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Economy

Last updated: March 2026
💰
RM96B
GDP (2023)
~5.5% of Malaysia
📈
3.8%
GDP Growth
2023 estimate
👤
RM24,600
GDP Per Capita
below national avg
🏢
Services
Top Industry
~52% of GDP
🌴
1.5M ha
Palm Oil
planted area
📊
~5.5%
Unemployment
above national 3.4%

Overview

Sabah is Malaysia's third-largest state by area but lags behind Peninsular states economically. GDP per capita is roughly 60% of the national average, making it one of the lower-income states. The economy is heavily dependent on natural resources — palm oil, petroleum, timber, and increasingly tourism.

ℹ️ Context matters

Sabah's economic statistics look modest nationally, but cost of living is also significantly lower than KL or Penang. The GDP figures don't fully reflect the informal economy, subsistence farming, and cross-border trade that sustain many Sabahans.

Key Industries

Industry % of GDP (approx) Notes
Services~52%Government, retail, tourism, finance
Agriculture~22%Palm oil dominant, also cocoa, rubber, rice
Mining & Quarrying~9%Petroleum, natural gas (offshore)
Manufacturing~8%Palm oil processing, wood-based products
Construction~7%Infrastructure development, property

Palm oil is the backbone of Sabah's agricultural economy. The state produces roughly one-third of Malaysia's total palm oil output. However, this creates economic vulnerability — when palm oil prices drop, Sabah's economy feels it disproportionately.

GDP and Growth

Year GDP (RM billion) Growth
201981.5—
202072.8-10.6% (COVID)
202177.4+6.3%
202290.2+16.5% (commodity boom)
2023~96+3.8%

Sabah's 2022 GDP surge was driven by high palm oil and petroleum prices. The 2020 contraction from COVID was deeper than the national average, reflecting the state's dependence on tourism and commodity exports.

Employment

Sabah has consistently higher unemployment than the national average, partly due to the large informal sector and seasonal agricultural work.

Sector % of Employment
Services~50%
Agriculture~25%
Manufacturing~8%
Construction~10%
Other~7%

A significant portion of plantation and construction labour is performed by foreign workers, mainly from the Philippines and Indonesia.

Trade and Exports

Sabah's major exports:

  • Palm oil and palm oil products — by far the largest export
  • Petroleum and LNG — from offshore fields
  • Timber and wood products — declining due to logging restrictions
  • Cocoa — Sabah was once Malaysia's largest cocoa producer, now declining
  • Seafood — growing aquaculture sector
ℹ️ Cabotage policy

Sabah (and Sarawak) face higher shipping costs due to the federal cabotage policy, which requires goods shipped between Malaysian ports to use Malaysian-flagged vessels. This makes imported goods more expensive in Sabah compared to Peninsular Malaysia.

Challenges

  • Infrastructure gap: Roads, public transport, and utilities lag behind Peninsular Malaysia
  • Income disparity: GDP per capita well below national average
  • Commodity dependence: Overreliance on palm oil and petroleum makes the economy volatile
  • Brain drain: Educated Sabahans often move to KL or Singapore for higher-paying jobs
  • Cabotage costs: Higher shipping costs increase the price of goods
  • Informal economy: Large informal sector makes accurate economic measurement difficult

FAQ

Frequently Asked Questions

Q What is Sabah's main industry?
Services (52% of GDP) is the largest sector, followed by agriculture (22%), particularly palm oil production, which accounts for roughly one-third of Malaysia's total output. This dependence on commodities makes Sabah vulnerable to price fluctuations.
Q Why is Sabah economically poorer than Peninsular Malaysia?
Sabah's GDP per capita is ~60% of the national average due to: limited industrial base, lower wage jobs, commodity dependence, infrastructure gaps, and brain drain to KL/Singapore. However, cost of living is also significantly lower.
Q What is the cabotage policy and how does it affect Sabah?
The federal cabotage policy requires goods shipped between Malaysian ports to use Malaysian-flagged vessels. This increases shipping costs for Sabah (and Sarawak), making imported goods more expensive compared to Peninsular Malaysia.
Q Is Sabah good for business?
Sabah has opportunities in tourism, agriculture, and seafood processing, but faces challenges: higher shipping costs, infrastructure gaps, brain drain of skilled workers, and reliance on palm oil. The SEDIA development authority offers incentives for strategic sectors.
Q What is the average salary in Sabah?
Salaries are typically lower than Peninsular Malaysia. Service sector jobs average RM2,000–3,500/month, agricultural work RM1,500–2,000/month. Manufacturing and government roles pay higher, but skilled positions often require relocation to KL.
Q Has Sabah's economy recovered from COVID?
Yes. Sabah's economy contracted 10.6% in 2020 but rebounded 16.5% in 2022 (commodity boom) and grew 3.8% in 2023. Tourism revenue remains below 2019 levels but is recovering steadily.
Q How dependent is Sabah on palm oil?
Heavily. Palm oil plantations cover ~1.5M hectares and generate significant export revenue. When global palm oil prices drop, Sabah's economy feels the impact disproportionately, making economic diversification a key priority.
Q What percentage of Sabah's workforce is foreign?
Foreign workers comprise a significant portion, especially in plantations and construction. The exact percentage is difficult to measure due to the large informal sector, but plantation and construction labour is heavily dependent on workers from Philippines and Indonesia.
Sources & References 7 sources

Last verified: March 2026

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