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 with forests, of which about 10,000 square miles is known to be productive or potentially productive. Some 200 miles of the southern border is contiguous with the Kalimantan, the former Dutch Borneo, which is now part of the Republic of Indonesia. The nature of the terrain along this border is very broken, and the fact that there is a deep belt of impenetrable forest makes communications by land between the two territories very difficult—in fact, limited to a few jungle tracks.

To the north and east there is an archipelago which is part of the Philippines. Many of the islands are scarcely administered, which makes the North Borneo seas susceptible to piracy which even to-day is endemic, and, despite the assistance given by the Royal Navy, is difficult to deal with. Except in the West, the hinterland is populated only in a series of enclaves served by seven ports. The population is only 450,000, or 16 to the square mile, and 964 of these some 300,000 can be described as indigenous people—the Dusans, the Bajaos and the Muruts. There are about 105,000 Chinese and 45,000 others, including 2,000 Europeans.

The paucity of population has been an important factor in restricting the pace of economic development. In the days of the Chartered Company the immigration of Chinese was encouraged, and certainly these immigrants have played a big part in the economy of the country and have settled down as good citizens. There has been constant pressure on the Government to encourage immigration from other places, such as Timor. Owing to the shortage of skilled labour an agreement has been made with the Hong Kong Government to permit the recruitment of skilled men, who are allowed to settle in North Borneo with their families. The indigenous people are very concerned about the immigration of workers on a large scale, and fear that if it is allowed to continue they will be left as a minority among foreigners. It is a matter on which they want assurances and safeguards.

Economically, the country is potentially rich and the exports are running at about £30 million per annum, or some £60 per head of the population. The principal exports are timber, rubber, copra and hemp; and in recent years the Commonwealth Development Corporation have been playing a useful part in the development of export crops. But the economy is capable of diversification, and the list of exports contains a unique and fascinating number of exotic items which is characteristic of a country which has been called by the romantic name of "the Land Below the Wind". Among these we find the outer wrapper leaf of the cigar; cutch—which is an extract used for tanning, the preservation of fishing nets, the coloration of whisky and beer and as an ingredient of lung tonic. Then there are birds' nests and sharks' fins which are delectable items in the Chinese cuisine. We also find dragon's blood (whose trade name is damar) rhino horns, armadillo scales and, most bizarre of all, the gall stones of honey bears. The noble Lord, Lora Ogmore, suggested that we might take more of the products from Malaysia. Perhaps we might try to sample some of these. I have mentioned these, although they may be oddities, not only because 965 they make a valuable contribution to the livelihood of many people, but because I think they are characteristic of the way of life in North Borneo.

Although taxation is not unduly burdensome, the budget is regularly in balance at round about £8 million per annum, and 25 per cent. of the revenue is devoted to the capital development plan. The indigenous population naturally fear that if they are under control from the mainland the potential wealth will be exploited by outsiders and that they will be subjected to higher taxation.

Finally, I must refer to the political aspect of the proposed Federation. Until recently there has been little or no political activity. When North Borneo became a Crown Colony it was the policy of Government to take all possible steps to associate the people more closely with the affairs of Government. Marked progress has been made with the development of local government institutions, but the progress at the centre has been slower. To-day there is a Legislature with eight officials and ten unofficial members, but there are no elections. This may seem to be rather old-fashioned, but it must be remembered that at the end of the war practically the whole of the educated class had been annihilated, all the school buildings had been destroyed, and most of the school teachers had been murdered. A new start had to be made and progress was inevitably slow. Even to-day there are under 4,500 boys and girls in secondary schools. Moreover, the people were so preoccupied in the work of rehabilitation that they had little time