3 million in 2018 and 15.0 million in 2017. In general, Malaysia’s labour force participation rate (LFPR) rose 0.3 per cent, from 68.0 per cent in 2017 to 68.3 per cent in 2018. At the state level, the labour force participation rate in Sabah was 68.2 per cent in 2018. As shown in Figure 13, Sabah is ranked third in Malaysia’s labour force participation rate. Sabah has the second-highest number of employed persons with 1.8 million persons employed.

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Based on data from 2010, the manufacturing and service industries employed the most significant number of workers (Lim, 2018). As the sectors move towards higher value-added outputs and more intensive capital use, labour demand will focus more on high-skilled workers, requiring improved labour skills. The services sector comprises the largest share of total employment. In 2010, the share of employment in the services sector in Sabah increased to 51.5 per cent, which is 59.4 per cent of total employment created (Lim, 2018). Most of the jobs created in the other service sub-sectors include private education and health, small-scale business activities, cultural and sports (leisure) activities, and computers and other related activities. The small wholesale and retail trade sectors, hotels and restaurants are also key drivers of employment due to the tourism industry’s growth. Improvement in education and employment opportunities has enabled more women to participate in the labour market actively. As more women attained higher education, their participation in professional and technical groups increased. Female labour force participation increased to 49.0 per cent in 2010. In 2000, they accounted for only 44.5 per cent of the growing professional and technical categories, mostly working as teachers and nurses. Increases in female labour force participation rates have increased local labour supply, reducing any need for foreign workers. The creation of public and private higher learning institutions (IPTs) has redefined the workforce’s composition from the less educated to the more skilled, qualified and competent workers. Universiti Malaysia Sabah (UMS), Universiti Teknologi MARA (UiTM) Sabah branch, Open University Malaysia Sabah branch and Polytechnics are among the main tertiary education institutions offering vocational and semi-professional training in the state. Private higher institutions such as Tunku Abdul Rahman University College Sabah branch, North Borneo University College and INTI College Sabah to name a few have also contributed significantly to the development of competent human resources in the state. At the same time, it has changed the landscape of demand and supply of labour markets in the state mainly during the period of the high unemployment rate (Lim, Mansur, Furuoka, & Mahmud, 2007)

26


It is undeniable that Sabah faces many obstacles and challenges that may harm the state’s economic growth. However, the experience gained in recent years, primarily since the financial, economic crisis that plagued several ASEAN countries in 1997 has provided valuable lessons in predicting future economic problems. Past experiences can be a good source of information to ensure economic growth can be cushioned and sustained in the future. The state is endowed with natural resources, but it also has many economic potentials to be a strategic economic growth centre in the region. The agriculture and tourism sectors can position the state into a more competitive and comparative advantage. Therefore, the state needs strategic planning to build economic resilience and to sustain economic growth. Sabah’s positive trend of economic growth is the basis for sustained economic growth and a good starting point for global economic competition. The strong economic growth is expected to strengthen and further realise Malaysia’s vision to be a developed nation in the years to come.

Labour Market in Sabah

Theoretically, the labour market, also popularly known as the job market, refers to the supply and demand for labour in which employees supply labour to meet employers’ demands. Labour or worker is a significant component of any economic activities, and it is directly linked with markets for capital and output. Given the definition of the labour market, the consumers or workers have an option between working and leisure based on a given salary. Therefore, it can be assumed that wages or salary is a dominant factor that influences supply and demand decisions in the job market. A labour market is a place where workers and employees interact with each other. In the labour market, employers compete to hire the best workers, and the workers on the other side compete for the job that can give the highest wage satisfaction. In general, Malaysia’s labour market is expected to stay on the expansion

27


pace with industrial and economic activities. In other words, the local labour market is considered to be at full employment with the unemployment rate at 3.3 per cent. It means that the labour market is in a healthy state. Many job vacancies in the nation consist of low-skilled jobs. Besides, the alarming unemployment rate among graduates in the country is another area of concern. A stable and healthy labour market is crucial for Malaysia and the state of Sabah in particular. The government is now counting on domestic consumption to drive economic growth due to increased global economic uncertainties. In general, while the Malaysian workforce is entering the IR4.0 industrial revolution era, the puzzling question is whether the Malaysian workforce is ready with artificial intelligence (AI) phenomenon. The perception towards the rise of AI and automation among Malaysians are generally positive, although the adoption of such technology among businesses could result in substantial job losses. Therefore, labour market reforms are crucial to address job mismatch that contributes to graduate underemployment, unemployment and slow wage growth, and over-dependence on unskilled foreign labour. Other priority areas are improving labour efficiency and productivity, enhancing access to quality education and training, and fostering stronger industry-academia linkages. Under the priority area of reforming the labour market, four strategies were proposed: generating skilled jobs, raising salaries and wages, enhancing management of migrant workers and improving labour market conditions. The data reported by the Department of Statistics (2019, July 24) appear to support that the labour market in Sabah especially in critical sectors such as agriculture, mining, manufacturing and construction recorded a larger number of non-Malaysian employees compared to Malaysian employees. From a macroeconomic viewpoint, supply and demand interactions are influenced by domestic and foreign market dynamics and external factors such as immigration, population age and education. Thus, at macroeconomics level, relevant measurements include unemployment rate, productivity level, labour force participation rate, and Gross Domestic Product (GDP).

28


Apart from macroeconomic perspectives, labour market also can be evaluated based on the microeconomics perspectives. The micro-level includes the interaction between individual firms with employees about issues on the recruitment of workers, lay-off of workers or wages increment and adjustment. Also, the relationships between supply and demand significantly influence the hours the employee works and price of input determination in wages, salary and benefits. There are four leading players in the labour market, including labour force participants, job seekers with expertise and skills, a pool of people who showed their interest in applying for a particular job, and finally, individual or workers selected for the specific position or job.

Table 6 Labour force of Sabah (2015-2018)

Employment 2015 2016 2017 2018

Labour Force (’000) 1,863.4 1,927.1 1,903.8 1,937.6

Employed (’000) 1,771.1 1,823.7 1,796.3 1,825.5

Unemployed (’000) 92.3 103.3 107.5 112.2

Labour Force Participation Rates, LFPR (%)

Total 69.5 70.8 68.4 68.2

Male 86.1 85.4 84.8 85.0

Female 51.2 54.7 50.1 49.7

Unemployment rate (%) 5.0 5.4 5.6 5.8Source: Department of Statistics Malaysia (2019, April 30)

As of September 2019, Malaysia’s labour force participation rate has increased to 68.7 per cent (15.18 million), and the unemployment rate remained at 3.3 per cent. As for the labour market in Sabah, the state’s labour market condition is expected to grow steadily. Based on the data in Table 6, the labour force participation rate in Sabah is 70.8 per cent in 2017, an increase of 0.9 per cent from 69.90 per cent in 2013. However, youth and graduate’s unemployment (about 112,000) remain the cause of concern as the rate is the highest in the nation amidst the issues of skills mismatch. Many possible reasons can explain why the rates of youth and graduate unemployment keep increasing over time. The

29


reasons include more youth, as well as young graduates participating in the workforce. The rate of entrance in the labour market is not consistent with the rate of economic growth. Absorptive capacity in all sectors is slow; thus, the capacity is unable to absorb this new labour force. The mismatch between educational qualifications and the skills required by the industries often causes structural unemployment among graduates. The state should reduce its reliance on low-skilled foreign workers and, at the same time, attract professionals from foreign countries to the state. By bringing in more unskilled foreign workers into the state, economic activities in the state remain tepid and not moving towards advancement in high technology [Internet of Things (IoT)]. However, recent evidence suggests that foreign workers’ contribution to various sectors in the Sabah labour market is still significant to its development process. One potential consequence of this increased reliance on non-citizen employees is a greater rivalry for employment that threatens local workers. Thus, there is a positive correlation between the number of foreign workers’ and local workers’ high unemployment rate (Mansur, Sareya & Mahmud, 2015). A case study by Khor Yu Leng (2018, March 29) on selected oil palm districts in Sabah shows that a total of 848,200 foreign workers were involved in 90 per cent of the state’s oil palm areas (1.4 million oil palms planted areas). To boost output levels for all three sectors, the government must turn to a high-tech capital-based economy. The adoption and usage of technology, especially in downstream activities, is seen as the best option for sustainable development and the state to be more competitive.

