Keynote Speech at Labuan Rejuvenation High Level Roundtable

Speaker: Dato’ Seri Dr. Awang Adek Hussin, Chairman SC Malaysia
Location: Kuala Lumpur
Delivered: 9 May 2024

Key Highlights:

In his keynote speech, SC Chairman, Dato’ Seri Dr. Awang Adek Hussin, issued a call for action at the Roundable event, urging key stakeholders to delve into solutions to strengthen Labuan’s position as a global financial centre. He added collaborative efforts across various sectors are needed to realise Labuan’s full potential.

Here are highlights from his keynote speech:

Improved accessibility has the potential to bring about substantial socio-economic benefits, including lower costs for basic goods and services, improved job opportunities and increased tourism potential.
Labuan’s real economy heavily relies on servicing the oil and gas industry and its port facilities. Fostering greater collaboration between Labuan, Sabah and Sarawak in the oil and gas sector and port activities is key to unlocking more economic potential.
Reinstating Labuan’s tax-free status is needed to help Labuan’s tourism sector thrive, creating opportunities for local businesses and the people.
The captive insurance business, the largest and most robust sector in Labuan, remains significant. 2023, there were 69 registered captives, with gross premiums growing 9.4% year-on-year, to US$624.6 million.
In 2023, Labuan contributed RM1.2 billion to the Federal government, which is six times the RM189 million allocated for Labuan in the 12th Malaysia Plan mid-term review.
The SC Chairman advised that Labuan should at least retain half of its income (RM600 million) to be re-invested into its infrastructure.

Full Text

Yang Berbahagia, Dato' Indera Dr. Suhaili Bin Abdul Rahman, Alhi Parliament Labuan

Yang Berbahagia, Datuk Rozman Isli, selaku mantan Ahli Parliament Labuan (2013-2022)

Yang Berusaha, Encik Nik Mohamed Din Nik Musa, Ketua Pengarah, Lembaga Perkhidmatan Kewangan Labuan (LFSA),
Puan Salmah,
Dr. Wong Huei Ching,
Puan Amilia, PLANMalaysia
Ahli Lembaga Pengarah LFSA,

Tuan-Tuan dan Puan-Puan Yang Dihormati Sekalian

Assalamualaikum warahmatullahi wabarakatuh, salam sejahtera dan selamat pagi.

Terlebih dahulu izinkan saya mengucapkan selamat datang kepada semua yang hadir di Suruhanjaya Sekuriti Malaysia pada pagi ini. Kami amat berbesar hati dapat menganjurkan sidang meja bulat ini, yang kami yakin akan membawa banyak manfaat dan inisiatif baru demi memajukan lagi Labuan sebagai Pusat Kewangan Negara.
Saya ingin mengucapkan terima kasih kepada Encik Nik Din dari LFSA dan Encik Chow dari EY serta pasukan mereka atas sumbangan yang tidak ternilai dalam menjayakan bengkel ini.

Importance of Labuan

Ladies and gentlemen,

Labuan holds a special place in my heart, particularly as I had the honour of serving as the first Director-General of LFSA. This experience has afforded me a unique perspective and deep personal connection with Labuan.
Recently, during a post-Cabinet meeting, YAB the Prime Minister emphasised the crucial role of the SC and Bank Negara Malaysia in advancing Labuan’s development. His unwavering commitment to enhancing Labuan’s stature, was reiterated to me again during our recent conversation in Riyadh on the sidelines of the IsDB annual meeting. I am sure our Prime Minister is happy to know we are gathering here today precisely to explore what can be done to Labuan as requested by him.
Just weeks ago, at the KL20 event, I had the opportunity to engage in a substantive discussion with Dr Zaliha Mustafa, the Minister of Federal Territories. Together, we explored avenues to realise Labuan’s development ambitions and growth potentials. Dr Zaliha commended SC’s initiative to gather key stakeholders, as we do this more, and I look forward to sharing the outcomes of this Roundtable with the minister as well.

The need to revitalise Labuan’s infrastructure

Ladies and gentlemen,

We stand at a crossroads, faced with challenges that demand new and bolder solutions. Yet, in every challenge lies an opportunity for growth and transformation.
Over the years, Labuan has faced its fair share of challenges, particularly with basic infrastructure, such as recurring water supply disruptions due to ageing infrastructure and poor maintenance, and an unreliable electricity grid. Addressing these issues is paramount.
To tackle water supply challenges, the MADANI government has allocated RM300 million for pipe replacement works. This investment is aimed at enhancing the reliability and quality of water services.
Additionally, a collaborative effort with Petronas, the Sabah Energy Commission, and Sabah Electricity is underway to establish a new power plant. This initiative is aimed at ensuring a stable power supply to meet both Labuan’s demands while potentially benefiting Sabah as well.
Furthermore, the pressing need for improved internet connectivity cannot be overstated as it has negatively impacted Labuan’s productivity. This issue needs to be addressed urgently as it affects both the supply-side and demand-side of the economy.
Resolving these basic infrastructure issues will help Labuan attract new businesses, potentially, through innovative strategies such as a tailored digital nomad strategy which could be highly beneficial.
With a well-executed strategy, digital nomads have the potential to position Labuan as an attractive destination in the global market. Attracting high-income expats and professionals to live and spend in Labuan could generate a multiplier effect on the local economy.

