Document of The World Bank FOR OFFICIAL USE ONLY Fi Report No. 3844-MA MALAYSIA REGIONAL DEVELOPMENT AND URBANIZATION IN THE NORTHEAST (In Three Volumes) VOLUME THREE: STATISTICAL TABLES AND ANNEXES July 9, 1982 East Asia and Pacific Projects Department Urban and Water Supply Division Urban Development Department Operations Review and Support Unit This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Currency Unit - M$ US$ = M$ 2.25 M$ US$0.444 M$ 1 million = Us$444,000 AGENCIES ASEAN - Association of Southeast Asian Nations BDA - Bintulu Development Authority DARA - Pahang Tenggara Regional Development Authority DID - Drainage and Irrigation Department EPMI - Esso Production Malaysia Incorporated EPU - Economic Planning Unit (in Prime Minister's Office) FELCRA - Federal Land Consolidation and Rehabilitation Authroity FELDA - Federal Land Development Authority HICOM - Heavy Industries Corporation of Malaysia JKR - Ministry of Public Works KBM - Kota Bharu Municipality KESEDAR - Kelantan Selatan Regional Development Authority KETENGAH - Trengganu Tengah Regional Development Authority KTM - Kuala Trengannu Municipality MARA - Majlis Amanah Rakyat MADRI - Malaysian Agricultural Research and Development Institute MAS - Malaysian Airline System MBSB - Malaysian Building Society Berhard MIDA - Malaysian Industrial Development Authority MIDF - Malaysian Industrial Development Finance MIDFIC - Malaysian Industrial Development Finance IndustriaI Consultants MMC - Malaysian Mining Corporation MRPRA - Malaysian Rubber Producers Association NEB or (LLN) - National Electricity Board NEP - New Economic Policy PETRONAS - National Petroleum Corporation PORIM - Palm Oil Research Institute of Malaysia RISDA - Rubber Industry Smallholders Development Authority RRIM - Rubber Research Institute of Malaysia SEDC - State Economic Development Corporation SEPU - State Economic Planning Unit TAKDIR - Kelantan State Land Development Board TCPD - Town and Country Planning Department TDC - Tourist Development Corporation ABBREVIATIONS TMP - Third Malaysia Plan FMP - Fourth Malaysia Plan GDP - Gross Domestic Product GRP - Gross Regional Product IE - Industrial Estates LI - Location Incentives LNG - Liquified Natural Gas GOVERNIENT OF MALAYSIA FISCAL YEAR January 1 - December 31 FOR OFFICIAL USE ONLY MALAYSIA REGIONAL DEVELOPMENT AND URBANIZATION IN THE NORTHEAST VOLUME THREE: STATISTICAL TABLES AND ANNEXES Table of Contents Page No. STATISTICAL TABLES CITED IN VOLUME TWO List of Tables . . . . . . . . . . . . . . . . . . CHARTS List of Clarts. . . . . . . . . . . . . . . . . . . . . . . 54 ANNEXES List of Annexes . . . . . . . . . . . . . . . . . . . . . . 58 This report is based on the findings of a mission consisting of F. Temple (Mission Chief), Z. Shalizi (Economist), B. 'Ton Rabenau (Economist, consult- ant), D. Race (Engineer, consultant) and A. Choudhury (Urban Planner, consultant), which visited Malaysia from August 17 until Septenmber 5, 1981. Ms. S. Velji (Research Assistant) contributed to the demographic analysis. Ms. B. Blake and Ms. S. Chokechaitanasin assi~sted in the preparation of the report. This document has a restricted distribution and may be used by recipients only in the perrmance of their official dluties. Its contents may not otherwise be disclosed without World Bank authorization. i i - 1 - MALAYSIA REGIONAL DEVELOPMENT AND URBANIZATION IN THE NORTHEAST Statistical Tables Cited :in Volume Two Table No. Title Page No. A.0.1 Agricultural Land IJse in Peninsular Malaysia, 1966 and 1974 . . 4 A.0.2 Land Use in Kelantan .. 5 A.0.3 Land Use in Trengganu .. 6 A.1.1 Indicators of Ethnic Disparties, 1976 and 1978 ............................ 7 A.1.2 Percent of Persons in Poverty Households, 1976 ...... 8 A.1.3 Distribution of Households' Monthly Per Capita Gross Household Income in lJrban and Rural Areas of the Northeast and the Peninsula, 1976 ........................... 10 A.1.4 Mean Per Capita Household Income, by lJrban/Rural Division, Ethnicity and Region, 1976 .. 11 A.1.5. Mean Monthly Household Income, 1970-79 ...... ....... 12 A.1.6 Decomposition of State Income Disparities, 1976 .. 13 A.2.1 GD]' by Industry of Origin and State, Lt971, 1980, 1990 .. 14 A.2.2 Real GDP Growth rate Per Annum by Sector and Region, 1971-80 and as Projected in the FMP, 1980-90 . . 16 A.2.3 Per Capita GDP and Percent Gap Relative to Malaysian GDP, 1971 and 1980, by Region . .17 A.2.4 GD1P and GDP Per Capita in the Government Service sector, 1971 and 1980 . .18 A.2.5 Population and Annual Growth Rate by State and Region, 1911-80 . .19 A.2.6 Life Time Out-Migrants from East Coast States, by State of Residence, 1970 .............. . 20 A.2.7 Net Lifetime Migration Rates, 1957-B0 .. ............. 21 A.2.8 Net 5-Year Migration Rates, 1975-80 ........ .......... 22 A.2.9 Variables UJsed in Regression Analysis in Volume 2, Table 2.10 ....................................... 23 - 2 - Table No. Title Page No. A.2.10 Total Employment and Average Monthly Earnings for all Manufacturing Industries by State, Peninsular Malaysia December 1976 - December 1978, and Average Number of Employees per Establishment, December 1978 .24 A.3.1 Land in Industrial Estates: Planned, Developed, Saleable, Allocated and Not Allocated Acreage, December 31, 1980 .25 A.3.2 Average Size of Industrial Estates by Region, December 30, 1980 .26 A.3.3 Approved Projects by Incentive Category, and Measures of Concentration and Dispersion, 1970-73, 1974-77 .27 A.3.4 Structure of Selected Investment Incentives in Malaysia .28 A.3.5 Approved Projects by Implementation Progress in Malaysia, Kelantan, and Trengganu, 1970-74 and 1975-80 .29 A.4.1 Manufacturing Employment and GDP, Kelantan and Trengganu, 1974 .30 A.5.1 Estimated Paid Industrial Employment in Kelantan, 1970 and 1980 .31 A.5.2 Industrial Employment by Sector in Kota Bharu, 1980 ................................. 32 A.7.1 Urban Population Growth in Peninsular Malaysia ...... 33 A.7.2 Industrial Profile of Urban Employment, East Coast States, 1976 .34 A.7.3 Population Size of Urban Areas in Selected States, 1957, 1970 and 1980 .35 A.7.4 1970 and 1978 Manufacturing Sector Statistics for the East Coast ............................... 36 A.7.5 East Coast District Population, 1980 .... ............ 39 A.8.1 Kota Bharu Municipal and District Populations, 1970 and 1980 .40 A.8.2 Kuala Trengganu Municipal and District Populations, 1957-1980 .41 A.8.3 Ethnic Composition of Kota Bharu Municipal Population, 1980 .42 A.8.4 Ethnic Composition in Kuala Trengganu Town Council Area and District, 1970 .43 A.8.5 Land Use in Kota Bharu Municipal Area, 1980 .44 - 3- Table No. Title Page No. A.8.6 Land Use in Kuala Trengganu Municipal Area .45 A.8.7 Household Incomes in Kampong Ladang Mengabant-Kubor-Kubor Tok Pelam, 1978 .46 A.8.8 Distribution of Monthly Gross Household Income for Urban Households, 1976 .47 A.8.9 Estimated Housing Affordability for Urban Households in the Northeast, 1981 .48 A.9.1 Kota Bharu Municipality Income and Expenditures, 1978-1980 .49 A.9.2 Kuala Trengganu Municipality Income and Expenditures, 1978-80 .50 A.10.1 Projected Water Demand in the Soul:hern Trengganu Coastal Corridor, 1980-2010 .51 A.10.2 Manufacturing Employment and Total Population Projections for Kerteh New Town, 1980-2000 ................................. 52 A.10.3 Estimated Housing Requirements for Telok Kalong Industrial Estate .53 TabLe A.0.1: ACRTcUILTURAL LAND USE IN PENINSULAR MALAYSIA, 1966 AND 1974 1966 1974 Of Which Agricultuiral Land Use Of Which Agricultural Land UJse State agri. land State agri. land Per- Total in % % in % newly % of % % in % Newly Increase centage Acreage State Distri- Culti- Cleared state Distri- Culti- Cleared 1966-74 cha[nge State by State total Acres bution vation Land total Acres bution vation Land acres 1966-74 Johor 4,730,569 33.6 1,587,324 22.5 95.5 4.5 45.6 2,155,417 22.8 88.5 11.5 568,093 35.8 Kedah 2,341,875 39.2 918,127 13.0 96.6 3.4 47.8 1,119,193 11.9 95.0 5.0 201,066 21.9 Kelantan 3,713,679 14.7 546,004 7.8 95.2 4.8 18.6 690,123 7.3 91.9 8.1 144,119 26.4 Melaka 407,806 77.1 314,438 4.5 99.2 0.8 79.9 325,771 3.4 97.8 2.2 11,333 3.6 Negri Sembilan 1,646,953 35.6 586,795 8.3 97.5 2.5 46.2 760,169 8.1 85.8 14.2 173,374 29.5 Pahang 8,890,848 7.2 639,611 9.1 93.5 6.5 14.8 1,312,684 13.9 86.7 13.3 673,073 105.2 P. Pinang 258,022 70.3 181,328 2.6 97.8 2.2 70.9 182,836 1.9 99.6 0.4 1,508 0.8 Perak 5,178,032 20.9 1,080,252 15.3 95.0 5.0 26.9 1,391,188 14.7 91.5 8.5 310,936 28.8 Perlis 200,225 51.7 103,528 1.5 98.2 1.8 64.0 128,225 1.4 97.1 2.9 24,697 23.9 Selangor 2,034,154 38.6 784,818 11.2 98.4 1.6 43.5 884,288 9.4 95.5 4.5 99,470 12.7 Trengganu 3,199,086 9.3 297,793 4.2 91.8 8.2 15.3 487,953 5.2 90.0 10.0 190,16(0 63.8 Total 32,601,249 21.6 7,040,018 11)0.0 96.0 4.0 28.9 9,437,847 100.0 90.9 9.1 2,397,829 34.0 Source: I.F.T. Wonlg, The Present Land Use of Peninsular Malaysia, Vol. 1., pp. 2, 24 (Kuala Lumpur: Ministry of Agriculture, 1980). Table A.0.2: LAND USE IN KELANTAN 1966 1974 I]ncrease (+) or % of % of or decrease (-) Total state Thtal state over 1966 total Land use category acres total acres total acres % chg NONAGRICULTURAL USES Urban & associated areas 6,833 0.2 7,576 0.2 +743 10.9 Estate buildirngs & asso- ciated areas 522 - 607 - +85 16.3 Mining & quarrying 352 - 367 - +15 4.2 Power line right-of-ways 361 - 276 - -85 -23.5 Grasslands 67,622 1.8 46,103 1.2 -21,519 -31.8 Forest 2,821,841 76.0 2,728,824 73.4 -93,017 -3.3 Scrub forest 159,644 4.3 137,611 3.7 -22,033 -13.8 Newly cleared land 26,316 0.7 .35,563 1.5 +29,247 111.1 Swamps 64,710 1.7 64,126 1.7 -584 -0.9 Unused land 15,664 0.4 4,632 0.1 -11,032 -70.4 Unclassified 30,173 0.8 :36,312 1.0 +6,139 20.3 Nonagricultural Total 3,194,038 86.0 3,081,997 82.9 -112,041 -3.5 AGRICULTURAL USES Mixed horticulture 80,561 2.2 84,881 2.3 +4,320 5.4 Market gardening 67 - 50 - -17 -25.4 Agricultural stations 73 - 77 - +4 5.5 Rubber 223,716 6.0 320,250 8.6 +96,534 43.2 Oil palm 1,219 - 1.2,994 0.3 +11,775 966.0 Coconut 17,370 0.5 18,935 0.5 +1,565 9.0 Other crops 1,970 - 3,021 0.1 +1,051 53.4 Padi 188,390 5.1 185,884 5.0 -2,506 1.3 Diversified crops 2,753 0.1 5,607 0.2 +2,854 103.7 Shifting cultivation 3,569 0.1 2,861 0.1 -708 19.8 Agricultural Total 519,688 14.0 634,560 17.1 +114,872 22.1 TOTAL 3,713,726 100.0 3,716,557 100.0 +2,831 0.1 Source: I.F.T. Wong, The Present Land Use of Feninsular Malaysia, Vol. 1, pp. 189-90 (Kuala Lumpur: Ministry of Agriculture, 1980). - 6 - Table A.0.3: LAND USE IN TRENGGANU 1966 1974 Increase (+) % of % of or decrease (-) Total state Total state over 1966 Percentage Land use category acres total acres total total acres change Non-agricultural Land Urban and associated areas 5,226 0.2 7,535 0.2 + 2,309 44.2 Estate buildings and associated areas 166 - 881 - + 715 430.7 Mining and quarrying areas 3,063 0.1 5,278 0.2 + 2,215 72.3 Powerline right of way - - 17 - + 17 - Grasslands 94,064 2.9 69,175 2.2 - 24,889 -26.5 Forest 2,304,972 72.0 2,145,708 67.0 -159,264 6.9 Scrub forest 189,033 5.9 183,057 5.7 - 5,976 -3.2 INewly cleared land 24,533 0.8 48,756 1.5 + 24,223 98.7 Swamps 269,577 8.4 266,755 8.3 - 2,802 -1.0 Unused land 9,157 0.3 6,351 0.2 - 2,806 -30.6 Unclassified 25,367 0.8 30,528 1.0 + 5,161 20.3 Nonagricultural total 2,925,158 91.4 2,764,061 86.3 -161,097 -5.5 Agricultural Land Mixed horticulture 41,152 1.3 60,892 1.9 + 19,740 4;3.0 Market gardening 100 - 237 - + 137 137.0 Agricultural stations 124 - 195 - + 71 57.2 Rubber 148,416 4.7 185,071 5.8 + 36,655 24.7 Oil palm 3,410 0.1 67,874 2.1 + 64,464 1,890.4 Coconut 16,472 0.5 21,003 0.7 + 4,531 27.5 Other crops 2,592 0.1 7,255 0.2 + 4,663 179.9 Padi 60,939 1.9 84,200 2.6 + 23,261 33.2 Diversified crops 686 - 12,366 0.4 + 11,680 1,70:2.6 Shifting cultivation 13 - 104 - + 91 700.0 Agricultural total 273,904 8.6 439,197 13.7 + 165,293 60.3 TOTAL 3,129,062 100.0 3,203,258 100.0 + 4,196 0.1 Source: I.F.T. Wong, The Present Land Use of Peninsular Malaysia, Vol. 1, pp. 588-89 (Kuala Lumpur: Ministry of Agriculture, 1980). Table A.1.1: INDICATORS OF ETHNIC DISPARITIES, 1976 AND 1978 Per capita Percent of Percent of Percent household households Ethnic Group 1976 total ethnic community of urban Percent of 1978 Employment /c income /d below poverty population /a urbanized population Agriculture Manufacture Commerce $/month line /e (OOO's) (1976) /b (1976) (1976) (1976) Malay 5,668.8 15.9 29.9 51.5 12.0 8.6 68 46.4 Chinese 3,751.0 46.1 57.2 21.0 24.3 23.3 132 17.4 Indian 1,115.0 32.7 12.1 46.1 11.4 10.3 95 27.3 Other 71.8 32.1 0.8 45.6 13.2 9.8 294 33.8 All Races 10,606.6 28.5 100.0 89.0 16.7 14.5 95 35.1 /a 1976 etimates. 9 /b Based on 1970 urban boundaries. TH Based on workers 15-64 years old. /d Personal household income, divided by the population of households. Income includes imputed income. 7e Percent of population living in households with an average per capita household income below M$45.1 per month.; Source: All 1976 data from 1977 Agricultural Census; 1978 data from Labor Force Survey. - 8 - Table A.1.2: PERCENT OF PERSONS IN POVERTY HOUSEHOLDS 1976 Population Characteristics Kelantan Trengganu Peninsula Total 64.2 58.6 39.3 By Race Malay 66.1 61.3 52.2 Chinese 32.0 25.2 21.4 Indian 40.1 11.0 34.2 Other 76.3 38.0 40.9 By Household Size 1 40.1 41.0 19.8 2 50.0 39.4 23.4 3 53.6 46.2 28.6 4 58.0 49.0 28.6 5 57.4 53.7 33.8 6 70.6 69.4 39.7 7 71.3 67.7 44.1 8 71.7 64.1 48.7 9+ 69.2 66.0 45.7 By Age of Household Head 0-14 100.0 87.8 50.6 15-19 40.1 15.3 32.4 20-24 46.7 35.9 24.0 25-29 56.6 54.3 29.2 30-34 64.5 60.1 37.9 35-39 62.1 58.0 42.6 40-44 64.8 65.5 47.4 45-50 62.8 63.6 41.1 50-54 64.9 56.6 36.9 55-59 66.1 53.2 37.4 60-64 67.1 49.5 35.9 65+ 78.0 67.9 37.5 By Geographic-Economic Groups Urban self-employed 42.4 45.4 20.1 Urban wage 32.6 43.3 16.8 Urban other 7.9 60.9 22.5 Rural/small urban self-employed 40.9 36.0 26.5 Rural/small urban wage 30.5 52.9 31 6 Rural/small urban other 63.1 57.9 35.4 Rural self-employed 62.7 52.6 43.3 Rural wage 52.6 56.7 39.5 Rural other 70.0 74.5 49.9 Rural wet padi 88.9 89.1 79.2 Rural rubber LT 81.0 73.2 61.9 Rural rubber ET 60.2 55.1 42.6 Rural coconut 87.0 88.0 66.2 Rural other agriculture 85.2 80.0 60.0 Settlement scheme - 25.7 32.4 Non-agricultural fishermen 73.5 69.8 59.7 Agriculure plus fishing 92.4 100.0 81.0 By Acres Operated for Agriculture 0.0 44.1 47.4 28.9 0.1-1.0 69.3 75.7 67.0 1.0-2.49 81.9 73.7 69 2 2.5-4.99 81.3 72.8 65.2 5.0-7 49 78.7 70.7 54.6 7.5-9.99 69.6 41.1 41.0 10.0-14.99 56.4 61.3 36.5 15.0-19.99 42.0 37.7 33.5 20.0-24.99 37.7 4.4 25.8 25+ 44.6 23.8 20.2 -9- Table A.1.2: Page 2 Population Characteristics Kelantan Trengganu Peninsula By Family Composition Single 40.1 41.0 19.8 Couple 38.1 31.0 20.1 Nuclear family 64.7 60.3 43.9 Single parent plus ciildren 65.3 66.2 40.6 Extended family 70.6 65.1 38.6 Other 51.6 35.8 73.3 By Activity of Household Head Self-employed 77.6 66.6 52.5 Wage and salaried 49.3 52.3 33.4 Other 53.0 61.7 30.2 By Sex of Household Head Male 63.8 58.2 39.3 Female 67.7 62.1 39.4 By Population Dependency Ratio Less than .1 39.7 33.8 18.1 .1-.249 46.0 39.7 17.7 .25- .49 48.1 42.5 26.0 .50- .99 64.3 54.9 35.0 1.0-1.99 66.9 65.2 45.6 2.0-3.99 80.3 70.9 59.0 7.0+ 85.4 78.1 79.2 By Education of Individual No formal education 70.5 64.1 46.0 Primary 59.2 54.0 36.6 Lower secondary 39.2 37.2 19.3 Middle secondary 29.3 24.8 9.7 Upper secondary 7.3 8.6 3.7 College/university - - .8 Others 65.4 61.4 45.2 By Urban/Rural Urban 41.7 49.4 18.6 Rural 68.9 62.2 47.6 By Employment Status of Individual Employed 61.6 52.5 32.0 Unemployed 72.6 65.2 45.6 Out of labcor force 61.7 59.3 39.7 Source: 1977 Agricultural Census. - 10 - Table A.1.3: DISTRIBUTION OF HOUSEHOLDS' MONTHLY PER CAPITA GROSS HOUSEHOLD INCOME IN URBAN AND RURAL AREAS OF THE NORTHEAST AND THE PENINSULA, 19,'6 (% of Households) Per capita monthly household income Kelantan Trengganu Peninsula class (in M$) Urban Rural Urban Rural Urban Rural < 20 11.1 26.1 10.4 19.5 2.2 12.9 20< 30 10.9 18.2 10.1 16.5 3.6 12.2 30< 40 9.1 14.1 12.0 13.9 5.9 12.1 40< 60 15.8 17.1 19.9 18.9 19.1 19.2 60< 80 12.8 8.6 11.6 10.1 13.1 12.4 80<100 9.2 4.9 7.4 6.2 10.9 8.2 100<125 8.3 3.8 8.0 4.9 10.2 6.5 125<150 4.5 1.9 3.1 2.3 6.9 3.9 150<200 6.8 2.3 4.3 2.7 9.2 4.7 200<300 6.1 1.7 5.5 2.5 10.0 3.9 300<400 2.1 0.6 2.7 0.8 4.7 1.6 <400 3.7 0.7 5.0 1.2 9.1 2.4 Source: 1977 Agricultural Census. Table A.1.4: MEAN PER CAPITA HOUSEHOLD INCOME, BY URBAN/RURAL DIVISION, ETHNICITY AND REGION, 1976 Malay Chinese Indians All Ethnic Groups Region Urban Rural Total Urban Rural Total Urban Rural Total Urban Rural Total Northeast 73 47 52 250 160 197 169 108 140 106 49 60 Kelantan 73 45 49 166 106 139 194 86 141 96 47 54 Trengganu 73 50 56 371 144 301 109 158 138 115 53 70 Northwest 99 48 51 124 85 97 80 51 58 109 54 60 Kedah 99 46 49 124 81 95 80 50 57 109 51 59 Perlis - 64 64 - 115 115 - 81 81 - 72 72 Selangor Region 195 100 129 206 156 182 172 87 122 206 121 157 Selangor 220 94 111 192 141 163 155 81 97 194 108 131 Fed. Territory 184 134 167 217 182 203 181 125 167 214 163 196 Other 107 59 66 145 92 116 117 72 85 134 72 90 Johor 107 63 71 140 97 113 116 85 92 127 76 90 Melaka 90 66 68 195 110 147 130 77 88 170 80 101 Negri Sembilan 110 66 71 173 103 123 143 72 84 151 80 94 Pahang 108 66 70 172 121 140 128 88 96 147 80 93 P. Pinang 105 61 71 129 94 115 112 71 93 128 79 103 Perak 109 48 56 140 71 104 110 62 78 131 58 80 Peninsular Malaysia ii8 59 68 163 106 132 136 75 95 150 73 95 Source: 1977 Agricultural Census. - 12 - Table A.1.5: MEAN MONTHLY HOUSEHOLD INCOME, 1970-79 (M$) Annual growth rate (,) Area Prices 1970 1973 1976 1979 1970-73 1973-76 1976-79 Urban Current 428 570 830 1,121 1970 constant 428 492 569 675 4.8 5.0 5.9 Rural Current 200 269 392 590 1970 constant 200 233 269 355 5.2 4.9 9.7 Source: FMP, p. 56. Table A.1.6: DECOMPOSITION OF STATE INCOME DISPARITIES, 1976 Per capita Urban/Rural and Ethnic Factor State/Region monthly Total Urban Ethnic Interaction Locational income Actual term factor (M$) Northeast Kelantan 54 -41 -22.6 -10.2 -20.2 7.8 -18.4 Trengganu 70 -25 -16.7 0.7 -23.1 7.1 -8.3 Northwest Kedah 59 -36 -16.5 -12.1 -8.3 3.9 -19.5 Perlis 72 -23 -26.6 -22.0 -10.5 5.9 3.6 Selangor Region Selangor 131 36 3.9 -0.9 5.6 -0.8 32.1 Federal Territory 196 101 34.0 27.5 14.8 'o3 67 Other Peninsular Johor 90 -5 0.1 -1.2 0.6 .8 -5.1 Melaka 101 6 -0.8 -3.6 1.7 1.1 6.8 Negri Sembilan 94 -1 -3.3 -6.8 2.9 0.6 2.3 Pahang 93 -2 -9.3 -6.8 -5.7 3.2 7.3 P. Pinang 103 8 23.7 15.1 14.5 -5.9 -15.7 Perak 80 -15 4.4 1.5 4.3 -1.4 -19.4 Peninsula 95 - - Source: Table A.1.2; for explanation of calculations see Annex 1-3. Table A.2.1: GDP BY INDUSTRY OF ORIGIN AND STATE, 1971, 1980, 1990 (M$ million in 1970 prices) Agriculture, fores- Mining & Transport, storage try & fishing quarrying Manufacturing Construction Utilities & communication Region 1971 1980 1990 1971 1980 1990 1971 1980 1990 1971 1980 1990 1971 1980 1990 1971 1980 1990 Northeast 304 498 1,036 13 168 384 26 91 509 25 58 180 6 27 122 37 83 232 Kelantan 184 264 547 1 2 4 14 41 261 20 39 94 4 14 63 27 65 168 Trengganu 120 234 489 12 166 380 12 50 248 5 19 86 2 13 59 10 18 64 Northwest 476 666 907 10 4.5 6 39 110 421 26 25 86 6 22 79 29 63 190 Kedah N/A 590 N/A N/A 4 N/A N/A 94 N/A N/A 23 N/A N/A 19 N/A N/A 60 N/A Perlis N/A 76 N/A N/A 0.5 N/A N/A 16 N/A N/A 2 N/A N/A 3 N/A N/A 3 N/A Selangor Region 419 611 682 198 153 115 940 2,462 5,559 242 492 947 76 219 396 196 722 1 263 Selangor N/A N/A N/A N/A N/A/A N/A '7K N/A N/A N/A N/A N/A N/A N/A N/A NA N/A N/A A Fed. Territory N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Other 1,905 2,710 3,649 469 327.5 222 754 2,496 8,028 162 386 1,036 128 271 759 289 631 1,625 Johor 625 938 1,207 32 12 12 217 679 2,045 32 99 261 23 52 181 76 156 478 Melaka 125 170 172 2 2 3 30 90 278 8 25 55 8 24 59 17 35 76 Negri Sembilan 225 332 395 4 7 10 109 200 605 12 37 80 11 39 101 34 70 160 Pahang 305 458 969 36 26 63 41 191 1,469 26 39 202 5 20 119 27 52 279 P. Pinang 121 130 122 - 0.5 1 174 825 2,009 43 84 188 24 56 104 64 183 324 Perak 504 682 784 395 280 133 183 511 1,622 41 102 250 57 80 195 71 135 308 Peninsular Malaysia 3,104 4,485 6,274 690 653 727 1,759 5,159 14,517 455 961 2,249 216 539 1,356 551 1,499 3,310 Table A.2.1: (continued) (M$ million in 1970 prices) Wholesale & retail Finance, insur- trade, hotels ance, real estate & Government & restaurants business services services Other services Total GDP Region 1971 1980 1990 1971 1980 1990 1971 1980 1990 1971 1980 1990 1971 1980 1990 Northeast 54 111 387 106 168 490 90 275 1,156 2 22 122 663 1,501 4,618 Kelantan 32 69 256 67 100 268 52 158 678 1 12 100 402 764 2,439 Trengganu 22 42 131 39 68 222 38 117 478 1 10 22 261 737 2,179 Northwest 26 101 357 98 161 309 84 245 769 12 24 53 806 1,421. 3,177 Kedah N/A 96 N N7A 143 NTA N7 2 N/A N7A 22 NTi N/ 1,254 N/A Perlis N/A 5 N/A N/A 18 N/A N/A 42 N/A N/A 2 N/A N/A 167.5 N/A Selangor Region 715 1,261 2,464 299 662 1,150 509 1,033 1,920 128 279 527 3,722 7,894 15,023 Selangor N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Fed. Territory N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Other 707 1,443 2,936 496 916 2,053 604 1,437 3,004 183 272 586 5,697 10,889.5 23,908 Johor 111 296 643 112 211 517 162 353 770 46 61 131 1,436 2,857 6,245 Melaka 56 128 242 39 71 134 67 122 282 11 21 46 363 688 1,347 Negri Sembilan 32 108 213 49 89 177 79 152 363 12 25 55 567 1,059 2,159 Pahang 39 83 309 54 97 329 83 194 475 13 23 51 629 1,183 4,265 P. Pinang 216 458 775 153 183 384 62 236 318 34 65 139 827 2,220.5 4,364 Perak 253 370 754 89 265 522 151 380 796 67 77 164 1,875 2,882 5,528 Peninsular Malaysia 1,502 2,916 6,144 999 1,907 4.012 1.287 2.990 6;849 '9 SQ7 1,288 10,888 21,706 46,726 Source: Fourth Malaysia plan, 1981-85. Table A.2.2: REAL GDP GROWTH RATE PER ANNUM BY SECTOR AND REGION 1971-80 AND AS PROJECTED IN THE FMP, 1980-90 Wholesale, Finance, Agriculture Transport Retail, Insurance, Region Forestry, Mining, Manufacturing Construction Utilities Storage and Hotels and Real Estate, Government Other Total Fishing Ouarring Commun. Restaurants Business Serv. Services Services GDP 71-80 80-90 71-80 80-90 71-80 80-90 71-80 80-90 71-80 80-90 71-80 80-90 71-80 80-90 71-80 80-90 71-80 80-90 71-80 80-90 71-80 80-90 Northeast 5.6 7.6 32.9 8.6 14.9 18.8 9.8 12.0 18.2 16.3 9.4 10.8 8.3 13.3 5.3 11.3 13.2 15.4 30.5 18.7 9.5 11.9 Kelantan 4.1 7.6 8.0 7.2 12.7 20.3 7.7 9.2 14.9 16.2 10.3 10.0 8.9 14.0 4.6 10.4 13.1 15.7 31.7 23.6 7.4 12.3 Trengganu 7.7 7.6 33.9 8.6 17.2 17.4 16.0 16.3 23.1 16.3 6.7 13.5 7.4 12.0 6.4 12.6 13.3 15.1 29.2 8.2 12.2 11.5 Northwest 3.8 3.1 -8.5 2.9 12.2 14.4 -0.4 13.2 15.5 13.6 9.0 11.7 16.3 13.5 5.7 6.7 12.6 12.1 8.0 8.2 6.4 * 8.4 Selangor Region 4.3 1.1 -2.8 11.3 8.5 8.2 6.8 12.5 6.5 6.1 15.6 5.8 6.5 6.9 9.2 5.7 8.2 6.4 11.1 6.6 8.7 6.6 Other 4.0 3.)0 -3.q -3.8 14.2 12.4 10.8 10.4 8.7 10.8 9.1 9.9 8.3 7.4 7.1 8.5 10.1 7.7 4.5 8.0 7.5 8.2 Peninsular Malaysia 4.2 3.4 -0.6 1.0 12.7 10.9 8.7 8.9 10.7 9.7 11.8 8.2 7.7 7.7 7.4 7.7 9.8 8.6 7.0 8.0 8.0 8.0 Source: Table A.2.1. - 17 -- Table A.2.3: PER CAPITA GDP AND PERCENT GAP RELATLVE TO MALAYSIAN GDP, 1971 AND 1980, BY REGION Percent gap Average annual relative to growth rate Per capita GDP Malaysia in GDP 1971 1980 1971 1980 1972-80 Northeast 582.9 1,022.9 -50.3 -44.3 6.5 Kelantan 564.1 842.0 -51.9 -54.1 4.6 Trengganu 614.8 1,316.0 -47.6 -28.3 8.8 Northwest 728.3 1,101.0 -37.9 -40.0 4.7 Selangor Region 2,152.9 3,176.0 +81.4 +73.0 4.4 Other Penins.ula 1,100.0 1,738.4 -67.2 - 5.3 5.2 Total Peninsula 1,186.2 1,886.4 + 1.2 + 2.8 5.3 Malaysia 1,172.2 1,836.0 0.0 0.0 5.1 - 18 - Table A.2.4: GDP AND GDP PER CAPITA IN THE GOVERNMENT SERVICE SECTOR, 1971 and 1980 GDP in Gov't services Per capita GDP Per capita gov't (millions) in gov't services service gap /b Region/state 1971 1980 1971/a 1980 1971 1980 Northeast 90 275 80.40 193.66 -24.3 -13.6 Kelantan 52 158 74.06 179.95 -30.3 -19.7 Trengganu 38 117 91.09 215.86 -14.3 -3.7 Northwest 84 245 76.91 196.00 -27.6 -12.6 Kedah n.a. 203 n.a. 184.21 n.a. -17.8 Perlis n.a. 42 n.a. 283.78 n.a. +25.6 Selangor Region 509 1,033 300.26 429.52 n.a. n.a. Others 604 1,437 118.24 237.01 +11.3 +5.7 Johor 162 353 124.01 220.35 +16.7 +1.7 Melaka 67 122 163.88 269.32 +54.2 +20.2 N. Sembilan 79 152 161.32 269.50 +51.8 +20.2 Pahang 83 194 157.58 251.62 +48.3 +12.3 P. Pinang 62 236 78.64 258.77 -26.0 +15.5 Perak 151 380 95.10 215.66 -10.5 -3.8 Peninsula, 1,287 2,990 142.66 268.50 n.a. n.a. Peninsula, net of Selangor Region 778 1,957 106.25 224.14 0.0 0.0 n.a. - not applicable. /a Based on 1970 population adjusted for one year's growth. /b State or regional per capita GDP in the government service sector as a percentage of the peninsular per capita GDP in that sector, net of Selangor Region, minus 100.00. Source: Table A.2.1. Table A.2.5: POPULATION AND ANNUAL GROWTH RATE BY STATE AND REGION, 1911-80 Estimated annual net Ab migration Growth rate (D p.a.) ('000s) Rate (Z) Population (O000s) 1911 1921 1931 1947 1957 1970 1957 1970 1957 1970 Region/state 1911 1921 1931 1947 1957 1970/a 1970/b 1980/b -21 -31 -47 -57 -70/c -80/c -70/e -80/f -70/e -80/f Northeast Id 441 463 542 675 784 1,127 1,090 1,420 0.5 1.6 1.4 1.5 2.6 2.7 -28 -30 -0.20 -0.20 Kelantan 287 309 362 449 506 707 685 878 0.7 1.6 1.4 1.2 2.4 2.5 -31 -30 -0.34 -0.33 Trengganu 154 154 180 226 278 419 405 542 0.0 1.6 1.4 2.1 2.9 3.0 +3 - +0.06 -0.01 Northwest /d 279 379 479 624 793 1,115 1,076 1,250 3.1 2.4 1.7 2.4 2.9 1.5 -32 -108 -0.22 -0.65 Kedah 246 339 430 554 702 989 955 1,102 - -107 -0.95 Perlis 33 40 49 70 91 125 121 148 -1 -0.05 Selangor Region 294 401 533 711 1,013 1,696 1,630 2,405 3.1 2.9 1.8 3.5 3.6 4.0 +144 +302 +0.70 +1.39 Other /d 1,326 1,664 2,232 2,895 3,689 5,209 5,013 6,063 2.3 3.0 1.6 2.5 2.4 1.9 -84 -345 -0.13 -0.57 Johor 180 282 505 738 927 1,326 1,277 1,602 4.4 5.7 2.3 2.3 2.4 2.3 -20 -66 -0.12 -0.42 Melaka 124 154 187 239 291 419 404 453 2.1 1.4 1.5 2.0 2.5 1.2 -15 -62 -0.28 -1.31 Negri Sembilan 130 179 234 268 365 500 482 564 3.2 2.7 0.8 3.1 2.1 1.6 -25 -50 -0.39 -0.87 Pahang 119 146 180 250 313 524 505 771 2.0 1.1 2.0 2.2 3.6 4.3 +48 +111 +0.76 +1.60 P. Pinang 271 292 340 446 572 809 776 912 0.6 'I5 1.7 2.5 2.3 1.6 +11 -44 +0.11 -0.48 Perak 5-2 611 786 954 1,221 1,631 1,569 1,762 2.0 2.5 1.2 2.4 1.9 1.2 -83 -233 -0.38 -1.26 Peninsular Malaysia 2,339 2,907 3,788 6,279 9,147 8,810 11,136 2.2 2.6 1.6 2.4 2.6 2.4 - -181 - -0.17 /a Postenumeration adjusted to mid-June 1970. /b Unadjusted field count. 7c Using unadjusted field counts. Td Summation from truncated population figures for 1911 to 1957. 7e Third Malaysia Plan. If Own estimatcs, based on1 stare crude natural growth rates, published in Vital Statistics, Peninsular Malaysia, 1978 and 1980 Population and Hlousing Census of Malaysia - Preliminary Field Count Summary Source: 1970 Population Census of Malaysia. General Report, Vol. 1, p.269; and 1980 Population and Housing Census of Malaysia - Preliminary Field Count Summary. See also: IBRD, Working Paper on Demographic and Natural Resource Data, July 1981. - 20 - Table A.2.6: LIFE-TIME OUT-MIGRANTS FROM EAST COAST STATES, BY STATE OF RESIDENCE, 1970 Out-migrants by origin per 1,000 population in State of Out-migrants by origin state of residence residence Kelantan Trengganu Pahang Kelantan Trengganu Pahang Northeast Kelantan - 3,939 - 5.75 Trengganu 24,118 - 59.55 Northwest Kedah n.a. 796 n.a. 0.83 Perlis n.a. 67 n.a. 0.55 Selangor Region n.a. 4,145 n.a. 2.45 Other Peninsula Johor n.a. 4,567 n.a. 3.58 Melaka n.a. 434 n.a. 1.07 N. Sembilan n.a. 693 n.a. 1.44 Pahang n.a. 14,266 n.a. 28.25 P. Pinang n.a. 661 n.a. 0.85 Perak n.a. 1,443 n.a. 0.92 Source: 1970 Census. Table A.2.7: NET LIFETIME MIGRATION RATES, 1957-80 (Thousands of Population and Net Migrants) Change in Net Annual Net Migra- State Population Net Lifetime Migrants Migrants tion Rate (%) /a 1957 1970 1980 1957 1970 1980 1957-76 1970-80 1957-70 1970-80 Northeast Kelantan 505.5 684.7 844.1 -17.187 -47.8 -87.8 -30.613 -40 -.47940 -.60015 Trengganu 278.3 405.4 521.2 2.783 6.1 -7.5 3.317 -13.6 .091182 -.34065 783.8 1,090.1 1,365.3 -14.404 -41.7 -95.3 -27.296 -53.6 -.27299 -.50293 Pahang 313.1 504.9 833.8 17.8467 66 177.2 48.1533 111.2 1.10651 2.01043 Northwest Kedah 702 954.9 1,089.5 6.318 -25.2 -125.7 -31.518 -100.5 -.35274 -1.1059 Perlis 90.2 121.1 153 4.0905 3.1 .2 -.9905 -2.9 -.08425 -.24209 792.9 1,076 1,242.4 10.4085 -22.1 -125.5 -32.509 -103.4 -.32151 -1.0052 Selangor Region 1,012.9 1,630.4 2,317.1 55.7095 201.1 477.9 145.391 276.8 1.03709 -1.58047 West and South Johor 926.8 1,277.2 1.718.5 15.7556 -464 _Qi -20.156 -35.' .699 -.28069 Melaka 291.2 404.1 451.8 -25.334 -40.1 -104.9 -14.766 -64.8 -.39948 -1.7326 N. Sembilan 364.5 481.6 567.8 2.916 -21.3 -50 -24.216 -28.7 -.52742 -.61254 P. Pinang 572.1 776.1 900.5 -30.893 -19.8 -19.1 11.0934 .7 .147840 .009016 Perak 1,221.4 1,569.1 1,733.4 -31.756 -113.7 -257.1 -81.944 -143.4 -.53728 -.95382 3,376 4,508.1 5,372 -69.313 -199.3 -470.9 -129.99 -271.6 -.30158 -.61946 Pen. Malaysia 6,278.7 8,809.5 11,130.7 3.8 -40.6 /a Rates are calculated as the average annual compound growth of the change in net lifetime migrants compared to the state population at the beginning of the period. Source: 1957 Census, 1970 Census and 1980 Census (5% sample). - 22 - Table A.2.8: NET 5-YEAR MIGRATION RATES, 1975-80 (Thousands of Population and Migrants) Average Annual 1970-80 Net Mi- Migration State Population Growth 1975 grants Rale /a 1970 1980 Rate Population 1975-80 1975-80 Northeast ( Kelantan 684.7 844.1 .021150 760.234 -20.7 -.55060 Trengganu 405.4 521.2 .025444 459.668 -6.1 -.26683 1,090.1 1,365.3 .022766 1,219.96 -26.8 -.44327 Pahang 504.9 833.8 .051443 648.834 58.9 1.75302 Northwest Kedah 954.9 1,089.5 .013274 1,019.98 -57.1 -1.1456 Perlis 121.1 153 .023658 136.119 -.8 -.11782 1,076 1,242.5 .014491 1,156.26 -57.9 -1.0)222 Selangor Region 1,630.4 2,317.1 .035774 1,943.66 112.4 1.L3072 West and South Johor 1,272.2 1,718.5 .030123 1,481.51 -8.4 -.1L1366 Melaka 404.1 451.8 .011220 427.285 -26.8 -1.2871 N. Sembilan 481.6 567.8 .016602 522.927 -.4 -.01530 P. Pinang 776.1 900.5 .014978 835.989 2.4 .057351 Perak 1,569.1 1,733.4 .010008 1,649.21 -77.5 -.95803 4,508.1 5,372 .017687 4,921.13 -110.7 -.45400 Pen. Malaysia 8.809.5 11,130.7 .023663 9,902.32 -24.1 /a Average compound percentage growth rate of net migrants compared to 1975 population. Source: 1980 Census (5% sample). - 23 - Table A.2.9: VARIABLES USED IN REGRESSION ANALYSIS IN VOLUME 2, TABLE 2.10 Percentage dif- Estimated Bus travel Net 1975-80 ference between state per time from Migration state and peninsu- capita TMP state capi- Rate (%) /a lar mean per development tal to Kuala capita housho]d expenditures Lumpur /d income, 1976 /b /c Northeast Kelantan -2.4 -.40 1,452.3 12.0 Trengganu -1.2 -.26 1,386.0 10.0 Northwest Kedah -5.1 -.38 794.2 10.0 Perlis -0.5 -.24 1,396.3 10.5 Selangor Region /e +5.0 +.65 2,083.4 0.9/f Other Peninsular Johor -0.5 -.05 1,136.5 8.0 Melaka -5.8 -.06 840.0 3.0 N. Sembilan -0.1 -.01 1,162.4 1.5 Pahang +7.4 -.02 3,204.5 4.5 P. Pinang 0.3 +.08 914.2 8.0 Perak -4.4 -.16 944.6 3.5 /a 1980 Census (5% sample) - calculated by Statistics Department. lb 1977 Agricultural Census. Tc Preliminary estimates of the percentage allocated funds actually spent are provided in "Fourth Malaysia Plan: Regional/State Targets and Stress Rations for Public Expenditure" (EPU, 1980). These estimated expenditure rates were applied to the TMP allocations reported in Table 2.4. /d Transport Licensing Board. /e Includes Selangor State and the Federal Territory. /f Obtained by interpolation. Table A.2.10: TOTAL EMPLOYMENT AND AVERAGE MONTHLY EARNINGS FOR ALL MANUFACTIURING INDUSTRIES BY STATE, PENINSULAR MALAYSIA, DECEMBER 1976 - DECEMBER 1978, AND AVERAGE NUMBER OF EMPLOYEES PER ESTABLISHMENT, DECEMBER 1978 December 1976 December 1977 December 1978 December 1978 Average number of Paid Average monthly Paid Average monthly Paid Average monthly employees per State employees earnings employees earnings employees earnings establishment Selangor 87,438 531 98,834 548 112,197 537 120 Johor 33,438 258 36,742 268 37,496 305 101 Kedah 7,288 196 7,755 205 8,824 218 79 Kelantan 2,054 132 2,161 157 2,649 169 54 Melaka 13,791 181 13,588 267 15,878 238 196 N. Sembilan 7,210 370 7,729 423 8,227 458 116 Pahang 5,478 199 6,421 233 8,267 250 183 P. Pinang 53,550 261 57,597 305 63,180 340 157 Perak 28,629 279 30,377 292 31,538 321 235 Perlis 1,059 319 983 304 1,221 434 111 Trengganu 1,364 188 1,363 232 1,273 256 64 Total 242,995 351 263,546 385 290,750 400 117 Source: Department of Statistics, cited in Leo Katzen: "Report on Wage Trends, Differentials, Productivity and Labor Shortage in Malaysia," March 1980. (1) Kedah and Perlis (2) Total Malaysia - 25 - Table A.3.1: LAND IN INDUSTRIAL ESTATES: P'ZANNED, DEVELOPED, SALEABLE, ALLOCATED AND NOT ALLOCATED ACItEACE, DECEMBER 31, 1980 Number Land (acres) Not Expansion Vacancy/f Region/state of estates Planned/a Developed/b Saleable/c Allocated/d allocated rate /e(X) rate (x) (1) (2) (3) (4) (5) [(l)--(2)1-1 (5)-r(3) Northeast 7 1,703 1,024 907 452 455 66.3 50.2 Kelantan 4 1,122 529 509 293 216 112.1 42.4 Trengganu 3 581 495 398 159 239 17.4 60.0 Northwest 7 1,327 1,114 925 716 209 19.1 22.6 Kedah 6 1,292 1,114 925 716 209 16.0 22.6 Perlis 1 35 - - - - - - Selangor region 11 5,372 4,153 3,440 3,102 338 29.3 9.8 Selangor 10 5,202 4,008 3,295 2,957 338 30.0 10.3 Federal Ter. 1 170 145 145 145 0 17.2 0.0 Other 36 12,746 7,121 5,973 5,048 1,075 79.0 18.0 Johor 8 3,576 1,953 1,576 1,443 133 83.1 8.4 Melaka 7 852 626 554 473 141 36.1 25.5 N. Sembilan 5 667 667 491 461 30 0.0 6.1 Pahang 6 2,764 1,143 885 554 331 41.8 37.4 P. Pinang 4 3,197 1,404 1,404 1,213 282 127.7 20.0 Perak 6 1,690 1,328 1,063 904 158 27.3 14.9 Total peninsula[9 61 21,148 13,415 11,245 9,318 2,077 57.6 18.5 /a Planned acreage of existing IEs, excluding land for training. This does not includ.e planned acreage of IEs in proposal stage. /b Gross acreage. ic Net of streets, rlght of way, etc. /d Actual acreage so'le to companies. /e Percent of which developed acreage can expand in existing IEs. /f Percent of saleabLe land not sold. /g Includes 3 industrial estates by Johore Tenggara and Pahang Tenggara. Source: MIDA. - 26 - Table A.3.2: AVERGE SIZE OF INDUSTRIAL ESTATES BY REGION, DECEMBER 30, 1980 State/Region Planned Developed Allocated Acres per Industrial Estate Northeast 243 146 65 Kelantan 280 132 73 Trengganu 194 165 53 Peninsula 347 220 152 Percent of Peninsula Northeast 70.0 66.4 42.8 Kelantan 80.7 60.0 48.0 Trengganu 55.9 75.0 34.9 Source: Table A.3.1. Table A.3.3: APPROVED PROJECTS BY INCENTIVE CATEGORY, AND MEASURES OF CONCENTRATION AND DISPERSION, 1970-73, 1974-77 Project share Project share in Project share in Project share in inoentive Projects approved/a Growth in region incentive category/c region - project category -t 1973 establish- (Actual number) rate/b (Z) (7) sharp in Penina:l-/d ewnt Ahare 70-73 74-77 (x) 70-73 74-77 70-73 74-77 70-73 74-77 70-73 74-77 Northern Region: Kelantan, Trengganu, Kedah, Perlis pioneer status 36 50 38.9 56.3 21.8 6.1 12.3 1.26 .87 .41 .83 Other incentives 13 118 807.6 20.3 51.5 9.4 42.0 1.93 2.99 .64 2.85 Without incentives 15 61 306.7 23.4 26.6 2.5 6.5 .52 .46 .17 .44 Total 64 229 257.8 100.0 100.0 11.8 14.0 1.00 1.00 .32 .95 Peninsula Pioneer status 589 408 -30.7 44.6 25.0 Other incentives 139 281 102.2 10.5 17.2 Without incentives 594 942 58.6 44.9 57.7 Total 1,322 1,632 23.4 100.0 100.0 /a Calculated from Table 3-4.4 7T Projects approved in 1974-77 as Dercent nf nrni-.eta -ppreved 4n 1970-73. /c Projects in Northern Region, as a percent of Peninsular projects, by incentive category. __ A measure of locational bias in types of incentives and in the Northern Region. An index greater than 1 implies that a particular incentive is used relatively more frequently in the Northern Region than in the Peninsula. /e A measure of the success of decentralization efforts. An index greater than 1 implies that the share of project received by the region exceeds its 1973 manufacturing establishment share in the Peninsula of 14.7% - 28 - Table A.3.4: STRUCTURE OF SELECTED INVESTMENT INCENTIVES /a IN MALAYSIA /b, 1970-1977 Incentive 1970 1971 1972 1973 1974 1975 1976 1977 Share of approved projects (%) Location incentive - - - - - 2.2 1.6 2.8 Labor utilization relief - - 2.5 3.6 2.9 2.8 1.6 3.5 Pioneer status 51.8 49.2 44.5 37.8 31.6 20.6 24.7 26.5 Investment tax credit 9.3 7.2 2.8 5.5 5.9 9.1 17.9 14.0 Without incentive 38.0 37.7 47.6 49.9 58.1 62.5 52.5 54.5 Total (actual) 334 305 355 473 525 461 425 400 Share of potential employment (%) Location incentive - - - - - 13.6 2.9 10.2 Labor utilization relief - - 4.1 5.5 4.6 3.3 3.1 5.5 Pioneer status 72.0 60.9 72.2 60.4 52.6 25.4 46.4 36.7 Investment tax credit 8.6 18.9 4.7 10.3 13.4 11.4 14.5 9.7 Without incentive 18.7 14.7 17.8 20.0 28.4 42.6 31.5 37.6 Total (actual) 47,232 48,717 56,449 81,510 71,378 36,171 32,265 29,632 Share of approved capital (%) Location incentive - - - - - 27.1 5.0 27.7 Labor utilization relief - - 2.1 2.3 1.1 1.6 .8 6.7 Pioneer status 72.6 61.3 71.3 67.4 60.4 20.8 48.7 30.0 Investment tax credit 8.8 13.6 7.8 10.8 10.2 20.3 20.3 12.9 Without incentive 18.2 11.4 15.4 17.9 27.8 27.7 23.2 21.2 Total (actual) 1,138.9 1,304.8 795.4 1,288.8 1,878.8 1,386.6 1,021.3 705.5 Average number of employees/project Location incentive - - - - - 491.9 135.0 216.5 Labor utilization relief - - 255.9 264.1 219.2 92.5 .142.6 148.4 Pioneer status 196.5 197.9 257.9 275.0 226.2 96.7 :142.7 102.6 Investment tax credit 131.3 418.0 264.7 323.6 308.3 98.0 0 51.5 Without incentive 69.5 62.5 54.5 69.0 66.5 53.5 45.5 53.5 Total (actual) 141.4 159.7 159.0 172.3 172.3 78.5 75.9 74.1 Average capital /c intensity (1,000 M$/employee) Location incentive - - - - - 75.4 54.4 64.6 Labor utilization relief - - 7.2 6.6 6.6 17.9 7.9 29.0 Pioneer status 24.3 27.0 13.9 17.6 17.6 30.9 33.2 19.5 Investment tax credit 24.6 19.3 23.4 16.6 16.6 67.3 44.0 31.5 Without incentive 23.5 20.6 12.2 14.2 14.2 24.6 23.4 13.4 Total (actual) 24.1 26.8 14.1 15.8 15.8 37.8 31.7 23.8 /a Other incentives not specified included in total, therefore sum of shares does not equal 100%. /b Includes Sabah and Sarawak. |c Approved capital. Source: Spinanger, Regional Industrialization Policies in a Small Developing Country: A Case Study of West Malaysia, Table 22 (Kiel: Institut fur Wieltirtschaft, 1980). - 29 - Table A.3.5: APPROVED PROJECTS BY IMPELEM1NTATION PROGRESS IN MALAYSIA, KELANTAN, AND TRENGGANU, 1970-74 and 1975-80 Implementation stage Period Mt.laysia Kelantan Trengganu Projects approved (Abs.) 1970-74 1,991 11 20 1975-80 2,658 54 43 Projects implemented (%) 1970-74 57.6 54.6 25.0 1975-80 59.6 38.9 62.8 Projects in initial 1970-74 3.2 - - implementation stages (X) 1975-80 26.0 25.9 30.2 Projects not implemented (%) 1970-74 39.2 45.5 75.0 1975-80 14.4 35.2 7.0 Source: Table 3-4.2. - 30 - Table A.4.1: MANUFACTURING EMPLOYMENT AND GDP, KELANTAN AND TRENGGANU, 1974 Kelantan Trengganu Value added Employment Value added Employment Sector ('000s) ('000s) Food manufacture 4,523 497 6,674 500 Beverages 89 47 93 48 Tobacco 3,673 3,389 498 726 Textiles 911 517 476 252 Wood, Wood and cork products exc. furniture 8,834 1,653 11,703 1,967 Furniture & fixtures exc. primarily of metal 296 151 95 44 Printing, publishing & allied products 965 705 104 82 Rubber products 6,448 399 - - Nonmetallic mineral products 141 80 225 135 Fabricated metal products exc. machinery and equip't. 236 78 - - Machinery excl. electrical 420 103 433 99 Others 1,546 627 3,276 342 Total 28,082 7,749 23,579 4,187 Source: Census of Manufacturing 1974 (covers mainly establishments with 10 employees and more). - 31 - Table A.5.1. ESTIMATED PAID INDUSTRIAL EMPLOYMENT IN KELANTAN, 1970 and 1980 Annual growth Kota Kelantan rate Bharu 1970 1980 (M) 1980 Rubber 267 686 9.9 395 Coconut 146 327 8.4 96 Ice cream confectionary 16 ].06 20.8 103 Balseoris and noodles 53 57 0.7 31 Spice & soya extracts 6 8 2.9 6 Biscuit making 11 13 1.7 10 Coffee 13 13 0.0 10 Rice & feed mill 272 725 10.3 184 Ice factories 9 26 11.2 13 Textiles & batik 158 828 18.0 781 Furniture, wood & boat building 160 1,190 27.2 230 Footwear 45 295 20.7 289 Tobacco 2,906 14,522 17.4 1,801 Soft drinks 9 159 33.3 155 Tire retreading 60 125 7.6 125 Matches 120 130 4.7 190 Chemicals & fertilizers 40 255 20.4 80 Clay & stone products, incl. 180 2,015 27.3 1,235 precious stones Iron & metal 105 185 5.8 125 Machinery & engineering 110 4:30 14.6 410 Plastics 20 75 14.1 75 Sawmills 484 1,180 9.3 306 Unadjusted Total 5,274 23,699 16.2 6,935 Undistributed Total - 8,220 - 2,404 Total 5,274 31,919 19.7 9,339 Source: Kelantan SEPU. - 32 - Table A.5.2. INDUSTRIAL EMPLOYMENT BY SECTOR IN KOTA BHARU MUNICIPALITY, 1980 Total Number of Employees per Sector employment establishments establishment Food & beverage 407 42 9.7 Batik & songket 846 95 8.9 Tailoring 163 71 2.3 Handicraft other than batik 27 6 4.5 Wood processing 257 11 21.4 & sawmilling Furniture & wooden articles 464 65 7.1 Tin & other metal products 224 41 5.5 Bricks & cement works 163 27 6.0 Plastic & plastic ware 85 5 17.0 Tire retreading 62 3 21.0 Printing & publishing 170 7 24.3 Others 1,808 26 69.5 Total Employment 4,676 399 11.7 Source: Kota Bharu Urban Development Study (P.G. Pak-Poy and Associates (M), et al. September 1980). Table A.7.1: URBAN POPULATION GROWTH TN PENINSULAR MALAYSIA Number Average annual of growth rate of towns Population (000's) Percent Average Annual Growth Rate (x) Urban rural Urban that were urban Census Total Urban Rural urban Total Urban Rural differential centers at period start 1911 2,339.0 250.3 2,088.7 10.7 - - - - n.a. - 1921 2,906.7 406.9 2,499.8 14.0 2.2 5.0 1.8 3.2 11 n.a. 1931 3,787.8 572.0 3,215.8 15.1 2.7 3.5 2.6 0.9 16 2.4 1947 4,908.1 927.6 3,980.5 18.9 1.6 3.1 1.3 1.8 22 2.6 1957 6,278.7 1,663.9 4,614.8 26.5 2.4 6.0 1.5 4.5 38 4.8 1970 8,780.7 2,528.8 6,251.9 28.8 2.6 3.3 2.4 0.9 49 2.9 (1976) (26.5) 1980 11,136.2 4,163.0 6,973.2 37.4 2.4 5.1 1.1 4.0 58 4.8 Source: Statistics Department, except for the number of urban centers which are taken from Suresh Naraganan, "Urban In- Mligration and Urban Labor Absorption: A Study of Metropolitan Urban Selangor" (Thesis submitted to the Faculty of Economics and Administration, University of Malaysia, February 1975). Table A.7.2: INDUSTRIA1. PROFILE OF URBAN EMPLOYMENT, EAST COAST STATES, 1976 Agricuiltuire, Electric- Wholesale, Transport, Finance, Community, forestry, ity, retail, storage, insuirance, social & Total hunting, Mining & Manu- gas, Con- restaurants, communi- real est., personal Own employ- Employment fishing Quarrying facture water struction hotel cation bus. serv. services activities ment Employment Kelantan 7,902 39 4,355 385 2,158 11,101 2,351 694 9,328 231 38,544 Treogganu 6,926 147 4,900 221 3,537 8,400 2,174 774 8,694 1,068 36,841 Pahang 6,937 86 5,610 300 3,597 10,406 2,227 1,670 10,620 1,370 42,821 Total Peninsula 51,041 8,834 191,405 11,779 74,599 228,704 72,636 43,189 259,133 40,244 981,563 Employment (%) Kelantan 20.5 O.l 11.3 1.0 28.8 28.8 6.1 1.8 24.2 0.6 100.0 I Trengganu 18.8 0.4 13.3 0.6 22.8 22.8 5.9 2.1 23.6 2.9 100.0 w Pahang 16.2 0.2 13.1 0.7 24.3 24.3 5.2 3.9 24.8 3.2 100.0 Total Peninsula 5.2 0.9 19.5 1.2 23.3 23.3 7.4 4.4 26.4 4.1 1 100.0 Source: 1977 Agricultural Census. Table A.7.3: POPULATION SIZE OF URBAN AREAS IN SELECTFTED STATES, 1957. 