Sabah Employment Trends and Facts

Sabah’s economy in 2018 has recorded a slower growth of 1.5 per cent as compared to 8.2 per cent in the previous year. The negative growth in several sectors affected economic performance significantly. However, effective strategic planning and continuous

30


implementation of pro-growth programmes and initiatives have provided a better platform for the state economy. Inevitably, the portion of non-Malaysians or the so-called foreign workers in various industries in Sabah is alarming. Thus, the government should find ways to reduce dependency on foreign workers, especially in critical economic sectors. The reliance on Sabah’s foreign workers can be seen in the 2018 Labor Force Survey Report (Department of Statistics Malaysia, 2019, April 30). The existing policy fails to resolve the socio-economic issues in Sabah that highlighted the need to create more job opportunities, particularly youth. Sabah recorded a high unemployment rate of 5.8 per cent above the national rate of 3.3 per cent. Therefore, establishing the manufacturing industries in Sabah is essential, and this activity may intensify job creation in the economy. Light and heavy industries with demand for semi-qualified and professional workers would be a significant provider of employment opportunities in Sabah.

43

The dependency of the labour force in Sabah on foreign workers is obvious based on the statistics

provided by the Labour Force Survey Report in 2018 (Department of Statistics Malaysia, 2019, April

30). The existing policy fails to resolve the issues of socio-economy in Sabah that highlighted the need to

create more job opportunities, particularly for youth. Sabah recorded high unemployment of 5.8 per cent

above the national rate of 3.3 per cent. It seems a serious mismatch exists between demand and supply in

the labour market in the state. Therefore, sustainability growth is needed to secure job creation in efforts

and as an investment in establishing manufacturing industries at the Sabah state production level. It will

play a crucial role in the economy. The light and heavy industry with semi-skilled and skilled workers will

be a major provider of job creation and domestic output for Sabah.

Source: Department of Statistics Malaysia (2019, April 30)

Figure 14 Sabah employment trend 2008 – 2018

The data in Figure 14 indicates that Sabah recorded a 5.8% unemployment rate in 2018. Again, the

figure is the highest in the country. There is an inconsistency in economic development in terms of GDP,

despite being high, an imbalance between the labour force and employed person. The state has poor job

creation, especially among youth or fresh graduates. Youth unemployment was recorded at 13.5% in Sabah,

4.4

4.6

4.8

5

5.2

5.4

5.6

5.8

6

0.00

500.00

1,000.00

1,500.00

2,000.00

2,500.00

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Pers

on ('

000)

Year

Labour force Employed Unemployment rate


Figure 14 Sabah employment trend 2008 – 2018

The data in Figure 14 indicates that Sabah recorded a 5.8 per cent unemployment rate in 2018. Again, the figure is the highest in the country. The state is still struggling in terms of job employment, especially among youth or fresh graduates.

31


Table 7 Labour force in Sabah by ethnics, 2008 – 2018 (‘000)

Year Total population

TotalMalaysians Bumiputera Chinese Indians Others Non-Malaysians

(%)

2008 1,294.20 909 728.7 128 18.5 33.9 385.2

2009 1,345.30 954.1 758.5 131 27.9 36.8 391.2

2010 1,480.70 915.1 736 139.6 5.8 33.7 565.6

2011 1,562.50 977.7 785.9 147.7 11.5 32.5 584.8

2012 1,627.90 1,022.30 831.1 144.9 11.1 35.1 605.6

2013 1,801.70 1,089.70 883.8 156.5 9.1 40.2 712

2014 1,831.60 1,106.00 910.3 150.2 17.9 27.7 725.5

2015 1,863.40 1,129.20 921 157.8 6.1 44.3 734.3

2016 1,927.10 1,146.40 927 157.8 9.4 52.1 780.7

2017 1,903.80 1,126.00 918.4 153.8 2.8 51 777.8

2018 1,937.60 1,167.90 953.5 157.5 3.5 53.4 769


The labour force in Sabah from the year 2008 to 2018 is shown in Table 7. In 2018, nearly 1 million Bumiputera, 0.16 million Chinese, 0.9 million Indian and 0.1 million workers of other ethnic groups were employed. Meanwhile, 2.2 million non-Malaysian workers are employed.

44

higher than the national average of 11.1%. This reveals a mismatch of labour supply and the types of jobs

created in the state.

Table 7 Percentage of the labour force in Sabah by ethnics, 2008 – 2018

YearTotal population

TotalMalaysians Bumiputera Chinese Indians Others Non-

Malaysians2008 1,294.20 909 728.7 128 18.5 33.9 385.22009 1,345.30 954.1 758.5 131 27.9 36.8 391.22010 1,480.70 915.1 736 139.6 5.8 33.7 565.62011 1,562.50 977.7 785.9 147.7 11.5 32.5 584.82012 1,627.90 1,022.30 831.1 144.9 11.1 35.1 605.62013 1,801.70 1,089.70 883.8 156.5 9.1 40.2 7122014 1,831.60 1,106.00 910.3 150.2 17.9 27.7 725.52015 1,863.40 1,129.20 921 157.8 6.1 44.3 734.32016 1,927.10 1,146.40 927 157.8 9.4 52.1 780.72017 1,903.80 1,126.00 918.4 153.8 2.8 51 777.82018 1,937.60 1,167.90 953.5 157.5 3.5 53.4 769



Figure 15 Percentage of the labour force in Sabah, 2018

60.2%

39.6%

Percentage of Labour Force 2018

Malaysians Non-MalaysiansSource: Department of Statistics Malaysia (2019, April 30)

Figure 15 Percentage of the labour force in Sabah, 2018

32


The pie chart in Figure 15 shows that almost 40 per cent of the labour force in Sabah are non-Malaysians. The Indonesians and Filipinos are the two main groups of non-Malaysians employed in Sabah in terms of the percentage of the labour force. Others include citizens from Pakistan, China, India or other countries.

Table 8 Employed Persons in Sabah by Ethnic, 2016 – 2018 (‘000)

Year 2016 2017 2018

Population 1,823.70 1,796.30 1,825.50

Malaysians 1075.1 1045.4 1,087.30

Bumiputera 866.4 849.7 882.60

Chinese 150.4 146.9 152.50

Indians 9 2.6 3.3

Others 49.6 46.2 48.9

Non-Malaysian 748.7 750.9 738.20Source: Department of Statistics Malaysia (2019, April 30)

The data in Table 8 shows the number of employed persons in Sabah from 2016 to 2018. Based on the year 2018, approximately 0.8 million are Bumiputera, 0.1 million Chinese, 0.003 million Indian and 0.048 million others. For non-Malaysians, 0.7 million are employed.

46


Figure 16 Percentage of employed persons by industry, Sabah, 2018

Based on the information in Figure 16, agriculture, forestry and fishing sector recorded the largest

number of employed persons by industry in Sabah 2018. The agriculture, forestry and fishing sector

recorded 27.6 per cent employed persons while the wholesale and retail trades sector had 19.6 per cent

employed persons. Meanwhile, the manufacturing sector and construction sector also had 8.8 per cent and

8.2 per cent respectively. Accommodation and food service and education with 7.7 and 5.3 per cent

respectively (Department of Statistics Malaysia, 2019, April 30).

27.68.8

8.219.6

7.75.37

4.94.5

0 5 10 15 20 25 30Percentage (%)

Type

s of i

ndus

try

Public administration and defenceAdministrative and support servicesEducationAccomodation and food servicesWholesales and retail trades, repair of motor vehicles and motocyclesConstructionManufacturingAgriculture, forestry and fishing


Figure 16 Percentage of employed persons by industry, Sabah, 2018

33


Based on Figure 16, the agriculture, forestry and fishing sectors recorded the largest number of employed persons in Sabah 2018. The agriculture, forestry and fishing sector recorded 27.6 per cent employed persons while the wholesale and retail trades sector had 19.6 per cent employed persons. Meanwhile, the manufacturing and construction sectors employed 8.8 per cent and 8.2 per cent of the total employees, respectively. The percentage of workers employed in the accommodation and food service and education is 7.7 and 5.3 per cent respectively (Department of Statistics Malaysia, 2019, April 30).

