How Sabah can Harness its Youth Demographic Dividend

Sabah’s most significant economic asset could soon be its youth. It is in a position to reap a demographic dividend, the socio-economic growth that can result in from having a relatively large group of working age people-provided that they are educated, empowered and employed. This trend is evident as 45% of the population in Sabah are below the age of 30. Youth made up 60% of the electorates in Sabah.

This changing populations structure-referred to as demographic dividend, has historically offered countries an opportunity for higher growth and prosperity. For Sabah, the opportunity can even be bigger when it is blessed with abundant of natural resources. Situated between major growth poles such as Indonesia and the Philippines, and in proximity of the ASEAN region, it has huge potential to jump on the development bandwagon of the ASEAN region, accelerating its catching up.

To seize the potential dividend governments must implement economic and social policies that enable youth find productive jobs and employment. Failure to generate employment opportunities for youth in Sabah is already causing a rapid increase in unemployment. Sabah has struggled with rising unemployment, implying the challenge of getting the socio-economic policy mix right.

Sabah will need to overcome seven challenges to benefit from a demographic dividend.

First, it is almost a prerequisite that, when the issue of socio-economy in Sabah is considered, a constant reference was made to the need to create more employment opportunities for youth. Sabah recorded a high unemployment rate of 4.7% above the national rate. Discussions with the local community have indicated that although there has been an increase in the number of graduates in from University Malaysia Sabah, but most of them are unable to find jobs in the labour market. There is serious mismatch between the demand and supply of the labour market.

Sustainability growth requires that the pace of job creation is at least sufficient to absorb new entrants to the labour market. The current driver of investment and to some extent of overall growth, the resource sector, is typically not a major source of employment creation. Both the light and heavy industries will be the major provider of jobs and of domestic output. It will play a crucial role in the economy. Efforts and investment need to be made to boost Sabah’s light and heavy industries with an increasing focus on establishing manufacturing industries based in Sabah.

The current industries are based in Labuan, part of Wilayah Persekutuan. “Greater emphasis on manufacturing will spur increase in average productivity in the economy as a whole, as well as integration into the regional and global trade, and foster foreign investment and technology transfers. There needs to be efficient reallocation of workers toward labour intensive and more highly productive manufacturing, which helped with the economic development. With more people working, financial development allowed for the channelling of the increased saving to investment”, according to the IMF (2016)

Second, improvement of agricultural practices and services are required. Recognising that agriculture and plantations have a major role in contributing to Sabah ’socio- economic development, the first step to create more employment opportunities is to further develop the palm oil sector. The problems faced by smallholder agriculture is a problem of productivity and detachment from the value-chain agriculture, through which small farmers lack the technology to intensify their technologies in increasing their production of certain commodities for consumer markets. The development strategy should be redirected towards agricultural modernisation and semi-rural based labour intensive program. Therefore the development strategy should focus on the needs of the farmers. These recommendation include (a) removal of all policy disincentives like high cost for farm inputs (b) establishment and promotion of alternative institutions which help small farmers to gain access to credit, technology and marketing platforms (c) expansion of the agrarian programme, with complementary package of inputs and upgrading of extension services (d) strengthening of local governance (e) provision of infrastructure both for agricultural production and ancillary facilities ( electricity and internet coverage) which will contribute directly to the short-term and long run employment creation.

Third, strengthening entrepreneurship and enterprise development is crucial. Technical support is to be provided to business service providers, young entrepreneurs, and micro, small, and medium enterprises (MSMEs) to help develop new business ideas, strengthen essential business development services, introduce new financial tools, and enhance financial literacy and management. Focus should be given on improving access to essential financing, information, and technology; reducing bureaucratic procedures; addressing policies that impact ease of doing business; and expanding and improving public one-stop shops responsible for business registration and licensing.

Fourth, stronger enforcement in the small scale business sector is required . The entry of the Filipino populations into the business sectors is an important issue that affects the local young entrepreneurs. The image of a place where it is possible to be regularised, easy to live and to do business is typically the case of Sabah. In places like Keningau, it is not a situation that “ the migrants take jobs that the locals refuse”.

