Brunei Darussalam: Continuing Oil Boom as the Pull of China Strengthens

2005

AVM Horton

The first quarter of 2005 has been fairly nondescript in Negara Brunei Darussalam. There is no significant event to report as such; or at any rate nothing major which has reached a conclusion (such as the trial on corruption charges of the former Minister of Development). Other predicted events have not yet materialised: no date has yet been announced, for example, for the promised Legislative Council elections. More broadly, the pull of China, which will dominate the twenty-first century, is becoming increasingly evident.

The press has been full of reports of fund-raising activities following the tsunami and the work of an NBD military and medical relief team in Aceh. HM the Sultan himself toured the Sumatran province in early February. The sultanate's efforts won praise from the WHO and words of appreciation from the Indonesian Ambassador. There was also commendation of NBD's role in this connection from Australia during HM Sultan Hassanal Bolkiah's six-day working visit to the continent in mid-February. Prime Minister Howard spoke about the 'shared vision' between the two countries and extolled His Majesty's leadership. The principal outcome of the talks appears to have been the signing in Canberra of a bilateral Memorandum of Understanding on counter-terrorism. NBD's main export to Australia is crude petroleum, its main import live animals. A little earlier, towards the end of January, His Majesty and HM the Raja Isteri had paid a State Visit to Singapore. As in Australia, it was a case of renewing existing friendships. Discussions in the island republic were 'excellent' and there were 'no outstanding issues' between the two countries. The good relations were enhanced by a stay in the 'lion city' by HRH the Crown Prince and HRH Princess Sarah in early March.

Turning now to the economy, the sultanate's public finances are increasingly robust. During the third quarter of 2004, the latest figures available, the NBD government collected revenue amounting to NBD$1,606 million against expenditure of only $1,070 million, thereby leaving a healthy budget surplus for the three months of $536 million. This compares with a positive balance of only $180 million for the third quarter of 2003. The main reason for this happy situation is a rise in the average weighted crude oil price index, which increased by 58 per cent year-on-year in the third quarter of 2004 and by 21 per cent on a quarter-to-quarter basis. Factors that contributed to the jump in price during July-September 2004 were unsettling events in Nigeria, Iraq, and Russia. Hence receipts from oil and gas taxes increased from $643 million in the second quarter of 2004 to $895 million in the third (Borneo Bulletin Sunday online, 23 January 2005, citing the Brunei Economic Bulletin). One important point: the Borneo Bulletin does not say whether the government revenue figures include investment income, which was made a state secret in 1985-6.

At the time of writing (14 March 2005) the oil price remains ensconced above the US$50.00 per barrel mark on the London market with optimistic talk by OPEC that it might touch eighty dollars in the next two years. If that level were to be achieved it would not be far short of the all-time peak in real terms, which came in the immediate aftermath of the Iranian Revolution of 1979. More cautious estimates expect the price to remain within the US$40-50 band for the rest of this year supported by booming demand in China and India. The top of the latter range would represent around a three-fold increase from the US$16.95 in mid-November 2001 and a quintupling compared to the nadir of November 1998 when there were gloomy (and unfounded) forecasts that the price might collapse to just US$5.00 per barrel. The sultanate certainly looks set to enjoy prosperous times for a while to come yet; although, evidently, pessimism can change to euphoria (and vice versa, no doubt) fairly quickly. More worryingly, the economy remains basically a 'one-trick-pony'. Despite all the efforts at 'diversification', which date back to before the Second World War, NBD remains overwhelmingly dependent for its economic well-being upon the international price of crude oil; and this is a factor which it can do nothing itself to influence because it is not a major producer by world standards and, indeed, is not even a member of OPEC.

If the 'China effect' was pushing up the price of petroleum, it was also boosting the cost of cement, which rocketed in NBD on 1 February from NBD$130 per tonne to $180. This was reported to be adversely affecting the local construction industry. The sole local cement producer was itself facing higher raw material and freight charges, which were threatening its chances of survival. In an attempt to stabilise the price, the government decided to allow the renewed importation of cement into NBD. From this circumstance it would be deduced that previously a protectionist regime had been in operation.

Other issues which surfaced during the quarter included the National Day celebrations (theme 'together, motivate the nation towards self reliance' following up last year's 'patriotism, the basis of national resilience'), the apparent disarray in the PAKAR political party, and worries about both maths education and the decline of Kampong Ayer. One noteworthy economic indicator is the fact that the container port at Muara handled a record 101,100 Twenty-Foot Equivalent Units in 2004 compared to 76,515 TEUs during the previous year. The reason for the increase was a tripling in trans-shipment volume. Finally, Mr Robert Koh, President of the Chinese Chamber of Commerce in NBD, urged the ethnic Chinese business community in the sultanate to take advantage of the free trade agreement between ASEAN and China. This would help the local economy to continue to prosper.

Sources: This analysis is based on the official government website, press reports, and on Mark Cleary and Wong Shuang Yann's Oil, Economic Development and Diversification in Brunei Darussalam (Macmillan; Basingstoke and London; 1994: pages 71-3).

WATCHPOINT: Will the current oil boom be sustained?

 

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