Labour Productivity and Wages

Labour productivity is another critical instruments of the labour market and an economic indicator to measure the output produced per hour. External factors such as advancements in technology and improved efficiency are the significant factors that influence labour productivity. Apart from that, the wages or salary must be comparable to productivity gains. Implementing the minimum wage regulation ensures that the payment of wages is in line with productivity growth. The minimum wage in East Malaysia (Sabah and Sarawak) was relatively low at RM920 compared to Peninsular Malaysia. Later, on 1 February 2020, the minimum wage increased to RM1,200 in major cities nationwide, while the rate is RM1,100 in other parts of the country (Attorney General’s Chambers of Malaysia, 2020). The main objective of the minimum wages policy in Malaysia is to improve the welfare of low paid workers and at the same time to transform the nation into a capital- intensive country and to reduce the dependency on cheap foreign labour. Low-skilled and foreign workers usually worked long hours and are lowly paid based on hourly rates. The dependency on low-paid workers results in delays of technological upgrade and unattractive work conditions, especially to Malaysian workers. These scenarios will take away the concept of the work-life balance

34


that has been the nation’s priority for physical and mental health well-being for many years. Thus, the Sabah State Government must aggressively and wisely plan a more considerable investment in human capital development for Sabah’s better future development. To improve Sabah’s economic development, we must prioritise our resources in key sectors that can generate economic growth, i.e. in the industrial and downstream activities.

Human Capital and Education

As discussed in the introductory part, human capital is an integral element that reflects a country’s growth and development. A quality human capital could accelerate the nation’s economic progress. The quality of human capital can be translated via the level of education, training and health. Therefore, the objective to spur economic growth necessarily includes the aspect of human capital development. This is to ensure that each citizen is productive and able to contribute to economic development. In other words, investment human capital would have a substantial positive impact on the community. Various studies have explored the connection between human capital and economic growth. A study by Ramirez, Ranis, and Stewart (1998) explains gaps in systematic exploration in the relationship between human capital and economic growth. Furthermore, human capital development’s positive impact can be assessed through the population’s increased capacity, productivity, and creativity. The level of education in one country will determine the human capital’s ability to manage all productive resources, such as technology innovation which can be utilised at the maximum level. Most past studies focus on the effect of education investment on the economic growth of a nation. Mankiw, Romer, and Weil (1992), Barro and Sala-i-Martin (1995) and Barro (1996a; 1996b) in their studies found that there is a positive relationship between the schooling periods and economic growth. At the same time, by using a more detailed filter measure on skills, a nation

35


whose literacy level is as much as 1% higher than the average is witnessing a rise of as much as 1.5% in GDP growth per capita. In a case study in Germany, the difference in human capital financing can explain most productivity inequality between many areas in that country. On average, schooling considered 3/10 of the productivity gap between the states and schooling. Education mostly plays a vital role in comparing states’ productivity in cities like Berlin, Bremen and Hamburg in Germany. Compared to physical capital such as machines and the like, even though it has significant links with productivity, it is still not as important than human capital. Wibisono (2001), in his study, found out positive impacts of education attainment, life span and infant mortality number towards economic growth. It means that the quality of human resources through completing the educational level is crucial in human capital. Thus, education as an investment in human capital is essential as quality human capital gained from such investment increases productivity levels, leading to faster growth for the national economy than investment in physical capital. Investment in education also relates to one’s wage rate. The more education a person invests the higher wage rate the individual is expected to receive. A study has found that an additional year of schooling is associated with a 7.8 per cent increase in an individual’s wage rate. This study supports the human capital theory that the return rate from schooling impacts a person’s wage rate and productivity. It could further accelerate the economic growth of a nation. From the macroeconomic growth model, education is an essential aspect for a country to attain economic growth where education influences income distribution. Studies in Malaysia have shown differences in income among different races and gender with higher education attainment. In addition to these direct effects of an investment in human capital to economic development, there are also indirect effects. The indirect effects can be seen in terms of physical and mental well-being, such as health and nutrition, fertility, and cognitive development. Data obtained from the World Fertility Survey (WFS) and Demographic and Health Survey (DHS) found that premature death risk is low among children with highly educated parents in

36


advanced countries (Hobcraft, 1993). This study supports previous socio-economic research that shows better health conditions among children with educated parents due to better healthcare treatment access. Similarly, a low death rate among children was reported with an educated mother as individuals with education can easily understand and access health-related information (Mackinnon, 1995). Literature also indicates a link between women’s education and fertility rates. Women who have achieved a high standard of education have been shown to earn higher incomes, raising the opportunity costs of holding their children up. Educated parents will also expect their children to attain a high education level, thus increasing their education expenditure. Alternatively, educated parents tend to limit the number of children due to larger families’ higher expenses. Similarly, findings from DHS have shown that fertility rates are higher among women who have only completed secondary education. Education is thus crucial in creating a society with better cognitive skills and health in future generations. Therefore, investment in education is an economic enabler that could generate better human capital management, growth, and development. Therefore, by doubling the effort to develop human capital in society, it can produce creative and innovative human resources to participate and be involved in productive economic activities. Education plays a significant role in generating active economic growth, increasing competitiveness, and improving the state’s well-being and better quality of life. Given that Malaysia is heading towards a modern industrial era, many talented human resources in various new areas are needed. With the 11th Malaysia Plan (11MP) implementation and the 2nd Long Term Perspective Plan Framework (RRJP2), the nation’s human resource development needs to be strengthened in line with the IR4.0 to gear the country towards a steady economic growth and productivity.

37


At the same time, education as a measure of quantity, the availability and quality of human capital is the only tool that can be used to evaluate the effect or influence of human capital on economic growth (Benhabib & Spiegel, 1994). To many people, capital is in the form of bank accounts, shares, steel mill and etc. All those mentioned above are physical capital as they generate income and other useful output in the long run. Besides these tangible capitals are human capitals such as education or schooling, training and health care. An individual embedded with all these educational elements can have greater work productivity, generate higher income, improve health and fitness, have good personal development and character such as being trustworthy and responsible. Hence, education and training, among others, are the most important forms of investment in human capital. Moreover, many studies in the United States of America show that high school and college education lead to improved earnings even after considering the direct costs (study fees and cost of purchasing books) and indirect costs (income received if employed) during schooling. Studies conducted in many other countries with different cultural and economic structures have also shown the same result, i.e. income received by educated people will still be above average income levels. Furthermore, the growth in per capita income of a country is partly dependent on scientific and technical knowledge development, which further improve labour productivity and other inputs in production. Economic growth is closely connected to the synergy between new knowledge and human capital. This is obvious because there have been significant advancements in education, accompanied by major development in technological expertise in all countries that have achieved significant economic growth. Leading economic records for countries like Japan, South Korea, Taiwan and other emerging Asian economies have shown the importance of human capital in economic growth and development.

38


Level of Education among Selected Ethnics in Sabah

and Their Role towards Development

To re-emphasise, Sabah consists of a multi-racial and multi-ethnic community. Among the ethnic groups in Sabah are Kadazandusun, Bajau Samah, Murut, Bisaya, Sungai, Kadayan, Bugis, Iranun, Ida’an and Bruneian Malay, while the Chinese community is the biggest non-native group. Thus, Sabah represents a unique mix of the multi-racial population with exclusive cultural lifestyle and living. In Sabah, the Kadazandusun native group has the most significant number, representing almost one-third of Sabah’s population. They are living mostly within the lands of Sabah. They used to be paddy farmers, but nowadays, they work in various fields, including government and private sectors or becoming entrepreneurs and self-employed. The Kadazandusun people have been well blended in society and very mobile; hence, they are found in all parts of the state and some parts of the Malaysian states and other countries. In general, ethnic diversity has played an essential role in shaping and paving the way for Sabah’s economy over the last 50 years. The participation of all races in the coalition government in the past has shown that all parties with various racial backgrounds and religions have had a positive effect on the state’s economic development. We claim that this positive economic achievement has been brought about by cooperation between societies, resulting in a harmonious atmosphere and away from any friction and dispute between various communities. In this book, the author will not describe the economic influence of the entire ethnic population; instead, the author intends to identify areas that can provide a basis for more research on the contribution of different ethnic groups to the state’s development.