1970 and 1980 Population Average Annual Growth Rate (%) State Urban area 1957 1970 1980 1980/1 1957-70 1970-80 1970-80 /1 Kelantan Kota Bharu 38,103 55,124 170,559 65,476 2.9 12.0 1.7 Pangal Kalong 11,248 14,426 22,622 22,622 1.9 4.6 4.6 Peringat - 11,806 14,283 14,283 - 1.9 1.9 Pasir Mas - 11j233 13,733 13,733 - 2.0 2.0 Tumpat - 10,673 - - - - - Kadole - - 12,020 12,020 - - - Kuala Kra - - 12,757 12,757 - - - Total Urban 49,351 103,262 245,974 128,134 5.8 9.1 2.2 Trengganu Kuala Trengganu 29,446 53,320 66,971 4.7 2.3 K.T. West - 14,487 } 184,342 n.a. - } 8.8 n.a. K.T. Central - 11,588 n.a. - n.a. Dungun 12,515 17,506 29,569 17,262 2.6 5.4 -0.1 Chuka 10,803 12,514 16,059 16,059 1.1 2.5 2.5 Total Urban 52,764 109,415 229,970 n.a. 5.8 7.7 n.a. Mlelaka Melaka 69,848 87,160 88,073 88,073 1.7 0.1 0.1 Bukit Bharu - 14,377 17,559 17,559 - 2.0 2.0 Total Urban 69,848 101,537 105,632 105,632 2.9 0.4 0.4 N. Sembilan Seremban 52,091 80,921 136,252 83,954 3.4 5.3 0.4 Kuala Pilah 12,024 12,508 12,556 12,556 0.3 0.0 0.0 Port Dickson - 10,300 24,035 11,261 - 8.8 0.9 Junpol - - 10,520 10,520 - - - Total Urban 64,115 103,729 183,363 118,291 3.8 5.9 1.3 Pahang Kuantan 23,100 43,400 136,625 77,000 4.5 12.2 5.9 Bentong 18,800 22,700 23,507 23,507 1.5 .4 .4 Raub 15,400 18,400 23,184 23,184 1.4 2.3 2_3 Mentakab 12,300 17,300 13,851 13,851 2.7 -2.2 -2.2 Kuala Lipis - - 10,263 10,263 - - - Total Urban 69,600 101,800 207,430 207,430 3.0 7.4 1.2 /1 Based on 1970 areas boundaries. Source: Statistics Department. Table A.7.4(P.1): 1970 /1 AND 1978 MANUFACTURING SECTOR STATISTICS FOR THE EAST COAST (A) Cost of Number of Workers Number of Gross value materials Value Paid Unpaid Area Year establishment of production consumed added Fulltime Parttime Proprietors (M$ 000) (M$ 000) (M$ 000) Kelantan 1970 112 61,828 47,795 13,531 3,471 169 191 1978 152 160,003 113,333 46,671 6,255 465 228 Kota Bahru Dist 1970 90 55,764 43,911 11,351 2,647 116 158 1978 104 93,749 65,619 28,130 3,321 259 156 Kota Bahru Town 1970 87 55,348 43,608 11,236 2,603 116 153 1978 96 90,634 65,775 26,146 3,101 244 146 Tumpat Dist 1970 3 524 368 155 29 42 4 1978 6 6,994 5,185 1,810 182 20 13 Tumpat Town 1970 - - - - - - 1978 5 718 522 196 132 20 13 Pasir Mas Town 1970 4 847 .546 302 103 - 7 1978 13 7,963 5,917 2,046 747 93 16 Pasir Mas Town 1970 - - - - - - 1978 11 6,823 5,144 1,679 632 93 11 Tanah Merah Dist 1970 3 1,912 1,245 667 275 - 6 1978 7 20,218 17,613 2,605 410 8 10 Tanah Merah Town 1970 - - - - - - - 1978 6 20,055 17,494 2,561 375 4 7 Other /2 1970 12 1978 22 Table A.7.4(P.2): 1970 /1 AND 1978 MANUFACTURING SECTOR STATISTICS FOR THE EAST COAST (B) Cost of Number of Workers Number of Gross value materials Value Paid Unpaid Area Year establishment of production consumed added Fulltime Parttime Proprietors (M$ 000) (M$ 000) (M$ 000) Trengganu 1970 40 17,722 10,162 7,558 1,821 16 50 1978 80 257,886 186,748 71,138 5,033 142 64 Kuala Trengganu 1970 21 7,526 4,565 2,960 1,007 16 29 Dist. 1978 36 56,796 30,796 26,000 2,074 22 30 Kuala Trengganu 1970 21 7,526 4,565 2,960 1,007 16 29 Town 1978 33 56,103 30,463 25,640 1,996 20 27 Besut Dist 1970 4 1,673 590 1,083 84 - 4 1978 13 10,048 7,335 2,713 602 12 18 K. Besut Town 1970 - - - - - 1978 4 1,597 989 608 ii9 - 5 Dungun Dist. 1970 6 4,142 1,997 2,145 445 - 8 1978 7 9,778 4,439 5,339 305 90 3 K. Dungun Town 1970 6 4,142 1,997 2,145 445 - 8 1978 3 2,649 1,406 1,243 110 45 3 Kemaman Dist. 1970 4 3,481 2,420 1,061 215 - 2 1978 13 122.258 112;164 21,09/ 916 o 3 Chukai Town 1970 - - - - - - 1978 3 11,382 8,83 2,552 290 1 2 Other 1970 1978 Table A.7.4(P.3): 1970 /1 AND 1978 MANUFACTURING SECTOR STATISTICS FOR THE EAST COAST (C) Cost of Number of Workers Number of Gross value materials Value Paid Unpaid Area Year establishment of production consumed added Fulltime Parttime Proprietors (M$ 000) (M$ 000) (M$ 000) Pahang 1970 126 81,061 53,910 27.714 5,544 143 140 1978 191 623,734 403,365 220,369 17,722 134 133 Kuantan Dist. 1970 60 30,451 20,983 9,288 1,993 15 81 1978 89 197,185 135,548 61,637 4,670 78 67 Kuantan Town 1970 55 28,625 19,896 8,552 1,851 13 73 1978 83 180,418 124,518 55,900 4,298 77 67 Temerloh Dist. 1970 22 22,492 14,099 8,982 1,532 10 16 1 1978 47 208,971 131,399 77,572 7,354 41 35 X Temerloh Dist. 1970 5 6,982 3,960 3,960 346 3 5 1978 20 120,030 70,425 70,425 4,848 33 13 Mentakab Town 1970 12 6,450 6,450 6,450 886 2 9 1978 19 35,359 35,359 35,359 1,896 3 16 Other 1970 6 1978 3 /1 1970 and 1978 data are not strictly comparable over time although they can be used for estimting ratios for each year. /2 Kuala Krai, Bachok, Pasir Puteh and Machang available quarterly, but not Jeli, Dabong and Gua Musang. Source: Statistics Department. - 39 - Table A.7.5: EAST COAST DISTRICT POPULATIONS, 1980 State/District 1970 1980 Kelantan Total 686,300 875,575 Kelantan, Coast /1 624,400 794,454 Bachock 62,200 76,774 Kota Bharu 207,800 281,161 ]Marang 51,600 59,194 Pasir Mas 100,700 122,246 Pasir Puteh 71,100 84,321 Tanah Merah 57,900 81,414 Tumpat 73,100 89,344 Trengganu Total 405,500 542,280 Trengganu Coast /2 371,800 496,477 Besut 79,200 102,964 Dungun 54,500 60,543 Kemaman 44,900 66,187 Kuala Trengganu 173,500 241,271 Marang 19,700 Pahang Total 504,900 770,644 Pahang Coast /3 167,200 229,931 Kuantan 96,900 170,040 Pekan 70,300 59,891 Source: Preliminary field counts oF 1980 Census. /1 Excludes the districts of Ulu Kelantan and Kuala Krai with populations of 15,252 and 67,869 respectively (together in 1970: 61,800). /2 Excludes the district of the Trengganu, population 45,803 (1970: 33,700). /3 Excludes the districts of Burbong, Cameron, Highlands, Terankut, Lipis, Rauls, Ternerloh and Rompin. - 40 - Table A.8.1: KOTA BHARU MUNICIPAL AND DISTRICT POPULATIONS, 1970 AND :L980 Average annual growth rate 1957 1970 1980 1957-70 1970-80 Kota Bharu Municipal Area Former Town Board 38,103 55,124 65,476 2.9% 1.7% Expansion Area 65,513 105,083 4.8% 120,637 170,559 3.5% Nonmunicipal Areas Within District 86,757 110,602 2.5% Kota Bharu District Total 150,900 207,394 281,161 2.5% 3.1% Sources: Preliminary Field Count Summary, 1980 Population and Housing Census of Malaysia (Kuala Lumpur: Statistics Department, October 1980); Kota Bharu Urban Development Study, Technical Working Paper No. 6: Projection of Population, Housing and Other Urban Facilities (P.G. Pak-Poy and Associates (M), et al., November 1980); and unpublished field count data from the 1980 census. - 41 - Table A.8.2: KUALA TRENGGANU MUNICIPAL AND DISTRICT POPULATIONS, 1957--80 Average annual growth rate 1957 1970 1980 1957-70 1970-80 Kuala Trengganu Municipal Area Former Town Board 29,436 53,353 66,971 4.7% 2.3% Expansion Area 117,371 Total 184,342 Non-municipal Areas Within District 56,929 Kuala Trengganu District Total 124,428 173,304 241,271 2.6% 3.4% Sources: Preliminary Field Count Summary, 1980 Population and llousing Census of Malaysia, (Kuala Lumpur: Statistics Department, 1980); Trengganu Coastal Region Study, Vol. 2, Chapter 1, (Maunsell and Partners, et al., 1980); and unpublished field count data from the 1980 census. - 42 - Table A.8.3: ETHNIC COMPOSITION OF KOTA BHARUJ MUNICIPAL POPULATION, 1980 Town Board Expansion Area Total /a Malay 47,900 74.3% 104,616 97.9% 150,269 88.9Sy Chinese 15,500 24.0% 2,146 2.1% 17,646 10.47/ Indian 700 1.1% 83 0.1% 783 0.5% Other 400 0.6% 18 0.07% 418 0.2% Total 64,500 100.0% 104,616 100.0% 169,169 100.0% /a The 13,113 respondents whose ethnic group was not reported in the consultants- survey have been assigned to ethnic groups in the same proportions as the distribution of respondents whose ethnic origins were reported. Source: Kota Bharu Urban Development Study, Technical Working Paper No. 6: Projection of Population, Housing and Other Urban Facilities, Tables 6 and 7 (P.G. Pak-Poy and Associates (M),, et al., November 1980). - 43 - Table A.8.4: ETHNIC COMPOSITION OF KUALA TRENGGANU TOWN COUNCIL AREA AND DI3TRICT, 1970 Town Council Other A-eas District Totals Malay 43,482 81.5% 118,748 98.8% 162,230 93.5% Chinese 8,762 16.4% 1,395 1.2% 10,157 5.9% Indian 948 1.8% 52 0.0% 1,000 0.6%, Other 128 0.2% 19 0.0% 147 0.1% Total 53,320 100.0% 120,214 100.0% 173,534 100.0% Source: Community Groups, 1970 Populatior. and Housing Census of Malaysia, Table 24 (Kuala Lumpur: Statistics Depa7rtment, 1972). - 44 - Table A.8.5: LAND USE IN KOTA BHARIJ MUNICIPAL AREA, 1980 Use Fomer Town Municipal Ex- Total Board Area pansion' Area area Acres Percent Acres Percent Acres Percent Residential 1,312 48 2,327 9 3,639 13 Commercial 132 5 134 1 266 1 Industrial 62 2 99 0 161 1 Educational 137 5 241 1 378 1 Government 96 3 598 2 694 2 Recreational 70 3 214 1 284 1 Cemetary 13 0 111 0 124 0 Roads 127 5 748 3 875 3 Agricultural 120 4 18,744 73 18,864 66 River 394 14 572 2 966 3 Vacant 287 10 2,039 8 2,326 8 Total 2,750 100 25,826 100 28,576 100 Source: Kota Bharu Urban Development Study, Technical Working Paper No. 2: Land Suitability Analysis, Table 13, p. 39 (P.G. Pak-Poy and Associates (M), et al., November 1980). - 45 - Table A.8.6: LAND USE IN KTJALA TRENGGANT MUNICIPAL AREA (acres) Use 1970 1'374 x Urban areas (incl. built-up areas) 1,980 4.3 2,670 5.8 Paddy land 10,420 22.5 16,210 35.0 Other agricultural areas 15,110 32.6 17,970 38.8 Swamps 10,010 21.6 3,220 6.9 Grassland ('incl. pastures, tall grass, bushes) 2,350 5.1 1,190 2.6 Forest areas 3,710 8.0 2,320 5.0 Rivers 2,711 5.9 2,711 5.9 Total 46,291 100.0 46,291 100.0 Source: Kelantan Town and Country Planning Department, Kuala Trengganu. - 46 - Table A.8.7: HOUSEHOLD INCOMES IN KAMIPONG LADANG MENGABANT-KUBOR-KUBOR TOK PELAM, 1978 Monthly income (M$) x of households 150 - 199 42 200 - 299 23 300 - 399 14 400 - 499 7 500 - 999 9 1,000 and over 5 Source: Trengganu State Economic Planning Unit. - 47 - Table A.8.8: DISTRIBUTION OF MONTHLY GROSS HOUSEHOLD INCOME FOR URBAN HOUSEHOLDS, 1976 Nonthly gross household Northeastern States Northern States /a Other Peninsular States income class Absolute Cumulative Absolute Cumulative Absolute Cumulative (M$) percentage percentage percentage percentage percentage percentage Less than 100 14 14 4 4 2 2 100-149 11 25 5 9 2 4 150-199 10 35 7 16 4 8 200-299 19 54 20 36 13 22 300-399 11 65 16 52 14 36 400-499 8 73 11 63 1L2 47 500-599 5 79 7 70 9 56 600-799 7 85 10 79 ].2 68 800-999 5 90 5 84 8 76 1,000-1,499 5 95 8 92 11 87 1,500-1,999 2 97 4 96 5 92 2,000 or more 3 100 4 100 8 100 /a Kedah and Perlis. S'ource: 1977 Agricultural Census, unpublished data, Statistics Department. Table A.8.9: ESTIMATED HOUSING AFFORDABILITY FOR URBAN HOUSEHOLDS IN THE NORTHEAST, 1981 Percentage of Urban Affordable Monthly Monthly Gross Households in Expenditure on Financial Terms Ic Affordable Development Household Northeast /a Housing Down Interest Repayment Purchase Cost Assuming Income /a Absolute Cumulative % of Amount Payment Rate Period Price 30% Subsidy (M$) income/b (M$) (%) (%) (years) (M$) (M$) Less than 178 14 14 15 less than 27 0 5.5 25 Less than 4,348 Less than 6,211 178-265 11 25 16 28-43 0 5.5 25 4,638-6,930 6,625-9,900 266-354 10 35 16 43-57 0 5.5 25 6,931-9,250 9,901-13,214 355-532 19 54 17 60-91 0 5.5 25 9,828-14,755 14,040-21,079 533-709 11 65 19 101-135 10 5.5 20 18,323-24,408 710-1,064 14 79 20 142-213 20 9.0 15 28,905-43,356 1,065-1,774 11 90 20-25 213-444 20 9.0 15 43,356-90,327 1,775 or more 10 100 25 445 or more 25 9.0 15 96,349 or more /a The distribution of monthly gross household income for urban households in Kelantan and Trengganu from the 1976 Agricultural Census (unpublished data, Statistics Department) was increased to reflect the estimated growth of household incomes during 1976-81. During 1976-79, the mean urban household income in peninsular Malaysia increased at an average annual rate of 5.86% in constant prices and 10.54% in current prices (Fourth Malaysia Plan 1981-1985, Table 3-9, p. 56). A real growth rate of 5.86% per annum is also assumed for 1979-81, and increases in the Consumer Price Index of 7.0% in 1980 and 9.6% in 1981 are taken into account. Assuming that the shape of the household income distribution in the Northeast remained unchanged and that the average rates for the entire peninsula are applicable to the Northeast, each 1976 income range was increased by 77.5% to estimate the growth during 1976-81. The estimated income distribution is quite similar to a distribution based on a socio-economic survey conducted inKota Bharu in 1980; see Chart A.8.1. /b Comparable housing expenditure patterns are assumed in Table 3.5, p. 26, of Malaysian Housing Scenario (report of the Task Force of the National Consultative Council, May 1980). /c Comparable to the terms assumed in ibid., Table 3.6, p. 28. - 49 - Table A.cI.1: KOTA BHARTJ MUNICIPALITY INCOPME AND EXPENDITURES, 1978-80 (M$) 1Q78 1979 1980 CURRENT INCOME Locally Generated Rates 1,203,970 1,180,80 1,082,165 State contribution in lieu of rates 46,548 46,543 70,182 Federal contribution in lieu of rates - 30,524 30,524 Licenses 305,170 306,125 330,875 Fees & charges 684,101 802,685 894,823 Income from assets - -- 500,702 Miscellaneous 241,837 273,977 75,946 2,481,626 2,640,668 2,985,217 (Locally generated current income per 1980 capita) (17.50) Annual Grants State Government - 500,000 500,000 Federal Government L07,888 107,500 107,500 1.07,888 607,500 607,500 Total Current Income 2,589,514 3,248,168 3,592,7l7 (Total Current Income per 1980 capita) (21.06) CURRENT EXPENDITURE Emoluments 856,050 2,374,138 3,254,210 Building maintenance & repairs 49,622 4S,871 51,456 Other current- expenditure 738,139 954,887 1,238,144 Total Current Expenditure 1,643,811 3,377,896 4,543,810 CAPITAL INCOME Federal launching grant 1,022,250 477,750 - Federal & state loans & grants /a 39,250 697,000 11,460,704 Total Capital Income 1,111,500 1,174,750 11,460,704 CAPITAL EXPENDITURE (By Source) Municipal funds 60,928 120,331 303,696 Federal launching grant 471,404 558,550 468,764 Federal & state loans & grants 559,769 41,155 4,392,515/b Total Capital Expenditure 1,092,101 720,036 5,164,975 la All grants except S575,000. lb The major item was construction of a ring rcad. Note: The municipality accounts are not consistently maintained -in accord with modern accrual accounting system conceDts and practices. Source: Kota Bharu Municipality. - 50 - Table A.9.2: KUALA TRENGGANU MUNICIPALITY INCOME AND EXPENDITIJRES, 1978-80 (M$) 1979 1980 CURRENT INCOME Locally Generated Rates 974,170 1,158,692 Licenses 285,803 315,915 Fees & charges 95,446 152,52;4 Reimbursements 2,999 4,12.6 Miscellaneous 397,292 792,01.4 1,755,710 2,423,271 (Locally generated current income (13.15) per 1980 capita) Annual Grants State Government 3,000,000 3,010,000 Federal Government 107,500 107,500 3,107,500 3,117,500 Total Current Income 4,863,210 5,540,771 (Total Current Income per 1980 capita) (30.05) CURRENT EXPENDITURE Emoluments 1,971,175 2,853,859 Maintenance & repairs 65,317 994,595 Other current expenditure 430,995 Write-off 40,847 18,8(1 Depreciation 86,508 209,8-30 Total Current Expenditure 2,594,842 4,077,085 CAPITAL INCOME Federal launching grant 1,131,100 368,900 Projects G,rants - 1,990,000 Total Capital Income 1,131,100 2,358,900 CAPITAL EXPENDITURE 350,294 1,348,518 Note: Modern accrual concepts and practices are not applied consistently. Source: Kuala Trengganu Municipality. - 51 - Table A.10.1: PROJECTED WATER DEMAND IN THE SOUTHERN4 TRENGGANU COASTAL CORRIDOR, 1980-2010 Area 1980 1985 1990 2000 2010 Population Dungun 35,118 39,155 43,655 54,268 67,462 Chukai 25,384 31,182 38,303 57,798 87,215 Kerteh 15,131 22,958 29,658 51,508 77,005 Others 13,223 14,852 16,694 21,145 26,820 Total 88,856 108,47 128,310 184,719 258,502 Water Demand (mgd) Dungun 1.43 4.24 4.94 6.29 7.82 Chukai 1.95 14.89 24.19 36.21 43.01 Kerteh 0.40 4.10 6.03 9.54 13.22 Total 3.78 23.23 35.16 52.04 64.05 Source: Water Resources Development for Domestic and Industrial Uses in the Southern Coastal Trengganu Region, Interim Report, March 1981. - 52 - Table A.10.2: MANUFACTURING EMPLOYMENT AND TOTAL POPULATION PROJECTIONS FOR KERTEH NEW TOWN, 1980-2000 1980 1985 1990 1995 2000 Manufacturing Employment/a Low profile 1,360/b 1,790 2,284 Medium profile 253 1,093 1,760 2,732 4,240 High profile 2,198 3,731 6,333 Kerteh New Town Population Low profile 13,885 15,709 17,772 Medium profile 6,083 12,270 17,563 23,861 36,028 High profile 22,577 33,669 57,013 /a Total for urban and rural areas in Kerteh, Kemasek and Pekan; almost all of the new industrial employment is assumed to be located in the Kerteh Industrial Estate. /b The value reported in Table 5.8 of the Kerteh New Town Plan is mis- printed as 3,160. Source: Town and Country Planning Department, Ministry of Housing and Local Government, Kerteh New Town Development Plan, Vol. 1, Tables 5.4 and 5.7-5.12 (April 1981). - 53 - Table A.10.3: ESTIMATED HOUSING REQUIREMENTS FOR TELOK KALONG INDUSTRIAL ESTATE Estimated Employment on the Estate, 1988 Heavy Industries DR/billet, cold rolling steel mill 1,940 Ammonia, methanol 440 Ethylene, LDPE, HDPE 760 Other indusitries 800 Estimation of Required Housing (1) (2) Estimated new industrial employment 3,940 3,940 Migrant proportion of workers 0.4 0.8 Number of migrant industrial workers (1 x 2) 1,576 3,152 Induced service employment (3 x 0.3) 473 946 Total units required (3 + 4) 2,049 4,098 Source: Preli.minary Development Plan Study for Telok Kalong and Kerteh Industrial Estates, Trengganu, pp. 169-72 (Engineering Consulting Firms Association, Japan, March 1981). - 54 - MALAYSIA REGIONAL DEVELOPMENT AND URBANIZATION IN THE NORTHEAST List of Charts Chart No. Title Page No. A.8.1 Estimated Distribution of Gross Monthly Household Income for Urban Households in the Northeast, 1981 .55 A.9.1 Organization and Staffing of the Kota Bharu Municipality, 1981 .56 A.9.2 Organization and Staffing of the Kuala Trengganu Municipality, 1981 .57 CHART A.8.1 ESTIMATED DISTRIBUTION OF GROSS MONTHLY HOUSEHOLD INCOME FOR URBAN HOUSEHOLDS IN THE NORTHEAST., 181 t iIe i - KO LTA BK4RU URBAN DE-VELOPMENT STUDY a/I 7PROECTION OF 1876 AGRCULTURAL CENSUS DATA FOR URBAN HOUSEHOLDS IN THE NORTHEAST TO 1861 it/ ib40 _, 20 - , /,R'~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~U Ga s tees is1s 200e 2508 300 6DSS MONTHLY HOUSEHOLD INCOME CM$) a. P.G.PAK-POY AND ASSOCIATES CM)..at at. KOTA BHARU URBAN DELOPMENT STLDY, TECHNICAL PAPER NO. 6: PROqJECTION OF POPULATION. HOUSING AND OTHER URBAN FAC3IXTIES, TABLE 18, PAGE 4O (NOVEMBER 1t80) b. TABLE A.0.9 CHART A.9.1 MALAYSIA THE DEVELOPMENT OF THE NORTHEAST Organization and Staffing of the Kota Bharu Municipality, 1981 President Deputy President Secretary Audit.r Gener..l La. and Enginering Town Pl-ring Trasy Aditrato Enfr t Valuation Pbi Heth Building Adnacation ertionAel dOrti-nuti LirG.n...g R.adt end DranS Ar-cuninq Purhasing and Stone operaion Ulow aretsan Wcrlc end Deoticyment Lyrt,Leet-e Publi ReIlti-n, Mestiog ereetpctrt Workthop and Stern andentas and Ceordination Tyson Boautificatien ~~~~~~~~Parking Re.gional C-unci, Stadium, and Land-caping and Libraries Plenning and Ony.nloymen Toital 1 Staffing L-eve Appr-ued Actual Appr-ved Actual Apprcved Actual APProced Acta Appved Artual Appround Actual Appr-md Actual Approvad I Actual Profassional and Manag,rial Senir3 2(A-9andA- 11 2 f f 0 0 0 2 2 0 0 0 0 0 |2 20 100%) Other 2 I 1 1 1 I 2 2 I 0 0 13 1 1 6 61 79%) Ttrhnicel and S-mi-Prnfa-sional Seninr2 S 0 0 0 2 0 0 0 1 G | % Other 7 6 1 1 2 2 2 2 1 1 0 6 1 21 13) 62%l Clerical S en io r2 I 1 5 1 I 0 2 2 1 1 0 0 y 5 34 ( 6 % 1 Other 19 12 3 3 13I 1 5 1 4 3 10 136 40163%) Manu'l Senior2 g 0 5 5 5 6 5 0 1 6 1 O)%l Dther 150 62 1 1 160 129 14 5 29 15 6 342 335 795 549( 69%1 Tgtal 179 82 6 6 177 144 31 16 33 18 11 5 361 | 343 8 96 16i 69%l Notes. 1. Include Deputy Prsident, Secretary, Auditor and their suppers stuff. 2. Includes speclal grede and uPar scale Poets. Source: Kota 6har- Municipality. World Bank-23330 CHART A.9.2 MALAYSIA THE DEVELOPMiENT OF THE NORTHEAST Organization and Staffing of the Kuala Trengganu Municipality, 1981 PresidentAdq. Gepoto POmre.d Ae,- CarP-terat C-men Werikt Park'dg 0niatrnnsTow Macliu idd Rotti and Drint Plnnn -at lrnlt-un j Putrfittung ard Stei Snufing L-cel Apnp-ud Actua Appra-d ceAl A,eocd AculAPPI-ntt Actua Aw-ercd Actua App-rasd Actual Appea-d AetiLW Aetp-ed Ac-ne s-nid 2 (A -ando A-lgl if S 00 o o 0 t i G 2 110041 Otfiar 3 f ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~y 3 6 2l2~~~~~~~~~~~~~~~~~~~~~~~~~~%l (2% hence2 y p g g p it rI it 0 it t 5 f 1 ~ ~ ~ ~~~~~~~~~~~~~~~~ f fIfitOs l2tfttt 6* 5 1 5 f 1 f i 1 I i 1 6 2 tO ff165141~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~17 1 5% S--ua2 I 0 0 2 21 5 2 2 1 6 Si 62%l OnSet ~~~ ~ ~~12 7 3 012 a 2 f f3 9 20 a2 6 47162V4 6-aeal 2 2 0 13 1 f 0 p 3310 l 6 38 16 7~~~~~~~~~~~~f 61 64f32 % latal 165 123 6 0 140 63 22 213 51 36 .712 40O ff41 665 6.05 Nnt. 1. Includes Deputy PrasidIct, S-crtay. Aud-rc end h.rer-.pp,,t stff 2. Inlont. -peial grdt and s-per t-am Pen S..u-e Koal TIrnggn Municipality. WerlO Onny - 253213 - 58 - MALAYSIA REGIONAL DEVELOPMENT AND URBANIZATION IN THE NORTHEAST List of Annexes Annex No. Title 1-1 A Comparison of State Income Levels and Targets Expressed in Terms of GDP and Household Income Per Capita 1-2 Social Indices of Regional Disparities 1-3 Decomposition of Income Disparities 2-1 Regression Analysis of State Household Income and GRP Data 2-2 Peninsular Emigration and Northeastern Migration to Singapore 3-1 The Institutional Framework for Implementing the Regional Development Strategy in the Northeast 3-2 FMP Regional Transportation Network Program 3-3 FMP Regional Utilities Network Program 3-4 Industrial Incentives 4-1 Mineral Resources in the Northeast 4-2 Oil and Gas Resources in the Northeast 4-3 Forest Resources 4-4 Cash Crops 4-5 Smallholder Problems in Agriculture in the Northeast 4-6 Fishery Resources in the Northeast 5-1 Tourism 6-1 FMP Development Allocations 6-2 Regional Growth Prospects 9-1 Administrative and Financial Arangements for Urban Infrastructure and Services in Kota Bharu and Kuala Trengganu 9-2 The Legislative Framework for Local Government and Planning in Malaysia - 59 - ANNEX 1-1 Page 1 MALAYSIA REGIONAL DEVELOPMENT AND URBANIZATION IN THE NORTHEA.T A _onparison of State Income Levels and Targets Expressed in Terms of GDP and Household Income Per Capita 1. The government has set specific income targets to be achieved by each state by 1990, in line with its overall goal of narrowing income dis- parities among states by raising the per capita GDP of the lowest income state to at least two thirds of the national average by 1990. The targets are set in terms of per capita GDP which has tthe advantage of translating easily into sector-specific output and employment goals. On the other hand, per capita household income (referred to as "household income" below measures individual well-being more directly and has the advantage of permitting a more detailed analysis of the socioeconomic profile of income and poverty. 2. The two measures are close but by no means perfect substitutes. The correlation between the two measures in Table 1.3 of the volume 2 is 0.94. However, Kelantan's current economic position and recent performance are considerably worse when measured in terms of GDP than household income, and the FMP target is correspondingly more ambitious and difficult to attain (Table 1-1.1). Whereas Kelantan's household income in 1976 was 57% of the peninsular average, its per capita GDP in 1977 was only 46%, and whereas household income grew at an above average rate during 1970-76, per capita GDP grew below the peninsular average during 1971-77, with the result that Kelantan's relative income position declined rather than improved. Treng- ganu's experience, on the other hand, is almost the reverse. Its income gap, while still larger in GDP than household income terms, decreased more rapidly for the former than the latter measure (in par: due to the expansion of the petroleum sector which affected output more than income), so that its future appears brighter when measured in GDP terms. 3. Finally, the case of Pahang is perplexing. The statistics imply that per capita GDP did not grow at all between 1977 and 1980, and consequently Pahang's per capita GDP decline from 98% of the peninsular average in 1971 to 92% in 1977 and 79% in 1980. This would reduce Pahang's per capita GDP rank from third to seventh, behind Perak which is often considered a borderline poverty state. To make such a sudden change plausible, a scenario can be imagined in which development during its initial phase raises GDP without significant i-ncreases in population. Only once land is productive are agricultural workers settled in great numbers, leading to a sudden large rise in population without concomitant GDP growth - as a rise in agricultural output is offset by a decline in development -60 - ANNEX 1-1 Page 2 expenditures and forestry output. There are unfortunately no data to substantiate this hypothesis, although it would have implications for the Northeast if true. Another problem is that the per capita GDP estimates are probably based on extrapolated population figures which would not have been sensitive to actual year-by-year population growth. The data are thus hard to explain and do not match other evidence none of which places Pahang among the poverty states. 4. There is no single obvious explanation for the differences between per capita GDP and household income in the Northeast. One explanation may be that the Northeast receives relatively larger remittances than the peninsula or that the Northeast retains a larger share of of its factor earnings. Either case would raise household income compared to per capita GDP. However, this explanation is not very plausible since remittance flows are closely related to net out-migration, which is small for the Northeast. It also seems unlikely that the Northeast is a recipient of disproportionate capital returns, although this would be possible if most capital in the Northeast were locally owned and a large share of capital elsewhere were in foreign hands. In the case of Trengganu, rising oil production is undoubtedly a factor in the GDP upsurge, particularly since 1977. However, as elsewhere, particularly in the case of Pahang, the possibility of data problems cannot be dismissed. 5. GDP growth targets for the Northeast and Kelantan in particular are exceedingly ambitious compared to peninsular average growth. For Kelantan's per capita GDP to be two thirds of the national average, it must grow at 9.9% per annum over the following decade or at almost twice the projected peninsular rate of 5.6%. This would imply raising Kelantan's relative income position by almost 50%. 6. Unfortunately, it is difficult to say what the growth in per capita GDP would mean for household income, since the sources of differences between GDP and household income are not fully understood, as explained above. For example, if one assumed that per capita household income in the peninsula grows at the same rate as per capita GDP (implying 202% growth during 1977-90 and,, extrapolating backwards, 214% from 1976), then peninsular monthly household income would rise from M$95 in 1976 to M$2C3 in 1990 (in 1976 prices). If one assumes further with Turgoose /1 that states in 1990 will have the same gap, compared to the peninsula, in household income as in per capita GDP (which of course they did not in 1976/77), then Kelantan's monthly household income would be M$134 in 1990 (still in 1976 prices). However, Turgoose's assumption implies that household income may /1 Robert Turgoose, "A Review of Household Incomes by State and Region," State and Rural Development Project, 1981. - 61 - ANNEX 1-1 Page 3 stagnate or even decline as per capita GDP grows, a not entirely convincing implication. An alternative, possibly more realistic assumption is that the household income gap is reduced in the same proportion as the per capita GDP gap. Under this assumption Kelantan's household income would be roughly 79% of the peninsular average in 1990, or M$150, whereas Trengganu's would be 93% of the peninsular average, or M$190. 7. Whether the growth targets are justified by the Northe.ast's potential is examined in Part Two of Volume 2. It probably cannot be helped that long term goals lack realism. It should be clear from the previous discussion, however, that the government has probably made it unnecessarily hard for itself to satisfy its targets. If its real goal is to raise the welfare of its most backward state to two thirds of the peninsular average, then the per capita household income measure would not only have been the more appropriate welfare index, but also one for which the "two thirds" target could be more easily satisfied. - 62 - ANNEX 1-1 Table 1-1.1 COMPARISON OF HOUSEHOLD INCOME AND GDP PER CAPITA, IN SELECTED STATES Peninsular Kelantan Trengganu Pahang Selangor /a Malaysia Annual GDP per Capita /b (M$) 1971 564 615 1,170 2,153 1,190 1977 746 987 1,487 2,961 1,613 1980 842 1,316 1,486 3,176 1,886 1990 2,157 2,959 3,672 4,251 3,262 Annual Income per Capita _c (M$) 1970 337 387 634 938 601 1976 444 576 765 1,292 782 Annual GDP per Capita State Rank 1971 12 11 4 1.2 - 1980 12 9 7 1.2 1990 12 7 4 1.2 Annual Income - State Rank 1970 11 10 4-5 1.2 1976 12 10 4-5 1.2 GDP per Capita, Annual Rate of Growth (%) 1971-77 4.8 8.2 4.1 5.5 5.2 1971-80 4.6 8.8 2.6 4.4 5.3 1980-90 9.9 8.4 9.5 3.0 5.6 GDP per Capita, Annual Rate of Growth (%) 1970-1976 4.7 6.9 3.2 5.5 4.5 GDP per Capita as % of Peninsula 1971 47.4 51.7 98.3 180.9 100.0 1977 46.2 61.2 92.2 183.6 100.0 1980 44..6 69.8 78.8 168.4 100.0 1990 66.1 90.7 12.6 130.3 130.0 Income per Capita as % of Peninsula 1970 56.1 64.4 105.5 156.1 100.0 1976 56.8 73.7 97.9 137.9 100.0 /a Includes the Federal Territory. 7T From the FMP except for 1977, which is based on Turgoose: "Gross Regional Product: A Review" (State and Rural Development Project, May 1980). /c Annual per capita household income, from Table 1.5 in the Main Report after deflating by 0.686 from 1976 to 1970 prices using the consumer price index. /d For comparability with statistics elsewhere, Selangor/Federal Territory and Kedah/Perlis are each counted as 2 states. - 63 - ANNEX 1-2 Page 1 MALAYSIA REGIONAL DEVELOPMENT AND URBANIZATION IN THE NORTHEAST Social Indices of RegionaL Disparities 1. Chapter 1 presents data on disparities among regions in terms of household income, GDP per capita and the incidence of poverty. This annex supplements this data with information about motor vehicle registrations, water supply, electricity consumption, health and education (Table 1-2.1). Motor Vehicles 2. Because motor vehicles have a rela:ively high income elasticity, disparities in motor vehicle registration should exceed income disparities, which is true for the Northeast. In Trengganu, total motor vehicle registration is 59% below the peninsular ave:rage, compared to an income disparity of 36%, while in Kelantan the respective disparities are 47% and 43%. By similar reasoning, disparities are Larger for the ownership of cars than motorcycles. What is surprising is the relatively high rate of growth in motor vehicle registration in the Northeast and the higher level and growth rate of such registration in Kelantan compared to Trengganu, in spite of a smaller level and growth rate in per capita household income and Trengganu's higher urbanization level. Utilities 3. Northeastern states consume roughly 60% less electricity and 75% less water per capita than any other peninsu.Lar state. Undoubtedly, this is the result of two effects that should be separated: a smaller percentage of households is connected to public services, and connected households consume less of the service because of lower incomes /l Service disparities exceed income disparities, i.e., the relative gap between northeastern states and the peninsula is larger for per capita water and electricity consumption than for per capita income. /1 The data are from the FMP which does not indicate whether they are for residential or total (including commercicl and industrial) consumption. If they represent total per capita consumption, they overstate residen- tial consumption disparities because of t:he lack of Northeastern industry. - 64 - ANNEX 1-2 Page 2 Health 4. Northeastern states also rank at the bottom on all health indica- tors. Thus, infant mortality continues to be one third above the national average, and the availability of doctors, dentists and hospital beds in Kelantan remains respectively 168%, 78% and 62% below the peninsular average, and 124%, 41% and 42% below average in Trengganu. Again, despite above average improvements in the supply of health services, the disparities still remain significantly greater than income disparities. There would seem to be room for considerable growth in public service expenditure in the Northeast. Education 5. In considering educational disparities among states, it is necessary to distinguish between the educational attainments of the current population, which largely reflect past skill production, and attainments by the current school age population, which more closely reflect the current availability of educational services. There are few systematic differences among states in the availability of primary and secondary school services as measured by student-teacher ratios. The Selangor Region has the highest ratio, possibly because of its rapid growth, but the variations are quite small. However, there are considerable differences in the availability of vocational, technical and tertiary educational facilities. Students must go to the west coast for tertiary education. A IIARA industrial training institute exists in Pahang, but not in the Northeast. There is a technical school (mechanical and civil engineering) in Kuala Trengganu, but none in Kelantan. Vocational training schools exist in all three east coast states, but capacity appears relatively small. 6. On the basis of official school transition rates, it appears that the current student generation in the Northeast progresses to higher educa- tional levels at abouti the same rate as the average student in the penin- sula. There is no discernable pattern in transil:ion rates among states except that Selangor students in upper secondary are twice as likely tc - 65 - ANNEX 1-2 page 3 to a peninsular average of 7%. In addition, 25% and 18%, respectively, have "other" education, mainly religious schooling, compared to 16% Ln the peninsula. Disparities of similar magnitude exist for urban females and rural males and females. Given the importance of human capital variables in explaining earning differentials in Malaysia, one would expect educational disparities to play a major role in explaining the income gap oil the Northeast. 8. In summary, social disparities among states are significant and reinforce the income disparities discussed in Chapter 1 of Volurae 2. In spite of some narrowing during the past decade, service disparities are larger than income disparities except in the educational system. - 66- ANNEX 1-2 Table 1-2.1 Page 1 SELECTED SOCIAL INDICATORS 1970 AND 1980 Northeast Northwest Selangor Penin- Social Indicator Kelantan Trengganu Kedah/a Perlis Region/b sula Private Motor Vehicle Registration Cars/1,000 population 1970 0.9 0.9 1.2 n.a. 5.1 2.7 1980 2.2 1.9 2.8 n.a. 8.0 5.0 % change p a. 9.4 7.8 8.8 n.a. 4.6 6.4 1980 rank 10 11 8-9 8-9 1 - Cycles/1,000 population 1970 1.9 2.0 2.8 n.a. 5.4 4.1 1980 5.8 5.0 8.7 n.a. 10.0 10.0 % change p-a. 11.8 9.6 12.0 n.a. 6.4 9.3 1980 rank 10 11 8-9 8-9 6-7 - Utilities Electricity consumption p.c. (KWH p.a.) 1970 9.3 8.5 7.3 8.9 77.4 29.1 1980 36.2 43.4 43.4 61.7 186.6 95.5 % change p.a. 14.6 26.0 26.0 21.4 9.2 12.6 1980 rank 11 9-10 9-10 6 1 - Water consumption p.c. (liters per day) 1970 19.8 19.4 52.4 47.3 166.7 89.7 1980 31.3 38.0 80.5 41.4 209.9 137.4 % change p-a. 4.7 6.9 4.4 -1.3 2.3 4.4 1980 rank 11 10 8 9 2 - Health Infant mortality rate 1970 58.7 56.3 42.3 35.5 29.4 40.8 1980 38.3 37.7 30.6 33.4 22.3 28.1 % change p.a. -4.2 -3.9 -3.2 -.6 -2.7 -3.7 1980 rank 11 10 8 9 1 - Persons per registered doctor 1970 14,218 14,514 10,328 7,856 1,801 3,859 1980 10,609 8,875 7,421 5,421 2,293 3,959 % change p.a. 2.9 -4.8 -3.3 -3.6 2.4 .3 1980 rank 11 10 9 8 1 - - 67 - ANNEX 1-2 Table 1-2.1 Page 2 Northeast Northwest Selangor Penin- Social Indicator Kelantan Trengganu Kedah/a Perlis Region/b sula Persons per registered dentist 1970 78,989 46,767 90,136 62,850 17,634 31,760 1980 40,590 32,050 28,598 22,457 16,195 22,787 % change p.a. -6.4 -3.7 -10.8 -9.8 -.8 -3.3 1980 rank 11 10 8 5 1 - Persons per acute hospital bed 1970 1,183 886 992 487 521 619 1980 1,020 894 892 482 597 631 % change p.a. -1.5 .1 -1.1 -.1 1.4 .2 1980 rank 11 10 9 2 5 - Education Students per teacher, primary 1970 29 30 31 27 35 32 1980 33 25 28 35 35 29 % change p.a. 1.3 -1.8 -1.0 2.6 0.0 0.1 1980 rank /c 8 1 2-4 10-11 10-11 - Students per teacher, secondary 1970 27 24 23 21 27 25 1980 27 26 26 24 28 26 % change p.a. 0.0 0.8 1.2 1.3 0.4 0.4 1980 rank /c 6-10 3-5 3-5 1-2 11 - Transition rate; primary/Form I 1969/70 82.6 74.9 62.5 73.4 74.9 69.6 1979/80 86.9 78.5 86.7 78.4 80.0 85.1 % change p.a. 0.5 0 5 -2.9 0.7 0.7 2.0 1980 rank 6 10 7 11 9 - Transition rate: lower/Form IV 1970 39.3 44.8 46.9 33.1 43.2 42.1 1980 57.1 64.1 52.9 61.3 56.3 59.9 % change p.a. 3.8 3.6 1.2 6.4 2.7 3.6 1980 rank 8 4 11 5 9 - Transition rate: upper secondary/Form VI 1970 11.6 15.4 19.3 7.7 40.6 25.9 1980 10.0 11.6 12.0 4.3 24.2 11.5 % change p.a. -1.5 -2.8 -4.6 -5.7 -5.0 -7.8 1980 rank 10 7 4-5 11 1 - /a Includes Perlis where data for Perlis are not available separately. For ranking purposes the two states are counted separately, with identical scores. /b Includes Selangor and Federal Territory. /c A hyphen between ranks indicates that ranks are shared among states. Source: FMP and World Bank calculations. -68- ANNEX 1-2 Table 1-2.2 DISTRIBUTION OF WORKING AGE POPULATION (AGE 15-64) BY EDUCATIONAL ATTAINMENT AND REGION No formal Secondary College & Region education Primary Lower Middle Upper University Others Urban Male Northeast Kelantan 18.2 31.6 11.1 10.0 2.0 1 9 25.1 Trengganu 70.8 33.4 17.0 9.7 .4 1.0 17.8 Peninsula 6.7 38.7 18.7 16.0 1.6 2.5 15.7 Urban Female Northeast Kelantan 30.5 28 5 8.1 6.5 .8 .7 24.9 Trengganu 37 1 28.3 11.0 9.2 - .3 14.1 Peninsula 20.1 38.4 13.3 12.2 .9 .9 14.1 Rural Male Northeast Kelantan 27.5 35.9 7.8 5.6 .5 .5 22.2 Trengganu 28.3 47.5 8.4 5.0 .2 .2 13.1 Peninsular 12.6 52.0 12.4 7.3 .5 .5 14.4 Rural Female Northeast Kelantan 48.5 26.4 6.4 3.2 .1 .1 15.3 Trengganu 47.1 37.2 5.1 3.1 .2 - 10.2 Peninsula 31.8 43.3 7.9 4.8 .3 .1 11.7 Source: 1977 Agricultural Census. - 69 - ANNEX 1-3 Page 1 MALAYSIA REGIONAL DEVELOPMENT AND URBMAIZATION IN TIUE NORTHEAST Decomposition of Income DisDarities 1. Let subscripts p and s stand for the peninsula and states respectively, and let e and u identify the ethnic and urban communities. Let y stand for the mean per capita household income of an area and/or population group identified by subscripts p, s, e or u. Then: p - peninsula; s - state, s l,..., 12; e - ethnic community, e = 1, ..., 4; u - urban rural division, u - 1, 2; Yp - peninsular mean income; Ys - state mean income: Ype - peninsular income, ethnic community e; Ypu - peninsular income, stratum u; Yse - state income, ethnic community e; Ysu - state income, stratum u; Ypeu - peninsular income, ethnic community e of stratum u; Yseu - state income, ethnic community.e of stratum u. 2. Then a state's mean per capita Income can be decomposed on the basis of its urban-rural composition as (1) Ysu ' Yp + (Ypu - Yp) + (Ysu - Ypu)q u - 1,2 and summing over the urban and rural divisions (2) ys Yp + Ypu yp)hsu + 2 (ysu - ypu)hsu where hsu is the proportion of the population in state s in stratum. Define 2 (3) Ysu " I Ypu hsu u 2 and noting that y5 _ Ysu hsu u - 70 - ANNEX 1-3 Page 2 then Ys Yp + (Ysu - Yp) + Gs - Ysu), or (YseYp) - (Ysu - Yp) + (is - Ysu) (4') total = income + income income disparity disparity disparity due to due to urban state factor (locational) Hence, the difference between state and peninsular income has been decomposed into disparities due to urban-rural population composition and a residual, state or location specific factor. Since ys and Yr are known all that is needed is Ysu. But this is the income that a state would have if its urban and rural division received the same respective income as they do in the peninsula, something easily computed. 3. in an entirely analogous manner it is possible to decompose income dis^Srities into those due to the states ethnic compositions and a residual factor, hence: (5) (YS - Yp) Gse - Yp) (Ys -se) (5) total income income dis- + income disparity disparity parity due to due to state ethnic comr- (locational) factors position where (6) - h Yse Z Yse se, e and where hse is the proportion of the population in state s in ethnic comruinity e. 4. Finally, considering disparities attributable to the joint ethnic and urban-rural distribution one obtains - 72 - ANNEX 2-1 Page 1 MALAYSIA REGIONAL DEVELOPMENT AND URBANIZATION IN THE NORTHEAST Regression Analysis of State Household Income and GRP Data Methodological Considerations 1. In Chapter 2 of Volume 2 (para. 2.11 - 2.17) it is argued that public development expenditures have a significant short-term impact on household income as well as a longer-term investment impact on productivity and output. Data on the magnitude of these expenditures and on the sectors which have led growth in Kelantan and Trengganu are presented to support this argument. 2. More direct evidence could be provided by multivariate analyses relating income growth during a given period to expenditure levels during the period and other explanatory variables. The regression equations presented in this annex analyze state per capita household income as a function of TMP development expenditures, distance to Kuala Lumpur (which is interpreted to reflect the Selangor Region's primacy in the peninsular economy) and east coast location. Although the results of the analysis are quite suggestive, they are statistically unreliable because of deficiencies with the data. They are presented here to illustrate the methodology and the interpretation of the quantitative results rather than as empirically valid findings. The analysis can be replicated when better data becomes available. 3. The primary deficiency is the lack of per capita household income data for both the beginning and end of the period of the TMP, 1976-80. The dependent variable in the analysis should be the change in income during the period; alternatively, income at the end of the period could be used as the dependent variable, and income at the beginning could be included as an independent variable. Although the 1977 Agricultural Census provides information about household income in 1976, income data collected during 1980 will not be available until 1983. State GRP data is reported in the FMP, but the quality of this data is questionable. Furthermore, it measures output rather than income; this is a particularly serious problem for a state such as Trengganu which experienced rapid growth in the petroleum sector during the TMP which would not be reflected in household income. In the absence of the required data, equations were generated for illustrative purposes using the 1976 mean state household income per capita from the 1977 Agricultural Census as the dependent variable. 4. There are also problems with the TMP expenditure data. Although information is available for TMP allocations, there is no reliable state- level data on actual expenditures. The ICU collects project expenditure -71- ANNEX 1-3 Page 3 (6) (Ys - yp) Gsue - yp) + (Ys - Ysue)d (6') total income income disparity + income disparity disparity due to joint ethnic due to state and urban/rural (locational) factors composition 2 4 where Ysue - E Ysue hsue, u e and where hsue is the proportion of the population in state's which is in stratum u and ethnic community e. 5. It may be desirable to attribute disparities separately to urban and ethnic factors. The problems however is that as identified in (4) and (5) these disparities will not add up to that of the joint urban/rural and ethnic distribution identified in (6), i.e, typically (7) (Ysue - Yp) - (5sue - Yp) - (Yse - Yp) f 0 To make up for the difference, the left hand side of (7) is inciuded as an interaction term for the urban-rural and ethnic factor, i.e. (8) (Ys.Yp) = (su-yp) + (Yse-yp) + (Ysue-Ysu-Yse+Yp) + (Ys-Ysue), or *(8') total income income income disparity income income = disparity + disparity + due to interac- + disparity dis- due to due to tion of urban due to parity urban ethnic and ethnic factor locational factor factor factor where the first three terms on the right hand side represent the income disparity due to joint ethnic and urban-rural composition. - 73 - ANNEX 2-1 Page 2 data, but its information appears to cover only about 40% of the TMP develop- ment expenditures. If there were no systematic biases across states in the information reported to the ICU, the distribution of expenditures among states in the ICU data would be the same as the actual distribution. However, there is no way to test the validity of this assumption. The TMP allocations and ICU expenditure data used in the equations are presented in Table 2-1.1. A final limitation of these data is that they do not iclude development expenditures by the state governments and public corporations. These agencies accounted for 9.8% and 7.8% of total TMP development expenditures, respec- tively, according to the FMP. 5. The other two independent variables used in the equations do not pose problems. The distance between the states and Kuala Lampur is measured in three alternative ways: (a) road distance: the distance in miles between Kuala Lumpur and the state population center of gravity; (b) bus fare: the price in M$ of a bus ticket between Kuala Lumpur and the state capital; and (c) driving time: the time in hours for a bus to travel from Kuala Lumpur to the state capital. The values of these distance variables for each state are presented in Table 2-1.2. The final independent variable east coast location, is a "dummy variable" which equals 1 for Kelantan, Pahang and Trengganu and 0 for the other states. Results of the Illustrative Analysis 6. Table 2-1.3 presents the coefficients for regression equations using 1976 household income per capia as the dependent variable. In order to illustrate how such coefficients can be interpreted, the equations are discussed below as though the data were meaningful. It should be emphasized that the discussion is presented for illustrative purposes only, and the coefficients should not be treated as reliable estimates. 7. Table 2-1.3 reports four equations, using the alternative distance measures and both the allocation and expenditure variables. There is little difference among the equations, all of which have been estimated with dependent variable in logarithmic form, so that the coefficients represent the elasticity of per capita income with regard to the independent variables. The following comments refer to equation 2 which treats INC as a function of the RDST, EXP and an East Coast dummy. The beta values for the three independent variables are almost identical in the various equations (-0.46, 0.48, and -0.56 for east coast location and the log transformations of the development expenditure and distance variables, respectively, in equation 2), suggesting that the three share equally in explaining income. The following paragraphs explore the coefficient estimates of equation 2 further. - 74 - ANNEX 2-1 Page 3 8. Distance to Kuala Lumpur is included as an explanatory variable based on the Selangor Region's role as the country's central distribution, production, and market center and its top income position. The greater the distance to this region, the greater the cost of moving there and the greater the income gap the average worker will accept without moving. There are also adjustments on the production side that will reduce earnings of fixed, immobile factors as one moves further away from Selangor. Assuming that a considerable proportion of each state's output is sold, distributed or otherwise transported through Selangor, one should find, all else being equal, that closer-by states will use land and labor more intensively than states further away. This would reduce per capita GDP as one moves away from Selangor, and it reduces per capita household income to the extent that labor is not perfectly mobile. 9. The distance elasticity of income in equation 2 is -0.2. This implies that Kelantan's income would be roughly 5% higher if it were in Trengganu's location and 12% higher in Pahang's location. These locations would raise Kelantan's income from M$54 to roughly M$57 or M$60, respectively, and reduce its income gap from 43% to 40% or 33%, respectively. It was sug- gested in Chapter 2 of Volume 2 (para. 2.35) that improvements in Kelantan's access to the west coast could raise net out-migration. In particular, according to a migration equation similar to the equation in Table 2.11 in Volume 2 but including the same expenditure variable used in Table 2-1.3, a 100-mile distance reduction would increase out-migration by 0.51 points. Equation 2 implies a distance elasticity of income of .2, so that a 100 mile or roughly 25% distance reduction increases income by 5% and reduces Kelantan's income gap by 2.9 points. This in turn would reduce out-migration by 0.07 percentage points. Hence the total impact of an improvement in access equivalent to a 100 mile distance reduction would raise net outmigration by 0.44 percentage points (i.e., 0.51-0.07), after accounting for the resulting income improvements. 10. Although insignificant in the migration equation in Chapter 2 of Volume 2 (paras. 2.29-2.38), east coast location is significant in the income equation, reducing income to roughly 75% of the level prevailing on the west coast. This reduction could be accounted for by variables such as ethnic composition, the sectoral composition of the east coast economy discussed earlier in the chapter and the labor force characteristics, wage patterns and cost of living differentials analyzed in Chapter 2 of Volume 2. 11. The analysis indicates the significant short-term impact of devel- opment expenditures on income and helps explain Trengganu's good performance during the 1970s. Equations 2 and a migration equation similar to the analysis in Table 2.11 in Volume 2 but using the same expenditure variable employed here imply that a M$100 increase in annual per capita development expenditures raises average annual per capita income by M$57 (i.e., M$4.75 per month) and, by reducing annual out-migration by 0.04 points, contributes another M$5 per capita to aggregate state household income. By implication, the out-of-state income leakages are therefore on the order of 38% of, development expenditures. The analysis implies that without Trengganu's substantial TMP development allocations, the state's income gap would be 18 percentage points larger, which corresponds almost exactly to its relative - 75 - ANNEX 2-1 Page 4 income gain since 1970. If Kelantan had had Trengganu's development funding (which was 30% above its own), its income would have been almost 10% higher than actually observed. Trengganu's FMP development allocation is smaller than its TMP allocation, while Kelantan's is larger; the possible impact of these allocations on the northeastern states' income levels during the 1980s is discussed in Chapter 6 of Volume 2. 