Constitutional And Legal Framework For Sarawak, Malaysia: What Foreign Investors Need To Know?

• Published date: 27 May 2022
• Subject Matter: Government, Public Sector, Tax, Inward/ Foreign Investment, Constitutional & Administrative Law, Income Tax, Sales Taxes: VAT, GST
• Law Firm: Azmi & Associates
• Author: Ms Serina Abdul Samad

I. Background

Sarawak or better known as the 'The Land of the Hornbills' is one of the jewels of Southeast Asia, known for its beautiful cities, multicultural ethnic population and its vast rainforests which makes it a popular tourist destination in Malaysia. From a foreign investors' perspective, Sarawak is a goldmine brimming with economical potential.¹ Sarawak was announced the number one hub for foreign direct investment ("FDI") in Malaysia having received RM15.8 billion in foreign direct investment in 2020.² Consequently, it would attract more foreign investors to invest heavily in the various economic sectors in Sarawak. However, these investors may not be aware that the constitutional and legal framework in Sarawak differ from the framework in Peninsular Malaysia. Hence, this paper aims to discuss on the constitutional and legal framework of Sarawak, Malaysia.

II. Constitutional Framework of Sarawak

To fully comprehend the underlying legal processes and the policies from which they derive, it is necessary to understand the basics of the overarching legal system of Malaysia. Malaysia practices the concept of constitutional supremacy, where the Federal Constitution ("FC") of Malaysia is the supreme law of the land³, setting out, inter alia, the relationships between federation and its constituent states and between the judiciary (the courts), legislature (the Parliament) and the executive (the Federal Government).

Cemented in the FC, Sarawak has a special position and enjoys certain privileges. This special position and privileges were guaranteed in the Malaysia Agreement signed in 1963 as a condition for Sarawak to join the Federation of Malaya to form Malaysia.⁴ The reasoning behind this condition was that Sarawak is home to an ethnically, culturally, and linguistically diverse group of people. In addition, Sarawak is rich in natural resources such as forests, rivers, and petroleum. The people of Sarawak wanted to maintain greater independence and control over the matters and resources in their state and safeguard their way of life both culturally and religiously.⁵ There are special privileges given to natives of Sarawak and additional protection for Sarawak under Part XXIIA (Additional Protections for States of Sabah and Sarawak) of the FC. In this regard, it is pertinent for foreign investors to know the relevant matters under the FC before investing in Sarawak.

First, the term 'Bumiputera' is a term used to refer to Malays and natives of Sabah and Sarawak.⁶ In Sarawak, a Bumiputera would be that of a Sarawakian Malay,⁷ and a Sarawakian native,⁸ as defined under the FC. As recent as February of this year, amendments to four articles of the FC which came into effect and restored the status of Sabah and Sarawak according to the original content of Malaysia Agreement, also amended the FC's definition of who is a "native" of Sarawak by amending Article 161A(6) and repealing Article 161A(7). As a consequence, Sarawak is rightly allowed to specify by state law who should be regarded as indigenous people of Sarawak. Emeritus Prof Dr Shad Faruqi explained that the definition in the FC was problematic as it excluded people of mixed marriages and provided a list of natives that contained many errors.⁹ Another academician, Dr Jaclyn Neo highlighted that the constitutional amendment which allows Sarawak to define who is a "native", could have significant economic and political consequences and that these amendments are "first steps towards greater devolution, more equitable wealth distribution, and democratic empowerment of the peoples of [Sabah and] Sarawak".¹⁰ The amendments were also in line with the Federal Government's transformation agenda to restore the confidence of the public as well as foreign investors in the ability of the ruling government to ensure political...