KUALA LUMPUR - Rural development will form a significant part of Malaysia's infrastructure sector next year following a slew of allocations in Budget 2018 by Prime Minister Datuk Seri Najib Razak, BMI Research said in a report on Tuesday, 14 November.

The research house said there is a sizable developmental gap between peninsular Malaysia and the less populated states of East Malaysia, where many towns lack road access, reliable electricity and connections to telecommunication networks.

"Although we note that elements of the 2018 budget appear to be more politically motivated, its strong focus on developing highways and utilities in Borneo nevertheless reflects the high growth potential in these regions" said BMI's industry trend analysis report.

Since private and foreign investors have contributed to high-profile projects in the peninsula such as East Coast Rail Line and the Singapore-Kuala Lumpur High-Speed Railway, BMI said Putrajaya has instead focused on public projects with no immediate financial reward.

"Rural road, power and broadband projects may not be of the same value or prestige as high-speed railways, but they remain essential to bolstering economic growth and will be a source of project opportunities for companies that may have missed out on larger projects" said the Fitch Group unit.

In Budget 2018, RM6.5 billion was allocated for rural infrastructure in Sabah and Sarawak, and BMI expected that the transport, power and utility sectors there- that usually receive fewer investments than in peninsular Malaysia - will rapidly grow.

Among projects that were announced are RM2 billion upgrading works along the Pan-Borneo Highway, RM500 million for rural road upgrade and maintenance, and RM1 billion for telecommunications and internet network upgrade.

"The government's increased focus on rural development projects is positive for overall growth in Malaysia's infrastructure industry, though we acknowledge that the absolute impact will be limited given the small size of many of these projects" it said.

"Nevertheless, improved transport connectivity will, in the long run, bolster the competitiveness of cities and industrial regions in less-developed regions in Malaysia, and spur further investment in residential and non- residential buildings.

As a result, the firm maintained its optimistic forecasts for growth in the country's construction sector of 5.3 percent annually from 2018 to 2026.