12. Equity Implications of Development Expenditures. Although state per capita development expenditures were not negatively correlated with income during the TMP,/1 interstate equity objectives were an important goal of government programs, and development expenditures were made disproportionately in states that would have had below average per capita incomes without them. This can be demonstrated in three ways. First, there are two factors that reduce state per capita income according to equation 2 - east coast location and distance from Kuala Lumpur. The correlation coefficients between development expenditures and these variables are 0.84 and 0.59, respectively, indicating that the government program counteracted the negative impact of these two factors. Second, when hypothetical state incomes are calculated assuming that all states had had the average level of per capita development expenditures, the resulting income distribution is negatively correlated with development expenditures. This implies that states with smaller income potential (according to the equation) received relatively larger per capita funds. 13. Third, the actual distribution of expenditures can be compared with a hypothetical distribution calculated to satisfy the efficiency criterion of equalizing the income improvement from the marginal dollar of development expenditure across states. Equation 2 indicates that in otherwise equal east coast states (i.e., same distance and per capita expenditure levels as west coast states), the marginal development dollar yields only 75% of the per capita income improvement that it does on the west coast./2 The marginal efficiency of development expenditures would be equalized among states if west coast per capita expenditures were 50% higher /1 The correlation coefficients between income and the allocation and expenditure variables are 0.06 and 0.25, respectively, neither signfiicantly different from zero. /2 The numerical estimate of the magnitudes involved is obtained by noting that the marginal income improvement of development expenditures from equation 2b is: d INC/d EXP = .286(INC/EXP) - .293 EAST - .200 -.714 = 1.045 e DIST EXP Hence the marginal East Coast development dollar raises income by exp (-.293)=.75 of a West Coast dollar. - 76 - ANNEX 2-1 Page 5 than east coast expenditures./l More important than the specific numerical estimates such as those generated by such an equation would be the general conclusion that regional disparities would be larger without the equity impact of public development expenditures./2 14. The model provides an estimate of how much the government would have had to raise TMP development expenditures to compensate fully for losses in per capita income associated with east coast location and rising distance. From equation 2, it follows that otherwise equal east coast states would have required roughly 36% higher development expenditures than west coast states to receive identical per capita income./3 Also, for otherwise equal states a 10% increase in distance requires a 6.5% increase in expenditures, i.e., the distance elasticity of expenditures is 0.65./4 Finally, Table 2-1.4 shows the per capita expenditures which would have been required for Kelantan and Trengganu to reach 100%, 80% or 70% of the average peninsular income. Esti- mates such as these are at best very rough indicators of the order of magni- tude of development funds that would have been required. They may well be lower in the case of Trengganu which in the past needed 10% less funds than predicted by equation 2 to reach a per capita income of M$70 and slightly higher for Kelantan which in the past used marginally greater funds than would have been predicted to reach its income of M$54. 15. Again the specific quantitative results would not be as reliable as the conclusion that the marginal efficiency of investment is lower on the East Coast than on the West Coast. This latter point is confirmed by the marginality of many of the economic undertakings reviewed at the project and sector levels in Chapters 3-5 of Volume 2 and, to a lesser extent, by the lack of a significant private sector share in investment in the Northeast. /1 For the two states to have an identical value of d INC/d EXP, one must have =.714 - .293 EAST2 -.714 EXP1 = e EXP2 which yields EXP1/EXP2 = 1.5, i.e., West Coast expenditures EXPI exceed East Coast expenditures EXP2 by 50%. /2 While these conclusions hinge to some extent on the logarithmic form of the estimated income equation, linear and semi-log forms of the equation turned out to be inferior. /3 Let subscripts w and e denote a west and east coast location respective- ly, then if INCW = INC is to hold for two states with identical DIST, it follows that EXPw0w.86 = exp (-0.293 x 1) EXPeO0286 and hence EXPw/EXPe = -.36. /4 For INC1 = INC2 to hold for it is necessary that DIST1-a EXP1b DIST2-a EXP2b where a = 0.199, and b = 0.286. - 77 - ANNEX 2-1 Page 6 16. FMP Development Allocations. It would be useful to estimate the levels of per capita income in Kelantan and Trengganu which would result if FMP expenditure targets can be met and, conversely, the level of development expenditures necessary to achieve the FM[P income goals. However, it is doubt whether an analysis of the type presented in Table 2-1.3 could be used to make these-estimates directly. The stability of relationships observed during one period over time is unclear, and the success of the analysis depends largely on the consistency of the distribution of development funds over time, implying that it is unlikely to predict the effect of large, sudden shifts in the distribution of development funds accurately. 17. However, a slightly rephrased question could be answered using such an analysis. The resulting equation can be used to estimate what Kelantan's relative income position would be if it had obtained the 40% above average development allocations proposed in the FMP during the TMP (Table 2-1.4). Such a funding level would have raised Kelantan's development expenditures to about M$1,100 per capita, theoretically increasing per capita income from its actual M$54 to M$64 or 68% of the peninsular average. If the government's income targets were formulated in terms of household income rather than GDP, this level would imply achievement of the goal of raising the state to two-thirds of peninsular average income. TMP PUBLIC DEVELOPMENT EXPENDITURE ALLOCATIONS AND ICU TMP PROJECT EXPENDITURE DATA TMP Allocations ICU Project Data State Total M$/capita/a Allocation Expenditure Allocation Expenditure (M$ million) (M$ million) (M$ per capita) Northeast 3,235 2,420.7 1,797.6 1,026.3 1,345.1 767.9 Kelantan 1,744 2,077.7 828.5 579.0 987.0 689.7 Trengganu 1,491 3,000.0 969.1 447.3 1,950.0 900.0 Northwest 1,504 1,172.8 660.6 484.6 515.1 377.9 Kedah 1,261 1,104.6 552.8 397.3 484.2 348.1 Perlis 243 1,725.9 107.8 87.3 765.9 620.0 Selangor Region 5,769 2,922.0 2,956.1 2,108.6 1,496.9 1,067.7 Selangor 3,079 2,553.7 1,098.1 843.6 910.7 699.6 Federal Territory 2,690 3,499.9 1,858.0 1,265.0 2,417.4 1,645.9 Others 10,899 1,812.4 6,989.8 4,744.6 1,162.3 789.0 Johor 2,620 1,691.2 1,794.2 1,206.0 1,158.1 778.5 Melaka 566 1,171.6 295.8 212.2 612.3 439.3 N. Sembilan 905 1,575.0 513.1 378.7 893.0 659.7 Pahang 2,936 4,768.6 2,123.6 1,414.1 3,416.7 2,296.7 P. Pinang 1,396 1,531.4 854.1 509.7 736.9 559.1 Perak 2,476 1,317.4 1,428.9 1,023.9 760.3 544.8 Total Peninsula, excl. multi-state allocations 21,407 2,018.3 12,404.2 8,364.1 1,169.5 788.6 /a Based on population in 1976. Source: FMP, Table 6-4 and Appendix A, for TMP allocations; "Fourth Malaysia Plan: Regional/ State Targets and Stress Ratios for Public Expenditure" (EPU, 1980) for ICU data; and 1977 Agricultural Census for population data. Annex 2-1 - 79 - Table 2-1.2 MEASURES OF THE DISTANCE BETWEEN KUALA LUMPUR AND THE PENINSULAR STATES Kuala Lumpur to Kuala Lumpur to State Capital population cen- State Bus road Bus fare Bus driving ter of gravity (miles)/a (M$/person) time (hrs) (road miles) FDST TDST RDST Kelantan (Kota Bharu) 411 20.00 12.0 411 Trengganu (Kuala Trengganu) 307 15.00 10.0 307 Kedah (Alor Setar) 300 15.00 10.0 270 Perlis (Kangar) 322 16.30 10.5 322 Selangor /b 25/c 1.30/d 0.9/d 25 Johor (Johor Bharu) 229 11.00 8.0 190 Melaka (Melaka) 92 4.70 3.0 92 N. Sembilan (Seramban) 42 2.20 1.5 62 Pahang (Kuantan) 173 8.75 4.5 145 P. Pinang (Butterworth) 238 12.00 8.0 238 Perak (Ipoh) 135 6.70 3.5 135 /a RDST is used in the eqations in Table 2-1.3 rather than this variable. /b Includes Federal Territory. /c Not available. Approximates the distance the average migrant from Selangor would be from the center of the Federal Territory. /d Obtained by interpolation. Source: The data in the first three columns were provided by the Licensing Board; the last column is an approximation, based on district population data. COEFFICIENTS FOR REGRESSION ANALYSIS OF STATE PER CAPITA HOUSEHIOLD INCOME Dependent variable: ln INC: Natural log of average per capita household income, 1976 Independent variables (1) (2) (3) (4) Road Distance: miles between Kuala -0.199 in RDST /b -0.188 In RDST /b Lumpur and state population center of gravity Bus Fare: price (in M$) of bus -0.168 ln FDST /c ticket between Kuala Lumpur and state capital Driving Time: hours required to -0.155 ln TDST /b drive from Kuala Lumpur to state m capital by bus Development Allocations: State t 0.3996 ALL /b per capita TMP development alloca- tion Development Expenditures: state 0.327 ln EXP /b 0.286 ln EXP /b 0.381 In EXP /b per capita TMP expenditures East Coast: equal.s 1 for Pahang, -0.353 EAST /b -0.293 EAST /b -0.384 EAST /b -0.3939 EAST /b Trengganu and Kelantan; 0 otherwise Constant Term 2.636 3.655 2.402 2.487 Adjusted R2 0.72 0.76 0.70 0.78 H a X /a Coefficient significant at 0.01 level. /b Coefficient significant at 0.05 level. Ic Coefficient significant at 0.10 level. ANNEX 2-1 - 81 - Table 2-1.4 INCOME TARGETS AND REQUIRED PER CAPITA DEVELOPMENT EXPENDITURES DURING FIVE-YEAR PLAN Per Capita Income Per Month Required per Absolute As % of capita 5-year Amount Peninsular development ex- (M$) Average penditures (M$)/a Kelantan Hypothetical income targets as percent of peninsular average (a) 100% 95 100% 4,346 (b) 80% 76 80% 1,990 (c) 70% 67 70% 1,280 Actual performance 54 57% 690 Predicted performance 56 59% 690 Trengganu Hypothetical income targets as percent of peninsular average (a) 100% 95 100% 3,545 (b) 80% 76 80% 1,623 (c) 70% 67 70% 1,044 Actual performance 70 74% 900 Predicted performance 64 68% 900 /a Hypothetical targets computed as EXP = (INC e~3-362 RDIST-19941) 1/0.2855 - 82 - ANNEX 2-2 Page 1 MALAYSIA REGIONAL DEVELOPMENT AND URBANIZATION IN THE NORTHEAST Peninsular Emigration and Northeastern Migration to Singapore 1. In Kelantan and Trengganu, migration to Singapore is considered to be a major alternative for those who do not find employment locally. Large numbers of young adults reportedly follow this route, although there is little information to substantiate this contention. Indeed, there is generally little data available on peninsular net migration losses or gains. TMP data for 1957-70 imply a peninsular net-migration rate of zero, but this was a matter of assumption rather than derivation and is almost certainly incorrect. 2. Emigration for 1970-80 can be estimated as a residual, by netting actual growth from projected natural growth. This method is unreliable for a number of reasons, such as the use of crude growth rates unadjusted for the effect of migration and the unavailability of final population counts for 1980. Using field counts for both 1970 and 1980 (in the hope that under-enumeration problems are similar for both census years), one finds a peninsular net migration loss of 180,000 persons, or a net out-migration rate of 0.17% (Table A.2.5). This should be considered the upper limit of possible migration losses and is almost certainly an over-estimate because the large urban centers which showed most of the internal migration gains during the decade experienced the greatest under-enumeration in the 1980 census. 3. The sources and destinations of these migration losses are uncertain. Sarawak in East Malaysia experienced annual average growth of 4.4% during 1970-80, mostly fed by an inflow of Filipino refugees, but may also have attracted some peninsular labor. Also, increasing numbers of students study abroad, both because of increased government funding and because the university quota system based on ethnicity has made it difficult for all students to enter domestic universities. Finally, Singapore has attracted a growing Malaysian labor force, although reliable estimates of its size are not readily available. A 1977 household survey by the Singapore Department of Statistics found only 30,900 Malaysians employed in Singapore. However, Malaysia's Ministry of Labor and Manpower estimates the Malaysian workforce in Singapore at 100,000-120,000 workers or 10-12% of Singapore's total workforce. Including non-working family members, the latter estimate could easily imply a Malaysian population in Singapore in excess of 150,000, although it is not clear what proportion of this population left Malaysia during the 1970s rather than during earlier periods. 4. Estimates of the outflow of Kelantan and Trengganu workers to Singapore are highly uncertain, and informal estimates often appear - 83 - ANNEX 2-2 Page 2 exaggerated. A 1980 border survey of Malaysians returning from Singapore counted 11,866 workers during a 10-day period. Of these, 56% were male, 46% were Malay and 87% gave Malaysia rather than Singapore as their permanent residence suggesting a substantial temporary (perhaps seasonal) migration. . Of those with Malaysian residence, only 2.4% came from the Northeast, while 81.2% were from Johor. However, such border crossings are unlikely to yield the true distribution of origin of Malaysians in Singapore since migrants from nearby states probably make more frequent return visits and many of those with permanent residence in Singapore may make none at all. 5. There are, however, some interesting patterns in Table 2-1.1, which shows the annual return visits of Malaysian workers in Singapore per 1,000 population in their state of permanent residence./L The data suggest that. (a) The incidence of east coast migration to Singapore increases as one moves from Pahang to Kelantan, with Trengganu's workers being 30% and Kelantan's workers roughtly 70% more likely than Pahang's workers to migrate to Singapore. Since this increase in the migration incidence cannot be attributed to distance from Singapore, it probably reflects the decline in income and job opportunities as one moves from Pahang to Kelantan. Such an attribution is also suggested by the higher out-migration from Perak than P. Pinang, two states with similar distances from Singapore. (b) East coast workers are somewhat less likely to migrate to Singapore than west coast workers at similar income levels and distance from Singapore. This may reflect a higher Chinese propensity to work in Singapore. (c) Distance between permanent residence and Singapore is the major determinant of the numbers of return visits and presumably of the propensity to see,k work in Singapore in the first place. (d) As a very rough estimate, if the typical northeastern worker taking a job in Singapore stays there for 3-6 months before returning home, the annual average number of workers from the Northeast in Singapore would have been between 2,250 and 4,500./2 This would amount to 0.5-1% of the Northeast's labor force. This order of magnitude is confirmed by a survey of school leavers from Trengganu (Table 2-1.2) and by the small level of remittances suggested by data from the 1977 Agricultural Census. /1 The survey data have been annualized even though it is unlikely that the 10-day survey period was representative of the year. The data should therefore be used only for rough comparisons of relative magnitudes. /2 Informal estimates, however, put the number of Kelantanese alone at 30-40,000, mostly in the construction sectors. There is, though, little corroborating evidence for this level of seasonal migration. - 84 - ANNEX 2-2 Table 2-2. 1 ANNUAL RETURN VISITS BY MALAYSIAN WORKERS IN SINGAPORE, PER THOUSAND POPULATION IN STATE OF PERMANENT RESIDENCE, 1980 Northeast 6.3 Kelantan 6.9 Trengganu 5.1 Northwest 4.0 Kedah 4.4 Perlis 1.8 Selangor Region 4.0 Other Peninsula 58.1 Johor 190.5 Melaka 28.1 N. Sembilan 16.4 Pahang 4.0 P. Pinang 5.8 Perak 10.2 Peninsula /a 33.8 /a Excluding workers with permanent residence in Singapore. Source: Survey by the Ministry of Labor and Manpower, October 22-31, 1980. - 85 - ANNEX 2-2 Table 2-2.2 CHARACTERISTICS OF 1975 FORM V SCHOOL LEAVERS IN TRENGGANU Characteristics Percent By residence Continue living in Trengganu 69.8 Migrated outside Trengganu 30.2 By activity Employed 35.1 Student 27.4 Unemployed, out of labor force 37*5 Of the Students Living inside Trengganu 35.0 Migrated outside Trengganu 65.0 Of the Employed Living inside Trengganu 80.6 Migrated outside Trengganu 19.4 Of Those Who Left Trengganu By activity Student 58.9 Employed 22.5 Unemployed, out of labor force 18.6 By residence East Coasts 26.8 Peninsula, other than East Coast 69.2 Outside Malaysia 4.0 Source. Based on results from a school leaver tracer survey (1975 Form V class) of six schools (one in each of the six Trengganu districts) reported in Ling Chuh Poh, "Some Important Indicators and Factors Underlying Maanpower Problems in Trengganu," 1980, Tables 1-12. Data have been aggregated for this table, based on the population distribution among districts. - 86 - ANNEX 3-1 Page 1 MALAYSIA REGIONAL DEVELOPMENT AND URBANIZATION IN THE NORTHEAST The Institutional Framework for Implementing the Regional Development Strategy in the Northeast 1. This annex provides an overview of the Malaysian federal system responsible for implementing the development strategy for the Northeast, focusing primarily on the federal and state governments. Urban government is discussed in detail in Chapter 9 of Volume 2. A. The Central-Local Distribution of Powers 2. Malaysia adopted a federal system primarily as a means of preserv- ing the status of the Malay Rulers, who are an important symbol of Malay identity. As long as this need was met, there was little Malaysian objec- tion to the British desire to create a powerful central government. The result was states with limited powers and weak financial bases. One study concludes that "In Malaysia the concentration of functions with the Federal Government has been carried so far that, in respect of the States of Malaya, one could almost question whether there is any justification to speak of a federation at all. Virtually all the functions of a unitary government administering a modern economy fall under the jurisdiction of the Federal Authority. The powers retained by the states, on the other hand, are mainly those which are characteristic of an administration running a poor, underdeveloped and tradition-bound economy."/l 3. The states- limited powers are evident in the legislative lists in the Ninth Schedule of the Federal Constitution, which are summarized in Table 3-1.1. The federal list includes virtually all the significant powers, and if a state law is inconsistent with a federal law, the federal law prevails. The states' most important power is their control over land, one of the states' mst potent resources when they bargain with federal agencies over development programs. For example, during the 1960s when the / Walter Holzhauser, Federal Finance in Malaysia, p. 178 (Kuala Lumpur: Penerbit Universiti Malaya, 1974). - 87 - ANNEX 3-1 Page 2 PAS /1 opposition controlled Kelantan, the state government refused to provide land for FELDA schemes because it disagreed with federal land development practices and settler selection criteria. 4. The federal government exercises administrative and financial controls over the states as well as having legislative preponderance. The secondment of federal officials to the state civil services /2 provides a form of indirect control since the officials are rotated and depend on the federal government for promotion and assignments. State agricultural and forestry officers are required to accept guidance from the federal ministries even though these subjects are included in the State Legislative List. The federal government can conduct surveys and inquiries in the states and assume state powers when emergencies are declared. Finally, and undoubtedly most importantly, the federal government controls state borrowing and thus access to development funds which the states are unable to raise because of their limited revenue bases. B. The Distribution of Revenues 5. The financial provisions of the Malaysian federal system are an essential element of its centralist bias. Just as state powers are limited compared to those of the federal government, so are their budgets. In 1980, total federal revenues were M$12.9 billion compared to only M$2.2 billion for the states./3 Because of the states' weak revenue bases, their budgets /1 PAS stands for Partai Islam Se Malaysia. The conflict between Kelantan and the federal government is described in R.S. Milne and Diane K. Mauzy, Politics and Government in Malaysia pp. 108-11 (Kuala Lumpur: Federal Publications, 1977). /2 The states all have their own state clerical services, but only the five former Unfederated States (including Kelantan and Trengganu), P. Pinang and Melaka have state civil services which fill posts above the clerical level. However, the federal Public Service Department establishes the grading system and salary ranges for the state civil services. There are no separate federal and state departments for line agencies in Kelantan and Trengganu; instead, each department contains both federal and state posts. The federal posts tend to be the more senior ones, and if a state post cannot be filled with qualified state employee, a federal civil servant is often seconded to the position. /3 FMP, Table 13.4, p. 248. - 88 - ANNEX 3-1 Page 3 are heavily dependent on transfers from the federal government. For example, for the eight peninsular states for which complete income source data is reported in Table 3-1.2, federal sources accounted for just under a third of total state income in 1978. The states are even more dependent on the federal government for loans and grants to finance capital expenditures. The FMP projects that state sources will finance only 3.2% of planned development allocations during 1981-85./i State Revenue Sources 6. The revenues assigned to the states are listed in Table 3-1.3. The more elastic revenue sources are excluded from the list and are thus reserved for the federal government. Consequently, federal revenues have grown faster than state revenues and are projected to continue to do so:/2 Average annual growth rate 1971-80 1981-85 Total federal revenues 18.3% 13.6% Total state revenues 16.8% 10.0% 7. Forests and minerals are a key revenue source for the states, and variations in the states' natural resource endowments account for much of the variation in state revenue-generating capacity (Table 3-1.2). In Kelantan, forest revenues rose from M$4.9 million in 1975 to M$22.9 million in 1980, when they accounted for 64% of the state sources of revenue (Table 3-1.4). However, logging activities have peaked in Kelantan (see Chapter 4 of Volume 2), and forestry revenues are expected to decline during the last half of the 1980s. 8. The constitutional provision for states to receive a portion of export duties on minerals produced in-state is particularly important for the tin-producing states and for Trengganu because of off-shore petroleum and natural gas production. The states are guranteed at least 10% of tin export duties, while the proportion for other mineral ores, oils and metals is to be determined under federal law. After negotiations, PETRONAS, the /1 FMP, Appendix A. /2 FMP, Table 6.5, p. 130, and Table 13.4, p. 248. - 89 - ANNEX 3-1 Page 4 federal government and Trengganu agreed that the federal and state govern- ments would each be paid 5% of gross petroleum and natural gas production as royalties. Trengganu's state sources of revenue rose from M$17.1 million in 1975 to M$136.2 in 1980, with the increase almost entirely accounted for by petroleum royalties which were M$108.4 million in 1980 (Table 3-1.5). Con- sultants have projected that the state's royalties in 1990 from petroleum and natural gas will be M$437-488 million (+ 40%) in 1980 prices, with the high estimate based on the assumption that a gas pipeline will be built to the west coast./l 9. Although Trengganu's petroleum revenues enable the state to under- take development projects without federal participation, there are practical limitations on the state's ability to act on its own. First, the legisla- tive lists (Table 3-1.1) define federal and state powers, and the state cannot unilaterally undertake projects in areas of federal responsibility. Second, the state's implementation capacity is very limited, and subsidized federal loans are available for good projects. Consequently it is finan- cially more rational for the state to invest its surpluses at market rates of interest, while borrowing from the federal government at below market rates for the limited number of projects which it has the capacity to carry out. The state has been depositing its surplus funds in banks. Although state officials recognize the need to develop an investment strategy, this has not been done yet. Data on Trengganu's expenditure patterns (Table 3-1.6), especially when compared to similar data for Kelantan (Table 3-1.7), suggest a tendency to increase current state consumption. In addition to increases in personnel expenditures mandated by a national salary increase for civil servants, expenditures on acquisitions of assets and transfers to state and local agencies rose very rapidly during 1979-80. Federal Grants 10. The states are constitutionally entitled to certain transfers from the federal government. The Capitation Grant is based on state population and calculated according to a sliding scale which favors smaller states; it is revised periodically. The State Road Grant is intended to provide funds for the maintenance of roads which meet federal standards (Annex 7-1, para. 2). A Revenue Growth Grant is being introduced to enable the states to share in the growth of federal revenues. In 1981, M$100 million will be transferred to the states. Half of the funds will be allocated on the basis of population; the other half will be distributed to the ten states with GDP per capita below the national average in 1980 in inverse proportion to state GDP per capita. The federal government also makes transfers from a State /1 Trengganu Coastal Region Study, Vol. 2, pp. 152-3 (Maunsell and Partners, et al., 1980). This report is cited as TCRS hereafter. - 90 - ANNEX 3-1 Page 5 Reserve Fund to offset state deficits calculated accordng to a formula which excludes certain "non-essential" expenditures such as entertainment and religious outlays. C. Development Expenditures 11. The states' weak revenue bases limit their ability to finance capital expenditures, and most development projects are carried out by federal ministries or public corporations. Malaysia's total development expenditure during 1976-80 was M$24.9 billion, which represents an annual average of about M$390 per capita during the period. Per capita development expenditures by the peninsular states ranged from M$18 to M$65 in 1977-78; Kelantan and Trengganu had per capita state development expenditures of M$31 and M$43, respectively (Table 3-1.2). Since the states and their SEDCs must borrow from the federal government to finance virtually all signficant state projects, these projects are also subject to federal controls. Conse- quently, the state governments are primarily engaged in administration and the provision of services, and they endeavor to influence development more by competing for federal projects than by undertaking their own schemes. 12. Actual development outlays consistently lag significantly behind planned expenditure in Malaysia. Under the SMP, actual development expenditure was 85% of the planned level, while performance fell to 68% under the more ambitious TMP. TMP expenditure performance in the two northeastern states was worse than in most other peninsular states. i3. Because most projects are federally funded and implemented, there are limitations on the states' abilities to influence the composition of the development programs in their jurisdictions. The states have State Economic Planning Units (SEPUs), but there are limits on their roles./l In practice, only state projects, which represent a small percentage of total development expenditures, are thoroughly reviewed by the SEPUs. Federal projects tend to be defined in Kuala Lumpur or by federal civil servants at the state /1 No attempt is made in this report to review state planning capabilities because of the extensive work done on this topic in the State and Rural Development Project (UNDP Project MAL/76/014). See, in particular, Colin Bruce, Strengthening the State's Planning and Implementation System (Kuala Lumpur: State and Rural Development Project, Economic Planning Unit, 1979) and A Development Strategy for Kelantan (Kota Bharu: State and Rural Development Project, State Economic Planning Unit, no date), Part I, Chapter 3. The applicability of the SRDP recommendations to Trengganu is discussed in TCRS, Vol. 3, Chapter 20. The institutional analysis in this report is limited to that of urban governments (which has not been analyzed elsewhere) and is reported in Chapter 9 of Volume 2. - 91 - ANNEX 3-1 Page 6 level and are usually reviewed only cursorily by the State Economic Planning Committee. Small-scale district projects normally pass directly to the State Development Office after district-level review. 14. The likelihood and intensity of SEPU review varies with phases of the planning and budgetary cycles. The most intensive reviews occur during the preparation of mid-term reviews for the five year plans and during preparation of the annual budgets. Finally, the extent to which the SEPUs can engage in comprehensive planning and policy analysis is severely constrained by their limited technical staffing. Thus, they have only limited ability to develop the strategic frameworks within which new projects can be identified and project proposals can be evaluated. In practice, much of their staff time is devoted to administrative responsibilities such as organizing meetings and preparing minutes. D. The Role of Public Corporations in Kelantan and Trengganu 15. A distinctive feature of the Malaysian governmental system is the extensive reliance on public corporations. Public authorities organized under federal auspices play particularly important roles in the exploitation of agricultural resources. Two regional development authorities, KESEDAR and KETENGAH,/1 are overseeing the development of 2.9 and 1.1 million ac in southern Kelantan and southwestern Trengganu, respectively. FELDA /2 and other agencies are developing settlement schemes and plantations in these areas. At the state level, the State Economic Development Corporations (SEDCs) are involved in a wide range of agricultural, industrial, housing and commercial projects. 16. The importance of public corporations in certain sectors in Kelantan and Trengganu is indicated by the FMP sectoral allocations in Table 3-1.8. The two regional dvelopment authorities (KESEDAR and KETENGAH) the Federal Land Development and Land Consolidation and Rehabilitation Authorities (FELDA and FELCRA) and the Kelantan State Land Development Board (TAKDIR) account for 41% of the allocations for agriculture and rural development in Kelantan and for 56% in Trengganu. 17. The SEDCs are expected to continue to play key roles in commerce and industry, accounting for 63% of projected expenditure in this sector in Kelantan and 62% in Trengganu. PETRONAS (Petroliam Nasional Berhad), the Heavy Industries Corporation (which would be the principal public agency in an iron and steel project) and the Trengganu SEDC will be the leading agencies in the development of the urban-industrial complex in southern Trengganu discussed in Chapters 4 and 10 of Volume 2. /1 The Lembaga Kemajuan Kelantan Selatan and the Lembaga Kamajuan Trengganu Tengah, respectively. /2 The Federal Land Development Authority. - 2 - Tebl 31, lr PEDERAL, STATE AND CONCURRENT LEGISLATIVE LISTS APPLICABLE TO PENINSULAR MALAYSIAN STATES Federal List External affair.; defence, internal security; civil and criminal law and procecurs, and the administration of juetics; federal citizenship and naturalization; aliens. The machinery of government (subject to certain provieions of the State List). Finance, including currency, legal tender and coinage; national savings and savings banks; loans to or borrowing by the states, public authorities and private anterprise; public debt of the Federation; banking; control of credit; foreign exchange; capital issues; and commodity exchangee. Trade, commerce and industry, including the production, supply and distribution of goods; price control; food control; imports into, and exports from the Federation; industries, regulation of industrial undertakings; and subject to certain provisions of the State List development of mineral resources. Shipping, navigation and fisheries, including ports and harbour. Communications and transport, including roads, bridges, ferries and other means of communication if declared to be federal by or under federal law; railways; airways; poset and telecommunications; wireless, broadcasting and television. Federal works and power, including water supplies, rivers and canals, except those wholly within one state or regulated by an agreement between all the states concerned; electricity; gas and gas works. Surveys, inquiries and research, including scientific and technical research. Education, including elementary, secondary, and university education; voctional and technical education; training of teachers. Medicine and health, including santiation in the Federal Capital. Labor and social security; including trade unions; unemployment insurance; health insurance; widows', orphans and old age pensions. Newspapers; publications. Cooperative societies. State List Muslim religious law. Land, including land tenure; land improvement and soil conservation; permits and licences for prospecting for mines; mining leases; transfer of land; mortgages and leases. Agriculture and forestry. Local government. Other services of a local character, such as markets and fairs, and licensing of theates. State works and water; roads, bridges and ferries other than those in the Federal List. Machinery of the State Government, including loans for state pur- poses; and public debt of the state. Concurrent List Social welfare; animal husbandry; veterinary services; town and country planning, except in the Federl Capital; and public health. Source: Malaysia, Federal Construction, Ninth Schedule. Sabah and Sarawak have more extensive powers than the peninsular states. - 93 - ANNEX 3-1 Table 3-1.2 STATE INCOME AND EXPENDITURES, 1977-79 (MS million) Income Current expenditures Contribution to consoli- State Federal Personnel dated dev. Development sources sources Total expenses fund Total la expenditures Northeast Ktelantan436 23 Kelantan 26.5 20.3 46.8 24.5 - 43.6 25.3 1978 31.5 19.8 51.1 16.8 - 38.6 26.1 1979 (budgeted) 28.4 19.7 48.1 18.0 - 41.4/b 39.3 1977/78 average per capita K$35 nS24 M$52 - ns49 8831 Trenogan. 27.6 11.6 39.1 31.8 2.9 50.4 21.5 1978 - - 59.0 30.5 3.0 53.0 - 1979 (budgeted) 77.9 8.6 86.5 31.9 - 84.6 111.8 1977/78 average per capita MS55 MS23 M$96 ns1OI 1S43 Other Peninsular States Johor 1977 95.5 34.2 130.7 58.1 17.0 124.5 - 1978 90.0 18.5 108.5 51.2 15.0 131.5 33.9 1979 (budgeted) 91.7 16.6 108.4 56.4 13.0 120.9/b 52.7 1977/78 average per capita MS61 MS17 MS78 8884 ns22 Kedah 19i7 30.2 23.7 53.9 26.9 3.0 60.8 43.7 1978 38.0 13.0 51.0 27.9 2.0 49.8 33.0 1979 (budgeted) 31.2 12.9 50.6/b 24.4 1.0 49.6/b 84.8 1977/78 average per capita 8832 M817 M849 8852 8836 Melaka 1977 15.0 12.4 27.4 15.4 3.2 26.8 7.0 1978 - - 22.3 - - 23.7 9.1 1979 (budgeted) 12.3 7.2 19.6 12.3 - 32.9 46.4 1977/78 average per capita MS34 8S56 MS56 8857 M818 Negr i Sebil -n 1977 46.3 11.5 57.7 29.0 5.6 55.5 13.1 1978 42.0 11.1 53.1 23.4 8.2 50.6 18.7 1979 (budgeted) 46.0 9.3 55.3 25.0 9.3 61.6 41.7 1977/78 average per capita 8$81 M821 81101 8897 8829 77 75.9 15.9 91.8 35.1 10.0 100.6 - 1978 102.4 13.7 116.1 45.6 10.0 104.4 - 1979 (budgeted) 107.8 25.7 133.4 41.2 17.0 136.7 86.1 1977/78 average per capita 89126 M821 M8147 - 88145 - Pulau Pinang 1977 24.6 17.6 42.2 14.1 39.5 54.4 29.5 1978 26.0 19.2 45.2 18.8 - 40.2 24.7 1979 (budgeted) 33.0 9.8 43.0/b 17.1 68.0 40.6/b 32.5/b 1977/78 average per capita M829 8$21 M850 S54 8sl8 Perak 1977 103.0 45.4 148.5 65.2 - 151.8 - 1978 85.3 42.5 127.8 54.4 17.5 123.1 - 1979 (budgeted) 88.2 64.0 152.1 56.1 22.4 178.4 78.5 1977/78 average per capita 8s55 M926 M880 8880 - Perlis 97'f 3.4 4.6 8.0 5.3 - 11.2 4.6 1978 - - 8.5 5.6 - 10.4 5.0 1979 (budgeted) 3.4 3.4 6.8 6.0 - 11.4 21.8 1977/78 average per capita M824 M933 M858 8876 8934 Selangor I 77 80.0 110.5 188.7 56.0 21.6 140.3 81.6 1978 109.8 112.0 221.8 44.7 114.0 214.5 93.9 1979 (budgeted)) 120.3 32.3 152.6/b 41.7 177.5 231.6 119.6/b 1977/78 average per capita M170 8$82 M$152 M8131 8865 Eastern Malaysia Sabah M7 669.4 46.9 176.3 58.8 120.0 556.7 196.8 1978 716.6 60.7 777.3 108.1 156.6 637.6 186.8 1979 (budgeted) 1,393.4 46.3 1,960.7/b 95.4 160.2 926.0/b 228.9 1977/78 average per capita 8s753 MS58 1MS811 M8649 8S208 Saravak 1977 155.0 46.2 201.2 68.2 33.0 167.6 78.8 1978 184.3 54.5 238.8 100.5 72.6 289.6 138.6 1979 (budgeted) 203.2 39.3 242.5 87.9 88.8 281.5/b 139.8/b 1977/78 average per capita 1$139 1141 MS180 88187 8889 la Includes other items In addition to Personnel Eopenseo and Contrlbutions to the Consolidated Development Fund. /2 Actual. Source: Ministry of Finance; 1977/78 state populations calculated from data provided In Preliminary Field Count Summer , 1980 Population and Housing Census of Malaysla, Table I (Department of Statistics, October 1980). ANNEX 3-1 - 94-- Table 3-1.3 REVENUE SOURCES ASSIGNED TO THE STATES 1. Revenue from toddy shops. 2. Revenue from lands, mines and forests. 3. Revenue from licenses other than those connected with mechanically propelled vehicles, electrical installations and registration of businesses. 4. Entertainment duty. 5. Fees in courts other than federal courts. 6. Fees and receipts in respect of specific services rendered by departments of State Governments. 7. Revenue of town boards, town councils, rural boards, local councils and similar local authorities other than: (a) municipalities established under any municipal ordinance; (b) those town boards, town councils, rural boards, local councils and similar local authorities which have power under written law to retain their revenues and control the spending thereof. 8. Receipts in respect of water supplies, including water rates. 9. Rents on state property. 10. Interest on state balances. 11. Receipts from land sales and sales of state property. 12. Fines and forfeitures in courts other than federal courts. 13. Zakat, Fitrah and Bait-al-Mal and similar Islamic religions revenue. 14. Treasure trove. Source: Malaysia, Federal Constitution, Tenth Schedule, Part III. ANNEX 3-1 95- Table 3-1.4 KELANTAN STATE REVENUES, 1979-.81 1981 1980 (preliminary 1979 (estimate) estimate) State Sources Tax Revenues Land and minerals 4,735,348 4,395,422 4,486,860 Forest royalties 7,138,322 8,945,820 9,000,000 Entertainment 541,099 588,575 530,000 Others 238,514 195,568 230,030 12,653,283 14,125,385 14,246,890 Nontax Revenues Licenses & permits 1,354,736 2,054,316 1,591,930 Services payments - - Water supply 2,349,678 1,945,053. 2,250,000 Others 1,369,102 1,812,018 1,977,030 Proceeds from sales of goods 1,016,678 - - Land 1,016,67R 883,688 900,000 Forestry premia & others 0,565,740 11,527,483 4,586,010 Rentals 150,571 164,110 261,210 Return on investments 775,445 1,720,233 1,383,010 Others 592,276 1,902,757 1,823,990 22,487,157 21,609,658 14,773,180 Total State Sources 35,140,440 35,735,043 29,020,070 Federal Sources Grants Road maintenance grant 3,157,480 3,218,599 3,800,000 Capitation grant 5,554,214 5,554,214 6,619,500 Revenue growth grant - - 4,000,000 Other 345,983 11,400,000 420,060 Total Federal Sources 9,057,677 20,172,813 14,839,560 Total Revenues 44,198,117 55,907,856 43,859,630 Source: Kelantan State Government. ANNEX 3-1 - 96 - Table 3-1.5 Table 3-1.5: TRENGGANU STATE REVENUES, 1975-81 (Estimate) 1975 1979 1980 1981 State Sources Tax Revenues Land rent 1,395,308 1,824,235 1,908,271 1,830,000 Timber roylaties 7,976,426 19,734,793 10,221,895 16,500,000 Petroleum royalties - 75,114,699 108,435,711 182,000,000 Miscallenous indirect tax - - - - Taxes 287,800 395,176 417,587 300,000 Others 4,046,425 457,161 471,886 199,260 13,705,957 97,526,064 121,535,350 200,829,270 Nontax Revenues Licenses & permits 362,500 1,473,069 1,445,105 1,225,705 Services & service fees 434,770 1,262,847 910,879 730,239 Proceeds from sale of goods 2,201,460 8,630,290 8,181,140 7,564,720 Rentals 309,750 759,433 656,327 510,450 Return on investments 111,000 999,116 2,515,243 854,530 Fines & penalities 17,376 846,659 939,286 236,010 3.436,856 13,971,414 14,647,980 11,121,654 Total State Sources 17,142,815 111,497,478 136,183,330 211,950,924 Federal Sources Refund of Expenditures 24,625 1,853,802 3,906,231 1,715,573 Grants Road maintenance grant 2,568,964 3,935,114 4,102,440 2,747,280 Capitation grant 3,371,472 4,432,208 4,432,208 4,432,218 Revenue growth grant - - 3,248,000 3,248,000 Other 4,129,327 466,526 810,824 451,030 Total Federal Sources 10,094,388 10,687,650 16,499,703 13,594,101 Total Revenues 27,237,203 122,185,128 152,683,033 225,545,025 Source: Trengganu State Government. ANNEX 3-1 97 -Table 3-1.6 TRENGGANU STATE EXPENDITURES, 1975-81 1981 1975 1979 1980 (estimate) Operating Expenditures Personnel 19,373,578 26,231,051 34,402,931 47,175,939 Services and supplies 7,716,547 15,298,668 14,816,888 19,005,025 Acquisition of capital assets 3,053,496 11,827,293 23,008,581 48,557,103 Transfer payments 830,000 15,700,000 39,935,494 77,741,056 Interest and other debt charges - 4,461,971 4,448,847 16,404,214 Others 156,438 34,574 92,902 112,000 31,130,059 73,553,557 116,705,643 208,995,337 Development Expenditure Public works 6,612,456 17,303,145 43,575,024 118,858,103 Agriculture and rural development /a 1,260,567 4,421,238 9,191,388 13,938,870 Forestry 25,214 717,268 1,272,897 1,135,286 General and miscellaneous development schemes 8,899,971 15,732,647 31,181,896 159,752,862 Water supply 2,043,961 6,934,698 10,945,104 43,200,010 Local government and district offices - - - 18,512,610 18,842,169 45,108,996 96,166,309 355,397,741 /a Includes land development, agriculture, irrigation schemes, flood control schemes and veterinary services. Source: Trengganu State Government. - 98 - ANNEX 3-1 Table 3-1.7 KELANTAN STATE EXPENDITURES, 1979-81 1981 1979 1980 (estimate) Operating Expenditures - Personnel 19,054,286 25,970,024 39,517,630 Services and supplies 15,135,014 10,851,799 10,051,155 Acquisition of capital assets 9,748,157 3,315,485 942,075 Tranfers 6,456,268 14,913,420 12,795,385 Interest and other debt charges 1,214,268 972,733 4,098,246 12,653,283 56,023,461 67,404,491 Development Expenditure Transport 41,482,795 58,078,518 127,079,000 Agriculture & rural development 9,769,292 13,999,086 19,544,010 Commerce and industry 15,200,000 68,113,000 65,000,000 Housing 7,631,883 21,406,231 50,570,080 Water supply 4,519,256 16,728,986 26,513,100 Others 3,484,071 14,024,851 19,027,600 82,087,297 192,260,672 307,733,800 Source: Kelantan State Government. - 99 - ANNEX 3-1 Table 3-1.8 FOURTH MALAYSIA PLAN SECTORAL ALLOCATIONS IN KELANTAN AND TRENGGANU, 1981-85 (M$ million) Kelantan Trengganu Economic Agriculture & Rural Development FELDA 115.66 122.80 FELCRA 47.96 41.46 KETENGAH KESEDAR 250.00 250.00 TAKDIR 27.00 Other 622.40 330.56 Total 1,063.02 744.82 Commerce & Industry SEDCs 178.30 162.70 Heavy industries corporation 55.90 Other 105.54 46.40 Total 283.84 265.00 571.45 474.51 Other 1,918.31 1,484.33 Social 310.75 217.99 Security 528.50 71.71 Administration 23.66 9.42 Total 2,847.75 2,023.11 Source: Fourth Malaysia Plan 1981-85, Appendix A, pp. 393-402. - 100 - ANNEX 3-2 page 1 MALAYSIA REGIONAL DEVELOPMENT AND URBANIZATION IN THE NORTHEAST FMP Regional Transportation Network Program 1. Highways. The present policy is to strengthen interregional and intraregional transport links between urban areas with inter-city highways and roads both new and improved. Table 3-2.1 indicates the major works which are also shown on IBRD Map 16084. These roads are also expected to improve accessibility to the rural hinterland through which they traverse, in some instances providing commercial access for the first time. The highway improvement will reduce journey time both by increasing average speeds in the case of upgrading and, more significantly, by considerably reducing distances to be traversed in the case of new roads. 2. The present distance from Kota Bharu to Kuala Lumpur is 660 kms but with the opening of the East/West highway along the Thai border this distance will be reduced to 510 kilometers and when the route Kuala Krai/ Kuala Lipis/Raub/Bentong/Kuala Lumpur is completed this distance will be reduced further to 310 kms, or less than one half the present distance. 3. Even more dramatic is the reduction in journey time and distance afforded by the East/West highway link between Kota Bharu and Pinang. For the journey to be accomplished within Malaysia, the present routing would be via Route III to Kuantan, then Route II to Kuala Lumpur and finally Route I to Pinang, a distance of some 980 kilometers. This will be reduced to 272 kilometers, slightly over a quarter of the present distance when the new route is opened in 1982. 4. The total length of Route III (180 miles) within Trengganu is being improved by widening the carriageway to 7.5 m, provision of hard shoulders and overslabbing. This contract is due to be completed in 1983 and should not only improve the safety of this route but also reduce journey time by 4.5%. 5. The hinterland route within Ketengah, parallel to the coastal route has short stretches which will require more maintenance than normal despite its recent construction date but is not in need of major upgrading. 6. Railways. The existing railway system is Y-shaped and consists of a West coast and a central hinterland line. 7. The present strategy is to upgrade the whole system providing new modern locomotives and rolling stock and improving the permanent way. A study is being undertaken to consider electrificaation of part of the system, but this is not likely to effect the central line which serves Kelantan. The single track narrow gauge central line running from Germais - 101 - ANNEX 3-2 page 2 to Negri Sembilan to Tumpat in Kelantan can expect to receive new stock and some upgrading of the track which will improve both its riding standard and speed capability and load carrying capacity and thus improve its viability as a major form of bulk transport of timber and natural resources from the central hinterland of Southern Kelantan. 8. The present rolling stock has been in use for in excess of 115 years and is subject to fairly high maintenance costs and some breakdown. The present timetable shows two trains per day traversing the complete route Tumpat to Gervais with three intermediate trains traversing part of the route. The journey time from Gervais to Tumpat is 19 hours on average./l 9. The terms of reference for a feasibility study for a new east coast rail link from Kuala Lumpur to Kuantan/Kuala Trengganu/Kota Bharu are to be issued in 1982. 