The economic sectors that sizeable Filipino migrants were entering are in street selling in pasar tamu, harvesting in palm oil plantations and in low skill services such as serving in coffee shops. It is viewed that the migrants are in competition with trading and plantation sectors of the labour force in Keningau as the employment structure is of the low-skills and poor social status occupations.

Employers prefer Filipino migrants because they are cheaper, more vulnerable and more docile. These migrants were referred as one who is without valid residence permit, working at unregistered jobs, unauthorised as far as residence is concerned. It is noted with grave concern that employers do not risk more by hiring irregular migrants. It does not entail in higher penalty and the likelihood of being reported or detected is low. Stronger enforcement will likely benefit the local youth and the community as a whole.

Fifth, sufficient physical infrastructure development and human capital investment are required.

Physical Infrastructure

Although significant progress has been made in provision of basic infrastructure in Sabah especially in rural roads, electricity and water supply coverage, equitable development is further constrained by a lack of functional infrastructure project. There is a lack of road infrastructure to connect a district with other major towns in Sabah. The widespread under-development of the infrastructure is posing connectivity problem between the divisions and the other parts of Sabah.

The infrastructure insufficiency is impending efforts towards its socio-economic development. Average per capita road infrastructure is comparatively low. Sabah’s transport, energy and telecommunication such as the provision of internet is in need of upgrading and expansion. Power generation and distribution in certain areas such as those in Tawau (Pulau Sebatik) is a major problem. While some of the locals have experienced exponential growth in internet and mobile telephone, there are pockets of areas that have barely increased. For example, presently, the investment priorities of infrastructure development are on the coastal areas of Tawau, referring to the coastal highway built connecting Sabindo and Batu Payung.

In Kota Kinabalu, 85% of the community interviewed claimed that it was hard or very hard to get to work. This figure suggests that improvements in public transportation and infrastructure would enable a large majority of the survey participants to get to work more easily, which would in turn increase labour mobility.

Human Capital

Institutional improvements will also be essential to address Sabah’s current lack of human and physical capital. To fully exploit the potential of demographic dividend, Sabah will need not only to maintain their current level of services, but also to increase per capita investments in health and the education sector. It is important to note that timing is a concern. The education and health services need to be upgraded before these youth reach employable age.

Sixth, macroeconomic stability must be enhanced while spurring economic development and facilitating private sector development. The identification involved here is of the ability to develop big downstream processing. To spur downstream industries, Sabah needs bigger processing centres. This is viewed as a strategic approach to also help other SME’s to grow, and this can work to support small industries all the way to the big economic inputs and companies. This would be similar to the supporting industries like Proton in West Malaysia. Strengthening infrastructure development and planning is an integral part to support the economic and business growth in Sabah. It was widely agreed that electricity generation is one of the biggest issue faced by the business community. Another important issue that ought to be collectively address is the high transportation cost on shipping. Transport costs are too expensive, and there is a desperate need to improve roads. Overall, there is the need to make the cost of doing business cheaper. More incentives from the state and federal government are required to improve the shipping industry.

Seventh, financial sector development to effectively channel loans into investment can increase entrepreneurship development and economic growth. Mostly, youth in the interior such as in Keningau are small and petty producers in rural economy. They find it is challenging to access to formal credit services (find out the institutional banking sector in Keningau). The situation of credit availability in rural areas is better illustrated if we look at the issue from the perspective of rural households. Most cannot meet the requirements for credit facilities. The shrinkage in institutional credit for rural households implies a greater possibility for community to resort to private moneylenders, charging usurious interest rates.

Sabah is at a crossroads. Effective implementation of policies could benefit Sabah a demographic dividend and improve the quality of life for all Sabahans. Failure to seize the opportunities offered by this new demographic situation would continue to place Sabah at a distinct disadvantage.

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