Final link to the huge Borneo market

A small, low-grade road in Sabah needs to be upgraded before the purchasing power of 24 million people can be tapped.

ON the North Kalimantan-Sabah border, near Tawau town, is a 35km semi-logging road that is the missing link in the Borneo highway loop.

The rugged road, passing oil palm plantations, jungle and rivers, connects Kalabakan, a town on the east coast of Sabah, to the Malaysian village of Serudong and Indonesian town of Simanggaris on the border.

The Pan-Borneo Highway will link Sabah, Brunei and Sarawak while the Trans- Kalimantan Highway will link Kuching to most major Indonesian cities in Borneo.

Once the two major highway projects are completed, the three countries – Malaysia, Indonesia and Brunei – on the third largest island in the world will be linked by road. But for the loop to be complete, the 35-km logging road has to be upgraded and a regulated border crossing established.

When the new network of roads and regulated border crossing facilities is built, it is set to make Borneo a new emerging market in Asean.

One of the main advocates for completing the Borneo loop is Society Empowerment and Economic Development of Sabah (Seeds) chairman Datuk Badil Zaman Fazul Rahman. For the last 10 months, the Sabahan has been pushing for the loop’s last few kilometres to be sealed.

“It is the ‘final link’ to a greater Borneo market of 24 million people and unlocking the potential of the Borneo economy strategically located between the Indian and Pacific oceans,” he said.

Seeds found that Sabah needed to diversify its economic portfolio to create better opportunities for Sabahans. “Timber is gone while for palm oil the spin-off is not wide – the big investors are mostly non-Sabahans and even if they are Sabahans, they are not investing in Sabah,” he said.

Seeds looked at countries like Thailand and Taiwan and realised that Sabah needed to strengthen its small and medium-sized enterprises (SMEs). However, with only three million Sabahans in a vast area (Sabah is Malaysia’s second largest state), the state has no economies of scale.

To expand its market, Sabah needs to tap into Kalimantan’s big population of 17 million people with strong purchasing power. Sabah could leverage on SMEs, especially with strong backing from SME Corp, as Kalimantan is still not advanced in that sector.

Key to entering the Kalimantan market is a road connecting Sabah to its Indonesian neighbour.

In June, Minister in the Prime Minister’s Department Datuk Seri Abdul Rahman Dahlan was reported as saying that the Government was planning to build a new border town by building a road to connect Serudong in Kalabakan with North Kalimantan. He said he had proposed this to the Cabinet and the Sabah government has given good feedback, but detailed studies need to be done.

If it is built, it will be an epic road trip. I could drive from my hometown, Kota Kinabalu (west coast of Sabah), to Keningau (in the interior of Sabah), and Kalabakan, Simanggaris and Melinau in Sabah, and on to Tanjung Selor in North Kalimantan and to Balikpapan (an oil town) in East Kalimantan.

The economic potential of the road connectivity to North Kalimantan, according to Dr Rafiq Idris, a senior lecturer at Universiti Malaysia Sabah’s Faculty of Business, Economics and Accountancy, is that Kalimantan’s market size is more than five times larger than Sabah.

Dr Rafiq, who is a Seeds fellow, listed tourism, tertiary education and medical tourism in Sabah as benefiting from the road connectivity.

Badil said it will boost Tawau’s economy, which has gone through hard times since the Eastern Sabah Security Command ( Esscom) imposed restrictions on sea trade due to security considerations. Tawau needs to stay competitive and efficient to stay as a window to North Kalimantan produce and supplies.

The road will also give new hope to ailing furniture factories in Kota Kinabalu Industrial Park. Several factories – some with Ikea contracts – have closed down because they could not source timber material.

“If we open up North Kalimantan, we can get semi-finished wood from them and do the finishing in Sabah,” Badil said.

Seeds has also suggested that the Government build a special economic zone (where there will be SME clusters) on the SerudongSimanggaris border. It is also looking at a bilateral trade agreement for the traditional trading route of Tawau, Pulau Sebatik (an island that Malaysia and Indonesia share) and Nunukan (which is next to Tawau).

“It is time we regulate business in this triangle,” Badil said, adding that the communities in these areas have been trading with each other even before Malaysia or Indonesia existed.

For SMEs, Badil said food production was a good option as “people need to eat”.

In a classic case of capacity sharing, for example, an SME entrepreneur could obtain pisang kepok from North Kalimantan and process it in a Sabahan-owned factory in a special economic zone on the Serudong-Simanggaris border.

“If we could produce it into high quality banana chips, we could sell at a premium price in attractive packaging to the world. It could be called a Borneo product,” he said.

The production of the Borneo brand banana chip would be a case of Sabahan and North Kalimantan entrepreneurs complementing instead of competing with each other.

The road to Borneo economic prosperity is – literally – a 35-km semi-logging road that needs to be upgraded.