10. Ports. The principal external trade ports of peninsular Malaysia are situated on the west coast and whilst the subsector program is to con- tinuously modernize and improve these ports, the provision of an external maritime outlet for the east coast has also figured prominently in the program. A major port has been constructed at Gelang some 12 km north of Kuantan, within the state of Pahang. Kuantan port constructed in 1978-80 at a cost of M$108 million is yet to become operational due to engineering problems./2 A recent consultant's report has recommended remedial works which it is understood may cost in excess of M$100 and take 15 months to complete. This would allow the full port facilities to be available for use in 1983. At present, only part of the port is in use (that relating to the palm oil terminal). 11. There are small ports along the east coast at Kota Bharu, Kuala Trengganu, Dungun and Chukai which are important to the local east coast fishing industry but cannot be used for significant external trade (except for insignificant coastal barge traffic to Johor and Singapore). All of these ports and harbors suffer from navigation problems due mainly to siltation from the rivers and periodically during the annual monsoon season. /1 The present volume of traffic on the central line for the last three year period, shows an 18% increase in passengers and a 13.33% increase in freight, with a corresponding 3.79% increase in passenger revenue and 23.50% increase in freight revenue. Passengers carried to the state of Kelantan in 1980 amounted to 4,145,721 and from the state 4,375,945. The principal freight out of the state was logs 464,654 tons of logs and the principal imports into Kelantan were cement 98,437 tons and petrol 48,965 tons (Source: Malayan Railways). /2 The quay wall has rotated outwards causing the quay to settle differen- tially, the underground services to be fractured and for the single story warehouses, behind the quay to break their backs. - 102 - ANNEX 3-2 Page 3 12. As part of the requirements of the oil and gas exploration under- takings in the South China Sea, off the coastline of Trengganu, a supply base is currently being constructed at Telok Kalong just north of Chukai. The present facility with caisson quay wall, mooring dolphin and breakwater is designed for supply vessels of 10,000 dwt. It is proposed to extend these first phase facilities to cater for 65,000 dwt bulk ore carriers to supply the DR/Billet plant planned for the Telok Kalong industrial area. This first phase is planned to be operational by 1984. A second phase to accommodate vessels up to 100,000 dwt is proposed in the period 1984-88 and would be for large bulk carriers of iron ore. Stage III for ocean-going vessels of 150,000 dwt and general cargo is suggested for the period past 1988. This maritime facility is further discussed in the industrial corridor section (Chapter 10). 13. A study /1 has recently been completed for a potential external trade port in the state of Kelantan. The proposed Kelantan port is to be situated at Sabak-Kemasin which is on the coast almost due east of Kota Bharu. The study proposes first stage development of a new port to cater for coastal type shipping (5,000 dwt) and possible second stage expansion to handle larger deep-sea vessels. The total planned area is some 800 acres. The first phase is estimated to cost M$88 million (1980 prices) and will take 2-3 years to build after the decision is taken to implement the project. Phase II is estimated to cost some M$300 million (in 1980 prices). 14. Facilities for the rehabilitation of the coastal fishing industry are included in the first phase, since the siltation of the Sg. Kelantan, Sg. Senok and Sg. Kemasin is making it increasingly difficult for the local fisherman to navigate. In addition the industry's continued existence and possible expansion depends on using larger boats to access fishing grounds beyond the current customary 100 km coastal range. The siltation problems are of recent origin and can be attributed directly to poor logging practices in the forest concessions upstream (which have contributed to erosion on mountain slopes and increased sedimentation in the rivers) rather than to seasonal monsoon rains. 15. Airports. A policy document for the development of airport facilities has been prepared by the Ministry of Civil Aviation./2 The airport program for peninsular Malaysia confirms Kuala Lumpur as the principal international airport with Pinang as a port of secondary interna- tional importance. The remaining airports are required for domestic flights. Johore Bharu airport is being developed to allow for use by large cargo aircraft so that this airport may also be used as an international/regional /1 The Feasibility Study Report for Kelantan Port Development project in Malaysia, 1981. /2 National Airport System Plan, BAI, 1981. - 103 - ANNEX 3-2 page 4 cargo center from 1982 onwards. The current program includes provision of rural airstrips for use by light aircraft to provide feeder services to domestic airports, these services have not been developed to date. 16. The service to the east coast states focusses on internal domestic services radiating from Kuala Lumpur (rather than external or international links) to Kota Bharu, Kuala Trengganu and Kuantan by Boeing 737 aircraft and occasional service from Kota Bharu to Ipoh and Pinang. A helicopter and light aircraft base associated with the oil industries is to be developed at Kerteh. Other air movements associated with servicing the oil rigs and personal movements are being studied. 17. As of September 1981, a commitment has been made in principal to eventually upgrade Kota Bharu airport to accommodate wide-bodied aircraft to Boeing 747 standard, this commitment includes the lengthening of the run- ways, new terminal buildings, landing aids and associated,works. However, Malaysian Airline Systems has produced an operational plan covering the period to 1990 and this shows that the largest aircraft that the national airline is likely to use upon this route is an A300 airbus. Thus, a more modest extension of some 2,000 ft. of runway (to 9,000 instead of 11,000) would be satisfactory for this operation together with a similar modest extension of the terminal facilities, rather than the proposed runway extension and expansion of terminal facilities required to handle B747's with the local staffing and logistical improvements required to support international transport (for cargo and passengers). tONFX 3-2 - - Table ~~~~~~~~~~~~~~~~~~~~~3-2.1 Table 3-2.1: PROPOSED AND ONGOING REGIONAL HIGHWAY PROJECTS nap 16004 Present Nec~ ~~~~~~~~~~~~~ journy time Number Route mls os n ot Werk prepo...d to rote (utle) joorney tie) DOs.trtptioe of ne ete Prngraiog Pr e-et state I. tKla-tan 1--nrrei...I A. Eust-Wont tin/n and support 135.00 (IR0.U0) IW ot 7.5 'eae tgesy 1978-81 tndrcsruea; I Link tJei--N.. tact/West Highnea 04h2ahr shudrs nplio al 1982. taut/!Wen lighway te -05 standard Ourf-es. 40.86 19.40 sretogesa.. 7.3; at04th 2. 1 982-85 Under design. 7 Ft-tnine of Gust/Wont 43. 10 orfa..ed -eate li-i8 ft fpg-ada port of esite- shouldesto U tadard. Jell to nuring earr iagesy athsttaltg route, pertoe 1i.47 6.43 Carr iagey 75 wtn2 194-8h tInder design. 3 Suppnrt route toF Iot/ 12.67 S.rfared rote 14-if ft Upgrade pirt eP ense- sholde.0 sadard. WIIst 4ftghaaIy 1 - .ftehio earigea tth mInimal In rou.te, partne to yasir Pole/ ehooder Ie part mo.te 15.44 25.73 C-retgeasy 7.0 s 0ith 1900 oneards Under f.eaaibiltty -eoy. 4 Suppor .o.tr to Gust? 15.44 Oetof droute lipge-de esintleg n-oce sheatder. -05 utandard. Went Htghaay - Bato Gage/n to Rante Panj-og 34.00 41.00 C.reisgecay 5.6 Wi0th Under eon- Und-r co-troetion; N Jell to Dbhang 34.01 Part -ofeed sit/n pour Upgrade sitstog rete uhooldara to 03/04 standard. Ieru_tton. eoapletine i982. 1982. R. Nnrthn-Onc/n littnedk upr 44.00 20.00 Carrisgesy 7.0 is aith.1.5 a Patupe- anro ude naY; -eplc- into thara e Koala nra 21' 44.001 Oorfa-d 17-24 ft otch Upgrade -e ceJtutlg h.solderI et 004/U s5tanad a 94 in1993. Nrasheuldero In part r-teIdI.td18. t. 3 72.00O 85.00 Caertags... 7.0 a ojtt/ 15N2V80 Undnr- nscit 7 Knott Ktrut no Mu ...oug - MsieIY logging true/ UPgrading of ... shauldera to 04/05 ta-da-d. nuPlatlo- 1983. 70.00 (100.00) Carriaea7.sath 13-5 tco tge O m 4/u ..iun In-ost tipto - tftti frttytogn UPgtdI nmeonttgn/oadnu o 4751 s.tand9urd.-g. track route, enn ecrut 9 K.M. LiPt. K-I~~~~ L-p- 77.00 S,,b- ~~~77.00 - Carriagecan 7.0 WIt/ 95oeraUde es/iiosuy 9 Kuala iple to oala tanur 77.00 On/-snadard rod part fpgrade rmote, part thhouBderadOr'-Ubistandard. V) D-b..9 t. K..I. K-i - Y. ~~~~~Iy f-.t'y ~22.00 (39.00) C,ryLagecay 7.0 is sith 1984 aears ,-gnd. tO Rohono in Eust test - Nainly forentry legotno psetn an-d n heuldee- tn U3fo4snu-d-ed. true/n reoe te/ newrIce 1!. KeI-anca otagialtiekn and radiatn A. Northern Plain Ii Kta OhBr EtoP-oi Potoh 32.6r0 Sorf-ed 14-18 ft Upgrade enis ling mono 32./nO 20.0)0 Care tageae 7.0 s aith 2.n is1905 Under fe-isllit n~I-dy. criage wa tt/nstetnh uhealdere to 05 standard. 12 yasIr nas to R-t-a il.00 Sofaeed 14-18 ft Upgrade rninttng mo.te 11.00 5.0(1 CarriagewaY 7.0 n i/ 95Uder desiig. Pa-jang -arrt.geay cit/n o- ererI ....sig ehuder to0 tandard. i3 WaI 4 ...tg to Lass/ - laggIng tru-/n Upgruding 65.00 Widenteg and spro-n.e. t at 1901-B4 Pat .n or .on.trcton -uf-e. part udar ne_d. 14 too. n-ute yKatie teal - Lagging t-ankn or on pgrading and -ewnote 00 Carolae..aY 5.5 s to 03 1905 -wado tdo- -td-. IN Dahug to C.a RMan..0 - LaggIng true/ aro Pgrading and -erute 27.00 Wtdrnino and ipru -ten ef 1983 ensrda Utd Oa -tdo- OTt. Treoggenu Int-r.geatnl (cu..stnl) i/n Kone Ott beundur y aitth 1On00M Sorfaced, 16-2n ft sith Oporads en eninting MM.0 CrlrIage 7.I' i/nll-3 tIdronsreie Eal-tean to hoandary curio tdth of ulgsen altn am shuler-t 04stndrd nt/ Pah-ngn/ode tetonee and nne IV. T-egga.. tntr-gt.ioe1 17 Koala Tre-ggano ne Efutleg tou roads to Icpruo-snt e f approa- - Ca priagec 7.1 5 otit 193 ooId. ind-rs-dy. riercrsing ha esed far sppru../nh- U/ecnh e tnrteteu /n7rdgesd .Id- Isi K.-l. Treosgano tog. 38.oo terracd 14-IR ft wit/n WidenInga d topra.e- 30.00Crtgao70 sat 0Idr td n aie Dendung Ra/n.r united sheulders sent ansrds shoulders..Cri.-70 tl 19 ld td- -i IN C/na/na Bypuse - -tsrue1.00 armliagooso 7.0 is cit/n I -.' rar Iter stdy. shno.frr-. 20 Gerth Oypana - 105 - ANNEX 3-3 Page 1 MALAYSIA REGIONAL DEVELOPMENT AND URBANIZATION IN THE NORTHEAST FMP Regional Utilities Network Program /1 1. Power (Electrification). Power is a Federal function carried out by LLN. The objective is to provide power to all the population by 1990. The strategy /2 calls for the construction of a number of new generating stations using a variety of power sources, hydropower natural gas and oil. These generating stations are to be linked to a national grid at 275 kV and ultimately ringed. 2. As far as the northeastern states are concerned the policy is to connect Kelantan and Trengganu to the national grid and discontinue the present system of generation by small diesel fuel power stations (with total existing capacity, after a 12 MW addition in 1981, of roughly 50 MW vs. demand of about 36 MW) and hold it in reserve as a backup system. 3. A 400 MW capacity hydro-electrical power generation station is under construction at Temengor (Perak) and is scheduled for operation in 1982/83. This will be connected to the national 275 kV grid and will in the first instance act as a spur supply of 50 MW to Tanah Merah in Kelantan giving the grid supply of that state enough power to replace 100% of existing capacity immediately. A further extension from Tanah Merah to Kuala Krai and Gua Musang is currently being appraised by the World Bank. Ultimately, the 275 kV grid will be connected through to Trengganu by 1985 and form a complete national grid ring. 4. Another 415 MW capacity hydropower generation station is under construction at Kenyir (Trengganu) scheduled for operation in 1985/86. This again will be connected to the 275 kV national grid and will also give a direct 132 kV supply to parts of Trengganu. 5. A third 450 MW capacity power generation station, this time using natural gas as a power source, is being built at Paka (Trengganu). This is scheduled for operation in 1984. This station will also be connected to the 275 kV national grid but will have a direct 132 kV connection to the industrial areas of Kerteh, Telok Kalong and Kuantan to supply up to 342 MW for industrial projects. /1 For reference see Map IBRD 16084. /2 A study on energy resources in Peninsular M4alaysia is currently underway, see Annex 4-3. -106- ANNEX 3-3 Page 2 6. The combined capacity of these three generation stations will exceed the internal demand in the Northeastern region. Thus, they have to be viewed against the national demand. Additional generation could be achieved in the area by the provision of a second 450 MW capacity gas-fired station at Paka in Trengganu and possibly by hydropower at the Dabong Dam site in Kelantan. The 275 kV grid link from Temengor to Tanah Merah (Kelantan) is at present under implementation and is expected to be operational in 1982/83. The Kenyir generating station and Paka stations are both scheduled for operation in 1984/85. A grid system at 132 kV is also either being implemen- ted or is planned to serve the urban and rural areas. The rural electrifi- cation scheme (which consists of distribution only) has been about 86% com- pleted in Kelantan and 80% in Trengganu. Urban power requirements, particu- larly for Kuala Trengganu and Kota Bahru are discussed in Chapters 8 and 9. 7. Telecommunications. Telecoms is provided by Jabatan Telekom on a national basis, with a policy of making telephone and telex communication available for all demand. During the FMP period development of additional methods of communication such as telefax will be explored. 8. At present there is a shortage of circuits in certain areas of the north-eastern states due to lack of equipment but this is being remedied by the provision of new exchanges and additional cables. Within Kota Bahru these exchanges have a capacity of 7,400 lines, with 6,554 subscribers and a waiting list of 1,400. However, a new exchange is being constructed and improvements are being made which will add about 6,000 lines by early 1982, sufficient capacity for the next five years. In Kuala Trengganu current capacity is 8,000 lines (after extension in 1980/81) of which only 3,500 are in use. However, there exists nevertheless a waiting list and new subscribers are being connected at a rate of about 200 per month. 9. All telex communication for the north eastern states are at present handled by the exchange in Kuala Lumpur. Subscribers total 52 in Kota Bahru and 13 in Kuala Trengganu with a waiting list of 13 and 5 respectively. A new telex exchange is planned in the Kota Bharu area which will allow for automatic switching for all telex messages from Kelantan and Trengganu. At the present time the national average of outstanding requests for telephone connections is 33% whilst in Kelantan the figure is 34% (26% domestic and 8% commercial) and in Trengganu 16.8% (9% domestic and 7.8% commercial). The detailed provisions of telecoms is discussed in both the urban and industrial sections of Chapters 8 and 9. 10. Water. Water is a state function and is being provided, so far as capital costs are concerned, by the states with the aid of Federal loans or grants. The Malaysian Government has adopted the principles of the World Health Organization "Water Decade" and is aiming at those objectives. 11. In Kelantan the existing underground sources serving Kota Bharu are being further exploited and the existing treatment works replaced by - 107 - ANNEX 3-3 Page 3 larger modern plants. The first stage for extraction from the River Kelantan is planned to supplement and meet immediate forecasted demand (5 years) for domestic and industrial purposes. Surface sources are used to supply other urban communities and rural areas. In parallel with the national policy to provide piped water to all the population, is the National Agricultural Policy whose guidelines lay down the objective to irrigate when v possible. This latter demand is also being met from surface sources. The agricultural program shows an eventual area of approximately 87,900 ha to be irrigated. With a possible peak demand of residual flow required in the river to combat salinity the total demand on the Sq. Kelantan would be in order of 190 cu mecs in the year 2000. The implications of this total demand figure at periods of "low flow" conditions is discussed in chapters 8-10 where it should, however, be noted that a water shortage can occur in Kelantan in the near future if the present policy of uncontrolled development (particularly logging practices) in the Sq. Kelantan catchment area in South Kelantan continues coupled with 10-15 year recurring "low flow" conditions. A decision should be taken at a very early date on the recommendation put forth in the Land Use and Forest Management Study/l to try to mitigate peak flow, sedimentation and low flow conditions. It will also be desirable to re-evaluate the decision regarding the impounding and control of flows within the River Kelantan Basin. 12. In Trengganu water is obtained from surface sources for Kuala Trengganu in the order of 4 mgd. In some instances, the present intake is being affected by salinity at low flow periods in the river Sg. Trengganu. A new scheme is being implemented for Kuala Trengganu with the intake further upstream which should meet the forecasted requirements for the next three years. Improved pumping and treatment equipment is being provided for Kemaman and Dungun whilst a new temporary scheme is planned for the Paka/Kerteh area together with a new scheme to serve the industrial area of Telok Kalong. The water sources in Trengganu should be adequate to meet the forecasted demands to the year 2000. The schemes proposed allow for a use of 50 ghd in urban areas and 30 ghd in rural areas together with the known needs of planned industries. These standards are similar to those adopted for the remainder of peninsular Malaysia. The schemes /2 together with phasing, are discussed in more detail in chapters 8-10 (see paras. 8.26-8.27 and 10.13-10.17). 13. Drainage - Foul. The provision of foul drainage is the responsi- bility of the local authority and has, to date, received a low priority in /1 Land Use and Forest Management Strategy for Southern Kelantan, Halcrow ULG, 1981. /2 Water resources interim report, Binnie Dan Rakan, 1981. - 108 - ANNEX 3-3 Page 4 implementation. Loans and in some cases grants are sought from the Federal Government for the carrying out of this service. Feasibility studies have or are currently being undertaken for 18 of the larger conurbations. Currently, a feasibility study is being carried out for Kuala Trengganu and the terms of reference are about to be issued for Kota Bharu, these studies are being funded from federal sources. There is a legal requirement under the Sewerage and Industrial Effluent Regulations (1979) which are being enforced from January 1, 1981 "for all housing developments having 30 or more dwelling units to meet the appropriate effluent standards." - 109 - ANNEX 3.4 page 1 MALAYSIA REGIONAL DEVELOPMENT AND URBANIZATION IN THE NORTHEAST Industrial Incentives 1. Pioneer Status (PS) has been the most important of the incentive schemes, used by 55% of all projects that received incentives. To qualify for PS, a project must be in an industry that does not exist or currently has an uneconomic scale but for which future potential is favorable and expansion is in the public interest. These conditions are obviously very flexible and are defined only on a case-by-case basis, which permits considerable leeway in granting assistance. Once granted, PS entitles firms to a tax holiday of from 2-8 years. The length of the holiday rises with the level of capital investment, from 2 years for expenditures of M$250,000 or less up to 5 years for expenditures of M$1 million or more. To this can be added a year each for priority products, Malaysian content and location in a Development Area (DA). Taxes exempted are the company income tax, development tax and taxes on dividends on tax exempt income paid to shareholders. 2. Labor Utilization Relief (LUR) is the least important of the incentive schemes, used by less than 3% of the projects granted an incen- tive. It provides projects deemed in the public interest with tax holidays that rise with the number of employees, from 2 years for firms with at least 50 employees to 5 years for firms with 351 or more employees. All other rules are identical to those under PS, i.e., the same taxes are exempted and there are up to 3 additional years of tax holidays for priority products, Malaysian content and a location in a DA. There are two reasons for the limited use of this incentive. It does not apply to small firms and it is advantageous only to firms with very small capital expenditures. For example, as a comparison with PS incentives shows, a firm with 50 employees would prefer LUR to PS only if its investment per worker was below M$5,000; a firm with 351 employees would use PS only if its investment per worker is less than M$2,850. In contrast, even firms without tax incentive averaged investments of M$20,000 per worker in recent years. 3. Locational Incentives (LI) were only established in 1974 when it became obvious that the one-year extension of the tax holiday for firms with (DA) locations were an insufficient incentive for decentralization. The LI provides firms that locate in a Location Incentive Area (LIA) tax relief on the basis of either employment or capital expenditures. Thus a 5-year tax holiday is allowed firms with capital expenditures of less than M$250,000 or less than 100 employees (thus eliminating the minimum employment requirement of the LUR). The tax holiday rises to 8 years for firms with capital expenditures of more than M$1 million or a work force of more than 350. An - 110 - ANNEX 3-4 Page 2 additional year each is added for priority products and Malaysian content. Overall useage of this incentive has been limited to about 5% of all projects that received incentives. Unfortunately, no breakdown of incentives by state or LIA is available for recent years, but a rough estimate would be that as much as 30-40% of the projects with incentives, located in LIAs received LI. 4. Investment Tax Credit can be made available to firms that do not receive PS, LUR or LI tax holidays. The credit equals 25% of the total capital expenditures incurred during the first five years, with an additional 5% each for firms satisfying the priority product, Malaysian content or development area conditions, for a maximum credit of 40%. The credit can be carried forward until fully utilized. Because of this and because the credit is directly proportional to capital expenditures, rather than to taxable income as the other incentives, one would expect it to be popular with projects that have high capital expenditures relative to income or that show little income or losses during their early years of operation. Indeed, projects approved under this incentive are consistently more capital- intensive than PS projects, and the incentive in recent years has been used by 35% of all projects with incentive. 5. Tables 3-4.1 through 3-4.4 present data on projects granted incentives. - 111 - ANNEX 3-4 Table 3-4.1 PROJECTS APPROVED ACCORDING TO TYPE OF INCENTIVE, MALAYSIA 1976-81 Jan-Feb Incentive 1976 1977 1978 1979 1980 1981 Total Pioneer status 24.7 24.5 25.7 21.9 22.6 15.9 23.8 Investment tax credit 17.9 14.0 16.8 12.6 15.9 15.5 15.4 Labor utilization relief 1.6 2.8 1.4 0.8 0.4 0.7 1.4 Location incentives 1.6 3.5 3.0 2.5 1.1 1.8 2.3 Other incentives 1.6 0.7 0.5 - - - 0.5 Without incentive 52.5 54.5 52.6 62.2 60.0 66.1 56.6 Total (%) 100.0 100.0 100.0 100.0 100.0 100.0 100.0 absolute 425 400 428 760 460 277 2,197 Source: MIDA; data include Sabah and Sarawak. - 112 - ANNEX 3-4 Table 3-4,2 APPROVED PROJECTS BY IMPLEMENTATION PROGRESS IN MALAYSIA, KELANTAN AND TRENGGANU, 1970-1980 Projects in Projects Projects initial implemen- Project not approved implemented tation stages implemented Year Mal. Kel. Treng. Mal. Kel. Treng. Mal. Kel. Treng. Mal. Kel. Treng. 1970 334 - 4 178 - - 6 - - 150 - 4 1971 304 2 1 174 - - 5 - - 125 2 1 1972 355 2 5 218 1 2 3 - - 134 1 3 1973 473 4 6 278 3 2 17 - - 178 1 4 1974 525 3 4 299 2 1 33 - - 193 1 3 1975 461 9 7 264 3 5 54 1 - 143 5 2 1976 425 8 4 244 5 3 78 - - 103 3 1 1977 400 10 7 288 4 6 57 - 1 55 6 - 1978 428 6 9 297 2 7 98 - 2 334 - 1979 484 10 7 309 5 4 142 4 3 33 1 - 1980 460 11 9 181 2 2 262 9 7 16 - - Total 4,649 65 63 2,730' 27 32 756 14 13 1,163 24 18 Source: MIDA. - 113 - ANNEX 3-4 Table 3-4.3 APPROVED PROJECTS, PROPOSED INVESTMENT SIZE AND INVESTMENT PER WORKER IN PROJECTS WITH PIONEER STATUS AND PROJECTS WITHOUT TAX INCENTIVES, MALAYSIA, 1973-1979 Proposed invest- Proposed invest- Number of ment per project ment per worker approvals (M$ million) (M$ 1,000) PS No PS No PS No incentives incentives incentives 1973 179 236 5.0 0.6 18.2 9.1 1979 166 305 5.9 1.1 26.1 16.0 1975 95 788 3.4 1.2 35.4 22.1 1976 105 223 6.0 1.3 42.2 29.0 1978 98 218 2.9 0.9 26.4 17.2 1979 107 301 5.4 3.6/a 21.5 58.6/a Annual average 123 257 4.7 1.4 29.2 24.8 (30.5)/b (19.2)/b /a Excluding petroleum and coal projects. /b Average excluding 1979 data. Source: MIDA; data include Sabah and Sarawak. - 114 - ANNEX 3-4 Table 3-4.4 INTRA- AND INTERREGIONAL DISTRIBUTION OF APPROVED PROJECTS BY INVESTMENT INCENTIVES, PENINSULAR MALAYSIA 1970-1977 Region/Incentive Category 1970 1971 1972 1973 1974 1975 1976 1977 1980 Intra-regional /a Kelantan, Trengganu, Kedah, Perlis Pioneer status 54.6 75.0 66.7 44.4 40.5 28.3 28.2 22.5 Other incentives 9.1 25.0 33.3 14.8 20.0 32.1 35.9 50.0 Without incentives 36.4 - - 40.7 40.5 39.6 35.9 27.5 Total (Absolute) 11 8 18 27 37 53 39 40 43 Peninsula Pioneer status 49.0 52.3 43.1 37.7 31.1 20.7 24.3 22.6 Other incentives 10.1 10.0 9.4 12.0 10.4 16.7 22.9 21.2 Without incentives 40.9 37.6 47.5 50.2 58.5 62.6 52.8 56.2 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Inter-regional /b Kelantan, Trengganu, Kedah, Perlis Pioneer status 4.1 4.1 8.7 7.5 10.0 17.2 12.2 11.1 Other incentives 3.3 7.1 20.0 7.8 14.0 24.3 16.5 26.3 Without incentives 3.3 - - 5.2 5.3 8.0 7.1 5.5 Total 3.7 2.9 5.6 6.4 7.7 20.0 10.5 11.2 105 Peninsula (Absolute) Pioneer status 145 16 138 160 150 87 90 81 Other incentives 30 28 30 51 50 70 85 76 Without incentives 121 108 152 213 282 263 196 201 Total (Absolute) 296 282 320 424 482 420 371 358 411 /a Percent of total in each region. /b Percent of total of each incentive category in the peninsula. Source: D. Spinanger, Regional Industrialization Policies in a Small Developing Country: A Case Study of West Malaysia, Table 19 (Kiel: Institut fur Weltirtschaft, 1980), except for 1980 for which data are directly from MIDA. - 115 - ANNEX 4-1 Page 1 MALAYSIA REGIONAL DEVELOPMENT AND URBANIZATION IN THE NORTHEAST Mineral Resources in the Northeast 1. Metallic Mineral Resources. There is in general very little mining activity in either Kelantan or Trengganu. In particular, apart from a small tin mining operation near Bukit Rakit in Trengganu, the mining of iron, wolfram and manganese has declined to the point that by 1980 there was almost no significant mining of metallic minerals in the Northeast. This low level of mining activity has not always been the case, particularly in Trengganu. As noted in TCRS, until the closure of the Bukit Besi open-cut iron ore mine in the late 1960s, Trengganu was the most important iron ore producing state in Peninsular Malaysia./l During this period the mine was the economic backbone of the state. In fact, the mine continued extracting tin ore between 1970-76, and it was only with its final closure in 1976 that there was an impetus to create an alternative economic base in southern Trengganu which led to the establishment of Ketengah as a regional development authority charged with opening up the Trengganu hinterland. 2. The mineral resources in both Kelantan and Trengganu have not been comprehensively surveyed to provide adequate information on their potential. Production of land use maps and survey reports have all relied upon surface evaluation and previous mine operation records. As yet, a comprehensive geochemical or aerial geophysical survey has not been conducted for the whole region. The most comprehensive survey to date has been the CIDA (Canadian International Development Authority) survey in 1977-79 of the 31,000 sq km of the "Central Belt Project Area" which excluded the coastal regions of the Northeast but included the central part of Pahang state. Follow-up work has commenced by the Malaysians. However, prospecting is at a very preliminary stage and is very selective, excluding inaccessible areas of the hinterland. The 1977-78 data reconnaissance report has just been completed but not yet published. The findings are apparently encouraging, but the information, particularly on metallic mineral deposits, is being treated as highly confidential pending negotiations for more in-depth exploration by mining corporations (e.g. the Malaysia Mining Corporation, MMC, in Kelantan, etc.) 3. The initial surveys have confirmed the availability of the following deposits in the Northeast region: /1 Up to 1965 Bukit Besi had produced 36 million tons of ore, almost half the total production for Malaysia. - 116 - ANNEX 4-1 page 2 Molybdenum Bauxite Tin Quarry sites (Granite, Limestone,) Mercury Ilmenite/Rutile Kaolin/Illite Clay (suitable for brick making) Silica Graphite Tungsten Iron Gold However, the size of these deposits, in terms of recoverable reserves, their concentration and the economic viability for mining, is not known from the available information. It is probably safe to assume that, since exploration is still in very preliminary stages, these deposits do not represent major possibilities for mining production in the 1980s, except in the case of some nonmetallic minerals discussed next. 4. Nonmetallic Mineral Resources. Production of nonmetallic minerals in the Northeast is at present very small. For example, production data for Trengganu for 1977 provided in a geological survey report (cited in TCRS, Vol. 2, Table 4-1.1) shows a gross output valued at under M$3 million. However, nonmetallic minerals are found throughout the Northeast and do represent potentially exploitable reserves. For example, clay deposits are available which are suitable for brick making, pipe manufacture, building tiles and a range of ceramics. And proposals to exploit this resource are under consideration in both states./l However, in the case of Trengganu it is unlikely that there will be adequate demand during FMP to justify exploi- tation of the Trengganu coastal region's clay resources to any significant degree if the proposed Kentengah project to be located near "city E" is implemented. 5. Quarry stone deposits also abound in the Northeast and are likely to be exploited for future construction activity, including road works./2 /1 The Kelantan SEDC is proposing to invest M$1.0 million in a Pasir Mas bricks and clay products factory to commence operations in mid-1982 and employ 30 workers. A much larger, M$7.0 million, joint venture is under negotiations between Ketengah (in Trengganu) and a German firm (with an initial Ketengah equity holding of 40% increasing incrementally to 75%). This project is also likely to commence operations in 1982 and employ approximately 115 workers (to produce 14 million bricks and 4.5 million roof tiles annually as well as an assortment of flooring and wall tiles and pipes). /2 Possible expansion of the Bukit Buloah/Machang aggregates firm in Kelantan to include a new pre-mix concrete plant at a cost of M$1.2 million is under consideration by Kelantan SEDC. Similarly, a pre-mix plant with an annual capacity of 70,000 tons is under consideration by Ketengah with 100% of the output to be marketed in the Kerteh-Kemaman area where substantial construction activity is anticipated during the FMP. - 117 - ANNEX 4-1 Page 3 However, none of the plants currently under consideration will employ more than 10 workers since they have been scaled to ensure that the availability of raw materials and a ready market is not a problem. 6. Silica sand deposits are found, primarily in the coastal region of Trengganu, and the eight major known deposits, with approximate reserves ranging from 1-5 million tons each, represent a significant raw material with potential for further processing in a range of glass products./l However, no firm proposals have yet been made to identify a scale of operations and the markets to be served, even though Dungun has been selected by the Trengganu SEDC as the preferred location for production since it can draw on the availability of gas in Trengganu. 7. Thus, the scale of operations currently under consideration for the exploitation of clay, stone and sand deposits by the public sector are gen- erally small and though useful in terms of utilizing local natural resources will not be major contributions to regional VA and employment. It should be noted, however, that the public sector does not account for a major share of the processing of nonmetallic minerals and that data on private sector operations and investment programs are not readily available. 8. Cement. Of the proposals to use the region's nonmetallic mineral resources, the potentially most significant in scale is cement production in Kelantan. A number of preliminary geological surveys report the existence of half a dozen major limestone outcrops in Kelantan ranging in size from 70 million tons at Gua Setir and Gua Maka in the northern part of the state (of which 20 million tons at Gua Setir are considered to be workable reserves and adequate to support a cement plant with annual capacity of 500,000 tons for 25 years) to 185 million tons in Dabong and north of Bertam in the center of the state, to as yet undetermined but potentially much larger reserves in Gua Musang in the southern heartland of the KESEDAR region. The reserves in and around Gua Musang in Ulu Kelantan are considered to be more easily quarried than those in the north. However, they are also located the furthest away from major domestic centers of cement consumption as well as export oriented ports. 9. A prefeasibility study of the Kelantan Cement Plant /2 shows that as of 1980, 100% of Malaysian cement production was located on the west /1 Trengganu's SEDC has listed the anticipated product range as: bottles, sheet glass, light bulbs, decorative glass, fibre or float glass, fluorescent light tubing, foam glass, pharmaceutical glass, pressed glass rolled glass, laboratory ware tempered safety glass, etc. /2 M. Stevens, The Prospects for Cement Production in Kelantan (Kota Bharu: State and Rural Development Report, May 1981). - 118 - ANNEX 4-1 Page 4 coast, that the east coast (Kelantan, Trengganu and Pahang) accounted for. 12% of peninsular cement consumption (or 326,000 tons out of 2,809,000 tons, Vol. II, Table 4.4) and that any shortfall in domestic production was made up by imports through west coast ports and distributed from there to the east coast. This resulted in intermittent shortages of building materials on the east coast, particularly Kelantan due in part to the unreliability of the old rolling stock used on the rail link to Kota Bahru. 10. The current annual consumption of cement on the east coast falls substantially short of a minimum economic scale of about 500,000 tons required for an "integrated" cement plant. However, demand has been growing rapidly both in the peninsula as a whole and in the Northeast in particular (Tables 4-1.2, 4-1.3 and 4-1.4). The elasticity of demand for cement on the peninsula has been estimated at 1.44 with respect to GDP and 1.34 with respect to construction sector value added. Using these elastici- ties and FMP growth targets, annual cement demand on the peninsula could reach between 7.0-7.8 million tons by the end of the decade. Assuming no change in the East coast share of this high projection of peninsula cement consumption,/l or a lower projection for the peninsula but with a shift in the east coast share due to the acceleration in regional construction activity likely to accompany the major project and infrastructure investments contemplated for the decade, the east coast annual demand for cement by 1990 /1 As noted in the prefeasibill-,- study, these are high estimates of cement consumption growth and may overstate the position. In the first place the relationship between cement consumption and GDP growth of recent years may not be stable. At some point cement consumption will fall into line with national average without assuming an unrealistic share of total output. Malaysia is adjusting to a higher relative level of cement usage, and demand may continue to grow at exceptional rates. But at some point above average growth will be checked. Consumption has grown only 9% per annum over the past five years, and possibly the adjustment has already begun. There is also the question of whether the high GDP growth rates of the 1960's and 70's can be repeated in the decade Malaysia is now entering. The judgment of the FMP is that the country will enjoy sustained growth for the next five years, at least. Beyond that there questions raised 'by such factors as the tightening of the domestic labor market diminishing reserves of new land, and the uncertainties of the world economic situation. Taking all these factors into account, it may be be said that although past trends support a growth in national cement demand of 12% per annum, for planning purposes a figure of 10% may be more realistic. - 119 - ANNEX 4-1 Page 5 could be on the order of 1.0 million tons, which is more than adequate to support an economically scaled cement plant for the east coast as a whole, but not necessarily for Kelantan alone./l However, before these preliminary demand figures can be used to justify establishing a cement producing capability on the east coast, particularly in Kelantan, a number of alternative arrangements to supply this demand must be explored carefully. 11. The prefeasibility study focuses only on Kelantan as the site of production and qualitatively evaluates the merits of five alternatives: (a) a bagging plant, (b) a clinker mill, (c) a small-scale 120,000 ton per annum (M$50-80 million) integrated cement plant for Kelantan, (d) a full-scale 500,000-1.0 million ton (M$300-500 million) integrated cement plant for export, and (e) a full-scale integrated cement plant for the domestic market. 12. The preliminary conclusions of this study are as follows. The first two alternatives are the easiest to implement during FMP and could in principal be designed to phase into a more integrated operation over time. However, since they will not use local limestone deposits and will have to import their raw material, the most economic location would probably be near principal centers of consumption such as Kota Bahru. This would make it less economical for an eventual integrated plant to take advantage of local limestone deposits which are located inland. The third alternative is too small to be of interest to a joint venture partaer. It would, therefore, most likely have to be financed by the state government (via SEDC), which is very risky for the state since it lacks the expertise and the capital cost per job is too high to justify the use of limited public funds from the point of view of employment generation. In addition any growth above the present 120,000 tons required to supply the Kelantan market will still have to be met by out-of-state producers. The last two alternatives are the most attractive from the point of view of the state since they provide the /1 "A similar methodology can be adopted for the Kelantan market, although in this case it is more difficult to attach a figure to the State's growth of output. The logic of the NEP requires double digit growth if Kelantan is to close the gap in living standards with richer States. But it is hard to see this occurring given Kelantan's nonrepresentation in the two fastest growing sectors of the lIalaysian economy, manufac- turing and mining. The FMP GRP projections imply a growth rate of 13.9% p.a. for the State, but such figures are more in the nature of targets than realistic estimates. (For a discussion see SRDP paper "Forecasts of Kelantan's Economic Growth" April 1981). What can be said, on the basis of the above calculations, is that if the Kelantan economy achieves sustained real growth in excess of 5% per annum, the State cement market stands a chance of reaching half a million tons, the minimum scale of an economic plant, before the year 2000. At 8% growth, the threshold may be reached by 1986/87. At 12% growth, the threshold may be reached by 1983." ibid., p. 5. - 120 - ANNEX 4-1 Page 6 opportunity to fully use Kelantan's substantial limestone deposits with maximum value added locally and the direct employment of up to 500 people. The major disadvantage is that the scale of production would greatly exceed Kelantan's requirements during the 1980s, hence the bulk of the output would have to be shipped out of the state, raising problems of transportation and marketing. 13. The prefeasibility study was produced for the Kelantan SEPU and hence it did not evaluate alternatives to a plant located in Kelantan. However, a number of other locations outside of Kelantan have been considered for cement plants to supply the northeast. The first is in Pahang in Bukit Pesak, 17 miles northwest of Kuantan. It would be easier to supply eastern Pahang and southern Trengganu from this location than from Kelantan (particularly Gua Musang). In terms of transportation costs, a plant in Kuantan would also be in a better position than a plant in Gua Musang to supply the central Trengganu coastal area, but not necessarily in a better position than a plant in Kota Bahru or Tanah Merah. The issue of scale of operation still applies to the Kuantan location since the Pahang market is currently about the same size as the Kelantan market, although it is likely to grow a bit faster if the Kerteh-Kemaman market, which is better served from Kuantan, is included in the Pahang market. Unless the scale of production is of a size to take advantage of economies of scale, it is unlikely that a producer in Kuantan could supply Kota Bahru any more efficiently than current suppliers in Kuala Lumpur (using road and rail transport via Gua Musang) or likely future suppliers from Perak (using the east-west highway to be completed in 1982). It is also very unlikely that during this decade the east coast market can absorb two cement producers at a scale of 0.5-1 million tons annually each. 14. Another alternative recently proposed by the Heavy Industries Corporation of Malaysia (HICOM) is to supply clinker for the whole east coast market (from Kota Bahru to Kuantan) from Lankawi Island in the Northwest of the peninsula via coastal barges. The cost-effectiveness of this approach has not yet been established. However, even though it would support clinker mill operations in both Kelantan and Pahang, this proposal has the drawback from a regional perspective that it would not allow Kelantan to exploit the industrial potential of its local natural resources or expand employment opportunities, particularly those derived from forward and backward linkages associated with a major investment. Clearly the choice of location for a cement production facility to serve the northeastern market (as well as its scale and timing) is a national rather than regional decision/l which will have to be based on a careful evaluation of principal /1 For example, should the plant be located on the East Coast? If it is to be located on the east coast, should it be located in the Northeast region? And where in the region: in-land near the natural resource but away from major centers of labor and services, or at a break of bulk point (for export-oriented production) or at the junction in the domestic transportation network. - 121 - ANNEX 4-1 Page 7 alternatives to ensure that the operation is technically and financially viable and that the economic benefits/i outweight the costs./2 15. From this brief discussion and given the gestation period for cement production it should be apparent that during FMP cement will most likely have to be imported into the region, (even maybe over the next ten years). However, ensuring sufficient cement for the Northeast's investment program should be treated as a separate activity to local production. This will require continued improvements in the regional transport network, from the repair of Kuantan port (to ensure its use as an import entry point during periods of domestic shortfall) /3 to upgrading of the rail link through Kelantan (possibly including purchase of additional wagons and locomotives for transporting domestic production from the west coast). It should also be pointed out that since uniform national prices via price controls on marketed cement inhibit distribution to the Northeast during periods of domestic shortage as a result of the extra distribution/transportation costs, the Federal Government will have to continue to review its price control policy (as it has in the past) in order to avoid intermittent shortages of building materials crucial to the Northeast development programs, even though in the first instance this could result in further increases in cement prices (and therefore the cost of the major infrastructure investments) in the Northeast. /1 Both direct and indirect via multiplier effects. /2 Which in the case of an inland facility may have to include much of the new '"regional" infrastructure created to serve the facility or at least that part not shared with other productive investments. /3 Though this may not be as urgent upon the completion of the Northern East-West Highway which would enable Piriang Port to provide the same function. - 122 - ANNEX 4-1 Table 4-1.1 PRODUCTION DATA,/1 NONMETALLIC MINERALS IN TRENGGANU 1977 Crushed Stone Sand/Gravel Bricks District Production Value Production Value Production Value (000 c.yd) (M$ 000) (000 c.yd) (M$ 000) (mln. pcs.) (M$ 000) Kemamen 15.0 135.6 20.5 41.0 - - K. Trengganu 157.7 1,340.5 15.0 30.0 6.4 577.0 Dungun 29.0 260.9 .5 1.0 - - U. Trengganu 19.4 174.3 2.9 5.7 - - Besut 9.8 98.3 4.8 9.6 0.9 93.6 Marang 2.0 18.0 2.0 4.0 - - Total 233.0 2,027.6 45.7 91.3 7.3 670.6 /1 The numbers of operating units related to the above production were as follows: Granite quarries 12 (all producing less than 50,000 cubic yards/annum) Brickworks 10 (all producing less than 2 million bricks per annum) Sand/gravel producers 40 Source: Geological Survey Report (as quoted in TCRS, Vol. 2). - 123 - ANNEX 4-1 Table 4-1.2 CEMENT PRODUCTION AND DEMAND, PENINSULAR MALAYSIA Domestic Average annual Year Production Demand Growth 1961 331 396 1962 326 518 1963 362 589 13.6% 1964 446 630 1965 738 660 1966 784 703 1967 899 732 1968 937 772 2.4% 1969 973 721 1970 1,030 772 1971 1,096 884 1972 1,160 1,067 16.5% 1973 1,278 1,250 1974 1,364 1,473 1975 1,446 1,626 1976 1,739 1,778 1977 1,777 1,930 1978 2,196 2,100 8.9% 1979 2,264 2,300 1980 ? 