Sarawak's economic paradox

SARAWAK presents Malaysia with a revealing economic question. How can a state rank among the country's strongest producers of economic value while its typical household receives less income than the national median?

The Statistics Department revised 2024 figures bring the question into focus. Sarawak logged gross domestic product (GDP) per capita of RM73,253, above the national figure of RM56,772.

Yet its median gross monthly household income was RM5,504, compared with Malaysia's RM7,017. Its mean household income, RM6,947, was also below the national average of RM9,155.

Using 2024 provides a common reference year for production and household income. The figures describe different aspects of prosperity.

Their divergence deserves a careful explanation and should inform how development is assessed.

TWO MEASURES OF PROSPERITY

GDP measures the value added by production within a territory. GDP per capita divides that annual value by the population.

It is neither an average salary nor the amount available for each resident to spend.

Household income records receipts from employment, self-employment, property and investment, and transfers.

The median identifies the household in the middle of the income distribution. The department's household survey covers Malaysian citizen households, while GDP has a broader production coverage.

These measures therefore have different units and coverage.

Subtracting monthly household income from annual GDP per capita would produce no meaningful estimate of wealth lost or income retained.

The useful comparison concerns their positions against the corresponding national benchmarks.

Sarawak's oil and gas, liquefied natural gas and energy-intensive industries help explain its substantial production base.

Such activities require considerable capital and can generate high value with relatively few workers. Their productivity need not be reflected in the earnings of people employed elsewhere in the economy.

Ownership matters. Income generated within a state can accrue to companies, investors or workers resident elsewhere.

Corporate earnings may be retained for investment or distributed to shareholders. Tax revenues may finance services across the federation.

The geography of production consequently differs from the geography of income received. The size of these flows must be established through evidence.

The headline figures alone cannot tell us which mechanism contributes most to Sarawak's household income position.

FOLLOW THE INCOME

A more useful inquiry begins with the industries. How much income do they generate for resident workers? What business do they create for local firms? How do those firms improve productivity and pay?

Consider two industrial projects of comparable size. One might procure most specialist services externally and offer limited opportunities for local suppliers.

Another might develop engineering companies, train technicians and establish sustained ties relationships with nearby firmsenterprises.

Their investment announcements could look similar, while their wider economic consequences differ substantially.

This is an illustration of what should be investigated. Establishing the pattern in Sarawak requires procurement, employment and ownership evidence.

A supplier's registered address alone would reveal little about where its work is performed or how much value it adds locally.

The accounting must be precise. Imported intermediate inputs are excluded when domestic value added is calculated. They should not then be deducted from GDP a second time.

Imported machinery and expertise can improve productivity and create opportunities. Purchases from other states can support a more competitive Sarawak industry.

Successful integration should boost increase Sarawak's ability to earn income through national and international supply chains.

Keeping every ringgit within state boundaries would be an unsuitable objective.

Households benefit through public services. Resource-related revenues can support education, healthcare and infrastructure even when those benefits do not appear as cash income in a household survey.

Any assessment of prosperity must consider this wider contribution, alongside the costs families face and the quality of services they receive.

MEASURE WHAT FAMILIES GAIN

The policy implication is to examine the connection between productive industries and the people living around them.

More investment can expand opportunities, but its contribution to household prosperity depends on the jobs, supplier ties and public benefits it creates.

Regional input-output accounts could help map purchases between industries and across state boundaries.

Linking these accounts to labour-market, ownership and household data through a regional social accounting matrix would provide a fuller picture of how income reaches different groups.

An ordinary input-output table cannot identify every household beneficiary or the ultimate recipients of company dividends.

A useful assessment would track resident earnings, access to skilled work and the value added by local suppliers.

It should distinguish developments in industrial centres from conditions in more remote communities. State averages can conceal differences that require different policy responses.

Public reporting should distinguish projected benefits from realised outcomes.

Investment approvals and modelled multipliers provide useful information, but families experience actual wages, dependable services and opportunities that they can reach. Those outcomes deserve equal prominence in the development account.

This would make the debate more constructive. It would help governments identify where infrastructure is still the binding constraint, where skills are scarce and where firms need support to meet industrial requirements. It would also allow successful programmes to be recognised on evidence.

Sarawak's productive strength gives it substantial opportunities. The next task is to show how effectively that strength improves the economic lives of its people.

A state's prosperity acquires its fullest meaning when households can see the gains in their earnings, security and opportunities.

*Economist Samirul Ariff Othman is an international relations analyst and a senior consultant with Global Asia Consulting (GAC). Samirul has a background as a senior researcher at the Malaysian Institute of Economic Research. The viewpoints articulated are solely those of the author.