39


According to Mansur, Kogid and Madais (2010), one in three Kadazandusun families in their research has one or more children studying at a higher learning institution. More than half of the respondents have children still studying in primary or secondary school level. Respondent’s children who were able to continue their studies in higher learning institutions have managed to secure jobs such as teachers, entrepreneurs, technicians, and many professional areas. This shows that the Kadazandusun understands the importance of education and their level of involvement and participation in the labour force is also quite encouraging. In the case of occupation, 30 per cent of the respondents are self-employed, and few of these respondents have part-time jobs besides their full-time jobs. The respondents’ income distribution shows that 57.5 per cent have a total income between RM800 to RM1,500, while only 7.5 per cent of respondents receive income less than RM800. In one study of Bajau Samah, 82 per cent of the respondents have formal education, while only 18 per cent did not attend formal schooling. However, those who did not have a formal education were literate, where they could read, write, and count. The percentage of respondents who attained tertiary education is 22 per cent, upper secondary education 24 per cent, primary education 20 per cent and lower secondary education 16 per cent. In terms of employment, 74 per cent of the respondents worked either in public or private sectors. They received a basic salary between RM800 – RM1,200 per month. As education is one of the essential parts of human capital, an individual must equip themselves with formal and non-formal schooling. Investment in education can boost the soft-skills and hard skills of an individual. An individual who spends more years in schooling can increase productivity with their knowledge and understanding and subsequently earn a better income. This can enhance the standard of living of the individual. Another research conducted looking at the highest level of education in the Rungus population reveals that 42.5 per cent of respondents were in secondary education, while 39.2 per cent were in primary school. Only 8.3 per cent of the respondents attained a bachelor’s degree, and 3.3 per cent diploma holders. The study found that education is viewed as important to the Rungus

40


community. Interestingly, the Rungus community also emphasised the importance of the culture and heritage of Rungus in the education of children. Respondents viewed that schools should encourage using the Rungus language in the early education system among the Rungus community. The primary data were obtained from a survey of 327 Rungus rural households in Kudat, Kota Marudu and Pitas, the northernmost part of Sabah. The research found that all livelihood assets have a significant positive impact on exiting poverty except for vulnerability. The Rungus needs time to escape poverty with the estimation of 9.78 years with constant yearly financial growth. These results show that capital investment is significant to reduce poverty. Human capital has always played an essential role in the development of a nation, and they are also part of the country’s economic drivers. Therefore, it is crucial to increase their participation in the economy. This can be done by increasing the numbers of local citizens, young and old, to formal education. Education increases human capital (soft-skills and hard skills), thus preparing people for better work opportunities and good income. In one study done on the Bruneian Malay communities in Papar, Sabah, the perception towards the importance of education among the community, it is found that among 189 respondents, almost 42.4 per cent of them are diploma and degree holders. The respondents also perceived that education is important (78 per cent), and nearly 50 per cent of them strongly agreed that education could influence future income. Furthermore, more than 75 per cent agreed that a higher level of education might contribute to a higher income level. To continue, in terms of education, 38.6 per cent of respondents have finished their SPM (O-Level) while 19.6 per cent either completed the STPM (equivalent to A-Level) or were diploma holders. There was 22.8 per cent of respondents who graduated from public or private higher institutions in various study fields while 1.6 per cent of them have no formal schooling. Another 3.7 per cent have attended primary schools. The study found that more than three-quarters of the respondents strongly agreed that education is vital. The respondents have also given

41


positive feedback on the importance of education. They recognise that education will affect their future income, where 47.1 per cent of them strongly agree, while 45 per cent agree that education is connected to future income. Education is the most important mechanism to generate quality human capital and form a ‘knowledge society’ of a country capable of transforming society towards a ‘first-class mentality’. Hence, the government has put a lot of effort to continuously improve the educational support system’s quality and grants allocated for all schools. The government’s support in developing human capital in Sabah is visible through the Ministry of Education’s effort. The total budget for education in 2020 is RM64.1 billion, an increase from 2019 (RM60.2 billion) and will benefit all schools and higher institutions in the nation. From the amount given, RM735 million is used to upgrade and upkeep schools nationwide while poor schools, especially in Sabah and Sarawak, have been allocated RM783 million for their upkeep. This is necessary to deliver excellence and face the numerous challenges in the coming years, particularly among the indigenous community in the state. Previous research has found that human capital development related to all ethnicities’ immersion might be inclined by few determinants such as employment, income level, total expenditure and distance. Most of the children from the villages involved in this study have finished their tertiary education in local higher education and private institutes. These children have received loan assistance and scholarships from the government. This situation indicates that the government is concerned about investment in human capital, such as education among the Sabah native community. The government effort was proven by allocating RM2.1 billion in the 9th Malaysia Plan, which was specifically earmarked for the development of education in Sabah. The government also ensured that the development of education in Sabah is successful by encouraging the Sabah Education Department to improve participation among state agencies. All parties involved in the Sabah Education Department such as primary, secondary and tertiary education providers, must convey beneficial

42


and valuable knowledge to all Sabah natives. They must be ready to face the challenge in future global competition. This would be vigorous as this generation will regulate the directorial pattern of the country’s situation towards a better, more developed with the sustainable environment in the future (Ministry of Education Malaysia, 2013). Higher education will lead to a higher productivity level of future labour that benefits the nation regarding citizens’ involvement in the nation’s production.

Challenges in Sabah’s Economic DevelopmentSeveral long-standing issues remain unresolved, which hamper the pace of development of Sabah. Sabah is still a predominantly rural state, with the highest poverty rate recorded among all states in Malaysia (Department of Statistics Malaysia, 2017, January 9; Institute for Development Studies, 2007). This is exacerbated by the location of rural communities in remote locations across large, geographical areas. As a result, the limited connectivity and accessibility in the sparsely and scattered populated locations are the reasons that have posed challenges in the provisions of basic rural infrastructure. Furthermore, the wide rural-urban and the regional development imbalances have also affected the extent of socio-economic activities in terms of education and healthcare provisions to the people living in rural and remote areas resulting in low employment and higher poverty levels. In general, Malaysia’s poverty incident has declined in all states from 1999 to 2014, as shown in Table 9. The Malaysian poverty rate experienced a considerable reduction in the incidence of poverty during the last few decades; however, the rate of poverty is still high in several states in the country (Siwar, Ahmed, Bashawir, & Mia, 2016; Siwar, Ahmed, Zahari et al., 2016). The poverty rate in urban areas has decreased from 25.5 per cent in 1970 to merely 1 per cent in 2012. However, urban households’ average monthly income is much higher (almost twice) than that of rural families,

43


indicating income inequality between the urban and rural areas (Siwar, Ahmed, Bashawir et al., 2016, Siwar, Ahmed, Zahari et al., 2016). Although it is evident that Sabah has shown the most significant improvement in reducing the absolute poverty rate from 19.7 per cent in 2009 to 2.9 per cent in 2016 as indicated in Figure 17, Sabah recorded the highest incidence of absolute poverty in the country in 2016. In 2016, the median monthly household income in Sabah was RM4,110, below the national level of RM5,228. Sabah also recorded a mean monthly household income of RM5,354 in 2016, which is also below the national level of RM6,958. A study by ethnic groups by Lim and Mansur (2015) found that the Rungus is the poorest group in Sabah with 58.2 per cent incidence of poverty.

Table 9 Poverty incidence (%) by states in Malaysia

1999 2002 2004 2007 2009 2012 2014Johor 3.1 2.5 2 1.5 1.3 0.9 0Kedah 14.2 9.7 7 3.1 5.3 1.7 0.3Kelantan 25.2 17.8 10.6 7.2 4.8 2.7 0.9Melaka 29 1.8 1.8 1.8 0.5 0.1 0.1N. Sembilan 4.1 2.6 1.4 1.3 0.7 0.5 0.4Pahang 9.8 9.4 4 1.7 2.1 1.3 0.7Perak 6.8 6.2 4.9 3.4 3.5 1.5 0.7Perlis 13.6 8.9 6.3 7 6 1.9 0.2P. Pinang 0.7 1.2 0.3 1.4 1.2 0.6 0.3Sabah 23.4 16 23 16 19.7 8.1 4Sarawak 10.9 11.3 7.5 4.2 5.3 2.4 0.9Selangor 1.9 1.1 1 0.7 0.7 0.4 0.2Terengganu 22.7 14.9 15.4 6.5 4 1.7 0.6FT KL 0.4 0.5 1.5 1.5 0.7 0.8 0.1FT Labuan − 7.1 2.6 4.2 4.3 1.1 1.1

Source: United Nations Malaysia (2016)

Another challenge facing the economy of Sabah is the dependency on foreign workers. Due to the proximity to neighbouring countries like the Philippines and Indonesia, job opportunities, history and cultural affinity, family networks, and hardship in the home country make Sabah the favourite destination for migrants in Malaysia (Lasimbang, Tong, & Low, 2016). In 2017, Sabah was home to 1,126,046 migrants. According to the Labour

44


Force Survey Report 2017, 30 per cent of Sabah citizens are non-Malaysians consisting of 16.1 per cent Indonesians, 12. 6 per cent Filipinos, and 0.4 per cent others. In terms of distribution, as shown in Figure 18, foreign workers are highly concentrated in Kota Kinabatangan with more than 60 per cent of foreign workers working in this area (Department of Statistics Malaysia, 2018, October). A significant share of foreign workers (40 to 60 per cent) works in Tawau, Kunak and Beluran. Approximately 20 to 40 per cent of foreign workers were found in Kota Kinabalu, Keningau, Lahad Datu, Semporna, Keningau, Sandakan, and Tongod.