2,500 Source: MIDFIC/MIDA - 124 - ANNEX 4-1 Table 4-1.3 ESTIMATED CEMENT CONSUMPTION: KELANTAN /1 Year Demand ('000 tons) 1977 61 1978 78 1979 101 1980 120 /1 Figures for the Kelantan market are less easily obtained. Source: A brief report on file by Ube Industries of Japan (presumably based an official estimates). These figures are slightly higher than those provided by Enforcement Division of the Ministry of Trade and Industry, which record actual deliveries to the State by road and rail. An estimated 75,000 tons were delivered in 1979, and 89,680 tons in 1980. The lower figures reflect production and delivery short- falls, and the MTI estimate of 120,000 tons effective demand is probably a more accurate reflection of the present magniture of the State market than recorded deliveries. - 125 - ANNEX 4-1 Table 4-1 .4 PROJECTED CEMENT CONSUMPTION: KELANTAN ('000 tons)/1 GRP Growth Rate p.a. 4% 6% 8% 10% 12% 1980 120 120 120 120 120 1985 158 181 206 235 266 1990 209 272 352 460 591 1995 275 409 603 903 1,311 2000 362 616 1,032 1,769 2,908 /1 The following projections of cement demand are made based on different Gross Regional Product assumptions.f Source: State and Rural Development Project. - 126 - ANNEX 4-2 Page 1 MALAYSIA REGIONAL DEVELOPMENT AND URBANIZATION IN THE NORTHEAST Oil and Gas Resources in the Northeast 1. Both northeastern states have commercially exploitable quantities of gas and in the case of Trengganu oil. However, the Kelantan gas fields are generally located in areas which overlap Thai jurisdiction; hence their potential has yet to be exploited. As a result, the following discussion will focus on the development of Trengganu's oil and gas resources, which from the details provided by Petronas, is a nationally significant source of petroleum and natural gas production and reserves. Oil Reserves 2. Malaysia's oil reserves are presently located in 37 fields (almost all off-shore) in Sabah, Sarawak and Trengganu. Official estimates of remaining recoverable reserves as of January 1981 (adjusted to account for 1980 production) were 1.74 billion barrels from oil initially in place estimated at 8.7 billion barrels. Trengganu accounts for 58% of remaining recoverable reserves as summarized in Table 4-2.1. 3. The estimate of remaining recoverable reserves is generally con- sidered conservative, in part because presently estimated recovery ratios for new fieldo coming on-stream are likely to be low, particularly for those off Trengganu (which should benefit from the most advanced secondary and tertiary recovery technology to bring the recovery ratio up to 30-35% from the present 27% average). In addition, the above estimates do not include results from drilling during the year. As noted in the footnote to Table 4.5 in Vol. II, PETRONAS revised its official estimates of total reserves upward from 1.7 billion barrels to 2.5 billion barrels as of September 1981. However, extrapolating from existing field information, industry estimates put ultimately recoverable reserves nationally at 3.0-3.5 billion barrels. Many of the new finds were off Trengganu, but even if Trengganu's share of revised national reserve estimates remains unchanged (i.e., about three- fifths), Trengganu's reserves should be on the order of 1.5-2.0 billion barrels rather than 1.0 billion as shown in Table 4-2.1. Oil Production 4. Oil production from the Trengganu fields commenced only in 1978. However, output from these fields has steadily accounted for a greater percentage of national oil production each year as illustrated in Table 4-2.3. - 127 - ANNEX 4-2 Page 2 5. Production from the Trengganu's offshore petroleum and natural gas reserves is in its infancy,/l and only the EPMI (Esso Petroleum of Malaysia Inc.) /2 exploration area which is 160 miles offshore is producing./3 Even in this area, development and exploration activity is still underway. 6. Based on existing information on reserves and annual rates of pro- duction, the Trengganu fields should last over 24 years./4 To extend the life of existing oil fields, Malaysia has instituted regulations on the rate of depletion. However, the latest Malaysian five-year plan demonstrates the vulnerability of longer term resource development objectives to short-term national financial needs. Government expenditures are up 72% to M$18 billion as a result of an acceleration of industrial, infrastructure and other development. As a direct consequence, PETRONAS will almost certainly have to relax depletion controls in the short to medium-term to generate the revenue contribution required from the country's oil production based on currently foreseeable lower world oil prices, since it is unlikely that such a target could be achieved without raising the production ceilings. /1 Until 1981 only the crude petroleum extracted was stored and shipped for export. Over 90% of the associated natural gas from the producing fields was flared (see Table 4-2.4 for 1980 data). Concerned at the waste of valuable gas, in 1977 the government introducel r2strictions on the amount of gas flared at individual fields, thus restraining oil production in some cases. In 1981, EPMI completed installing a system to reinject gas back into the offshore Trengganu fields until alternative uses could be found and plans to use gas developed (as discussed in the section on gas developments). /2 Production from the EPMI area is on a production-sharing arrangement between EMPI and PETRONAS. /3 Production from these fields is fed by pipeline to a Single Anchor Leg System (SALs) and thence to a permanently moored storage tanker (167,000 DWT), located close to the Tapis field platforms. All production is currently exported directly from the floating tanker storage by shuttle tankers (50,000-100,000 DWT). /4 Using the minimum reserves of 1,017 x 106 barrels and the 1980 rate of production of 0.177 x 106 bpd or 42.7 x 10 barrels per annum. This figure is substantially higher than the 7-9 year life of the fields estimated by TCRS in 1978, and improves the potential viability and economic life of proposed investments. - 128 - ANNEX 4-2 Page 3 On-shore Petroleum-based Developments 7. At present production activity is wholly off-shore based. A number of relatively small on-shore projects related to crude petroleum development have been planned for Trengganu during FMP. With the exception of the supply base at Tanjong Berhala, the rest are to be located in Kerteh. All of these projects have either been commenced, or have proceeded to an advanced stage of planning. In addition, with the decision to relocate all of EPMI/PETRONAS on-shore activities from Singapore to Trengganu, several infrastructure projects are also to be undertaken during FMP. Data about these projects is summarized in Tables 4.7 and 4.8 (in Vol. II). 8. However, as noted in the TCRS, there are not many linkages to the local economy from the above capital-intensive oil resource related invest- ments apart from local distribution of part of the refinery's products. In fact, such activities will not be entirely new as the same products are already being distributed from a West Coast source. Of greater immediate local impact will be employment generated during the construction phase of these projects during FMP and the housing development for EPMI and other personnel south of Kerteh and,, to a lesser extent, the off-shore supply base at Chukai (see Chapter 10). Gas Resources 9. Mlalaysia has very sizeable gas resources, with proven recoverable reserves estimated in the neighborhood of 36.0 TCF as of September 1981 (see footnote 3 of Table 4.9, Vol. II) two-thirds of which was non-associa- ted gas. As in the case of petroleum, Trengganu represents a significant portion (61%) of proven recoverable reserves. 10. Malaysia is expected to shift from being a net exporter to being a net importer of oil by the end of the decade Developing Trengganu's gas resources could potentially contribute significantly to ensuring a favorable external balance of payments, and contributing to both Federal and State government revenues by minimizing current and future dependence on high cost oil with its associated adverse impacts on economic development, and secure an indigenous source of reliable, cheap energy to stimulate industrial devel- opment. However, extracting the gas for use in the peninsula (or for export) will not necessarily contribute to the establishment of an industrial base in Trengganu founded on local natural resources, until a number of trade-offs have been explored or studied explicitly, even though the govern- ment is already pursuing a program of investments in gas-based industries in Trengganu. These are discussed in the next few sections. Gas Production 11. Associated gas was produced at the rate of about 245 MMSCFD for Malaysia and 69 MISCFD for Trengganu in 1980 (see Table 4-2.4). As noted in the table, until 1981, about 96% of associated gas produced in - 129 - ANNEX 4-2 Page 4 Trengganu was flared. At present most of this is being reinjected. There are also about 20 fields with non-associated gas offshore Malaysia,/1 the majority of which are located near Trengganu (and are very recent discover- ies). Although none of these fields is producing yet, several are being developed (see Table 4-2.6). On-shore Gas-based Developments 12. Developing the full potential of Trengganu's gas reserves will not be easy. Generally the capital cost of natural gas exploitation for both domestic and export markets is markedly greater than that of crude oil per calorie produced. In addition, the potential domestic market out- lets for gas are much more limited (in terms of their accessibility) than those of oil products. 13. Gas can be liquified and exported or used domestically: (a) as input into electric power generation, requiring the installa- tion of new gas-fired power plants or conversion of existing ones to the use of gas; (b) as a direct energy source in industrial processes e.g. in steel, aluminum, cement, glass and ceramics production; the production of these products can substitute for imports if the domestic market is adequate to support an economically-size production unit, or export-oriented which puts a premium on quality and price competitiveness; (c) as feedstock in industrial production e.g. ammonia, urea, ethelyne, HDPE, LDPE, etc. with the same concerns as listed in (c), and (d) as direct energy source in residential uses, e.g. heating and cooking, requiring a gas distribution system based either on piped gas or bottled LNG. 14. Given both the peninsula's geography and demography and the high capital cost of a gas distribution system, the short to medium term outlets for gas are likely to be confined to large consumers such as power stations and industrial plants near the gas pipeline landfall in Trengganu. /1 Two fields offshore Sarawak are under development by Shell in order to supply gas to an LNG plant in Bintulu coming on-stream in 1983. - 130 - ANNEX 4-2 Page 5 15. The current program is to initially develop Trengganu's gas resources potential/I through a gas gathering system off-shore Trengganu. This system will first draw associated and nonassociated gas from the EPMI fields around 1984-85 and later, nonassociated gas from Carigal's Guyong fields, around 1987-88. This gathered gas will be delivered on-shore by 1984-85 (via a 30 in 104 mi submarine gas trunkline with a capacity of 400 MMSCFD) at the same landfall as the oil pipeline. The gas is to be delivered to a gas processing plant (to be built simultaneously in Kerteh with the laying of the pipelines) with an initial capacity of 130 MMSCFD and an eventual capacity of 400 MMSCFD. 16. Of the initial 130 MMSCFD, 70 MMSCFD will be delivered via pipeline from Kerteh northward to Paka for the first phase of the Paka power station with a capacity of 450 MW. This capacity will exceed considerably Trengganu's requirement, for electricity particularly with the (450 MW) of electricity to be generated by the Kenyir hydro-power dam coming on-stream at the same time. However, Trengganu should be linked to the National LLN Electricity grid by then, and the excess capacity will be transmitted to the west coast. Eventually, it is proposed that the capacity of the Paka power station be expanded to 900 MW with the addition of another 450 MW unit, perhaps in 1987/88, if demand warrants. 17. Another pipeline from Kerteh, southward to Chukai (Telok Kalong Industrial Estate) will deliver 44 MMSCFD of gas for use in a 600,000 ton capacity direct reduction sponge iron and billet plant/2 which is expected to be the first phase of a proposed integrated steel mill. 18. The phasing of the integrated steel complex was proposed in a consultant study. As the Heavy Industries Corporation of Malaysia (HICOM) currently envisages the complex, it will initially consist of a 600,000 tpa direct reduction sponge iron plant which will sell 13% of its output on the domestic market and use 87% in the production of 560,000. tpa of billets in an attached billet plant. All of the billets are to be sold to rolling mills on the west coast and delivered by truck or coastal barge. Eventually it is envisaged that, if economically feasible, cold and hot rolling mills will be built in 1985/86 and 1988/89, respectively, adjacent to the initial plants, which would require an expansion of the sponge-iron plant. 19. It is proposed that the M$1 billion first phase of the complex be built as a turn-key project, and bids are currently being evaluated. Commitment to this project has proceeded far enough to have resulted in a /1 Trengganu's gas, particularly the associated gas, contains considerable propane, butane and condensates which through processing would yield LPG (Liquified Petroleum Gas) and natural gasoline. /2 For which gas is the preferred fuel. - 131 - ANNEX 4-2 Page 6 revision of a number of infrastructure projects in the area. Water capacity is now to be increased to accomodate the substantial water requirements of the proposed direct reduction plant. Similarly, a study has been commissioned to evaluate and design an expansion of the capacity of the "supply base" at Tanjung Berhala, including an additional quay to handle 900,000 tons per annum of imported iron-ore (See Tables 4-2.7-4-2.10 for additional brief specifics of the direction reduction and a billets plant), and dredge the harbor to handle ships of 60,000 DWT as opposed to the 10,000 DWT for which it is currently designed. In addition, Federal Route 3, the principal trunk highway on the east coast, is being rerouted around the industrial estate proposed as the location of the direct reduction plant (Chapter 10 reviews the infrastructure implications of the proposed heavy industries complexes in the Kerteh-Kemaman area). 20. The status of FMP gas-related projects under implementation in Trengganu (as well as Sabah and Sarawak) is presented in Table 4.10 (Vol. II). 21. The remaining 16 MMSCFD of the initial 130 MMSCFD output of the Kerteh Gas Processing plant is expected to be used for a glass plant in Kemaman based on the use of silica deposits in Trengganu as well as a cement plant in Kuantan if the gas pipeline is extended another 20 mi southward from Telok Kalong to a site 17 mi northwest of Kuantan. 22. The expansion of the gas processing plant to its eventual 400 MIASCFD capacity is conditional on a number of proposals which are actively under study. In addition to the second phase of the Paka power station (70 MMSCFD) and the follow-up phases of the Integrated Steel Complex (44-66 MMSCFD), these include the establishment of a petrochemical complex using gas both as feedstock and fuel. These are listed, with possible locations, in Table 4.11 (Vol. II). 23. According to PETRONAS, except for the methenol plant, the projects are likely to be located in Trengganu. All of the proposed petrochemical projects are likely to be primarily export-oriented (foreign-exchange earning) as opposed to the import-substituting (foreign-exchange saving) projects already under implementation in Trengganu. The principal reason for assuming Trengganu will be selected as the location of these projects, should studies underway prove that they are economically feasible, is that the bulk of the smaller reserves available in Sabah and Sarawak have already been committed. The methenol plant, which is technically the least complex and could therefore be implemented soonest, is also potentially the largest user of gas. Whether or not Trengganu is selected as the location for this plant is important in the sense that, as will be noted later, Trengganu has substantially more gas reserves than outlets for its use. 24. Moreover, all of the proposed projects to utilize gas, both those underway and those under study, raise fundamental sectoral and locational - 132 - ANNEX 4-2 Page 7 issues, most of which are national rather than regional in essence. Even though the sector-specific issues are outside the scope of this study, they are still very important, and decisions resolving them could profoundly effect the extent and type of investment that can be directed or attracted to Trengganu during the 1980s and the degree to which Trengganu's gas resources can be utilized as a base for developing the state's industrial potential. 25. Since 60% of Trengganu's gas reserves are nonassociated and much of the associated gas previously flared is being preserved for future use with the recent installation of a reinjection system, the urgency of implementing gas using activities has diminished. Nonetheless, the momentum of the earlier urgency coupled with the recognition that some benefits of gas- utilization may be unnecessarily foregone by keeping it in the ground has led to a number of seemingly ad hoc decisions which could preempt the preparation of a sector development strategy and program for the country as a whole. 26. For example, in July 1980, a prefeasibility study /1 (by Mitsui and Co., Ltd.) of a US$1.2 billion steel and petrochemical complex /2 concluded that a project with a 15-year life span (1985-2000) was financially viable with profitability indices before taxes (including "worst" case scenarios) of 6-32% on investment and 20-106% on shareholders capital, and with internal rates of return before tax of 10-26%. These indices of project viability were based on some explicit and implicit assumptions which are rather restrictive: (a) Natural gas (NG) prices were assumed to be M$1.47/MMBTU and that in the worst case the NG price did not exceed $5.0/MMBTU vs. estimated 1981 NG prices of over M$6.0/MMBTU based on fuel oil equivalent heating value (See also footnote para. 30). (b) Corporate income taxes were assumed to be zero as a result of the various tax holidays associated with pioneer status (local incentive, priority products, Malaysian content, etc.) and the carrying forward of losses incurred during the tax holiday period. (c) Products to be marketed domestically were assumed to be priced 30-40% higher than those exported, requiring tariffs of 20-30% to protect the domestic market against imports. /1 Preliminary Feasibility Study for an Industrial Complex in Trengganu State, Malaysia, July 1980, Mitsui & Co. /2 Including ammonia plant, methanol plant, gas processing plant, ethylene, low density polyethelyne (LDPE) and high density polyethelene (MDPE) plants. - 133 - ANNEX 4-2 Page 8 (d) Exemption from sales taxes as well as from taxes on imported materials and equipment. (e) Availability of long-term finance at 8% and short-term finance at 12%. (f) The implicit assumption that social and physical infrastructure would be provided by the Federal and state governments. 27. There are many costs and some benefits to the nation that are not fully evaluated in the above prefeasibility study. In particular, there is no comprehensive cost-benefit study of the series of infrastructure and productive investments the Government appears to be committing itself to in Trengganu. Only two major studies are underway. The first is a "Master Plan for Gas Utilization Study" initiated by Petronas in May 1981, and the second is a "national energy resource survey" also commissioned in 1981. The former should clarify a number of issues including: (a) The trade-off between current vs future consumption and the implications of this trade off for resource conservation policies and the rate of extraction. (b) The trade-off between domestic vs foreign use in the case of current consumption. Export-oriented sales of natural gas will be exclusively LNG based, requiring the installation of LNG plants and tanker facilities and long-term contracts with foreign customers. Export orientation is in fact the only real development alternative in the case of Sabah and Sarawak as the local domestic market is too small relative to resource availability in those states. In the case of Peninsular Malaysia the issue is not as clear-cut since there are a number of potential domestic uses (as noted above). 28. Clearly the analysis will have to take account of the strategic case for diversifying the sources of primary energy supply, particularly for the electricity generating sector, by weighing the advantages of indigenous energy production against possibly cheaper imported energy options available based on Australian coal imports or from an ASEAN super grid developed from Sumatra coal production, as well as the proposal to import indigenous hydro-generated electricity from Sarawak to the peninsula. This issue, i.e. the relative merits of various energy sources (hydro, oil, gas, coal, etc.) for power production and use in industrial processes, will probably not be resolved by the gas utilization study, but should be resolved by the "National Energy Resources Survey." The resolution of this issue will, however, have a bearing on the extent to which the Trengganu gas fields should be developed and the types of industries that should be encouraged since many are likely to be "national" industries located in Trengganu rather than regional industries. - 134 - ANNEX 4-2 Page 9 29. Another key issue, which is in fact necessary to resolve the relative merits of various energy sources is the cost of delivered energy to various consumers and of generated electricity based on gas supplies. This is a third issue on which the terms of reference for the Master Plan Study has requested clarification, i.e. , Natural Gas pricing. The cost of produc- tion is often considerably lower than the price based on fuel oil equivalent heating value. The latter is the preferred opportunity cost of gas if the country is a net importer of fuel oil. If it is not a net importer then the preferred opportunity cost is the f.o.b. export price of LNG which is often less than the fuel oil equivalent and more than the cost of production. Between them, these three prices bracket two ranges: (i) cost of production price to LNG price, and (ii) LNG price to Fuel Oil equivalent price. A careful analysis of the justification for a uniform or differential gas pricing structure is required, particularly if there are reasons for the financial price of gas to be different from either of the opportunity costs bracketing the second range noted above (see also paras. 4.60-4.62 in Vol. II). 30. In the case of Sabah and Sarawak natural gas resources exceed by a substantial margin the amount required to substitute for the use of fuel oil. In fact, the substantial hydro power potential of the region could be utilized to substitute for the use of fuel oil in power generation. Hence, the LNG price is likely to be the "correct" opportunity cost in Sabah and Sarawak. This is not the case in Trengganu at present since Peninsular Malaysia is a major importer of fuel oil, primarily for power generation. Given that gas is a preferred, clean substitute for power generation on the peninsula (as compared to coal) and given that the peninsula's availability of hydro potential, is more limited, it seems appropriate that gas be priced at its fuel oil equivalent price until the bulk of fuel oil imports for power generation have been substituted for. However, as long as the financial price of gas is equal to its fuel oil equivalent opportunity cost it will be difficult, if not impossible to proceed with developing the last two of the four principal uses of gas noted above./1 The reason is that even though a social cost benefit analysis using the "correct" opportunity cost might conclude that a certain industrial investment is beneficial nationally from a development point of view, (taking into account the /1 As noted by Johnson (ibid.), there is no way that a Malaysian aluminum plant, steel complex or methanol plant can be internationally competitive if its energy supply is priced, for example, at the FOB LNG price of $5.85-5.90 per million BTUs (equivalent to $33 per barrel of oil) agreed by Indonesia in 1981 with its Japanese buyers. It is even more ques- tionable whether some of the industrial proposals would be viable based on the full cost plus return on investment of producing and delivering the gas from certain of the more far-flung offshore gas fields via a gas gathering pipeline system. - 135 - ANNEX 4-2 Page 1 0 effects of linkages and multipliers), the conclusion may not be sustained in a private financial profitability analysis based on the same opportunity cost price, thereby making it difficult to attract foreign joint venture partners for production, finance and marketing. 31. In a sense the exploitation of peninsula Malaysia's and hence of Trengganu's natural gas reserves is crucially bound up with the country's stated economic objectives of developing heavy industry which hinges crucially on the delivered price of gas to potential joint venture investors whether in Trengganu or elsewhere in the Peninsula. In fact, as noted earlier, the financial viability, if not the economic justification, of these projects is in question if gas is priced financially at its full economic opportunity cost. Hence, there is a need to evaluate the appro- priateness of an implicit price subsidy for energy used as an intermediate product. That is estimating onshore employment and industrial added-valued benefits of using the gas for diversifying the economy into energy intensive heavy industries will be necessary to justify pricing the gas below its c.i.f. fuel oil equivalent (FOE) import price (there is no justification for pricing it below the lower f.o.b. LNG export price). Such justification has to also consider the value added that might be gained from implementing an LNG plant in Trengganu (see para. 4.66) and of investing the revenue from LNG sales elsewhere in the economy. 32. Also of importance for purposes of assessing the development potential of Trengganu is the issue of location of production facilities utilizing gas given the spatial distribution of centers of consumption of the products of these facilities. According to PETRONAS, the Master Plan Study will assess the suitability of locating various industries in Sabah, Sarawak or Peninsula Malaysia. However, where the industries to be directed to the peninsula are to be located (in Trengganu, in the east coast, or in the west coast) is not to be discussed in the study. As a result a number of important issues will remain unresolved, e.g. should Trengganu have a monopoly on gas delivery for the first 5-10 years /1 after the gas pipeline reaches land fall in 1984 as requested by the Trengganu SEPU. The State's rationale for such a position, is that it has virtually no other major comparative advantage in natural resources on which to found an industrial base for sustained long-term growth of the State's average per capita income. Excluding industries using gas as fuel or feedstock in Trengganu will also limit the State's opportunities for productive investment of oil and gas royalties in employment creating activities. /1 A 2-3 year monopoly would not be sufficient, given the existing distribution of infrastructure on the peninsula which favors the West Coast, and the fact that the market size required to justify substantial domestic processing of oil and gas resources will not materialize until the last few years of this decade (1987 onwards). - 136 - ANNEX 4-2 Page 11 33. On the other hand, granting a monopoly to Trengganu will imply postponing any investment in extending the land-based gas pipeline beyond Trengganu borders, initially to Kuantan in Pahang/1 and eventually to the west coast. Whereas, this will limit the competition from these locations for piped gas based industrial activities it will also deprive the major centers of electric power production of an alternative fuel source. Since power production is potentially a major source of demand for gas the alter- native to a gas pipeline to the west coast is an electric transmission line to the west coast for power generated in Trengganu. This should be possible with the extension of the national grid to Trengganu contemplated for 1985. However, it raises the issue of the relative economies of investing in the expansion of power production facilities on the east coast requiring transmission to the west coast vs investing in the conversion of west coast power facilities to the use of gas requiring an additional investment in a gas pipeline across the peninsula./2 34. Other major issues to be confronted in formulating development policy for Trengganu's (and therefore the peninsula's) natural gas resources arises from their relative abundance in relation to need (this is discussed in Chapter 4)and the impact of an urban industrial complex based on gas on the local economy in Trengganu (this is discussed in Chapters 4, 6 and 10). /1 An exception may have to be made for the provision of gas to the Kuantan cement factory if the decision is made to proceed with it rather than one in Kelantan (Annex 4-1, paras. 13-14). /2 Implementation delays are foreseen in the latter case arising from problems associated with acquisition of land along power transmission routes which legally have only aerial right of way. ANNEX 4-2 Table 4-2.1 ANALYSIS OF OIL RESERVES (million barrels) Remaining Production Production recoverable Recovery By region OIIP start-up to 1/81 1/81 ratio 1. Trengganu: /a 4,100 1978 96.0 1,017 27% a. Exxo 3,863 1978 96.0 1,017 29% b. Carigali 237 - none n.a. n.a. 2. Sarawak 2,708 early 432.2 373 30% (Shell only) 1960s 3. Sabah 1,925 1972 n.a. 350 n.a. a. Esso 200 1972 n.a. 52 n.a. b. Shell 1,728 1972 115.7 298 30% Total 8,733 525 1,740 Source; PETRONAS TRENGGANU, ANALYSIS OF OIL RESERVES INFORMATION BY FIELD /a (million barrels) Remaining Maximum annual Production Production/b recoverable Recovery production/c OIIP start-up to 1/81 1/81 ratio (%) Status major fields Trengganu-Esso Tapis 638.6 { 250.7 38 Prod. 11.52 Bekok 476.4 1978 { 53.3 106.2 22 Prod. 8.30 Pulai 164.2 { 56.1 34 Prod. 18.80 Guntong 1,079.0 { Delayed - 261.0 24 Dev. Palas 308.0 { to 1985 - 102.8 33 Pre-Dev. Tiong 304.6 1982(e) - 85.8 28 Dev. Kepong 30.0 1982(e) - 8.4 28 Dev. Seligi 162.0 1982(e) - 29.0 19 Pre-Dev. Tabu 135.0 - - 25.0 18 Pre-Dev. Irong Barat 200.0 - - 80.0 40 Pre-Dev. Serok 85.0 - - 25.0 29 Pre-Dev. Liang 260.0 - - 30.0 12 Pre-Dev. Ophir n.a. - - n.a. -n.a. Pre-Dev. Trengganu-Carigali Anding n.a. - - n.a. n.a. Pre-Dev. Sotong 236.6 - - n.a. n.a. Pre-Dev. oz m >4 /a Source: Petronas and Petroconsultants S.A. /b Production by individual field is currently only available up to 1980. /c Due to the National Depletion Policy. - 139 - ANNEX 4-2 Table 4-2.3 OIL PRODUCTION 1970; 1975-1980 Unit: tbpd /1 Trengganu Year Sabah & Sarawak Trengganu Total as % of total 1970 18.0 - 18.0 0.0 1975 98.0 - 98.0 0.0 1976 163.4 - 163.4 0.0 1977 183.6 - 183.6 0.0 1978 174.7 43.2 216.9 19.9 1979 179.1 103.9 283.0 36.7 1980 159.0 117.0 276.0 42.4 1981 (present) ... ... 255.0 ... Source: PETRONAS. /1 Thousand barrels per day. - 140 - ANNEX 4-2 Table 4-2.4 ASSOCIATED GAS FLARED FOR 1980 (Unit MMSCFD) % of Volume production Sarawak 120.05 92.1 Sabah 55.00 100.0 Trengganu 69.30 95.9 Total 245.00 95.0 Source: PETRONAS. - 141 - ANNEX 4-2 Table 4-2.5 ASSOCIATED GAS RESERVES IN TRENGGANU AS AT 1/1/80 GIIP AND REMAINING RECOVERABLE (EXPECTATION AND PROVEN) - BY FIELD, STATUS, YEAR OF DISCOVERY AND YEAR OF COMMERCIAL PRODUCTION Reserves - BSCF Year of State/ GIIP Remaining recoverable Year of commercial contractor Field Expectation Proven Expectation Proven Status discovery production Trengganu EPMI Tabu 2,122.0 1,591.5 1,624.0 1,218.0 Predevelopment 1979 - Palas 1,615.4 1,361.5 1,362.4 1,021.8 Predevelopment 1977 - Guntong 1,653.9 1,?40.4 955.3 716.5 Development 1978 - Bokok 1,537.3 1,?52.9 943.9 707.9 Producing 1975 1978 Tapis 715.1 536.3 499.3 374.5 Producing 1970 1978 Tiong 542.3 406.7 285.5 214.1 Development 1978 - Seligi 260.1 195.0 141.9 106.4 Predevelopment 1971 - Pulai 244.4 183.3 168.8 127.4 Producing 1975 1978 Semangkok 190.0 142.5 115.0 86.3 Predevelopment 1978 - Liang 171.0 128.2 85.0 63.8 Predevelopment 1978 - Serok 164.0 123.0 87.0 65.3 Predevelopment 1979 - Kepong 142.4 106.8 95.6 71.7 Predevelopment 1979 - Ledang 77.4 58.0 43.2 32.4 Predevelopment 1978 - Ophir 75.0 56.2 45.0 33.8 Predevelopment 1978 - Irong-Barat 50.0 37.5 30.0 22.5 Predevelopment 1979 - Damar 27.0 20.2 20.3 15.2 Predevelopment 1979 - Inas /a 490.0 367.5 367.5 275.6 Predevelopment 1979 - Berntai /a 185.0 138.7 108.0 81.0 Predevelopment 1979 - Serok /a 162.5 121.8 125.0 93.7 Predevelopment 1979 - Noring7a 1,370.0 1,027.5 1,030.0 772.5 Predevelopment 1979 - Bedong 7a 815.0 611.3 612.5 459.4 Predevelopment 1979 - Subtotal 12,809.8 9,606.0 8,745.9 7,159.8 CARICALE Sotong 306.0 - 184.0 - Predevelopment 1973 - Total 13,115.8 9,606.0 8,929.9 7,159.8 Sarawak 4,219.3 3,624.2 1,683.9 1,252.1 Sabah 2,083.8 1,667.7 1,087.8 854.4 GRAND TOTAL 19,418.9 14,898.7 11,701.6 9,266.3 /a Indicate "inconclusive fields." For purpose of computation, 50% of the total reserves value for these fields are taken as nonassociated gas and the other 50% as associated gas. Notes: (1) Except for Central Lucenia, Duyong and the fields numbers 6-13 under Trengganu/EPMJ, the status of fields refer to those of oil fields. (2) For EPMI, the proven reserves are assumed to be 75% of the expectation reserves. - 142 - ANNEX 4-2 Table! 4-2.6 NONASSOCIATED GAS RESERVES IN TRENGGANU AS AT 1/1/80 GIIP AND REMAINING RECOVERABLE (EXPECTATION AND PROVEN) - BY FIELD, STATUS, YEAR OF DISCOVERY AND YEAR OF COMMERCIAL PRODUCTION Reserves - BSCF Year of State/ GIIP Remaining recoverable Year of commercial contractor Field Expectation Proven Expectation Proven Status discovery production Trengganu EPMI Pekok 374.2 280.6 276.0 207.0 Producing 1973 1978 Tapis 235.0 176.2 118.0 88.5 Producing 1970 1978 Pulai 121.0 90.7 87.9 65.9 Producing 1973 1978 Guntong 202.0 211.5 223.0 167.3 Development 1978 - Tiong 488.8 366.6 390.0 292.5 Development 1978 - Seligi 874.6 655.9 642.9 482.2 Potential 1971 - Lawit 3,690.0 2,767.5 2,360.0 1,770.0 Potential 1979 - Jerach & Herach Barni 3,560.0 2,670.0 2,457.0 1,842.8 Potential 1969 - Pintang 3,160.0 2,370.0 2,506.0 1,879.5 Potential 1970 - Ledang 132.6 99.4 106.8 60.1 Potential 1978 - Pelumut 355.0 266.2 250.0 187.5 Potential 1970 - Lemar 1,760.0 1,320.0 1,055.0 791.3 Potential 1975 - Sujat 240.0 180.0 180.0 135.0 Potential 1970 - Damar 1,513.0 1,134.7 1,134.0 851.1 Potential 1979 - Angai 1,045.0 763.7 356.0 267.0 Potential 1974 - Tujuh 600.0 450.0 450.0 337.5 Potential 1979 - Pujang 90O.0 675.0 710.0 532.5 Potential 1970 - Pilong 760.0 570.0 570.0 427.5 Potential 1971 - inan /a 490.0 367.5 367.5 275.6 Predevelopment 1979 - Peranital /a 185.0 138.7 108.0 81.0 Predevelopment 1979 - Telok /a 162.5 121.8 125.0 93.7 Predevelopment 1979 - Nering /a 1,370.0 1,027.5 1,030.0 772.5 Predevelopment 1979 - Dadong Ia 815.0 611.3 612.5 459.4 Predevelopment 1979 - Subtotal 23,113.7 17,334.8 16,116.4 12,087.4 CARICALE Duyong 1,312.0 - 787.0 - Under appraisal 1970 Total 24,425.7 17,334.8 16,903.4 12,087.4 Sarawak 22,643.8 15,423.2 14,640.9 9,781.3 Sabah 168.9 126.9 101.5 76.1 GRAND TOTAL 47,238.4 32,884.9 31,645.8 21,944.8 /a Indicate "inconclusive fields." For purpose of computation, 50% of the total reserves value for these fields are taken as nonassociated gas and the other 50% as associated gas. Notes: (1) Except for Central Lucenia, Duyong and the fields numbers 6-13 under Trengganu/EPMI, the status of fields refer to those of oil fields. (2) For EPMI, the proven reserves are assumed to be 75% of the expectation reserves. - 143 - ANNEX 4-2 Table 4-2.7 Page 1 Direct Reduction/Billet Plant in Trengganu 1. Location: Telok Kalong Industrial Estate, Chukai, Trengganu 2. Products: (a) Direct reduced iron (DRI) or sponge iron. (b) Billets. 3. Proposed Start-up; Mid 1984 4. Estimated Project Cost: M$1,050 million. 5. Water Requirement: (a) Industrial Water - 8,470 cu m/day. (b) Portable Water 290 cu m/day. 6. Power Requirement: 515,000 KV year. (maximum power demand is about 120 megawatt). 7. Gas Requirement: 29,190 normal cu m/hour. (Ncum) 8. Major sources of input: (a) Iron ore. 900,000 tons/year. (i) Pellets (50%) - initially import from Brazil and Sweden, and later from India and Australia. (ii) Lumps (50%) - Australia. (b) Steel scrap - 115,000 tons/year. (from USA) (c) Limestone - 70,000 tons/year. (obtained locally) (d) Coke - 14,000 to 15,000 tons/year. (from Indonesia and Sarawak) 9. Market for Output: Domestic market. (a) The DRI plant will produce 602,000 tons annually of sponge from out of which 523,000 tons/year are meant for its own production of billets and the remaining 79,000 tons/year, are to be sold to the domestic market. (b) The Billet plant will produce 560,000 tons annually for consumption by steel plants on the west coast. - 144 - ANNEX 4-2 Table 4-2.7 Page 2 10. Manpower Requirement: 855 Number of Categories personnel Managerial 14 Staff 85 Foreman and supervisor 31 Skilled labor 119 Semi-skilled labor 394 Unskilled labor 193 Clerical staff 19 Total 855 11. Present Status: Invitation for turnkey bids for the project was issued on October 15, 1981. Evaluation of bids commenced on 16, Nov. 1981. Source: HICOM, Sept, 1981 ANNEX 4-2 - 145 - Table 4-2.8 PROPOSED DEVELOPMENT OF A HEAVY INDUSTRIES COMPLEX IN TRENGGANU 3A: Classification of Hydrocarbon-Based Industrial Projects Project Industrial Projects owner Project stage Kerteh Industrial Estate Oil pipeline & crude oil terminal PEIRONAS Preliminary design (1982) Gas processing pLant PETRONAS Planning (1984) Refinery PETRONAS Implementation (1982) Kertah power statton PETRONAS Implementation (1982) Telok Kalong Industrial Estate Methanol n.a. Conceptual Ammonia n.a. Conceptual Petrochemical comples n.a. Conceptual Steel comples MIDA Implementation (1984) 3b: Selected "Other Industries" for Kerteh and Telok Kalong Category Product Remarks Other -Carbon black -2,500-3,00l PPY for type manufacturing. gas-based Energy -Aluminium smelting -Feasibility entirely dependent on intensive electricity price. -Salt (Brine) -Feasibility dependent on electricity Electrolysis price. To be compared with VCM project. -Ferroalloys -Feasibility dependent on electricity price. Ferrunanganese possible. -Fiberglass -Snall factory 2,000-3,000 TPY for FRP crafts. -Ceramics & -Relatively large-scale factory feasible. sanitaryware Dowsntrean -Rolling of rein- -Increase of demand in Eastern Peninsul forcement bars Malaysia -- more than 50,000 TPY. -Plastic sheet & file -Relati-ely large-scale manofacturing. -Acetic acid Supporting -Iron & steel working -Steel structure Eabricat-n, foundry, machine .shop and so forth. -Woodworking -Electrical & -Heavy electrical machinery repair, elec- electronics tronies instrument repair. working -Servicing & -Heavy vehicles and antumotives repair. repairing vehic les -Construction -Ready mixed concrete, concrete products. nateraias supply -Other services -Heat insolation, piping, industrtal gas supply, etc. 3C: Staged Implemen,tation of Industrial Developne-t Period 1981-84 1983-88 After 1988 industrial Oil pipeline Amnon ia (Al smelter) Development Ol terminal methanol (Salt Electrolysis) Gas pipeline Ethylene (VcM) Gas process ing LOPE Oil refinery HDPE 1)R/BiLLet (DR/BiLlet Enp.anslon1) Co>ld roliling (No>t roiling) Supporting I SupportLing tl [ofrrstruetore Port Eipansio,n I Port Enpan-sion I i Port EsyaLssion Ill Developmcnt Power Station 1 (4501 HW) Water Soyply (Power stat-ton II) Kerteh Water Sl,pply System TnI.k KELung Water HNos ing Iltsing and leW Eatenstins (Road Espuosiso) Town Wastewater Treatment 1lonsing and New Tow.: Seurl: . Ei0i s ring oCs,-l0ting Firms Jsenor ist is, lap.ie, Pi1 lmioiarv UeveL:-I- nest P Lao Study - rT.:kKtlol 'i'd Kri-): id k,-i r i, L Escttes, TrsiXR&t-o 1981). REQUIREMENTS OF RAW MATERIALS, UTILITIES, ETC., FOR NATURAL GAS BASED INDUSTRIES Ammonia Methanol Ethylene LDPE HDPE Cold-Rolling Industry Plant Plant Plant Plant Plant DR/Billet Plant Steel Mill Capacity (t/y) 330,000 300,000 150,800 95,000 50,000 S/I: 600,000 32,500 Billets. 540,000 Type of product Liquid Liquid - -- Pellet (Bag)-- S/I: 80 (Bulk) sheets/ Billets: 540,000 coils Ship for product and/or Tanker Tanker --General Cargo-- Bulk carrier raw materials (D.W.T.) 10,000 30,000 - 15,000 15,000 10,000 - 60,000 Assumed year of completion 1986 1986 1986 1988 1988 1984 1984 Raw Materials (annual requirement) Natural gase (MMSCFD) 25 2 Etliane (t/y) 35 35 - - - - - Ethylene (t/y) - - 194,080 - - - - 0 Iron ore /a (Bulk)(t/y) - - - 98,000 52,000 900 000 - Scarp /b (Bulk)(t/y) - - _- - 110,000 Lime stone (Bulk)(t/y) - - - - - 85 700 _ Bulky materials (Bulk)(t/y) - - - - - 25,000 351,600 Hot coils /a (Bulk)(t/y) - - - - - Utilities power (kWh/h) 500 3,000 --------- 32,000 --------- 70,000 11,000 Water (m3/h) 560 500 --------- 600 --------- 580 500 Land area (area) 35 35 40 30 30 100 40 X Manpower 400 400 400 ---- 500 --- 890 550 4. 4- l l /a To be imported. /b Domestic supply. Source: ECFA ttission. ANNEX 4-2 - 147 - Table 4-2.10 OVERALL REQUIREMENTS OF GAS BASED INDUSTRIES Port Cargo volume ('000 t/y) Land NG (MM SCFD) BL: Bulk BG: Bagged (acres) Require- No proces- Power Water L: Liquid (Max. ship size) Industries ment sing plant (MW) (m3/hr) In flow Out flow 1981 140 - - - 1982 140 - - - E&M 1983 140 - - - E&M 1984 210 27 90 1,600 BL: 736.0 BL: 500.0 (60,000 DWT) (15,000 DWT) 1985 210 27 90 1,600 BL: 1,472.3 BL: 940.5 (60,000 DWT) (15,000 DWT) 1986 310 97 95 2,400 BL: 1,472.3 BL: 940.5 (60,000 DWT) L: 660.0 (30,000 DWT) 1987 310 97 95 2,400 BL: 1,472.3 BL: 1,472.3 (60,000 DWT) L: 660.0 (30,000 DWT) 1988 310 300/b C2+separation 130 3,500 BL: 1,472.3 BL: 940.5 (300) (60,000 DWT) L: 660.0 (30,000 DWT) 1989 310 300 130 3,500 BL: 1,472.3 BG: 145 (60,000 DWT) (15,000 DWT) 1990 310 300 130 3,500 BL: 1,472.3 BG: 145 (60,000 DWT) (15,000 DWT) source: ECFA Mission. - 148 - ANNEX 4-3 Page 1 MALAYSIA REGIONAL DEVELOPMENT AND URBANIZATION IN THE NORTHEAST Forest Resources 1. The decline in the share of peninsula forest resources located on the west coast as a result of earlier logging has focussed attention on the need to more fully develop the use of east coast forest resources. In 1975 the east coast was estimated to contain approximately 64% of the peninsula's forest area./l Over 40% of the east coast forest area was in Kelantan and Trengganu. 2. At present 60% of Trengganu's forest area and only 21% of Kelantan's forest area is gazetted as forest reserve. Only the forest rserves are under the direct jurisdiction of the State Forestry departments and subject to silviculture programs to regenerate logged areas for a sustained yield program. No additional land is expected to be gazetted as forest area in Trengganu. However, the Kelantan forestry department has submitted a proposal to degazette 55,000 ha of forest reserve for agricul- tural purposes and to gazette an additional 485,000 ha as forest reserve based in part on the recommendations of the SRDP forest resource management study./2 This would result in a final forest reserve area total of approximately 40% of Kelantan's land area. However, less than 50% of the forest reserve in the NE is likely to be available for sustained yield exploitation./3 Logging and Log Production 3. Log production quadrupled in Kelantan and doubled in Trengganu in the decade 1970-80 (Table 4-3.1) compared to only a 40% increase in the peninsula's physical output. A significant proportion of the growth was due to land clearance operations for agriculture. In fact Trengganu's log output doubled by 1976 and hovered thereafter around 1.3 million tons p.a. coinciding with the Ketengah region's peak activity period, whereas Kelantan's growth accelerated in 1980 as work expanded in the Kesedar region, which commenced many years after Ketengah. According to TCRS /1 2.9 million ha in Pahang, 1.1 million ha in Kelantan and 0.9 million ha in Trengganu. /2 SRDP, "Land Use and Forest Management Strategy for Southern Kelantan," Malcrow-HLG, April 1981. /3 Ibid and TCRS. - 149 - ANNEX 4-3 Page 2 clearance in Ketengah and the Kenyir Dam storage areas together put 1.36 million cubic meters of logs onto the market in 1978 compared to only 389,750 cubic meters from timber agreements and timber complex concessions in the Permanent Forest Estate of Trengganu. 4. There has also been sustantial timber wastage due to selective creaming practices of loggers. All timber extraction is carried out by logging contractors. In the case of land clearance operations, which spawned a host of small-scale operators concerned primarily with the rapid redemption of mortgaged equipment, this wastage was quite significant. Despite improved forestry department controls and adoption of new guidelines both the SRDP forestry study and the TGRS are critical of the present logging practices in Kelantan and Trengganu respectively. 5. Even if recent recommendations for improving logging practices are put into effect, the 1983 timber extraction rate of 1.47 million cu m p.a. in Kelantan /1 and the 1979 rate of 1.77 million cu m p.a. in Trengganu are likely to represent the peak output for forestry production. Forest industries 6. The federal government has a policy aimed at increasing raw material processing in Malaysia. In the case of forestry resources this policy has been successful in reducing the peninsula's export of unprocessed logs progressively from 1.15 million tons p.a. in 1970 to approximately 0.16 million tons p.a. in 1980. During this period sawn timber output in the peninsula grew from 1.6 million tons p.a. to 3.5 million tons p.a. Sawn timber is now peninsular Mlalaysia's principal wood product export (Table 4-3.7) and it has become the dominant exporter of this product in Southeast Asia. 7. Despite the dramatic expansion in sawmilling output the number of sawmills increased by only 25%. The expansion occurred basically with the installation of larger units even though the overall recovery rates at 60-65% are still well below Korean and Taiwanese standards. 8. Studies undertaken during the mid-1970s recommended a large shift in the sawmilling and timber processing capacity from the West Coast to the East, a shift to be completed during the period 1986-90. Some of this shift has already taken place, even though the state shares of sawmills licensed and in operation based on the number of mills and their capacity did not change in the period (1970-80) in Kelantan (0.65% of peninsula total) Table 4-3.2), and changed only marginally in Trengganu from 0.5% to 0.8%. /1 Table 4-3.1, 1 cu m = 0.706 tons of 50 cu ft. - 150 - ANNEX 4-3 Page 3 However, in Kelantan sawn timber output more than doubled from 65,000 tons p.a. in 1970 to 210,000 tons p.a. in 1980, and in Trengganu sawn timber output increased in the early 1970s, even though it remained steady at about 420-440,000 tons (double Kelantan's output) in the period 1976-79. 9. As a result of the expected decrease in logging in the mid-1980s, no additional milling capacity is likely to be approved in either state though some approved mills have yet to be built. Two of those approved but not yet built are potentially significant. In Trengganu the Dungun integrated timber complex is being built at Durian Mas, in the Ketengah region, with an expected log consumption of 125,000 cu m p.a., almost one third of Trengganu's secure log supply in the second half of the 1980s. In Kelantan a large integrated timber complex is being built at Kemubu and additional milling capacity will also go to Jeli and Gua Musang, all in Southern Kelantan's Kesedar region. - 150 - ANNEX 4-3 Page 3 However, in Kelantan sawn timber output more than doubled from 65,000 tons p.a. in 1970 to 210,000 tons p.a. in 1980, and in Trengganu sawn timber output increased in the early 1970s, even though it remained steady at about 420-440,000 tons (double Kelantan's output) in the period 1976-79. 