The Sabah economy, like that in neighbouring Sarawak, has traditionally over the years always been at a variance from that in Peninsula Malaysia through the regular ups and downs of the business and economic cycles.

However, it's anyone's guess whether things will be different this time around as the spillover effects of the global financial tsunami appear on its doorsteps.

Sabah Labour Department director Siti Aishah Mohd Asri strikes a note of cautious optimism when she revealed that only 257 workers were retrenched last year in the state by 21 employers.

This is seen as an indication of the very small number of industrial exports from the state.

"These employers were from small and medium-sized companies operating a variety of sectors like services, shops and construction," said Siti Aishah who vouched for the accuracy of the figures which she contrasts favourably with trends in Peninsula Malaysia.

"Of the 80 operations rooms nationwide to monitor retrenchments, 12 are in Sabah," she added.

Cargo and shipping logistician Dr Johnson Tee, who previously was in the state government during the PBS administration (1985-1994), attributed the lay-offs to the unpredictable business climate brought about by the erratic fuel costs last year.

Still not available are the figures for Sabahans facing retrenchment in Brunei, Peninsula Malaysia, Singapore and elsewhere and what impact this will have on the state economy.

The state government is yet to publish the role of remittances in the state economy.

Falling palm oil prices

Human Rights Commission vice-chairperson Simon Sipaun warned that the fall in palm oil prices and exports will have grave security implications given that the sector employed many foreign workers besides locals.

"This will have unintended social consequences if the authorities are not able to repatriate the retrenched foreign workers quickly enough," said Sipaun.

"As it is, even the illegals are freely roaming around. Not many have been sent home so far."

Institute for Development Studies (IDS) executive director Dr Mohd Yaakub Johari agreed that the reality check was that the fall in the price of crude palm oil, in particular, has hit Sabah very hard as it is the major export commodity.

Crude palm oil now hovers around RM1,500 per metric tonne, down from the RM4,500 per metric tonne in March last year which ironically spared the state from the political tsunami that swept through five states and a Federal territory in Peninsula Malaysia.

According to Mohd Yaakub, the financial tsunami appears to have driven home the point that Sabah needs to move quickly to "fix the basics" by shifting away from an economy dependent on primary commodities and immigrant labour with low value-added towards a more diversified, high value economy which can attract skilled Sabahans working outside the state.

The hope here is that the implementation of the federal government-initiated Sabah Economic Development Corridor (SDC) will help the state get away from a policy of relying on cheap foreign labour and lay the foundation for a balanced, high value-added, knowledge-based and sustainable economy.

Major projects under the SDC are the Palm Oil Industrial Cluster (POIC) in Lahad Datu, Sandakan Education Hub, agro-politan projects, the Integrated Livestock Breeding Centre, Handicraft Village, Sepanggar Bay Container Port and Sabah Agro-Industrial Precinct.

The state government is also working with a RM2.3 billion budget this year and touted to be the largest ever although many recall similar annual budgets during the Harris Salleh years (1976-1985) when the currency was twice as strong as it is today and inflation was very low.

"The strategic soft and hard infrastructure envisaged by the SDC is very much needed now as a counter-cyclical tool to pump-prime the state's economy," said Mohd Yaakub who sees the SDC as the key to the emerging Sabah economy.

Keep the public in the loop

Mohd Yaakub disputed the conventional line that Malaysians are insulated from the financial tsunami that has left a trail of destruction in the developed economies and that we Malaysians may experience only a mild slowdown in economic growth in the first and perhaps second quarters of 2009.

"It is no doubt a laudable idea not to press the panic button so as not to undermine public confidence," said Mohd Yaakub, in outlining the economic outlook for Sabah this year in an internal paper setting the trends for IDS over the next few months in support of government initiatives.

"However, it is no less irresponsible to keep the man in the street in a state of denial and ignorance on the state of affairs (economic and security) faced by the state and the nation".

He urged a middle-path where the public should be updated regularly on the impact of the financial tsunami on the man in the street and what measures the authorities are taking to address the impact and whether they are working to mitigate the adverse economic and financial consequences.

"The new news does not have to be good. It simply has to be less bad than what has already been forecasted," said David Ng, the chief investment officer of HwangDBS Investment Management Bhd which has a regional office in Kota Kinabalu.

"We are optimistic that the bad news will get less bad"

"Malaysia declined less than regional peers last year due to its perceived defensive status. However on the flip side, this would imply that Malaysia would not be able to rebound as strongly when the market for investments starts to pick up."