21.1

61.8

12.8

27.3

32.3

19.2

22.5

27.3

47.3

32

44.4

38.5

41.4

44.7

101.6

38.9

17.8

38.4

9.8

21.6

23.9

14

17.4

18.2

33.5

22

35

29.4

29.4

32.3

64.7

28

0 20 40 60 80 100 120

Sabah

FT of Labuan

Kelantan

Terengganu

Pahang

Kedah

Perlis

Perak

Pulau Pinang

Johor

Sarawak

Negeri Sembilan

Melaka

Selangor

FT of Kuala Lumpur

Malaysia

GDP

Per C

apita

(RM

'000

)

2010 2016

2.9

0

0.3

0.4

0.2

0.2

0.2

0.2

0.1

1.3

0.6

0.2

0

0

0

0.4

19.7

19.2

4.8

4

2.1

5.3

6

3.5

1.2

1.3

5.3

0.7

0.5

0.7

0.7

3.8

0 5 10 15 20 25

Sabah

FT of Labuan

Kelantan

Terengganu

Pahang

Kedah

Perlis

Perak

Pulau Pinang

Johor

Sarawak

Negeri Sembilan

Melaka

Selangor

FT of Kuala Lumpur

Malaysia

Abso

lute

pov

erty

rate

(% o

f hou

seho

lds)

2009 2016

Source: Economic Planning Unit (2018)

Figure 17 GDP per capita and absolute poverty rate in Malaysia, 2010 – 2016

45


Source: Lee & Khor (2018)

Figure 18 Foreign workers as a percentage of the total workforce by districts in Sabah and Sarawak, 2016

In terms of Sabah workforce, it is reported that 1,755,898 people are working in various industries in Sabah. The contribution of foreign workers in Sabah is significant. Out of the figure, 60.2 per cent are Malaysians, while 39.8 per cent are non-Malaysians. Indonesians contributed 22.4 per cent of the total workforce, followed by Filipinos and other non-Malaysians, both contributed 16.6 per cent and 1.0 per cent, respectively. Figure 19 shows the percentage of Malaysian and non-Malaysians (Indonesians and the Filipinos) working in 5 main economic sectors in Sabah. Surprisingly, only the services sector recorded a larger number of Malaysian workers than non-Malaysian workers among the five sectors. Agriculture sector recorded the highest percentage of migrant workers with 62.6 per cent, followed by the mining and quarrying sector with 54.3 per cent of migrant workers. 52.9 per cent and 52.2 per cent of foreign workers reported in the construction and manufacturing sectors, respectively.

46


60

cent are Malaysians while 39.8 per cent are non-Malaysians. Indonesians contributed 22.4 per cent of the

total workforce followed by Filipinos and other non-Malaysians, both contributed 16.6 per cent and 1.0 per

cent respectively.

Figure 19 Percentage of Malaysians and non-Malaysians in Sabah main economic sectors, 2017

Source: Department of Statistics Malaysia (2018, October)

Figure 19 shows the percentage of Malaysian and non-Malaysians (Indonesians and the Filipinos)

working in 5 main economic sectors in Sabah. Surprisingly, among the 5 sectors, only the services sector

recorded a larger number of Malaysian workers compared to non-Malaysian workers. Agriculture sector

recorded the highest percentage of migrant workers with 62.6 per cent, followed by the mining and

quarrying sector with 54.3 per cent of migrant workers. 52.9 per cent and 52.2 per cent of foreign workers

reported in the construction and manufacturing sector respectively.

37.3

45.7

47.7

47.1

75

62.6

54.3

52.2

52.9

22.8

0 10 20 30 40 50 60 70 80

Agriculture

Mining and Quarrying

Manufacturing

Construction

Services

Percentage (%)

Mai

n se

ctor

s

Non-Malaysians (Indonesians and Filipinos) Malaysians

Source: Department of Statistics Malaysia (2018, October)

Figure 19 Percentage of Malaysians and non-Malaysians in Sabah main economic sectors, 2017

61


Figure 20 Employment by skills category and region

Table 10 Employment by skills category and region, 2015 and 2017


Figure 20 and Table 10 show the total employment comprising of skilled, semi-skilled and low

skilled categories in Malaysia between 2015 and 2017. In 2017, the Sabah region recorded the least share

Skills category by region, % share

Skilled

Semi-skilled

Low-skilled

Total

Sarawak region

Southern region

Eastern region

Sabah region

Northern region

Central region

Malaysia

2015 2017 2015 2017 2015 2017 2015 2017 2015 2017 2015 2017 2015 2017

19 19 22 25 18 19 14 15 22 25 37 39 26 28 65 64 66 64 67 67 59 59 67 65 53 52 60 60 16 17 12 11 15 14 27 26 11 10 10 9 14 12

100 100 100 100 100 100 100 100 100 100 100 100 100 100

198 213 194 169 266 246 497 485 300 285 492 458793 798 1,044

2,0381,185 1,201 1,060 1,076

1,865 1,832

2,588 2,669

224 240345

408

318 348 254 273

632 717

1,815 1,993

0

1,000

2,000

3,000

4,000

5,000

6,000

Empl

oym

ent (

'000

)

Skilled

Semi-skilled

Low-skilled


Figure 20 Employment by skills category and region (‘000), 2015 and 2017

Figure 20 and Table 10 show the total employment of skilled, semi-skilled and low-skilled categories in Malaysia between 2015 and 2017. In 2017, the Sabah region recorded the least share of skilled-workers with total employment of 15 per cent of the entire workforce and remained below the national average of 28 per cent. Similarly, the share of semi-skilled workers in Sabah accounted for 59 per cent of the total workforce, also below the

47


national average of 60 per cent. Sabah region recorded the highest share of low-skilled workers among other areas in Malaysia, with 26 per cent above the national average of 12 per cent. Sabah is highly dependent on low-skilled foreign workers in labour-intensive sectors, such as agriculture.

Table 10 Employment by skills category and region (%), 2015 and 2017

Skills category by

region, % share

Sarawak region

Southern region

Eastern region

Sabah region

Northern region

Central region Malaysia

2015 2017 2015 2017 2015 2017 2015 2017 2015 2017 2015 2017 2015 2017

Skilled 19 19 22 25 18 19 14 15 22 25 37 39 26 28

Semi-skilled 65 64 66 64 67 67 59 59 67 65 53 52 60 60

Low-skilled 16 17 12 11 15 14 27 26 11 10 10 9 14 12

Total 100 100 100 100 100 100 100 100 100 100 100 100 100 100


Besides poverty and abundance of foreign workers, another challenge of Sabah’s economic development is the lack of connectivity and access to basic infrastructure amenities and services. Sabah’s geographical characteristics, including swamplands around the coast, mountains and rainforests, further intensify connectivity problems within the region. The state’s rough terrains and vast size become the main barrier for land transport to reach rural and remote areas. Half of the roads in Sabah is in the form of gravel or earth roads. Hence, a lack of access to basic infrastructure, amenities and services remains a problem. Access to clean and safe water in remote areas is difficult due to the high cost of infrastructure. With the lack of connectivity and accessibility, proper healthcare provisions are also limited in terms of the healthcare delivery system in reaching the locals in the rural and remote areas. This is evident by the low frequency of mobile clinics and inadequate health facilities in Sabah. Apart from that, the high numbers of undocumented foreign people who entered Sabah are also one of Sabah’s primary concerns. These unregulated and unprotected migrant workers might affect health policies and law. As a result, these undocumented foreigners are exposed to health risk, threatening the locals’ health.