9. As a result of the expected decrease in logging in the mid-1980s, no additional milling capacity is likely to be approved in either state though some approved mills have yet to be built. Two of those approved bul- not yet built are potentially significant. In Trengganu the Dungun integrated timber complex is being built at Durian Mas, in the Ketengah region, with an expected log consumption of 125,000 cu m p.a., almost one third of Trengganu's secure log supply in the second half of the 1980s. In Kelantan a large integrated timber complex is being built at Kemubu and additional milling capacity will also go to Jeli and Gua Musang, all in Southern Kelantan's Kesedar region. ANNEX 4-3 - 151 - Table 4-3.1 TONS OF TIMBER LOGGED IN KELANTAN AND TRENGGANU ('000 cu m) Year Kelantan Trengganu Northeast 1970 200 649 849 1975 325 881 1,206 1976 394 1,504 1,898 1977 448 1,964 2,412 1978 595 1,699 2,294 1979 691 1,777 2,468 1980 915 1,536 2,451 1981 1,140 1,374 2,514 1982 1,310 1,294 2,604 1983 1,470 1,076 2,546 1984 1,210 826 2,036 1985 1,190 608 1,798 1986 880 499 1,379 1987 630 405 1,035 1988 630 405 1,035 1989 630 405 1,035 1990 820 374 1,197 Sources: Trengganu figures from the Trengganu Coastal Region St:udy citing the Forestry Department (figure from 1979 onward are estimates or projections). Kelantan figures for 1975-80 are from l:he Forestry Department; projections from 1981 onward are from Halcrow-ULG "Land Use and Forest Management Strategy for Southern Kelantan," April 1981. - 152 - ANNEX 4-3 Table 4-3.2 TIMBER UTILIZATION IN THE NORTHEAST ('000 tons) Kelantan Trengganu Principal Principal Log consumption % Log consumption % produc- Saw- Plywood processed produc- Saw- Plywood processed tion mills mills locally tion mills mills locally 1970 - - - 1975 325 143 14(?) 48.3 - - - - 1976 334 147 33(?) 53.9 1,193 465 36 42.0 1977 456 192 32 49.1 1,242 518 33 44.4 1978 598 207 35 40.5 1,076 272 35 28.5 1979 692 248 34 40.8 1,363 377 43 30.8 1980 865 469 55 60.6 n.a. n.a. n.a. n.a. ANNEX 4-3 - 153 - Table 4-3.3 PRODUCTION OF LOG' ('000 tons) Year Peninsular Malaysia Malaysia 1960 1,589 3,920 1961 1,563 4,248 1962 1,633 4,542 1963 1,905 5,541 1964 2,105 5,920 1965 2,278 6,836 1966 2,691 8,702 1967 2,966 9,540 1968 3,587 10,729 1969 3,789 11,203 1970 4,621 12,542 1971 5,053 11,658 1972 6,304 13,257 1973 6,849 16,951 1974 6,094 13,572 197T 5,324 13,495 19/b 6,776 18,784 19/7 7,404 19,239 1978 6,750 19,076 1979 7,060 18,790 1980 6,479 17,967 Source: Forestry Department, Malaysia. ANNEX 4-3 Table 4-3.4 -154 - PENINSULAR MALAYSIA - ANNUAL LOG CONSTNPTION BY SAWMILLS AND PLYWOOD/VENEER MILLS, 1970-80 (In '000 cubic meters /a) Sawmills Plywood/veneer mills Total Year Amount % Amount % Amount % 1970 2,300.0/b ... 265.3/b ... 2,565.3/b ... 1971 3,757.7 85.7 627.3 14.3 4,385.0 100.0 1972 4,442.2 80.8 815.7 19.2 5,257.9 100.0 1973 5,483.2 85.4 936.3 14.6 6,419.5 100.0 1974 5,859.7 86.5 913.4 13.4 6,773.2 100.0 1975 5,167.3 87.1 766.8 12.9 5,934.1 100.0 1976 6,911.7 86.9 1,076.2 13.1 7,987.9 100.0 1977 7,900.3 86.5 1,238.4 13.5 9,138.7 100.0 1978 8,124.0 87.4 1,175.0 12.6 9,299.0 100.0 1979 7,843.0 87.1 1,166.0 12.9 9,009.0 100.0 1980 7,137.0 86.49 1,115.0 13.51 8,252.0 100.0 /a One cu m = 0.706 metric tons (of 50 cu ft). /b Chandrasekharan, 1976, as quoted in The Forest Economy of Peninsular Malay- sia, December 1976 (FAO ?). Source: Economic Unit of the Forestry Department, Malaysia. ANNEX 4-3 - 155 - FTable 4-3.5 PRODUCTION OF SAWN TIMBER ('000 tons) Year Peninsular Malaysia Malaysia 1960 729 739 1961 711 740 1962 756 766 1963 831 840 1964 947 960 1965 951 968 1966 1,004 1,026 1967 1,219 1,244 1968 1,419 1,440 1969 1,454 1,475 1970 1,644 1,664 1971 1,742 1,936 1972 2,315 2,572 1973 2,535 2,817 1974 2,490 2,767 1975 2,369 2,632 1976 3,275 3,636 1977 3,690 4,100 1978 3,299.9 3,498.8 1979 3,978.8 4,174.3 1980 3,465.1 3,975.7 Source: Statistics Office of Forestry Department, Malaysia. ANNEX 4-3 - 156 - Table 4-3.6 PENIMSULAR MALAYSIA - PRODUCTION OF PLYWOOD Year Volume Equivalent ('000 sq ft) (-000 cu m) /a 1970 388,423 180.4 1971 490,409 227.8 1972 720,508 334.7 1973 814,164 378.2 1974 570,980 265.2 1975 678,820 315.3 1976 967,209 449.2 1977 977,826 454.2 1978 951,525 442.0 1979 1,239,822 595.8 1980 1,125,000 540.7 /a One cu m = 0.706 tons (of 50 cu ft). Source: Statistics Office of Forestry Department, Malaysia. 'AI.AYSTA - VW() T OF ILOGZ AND rAtIhM TTMBER Logs Sawn timber Plywood export by Unit % of total Unit % of total major countries Year Volume Value value export value Volume Value value export value Volume Value ('000 tons) (M$ mln) (M$) ('000 tons) (M$ mln) (M$) (mln sq ft) (M$'000) 1960 ... ... .... 1961 1,823.2 136.7 74.97 4.20 ... ... .. 1962 2,067.3 162.9 78.79 4.99 334.2 49.3 147.51 1.51 1963 2,571.9 205.7 79.97 6.17 396.7 64.3 162.08 1.93 1964 2,851.6 205.3 72.17 6.08 512.0 92.3 180.27 2.72 1965 3,370.5 262.9 78.00 6.95 532.0 90.9 182.17 2.56 1966 4,551.1 385.5 84.70 10.02 503.4 82.6 164.08 2.14 1 1967 5,015.8 475.6 94.82 12.77 605.8 106.9 176.46 2.87 1958 5,922.8 549I. A 20) In v' s i oa I . . . in 100.0 i'49.3 10975/ 3.62 1969 6,175.4 603.4 97,71 11.94 834.2 166.8 199.95 3.30 1970 6,295.4 643.4 102.20 12.46 960.0 201.1 209.47 3.89 256.9 39.7 1971 6,189.7 641.8 103.68 12.79 927.5 193.3 208.40 3.05 388.2 56.0 1972 6,443.7 591.2 91.74 12.20 1,210.0 277.1 229.00 5.72 582.7 81.0 1973 7,145.1 986.3 138.03 13.37 1,511.2 560.4 370.83 7.60 808.3 158.1 1974 6,745.0 1,032.4 153.05 10.12 1,244.6 438.2 357.86 4.29 470.0 101.4 1975 5,980.1 669.3 111.92 7.25 1,205.5 391.5 324.80 4.24 537.9 96.9 1976 8,588.6 1,471.5 171.33 10.94 2,071.8 354.4 412.38 6.35 893.8 188.5 1977 9,005.2 1,402.0 155.68 9.36 2,003.6 789.0 393.80 5.27 675.7 213.2 1 t 1978 16,033.6 2,779.7 100.12 11.47 2,767.9 760.4 274.72 4.45 84.9 168.1 1979 11,323.2 2,779.7 173.40 11.47 2,172.5 1,223.7 397.80 43.3 269,134.1 * H 1980 10,737.4 2,621.9 172.44 8.39 2,125.1 1,181.1 392.50 3.78 35.6 76,683.0 Source: Ministry of Primary Industries. ANNEX 4-3 - 158 - Table 4-3.8 PENINSULAR MALAYSIA - EXPORT OF LOGS AND SAWN TIMBER Logs Sawn timber Year Volume Value Volume Value ( 000 tons) (M$ mln) ('000 tons) (M$ mln) 1960 275.4 15.5 1961 282.4 15.5 1962 305.1 17.0 196.0 :30.7 1963 417.1 24.3 245.5 40.3 1964 492.8 26.8 324.0 59.7 1965 574.6 31.0 335.4 650.9 1966 777.4 43.2 344.6 55.9 1967 815.7 59.0 409.2 70.2 1968 941.1 76.1 564.5 106.3 1969 1,040.6 85.6 611.9 122.6 1970 1,150.5 99.2 729.6 150.3 1971 1,137.9 101.8 724.1 145.8 1972 1,069.2 92.4 990.0 2:25.6 1973 470.5 56.5 1,340.5 472.5 1974 412.3 53.8 1,109.4 392.5 1975 295.4 37.9 1,052.7 3.33.0 1976 260.3 36.2 1,867.0 735.0 1977 243.9 23.4 1,823.2 690.3 1978 154.7 12.4 2,552.3 675.2 1979 141.7 23.4 1,994.9 1,0'91.0 1980 160.5 22.0 1,833.9 998.8 Source: Ministry of Primary Industries- ANNEX 4-3 - 159 - Table 4-3.9 PENINSULAR MALAYSIA - NUMBER OF TIMBER IPROCESSINCy MILLS, 1970-80 /a 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 Sawmills 487 478 490 504 529 536 540 551 585 595 602 Plywood/veneer factories 25 31 33 34 35 35 35 35 35 35 35 Wood preservation plants ... 52 55 57 61 101 134 134 - - - Match factories ... 2 3 3 3 3 3 3 4 4 - WoDdwool slab factories ... 2 2 2 2 2 2 2 3 3 - Particle board factories ... 1 1 1 1 1 1 1 2 2 - Pencil factories ... 1 1 1 1 1 1 1 1 2 - Small diameter sawmill ... - - - - - 34 88 - - - /a Source: Chandrasekharan, 1976, as quoted in The FDrest Economy of Pe.ninsular Malaysia, December 1976 (F.AO ). (Note: it is presumed by the mission that the 1970 figures for sawmills refer to licensed rather than operating units.) Source: Economic Unit of the Forestry Department, Malaysia. ANNEX 4-3 - 160 - Table 4-3.10 PENINSULAR MALAYSIA - NUMBER OF SAWMILLS BY STATE, 1971-80 State 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 Johor 47 48 48 52 55 55 60 65 69 71 Kedah 32 32 32 34 34 35 35 36 37 37 Kelantan 31 31 31 32 32 32 33 37 37 39 Negeri Sembilan 38 38 38 39 39 39 39 49 47 49 Pahang 91 92 97 106 10/ 108 110 112 113 112 Pulau Pinang 32 32 32 32 32 32 32 32 34 34 Perak 90 91 91 92 92 92 97 97 99 101 Selangor 79 81 85 85 85 86 86 54 53 52 Trengganu 24 29 35 41 43 43 43 45 48 48 Perlis 4 4 4 4 4 4 3 3 3 3 Wilayah Persekutuan - - - - - - - 42 42 42 Total 478 490 504 529 536 540 551 585 595 602 Source: Economic UJnit of the Forestry Department, Malaysia. ANNEX 4-3 - 161 - Table 4-3.11 PENINSUILAR MALAYSIA - NUMBER OF PLYWOOD MILLS BY STATE, 1971-80 State 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 Johor 7 7 7 8 8 8 8 8 8 8 Kedah 2 2 2 2 2 2 2 2 2 2 Kelantan - 1 1 1 1 1 1 1 1 1 Melaka 1 1 1 1 1 1 1 1 1 1 Negeri Sembilan 2 2 2 2 2 2 2 2 2 2 Pahang 6 7 8 8 8 8 8 8 8 8 Pulau Pinang - - - - - - - - - Perak 7 7 7 7 7 7 7 7 7 7 Perlis - - - - - - - - - - Selangor 5 5 5 5 5 5 5 1 1 1 Trengganu 1 1 1 1 1 1 1 1 1 1 Wilayah Persekutuan - - - - - - - 4 4 4 Total 31 33 34 35 35 35 35 35 35 35 Source: Economic Unit of the Forestry Department, Malaysia. LOG PROCESSING ON LAST COAST Log Processed Number of mills consumption/a output Recovery Rate Employment Plywood Log Saw Ply- Sawn Ply- Saw- Ply- Ply- Sawmills mills State production mill wood timber wood* mill wood Saw- wood licensed/ Lic./in (000 ton) --(000 ton)-- --(000 ton)-- ---- (%) ---- mills mills in oper. oper. Kelantan 1970 199.4 104.3 ... 65.2 ... 1,023 145 32/31 1/1 1975 324.8 134.9 13.9 99.3 ... 73.6 1,023 145 32/31 1/1 1976 394.2 147.3 32.8 99.3 12.8 67.4 39.0 774 558 32/32 1/1 1977 447.5 187.4 32.3 128.9 9.3 68.8 28.8 834 519 35/33 1/1 1978 597.8 206.6 35.4 139.3 10.4 67.4 29.4 1,000 507 37/36 1/1 1979 691.8 248.3 34.4 178.8 16.5 72.0 48.0 1,034 506 40/37 1/1 1980 865.1 468.9 54.8 210.2 13.9 44.8 . 25.4 1,294 427 41/40 1/1 Trengganu 1970 649.0 ... ././24 1/1 1975 ./.. 1/1 1976 1,061.8 511.9 36.3 461.0 9.2 81.3 n.a./b 2,851 900 42/42 1/1 1977 1,386.3 570.4 32.5 521.0 12.9 91.3 . n.a.7b 2,938 496 45/45 1/1 i978 1,199.5 632.6 35.1 410.8 11.7 65.9 n.a.7b 1,565 491 47/47 1979 (est.) 1,351,6 720.0 43.0 443.3 4.7 61.6 n.a.7h 4,181 502 47/47 1/1 1980 n.a. n.a. n.a. n.a . n.a. n.a. n.a.7b n.a. n.a. n.a. n.a. Pahang 1970 1975 1,729.3 1,072.7 95.9 663.4 120.8 61.8 n.a./c 6,256 2,550 108/107 1976 2,554.7 1,262.7 180.7 848.1 144.2 67.2 n.a./c 6,296 2,542 108/105 8/8 1977 3,251.1 1,604.1 220.4 965.8 58.7 60.2 n.a.7T 6,729 2,457 114/113 8/8 1978 2,583.6 1,489.3 323.7 891.5 91.8 59.9 n.a.7 7,130 2,540 115/113 8/8 m x 1979 2,754.5 1,424.7 239.4 1,015.4 52.7 71.3 n.a.7T 7,379 3,594 117/116 8/8 . . 1980 1,922.4 1,674.0 227.9 1,067.4 61.0 63.8 n.a.7c 7,413 1,959 117/116 8/8 u LO * Based on conversion of 2,153 sq ft per cu m and 1.416 cu m per ton of 50 cui ft. /a Excluding consumption as firewood and charcoal, etc. 7i Not calculated as plant produced both plywood and veneer. The latter output in million sq. ft. for the period 1976-80 was: 1976: 46.1; 1977: 89.2; 1978: 62.0; 1979: 18.2; 1980: n.a. p.a. respectively. /c Not calculated as plants produced both plywood and veneer. The latter output in million sq. ft. for the period 1976-R0 was: 1975: 135.4; 1976: 231.8; 1977: 179.0; 1973: 117.6; 1979: 166.8 Sources: Total log production and sawmill log consumption and output for Kelantan 1970-80 from SRDP; Land Use and Forest Management Strategy for Southern Kelantan, 1981. Same data for 1976-78 from Maunsell: Trengganu Coastal Region Study, 1980. All other figures from State Forestry Department annual reports for each state. ANNEX 4-3 - 163 - Table 4-3.13 POITENTIAL LOG RESOURCE SUPPLY: TRENGGANU, 197 8-90 ('000 cu m) Source of yield Land conversions Timber complexes Year Ketengah Other Besut Pesama Dungun Kenyir Dam PFE Total 1978 780 31 31 31 - 546 327 1,746 1979 780 31 31 31 62 546 296 1,777 1980 546 31 31 31 70 546 281 1,536 1981 468, 31 31 31 101 468 249 1,379 1982 390 31 31 31 125 437 249 1,294 1983 312 31 31 31 125 312 234 1,076 1984 234 31 31 31 125 140 234 826 1985 156 31 31 31 125 - 234 608 1986 78 31 31 31 125 - 203 499 1987 -- 31 31 31 125 - 187 405 1988 -- 31 31 31 125 - 187 405 1989 - 31 31 31 125 - 187 405 1990 -- - 31 31 125 - 187 374 Source: Forestry Department, Malaysia, as quoted in TCRS. ANNEX 4-3 - 164 - aTable 4-3.14 PROPOSED EXPLOITATION IF AGRICULTURAL DEVELOPMENT IS REDUCED AND DELAYED KELANTAN Current Forest long-term New Year clearing agreement agreement Second cut Yield (sq km) /a (sq km) /b (sq km) /c (sq km) /d (mln cu m) 1981 140 148 1.14 1982 115 140 1.14 1983 85 160 1.09 1984 85 144 1.02 1985 85 140 1.00 1986 57 116 19 0.85 1987 57 112 19 0.84 1988 57 112 19 0.84 1989 43 112 19 0.77 1990 20 104 19 0.84 1991 92 38 0.78 1992 88 38 10 0.79 1993 80 38 10 0.74 1994 80 38 10 0.74 1995 68 38 20 0.71 1996 68 38 20 0.71 1997 68 38 20 0.71 1998 64 38 30 0.72 1999 64 38 30 0.72 2000 60 38 30 0.70 /a Yield assumed to be 3,500 cu m/sq km in 1981, but 4,550 cu m/sq m there- after, reflecting improved exploitation as a result of slower tempo. /b Yield assumed to be 4,400 cu m/sq km for long-term agreements, rising to 6,000 cu m/sq km in 1990, reflecting improved communications and species substitution. SEDC Kemubu assumed to come into production in 1983. /c The area available to new agreements is larger as a result of reduced clearing. /d Yield assumed to be 3,600 cu m/sq km. Source: Land Use and Forest Management Strategy for Southern Kelantan, 1.981, SRDP. ANNEX 4-3 - 1.5 - Table 4-3.15 KELANTAN: ESTIMATED FUTURE LOG REQUIREMENTS/a, /b (Million cubic meters) Year Under current policies Under proposed strategy 1981 1.14 1.14 1982 1.31 1.14 1983 1.37 1.09 1984 1.11 1.02 1985 1.09 1.00 1986 0.78 0.85 1987 0.53 0.84 1988 0.53 0.84 19t39 0.53 0.77 1990 0.69 0.84 1992 0.63 0.79 1995 0.54 0.71 2000 0.53 0.70 /a Excluding the Kemubu complex-s concession a:rea. /b The left-hand column of figures shows the likely outcome if all planned land clearance schemes are carried out in accordance with current policies; the right-hand column shows what log production would be if the recommendations of this report for land use management and f'orest conservation were adopted. Source: Land Use and Forest Management Strategy for Southern Kelantan, 1981, SRDP. - 166 - ANNEX 4-4 Page 1 MALAYSIA REGIONAL DEVELOPMENT AND URBANIZATION IN THE NORTHEAST Cash Crops 1. The following sections describe the development potential of selected cash crops, primarily as raw material for industrial processing. 2. Rubber. Rubber has been the dominant crop in Peninsular Malaysia, accounting for more than 35% of agricultural value added, 55% of cultivated land and 65% of total agricultural employment./l Total production is roughly 1.5 million metric tons annually, most of which is axported after minimal local primary processing. Efforts are under way to increase the amount of secondary processing which in 1980 amounted to only 45,391 metric tons or 3.1% of total production (Table 4-4.36). 3. Despite its disproportionate share in total peninsular land the Northeastern share in national rubber production is very limited. In 1980 the Northeast produced only 59 256 tons or 4.0% of the peninsular total (Table 4-4.2). Lack of suitable land and lack of access to major ports are two of the reasons. Also production and distribution has long been domin- ated by a few large foreign firms which may have inhibited production in the region in comparison to other parts of the peninsula as the Northeast did not actively encourage foreign investment (e.g. Kelantan does not permit foreigners to own land). Finally, plantation rubber yields in the Northeast are 20% below the Peninsular average, due to unfavorable climatic conditions and reduced tapping during peak production periods which concide with peak monsoon months. Hence, while there is some room for an increased north- eastern share in peninsular rubber production as the result of hinterland development, particularly in southern Kelantan, the total Northeastern share of peninsula production is unlikely to exceed 6% (para. 7). 4. For several years rubber production has been declining both in Peninsular Malaysia and the Northeast. This decline has come despite sotle increase in total planted area. As is seen from Table 4.42 Peninsular rubber output was 1.612 million metric tons in 1976 but only 1.549 million tons in 1980. Output declines in Trengganu and Kelantan have roughly paralleled peninsular decline but are more dramatic. Production in the two states combined peaked in 1977 with 69,923 m tons but was only 59,256 tons in 1980, a 15% drop in four years. Roughly 90% of this decline is attributable to the smallholder sector where output dropped by 20% from 48,788 tons in 19177 /1 - 167 - ANNEX 4-4 Page 2 to 39,216 tons in 1980. Part of the explanation may be that t:he age of rubber trees had progressed beyond the point of peak yields. As is seen from Table 4-4.24 the production in the smallholder sector falls rapidly after age 15 and drops to zero somewhere between age 30 and 35. However, another part of the explanation may well be the very stength of government replanting efforts during the 1970s. Statistics cited by TCRS indicate that between 197:3 and 1976 some 40% of smallholder rubber in Trengganu was replanted, and this effort may have continued beyond 1976, for which there is no data. Replanting in the short term may deepen a product:ion trough since it remaoves marginally productive trees and replaces them with seedlings which will not produce for 5 or 6 years. Clearly, t:he removal of 40% of tree stock should have this effect and one should thus expect rapid production gains during the early 1980s. 5. In broader terms, whether variations in production levels should be avoided (as sometimes implied) is not obvious. If much of the tree stock was planted at the same time cyclical production levels must be expected. To spread p:Lanting schedules over time so as to reach a stationary production 'Level requires a 25-year forecast of desired stationary levels and in general is neither practical nor optimal. Long term cyclical fluctuations are part of the price paid for rapidly expanding the tree stock in response to favorable market opportunities. 6. Further growth in rubber production will result from rubber plan- ted in the Kesedar and Ketengah regions. The Northeast's total planted rubber area has already increased substantially between 1976 and 1980, presumably as a result of FELDA or RISDA settlement schemes, and SEDC estates associated with the two hinterland regions./l 7. Additional rubber development during the 1980s will be substantial, particularly in the Kesedar region, though exact projections are not avail- able. In Ketengah the growth in rubber planted area may be in the neigh- borhood of 4,000 ha, noting that the total area approved but not yet planted for all types of crops is around 40,000 ha and that 10% of Ket:engah's approved development is for rubber. In the Kesedar region 95,782 ha remain to be developed, of which 44,833 ha were approved for development as of 1980. No crop breakdown is available but most of it is for rubber. It thus seems reasonable to expect the total area under rubber cultivation in the Northeast to expand by 60,000 ha or one third over 1980 levels. Allowing for the addiitional impact of replanting, the use of higher yielding trees, improvements in smallholder management and the effect of past developments that have not yet reached maturity, rubber production may well double by the mid-1990s. Even so, this will not substantially change the ranking of /1 It is not clear why the rubber statistics associates the entire growth in planted area with the smallholder sector. Presumably, FELDA schemes in this case are counted in the smallholder sector. - 168 - ANNEX 4-4 Page 3 ranking of Trengganu and Kelantan as two of the Peninsular states with the smallest rubber production. Because Peninsular rubber output is projected to increase by 50% by 1990,/1 the Northeastern share in Peninsular production would not exceed 6%. 8. Oil Palm. Oil palm was first introduced to Peninsular MIalays:.a in a large scale in the early 1960s. Since then acreage and production has been constantly rising, as part of a government effort to diversify agri- cultural output and to reduce the dependency on rubber. As is seen froma Table 4.46, peninsular growth in palm oil production has averaged more than 18% since 1960, a rate projected to slow to roughly 9% during the 1980s as suitable lands for expansion become exhausted. Immature trees as a percentage of total planted trees have gradually decreased from 47% in 1970 to 31% in 1980. Even this percentage is high, however, and implies that based on present planted capacity alone output will grow by close to 50%, as trees mature. 9. The planted area is roughly evenly divided between so-called smallholdings and estates, with the smallholder share rising rapidly. (Table 4-4.1). The smallholdings sector in the case of oil palm consists almost exclusively of FELDA and similar settlement schemes for which the term smallholding is less than appropriate. For example, in 1980, 351,045 ha or 81.7% of 429,631 ha in so called smallholdings were in FELDA, RISDA and FELCRA settlement schemes./2 Outside these schemes few private smallholders have adopted oil palm as a crop despite the fact that by most measures returns on oil palm are as much as twice those for rubber and may be as much as three times those for padi. This has raised serious questions as to the desirability of maintaining present restrictions on changing crops, such as existing legal constraints in the form of crop quotas and crop specifications in land titles, financial constraints due to long gestation periods in tree crops, and government incentive schemes that encourage replanting and yield improvement on the basis of existing crop choice rather than evaluating crop alternatives. Should these restrictions decline in the future it is obvious that oil palm projections would have to be revised upward. 10. As in the case of rubber, the northeastern share in total Peninsular production of palm oil is small. Only 112,686 tons or 4.7% of the 2.4 million tons produced in peninsular Malaysia comes from the Northeast and this percentage declined marginally over the last decade (Table 4-4.11)./3 /1 In Young, et al., op. cit. p. 268. /2 See Oil Palm Fact Sheet, 1981. /3 Crude Plam Oil Production in Kelantan and Trengganu according to the Ministry of Primary Industries was 134,341 tons (Table 4.2 Vol. II and Tables 4-4.19 and 4-4.20). - 169 - ANNEX 4-4 Page 4 11. Given the large land reserves in the Ketengah and Kesedar areas one would expect the Northeast's share in peninsular palm oil production to increase. However, current development plans indicate this will not happen during the 1980s. That is, during the present decade the Northeast's growth rate in palm oil production will be below the peninsular rate of 8.6% per year. A first approximation of the growth in palm oil production is the growth in productive oil palm land. In the case of Trengganu, for example, development plans have advanced further and most of the region's oil palm growth is likely to take place there. Yet, the Ketengah area's total palm oil productive land was 31,868 ha in 1980 and is planned to be 53,472 ha in 1985, implying a growth rate of 10.9% p.a./1. Since 90% of Ketengah land is developed with oil palm this growth rate must also approximate the growth rate of productive oil palm area. No expl:icit plans are available for 1990. However, KETENGAH anticipates a projected L9,469 ha under development in 1985. Development includes site clearance,, planting, and a four year period before oil palms reach productivity. Hence land not under development in 1985 cannot reach maturity by 1990 and growith of productive land in the period 1985-90 must be limited to 19,469 ha or 6.4% p.a. The annual average growth rate in the period 1980-90 would therefore be 8.6%, about the same rate at which oil palm production is projected to grow in Peninsular Malaysia. 12. But since areas outside Ketengah had as much as 22% of Trengganu's planted oil palm land and since areas outside Ketengah should experience a much lesser growth than Ketengah during the 1980s, one must conclude that Trengganu's total palm oil production will grow below Peninsular rates. This conclusion has to be modified somewhat because the current average age of the tree stock is low, and palm oil production increases not only because of additionas to tree stock but also as a result of yield increase (as the average age of the tree stock advances to peak yield). More likely, however, thlis becomes important only in the 1990s. As to Kelantan, since Kesedar plans to develop most of its land with rubber rather than oil palm the above conclusions are unlikely to be substantially altered. 13. 'In summary, Northeastern palm oil production during the 1980s will grow at ral-es below or at best equal to projected peninsular rates. As a result, production over the decade should roughly double. However, northeastern growth rates will likely exceed peninsular rates during the 1990s when production rates could once more double as the remiainder of Ketengah's and Kesedar's agricultural land becomes productive and as average yields approach peak levels. 14. l'obacco. Tobacco production has grown rapidly in Peninsular Malaysia. Total acreage has risen from 20 acres in 1959 to a peak of 35,700 /1 Source: KETENGAH, 1981 based on a disaggregation of data in Table 3.2, Vol. II. This should not be confused with the eventual area for Palm Oil production of 200,000 ac approved but not planted (Table 3.3, Vol. II)). - 170 - ANNEX 4-4 page 5 acres in 1975. Since then acreage has fluctuated around the 30,000 acre mark. Most tobacco is grown in the Northeast. That region in 1980 accounted for 95% of the 43,486 registered Peninsular growers, 90% of the planted area of 31,850 acres, and 84% of the total crop of 23,142,000 lb. Within the Northeast, Kelantan is the major producer with 76% of the region's growers. 15. Tobacco production, under an import substitution policy is for domestic consumption, with all aspects of production, processing and marketing regulated by the National Tobacco Board. The board fixes the Malaysian tobacco content of international brands and is responsible for the licensing and quotas of growers. 16. Production suffers from high production costs, low yields, poor leaf quality, and high wastage. Because of industry regulations there is little incentive to eliminate any of these problems. Tobacco is one of the few crops that grows well on bris soil /1 which is pervasive in Trengganu's coastal area and in Kelantan's Bachok and Pasir Puteh districts. Despite the obvious comparative advantage that tobacco has on bris soil most of Kelantan's tobacco is grown on the clayey padi soil for which several cropping alternatives exist. Government's intention is to extend production to bris soils as total production requirements expand. However, no effort has yet been made to improve existing cropping choice, by reducing tobacco quotas for padi smallholders, or by eliminating the quota system altogether. 17. According to the Trengganu Coastal Region Study, the potential for establishing additional tobacco processing capacity in the Northeast is presently limited. Though the Northeast is the principal tobacco grower of the nation, it has attracted only one domestic brand manufacturer of cigarettes and none of the two major foreign manufacturers that together control 95% of domestic sales. Because of intense brand loyalty new brands have had difficulties in capturing a viable share of the market and capacities of the two leading manufacturers are expected to be adequateb until 1990. 18. The above assessment must be contrasted with the actual perform- ance of the tobacco manufacturing sector in Kelantan. Both according to data from the Census of Manufacturing and more comprehensive estimates of paid manufacturing employment by Kelantan's SEPU, tobacco manufacturers provided roughly 50% of Kelantan's total manufacturing jobs in both 197'0 and 1980, and this sector's absolute growth exceeded by far that of any other sector, raising employment from roughly 2,900 jobs in 1970 to 14,500 in 1980. A likely explanation for the discrepancy between the statistica:L data and MIDA and observations in the Trengganu Coastal Region Study could be that the statistical data includes leaf drying operations under tobacco manufacturing. /1 A coarse textured, infertile, pre-draining raised beach ridge soil, overlying marine clay. - 171 - ANNEX 4-4 Iable 4-4.1 AREA OF PLANTED RUBBER IN PAHANG, TRENGGANU AND KELANTAN (Ha) 1976 1977 1978 1979 1980 Pahang Estates 44,114 43,258 43,379 46,370 45,751 Smallholdings /a 59,517 63,619 67,704 79,518 90,965 Total 103,631 106 877 111,083 125 888 136,716 Trengganu Estates 11,742 11,185 11,009 10,647 10,318 Smallholdings /a 57,821 60,165 65,374 68,23:2 76,176 Total 69,563 71,350 78,873 86,494 Kelantan Estates 19,531 20,294 19,858 23,069 21,240 Smallholdings /a 67,488 70,327 72,137 73,749 74,524 Total 87,019 90,621 91 995 96,818 95,764 Malaysia 1,997,818 1,998,980 _ 2,015,50 0 2, 023,000 /a RISDA's registration. Source: Rubber Statistics Handbook, Malaysia. - 172 - ANNEX 4-4 Table 4-4.2 PRODUCTION OF NATURAL RUBBER IN PAHANG, TRENGGANU AND KELANTAN (Metric tons) 1976 1977 1978 1979 1980 Pahang Estates 38,975 38,991 41,252 40,114 41,902 Smallholdings 86,366 83,762 86,278 86,368 90,751 Total 120,341 122,753 127,530 126,482 132,653 Trengganu Estates 3,180 2,924 2,933 3,277 3,426 Smallholdings 19,675 19,694 15,121 16,525 16,214 Total 22,855 22,618 18,054 19,802 19,640 Kelantan Estates 17,224 18,211 17,484 16,822 16,614 Smallholdings 23,885 29,094 27,333 24,496 23,002 Total 41,109 47,305 44,817 41,817 39,616 Total Production /a in Pahang, Tren- gganu & Kelantan 184,305 192,676 190,401 187,602 191,909 Malaysia 1,612,479 1,588,055 1,606,556 1,599,876 1,549,315 /a Of which approximately 13% was exported in the form of latex. Source: Monthly Industries. Statistics of Malaysia as provided by Ministry of Primary Industries. - 173 - . ANNEX 4-4 Table 4-4.3a KETENGAH AGRICULTURAL LAND, BY DEVJELOPMENT STATUS Development status 1980 1985 For future development 30,367 11,344 Under planning 24,994 43,248 Under development 40,302 19,469 Productive land 31,868 53,472 Total 127,530 127,530 Source: KETENGAH. ANNEX 4-4 - 174 - Table 4-4.3b SUMMABY OF PENINSULAR MALAYSIA RUBBER STATISTICS 1977 1978 /a 1979 /a 1980 /b Stocks at beginning of period 239,077 214,806 245,482 240,071 Imports 47,243 49,076 40,990 43,101 Production Estates 627,646/c 642,099 638,036 607,617 Smallholdings 883,919 888,047 890,053 875,702 Total 1,511,565 1,530,146 1,528,089 1,483,319 Total Available for Disposal During Period 1,797,885 1,794,028 1,814,561 1,766,491 Exports 1,577,637 1,537,591 1,577,740/d 1,460,100 Local consumption 37,223 38,607 40,453 45,391 Losses by fire, accident and estate factory thefts 229 219 106 162 Stocks at end of period /e 214,806 245,482 240,071 249,817 Total Disposed During Period 1,829,895 1,821,899 1,858,370/d 1,755,470 Balancing Adjustment +32,010 +27,871 +43,809 -11,021 /a Subject to revision. /b Preliminary. /c Includes year-end adjustment of estate production figures. /d Amended. /e Includes government stocks. Source: Ministry of Primary Industries. ANNEX 4-4 - 175 - Table 4-4.4 PRODUCTION OF RUBBER IN PENINSULAR MALAYSIA, BY STATE (Tons DRC) January-December 1979 /a January-December 1980 /b Small- Small-- S;tate Estates holdings Total Estates holdings Total Johore 161,301 260,646 421,947 153,002 263,618 416,620 K'edah and Perlis 105,867 124,255 230,122 102,601 122,633 225,234 Yelantan 16,822 24,496 41,318 16,614 23,002 39,616 Malacca 40,204 59,401 99,605 38,538 52,742 91,280 Niegeri Sembilan 103,898 92,916 196,814 99,481 96,396 195,877 ]'ahang 40,114 86,368 126,482 41,902 90,751. 132,653 Penang 9,823 35,023 44,846 8,210 31,132 39,342 ]'erak 80,062 140,656 220,718 74,496 134,369 208,865 Selangor 76,668 49,767 126,435 69,347 44,845 114,192 .[rengganu 3,277 16,525 19,802 3,426 16,214 19,640 Total 638,036 890,053 1,528,089 607,617 875,702 1,483,319 Source: Ministry of Primary Industries. SIlMMARY OF OIL PALM STATISTICS, PENINSULAR MALAYSIA (metric tons) Total Losses available by fire for accident Stocks Total Stocks at disposal Local & estate at end disposal Balancing beginning during comsump- factory of during adjust- of period Imports Productions period Exports tion thefts period period ment Crude Palm Oil 1978 119,255 - 1,640,311 1,759,566 429,670 1,133,582 51 195,212 1,758,515 - 1,051 1979 195,212 - 2,032,983 2,228,195 203,045 1,778,619 120 220,340 2,202,124 -26,071 1 1980 220,340 10,637 2,396,507 2,627,484 45,830 2,442,578 63 146,750 2,635,221 + 7,737 , a.' Palm Kernals 1978 12,308 10,784 339,816 362,908 1,122 333,783 421 28,713 364,039 + 1,131 1979 28,713 13,501/a 441,040 483,254 - 458,727 431 33,436 492,594 + 9,340 1980 33,436 40,646 514,506 588,588 - 520,863 421 33,125 554,409 -34,179 /a Revised. Source: MIDA m m4 4S4S X II ANNEX 4-4 Table 4-4.6 - 177 - MALAYSIA: PRODUCTION OF PALM OIL (tons) Peninsular Rate of Year Malaysia % Malaysia growth 1960 92,150 100.0 92,150 1970 402,300 93.3 431,000 22.5 1971 550,800 93.5 588,900 36.6 1972 657,000 90.2 728,600 23.7 1973 739,300 91.0 812,200 11.5 1974 942,300 89.8 1,049,260 29.2 1975 1,136,796 90.4 1,257,573 19.9 1976 1,260,608 90.6 1,391,965 10.7 1977 1,483,591 92.0 1,612,747 15.9 1978 1,640,311 91.9 1,785,525 10.7 1979 2,220,983 92.9 2,188,301 9.3 1980 /a 2,396,507 93.0 2,575,639 17.7 Projected 1985 3,700,000 4,000,000 1990 5,500,000 6,000,000 /a Projected originally as 2.2 milLion tons by Malaysian Oil Palm Growers Council. Source: Oil Palm Monthly Statistic of Malaysia for period up to 1980. Projections for 1985, 90 by Malaysian Oil Palm Growers Council (based on committed acreage. ANNEX 4-4 - 178 - Table 4-4.7 PENINSULAR MALAYSIA - PALM OIL ACREAGE ESTATES AND SMALLHOLDING BREAKDUWN (hectares) % of Small- % of Year Estates total Growth holdings/a total Growth Total 1970 190,288 70.4 - 79,903 29.6 - 270,191 1971 215,629 70.3 13.31 91,062 29.7 13.96 306,691 1972 247,973 67.8 14.99 117,783 32.2 29.34 365,756 1973 374,900 63.1 10.85 161,097 36.9 36.77 435,997 1974 315,964 58.9 14.93 220,068 41.1 36.60 336,032 1975 339,132 54.6 7.33 239,815 41.4 8.97 5.78,947 1976 351,290 56.8 3.58 267,026 43.2 11.34 618,316 1977 367,050 54.8 4.48 303,050 45.2 12.49 670,100 1978 n.a. - - n.a. - - 763,851 1979 n.a. - - n.a. - - 821,310 1980 494,461 53.5 - 429,631 46.5 - 924,092 /a Includes FELDA, RISDA, State Governments Schemes, FELCRA and Private Smallholdings. Sources: Ministry of Agriculture: MOPGC. Summary of Estimated Oil Palm Future Acreage and Production. AN1NEX 4-4 - 179 - Table 4-4.8 PLANTED AREA UNDER OIL PALM IN PENINSULAR MALAYSIA (in hectares) Total Year Mature Immature planted 1960 40,024 14,610 54,634 1970 138,902 122,297 261,199 1971 169,482 124,667 294,149 1972 208,129 140,612 348,741 1973 250,338 161,732 412,070 1974 290,291 209,953 500,244 1975 340,971 227,799 568,770 1976 403,157 234,460 637,617 1977 490,676 221,326 712,002 1978 531,574 232,140 763,714 1979 599,634 220,311 819,945 1980 633,212 290,817 924,029 Source: 1. Department of Statistic.s 2. MOPGC 3. PORLA As published in the Palm Oil Statistical Handbook, 1980. ANNEX 4-4 - 180 - Table 4-4.9 ESTIMATED YIELD OF D x T AND D x P OIL PALMS (In tons (FFB) per ha per year) Year of planting Low Mean High 1 - - - 2 3 4.52 7.03 8.03 4 7.53 13.06 16.32 5 12.55 17.07 22.09 6 16.57 20.09 25.61 7 19.08 22.09 27.62 8 19.83 23.10 28.87 9 20.34 23.60 29.63 10 20.34 24.10 30.13 11 20.09 23.85 29.88 12 20.09 23.60 29.63 13 19.83 23.35 29.38 14 19.58 22.85 28.87 15 19.58 22.60 28.87 16 19.58 22.09 28.12 17 19.33 21.84 27.87 18 19.08 21.59 27.62 19 18.83 21.34 27.37 20 18.58 21.09 2-7.12 21 18.33 20.84 26.87 22 18.08 20.59 26.62 23 17.83 20.34 26.37 24 17.58 20.09 26.12 25 17.33 19.84 2ci.87 Source: Palm Oil Statistical Handbook, 1980. ANNEX 4*4 - 181 - Table 4-4.10 YIELI)S OF FFB, COPO AND PALM KERNEL FROM 1970 TO 1980 (In tons/ha) Year Fresh fruit bunches (FFB) Crude palm oil (CPO) Palm kernel 1970 15.72 3.00 0.65 1971 17.07 3.23 0.70 1972 16.48 3.44 0.72 1973 15.34 3.19 0.67 1974 16.82 3.49 0.72 1975 17.95 3.66 0.74 1976 16.16 3.48 0.71 1977 16.32 3.54 0.74 1978 16.25 3.33 0.70 1979 17.76 3.64 0.76 1980 18.72 3.84 0.81 Source: Department of Statistics, Kuala Lumpur, as published in the Palm Oil Statistical Handbook, 1980. PRODUCTION OF CRUDE PALM OIL AND PALM KERNELS BY STATE IN PENINSULAR MALAYSIA (metric tons) Negeri Other Johore Kelantan Sembilan Pahang Perak Selangor Trengganu states Total Crude Palm Oil 1970 .. 1978 516,253 16,211 95,802 265,338 250,178 391,789 66,217 38,523 1,640,311 1979 660,263 20,214 139,931 341,187 309,540 431,933 78,657 51,258 2,032,983 1980 761,708 27,035 168,183 456,853 355,232 462,349 85,651 79,495 2,396,507 1 Palm Kernels 1970.. .1978 108,173 3,360 18,920 49,977 53,483 83,281 14,526 8,096 339,816 1979 143,795 4,116 30,683 67,800 69,312 94,662 17,999 12,683 441,040 1980 164,873 5,453 36,661 89,829 78,522 101,739 19,176 18,253 514,506 Source: MIDA * I ANNEX 4-4 - 183 - Table 4-4.12 CONSUY'PTION OF CRUDE PALM OIL AND PALM KERNELS BY STATE IN PENINSULAR MALAYSIA (Metric tons) Pulau Other Johore Pinang Perak Selangor states Total Crude Palm Oil 1970 ... 1978 297,963 151,268 136,660 446,970 100,721 1,133,582 1979 633,311 198,963 214,069 601,957 130,319 1,778,619 1980 954,620 265,787 366,036 699,346 156,789 2,442,578 Palm Kernels 1970 .. 1978 113,709 73,457 9,015 134,454 3,148 333,783 1979 155,797 88,531 15,690 195,408 3,301 458,727 1980 164,163 94,008 15,657 243,904 3,131 520,863 Source: MIDA ANNEX 4-4 - 184 - Table 4-4.13 ANNUAL EXPORT OF CRUDE AND PROCESSED PALM OIL, PENINSULAR MALAYSIA, 1960-80 (Tons) Crude palm oil Year Peninsular Malaysia Malaysia Processed palm oil Total 1960 97,568 97,568 97,568 1961 94,028 94,928 - 94,928 1962 107,386 107,386 - 107,386 1963 116,736 116,736 - 116,736 1964 125,247 125,247 - 125,247 1965 141,477 141,477 - 141,477 1966 181,282 181,282 - 181,282 1967 180,020 188,916 - 188,916 1968 267,923 285,965 - 285,965 1969 330,809 356,743 - 356,743 1970 373,280 401,930 - 401,930 1971 535,096 573,356 - 573,356 1972 625,306 696,983 - 696,983 1973 724,772 797,808 - 797,808 1974 813,044 901,566 - 901,566 1975 829,192 957,411 203,232 1,160,643 1976 749,088 877,424 457,951 1,335,375 1977 577,538 701,078 726,046 1,427,124 1978 429,670 574,021 935,519 1,509,540 1979 203,045 358,173 1,543,179 1,901,:352 1980 45,830 214,997 2,062,246 2,277,243 Source: Department of Statistics, as published in the Palm Oil Statistical 1980 Handbook. - 185 - ANNEX 4-4 a ' - 4Tl4 EXPORT VOLUME, EXPORT EARNINGS AND FOB UNIT VALUE OF PALM OIL AND PALM OIL PRODIJCTS, 1976-80 Palm oil products 1976 1977 1978 1979 1980 Crude Palm Oil Export volume ('000 tons) 1,184.4 1,107.0 975.3 858.9 771.5 Export value (M$ million) 1,076.5 1,387.5 1,212.1 1,170.4 923.8 FOB unit value ($/ton) 908.9 1,253.4 1,242.8 1,362.7 1,197.4 % of total export 8.0 9.3 7.1 4.8 3.3 Palm Olein Export volume ('000 tons) 78,709 192,230 305,052 496,031 870,942 Export value (M$ million) 78.8 292.0 445.8 6'37.5 1,102.4 FOB unit value ($/ton) 1,001.2 1,519.0 1,461.4 1,406.2 1,265.8 % of total export 0.6 1.9 2.1 2.9 3.0 Palm Stearin Export volume ('000 tons) 478,780 85,810 173,927 454,563 495,387 Export value (M$ million) 41.0 84.7 170.7 519.9 489.0 FOB unit value ($/ton) 858.1 987.1 981.4 1,143.7 987.1 % of total export 0.3 0.6 1.0 2.1 1.7 Palm Kernel Oil Export volume ('000 tons) 123,604 104,976 132,122 203,378 217,929 Export value (M$ million) 121.3 136.9 188.8 386.0 301.9 FOB unit value ($/ton) 981.4 1,304.1 1,429.0 1,879.9 1,385.3 % of total export 0.9 0.9 1.1 1.6 1.1 Source: The preliminary figures of external trade of Malaysia. ANNEX 4-4 - 186 - Table 4-4.15 PALM OIL YILLS IN PENINSULAR MALAYSIA, 1977 State Factories off estates Factories on estates Johore 19 10 Melaka -1 Negeri Sembilan 4 3 Selangor 14 11 Perak 14 7 Pulau Pinang 2 Kedah 1 Perlis Kelantan 2 3 Trengganu 5 Pahang 15 6 Total 76 41 Source: Oil Palm, Coconut, Tea and Cocoa Statistics, 1978. ANNIEX 4-4 - 187 - Table 4-4.16 NIJMBERS OF MILLS AND REFINERIES IN OPERATION AND INSTALLED CAPACITY IN MALAYSIA, 1976-80 Palm oil mills Palm oil refineries Number of Capacity Number of Capacity Year mi:Lls (ton FFB/hour) refineries ('ton CPO/year) 1976 1(9 3,105 18 4,205 1977 117 3,261 23 6,075 1978 129 3,506 29 7,105 1979 1,41 3,815 39 8,785 1980 149 4,082 45 2.88 mln Source: PORLA Annual Report 1979; PORLA Palm Oil. Update, January [981. ANNEX 4-4 - 188 - Table 4-4.17 NUMBER OF APPROVED PALM OIL REFINERIES AND INSTALLED/APPROVED CAPACITIES BY STATES IN PENINSULAR MALAYSIA (March 31, 1980) State Number of refineries Installed/approved capacity Johore 16 976,500 Kelantan Negeri Sembilan 3 129,000 Pahang 8 303,000 Perak 11 468,000 Selangor 17 1,039,000 Trengganu 2 138,000 Province Wellesley 6 372,000 Kedah 1 24,000 Malacca 1 60,000 Total 65 3,449,500 Source: MIDA. ANNEX 4-4 - 189 - Table4 -4.T8 MIDA PROJECTIONS OF PALM OIL SUPPLY AND DEMAND (Tons) Potential demand for crude Surplus/ Projected Number of palm oil deficit supply refineries at 100% of crude of crude in operating palm oil Year palm oil operation capacity supply 1979 1,987,320 38 2,247,000 -259,680 1980 2,234,400 45 2,627,500 -393,100 1981 2,401,000 49 2,837,500 -436,500 1982 2,597,000 60 3,224,500 -627,500 1983 2,891,000 63 3,449,500 -558,500 1984 3,136,000 63 3,449,500 -313,500 1985 3,340,000 63 3,339,500 -195,000 Note: The 45 refineries in 1980 conist of the existing 39 refineries which are in operation, 5 companies in the stage of installing plant and machinery which are expeced to be in production by the end of 1980, and 1 existing refinery operating previously without approval from the Ministry of Trade and Industry and has recently been recommended for a Manufacturing License by the ACI. Source: MIDA study. ANNEX 4-4 - 190 - OIL PALM/PALM OIL INDUSTRY IN KELANTAN, 1976-80 Acreage CPO production Number of Number of Year (ha) (tons) mills refineries 1976 6,279 11,493 3 1977 6,431 13,188 3 1978 7,201 16,211 4 1979 n.a. 20,209 4 1980 19,168 27,034 4 Source: Ministry of Primary Industries. ANNEX 4-4 - 191 - Table 4-4.20 OIL PALM/PALM OIL INDUSTRY ]N TRENGGANU, 1976-80 Acreage CPO production Number of Number of Year (ha) (tons) mills refineries 1976 21,271 60,259 5 1 1977 21,674 65,917 6 1 1978 24,297 66,217 6 1 1979 n.a. 98,064 6 1 L980 66,353 107,307 6 1 Source: Ministry of Primary Industries. ANNEX 4-4 - 192 - Table 4-4.21 OIL PALM/PALM OIL INDUSTRY IN PAHANG, 1976-80 Acreage CPO production Number of Number of Year (ha) (tons) mills refineries 1976 52,207 193,670 17 1977 55,143 229,808 20 1978 61,255 265,338 20 - 1979 n.a. 341,782 26 2 1980 262,486 460,669 28 2 Source: Ministry of Primary Industries. ANNEX 4-4 - 193 - Table 4-4.22 AGRICULTURAL PRODUCTIVlITY East Coast Peninsula Padi (units/acre) 400 600 Oil palm (tons FFB/acre) 6-7 9-12 Source: SEPU, Trengganu. ANNEX 4-4 - 194 - Table 4-4.23 AVERAGE PADI YIELDS (KELANTAN, KEDAH AND PENINSULAR MALAYSIA), 1971-75 (Kilograms per hectare) Type of padi Kelantan Kedah Peninsula Main season 2,109 3,424 2,766 Off season 2,641 3,669 3,198 Source: SEPU, State and Rural Development Project Report, UNDP/World Bank, p. 916. - 195 - ANNEX 4-4 Tabfle4-4,24 S'UGGESTED COEFFICIENTS OF PRODUCTION - TRENGGANU CROPS, AVERAGE CONDITIONS Tree crops Year 6 7 8 9 10-15 16-20 21-25 35 Rubber (lb/ac dry) Estate 600 900 1,200 1,400 1,500 1,400 1,300 0 Smallholder 200 600 800 900 1,000 850 700 0 Year 4 5 6 7 8 9-11 16-20 21-25 30 01.1 palm (tons FFB/ac) Estate 3.0 5.0 7.0 7.8 8.5 8.0 7.5 6.0 0 Smallholder 2.0 4.0 5.5 6.0 6.8 5.5 5.0 4.0 0 Year 3 4 5 6 7-15 1.6-25 30 (ccoa (lb/ac dry) Estate 150 400 600 700 800 650 0 Year 6 7 8 9 10-25 -26-40 50 Cc conuts Smallholder (MAWA) /a 30 40 60 70 75 60 0 Smallholder /b 6 8 11 14 17 14 0 /aa Nuts/tree. /'b Copra-pikul/acre. ';ource: SEDC, Trengganu. - 196 - ANNEX 4-5 Page 1 MALAYSIA REGIONAL DEVELOPMENT AND URBANIZATION IN THE NORTHEAST Smallholder Problems in Agriculture in the Northeast 1. One of the two groups which ranks at the bottom of the income scale /1 is the agricultural smallholder. In this annex their problems are analyzed in the context of analyzing sources of poverty in the Northeast. 2. A large part of Northeastern agricultural production is in small- holder hand. For Trengganu exact percentages are available: More than 60% of the rubber, 100% of the rice and 95% of the coconut but less than .5% of oil palm acreage is smallholder operated. For Kelantan these percentages are similar as far as can be ascertained. For example, SEPU estimates that at least 182,000 of 290,000 acres or 63% of the rubber acreage as in smallholder hand though some caution must be exercised with all such estimates as they are based on registered land use. Because of large differences in the profitability of different crops it is believed that there is substantial illegal planting of the more profitable crops. 3. Low productivity in smallholder operations can be traced to many different factors including limited soil quality, topography, the severity of East Coast monsoon, the advanced age of rubber trees, lack of mechanization, the high average age of smallholders and concomitant lack of investment, land fragmentation and small size of average land holdings. 4. Land fragmentation, the result of continuous subdivision of land under Islamic inheritance laws is one of the major contributing factors to rural Malay poverty. Within a generation or two, once large land holdings can become too small to support a family and ownership becomes too frag- mented to transfer land to new and better uses. It seems significant that the rural Chinese whose incomes are considerably above that of rural Malays have also much larger land holdings. While there is little information on this subject presumably Chinese customs force surplus rural Chinese to move to urban areas rather than to subdivide the land./2 At any rate Peninsula- wide rural Chinese income is 80% above that of Malays while their land holdings are 130% above Malay holdings. The corresponding percentages in the Northeast are 149% and 201%. /1 The other group is fishermen (see Chapter 3). /2 Since in Kelantan the Chinese community by law cannot expand its aggregatge land holdings the larger holdings of smallholder families cannot be explained by new land purchases. - 197 - ANNEX 4-5 Page 2 5. In general, there is a clear correspondence between the average number of acres operated by a smallholder and average income. Indeed, the rural Chinese in the Northeast and particularly in Trengganu have higher incomes than the rural Chinese in the Peninsula, and this difference corresponds closely to the difference in land holdings. Table 4-5.1 illustrates this point further. It shows that differences in rural incomes between regions and ethnic groups considerably nlarrow when accounting for size of land holding. 6. This suggests the need for land consoLidations as one measure to improve rural incomes. Average land holdings in the Northeast and in Kelantan in particular are smaller than in any other state and this is a major source of low rural incomes. 7. Other measures to improve rural incomes would be to cultivate smaller holdings more intensively or alternatively to supplement agricul- tural income with non-farm earnings. Data from the agricultural Census indicates that both these measures are already being undertaken (e.g. the wet padi operators in Table 4-5.2.)