Will STIZ be a game changer for the tourism sector?

Next year, the Visit Malaysia 2020 campaign will be very important for our country’s tourism sector. The government has set a target of 30 million international tourist arrivals and RM100 billion in tourist receipts through the campaign.

Beyond that, Visit Malaysia 2020 also provides the occasion for the government and stakeholders to address the key challenges in our tourism sector and to capture new opportunities.

With that in mind, I would like provide some thoughts on the Special Tourism Investment Zone (STIZ) initiative which has been announced recently by the government.

Special Tourism Investment Zone (STIZ)

The STIZ is one of the key initiatives under the new National Tourism Policy 2020 – 2030. It aims to boost the development in Malaysia’s tourism sector by encouraging more private investment and public-private partnerships. To date, the government has identified four areas as STIZ pilot projects: Port Dickson, Tuaran-Kota Belud, Putrajaya-Sepang, and Langkawi.

Areas that are designated as STIZs will receive various incentives to stimulate private investments. The details are still being finalised, but we can reasonably expect investment incentives such as tax reduction, grants, and infrastructure development.

The strategy of designating certain areas as special zones to induce private investments is not new and has been used by the government before. For example, the government has used Free Trade Zones (FTZ) since the 1970s to promote industrialisation through manufactured exports. This policy has been highly successfully in increasing foreign direct investment, employment, and industrial capacity in Malaysia’s manufacturing sector.

Likewise, the STIZ will function similarly to the existing special zones, but it will focus specifically on the tourism sector.

The importance of STIZ

The introduction of STIZs will encourage more private investments in Malaysia’s tourism sector. This is important because the amount of private investments in the tourism sector has been on a general decline.

Broadly, there were 122 private investment projects worth RM7.0 billion in 2013, but this has declined to 63 projects worth RM4.6 billion in 2018 (see Table 1). A majority of these has been domestic investments.

Table 1: Approved Investments in Hotel & Tourism Sector, 2011 – 2018

2013 2014 2015 2016 2017 2018
Number 122 118 118 97 70 63
Potential Employment 7,296 8,914 7,242 6,217 5,107 4,135
Total Investment (RM million) 7,026 6,690 5,413 4,680 9,229 4,642

Source: Reports from Malaysian Investment Development Authority (MIDA)

From the fiscal perspective, government expenditure in the tourism sector has been limited. In the Federal government’s budget for 2020, the Ministry of Tourism, Arts, and Culture (MOTAC) has been allocated a budget of RM1.1 billion, of which RM922 million is for operational expenses and only RM188 million is for development expenses. Most of the funds will be spent on tourism promotional and maintenance activities, as opposed to investment in long term infrastructure and assets.

At the state level, government budget for tourism has also been limited. In Melaka for example, the entire state government budget for tourism in 2020 is only RM390 million for operation expenses and RM70 million for development expenditure. This inevitably constrains the state’s ability to develop and invest in the local tourism sector, especially in a wholistic manner.

In short, STIZ is therefore important to stimulate more private investment in the tourism sector. Based on the initial announcement by the Prime Minister, the STIZ will focus on hard infrastructure and technology-based investments. Both of these areas are indeed important to strengthen the economic capacity of the tourism sector in the long run.

Providing new opportunities

The STIZ policy, if done right, will open up new opportunities and growth in the tourism sector. Using Melaka as an example, the STIZ could be used to stimulate and develop a new and alternative tourism area in Melaka while resolving some of the existing problems with the local tourism ecosystem.

Developing an alternative tourism area for Melaka, via the STIZ, will lessen the strain on the city centre and disperse tourists into a wider area. This is relevant because the tourism sector in Melaka is presently overconcentrated in the city centre, especially in and around the UNESCO world heritage zone. This has caused severe strains on the sustainability of the city, especially in terms of heritage conservation, public infrastructure, traffic, and inflation.

On the other hand, areas such as Masjid Tanah or Jasin in Melaka have good potential to be developed into niche tourism hubs. This is in line with the Shared Prosperity Vision 2030 policy which has identified ecotourism, among others, as a key economic growth activity (KEGA) for Melaka and to reduce regional development disparities. Cross-promotional and linkages between the new STIZ area and the Melaka city area will also increase the length of stay of tourists as they will have more activities to do during their stay.

Implication on states and stakeholders

States in Malaysia are inescapably competing for private investment and tourists from a the same pool. In this regard, states that have STIZs will have a crucial advantage over the others as investors would naturally prefer to invest in the STIZs because of the incentives offered there.

At present, the government has only identified four areas as STIZ pilot projects. The government should consider designating at least one STIZ for each state in the interest of fairness and to avoid some states losing out to others.

Yet, STIZ on itself will not be sufficient. The successful implement of STIZ, and any tourism policy in general, requires the involvement of all stakeholders.

First, state governments have an important role to play. They should not be too reliant on MOTAC at the federal level and must, instead, be more proactive in establishing a localised tourism policy. Such policy should outline the vision and plans on various short-term and long-term tourism issues such as infrastructure development, supply of services, and conservation.

Second, tourism operators and associations are the key drivers who know the local ecosystem best. They have an important role in ensuring the successful implementation of our tourism policies and to provide valuable feedback from the ground.

Private investors will be the key to generating continuous growth in the tourism sector. However, we need to be more innovative and open to new ideas. Instead of investing in already crowded areas, such as hotels, we should be exploring other new opportunities such as ecotourism services or digital tourism.

In addition, we must ensure that any tourism projects or programmes are respectful to the local heritage, environment, and livelihood of the people. Local residents, NGOs, and conservation groups must therefore be an integral part of any tourism policy, projects, or activities. After all, it is the people that matters most.

As we head into the year of Visit Malaysia 2020, I urge all stakeholders to come together, not just to promote tourism but also to seize the opportunity to strengthen the sustainability of our tourism sector for the long haul.

Khoo Poay Tiong
Letter to the editor by Khoo Poay Tiong in Malacca on Friday, 3rd January 2020