48


Policy and Action Plan in Sabah Economic

DevelopmentSabah has carried out several policies and action plans in its economic development, in line with the Malaysian National Development Strategy (MyNDS). Sabah is rigorously continuing its effort and intensifying economic growth to sustain Sabah’s development and reduce poverty. The plans of action are Sabah Long Term Strategic Action Plan 2035 (Sabah. LEAP) 2016 – 2035, SDC, NKEA, and the recent National Transformation Policy through the New Economic Model. These policies have outlined various development strategies to improve the quality of life primarily rural community life, enhancing social well-being, environmental sustainability and balanced development. Sabah is bestowed with rich natural resources that can offer Sabah tremendous economic opportunities to prosper into a wealthy nation. Oil palm-based industry, tourism-related services and agro-based industry remain the niche economic sectors and potential to Sabah’s economic development. However, the federal government has to ensure that Sabah receives a fair share of the resources’ revenue. Sabah can further accelerate its development by developing identified growth areas which include Kota Kinabalu Conurbation (Kota Kinabalu, Tuaran, Putatan, Penampang and Papar), four Promoted Development Zones (Keningau, Sandakan, Tawau and Lahad Datu) and eleven Catalyst Centres (Kudat, Kota Belud, Kota Marudu, Ranau, Kimanis, Beaufort, Tenom, Sipitang, Kota Kinabatangan, Tongod and Semporna) (Energy Commission, 2019). Efforts to improve Sabah’s population’s well-being include expanding access to basic infrastructure, amenities, and services. Increasing the accessibility of water supply is one of the main ingredients of the policy. In 2016, Sabah achieved 79 per cent of clean and treated water supply. Apart from that, Sabah is also expanding the electricity supply coverage using alternative systems

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such as solar hybrid, micro and pico-hydro, which could support broader scope in remote areas. Improving digital infrastructure and increasing ICT tools are among the initiatives carried out to boost economic development. Expanding the coverage and quality of broadband services in rural areas could bridge the digital economy gap between urban and rural areas. In terms of health, the government is trying to improve healthcare services such as clinics and rural clinics by upgrading health facilities such as mobile clinics for rural residents. To further intensify Sabah economic growth and eradicate poverty, improving urban and rural linkages is essential to minimize the urban-rural development gap. This can be achieved by improving public transportation services through community-based public transport systems for better connectivity and mobility between major towns and rural areas. Enhancing Rural Transformation Centres’ role should benefit all citizens, including rural entrepreneurs, as a platform to promote market products. Rural infrastructure is fundamental for development; hence initiatives should be geared towards construction and upgrading paved roads to improve connectivity, accessibility and mobility of people and goods to spur economic activities between and within the region. The Pan Borneo Highway’s ongoing construction will enhance mobility and connectivity between regions and stimulate economic activities in the rural areas. Human capital continues to become an essential element in a country’s development in today’s environment. Strengthening of human capital should continue to become the main agenda in Sabah’s economic development plan. The government should create jobs through upskilling and reskilling of human capital through training and education. As the pool of expertise and highly skilled workers in some specific industry are insufficient, especially in high-demand sectors such as services, small and medium-sized enterprises, tourism and hospitality, enhancing skills among individuals is required to ensure employability. For this particular reason, Sabah is directly in need of a technology-based institution to meet the demand for technically-skilled workforce in the years to come.

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In short, the provision of better education facilities and financial support are noble and wise government initiatives. The quality of human capital should also be facilitated by a modern, conducive and sophisticated education system. It is hoped that these efforts can create awareness and benefit the people of Sabah and to Malaysians as a whole. Therefore, the importance of education is paramount in developing its potential and contributes to the growth of the country’s economy.

Sabah Development Corridor (SDC)

The Sabah Development Corridor (SDC) programme was launched by the fifth Prime Minister of Malaysia, Tun Abdullah bin Ahmad Badawi on 29 January 2008. The establishment of SDC created a new paradigm towards Sabah economic transformation, hopes and aspiration simultaneously to transform Sabah as a developed state by the year 2025. SDC is a long-term strategic plan, and the planning was included under the Ninth Malaysia Plan (RMK9). With the objectives for sustainable economic growth and zero hardcore poverty, SDC has been targeted to three major economic growth, i.e. agricultural sector, manufacturing and services (logistic and tourism). The implementation of SDC is anticipated to be the ‘transformation bridge’ for Sabah community to get out of poverty stream and into prosperity. The path ahead will make SDC face the challenges that make Sabah more resilient, developing and viable, alleviate poverty and prosperous people’s lives, build up organized, and conserving and preserving a sustainable nature. By 2025, the implementation of the SDC is expected to provide 900,000 job opportunities to Sabah’s population with unemployment expected to decrease to 3.5 per cent over 18 years. Sabah GDP is also expected to increase four times from RM16.0 billion in 2006 to RM63.2 billion in 2020. Meanwhile, GDP per capita is projected to triple from RM5,331 in 2006 to RM14,784 in 2020 and poverty is expected to decline gradually.

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National Key Economic Area (NKEA)

NKEA is an important policy that directs economic activities that potentially contribute towards Malaysian economic growth measured by the Gross National Income (GNI). This policy will continuously create job opportunities and at the same time, attract a pool of Malaysian talents. The NKEA also has a unique approach whereby the private sector will be at the forefront while the government acts as a facilitator. There are twelve (12) NKEA as the core of the Economic Transformation Programme. Among the key focuses of NKEA is tourism. In the past twenty years, the tourism industry has been one of the major contributors to GNI. Tourism has a major spillover in terms of foreign exchange rates and job opportunities in Sabah. These are in line with the National Key Economic Area (NKEA) and the Malaysia Tourism Transformation Plan (MTTP) to increase the spending of every tourist visiting Malaysia in general and Sabah in particular. According to statistics in recent years, Sabah’s tourism sector has high potential to grow in employment. As shown in Figure 21, there is a gradual increment of employment in tourism industries from 1.5% in 2005 to 3.4% in 2017. The contribution of tourism employment to the share of total employment in Malaysia increase from 15% in 2005 to 23.2% in 2017. This increase in employment might be due to the high arrival of tourists. In 2003 Sabah recorded foreign tourist arrival of 1.25 million and increased to 1.77 million in 2005. In 2013, Sabah recorded the highest tourist arrival in history with a total of 3.38 million persons, an increase of 17 per cent compared to 2012. The tourism receipt in Sabah was RM6.35 million in 2013 and was the leading revenue generator in the state (Ministry of Tourism Malaysia, 2013). In 2018, a new record was set by Sabah’s tourism with the highest tourism receipts. It recorded 3.879 million tourist arrivals with a total of RM8.342 billion. This record break is consistent with the Ministry of Tourism statistics, where international passenger traffic at Kota Kinabalu International Airport increased by 11% in 2018. This year of double-digit growth is likely by year-end of 2019 (Vanar, 2019, February 19).

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Source: Department of Statistics Malaysia (2018)

Figure 21 Employment in tourism industries, Malaysia, 2005 – 2017

Zakat for Poverty Eradication

As discussed in growth theory and distribution of income from the secular system, capitalist economic system have become the central issues of discussion regarding economic development. Capitalist economic system dominate significant importance in global economic theories nowadays. The western countries emphasized competition, usury and monopoly as the basis and the fundamental economic tools towards profit maximization. In this capitalistic society accumulation of wealth has become a perpetual distribution and concentrated among the rich. Rich countries become more prosperous, and developing countries remain poor for many years. It is generally known that the structure of both production and distribution has become distorted. Capitalistic societies suffered from deep crisis and became threatened by internal conflicts. Historically in the past three hundred years, a series of major macroeconomic problems have occurred: the Credit

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Crisis of 1772, Great Depression (1929 – 1939), 1973 Arab Oil Crisis, Asian Financial Crisis 1997, Global Financial Crisis (2007 – 2008). Besides these five world’s most devastating economic and financial crises that engulfed the world, hundreds more minor crises have also struck the world market where some major banks have collapsed. Despite massive emergency measures by governments, economic crises continued, and the unemployment rate remained high. Socialism, on the other hand, has founded its economic system on the justice of distribution. However, it went too far in terms of application. This view is widely accepted in both theoretical and empirical literature. The inefficiencies of socialism were manifested in the productivity failure that brought economic growth to a standstill. Therefore, socialism was incapable of bringing economic transition from an extensive growth model to one driven by innovation and high productivity (Vonyo & Klein, 2019). One of the major consequences was society’s loss in terms of incentives for development. As a result, poverty among the community is widespread, and productivity is weakened, which further neglects social justice principles. Realising the shortcomings of the capitalist and socialist economic systems, the importance of the Islamic economic policy emerges in recent years. Essentially, Islamic economics works on minimising the gap between income and growth in the society through several ways, among of which is the capital accumulation through waqaf (inherited wealth), zakat, ownership and the prohibition of usury (interest) (Mansur, Abd. Rahim, Lim, & Mahmud, 2009). Islam opposes monopoly, aleatory, theft, abuse of power and uneven distribution of wealth among the nation and the society. It is generally acknowledged among the Muslims that zakat is one of the five pillars in Islam. Zakat is a form of religious obligation that must be fulfilled by every Muslims. As mentioned in the Al-Quran, zakat has many benefits for socio-economic well-being, both macro and micro, fostering inclusive economic growth. There has been much research on zakat in the Muslim countries in general and in the nation in particular. However, not much research has been undertaken in this area in Sabah. Research on the effects of zakat regarding its potential, the realization of zakat on economic growth towards society’s welfare is minimal (Mansur, Abd. Rahim et al., 2009).