/l As the size of land holdin,g decreases so does income though less than proportional. Roughly speaking, a 50% drop in size of holdings decreases income by only 25%, which is in part offset by the increased earnings from wage and salaried employment (including estate work) and more intensive cultivation efforts as indicated by rising agricultural income per acre. 8. These results are quite encouraging, [irst because they deny the contention that yields decline with the smallness of holding./2 Rather, there exists some flexibilty in the choice of tiechnology and intensity of labor input through which smaller operators can partly compensate for lack of land./3 Second, smallholders find and make ase of off-farm jcb opportunities. /1 Operators has been defined as households earning more than 10% of their income from agriculture, and who operate land, whether owned or rented. /2 For example Alice Galenson in Malaysia: GrDwth and Equity (]BRD, 1980), "As in turn for smallholders in rubber, low yields appear to go along with small holdings." (p. 230). /3 Of course, it is still true that for crops cultivated by estaLtes, such as rubber, estate yields exceed smallholder yields. This may in part be due to more efficient management but equally important are the use of higher yielding crops, a better age distribution of trees due to tighter replanting schedules, and a higher level of mechanization, as a result of greater availability of capital. In the smallholder sector replanting is also inhibited by the relatively advanced age of the average smallholder and by the long gestation period of tree crops which leaves smallholders without funds in the interim. - 198 - ANNEX 4-5 Page 3 9. The means by which Government attempts to raise agricultural income for the smallholder population will have considerable consequences for the urbanization and industrialization of the Northeast and must be in tune with urban/industrial policies. For example, land consolidation schemes that increase the average size of a smallholder farm would reduce the absolute size of the agricultural population and require a complementary urban policy of rapid infrastructure growth and employment expansion. On the other hand, to raise rural incomes through non-farm earnings requires improved rural access to non-agricultural, primarily industrial jobs, through better public transportation and the industrialization of rural areas. Or as a third example, income improvements through improved crop choice and intensification efforts would, if feasible, reduce pressures on urban growth and industrialization efforts. Unfortunately there is considerable disagreement which of the income policies are feasible or what the pay-off from each would be. ANNEX 4-5 - 199 - Table 4-5.1 LAND OPERATED AND MIONTHLY INCOME Rural monthly per capita Mean acres Monthly income household income operated per acre (1) (2) (1)-(2) Malay Chinese Malay Chinese Malay Chinese Northeast 47 117 3.61 10.88 13.0 10.8 Kelantan 45 106 3.27 9.74 13.8 10.9 Trengganu 50 144 4.22 13.57 11.8 10.6 Northwest 48 85 3.74 9.85 12.8 8.6 Selangor region 100 156 6.48 8.93 15.4 17.4 Other 59 92 4.64 9.81 12.7 9.4 Peninsula 59 106 4.28 9.87 13.8 10.8 Source: 1977., Agricultural Census. - 200 - ANNEX 4-5 Table 4-5.2 MEAN MONTHLY GROSS HOUSEHOLD INCOME /a AND SOURCES OF INCOME FOR AGRICULTURAL OPERATORS,/b BY NUMBER OF ACRES OPERATED, AND MAJOR AGRICULTURAL PRODUCT, KELANTAN 1976 Type of Operators/Type Number of Acres All of Income 0-2.5 2.5-5.0 5.0-7.5 7.5+ operators Wet Padi Operators (#) 24,114 14,944 3,380 1,452 43,892 Mean monthly gross income ($) 110.00 120.75 149.32 241.29 120.70 Income sources (% of total) Wage and salary 22.3 13.9 7.1 11.4 17.9 Agriculture 45.5 59.6 61.7 65.0 52.2 Livestock 5.7 5.8 9.2 10.3 6.2 Rent 19.0 16.0 17.9 8.9 17.6 Transfers 4.3 2.2 2.0 0.3 3.2 Other 3.2 2.5 2.1 4.1 2.9 Coconut Operators (#) 3,668 1,408 640 312 6,028 Mean monthly gross income ($) 114.73 159.16 138.39 123.65 128.10 Income sources (% of total) Wage and salary 16.6 18.7 6.6 10.1 15.7 Agriculture 42.5 57.5 66.3 69.0 49.9 Livestock 4.1 4.4 2.3 9.2 4.2 Rent 23.1 11.7 15.6 10.6 19.0 Transfers 8.0 4.3 4.8 1.1 6.4 Other 5.7 3.4 4.4 0.0 4.8 Rubber Operators (#) 2,332 4,268 4,108 5,600 16,312 Mean monthly gross income ($) 127.56 145.42 175.67 277.51 195.83 Income sources (% of total) Wage and salary 19.5 15.8 12.8 16.9 15.9 Agriculture 46.0 60.2 68.2 60.7 60.3 Livestock 4.9 3.0 4.4 5.4 4.4 Rent 21.4 15.6 10.6 12.2 14.0 Transfers 4.3 5.12 1.2 1.1 2.4 Other 3.9 0.3 2.8 3.7 3.0 Other Operators (#) 4,432 624 900 628 6,580 Mean monthly gross income ($) 122.43 126.74 143.65 130.09 126.44 Income sources (% of total) Wage and salary 20.0 6.8 13.4 6.9 16.6 Agriculture 41.9 61.4 47.8 69.8 47.2 Livestock 5.1 7.9 12.5 9.4 6.8 Rent 19.3 14.8 21.2 15.8 18.8 Transfers 11.5 9.0 1.9 0.0 8.8 Other 2.2 .1 3.2 -2.0 1.8 /a Income includes earnings from paid employment, net business income from agricultural holdings, net income from unincorporated business, net property income and transfer receipts. Income also includes payments in kind, consumption of own produce, and imputed net rents from owner-occupied houses. Source: 1977 Agricultural Census. NUMBER OF HOUSEHOLDS WITH AGRICULTURAL LAND HOLDINGS /a AND MEAN ACRES OPERATED BY REGION AND RACE OF HOUSEHOLD HEAD, 1976 Malay ___ Chinese Other Total Mean acres Mean acres Mean acres Mean acres Region/state Household operated Household operated Household operated Household operated Northeast 148,203 3.61 3,020 10.88 2,341 4.36 153,564 3.76 Kelantan 95,721 3.27 2,124 9.74 1,935 3.84 99,780 3.41 Trengganu 52,482 4.22 896 13.57 406 6.84 53,784 4.40 Northwest 116,062 3.74 7,600 9.85 4,479 6.19 128,141 4.19 Selangor region 31,239 6.48 9,017 8.93 2,187 4.27 42,443 6.88 Other 258,917 4.64 80,167 9.81 7,784 9.99 346,868 5.95 Peninsular Malaysia 554,421 4.28 99,004 9.84 15,991 7.82 671,016 5.17 /a Household holdings comprise all land operated by all members of the household as of 12/31/76 for agricultural purposes, irrespective of the tenure of the land, irrespective of the locat ion of the land, and irrespective of whether the land area planted with crops are kept vacant for future agricultural use. Land in FELDA and other state schemes is not included. Households that own agricultural land but do not operate it (use land or exercise management control over its use) are not included. Source: 1977 Agricultural Census. 4- -.- ANNEX 4-5 Table 4-5.4 - 202 - DISTRIBUTION OF AGRICULTURAL OPERATORS, /a BY NUMBER OF ACRES OPERATED AND MAJOR AGRICULTURAL PRODUCT, KELANTAN 1976 Number of acres Type of operator 0-2.5 2.5-5.0 5.0-7.5 7.5+ Percent Average Wet padi 54.9 34.0 7.7 2.9 100.0 43,892 Coconut 60.8 23.4 10.6 5.2 100.0 6,028 Rubber 14.3 26.2 25.2 34.3 100.0 16,312 Other 67.4 9.5 13.7 9.4 100.0 6,580 Total 47.4 29.2 12.4 11.0 100.0 72,812 /a The definition of agricultural operators is identical to that in foot- note a of Table 4-5.3, except that the present table excludes all operators deriving less than 10% of their income from agriculture, or more than 10% from fishing, or without income information. Source: 1977 Agricultural Census. - 203 - ANNEX 4-6 Page 1 MALAYSIA REGIONAL DEVELOPMENT IN THE NORTHEAST Fishery Resources in the Northeast 1. The Northeast has a substantial fishing industry which in 1977 produced 77,800 tons or 16% of the Peninsula's total catch of fish (Table 4-6.2). Of this, 84% is landed in Trengganu which has 205 miles of shore line compared to Kelantan's 64. Thus, most of the following comments apply primarily to Trengganu. 2. Trengganu's fishing industry employs 13,100 workers or 8% of the state's work force, operating out of 38 coastal villages and towns distributed along the entire coast. Coastal fishing conditions in the South China Sea are ideal, with limited currents, a suitable ocean bec despite some areas of coral and mud, and warm shallow waters that produce a high fish stock density. The sea floor remains shallow throughout the 200 mile exclusive Economic Zone, never dropping below 100 m in depth, making Trengganu's off-shore area the largest trawlable fishing zone of any state on the peninsula. It also extends the fleet range required to engage in deep sea fishing. 3. Trengganu's total catch, despite the3e favorable conditions, remains modest when compared to that of northern West Coast States. As seen from Table 4-6.2, Selangor and Perak, despite shorter shorelines /1 have a substantially larger catch. Measuring productivity in terms of catch (in tons) per km shoreline Perak, Kedah and Perlis have twice the productivity of Trengganu. Part of these differences may be explained by differences in fishing grounds and fish stock density, another part by the greater severity of the East Coast monsoon season which reduces the catch from November through January to 55-55% of the April and September peaks. However, a substantial part is undoubtedly due to the limited reach and technical obsolescense of the fishing boat fleet. 4. To modernize the fishing fleet and tD raise the produc.tivity of fishermen whose income is among the lowest of any occupationa.l group the government has installed a subsidy program for nets and boat engines. An initial outcome of these subsidies has been to increase Trengganu's catch between 1970 and 1977 from 21,500 tons to 77,800 tons, a growth of 260%, or 28% of the total peninsular growth during that period (Table 4-6.3). However, it also led to overfishing in the coastal range, in which most of the fleet operates. By 1980 the total catch had thus fallen to 60,000 tons and the government is now considering ending the subsidies. /1 and limitations due to the closeness of Sumatra across the straits of Malacca. - 204 - ANNEX 4-6 Page 2 5. There are no exact estimates as to the amount of fish used for own consumption or exported from the Northeast. The Trengganu Coastal Region Study estimates that Trengganu uses 35% of its catch for own consumption /1 and that it exports 80% of the remainder to Singapore and 20% to Kuala Lumpur. However, this disregards likely exports to Kelantan. Since Kelantan's own catch would allow it a per capita consumption less than one third the Peninsular average it seems reasonable to assume that it supplements its own catch with imports from Trengganu, particularly since Trengganu's most productive district borders on Kelantan./2 Assuming Kelantan's per capita fish consumption equals the Peninsular average, Trengganu's exports /3 to areas outside the Northeast would be only around 25% of the total stock, rather than the 65% implied above. 6. The Trengganu Coastal Region Study puts the long term potential for sustainable fish catch in Trengganu at roughly 200,000 tons (Table 4-6.1)./1 An FAG study projects Trengganu's total landings at 190,000 tons by 1995, a threefold rise from the 1980 total of 60,000 tons implying an annual growth rate of 8.0%. However, these estimates were made prior to the recent decrease in fish landings. Quite likely fish densities and sustainable yields in the past have been overestimated and more realistic estimates by the Federal Fisheries department now put the sustainable catch at 100,000 tons p.a. by 1990. 7. To go beyond this more modest level it is necessary to substan- tially alter fishing patterns and to shift from the close coastal range that have been overfished to a range beyond 100-150 km where current landings aire still small relative to sustainable yields. This requires larger boats and bigger engines for trips of greater distance and duration. To permit opera- tion of such boats, the government has embarked on a program of fishing port improvements and also encourages formation of cooperatives, to improve ownership and boat operating patterns. At present only Kuala Trengganu (Mendering) and Kuala Besut have major ports for large trawlers and seiners. Secondary ports at Dungun and Chukai are sufficient only for small artisanal /1 Assuming a 50% higher per capita consumption rate in Trengganu than in the Peninsula. /2 This is the district of Besut which in 1978 produced 27,000 out of 75,000 tons of fish landed. /3 Fish transport is in 4-6 ton trucks, in wooden boxes containing 70 kg of fish and 50 kg of ice, at transport costs per box in 1978 of M$9.00 to Kuala Lumpur and M$18.00 to Singapore (i.e. at M$0.13 and MO.26 per kg respectively. Since the price of fish in 1978 averaged M$1.07 per kg wholesale, transport charges are likely to be 5-7% of the retail price in Kuala Lumpur. - 205 - ASN1EX 4-6 Page 3 boats and trawlers of up to 30 tons./l Traditionally, all ports have been located at river mouths, and for this reason all of them face similar siltation and river shoaling problems associated with inland logging practices. /1 A new port. for a maximum trawler size of 80 tons is already operative at Mlendering substituting for the old port at Kuala Trengganu. Improvements at the port at Besut are under construction and improve- ments at Dungun and Chukai are proposed or on the drawing board. - 206 - ANNEX 4-6 - 206 - ~~~Table 4-6.1 FISH LANDINGS 1978 AND ESTIMATED SUSTAINABLE YIELD Estimated Long-run 1978 landings sustainable yield Demersal Fish 0 - 0 km 10,000 11,000 20 - 100 km 3,000 29,000 100 - 300 km 1,000 30,000 Total Demersal 14,000 70,000 Trash fish 9,000 40,000/a Prawns ( 0-20 km) 1,200 1,500 Pelagic Fish 0 - 20 km 12,000 10,000 20 - 100 km 25,000 36,000 100 - 300 km 13,000 44,000 Total Pelagic 50,000 90,000 Total Landings Incl. trash 74,200 201,500 Excl. trash 66,200 161,500 /a Not all trash fish caught will be marketed. Total catch with curent types of net 70,000 tonnes. Source: TCRS Vol. II. - 207 - ANN.VEX 4-6 - 207 - Ta'ble 4-6.2 FISH LANDINGS PER KILOMETER OF COASTLINTE BY STATE, 1977 1977 catch for Coastline Total 1977 landings human consumption length 1977 per km oi- Per km (straightline) catch coastline Total coastline State (km) (tonnes) (tonnes/kim) (tonnes) (tonnes/kin) Perak 148 143,200 968 107,900 729 Kedah 76 71,600 942 46,500 612 Perlis 19 14,300 752 8,400 584 Selangor 167 105,800 634 49,300 295 Penang 49 28,000 571 19,000 388 Trengganu 205 77,800 380 68,400 333 Kelantan 64 6,500 102 6,200 97 Johore 380 34,800 92 27,200 72 Pahang 167 14,000 84 8,200 49 Malacca 65 1,500 22 1,400 21 Negri Sembilan 38 500 13 500 13 Total 1,378 498,000 361 343,000 249 Source: Annual fisheries Statistics, cited after TCRS vol. II page 65. - 208 - ANNEX 4-6 Table 4-6.3 LANDINGS OF MARINE FISH, CRUSTACEA AND MOLLUSCS IN PENINSULAR MALAYSIA BY STATE, 1970-78 State 1970 1971 1972 1973 1974 1975 1976 1977 1978 Perlis 5,300 5,700 5,500 8,100 13,500 14,000 9,900 14,300 14,500 Kedah 28,900 31,700 38,200 45,900 42,600 42,900 52,000 71,600 66,500 Penang & P.W. 38,600 34,800 32,200 33,900 26,700 21,000 17,100 28,000 22,500 Perak 101,700 102,300 79,200 99,700 131,700 95,000 108,600 143,200 186,600 Selan,gor 46,200 64,600 59,100 79,800 88,200 82,200 91,700 105,900 104,700 Negeri Sembilan 400 400 300 500 300 400 500 500 400 Malacca 1,800 1,600 1,500 1,500 1,300 1,300 1,300 1,400 2,400 Kelantan 6,700 7,000 11,300 12,900 12,700 12,700 13,300 6,500 14,500 Trengganu 21,500 22,900 30,700 38,000 59,700 53,400 55,300 77,800 75,200 Pahang 8,400 7,400 8,300 11,800 19,000 13,500 14,200 14,000 16,300 Johore 39,500 44,700 44,700 39,200 43,900 38,800 47,100 34,800 61,000 Total 299,000 323,100 311,000 371,300 439,600 375,200 411,000 498,000 564,600 Source: Annual Fisheries Statistics. AMNEX 5-1 - 209 - page 1 MALAYSIA REGIONAL DEVELOPMENT IN THE NORTHEAST Tourism 1. A number of peninsular and East Coast studies recommend. the development of the tourist sector,/l as potentially a major employment generator. However, the FMP is relatively mute as to concrete actions for implementation. In general, the tourist sectioa in Malaysia has yet to develop significantly compared to other Asian zountries. The East Coast Tourist sector, in particular, is much less developed than that on the West Coast./2 2. Recent developments, however, give some support to hopes for the tourist section. International business and tourist traffic to I'eninsular Malaysia has undergone substantial growth. There was an average annual 8.6% rise in visitor arrivals (from 725,883 to 1,529,915) between 1972 and 1980. The distribution of origin of these visitors has remained relatively stable over most of the period (see Table 5-1.1)./3 Little is known, however, about the distributicn between tourist and business visitors, though the strong seasonality of visits in the Northeast suggests a substantial tourist component, with peak visiting months in July and August, and a trough in the monsoon months of November through February. 3. The East Coast share in total tourism is small. As shown in Table 5-1.2, the whole East Coast received only 11.8% of the total hotel person-nights in the Peninsula - compared to Kuala Lumpur's 38.3% and Penang's 20.2%. The discrepancy is even higher for foreign trave!llers who spend only 6.2 out of 100 nights in East Coast hotels as compared to 45.5 in Kuala Lumpur arLd 28.4 in Penang. Of this East Coast total person-nights, 42% go to Kuantan and 50% is shared by the principal northwestern cities of Kuala Trengganu and Kota Bahru. /1 The 1975 Tourism Development Plan, the 1979 Tourism Development Study, the TCRS arid the Development Strategy Report for Kelantan. /2 With two or three exceptions, there is an almost complete lack of East Coast hotel accommodations acceptable to the international tourist traffic. Tourist attractions are also underdeveloped and inadequately promoted. /3 In 1980, 55.2% consisted of visitors from other ASEAN countries (Indonesia, Philippines, Singapore, Thailand), 4.7% from India, 7.4% from Japan, 12.8% from Europe (including 5.9% from the UK and Ireland) and 7.2% from Australia and New Zealand. F;ost of the visitoi-s came by air, 43.8% as compared to 5.2% by sea, and 51.0% by road and rail. - 210 - ANNEX 5-1 Table 5-1.1 VISITORS TO PENINSULAR MALAYSIA BY COUNTRY OF NATIONALITY, 1975-80 (%) Country of nationality 1975 1976 1977 1978 1979 1980 Asian 54.7 57.4 54.8 54.8 56.4 55.2 India 3.8 3.1 3.0 3.8 4.4 4.7 Japan 5.2 6.3 8.6 8.4 7.3 7.4 Australia/New Zealand 12.2 10.4 9.7 8.9 7.5 7.2 Continental Europe 5.3 5.4 5.6 5.9 6.2 6.9 UK/Ireland 7.7 6.4 6.5 6.5 6.1 5.9 Canada 0.9 1.0 1.3 1.2 1.2 1.2 USA 5.7 5.6 5.9 5.4 5.0 4.6 Other 4.6 4.4 4.6 5.1 6.0 6.9 Total (%) 100.0 100.0 100.0 100.0 100.0 100.0 Total 1,183.0 1,224.8 1,229.0 1,399.1 1,416.4 1J529.9 (Abs in OOOs) Growth rate (%) 3.5 0.3 13.8 1.2 8.0 Source: Tourist Development Corporation - 211 - ANNEX 5-i Table 5.1.2 DISTRIBUTION OF HOTEL PERSON-NIGHTS BY LOCALITY, AND OCCUPANCY RATES, 1980 Foreign person nights Total Singapore/ Total person Occupancy Locality Domestic Bruneians Ot:hers foreign nights rate East Coast Towns 15.9 8.0 5.7 6.2 11.8 61.5 Kuantan 6.3 3.6 2.8 3.0 5.0 50.0 Kemamanu 0.7 0.1 0.3 0.3 0.6 46.2 Dungun 0.6 0.2 0.1 0.1 0.4 54.8 Kuala Tretngganu 3.9 0.9 1.3 1.2 2.8 81.9 Kota Bharu 4.3 2.7 1.0 1.5 3.1 79.9 West Coast Areas Kuala Lumpur and 33.2 36.7 49.0 45.5 38.3 71.4 Pelaling Jaya Penang Iisland 14.3 17.7 32.8 78.4 20.2 65.1 Other West Coast 15.9 10.8 6.1 7.4 19.1 62.3 towns Other Areas Hill resorts 6.4 24.3 3.9 9.7 7.8 52.2 Island resorts 1.1 1.3 1.8 1.6 1.3 41.9 Port Dickson 1.4 1.3 1.1 1.1 1.3 26.4 Peninsular 100.0 100.0 100.0 100.0 100.0 63.8 Malaysia Absolute 3,890.2 799.6 2,001.8 2,801.4 6,691.6 (000s) Source: 2iased on information provided by 'he Tourist Development Corporation. - 212 - ANNEX 5-1 Table 5.1.3 HOTEL ROOM IN 1981 AND PLANNED, BY LOCATION 1981 rooms Planned Kuala Trengganu 419 na Superior 169 190 Dungun na na Superior 150 50 Kemaman na na Superior na na Kota Bharu 586 na Superior 210 0 Kuantan /a 870 na Superior 260 na /a Excluding 300 rooms at the Club Mediteraine. - 213 - ANNEX 5-1 Table 5-1.4 POTENTIAL TOURIST ATTRACTIONS (a) Numerous beaches exist all along the coast, though beaches that are uninhabited and of sufficient quality to be developed as resort areas are more limited and widely scattered, A principal resort area has been identified at Dalam Rhu, at the border between Kelantan and Trengganu, 50 miles south of Kota Bharu; other minor centers are located between Merang and Kuala Besut:, about 50 miles north of Kuala Trengganu; and in an area several miles north of Dungun, where the Tanjung Jara Hotel has been constructed, close to the Rantan Abang Visitor Center. (b) Several offshore islands such as Perhentian Besar and Pesdangi offer a rich marine life, coral reefs and a wide range of opportunities for fishing and skin diving in a tropical environment (provLded facilities damaging to the sensitive coral ecology are not built oii the islands, but located appropriately on the mainland). (c) Inland jungles and wildlife are preserved in original condition in the Taman Negara Park that occupies part of Pahang, Trengganu, and Kelantan. This park, though currently almost inaccessible from the northeast could become a major attraction as it remains one of the last jungle areas in the peninsula in untouched condition. (d) Trengganu beaches are one of the only two areas in the world that provide the opportunity to observe the annual beaching of the giant leathery turtle during the period May to September. (e) Traditional Malay culture provides a potential source of tourist attraction including festivals) dances, shadow play, kite flying and bersilat (art of self defense) (f) Tradit:ional handicrafts produce batik and brassware. Their production can be observed in traditional village settings and markets in the towns provide an attractive environment for their purchase. - 214 - ANNEX 5-1 Table 5-1.5 Northeastern Handicrafts (a) Northeastern batik plays a prominent cultural role in Peninsular Malaysia where it is used by both males and females for formal dressing. The work is done almost exclusively by men on a full time basis, in covered outdoor areas with an average establishment size of 5-10 men./l (b) The industry has given rise to forward linkages in tailoring, and backward links to the fabricated metal sector which provides the complicated metal pattern blocks. Cloth, wax, and dyes are imported as total consumption remains relatively minor and, at any rate, cotton and silk are not locally produced. (c) Songket is a local ceremonial cloth handwoven on large wooden looms using gold or silver threads in a supplementary weft technique. The work is done by women at home, to supplement work in the fields and hence is seasonal and part time. Marketing is via the peraih system whereby middlemen supply women with raw materials and pay them upon receipt of the ready material. The same marketing system is used for mengkuang weaving which uses the dried and dyed straw-like fibers from the pandan leaves to produce such items as mats, baskets and purses. Again this work is done by women at home, on a part-time basis. Both mengkuang weaving and brassware appears to be more common in Trengganu than Kelantan. (d) Brassware, such as plates, ashtrays or candleholders, is made by the lost wax process allowing only a single cast per form which takes a day or more to make. Used cartridges supplied by the Deparment of Defense are the principle raw material, but its many impurities add to labor requirements and lower the quality of the finished product to a point where it cannot be sold in the tourist market. The work is done by men on a more or less full time basis, in establishment ranging in size from 2-10. /1 In making batik white cloth is first patterned with hot wax, usually using metal pattern blocks, then dyed, washed, and dried, leaving the wax areas white. The process can be repeated for additional colors. - 215 - ANNEX 6-1 Page 1 MALAYSIA REGIONAL DEVELOPMENT AND URBANIZATION IN THE NORTHEAST FMP Development Allocations 1. This section examines the FMP development allocations, both for the sector priorities, they reveal and for consistency with GDP projections. Table 6-1.1 shows the development allocations by broad expenditure classes, i.e. broken down into economic, social, security and administration expenditures. A further breakdown allows El rough identification of the sectors to which the allocations are applied. Table 6-1.2 shows FMP allocations in per capita form, and Table 6-1.3 relates FMP allocations in the agricultural sector to that sector's current employment and GDP. 2. As shown in Table 6-1.2, total development allocations by both the federal and state governments (other than for multi-state projects) average M$ 2,312 per capita in the peninsula over the 1981-85 period, using the 1980 field counts for the population base. In contrast, Kelantan's and Trengganu's allocations are M$ 3,244 and Miare of Kelantan's development allocation is for security, mainly defense. While this allocation has a positive impact on GDP (initially because of the necessary investments and later because of the personnel) the local mnultiplier effect is likely to be small, in part due the limitations of the local catering and subcontracting capabilities. 3. Disparities in the development allocation between Kelantan and Trengganu result from differences between the two state's access to state and statut:ory funds rather than from differences in federal funding. For Trengganu which already receives large oil revenues and whic.h will receive additional revenues from gas these funds make up 12% of the total develop- ment: allocation, as compared to 2% in Kelantan and close to 8% in the Peninsula. Federal funds alone result in almost identical per capita allocations to the two states, of M$ 3,167 to Kelantan and M$ 3,290 to Trengganu. Still, even in this case the equality in funding results largely from the noninclusion of oil and gas development expenditures in Trengganu and Kelanl:an-s high security allocations already mentioned. These allo- cat:Lons amount to 19% of the total federal allocation to Kel.antan, as - 216 - ANNEX 6-1 Page 2 compared to 4% for Trengganu and 11% in the Peninsula. Without them Kelantan's per capita allocations wuold only be 35% higher than the Peninsular average but for Trengganu the difference would increase to 67% (see Table 6-1.2). Thus, implicitly the FMP allocations suggest that cn economic grounds development opportunities in Kelantan are considerably below those in Trengganu, which is in fact also suggested by the sectoral assessment of growth opportunities in Annex 6-2. 4. The major source of Kelantan's and Trengganu's high development allocations are agriculture and rural development projects. In Kelantan 47.2% of all non-security allocations fall in this sector, as compared to Trengganu's 43.6% and the Pensinular's 35.1%. Within this category allocations go to numerous subareas, summmed in Tables 6-1.1 and 6-1.3 tnder three headings: (1) agriculture (including integrated development projects and various subsidies by the Ministry of Agriculture), (2) land and regional development projects (FELDA, FELCRA, KETENGAH, KESEDAR, TAKDIR, etc.), and (3) and "other" category (which includes such diverse items as rubber replanting; agricultural credit, marketing and processing projects; irrigation and drainage; fisheries; and research). 5. The apparent priority accorded agricultural development in the Northeast over the rest of the peninsula is apparent from its allocations. Not only does the agricultural sector and each of its three subareas receive higher per capita allocations than the peninsular average but, almost with- out exception, they also receive higher shares of the already above average total development allocations to the two states. Yet this is not the full story. Given that the Northeast is predominantly agricultural it is also necessary to relate allocations to the existing agricultural base, such as agricultural GDP and agricultural employment. As is seen from Table 6-1.3, allocations in all those categories are substantially higher than the Peninsular average if taken as a proportion of agricultural GDP. For every dollar earned by the agricultural sector in 1980 (in 1970 prices) the FlIP proposes to allocate to the sector annual development funds of M$0.33 in the Peninsula, but M$ 0.64 in Trengganu and M$ 0.81 in Kelantan (in current prices). However, given the low productivity of agricultural workers in the Northeast, these allocations which are high relative to sector GDP are low relative to sector employmernt. For each worker in the agricultural sec-'or, they amount to annual allocations of M$ 1,836 in the Peninsula, but only M$ 1,627 in Trengganu and a very low M$ 1,174 in Kelantan. 6. It is surprising to see that the allocation per worker in the major extensification schemes is also below the Peninsular average. In particular, as seen from Table 6-1.3, planned annual expenditures per agricultural worker for land and Regional Development are M$ 863 in the Peninsula, M$ 904 in Trengganu and M$ 487 in Kelantan. While Trengganu' s per worker expenditures exceed the peninsular average by 5%, Kelantan's are smaller by 44% and the two state's combined per worker allocation is only M$ 627 per year or 27% below the Peninsular average. Put differen:ly, - 217 - ANNEX 6-1 Page 3 it appears that in the Northeast a much smaller proportion of the rural population growth can be channelled into new land development schemes than in the Peninsula. Obviously, this assumes that the number of jobs created per dollar development allocations is not much higher in the Northeast than elsewhere. 7. Similarly for traditional intensification efforts/i allocations per worker are significantly lower in the Nlortheast than in the Peninsula (see Table 6-1.3). thus, while the allocation in the "other" category is for M$ 567 annually in the Peninsula, it is only M$ 465 in Trengganu and M$ 345 in Kelantan. It is very unlikely that expenditures could be so much higher in the Peninsula than the Northeast without further raising the former's productivity and possible earnings differentials. Improvements in in the relative productivity and earning pcisition of the Northeast could therefore come only from other sources such as greater relative extensifi- cation efforts in the Northeast (which is rot apparent as noted in the previous paragraph), or from other measures that possibly could have a larger impact in the Northeast than elsewhere such as changes in cropping patterns or land consolidations mesures that shift labor out of agriculture. 8. There can be only one interpretation of these figures. First, Northeastern earnings and productivity disparities in the agricultural sector are unlikely to decline, and second, the extensification efforts in the Kesedar and Ketengah regions will do less to solve the Northeast's rural labor absorption problem compared to similar efforts in the rest of the country. There is therefore a greater need in the Northeast for rural outmigration or the provision of rural jobs outside the agricultural sector than in the rest of the Peninsula. 9. The above points should be given some attention. For if anything is taken for granted in current planning for the Northeast it: is that there exists a 10-year 'breathing period' in which the regional development schemes will provide relief for the long-term labor absorption problem in the rural Northeast. While this is true enough in absolute terms, it does not appear to hold in relative terms (i.e. vis the other regions). But it would have to be true in relative terms, if the relative income position of the Northeast is to improve. This then points to the importance of generat- ing urban-industrial employment in the Northeast. 10. Cf the other 'economic' sector allocations--Mineral Resources, Commerce and Industry, Transport, Cormmunications, and Energy and Public Utilities--most show above average per capita funding for the Northeast, with /1 Such as rubber replanting, irrigation and drainage, research which are mostly subsumed under the 'other category of the agricultural development allocation, though some such items also appear under the 'agriculture' label. - 218 - ANNEX 6-1 page 4 major variations in funding usually explained by large-scale projects (such as Trengganu's Kenyir Dam in the Energy and Public Utilities sector). Noteworthy, are the large transport allocations in the Northeast, most of which are for rural roads despite the program to improve the region's interregional accessibility. In per capita terms the transport allocations over the 5-year FlAP period are 14$ 240 in the Peninsula, as compared to M$ 306 for Trengganu and M$ 430 in Kelantan. Of Kelantan's allocation 83% or M$ 356 are for roads and bridges as compared to 69% or 14$ 166 for the Peninsula. In turn, most of these expenditures are for rural and kampung roads rather than highways or security roads. Specifically, Kelantan's allocation for rural and kampung roads is M$ 223 per capita for the FMP period, as compared to M$ 126 in Trengganu and M$ 64 in the Peninsula. The point here is that these expenditures should make a substantial contribution towards improving the access of the rural population to urban jobs. Given that rural intensification and extensification projects are likely to be insufficient to improve the relative income position of Kelantan's rural population it becomes all the more important to provide opportunites to supplement agricultural employment with secondary urban jobs. If this is the objective behind the high priority accorded local transport (as opposed to highways, ports and airports) the allocation is to be recommended (as noted in Chapters 6 and 7). 11. The final point concerns the 'social' allocations to the Northeast which proportionately to the funds allocated to each region are much higher in the Peninsula than in the Northeast, i.e. 20.7% of all federal funds (net of security allocatioons) for the peninsula, as compared to 13.8% for Kelantan and 12.7% for Trengganu. However, this disparity is mainly due to the high northeastern allocation for non-social programs and reflects to a lesser extent neglect of social programs. As seen from Table 6-1.2. the Peninsula's allocation for social development on a per capita basis is M$ 393, as compared to M$ 402 for Trengganu and M$ 354 for Kelantan (10% below the Peninsular average). Higher allocations in Trengganu for Education and Training reflect the intended location of training institutions in that state that will also benefit Kelantanese. The higher allocations in Kelantan for Health and Population reflect the state's bottom ranking in the health field, as indicated by high infant mortality and low availability cf doctors, dentists and hospital beds (see Annex I-1). Still, it seems doubt- ful that the allocation premium to Kelantan's health field will go far in eliminating these disparities. There exist also low allocations in Kelantan (and to a lesser extent in Trengganu) to housing and 'other' services (which include broadcasting, culture, youth and sports, and various local community projects). These are difficult to explain, though at least for housing they may reflect the relatively lesser need for expansion in the Northeast. T}e Northeast, despite its limited income has at present less crowded housing conditions, and in rural areas there would be a lesser need for sewerage expansion. In summary, while social service allocations to the Northeast are roughly on par with those in the Peninsula, they are unlikely to be sufficient in magnitude to significantly reduce disparities where they do exist, such as in the health field, - 219 - ANNEX 6-1 Table 6-1.1 FMP AllOCATION OF DEVELOPMENT FUNDS/a BY SECTOR AND SELECTED STATES, 1981-85 Kelantan Trengganu Peninsular M./a Sector M$ mln % /b M$ mln % /b M$ mln % ,_ Economic 1,918 69.0 1,484 83.2 16,208 68.1 (85.2) (86.7) (76.8) Agriculture and rural development 1,063 38.2 745 41.8 7,413 31.2 (47.2) (43.6) (35.1) Agriculture /c 309 11.1 118 6.6 1,640 6.9 (13.7) (6.9) (7.8) Land and regional /d development 441 15.9 414 23.2 3,484 14.6 (19.6) (24.2) (16.5) Other 313 11.3 213 11.9 2;289 9.6 (13.9) (12.4) (10.,8) Mineral resources development 1 - - - 18 - (-) 1.-) Commerce and industry 284 10.2 265 17.9 2,783 11.7 (12.6) (15.5) (13.2) Transport 377 13.6 166 9.3 2,672 11.2 (16.7) (9.7) (12.7) Communications 35 1.3 34 1.9 1,131 4.8 (1.6) (2.0) (5.4) Energy and public utilities 157 5.6 274 15.4 2,178 9.2 (7.0) (16.0) (10.3) Feasibility studies 1 - 1 - 15 - (-) (-) ) Social 311 11.2 218 12.2 4,376 18.4 (13.8) (12.7) (20.7) Education and training 148 5.3 111 6.2 1,939 8.2 (6.6) (6.5) (9.2) Health and population 65 2.3 30 1.7 477 2.) (2.9) (1.8) (2.3) Housing, sewerage kampung and community development 58 2.1 53 3.0 1,293 5.4 (2.6) (3.1) (6.1) Other 40 1.4 24 1.3 667 2.8 (1.8) (1.4) (3.2) Security 529 19.0 72 4.0 2,692 (11.3) Defense 479 17.2 59 3.3 2,141 9.0 Internal security 50 1.8 13 0.7 555 2.3 (0.5) Administration 24 0.9 9 100.0 515 2.2 (1.1) (2.4) Total Federal Funds 2,781 100.0 1,183 23,791 100.0 State plus Statutory Funds 67 240 1,953 Grand Total 2,848 2,023 25,744 /a Excludes mulltistate federal funds of M$ 11,177 million (of which M$ 6,540 million are for security) and allocatons for Sabah and Sarawak. lb As % of total federal funds. The parenthesis net of security allocation. /c FMP Appendix A, item i, first line only. /d F'MP Appendix A, item vii, first line only. /e FMP Appendix A, all items under heading exclud:ng first lines of (i) and ( vii). Source. FMP Appendix A. - 220 - ANNEX 6-1 Table 6-1.2 PER CAPITA DEVELOPMENT ALLOCATIONS DURING THE FMP, BY SECTOR AND NORTHEASTERN STATES, 1981-85 Kelantan Trengganu Per capita development Share of Share of Peninsula allocation/a 1981-85 M$ Peninsula M$ Peninsula M$ Federal plus state funds 3,244 1.40 3,733 1.62 2,312 Federal funds 3,167 1.48 3,290 1.54 2,316 Federal funds net of security 2,565 1.35 3,157 1.67 1,895 Federal funds by sector Economic 2,185 1.50 2,738 1.88 1,455 Social 354 .90 402 1.02 393 Education and training 169 .97 205 1.18 174 Health and population 74 1.72 55 1.28 43 Housing, sewerage, kampung and community development 66 .57 98 .84 116 Other 46 .77 44 .73 60 Security 603 3.14 109 .57 192 Administration 27 .59 17 .37 46 Population (000's) 878 542 11,136 /1 All funds net of multi-state funds. Source: Table 6-1.1. - 221 - ANNEX 6-1 Table 6-1.3 AVEIRAGE ANNUAL FMP DEVELOPMENT ALLOCATION TO AGRICULTURE, PER AGRICULTURAL WORKER, AND AS A PROPORTION OF THE 1980 AGRICULTURAL GDP Kelantan Trengganu Peninsula (1) 1980 GDP in agriculture (in million M$ and 1970 prices) /a 264 234 4,485 (2) 1976 employment in agriculture /b (000's) 181.1 91.6 807.5 (3) Average annual development allocation to a,griculture and rural development (in million M$ and current prices) /L 212.6 149.0 1,482.6 (4) Agriculture (incld. integrated projects and subsidies) 61.8 23.6 328.0 (5) Land and regional development 88.2 82.8 696.8 (6) Other 62.6 42.6 457.8 Average annual development allocation per worker in Agriculture (M1$) (7) Agriculture and rural development (3),+'2) 1,175 1,627 1,836 (8) Agriculture (4)+(2) 341 258 406 (9) Land and regional development (5)+(2) 487 904 863 (10) Other (6)i-(2) 345 465 567 Average annual development allocation as proportion of the 1980 GDP in agriculture (11) Agriculture and rural development (3)(11) .81 .64 .33 (12) Agriculture (4)L-(1) .23 .10 .07 (13) Land and regional development (5).(1) .33 .35 .16 (14) Other (6)E-(1) .23 .18 .10 /a FMP p.101 Th Agricultural census /c FMP Appendix A; the 5-year allocations has been devided by 5; excludes multistate allocations. ANNEX 6-2 - 222 - Page 1 MALAYSIA REGIONAL DEVELOPMENT AND URBANIZATION IN THE NORTHEAST Regional Growth Prospects 1. Over the past decade Kelantan's GDP growth has averaged 7.4% in aggregate, or 4.6% in per capita terms, considerably below the Peninsular averages of 8.3% and 5.3% respectively. On the other hand, Trengganu experienced the second highest growth of any state in the nation, with respective annual rates of GDP and per capita GDP growth of 12.3% and 8.8%. As was shown in Chapter 2, both states had high shares of slow-growth indus- tries, in particular agriculture. But Trengganu was able to grow more rapidly because local factors caused the agriculture, mining, manufacturing and government sectors to grow substantially above peninsular rates. On the other hand, no such positive factors were present in Kelantan. Since each industry performed only at roughly average levels, the total state performance was significantly below that of the peninsular. 2. In the following decade the FMP expects the two states to reverse their roles in terms of performance rates, with faster growth for Kelantan than Trengganu. It also expects both states to grow considerably above the peninsular average. For Kelantan GDP is to grow at an average rate of 12.4%, and at 9.9% in rer capita terms. The respective rates are 11.5% and 8.4% for Trengganu, and 8.0% and 5.6% for the Peninsula. This growth would bring Trengganu's per capita GDP by 1990 within 9.3% of the Peninsular average, and would raise Kelantan's per capita GDP from 44.6% of the Peninsular average in 1980 to 66.1% in 1990. 3. The FMP projected sources of this growth are analyzed in Table 6-2.2. It shows that if each industry in Kelantan grew at its peninsular rate, Kelantan would grow 19 points below the peninsular overall rate or at 7.0% p.a. instead of the projected 12.3%. With the same assump- tion of proportional growth by sector, Trengganu would grow at an even smaller rate than Kelantan, 40 points below the peninsular average or at 5.8% p.a. instead of the projected 11.4%. The slower rate of growth for Trengganu would be due mainly to its large share of mining which nationwide is one of the slowest growing sectors (since it combines the larger base of the slow growing tin subsector with the smaller base of the fast growing oil and gas subsectors). Regional factors are projected to more than make up for the limitations of sector composition in the two states. In sectors for which the regional factor - one hesitates calling it regional advantage - makes the greatest growth contribution are agriculture, manufacturing and, Table 6-2.1: SECTOR ClDP, SoAPW ANI) CPOWTI RATE, 199O-100n ffi,s. serv., nther Region Agriculture Mining Manufactu,re Construction WItlities Transport Cormmrerce finance Gov t Pervice services Total 1990 1990 1980 1990 1980 199n 1980 1990 1990 1Q90 iqo0 iq90 19R0 1n.90 TR 00 a 3Q 0 in0o 199n 3pn 1oa0 fl980 o1o GDP ($ million) 1970 Prices Kelantan 264 547 2 4 41 261 39 94 14 63 65 16R 60 296 100 768 ISR 67P 17 10n 764 2,43q Trengganu 234 489 166 380 50 248 19 86 13 59 1R 64 4' 131 69 277 117 47R In 261 717 ?,17Q Peninsula 4,485 6,274 6S1 727 5,1S9 14,517 961 2,240 533 1,3S6 1,499 3,310 3,916 f,144 l,nn7 4,n02 9 ,no 6,940 S07 1,'9R 71,706 46,7?6 GDP Share (%) Kelantan 34.6 22.4 0.3 0.2 5.4 In.7 9.1 3.9 1.R 2.6 R.S 6.9 9.n 10.9 13.0 11.n 20.' ?7.* 1.6 4.1 lnn.n lon.n Trengganu 31.9 22.4 22.9 17.4 6.8 11.4 2.6 3.9 1.8 7.7 7.4 2.4 9.7 6.n 9.? In.2 1l.n 7?1. 1.4 1. n In0, 100.0 Peninsula 20.7 13.4 3.0 1.6 23.8 31.1 4.4 4.R 2.S 2.Q 6.q 7.1 13.4 13.1 8.R 9.6 13.9 14.7 2.q Ft 100.n I0nn.0 GDP Growth Rate p.a. (%) F._: t~~~~~~~~~~~~~~ . 7.f . ' 2n2.3 9.2 I6. 10. l'.o 40e'. qLl Trengganu 7.6 8.6 17.4 16.3 16.3 13.9 12.0 12.6 1.1 8.2 11.4 Peninsula 3.4 1.1 10.9 9.7 9.7 9.? 7.7 7.7 R.6 A.0 90 Source: EMP. Table 6-2.2. SHIFT SHARE ANAlYSIS OF TIlE SOURCE OF GDP GROWTH 1981-1990, KELANTIN AND TRENGGANU Region and sources Agri- Mlanu- Con- Bus. serv., Gov't Other of growth culture Mining facture struction Uti ities Transport Commerce finance service service Total Ke lanitan Percent of 1980 GDP National 115 115 115 115 115 115 115 115 115 115 115 Sector composition -75 -104 66 19 36 6 -5 -5 14 0 -19 Regional factors 67 99 356 7 199 37 161 58 200 618 123 Actual 107 1I0 537 141 350 158 271 168 329 733 219 1981-90 Growth in GDP (in millions M1$) National 304 2 47 45 16 75 80 115 182 14 880 Sector coinposition -199 -2 27 7 5 4 -3 -5 22 1 -143 Regional factors 178 2 146 3 28 24 110 58 316 73 938 > Actual 283 2 220 55 49 103 187 168 520 88 1,675 T r engganOu Percent of 1980 GDP National 115 115 115 115 115 115 115 115 115 115 115 Sector composition -75 -104 66 19 36 6 -5 -5 14 0 -40 Regional factors 69 118 215 219 203 135 102 116 180 5 120 Actuail 109 129 396 353 354 256 212 226 309 120 196 1981-90 Growth in GDP (in millions MS) National 270 191 58 22 15 21 48 78 135 12 850 Sector composition -176 -172 33 4 5 1 -2 -3 16 0 -294 Regional factors 161 195 107 41 26 24 43 79 210 0 886 Actual 255 214 198 67 46 46 89 154 361 12 1,442 Source: Table 6-2.1. m z w M cr ANNEX 6-2 - 225; - Page 4 governmenl: service. In addition, commerce has a strong regiLonal growth component in Kelantan, and the oil and gas subsectors of mining in Trengganu. 4. Based on the analysis in this Chapter on the potential in the principal export sectors the FMP projections are difficult t:o justify, particularly in the case of Kelantan. They appear to assume a shift in relative locational advantages in favor of Kelantan that is hard to justify based on past performance and a realistic assessment of the state's resource position. This is not to say that the proposed growth could not be imple- mented wit:h sufficient federal funds but rather that: (a) the currently projected growth rate is higher than can be achieved with proposed develop- ment allocations; and (b) additional allocations to implement the higher growth rat:es would likely have to rely on noneconomical pro:jects and a level of transfer of funds to the Northeast detrimental to national growth goals to the extent that the marginal efficiency of investment may still be lower in the Northeast than elsewhere (see Chapter 6). The following is a brief sector-by-sector review of the growth potential as compared to FMP projec- tions. Included in this review are the local service sectors that for their growth depend largely on the export sectors discussed initially. 5. Agriculture, Forestry, Fishing. The FMP projects that this sector will grow at 7.6% p.a. in both Kelantan and Trengganu, or at twice the national rate for this sector, which is 3.4%. Because of this more rapid growth and because the sector holds such a large share in the total GDP, it is one of the principal sources of Kelantan's and Trengganu's share of projected growth. Unfortunately GDP figures for 1980 are not broken down by subsector, though estimates for 1977 /1 provide a point cf reference: In Kelantan fishing and forestry made up respectively 1.6% and 12.9% of the sector total. Since timber production morie than doubled between 1977 and 1980 and prices increased, the forestry su'sector may have grown to as much as 20-25% of the sector total in 1980. In Trengganu fishery and forestry made up 16.3% and 23.5% of the sector total in 1977. Since 1977 fishing production declined by about 33%, its share may have fallen below 12-14% by 1980. 6. Indications are that the FMP projections are on the high side. In the case of forestry, log production in Kelantan will peak in 1983. As Kesedar clearing operations run out, the logging rate in the second half of the 1980s, will be 30% below its 1980 leve:L. In Trengganu, log production has already peaked and in 1990 is projected to be only 25% of its 1980 rate. /1 Robert Turgoose, "Gross Regional Product: A Review", May 1980. - 226 - ANNEX 6-2 Page 5 Thus, by 1990 much of the timber production in the northeast will have moved from one-time-clearance to permanent logging operations at signi- ficantly lower sustainable levels. If government estimates prove correct that the 1980s will see a real increase in the price of timber of 125% or so, then forestry GDP may still grow in Kelantan./1 But even with a real increase in the price of logs and an increasing proportion of logs milled and processed locally, forestry GDP cannot but decline in Trengganu. 