Enhanced interconnectivity

Interconnectivity remains a significant hurdle, compounded by steep air fares and inadequate ferry services.
Calls to relook at the proposed Labuan-Sabah bridge are necessary. More than bridging the physical gap between Labuan and mainland Sabah, but it will also serve as a catalyst for the island’s economic growth and development.
Improved accessibility has the potential to bring about substantial socio-economic benefits. These include lower costs for basic goods and services, improved job opportunities and increased tourism potential.
While funding constraints for the bridge persist, a comprehensive study is warranted to assess its potential impact on Labuan’s economy. I hope that in today’s Roundtable, you will be able to come up with some catalytic ideas for swift action and implementation.

Strengthening Labuan’s Real Economy

Labuan’s real economy heavily relies on servicing the oil and gas industry and its port facilities. Historically, Labuan has been pivotal for Petronas in accessing Sabah’s oil and gas resources.
The Asian Supply Base (ASB) is a crucial pillar to the O&G sector. I understand ASB has allocated RM25 million to construct a three-storey crew change terminal, which is scheduled for completion in October 2024. The return of crew change activities to Labuan would significantly benefit the island's economy.
In parallel, fostering greater collaboration between Labuan, Sabah and Sarawak in the oil and gas sector and port activities is key to unlocking more economic potential.

Reinstating duty free status

The removal of Labuan’s duty-free status in 2022 has dealt a severe blow to Labuan as an attractive tourist destination.
The duties on cigarettes and alcohol, which previously contributed around 30% of the island’s revenue, has made Labuan a less attractive tourist destination. The hotel industry in Labuan is still reeling from the aftermath of the Covid 19 pandemic.
But reinstating Labuan’s tax-free status is not just a matter of economics. It is about breathing new life into Labuan’s tourism sector, creating opportunities for local businesses and the people.

Expanding captive insurance business

The captive insurance business, the largest and most robust sector in Labuan, remains significant. Yet, it is almost invisible to the real economy of Labuan, except for the substantial revenue it generates for the island.
In 2023, there were 69 registered captives, with gross premiums growing 9.4% year-on-year, to US$624.6 million, an all-time high of premiums recorded in the last five years.¹

The captive insurance business, the largest and most robust sector in Labuan, remains significant. Yet, it is almost invisible to the real economy of Labuan, except for the substantial revenue it generates for the island.
In 2023, there were 69 registered captives, with gross premiums growing 9.4% year-on-year, to US$624.6 million, an all-time high of premiums recorded in the last five years.¹
I believe, there is still potential for growth by collaborating with Chinese firms interested in setting up shop in Labuan. China’s stringent tax avoidance rules on the other hand provides a significant challenge. To address this, Labuan needs to adopt a flexible approach by implementing a minimum tax amount in Labuan, while allowing companies to fulfil their full obligations to China.
This strategy aims to deter tax avoidance practices and can position Labuan as an attractive, fit-for-purpose domicile for international businesses.

Retaining profit for development

Underpinning all these challenges, is the lack of funding for Labuan. In 2023, Labuan contributed RM1.2 billion to the Federal government, which is six times the RM189 million allocated for Labuan in the 12th Malaysia Plan mid-term review.
Labuan must be able to retain more of its income for its development needs. At the very least, Labuan should at least retain half of its income (RM600 million) to be re-invested into itself.
Further discussions and negotiations are necessary to achieve this goal, which is why we are all here today.

Charting the future of Labuan

Ladies and gentlemen,

The MADANI Economic Framework has provided us with a clear vision to improve living standards and re-establish Labuan as a regional economic powerhouse.
As we commemorate the 40th anniversary of LFSA, let us take this moment as an opportunity to address pressing issues and chart the course for Labuan’s economic resurgence.
Collaborative efforts across various sectors are needed to realise Labuan’s full potential.

Objective of Roundtable

As such, this Roundtable is a right step in that direction. It is a platform to translate solid ideas into actions and meaningful outcomes. By convening key stakeholders, we seek to address specific needs and overcome challenges to strengthen Labuan’s position.
Today’s insights and discussions will also serve as a foundation for other ongoing sector-specific dialogues which we have planned throughout the year.
So, let’s take this chance to dream boldly, act decisively and build a better future for Labuan that the nation can all be proud of.

Conclusion

In closing, I would like to extend my gratitude to the organisers, particularly the LFSA and EY for facilitating this important dialogue.
I look forward to hearing the group's recommendations for short to medium term actions which I will be more than happy to assist in forwarding to the Prime Minister.
On behalf of the SC, I wish you a productive session ahead.

Thank you.

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