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Price level

0Y1

AD1 AD2

Y2 Real national output

LRAS LRAS2

Figure 22 Zakat shift the long-run supply curve

Research by Yusoff (2011), Sarea (2012) and Azam, Iqbal and Tayyab (2014) found that zakat is one of the right indicators to measure economic growth. When people pay zakat, the level of economic growth will be higher and vice versa. It is the role of zakat through which unemployment decreased by increasing the level of consumption and thus, aggregate demand increase. In other words, zakat acts as a financial system that will integrate to bridge this gap and reduce social problems in the Muslim world and contribute to economic activities to achieve sustainable development. Shirazi (2014) highlights the critical role of zakat in poverty alleviation in Bangladesh. They have shown that zakat funds can replace government budgetary expenditures in the range of 21 per cent of the Annual Development Plan (ADP), which can be utilized for other social and development expenditures. Theoretically, zakat encourages the beneficiary to spend on day-to-day needs, generating employment opportunities to prepare the community for a new market. As illustrated in Figure 22, zakat indirectly is a societal form of investment that can shift the long-run aggregate supply curve to the right. Consumer spending is a macro tool that can boost growth and is one of the economic mechanisms to lessen the recession’s impact, especially when the economy continuously spirals downwards.

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To this end, a few studies have been carried out by the author related to the potential of zakat in the state. The studies also covered the level of understanding among the Muslim concerning zakat in some part of the Muslim population. The studies also include the effect of zakat on people’s welfare and other social aspects.

Source: Majlis Ugama Islam Sabah (MUIS) (2019)Note: Wealth includes zakat of earnings, salary, savings, business, gold and silver, investment, farming, and livestock. Author’s calculation based on statistics provided by Majlis Ugama Islam Sabah (MUIS) at https://appszakat.sabah.gov.my/statistik_pungutan.php

Figure 23 Zakat collection by Majlis Ugama Islam Sabah (MUIS), 2009 – 2018

Recent data from the Majlis Ugama Islam Sabah (MUIS) has shown a gradual uptrend of zakat collection in Sabah from RM25 million in 2009 to RM79 million in 2018, as shown in Figure 23. The negative impression among the Muslim society still exists in Malaysia in terms of management of zakat. The underlying factors that lead to inefficiency in zakat distribution could affect the level of Muslim’s confidence to perform and channel their duties to pay zakat through the zakat institution (Wahid, Ahmad, Mohd Nor, & Abd Rashid, 2017; Ag Omar, Wahid, & Mohd Nor, 2017; Mansur & Mohd Said, 2016; Saad, Abdul Aziz, & Sawandi, 2014). According to Kasim (2016a, 2016b), it is common in Sabah where the zakat payers pay their zakat contribution directly to the eligible recipients (asnaf category). Thus, the total zakat collected by the zakat institution does not reflect the ‘true’ amount of zakat collected by MUIS. Table 11 shows the zakat collection in several states in Malaysia from 2017 – 2018. The data shows an increase in the zakat collection in most of the states in Malaysia except for Kelantan and Sabah.

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Although in general, there is an increasing trend of zakat collection in Sabah for the past ten years as depicted in Figure 23, Sabah recorded 10.8 per cent reduction of zakat collection from 2017 to 2018 as indicated in Table 11. A concerted effort should be made to boost the zakat collection by the zakat management institutions and raise awareness among Muslim society.

Table 11 Zakat collection in the selected states in Malaysia, 2017 – 2018

2017 (Million) 2018 (Million)

Federal Territories(KL, Putrajaya, Labuan)

615.2 651.2

Penang 96.6 114.8

Pahang 133.7 138.7

Melaka 85.6 87.8

Perak 170.8 176.2

Selangor 757.1 768.3

Kelantan 191.0 185.2

Kedah 164.9 177.0

Sabah 88.3 79.7Sources: Pusat Pungutan Zakat Agama Islam Wilayah Persekutuan (PPZ-MAIWP) (2019), Zakat Pulau Pinang (2019), Majlis Ugama Islam dan Adat Resam Melayu Pahang (MUIP) (2019), Majlis Agama Islam dan ‘Adat Melayu Perak Darul Ridzuan (MAIAMP) (2019), Lembaga Zakat Selangor (2018, 2019), Majlis Agama Islam dan Adat Istiadat Melayu Kelantan (MAIK) (2019), Lembaga Zakat Negeri Kedah Darul Aman (2019) and Majlis Ugama Islam Sabah (MUIS) (2019)

In theory and practice, zakat has proven to be a useful tool for reducing or eradicating poverty. It was proven during the governance of Khalifah Umar ibn Al-Khattab (R.A.) from 13 to 22 Hijrah and Khalifah Umar ibn Abd Al-Aziz from 99 to 101 Hijrah. In both periods, the state of economic condition was at its peak to the extent that there was no eligible recipient of zakat among the Muslim communities (Ataina & Tohirin, 2010; Ahmad Nadzri, Abd Rahman, & Omar, 2012). If properly managed, the zakat system will achieve its objectives, and Muslims can strengthen their economy and society through proper implementation of the zakat system. Zakat is seen as a long-term solution to combat social and economic deprivation.

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A practical, systematic and continuous public campaign regarding the importance and benefits of zakat is paramount to economic development. Sabah has 65 per cent of the Muslim population and estimated about ten per cent of the total are eligible zakat payers that can have a substantial impact on zakat collection and further improve the living standard of the poor.

Recommendation and Conclusion

Sabah’s economy in 2017 grew by 8.0 per cent as compared to 5.1 per cent on average in the previous year. The continuous implementation of government initiatives provides a better platform for the state economy to grow. Three main sectors that drive Sabah’s economy are agriculture, mining and quarrying, and services. Hence, the focus should be geared towards providing incentives to attract domestic and foreign investments, especially on these main sectors. Sabah also needs to diversify its economy. Any events of a slowdown in several economic activities like tourism and aviation sectors will lead to a decline in income and an increase in unemployment. Therefore, the people have to be more resourceful, creative and innovative for their economic survival. Besides government aid and assistance, NGO and industries play an important role in stimulating the economy by reducing society’s financial burden. The growth of Sabah GDP increased by 2.9 per cent in 2017 from only 5.1 per cent in 2016 (Department of Statistics Malaysia, 2018, May 8). This shows the Sabah economy has shown improvement compared to the previous year. However, challenges and obstacles can have an impact on the state’s economic growth. For example, the 1997 Asian Financial Crisis, which hit many ASEAN countries, offered useful lessons in coping with potential economic crises. Sabah received RM15.7 billion for 9MP, RM20.3 billion for 10MP and RM5.2 billion for 11MP development in 2020. The funding is expected to pave the way towards making Sabah a developed state in line with other states in Malaysia. With the

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abundance of resources that Sabah has, Sabah needs to create more employment opportunities to the locals, especially to the rising number of educated youths seeking jobs in the labour market. Industries with the support and incentive by the State government should play their roles in absorbing these surpluses of labour for productive use. It is undeniable that Sabah with sizable areas needs more resource allocation, especially basic infrastructure in rural areas and most urban vicinity. Inadequate or absence of necessary infrastructures in some parts of the state’s districts will hamper the development process. Insufficient budget allocation will prolong obstacles and challenges confronted by the rural poor. The relocation of Indonesia’s capital city from Jakarta to Kalimantan by 2023 would benefit the Sabah economy. Thus, it is time for the state government and the federal government to act and position Sabah in terms of movement of capital goods and services in the whole of the Kalimantan area. Sabah has a lot of potential as a strategic economic growth centre in the region vis-à-vis the BIMP-EAGA. Having good connectivity in the state will synergize other sectors to prosper such as the agriculture and tourism sectors. Thus, these two sectors can be strengthened and become competitive in the long-term. One of the main concerns for better infrastructure is that it encourages more SMEs to flourish especially in some pockets of poverty in rural areas. Human capital investment, without doubt, has a positive relationship with the economic development in Sabah. Investments in human capital that have centred on education and health will rapidly grow Sabah’s economy through labour productivity to achieve the ‘Upper Middle-Income Nation’ by 2035. Human capital investment in education may increase literacy rate regarding the additional schooling attained for knowledge and skills. In Sabah’s case, policy on education has to be given top priority, especially across ethnic and strata, to ensure that no one is left behind from the development plan. In response to the theory of investment in human capital discussed earlier, the quality of rural schools in Sabah can be further improved. Therefore, the existing gap between these schools and their urban counterparts can be minimized or possibly closed. Emphasising the importance of education across ethnicity

