Abstract The Lahad Datu Intrusion in 2013 has impacted Sabah’s economy. It started off when a group of militants arrived in Lahad Datu from a neighbouring country. The militants were reported to come to assert the unresolved territorial claim on Sabah. In addition, there were series of kidnapping incidences happened in Sabah in the past few years. Several measures were taken in response to the intrusion; the establishment of the ESSCOM/ESSZONE, the banning of the use of barter trade jetty and wooden hull, and curfew in certain areas among others. Those measures have resulted heated debate in Sabah. Despite ensuring peace and stability, the policies are claimed to affect businesses in Semporna and Tawau adversely. This study has undertaken a survey to investigate the effects of border security policy on Sabah’s economy, specifically businesses in Tawau and Semporna. A survey involving 305 business players has been undertaken. Round-table discussions were conducted in Tawau and Semporna to obtain feedbacks and validate the findings of the study. The study, in general, found that border security measures have adverse effects on business. However, it produces positive effects particularly on businesses in tourism industry.