7. As to forestry employment, it should follow roughly the decline in logging rates, though the decline may be mitigated by an increase in the share of local milling. 8. The agricultural development potential is difficult to assess, because of the variety of crops, the possibility of changing crop patterns, long gestation periods and productivity cycles for the crops, replanting efforts during the 1970s, uncertain development targets during the 1980s and a limited data base which requires aggregating land in productive use with land under development, approved for development, planted, or under planning. Still, the following picture emerges: 9. The large programs of land development in the Kesedar and Ketengah region will add substantially to land in agricultural use. However, the potential impact of these development schemes appears often overestimated. Land development has been a long time effort throughout Malaysia and the Northeast and in fact, as a percentage of existing agricultural land, growth during the 1980s should lag behind that of the 1970s and 1960s in Trengganu, and at best equal efforts of the 1970s in Kelantan. For example, in Kelantan total acreage growth during the 1980s should be around 25% or so /2 but the increase between 1966 and 1974 was 26% (Table A.0.1), and the per- centage was probably as high during the 1970s./3 /1 Of course, to the extent that the industry requires relatively larger inputs from other sectors, forestry GDP growth may still lag behind its value of output growth. /2 Agricultural land was 690,051 acres in 1974 with an additional 21.7% or 149,753 acres under development in 1975 in the Kesedar Region alone. (Table 3.4). No accurate figure is available of the total land in use in 1980, but the land remaining to be developed in the whole state (including Kesedar) in 1980 was at most 229,159 acres (Table 3.4). In fact it appears that of this may be as much as 35,000 acres were already planted during 1980. /3 See footnote 2. - 227 - ANNEX 6-2 Page 6 In Trengganu, the maximum acreage growth during the 1980s appears to be 45%, but growth was reportedly 52% during the 1970s,/1 and 64% between 1966 and 1974./2 10. A second point is that much of the land developed dur:ing the 1980s will not becomne productive until the following decade. Land must be under development by 1983-85 and be planted by 1984-86, depending on crop to be productive by 1990. In the case of rubber it takes 9-10 years and for oil palm 6-7 years to reach the higher yields of mature plants. Hence develop- ment efforts during the 1980s will contribute more to GDP growth in other sectors such as construction and forestry, and will generate most of their growth in agricultural value added only during the 1990s. 11. By lthe same token, much of the agricultural growth during the 1980s will be the result of development efforts during the previous decade. Noting the consistency of acreage growth over time, since 1966 and as planned until 1990, for both Kelantan and Trengganu, one would expect GRP sector growth rates in the 1980s to roughly match those of the previous decade. Assuming growth of 2-3% p.a. attributable to productivity growth, replanting, and changes in the price of agricultural products, which is commensurate with past experience, and annualizing the 25% and 58% acreage growth for Kelantan and Trengganu during the past decade, a rough estimate is that Kelantan's agricultural sector will grow at an annual average rate of 4-4.5% during the 1980s. The rate could be as high as 7% in the. case of Trengganu where most of the rubber replanting has taken place. These projections are not in line with those by the FMP, in particular in the case of Kelantan, t:hough they do imply that Kelantanl's continued agriculture/ forestry/fishing sector will grow a point or so more rapidly than it grows in the peninsula. More importantly, the projection does preserve for one more decade the historical pattern of£ more rapid agricutural growth in Trengganu than Kelantan. 12. As to employment growth the land development programs in the Kesedar and Ketengah regions will not arrest the labor absorption problem of the agricultural sector. Growth of employment is less lagged relative to land development than GRP because planting, weeding and plant maintenance activities are required during the development phase when there is not yet a /1 According to SEPU estimates, the acreage was 336,290 and 511,672 acres in 1970 and 1980 respectively. The total acreage not yet planted in Ketengah was 230,370 acres in 1981. /2 As seen from Table A.0.1, 1966 and 1974 agricultural acreage was 297,793 and 487,953 acres respectively. - 228 - ANNEX 6-2 Page 7 harvest,/l and because labor requirements remain roughly constant over the productive life of a tree even though initial yields are very low. At: any rate, employment growth should be roughly proportional to the growth of planted land during the 1980s rather than to development efforts during the 1970s. In both the Kesedar and Ketengah regions, a maximum 230,000 ac remained to be developed as of 1980, or was in the initial stages of development. If all of this land were developed during the 1980s (which is quite uncertain) the agricultural sector may absorb as much as 25,000 households in each state. Assuming an eventual household size of 5, this would amount to 43% of Kelantan's expected population growth of 290,000 during the decade, and to 57% of Trengganu's projected growth of 219,000. In actuality, projections by Kesedar and Ketengah are much more modest, at least in part due to expected slower land development rates, though much of this remains open to question. Accepting population growth projections for the Kesedar and Ketangah regions of 66,500 and 65,530, respectively (see Chapter 4), the agricultural sector would absorb at most 23% and 30% of employment in the two states, respectively, by 1990 or less than half that sector's present employment share./2 In that case, a substantial portion of rural population growth must be absorbed in non-agricultural sectors, and spatially, very likely in urban areas. Land consolidation schemes aimning at increasing smallholder income would further add to non-agricultural absorption requirements. 13. Finally, for the fishing subsector, GRP growth is uncertain. New port facilities in Trengganu permit larger boats and fishing outside the overfished coastal waters. By extending the fishing range, an increase in catch of 60-70% can be expected by 1990, reversing a recent four-year downward trend, and the rise in GRP may be even _arger, assuming expected better prices materialize. However, even if the contribution of fishing to GRP should double, implying an annual growth rate around 7%, employment is expected to drop by 5,000 or 43% as the fleet is modernized. In Kelantan fishing plays a much smaller role and help for the industry is much more limited. Without improved port facilities GRP may stagnate though port and fleet improvements similar to those in Trengganu could presumably result in a similar rate of GRP growth for the sector as in Trengganu. /1 A correct valuation of GDP would impute a value for these activities and add them to GDP, though this is not the actual practice (see Turgoose, op. cit., for a description of GDP measures). The result of this failure is to underestimate value added during the investment phase of development. /2 There exist numerous other projections of sector employment growth. However, without a definite schedule of land expansion nothing reliable can be said. - 229 - ANNEX 6-2 Page 8 14. Mining. FMP projections suggest a doubling of mining sector output during the decade in both Kelantan and Trengganu. In aggregate, this may not be unreasonable over the decade, though very little, if any, of the growth will materialize during the FMP period. As noted in Chapter 4 and Annex 4-1, mining output of metallic ore is unlikely to contribute much to GDP growth during FMP as investigations and prospecting are still at a very prelimlinary stage. It is difficult to anticipate the subsectors' contribution to post-FMP growth due to the uncertainty surrounding the feasibility of extracting various ores. Quarrying on the other hand can be expected to grow more or less in tandem witlh construction activity, both during and after FMP, with the exception of cement production in Kelantan which if feasible could give a major one-timLe boost in subsector output sometime during the 1980s, probably after FI4P. 15. The major mining sector in the Northeast is, of course, the oil and gas subsector. Oil production is likelv to grow but at slower rates than the late 1970s when production first commenced. In addition, oil prices are not expected to grow in real terms during the early 1980s. Hence, VA growth in this sector is likely to be low during FMP, well below past growth rates. It could approach but not reach past growth rates in the late 1980s if oil prices recover. 16. By far the most significant contributor to this sector's growth during the decade is likely to be gas production which should commence at the end of FMP. During FMP, however, there is unlikely to be any VA from this subsector. Instead the bulk of the VA associated with the development phase of installing the gas pipeline and implementing gas utilizing projects is going to show up in the construction subsector (less in the manufacturing and service subsectors as few of the intermediate inputs or consultancy services are provided locally). The magnitude of the growth in the construction subsector VA during the development phase and of the mining subsector VA during the gas produiction phase will depend on how many of the projects currently proposed are actually implemented after a review of their economic and financial feasibility. 17. Manufacturing. FMP projected growth rates over the 1980s average 20.3% and 17.4% for Kelantan and Trengganu, respectively. These growth rates are exceedingly high, albeit on very small bases, even in the case of Trengganu which averaged 17.2% during the 1970s. Still there are precedents for such rates in other states: Penang's manufacturing sector during the 1970s averaged 18.9% growth p.a. and Pahang was a close second with 18.6%. What is different, however, is that both Pahang and Penang havre had clear locational advantages less obvious for Kelantan. ANNEX 6-2 - 230 - Page 9 18. Most manufacturing growth in the Northeast will be linked either to increasing the local processing of existing natural resources (including both local processing of a higher proportion of existing resources or higher level processing), or of increasing the processing of imported materials using locally available labor. The potential for both types of processing was reviewed in Chapters 4 and 5 in terms of resource availability and marketing potential. No attempt was made to quantify the potential contribution to the manufacturing sector's VA. 19. Here a number of comments are in order. Regional detail in manufacturing sector statistics is very limited. A number of manufacturing activities such as palm oil and rubber processing on estates, or near primary processing of agricultural crops (e.g. rice mills), are not recorded under manufacturing sector VA but under agricultural sector VA. Thus, even though these activities are likely to grow in the Northeast, they are unlikely to contribute to manufacturing VA (but will contribute to agricultural VA), in any case no acceleration is anticipated in these activities, hence their contribution to regional VA is likely to remain in line with that observed in the 1970s. 20. Another category of manufacturing activities not well documented in the national statistical series is small-scale enterprises. Yet this category of activity predominates in the Northeast. Its growth rate is likely to be in line with overall GDP growth rate unless there is an acceler- ation in urbanization when both categories of small-scale enterprises (manufacturing and commerce) are likely to grow faster than average GDP growth rates. However, current policies do not favor an acceleration L'n urbanization, hence this subsector is unlikely to grow at above GDP average growth rates. 21. Finally, the likelihood of implementing a dynamic industrial base through the many major "national" projects to be located in the Northeast is uncertain. Should these projects be implemented, they could contribute significantly to manufacturing sector VA, both directly and indirectly through inter-industry linkages and income multipliers, as well as by enhancing the image of the Northeast as an area able to absorb industrial investment. However, for the linkages and multipliers to materialize the industrial development program would probably have to be coupled with an urbanization policy that can support an industrial labor market, and ensure that the high FMP projections for manufacturing VA is realized during the decade, if not during FMP. 22. Thus, only with a post-FMP acceleration in manufacturing VA can the projected high average growth rates p.a. be realized in the sector in the Northeast over the decade. 23. Construction. The construction sector typically follows an accelerator model, and there are two parts to the story. First, in case of long-term stable growth the industry will grow at roughly the same rate as - 231 - ANNEX 6-2 Page 10 the region as a whole, providing for replacement plus stationary expansion demand. States with a higher overall growth rate would be expected to have a larger share of GRP and employment in the construction sector because their expansion demand is higher as a proportion of GRP. Second, when the economy changies gear the construction sector uill over- or undershoot the rate of growtlh. If the region switches to more rapid growth the construction 'sector will initially grow even more rapidly to makce frontend accommodation for increased capacity demand. Instead, with a switch to less growth or decline the construction sector will slump more severely. 24. As seen from Table A.2.1 and Table 6-2.1, the construction sector, both current and projected, does not conform to any of the above points. First, while Kelantan's economy grew at below average rates, its construc- tion sector in 1980 held an above average share in GRP. The reverse was true for Trengganu which despite its rapid growth had a 1980 construction share of only 2.65% of GRP, much below the peninsular average of 4.4%. While these results could be compatible with a sudden acceleration of growth in Kelantan (for which there is some evidence) and a deceleration of growth in Trengganu i(for which there is none) a more likely explanation is faulty data. Second, during the 1980s when Kelantan's economy is to swqitch gear to much more rapid growth its construction sector growth rate is just about average for the peninsula and its sector share is falling and below the peninsular average. Trengganu's sector share instead is rapidly increasing despite a stationary growth projection for its economy, and its construction sector share lwhile rising remains below the peninsular average. None of this is easily explainable. Quite likely it would be best to di'scard the 1980 data for both rates and hence to abandon any attempt to project consistent growth rates. Then, assuming Kelantan will only show average growth during the decade its construction share in total GRP should be around 4.5-5.0%, whereas Trengganu's share should be a point or two above the peninsular average of 4.8%, to reflect the development of southern Trengganu coastal complex, Kenyir dam and other large construction activities. 25. As to construction employment growth, it is notoriously difficult to predict because of (i) the common practice (not verified for Malaysia) of counting construction workers at their place of permanent residence, (ii) the large proportion of workers from out of state, and (iii) the difficulties with GRP growth figures in the construction sector mentioned above. However, in light of the massive infrastructure and construction program outlined for FMP, employment in the sector could double during the 1980s. 26. Comnerce and Nongovernment Service. In general, one expects local services to grow roughly in proportion to overall economic activity though in practice one finds considerable variations from this rule. As local - 232 - ANNEX 6-2 page 11 markets grow in size it becomes possible to substitute local production for imports and hence the service sector may grow faster than other economic activities. On the other hand rapid growth in export sectors may require increasing reliance on imports, at least as a temporary measure until local supply constraints can be eliminated, and hence local service growth may lag behind. Multiplier effects on services will also vary by the sector. Thus, one would expect Trengganu's oil/gas and construction sectors to generate smaller than average multiplier effects because of leakages due to a largely out-of-state work force and dependence on out-of-state supplies. 27. FMP projections conform broadly to these expectations. Projected growth rates for Kelantan and Trengganu are 14.0% and 12.0% for commerce, 10.4% and 12.6% for the business services/finance sector and 23.6% and 8.2% for other services - as compared to 12.3% and 11.4% for the total GRP of the two states. Kelantan's high growth of other services is difficult to explain given the residual character of this sector, and Kelantan's relatively slow growth in the business sector may reflect the fact that this sector already has a GRP share considerably above the peninsular average and hence may be ready for a downward adjustment. While the growth estimates of the service sectors are roughly consistent with local GRP projections they must be scaled downward if GRP growth falls behind expectations as is likely to be the case. 28. Government Sector./l As is the case for the private service sector, one would expect the public service sector to grow at rates roughly similar to or slightly above GRP rates. One justification for above average growth could be the often below average living conditions in the Northeast, particularly where these conditions are linked to below average levels of service provision, as in the area of health care and hospital services (see Chapter 1). The per capita GRP in the government sector can be used as a proxy measure of the level of public service provision. According to this measure Kelantan in 1980 still had an 11% service deficit, though Trengganu may have done better than average, using peninsular service levels outside Selangor and the Federal Territories as a standard. Unfortunately, the government service sector appears to include defense spending, and to the extent that the Northeast (and in particular Kelantan as a border state with a large interior) has an above average share of defense spending, this measure could seriously understate the need of the government sector to catch up with the rest of the peninsula. /1 Administration, security and selected public services. - 233 - ANNEX 6-2 Page 12 Table 6-2.3: PER CAPITA GDP IN THE GOVERNMENT SERVICE SECTOR (M$) State 1971 1980 1990 Kelantan 71 169 579 Trengganu 87 703 628 Selanagor (incl. Federal Territories) 286 662 833 PeninLsula (total) 137 252 462 Peninisula (without Selangor or Federal Territories) 102 190 394 29. FM? targets set the growth of the government service sector at 15.7% and 15.1%, respectively, for Kelantan and Trengganu, roughly 3.5 points above each state's GRP growth, and 6.5-7.1 points above peninsular sector growth. As seen from the above table, this would bring the per capita expenditures of the government service sector to M$579 and M$628, respectively, for the two states, close to the expenditure rate in Selangor and the Federal Territories and about 50% higher than the average peninsular rate outside Selangor and the Territories. 30. It should be obvious from Table 6-2.1 that the magnit:ude of growth attributable to the government service sector is quite overwhelming. In Kelantan this sector accounts for fully 31% of total growth during the 1980s, almost twice the growth expected from agriculture and more than twice that of manufacturing. In Trengganu the proportion of total growth attributable to the sector is still a formidable 25%, not much smaller than the growth of the mining and manufacturing sector combined. OrLe wonders whether this growth is actually needed (to overcome service deficits) or whether it is intended as an employment policy to absorb surplus labor or as an income transfer mechanism to raise per capita GRP to target levels. 31. WhiLle it is possible that the high growth rate in government services in Trengganu may reflect military expenditures, this is unlikely to be the only or even the major explanation since these rates are not much higher than those for the private service sector and since at any rate Trengganu is not a state requiring military expenditure. Other explanations would be the attempt to increase interstate equity in the provision of services (this is perhaps more apparent in the case of Kelantar). It is also possible that government planners are reacting to frequent advice to raise administrative capacity as the infrastructure and government-led development policy for the - 234 - ANNEX 6-2 Page 13 Northeast requires above average design, planning, and implementation capacity. However, the danger apparent in raising the government sector to such levels is that it seriously depletes manpower availability for the private sector, particular at the higher skill levels. By the late 1980s the government development strategy should be well enough in place for the private sector to assume a much larger role and it would then be important to reduce government manpower claims. 32. In conclusion, this brief sector-by-sector review suggests that there are not enough sectors of significant size growing at a significantly above peninsula average rate to pull up and sustain a decade long above average growth rate for both northeastern states, or to justify assuming Kelantan will grow at a faster rate than Trengganu based on current development allocations and growth potential. - 235 - ANNEX 9-1 Page 1 MALAYSIA REGIONAL DEVELOPMENT AND URBANIZATI:ON IN THE NORTHEAST Administrative and Financial Arrangements for Urban Infrastructure and Services in Kota Bharu and Kuala Trengganu A. Urban Transport i. Although municipalities are empowered to construct roads, new road construction in both Kota Bharu and Kuala Trengganu is done by the state JKRs (the state branches of the federal Public Works Department). The JKRs also maintain roads built to federal standards. The municipalities' role is limited to the maintenance of backlanes in the urbanized areas and kampong roads in peri-urban areas, although the Trengganu JKR also maintains back- lanes which meet its standards (paved surface of at least 20 ft). Section 8 of the Street, Drainage and Building Act, 1974, enables a local authority to recover the costs of road construction or improvement from the beneficia- ries, but this provision has not been employe,d in Kota Bharu or Kuala Trengganu. 2. Urban roads are eligible for federal maintenance grants. Under this system, annual grants of M$6,400 per mi for state roads and M$4,800 per mi for urban roads are made to state governmeats. These levels were set in 1976. The funds are incorporated in the overall budgets of the, state JKRs and are not earmarked for specific roads. The level of road maintenance grants is currently being reviewed by a federal committee, and new grant levels are expected to be introduced in 1982. The new grants are likely to vary among st:ates to reflect cost differences. The grants will continue to be regarded as an aid to the states rather than a reimbursement of total maintenance costs. The introduction of variability to reflect actual costs will eliminal:e one common criticism of the system. However, the new grant levels are likely to be stagnant while costs rise until another review is undertaken. Since JKR maintains extensive cost data, consideration should also be given to indexing the grants to maintain them at an approximately constant portion of actual costs. 3. Street lighting is normally included in the construction of major new urban roads. LLN installs the poles, and the municipalities pay the recurrent costs from general revenues. Both municipalities have small programs to provide street lighting for existing roads, especially in - 236 - ANNEX 9-1 Page 2 peri-urban areas. The municipalities finance both the capital and recurrent costs, and LLN installs the poles. Since the state LLN branches must forward the municipalities' requests to Kuala Lumpur for approval, the process can be time-consuming. 4. Traffic management is primarily a municipal responsibility. In both Kota Bharu and Kuala Trengganu, the state JKR and Town and Country Planning Department as well as the police are represented on the municipal committees responsible for traffic. Although the municipalities have Parking Sections, there are no traffic engineers in any of the organiza- tions. The state JKRs normally install signs, although the municipalities occasionally provide some signs. The licensing and regulation of motorized public transport vehicles are federal responsibilities performed by the Licensing Board under the Ministry of Public Enterprise and the Road Transport Department, respectively. The municipalities license trishaws. B. Water Supply and Distribution 5. Constitutionally, water is a state matter in Malaysia, and the piped water systems in Kota Bharu and Kuala Trengganu are operated by the state JKRs (this is the common pattern in peninsular Malaysia except for Penang and Melaka, which have Water Boards, and Selangor and Kuala Lumpur, which are served by a semi-autonomous Water Department in the Selangor JKR) In both cities, different flat rates are charged to domestic and other consumers. In Kota Bharu, the rates are M$1.00 and M$1.50, and in Kuala Trengganu, M$1.20 and M$2.00 per 1,000 gallons for domestic and other customers, respectively. These rates are considered to be adequate to meet: recurrent costs, but not to cover depreciation and capital debt servicing. Urban cons-umers are required to pay for connections and meters at installa- tion, although rural consumers are able to pay under a two-year installment. plan. 6. The accounting systems for water supply in Kota Bharu and Kuala Trengganu are cash systems in which revenues are segregated, but expendi- tures are part of the overall JKR1 budgets. However, the State Water Supply Fund (Financial and Accounting Procedure) Act of 1980 mandates the intro- duction of commercial accounting for all water systems in Malaysia. Commercial accounts will be introduced in Kelantan and Trengganu through projects financed by the Asian Development Bank /1 which are also funding new supply and distribution works. /1 Asian Development Bank, Appraisal of the Johore and Kelantan Water Supply Project in Malaysia (Report MAL.Ap-26, November 1976) and Appraisal of the Johore, Perak and Trengganu Water Supply Project in Malaysia (Report IAL: Ap-31, October 1978). - 237 ANNEX 9-1 Page 3 C. Flood Protection and Drainage 7. Drainage is another area in which the municipalities are empowered to undertake capital projects, but in practice works are done by the state branches of federal departments. In Kota Bharu, the state DI)) branch has been implementing a federally funded storm-water drainage project since 1977. This is a relatively unusual activity' for DID, although it now has an Urban Drainage Section in Kuala Lumpur which. has designed drailnage works for Kuala Lumpur as well as Kota Bharu. The DIE, branch in Kota Bharu also designs and installs feeder drains identified and financed by the municipality. In Kuala Trengganu, the state JKR initiated work on monsoon drains in 1970, but the project was not completed. A federally funded sewerage study currently being conducted in Kuala Trengganu includes storm water drainage, although the organizational and financial arrangements for constructin,g and maintaining drainage works have not been specified. The municipalities in both cities are currently responsible for cleansing drains, but the Kota Bharu Municipality would require additional funds and staff to assume recurrent responsibility for the main drainag,e system being constructed by DID. D. Sanitation 8. Both municipalities provide solid waste collection and disposal services, although the services are provided only intermittently in outlying areas. In Kota Bharu commercial premises are charged M$60 per floor (considered to be about 1,600 sq ft, the equivalent of one storey of a shophouse) per year; this charge was set in 1972. There are currently no charges for garbage collection services in Kuala Trengganu. The municipality plans to introduce house-to-house collection service and monthly charges of M$3 for residences, M$6 for commercial premises and M$10 for industries. These charges are based on charges in other 'Malaysian cities. The proposed charges bear little relationship to either the quantity and type of waste to be collected or the costs to be incurred in providing the service. 9. Both municipalities provide sewage dispoal services on request. The Kota Bharu Municipality charges M$35 per load in Kota Bharu and higher rates for trips outside the municipal area. The charge was set in 1980 and is not intended to cover costs. The Kuala Trengganu Municipality charges M$15 per load. A federally funded sewerage master plan and feasibility study is being conducted for Kuala Trengganut, and terms of reference are being prepared for a similar study in Kota Bharu. These studies are conducted under the guidance of the federal EPU and the Ministries of Public Health and of Housing and Local Government as well as state and municipal - 238 - ANNEX 9-1 Page 4 officials. These studies, as well as similar studies for several other cities, have been initiated without a national policy framework for the organization and financing of the construction and operation of sewerage systems. E. Other Utilities 10. The National Electricity Board (LLN) is responsible for the generation and distribution of power. The Telecommunications Department of the Ministry of Communications provides telephone and telex services. F. Markets and Commercial Facilities 11. The municipalities in both Kota Bharu and Kuala Trengganu operate several food and dry goods markets. Federal grant funds are available through the Local Government Department for the construction of markets costing less than M$400,000; markets costing more than M$400,000 are financed through low interest federal loans. In Kota Bharu, municipal income from markets and a slaughterhouse exceeded recurrent expenditures by about M$250,000 in 1979 and M$140,000 in 1980, although the council expected to break even on these services in 1981 (see para 9.32 in Volume 2). The Kuala Trengganu Municipality does not segregate expenditures on these services in its accounts. 12. The SEDCs have been the principal public sector commercial developers in both Kota Bharu and Kuala Trengganu. They have developed shophouses, middle and upper-income housing and industrial estates in both cities. G. Low-Cost Housing 13. Although housing is a state responsibility, the Ministry of Housing and Local Government establishes national housing policy guidelines applicable to state low-cost housing projects financed with federal loans. The state governments plan their own housing programs, acquire land for housing, undertake projects and manage the completed estates. In Kuala Trengganu, the SEDC implements federally funded low-cost housing projects on behalf of the state, In Kota Bharu there is a regional office of the federal Housing Department (JPN) which is the lead agency for Kelantan's low-cost housing program, providing free technical services to the state. The Town and Country Planning Department prepares the layout, JKR, DID and LLN provide infrastructure and JPN designs and constructs the housing usi'lg local contractors. The State Housing Department manages completed estates. - 239 - ANTITEX 9-1 page 5 14. Several organizational changes are being introduced under the FMP housing program. First, State Liaison Committees with both federal and local representatives have been set up to plan and coordinate the housing programs in each state. In Kelantan, the Housing Division of the State Secretariat acts as the liaison committee's secretariat. The SIZPU performs this function in Trengganu, where there is no state housing division. The other major organizational change concerns finance and estate mnqagement. Under the TMP, the federal government loaned f'unds for low-cost housing to the states, which on-lent the funds to purchasers and managed t'he estates. Under the FMP, federal low-cost housing loan f'unds will be passed through the Malaysian Building Society Berhad (MBSB), which will collect rents and loan repayments as well as charge a monthly w.intenance fee of M$30-40. - 240 - ANNEX 9-2 Page 1 MALAYSIA REGIONAL DEVELOPMENT AND URBANIZATION IN THE NORTHEAST The Legislative Framework for Local Government and Planning in Malaysia A. "Restructuring" Local Government: The Framework 1. Several laws enacted during the 1970s - especially the Local Government (Temporary Provisions) Act of 1973 and the Local Government Act of 1976 /1 - established a legislative framework intended to rationalize the organization of local government in Malaysia and to restructure areal jurisdictions. When Malaysia became independent in 1957, there were five major types of loca'l authorities operating under the aegis of the state governments in accord with numerous federal and state laws:/2 (a) a fully elected City Council in Georgetown, Penang; (b) financially autonomous municipalities in Kuala Lumpur and Melaka; (c) town councils with elected and nominated representatives in 32 of the large towns, 12 of which were financially autonomous; (d) town and rural boards with nominated members in the smaller towns; and (e) 302 elected, financially autonomous local councils, over 200 of which were in New Villages created by resettlement during the Emergency. /1 The Street, Drainage and Building Act of 1974 and the Town and Country Planning Act of 1976 also contributed to the creation of a new legislative framework for local government. The latter act and its application are discussed in Section D of this Annex. /2 Modernization of the Local Government System in Malaysia, pp. 4-5 (Local Government Department, Ministry of Housing and Local Government, n.d.). M.W. Norris, Local Government in Peninsular Malaysia (Westmead: Gower, 1980), also provides an extensive review of the development of local government in Malaysia. 241 - ANNEX 9-2 Page 2 2. Many Malaysian local authorities experienced administrative and political problems during the 1960s. Furthermore, the local governments, especially in Chinese-dominated urban areas, provided a power base from which opposition politicians criticized the Alliance government. Conse- quently, the federal government intervened in the Kuala Lumpur Municipality in 1961, the states assumed control of the local authorities in almost all of the state capitals during the mid-1960s, and local government elections were suspended nationwide in 1965. A Royal Cormission of Enquiry appointed in 1965 to examine the entire structure of local government published its findings in 1969. Although the political disturbances later that year delayed action on local government reform and led to a more cautious approach to local democracy and decentrali2ation than recommended by the Commission, its report influenced the legislation enacted during the 1970s. The report of the Royal Commission on the Remuneration and Conditions of Service in Local Authorities and Statutory Authorities in 1972 also contributed to the new framework for local government. 3. 'The new legislation created a uniform framework for local government throughout peninsular Malaysia. The laws provide for only two classes of local authorities - municipalities and district councils. In the process of "restructuring," the boundaries of existing local authorities in cities have been considerably expanded to create municipalities which encompass large peri-urban and even rural areas as well as urbanized lands. Council members, including a President or Mayor and 8 to 24 councilors, are appointed by the state government. Each council hires its own staff. 4. The acts broaden the functions allowed to local authorities and empower them to undertake a wider range of development activities than in the past. Particularly important are the powers to acquire land in the public interest, develop industrial estates, undertake commercial and residential projects and enter joint ventures with other public authorities and even private parties. However, although the laws enable local authorities to borrow up to five times the total annual value of properties on their valuation lists, no important new revenue sources were introduced with the legislation. It will be argued bEflow that staffing and financial constraints inhibit the municipalities in Kota Bharu and Kuala Trengganu from providing services in the expansion areas outside their old boundaries and from undertaking new development activities. 5. The states retain control over all aspects of local government under the new legislation. Since local government is constitutionally a state responsibility, the new laws are only applicable if a state adopts them. The provision of federal Launching and Annual Grants has been an incentive for restructuring, although the grants are relatively small (see paras. 9.37-9.38 in Volume 2). Although the restructuring process started - 242 - ANNEX 9-2 Page 3 slowly, by mid-1981 it was complete in every state except Pahang, where six district councils were still to be created. When the process is complete, 15 municipal councils, 77 district councils and the Kuala Lumpur Municipality will have replaced 374 local authorities. B. The New Legislative Framework for Urban Planning and Development Control Organizational Framework 6. The Town and Country Planning Act of 1976 introduces a uniform legal and policy framework for town and country planning in Malaysia. Because land is a state matter, the law is only applicable if a state adopts all or part of it./l The organizational framework in Part II mandates the creation of a State Planning Committee and designates local authorities, which would include the municipal governments in Kota Bharu and Kuala Trengganu, as local planning authorities. 7. The act specifies that the State Planning Committee is to be chaired by the Cnief Minister and include one State Executive Council member as Deputy Chairman, the State Town and Country Planning Director as secretary, the State Secretary, the State Director of Lands and Mines, the Director of the SEPU, the State JKR Director, the State Legal Adviser and up to four other members appointed by the state. The committee is responsible for promoting the "conservation, use and development of all lands in the State," advising the state government on these matters and fostering or conducting planning studies and generally promoting town planning activities (Section 4(4)). The committee may also direct local planning authorities to take actions consistent with the act. As secretary to the committee, the State Town and Country Planning Director is "responsible for carrying ot the decisions and implementing the policies of the Committee" (Section 4(8)). Two features of the committee's organization and functions are noteworthy. First, representation of local planning authorities on the committee is not required, although the state may choose to include them. Second, the committee does not have explicit executive responsibilities, and the act does not prescribe very specifically how the committee is to perform its functions. /1 No state has adopted the act in its entirety. Johore, Melaka, Negri Sembilan, Perak and Trengganu have adopted Parts I, II and III for some urban areas, including the state capitals. Selangor has adopted Parts I and II, but not the parts concerned with development planning and control, Kelantan will consider adopting parts of the act when the structure plan for Kota Bharu is reviewed. - 243 - ANNEX 9-2 Page 4 8. The most important function of a ].ocal planning authority is "to regulate, control and plan the development and use of all lands and buildings within its area" (Section 6(1)(a)). The principal means to accomplish this function are the preparation of development plans and the exercise of plan- ning control. Local planning authorities are also to perform any other functions assigned to them by the committee or the state. Development Plans 9. Tlae approach to development planning in Part III of the act incorporates the "strategy" aspects of structure planning compared to the older, more rigid concept of "master plannirg" and resembles the approach of the British Town and Country Planning Act of 1972. The act requires the local planning authority to prepare a draft structure plan based on a comprehensive survey. It may also prepare draft local plans for specific parts of its area. The most important requirement for a draft structure plan is that it be a written statement "formulating the policy and general proposals of the local planning authority in respect of the development and use oE land in that area, including measures for the improvement of the physical environment, the improvement of communications, and l:he management of traffic" (Section 8(3)). The promotion of economic development is not explicitly cited as an objective of the structure plan. A potentially important provision is that the plan "shall have regard to the resources likely to be available for the carrying out of the proposals of the structure plan" (Section 8(4)(b)). 10. Draft local plans, which are essentially detailed development plans, are to be prepared for three general purposes: (a) for "action areas" designated in a structure plan; (b) for specific areas before formal review of a draft structure plan but in conformity with it; and (c) for specific areas after a structure plan has been approved. Both the draft structure plan and the draft Local plans must be publicized to provide opportunities for public comment and are subject tc approval by the State Planning Committee. Provision is ialso made for review and alteration of both types of plans at the initiative of the local authority or the committee. Development Control 11. The Street, Drainage and Bulding Act of 1974 and Part IV of the Town and Country Planning Act of 1976 give local authorities extensive powers to control and regulate development. The use and development of - 244 - ANNEX 9-2 Page 5 land and the construction of buildings must conform to the provisions of the former act, plans prepared in accord with the latter act and any pertinent by-laws. The planning act prohibits any development without planning permission. The local authority may grant permission absolutely or conditionally or refuse permission. Rejected applicants may petition an Appeals Board to be established under Part IV of the Act. Violators are subject to penalty. Part V of the act empowers local authorities to levy a development charge when planning permission is granted for development in an area where a change in the use, density or floor area permitted in a local plan has enhanced the value of the land. 12. The administration, control and acquisition of land are subject to several other laws in addition to the enactments governing development control. Records of land ownership and property description are maintained by the State Lands and Mines Department and the District Offices in accord with the National Land Code, Act 56 of 1965, which specifies that land within a municipal area, together with land of 10 ac or more, is to be administered by the Lands and Mines Department. Titles to land not falling into either of these categories, plus the records of all state and federal government land, are registered by the District Offices. Land administered by the Lands and Mines Department is described as having a registry title, while land con- trolled by District Offices has a Land Office title. 13. The National Land Code of 1965 sets out the broad land policy for the whole country. The states have their own enactments to safeguard the interest of Bumiputras. In Kelantan, legislation to protect Bumiputra land interests has taken two forms. First, under the Malay Reservation Act of 1930, land within a Malay Reserve cannot be disposed of to a non-Malay. The extent of Malay reservation area within the Kota Bharu municipal area limits participation by non-Malays in the land market. Second, in accord with the Kelantan Land Enactment of 1938, only 'natives' of Kelantan can own land in Kelantan. This stipulation permits local non-Malay Kelantanese (at least t:wo generation Kelantanese) to own land in Kelantan, but restricts the participation of non-Kelantanese (including Malays) in the land market, except through approved leasehold agreements. In Trengganu, the Malay Reservations Enactment of 1941 governs Bumiputra land interests, although t:he concept of 'native ownership' has not been introduced. 14. Under the National Land Code, the states have sole rights over state land, including powers to alienate state land, reserve state land and grant leases for the occupation of state land and for the extraction of rock other than for mining purposes (except in reserved forests). The code also provides for the control of land use by means of categorization for three types of uses - agriculture, building and industry. A proprietor who - 245 - ANNEX 9-2 Page 6 who wishes to change or vary the conditions from one land use category to another must. apply to the state under Section 124 of the code. The proprietor is expected to develop the land within a specific time after a change of use is granted. In Trengganu, however, this is not binding. Consequently, land speculation takes place, leading to an increase in the value of land categorized for more intensive use but left undeveloped. 15. The Land Acquisition Act of 1960 enables the states to acquire land needed for any public purpose by any person or corporation undertaking a work which, in the opinion of the state concerned, is of public utility; or for the purpose of mining, or for residental, agricultural, commercial or indus- trial purposes. The District Officers are responsible for administration of the act. Land required by the federal government in a state has also to be acquired through this process. For payment of compensation, a valuation is made by the Valuation Department, but the comnpensation is finally determined by the Collector of Land Revenue in a public hearing. 16. Although the legislation governing land acquisition is adequate, it is virtually universal experience in Malaysia that land acquisition delays project implementation. Past experience showqs that in both Kelantan and Trengganu the process of land acquisition has been time-consuming, taking an average of six months to one year, but sometimes much longer when conflicts arise. Traditional attitudes toward land in these states and consequent disputes over valuation can cause considerab:Le difficulties for the acquiring authority. In Kelantan, there have been several instances of political representation being decided in favor of lan