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will ensure that all local society people will not be left behind from the nation’s development. This includes giving equal treatment and employment opportunities to vulnerable groups such as people with disability, elderly and minority group (Lim, Furuoka, Mansur, & Mahmud, 2010). Furthermore, the increase in human capital can attract investment, both local and foreign, thus may increase job opportunities because business players can sustain business activities. Entrepreneurs may create work opportunities for unemployed people and prevent the loss of intellectual human resources. Besides, human capital investment in health, which includes preventing diseases by taking any medical care supplements and obtaining better health, may generate many benefits. A healthy individual with adequate nutrition intake may increase labour productivity through the ability to give full commitment to the task given and working longer hours. As a result, they are being rewarded with additional income due to better work performance. Concerning the unskilled foreign labour, the necessity to hire unskilled immigrants generates gross domestic product per capita since no local workers are willing to work on 3D (dirty, dangerous and difficult) jobs. The cost of hiring immigrant workers is lower and potentially attractive for employers to generate profit and increase productivity in Sabah rather than hiring local workers with higher demand for income. Thus, to create more attractive local labour, Sabah needs to prepare its workforce according to the Industrial Revolution 4.0. The gig economy, for example, has been generally embraced as a mode of work. Information and communication technology (ICT) infrastructure such as internet access, coverage, and speed should be available to society’s broad spectrum. Priority should be given to the allocation of the Government’s ICT budget, especially in e-commerce and e-learning, to facilitate business and education in Sabah further. All these strategies could be attained through proper guidance embedded in the curriculum and training modules in the education system. The role of zakat has also been highlighted whereby zakat has its economic advantages towards economic development (Mansur, Abd. Rahim et al., 2009). It is generally known that the benefit of zakat is the most fundamental source of social welfare.

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Among the Muslim communities, zakat funds can help the poor in terms of funding for education and health care (Mansur, Abd. Rahim et al., 2009). In this respect, zakat institutions, i.e. Pusat Zakat Sabah (MUIS) could play a significant role in alleviating poverty and promoting social equality. Through zakat, additional sources of funds can be provided for supporting and promoting the collective welfare of society. In conclusion, human capital investment is vital to add value in the gross domestic product per capita through education, health and migration, and labour productivity. Thus, the positive relationship between human capital investment and economic development in Sabah fit into the framework of the growth theory of Adam Smith and the augmented growth model of Solow. Economic growth creates jobs as well as provides families with income and savings. Financial security and economic growth provide employees with more choices where they can easily get new jobs. All these things increase financial security and family stability. That is why raising the rate of economic growth is so important. Therefore, the current government must generate more opportunities and, in this period of IR4.0, stress the need to promote and participate in technological innovation actively.

Figure 24 Author’s interpretation of the labour, human capital and economic development in Sabah

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To summarise the roles of government and firm in supporting the economic development through labour and human capital, the author proposes a policy recommendation framework shown in Figure 24. From the framework, the role of government in pursuing economic development lies in the policymaking through implementation, monitoring and enforcement. On the other hand, firms and institutions complement the effort through investment and innovations, while the individual’s role is supported by knowledgeable labour through human capital. Among the government’s initiatives are the development of SDC and the promotions of NKEA such as tourism, the niche of Sabah. Investment in human capital such as the increase in the educational attainment, innovation in teaching and learning and improved schooling infrastructure are among the government collaborations with firms and institutions. Simultaneously, other institutions such as zakat and non-governmental organizations play an essential role in supporting economic development while preserving society’s welfare and well-being. It is hoped that all entities will continue to strengthen the collaborations for Sabah’s betterment in particular and Malaysia.

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PROFESSOR DATUK DR KASIM BIN MANSOR @ MD. MANSUR

Professor Datuk Dr Kasim Bin Mansor @ Md. Mansur was born on 26 May 1961 in Kg. Rampayan, Manggatal, Kota Kinabalu, Sabah. He obtained his BSc in Business Administration (1984)

and MSc in Economics both from Indiana State University, Terre Haute, Indiana, United States of America (USA). In 1995, he was awarded the Malaysian Federal Government Scholarship to pursue his PhD degree in Economics at the University of Wisconsin, Milwaukee, Wisconsin, USA. He obtained his PhD specializing in Economic Development and Labour Economics in 2000. Throughout his career in academia, he holds several administrative posts in the UMS. He gained his first experience in university administration as the Head of Programme for Human Resource Economics (HE11) at the School of Business and Economics from 2001 – 2002. He was appointed as the Deputy Dean of Centre for Postgraduate Studies from 2002 – 2003. He was also the Dean for the School of Business and Economics, UMS from 2003 – 2009. Due to his exemplary leadership and excellence, he

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was appointed as the Deputy Vice Chancellor (Student Affairs and Alumni) of UMS from 2009 until 2014. He is currently a Professor in Human Resource Economics, holding academic responsibilities (teaching and supervision) and management responsibilities as the Dean of the Faculty of Business, Economics and Accountancy. He has supervised and co-supervised more than 20 PhD and master’s local and international students within the faculty. In the past twenty years, he has carried out numerous researches in various areas of human capital and economic development particularly on poverty eradication and zakat with funding from government agencies as well as international bodies. He has published more than 100 publications in the form of journal articles, book chapters, books, proceedings and conference papers. His peer-reviewed papers have been published in reputable international economic journals including The Singapore Economic Review, Asia Pacific Journal of Innovation and Entrepreneurship, Asian Journal of Technology Management, Journal of Innovation Economics and Management and International Journal of Research and Innovation in Social Science (IJRISS). He has authored or edited more than 15 books. Some of his better-known books were Human Resource Economics: Issues and Perspectives and Collections of Studies on Sabah and Sabah-Kalimantan Economic Relations being the most recent being published. He is also the Associate Editor of the Borneo Review Editorial Board, Institute of Development Study Sabah (IDS). Professor Datuk Dr Kasim Bin Mansor @ Md. Mansur has also received several honours and won several awards for his great contribution at national and international levels. He was awarded the medal Cross of Friendship by Laos PDR Government in 2014. At the national level, he was the recipient of the Asian HRD awards 2017 in recognition of his contribution to the human resource community. In sports, he was the President of Malaysian University Sports Council (MASUM) from 2011 – 2014. He was also the President of ASEAN University Sports Council between 2012 and 2014. He became the Chef de Mission in the World University Games (WUG) in Kazan, Russia. As a recognition of his excellent leadership at the Malaysian university level, he was awarded Tokoh Sukan Universiti-Universiti Malaysia in 2014.

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During his tenure, Professor Datuk Dr Kasim Bin Mansor @ Md. Mansur has been invited as keynote speaker, presenter and moderator in both national, regional and international conferences and seminars. He has also been appointed as a visiting professor as well as fellow and advisor to various universities, institutions and centres of excellence. This includes universities in China [Hebei Normal University, University of International Business and Economics (UIBE), Petro-Chemical Institute Beijing, Beihang University, Guizhou University], Thailand (The National Institute of Development Administration NIDA, Bangkok) and Japan (Wako University, Tokyo) to name a few. His professional competencies have led him to his appointment as an advisor to the Society Empowerment Economic Development of Sabah (SEEDS) since 2016. He was also appointed as the Advisor of Association of China-ASEAN Education and Training Centres, Guizhou University, China (2016 – 2021). Professor Datuk Dr Kasim has been invited as a fellow researcher in various high education institutions including Palawan State University, Philippine, the Ungku Aziz Centre for Development Studies Universiti Malaya (2017 – 2020) and Open University Malaysia, Sabah Branch. He has also served as a Deputy Chairman, in the National Professor Council (MPN), UMS Chapter particularly in charge of Socio-economic Development Cluster in 2017 until 2021. Beyond academic roles, Professor Datuk Dr Kasim Bin Mansor @ Md. Mansur has also contributed his professional services to the community. He sits as the Head of Sepanggar Consultative Council, Kota Kinabalu in 2018 and as Vice President (Naib Yang DiPertua), United Sabah Islamic Association (USIA) from 2017 until the present. He is also currently the Chairman of Ko-UMS since 2017 and a member of the Board of Directors of Waqaf Management Sabah (2019 – 2022). He aspires to develop labour and human capital as an important element to Sabah economic development and growth for the ummah.

INAUGURAL LECTURE - UMS

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