Munich Personal RePEc Archive Pre-Feasibility Study of Sabah-North Kalimantan Cross-Border Value Chains Lord, Montague and Chang, Susan 1 October 2018 Online at https://mpra.ub.uni-muenchen.de/86535/ MPRA Paper No. 86535, posted 09 May 2018 06:05 UTC PRE-FEASIBILITY STUDY OF SABAH-NORTH KALIMANTAN CROSS-BORDER VALUE CHAINS Montague Lord and Susan Chang October 2017 This page intentionally left blank i PRE-FEASIBILITY STUDY OF SABAH-NORTH KALIMANTAN CROSS-BORDER VALUE CHAINS Montague Lord and Susan Chang This pre-feasibility study on Sabah-North Kalimantan cross-border value chains covers six distinct areas. First, it analyzes existing trade patterns and competitive advantages of Sabah and North Kalimantan, as well as government objectives in promoting cross-border commercial activities. Second, it proposes a border economic area spread over a wide geographic area that covers a network of interrelated activities. The resulting program provides a fully integrated approach to the border economic area design and implementation. Third, it identifies potential cross-border value chains that can serve as high-profile, demonstrable projects for the border economic area. Fourth, it determines the preference orderings of project features by key stakeholders such as government and development partners, commercial entities, and the local population. Fifth, it estimates the net monetary returns for the project portfolio, ranks stakeholders’ non-monetary preferences, and incorporates the latter results into the project portfolio’s net monetary returns. And, sixth, it provides an overall program appraisal for the set of projects, including an impact analysis of connectivity options. October 2017 ii The views expressed herein reflect those of the authors and do not necessarily reflect the views of any organization with which the authors are currently or formerly associated. iii Contents Contents .......................................................................................................................... iv List of Figures and Tables .............................................................................................. vi Map of North Kalimantan and Sabah .............................................................................. x Acknowledgements ........................................................................................................ xi Abbreviations ................................................................................................................. xii Summary ........................................................................................................................ xv PART I. INTRODUCTION .................................................................................................. 1 1. Background .......................................................................................................... 2 2. Historical Connections......................................................................................... 5 3. Objective and Coverage ....................................................................................... 7 PART II. PRE-FEASIBILITY COMPONENTS .................................................................. 12 4. Pre-Feasibility Design ........................................................................................ 13 5. Stakeholder Preferences .................................................................................... 17 PART III. ECONOMIC PROFILES ................................................................................... 19 6. North Kalimantan’s Take-Off Stage of Development ....................................... 20 7. Sabah’s Drive to Maturity ................................................................................... 25 8. Connectivity ........................................................................................................ 28 PART IV. GOVERNMENT OBJECTIVES ........................................................................ 31 9. Indonesia ............................................................................................................ 32 10. Malaysia .............................................................................................................. 38 PART V. ECONOMIC ANALYSIS OF TRADED GOODS ................................................ 45 11. Export Characteristics ....................................................................................... 46 12. Competitive Advantages .................................................................................... 49 13. Trade and Investment Potential ......................................................................... 53 PART VI. ECONOMIC ANALYSIS OF TRADED SERVICES .......................................... 55 14. Medical Tourism ................................................................................................. 56 15. Higher Education and TVET .............................................................................. 70 PART VII. PROGRAM DESIGN ....................................................................................... 84 16. Strategic Plan ..................................................................................................... 85 17. Master Plan ......................................................................................................... 88 iv 18. Action Plan.......................................................................................................... 91 PART VIII. COST-BENEFIT ANALYSIS .......................................................................... 96 19. Palm Oil ............................................................................................................... 97 20. Wood Products ................................................................................................. 107 21. Fisheries ........................................................................................................... 118 22. Organic Foods .................................................................................................. 126 23. Medical Tourism ............................................................................................... 129 24. Private TVET ..................................................................................................... 136 25. Multi-Destination Tourism ............................................................................... 144 PART IX. NON-MONETARIZED PROJECT APPRAISAL ............................................. 148 26. Rating Project Characteristics ......................................................................... 149 27. Non-Monetarized Benefits in Project Appraisals ........................................... 154 PART X. OVERALL PROGRAM APPRAISAL .............................................................. 160 28 Program Viability .............................................................................................. 161 29 Road Connectivity: Impact Analysis ............................................................... 166 PART XI. EXECUTION STRATEGY .............................................................................. 169 30 Program Implementation ................................................................................. 170 REFERENCES .............................................................................................................. 174 ENDNOTES ................................................................................................................... 181 v List of Figures and Tables Figures Figure 3.1. Methodology for Medical Tourism and Education and Vocational Training Analysis Figure 3.2. Stages of the Pre-Feasibility Study Figure 4.1. Project Development Framework Figure 4.2. Phases of Border Economic Area Development Project Figure 5.1. Possible Cross-Border Economic Cooperation Interest Groups Figure 5.2. Distribution of Preference Ordering among Commercial and Welfare Improving Interests Figure 6.1. North Kalimantan Administrative Regencies Figure 6.2. Map of North Kalimantan Figure 6.3. North Kalimantan Typography Figure 6.4. North Kalimantan Land Use Figure 7.1. Sabah Administrative Divisions and Districts Figure 8.1. Air Connectivity between Kota Kinabalu, Tawau and Tarakan on MASwings Figure 8.2. Land and Sea Routes between Sabah and North Kalimantan Figure 8.3. Road Crossing between Sabah and North Kalimantan Figure 9.1. North Kalimantan Border-Connecting Road Network Figure 9.2. Sebatik Island Planned Airport Location Figure 9.3. Tarakan Airport Runway Extension Figure 10.1. Sabah Forest Lands Figure 10.2. Major Programs of Sabah Development Corridor Figure 10.3. Sabah Structure Plan 2033 Summary Map Figure 11.1. Sabah and North Kalimantan’s Exports by HS Section Headings Figure 11.2. Sabah and North Kalimantan’s Exports by HS Division Headings Figure 11.3. Sabah and North Kalimantan’s Export Size, Concentration, and Diversification Figure 12.1. Sabah’s Revealed Comparative Advantages of Top 20 Export Products Figure 12.2. North Kalimantan’s Revealed Comparative Advantages Figure 12.3. North Kalimantan and Sabah Revealed Comparative Advantage, by Broad Product Categories Figure 12.4. Nominal Exchange Rates of Malaysia and Indonesia Figure 12.5. Real Cross Rates of Malaysia and Indonesia Figure 14.1. Trade Restrictiveness in Medical and Health Services Figure 14.2. Sabah’s Medical Tourism Competitiveness Figure 14.3. Number of Doctors and Beds of Sabah’s International Hospitals Figure