Interview with the State Secretary of the Malaysian State of Sarawak
By Zakariya Othman
The Malaysian Sarawak State Economic Development Corporation (SEDC) has often led the way as the premier state-instituted organization established in the wake of Malaysia's New Economic Policy. This is not only in terms of its economic restructuring, but more importantly in its financial policy, which is moving very much towards Islamic financing, phasing out the conventional methods. The state secretary Abdul Aziz Hussain talks to MIF Monthly on the state's success story.
Backed by the sound economic development policies, the strategies for economic restructuring for the Sarawak state are said to be now in place, and the largest state in Malaysia, by land area, is set to become an industrialized state by the next century.
In the last 10 years Sarawak has been able to move closer to achieving its goal of being a model state by the turn of the century, notching up a healthy economic growth of about 8% per year, with continued improvement on trade surpluses. Keeping the state on course for its vision of an industrial future – in tandem with Vision 2020 – has been the preoccupation of the state government as the state works itself towards expanding the manufacturing base and reducing its traditional reliance on primary commodities.
State secretary Abdul Aziz Hussain said the prevalent political stability and the commitment of the government to the modernization of Sarawak had instilled confidence in the people, and had, in turn, paved the way for uninterrupted development across the state.
Anxious to take its rightful place as an industrialized state in the 21st century, Hussain reiterated that Sarawak recognized the importance of economic restructuring through industrialization, plantations, agriculture, tourism and the proper development of the other profitable economic sectors.
“The restructuring of the economy through industrialization is necessary to enable the state to broaden its economic base and increase the downstream value of its natural resources,” he explained, noting that the buzzword among the state economic planners today was diversification.
He said the exercise of economic restructuring would not only inevitably entail the incorporation of measures to eradicate poverty among the rural population, but more importantly the approach taken would incorporate such measures to ensure equal and fair distribution of the state wealth.
Having studied and understood the Islamic financial system, Hussain admitted that the state Government realized the efficiency of Islamic finance in contrast to conventional finance.
It was in 2004 when UBS Investment Bank, through its subsidiary Noriba Bank, lead managed the maiden five-year US$350 million Sarawak Corporate Sukuk Inc for SEDC. The quasi-sovereign Sukuk will mature by 2009 and is listed on the Luxembourg Stock Exchange and Labuan International Financial Exchange.
Sarawak state's chief minister Abdul Taib Mahmud was once quoted as saying that the state Government was keen to consolidate its economic and financial base by utilizing modern funding techniques such as Islamic bonds, and the government would continue to look for further alternatives.
In 2005, the state Government also backed the financing of the state-owned telecommunication companies SACOFA and Sarawak Gateway to construct, own and manage the telecommunication towers and structures in the state.
Sarawak Gateway is a special purpose subsidiary of SACOFA, incorporated to facilitate the issuance of the proposed Sukuk Ijarah. The purposes of the issuance are for refinancing existing borrowings, funding the construction of telecommunication towers and acquiring existing towers.
Under the issue structure of the proposed Sukuk Istisnah, all payments due from the lease of telecommunication towers and bandwidth from its fiber-optic network will be put towards the redemption of the primary and secondary notes. Similarly, all Ijarah rentals under the proposed Sukuk Ijarah have been earmarked for redemption of profit payments.
The latest transaction for Sarawak using an Islamic instrument was when Sarawak Enterprise Corp (SECB)'s wholly owned subsidiaries Mukah Power Generation (MPG) and Sarawak Power Generation (SPG) signed a financing agreement with RHB Islamic Bank for the issuance of up to RM1.165 billion (US$317.7 million) in Sukuk to fully fund the proposed Mukah coal-fired plant project. These issuances comprise a RM950 million (US$259.1 million) Sukuk Mudharabah by MPG and RM215 million (US$58.64 million) Sukuk Musharakah by SPG.
Based on this agreement, proceeds from the RM950 million (US$259.1 million) issuance will be used to part repay the shareholders' advances and part finance project development costs, as well as to meet contingent requirements in the event of project cost overrun and delay in completion. Proceeds from the RM215 million (US$58.64 million) issuance will be used to subscribe to the Junior Sukuk to be issued by MPG.
SECB chairman Hamed Sepawi has been quoted as saying that the two Sukuk issuances were highly innovative because they provided 100% financing for the project at a 22-year tenure without any guarantee from the Sarawak government.
Returning to the state economic restructuring, Hussain pointed out that in undertaking the exercise, the state government treated the entire state of Sarawak as one economic entity, believing that the development of Sarawak would only take place on a stable and sustained basis if there was inter-dependence between the rural sector and the urban sector.
He said that this explained why major economic development in the rural areas had been approached using the integrated regional development concept, which provided for the impactful extension of the urban dynamism and experience to rural settlements in the state, and also facilitated industrial development in other areas of the state.
Hussain, however, stressed that the transformation and healthy growth of the economy would only work where there was political stability and strong leadership that was able to unite the people of various ethnic backgrounds for one common cause.
“Although the broad framework for economic restructuring has been laid down, good leadership will still be needed to steer the state into the safe waters of the 21st century,” he concluded.
