GIVING LABUAN
Time to review island’s development and attract more people to ensure sustainable growth
ARECENT trip to the Federal Territory of Labuan with the board members of Bank Negara Malaysia accorded the opportunity to reflect on the offshore financial centre that was established in early 1990s.
The island has certainly advanced on many fronts compared with its position before acquiring the status of a tax haven. However, the issue of its sustainability quickly comes to mind.
Labuan has a duty-free status for retail goods and low-tax regime for industries, such as banking, insurance and finance. Befitting its position as an offshore financial centre, it is home to many branch offices of overseas financial houses.
There is also a marked presence of several oil and gas industries on the island like the Petronas methanol plant, which is significant in driving the local economy.
However, with the current state of the global oil and gas industry, the low prices of oil, for one, has quite a dampening impact on the island.
But the Petronas methanol plant there is able to supply the region and also meet demand from China, which is growing by leaps and bounds.
The local economy is also supported by the presence of government facilities and services, especially during the island’s early development stage.
However, this now cannot be expected to add to economic growth any more because of the fiscal policy to reduce public expenditure in the medium term, so as to reduce public sector deficit.
Labuan also attracts tourists from Sabah and Sarawak, as well as Brunei, in view of its proximity and relatively low prices. Indeed, Labuan is a weekend and holiday retreat destination for people from those places.
All this is helping with the upkeep of the island’s economy.
Considering the low oil price scenario and progress to date, perhaps it is time to re-examine and review the strategies crafted in the early stages of Labuan’s development, and to put more stimulus for its future growth.
This impetus is certainly essential as Labuan may not have the critical population base to enable the island to move forward sustainably.
A dated study on the relationship between people and economic activities gave a figure of about 250,000 population before