Sabah's economy was traditionally heavily lumber dependent, based on export of tropical timber, but with increasing depletion of the natural forests and ecological efforts to save remaining natural rainforest areas, palm oil has emerged as a more sustainable resource. Other agricultural products important in the Sabah economy include rubber and cacao. Tourism is currently the second largest contributor to the economy.
In 1970, Sabah ranked as one of the richest states in the federation, with a per capita GDP second only to Selangor (which then included Kuala Lumpur). [1] However, despite its vast wealth of natural resources, Sabah is currently the poorest of Malaysia's states. Average incomes are now among the lowest in Malaysia, and with a considerably higher cost of living than in West Malaysia. In 2000, Sabah had an unemployment rate of 5.6 per cent - the highest of any Malaysian state and almost twice the national average of 3.1 per cent. The state has the highest poverty level in the country at 16 per cent, more than three times the national average. Part of the problem is the inequitable distribution of wealth between the State and the Federal government, and large numbers of illegal immigrants from Indonesia, Philippines, even East Timor, whose population was estimated to be in the region of half a million people.
The recent tabling of Ninth Malaysia Plan has allocated RM16.908 billion for Sabah, the second highest state allocation after Sarawak's. The funds is pledged to improve the state's rural areas, improving the state's transportation and utilities infrastructures and boosting the economy of Sabah. The government has stated its focus on three major areas of the economy which have the potential to be Sabah's growth engine. These are agriculture, manufacturing and tourism.