Brunei Darussalam: Economic Developments in the Second and Third Quarters of 2006 with Special Reference to Hydrocarbon

2006

AVM Horton

Gross domestic product per capita in Negara Brunei Darussalam (NBD) rose from NBD$31,800 in 2000 to $42,900 in 2005. The average annual growth rate of the economy during that period was 2%, with the oil sector growing at 0.8% and the non-oil sector at 3.6%. GDP amounted to NBD$15,900 million in 2005, hydrocarbons contributing 57%, the private sector 28%, and the government 15%. Exports of goods and services accounted for 68% of GDP (all this according to Borneo Bulletin, online, 15.8.06).

Inflation is still well under control. The Consumer Price Index for March 2006 rose by just 0.1 percentage point compared with February. Similarly, the CPI for May 2006 was only 0.3 points higher than during the same month in 2005 (AA, November 2005; BBO 4.5.06; BBO 17.5.06; BBO 28.7.06).

The Brunei Shell Petroleum Company (BSPC) a "dynamic and world-class" firm, is currently producing, both for export and for the domestic market, more than 400,000 barrels per day of oil and gas equivalent, an increase of more than 25% over the past five years. The company is implementing a 'Bruneisation' policy, so that 80% of its 3,500 employees are now Bruneians. Furthermore, six-in-every-ten management positions are now held by local citizens, double the proportion 20 years ago (BBO 18.5.06).

Safety is a priority: in 2005 the BSPC claimed the best 'health, safety and environment' record amongst all the exploration and production companies in the Royal Dutch/Shell Group. ISO 14001 (environmental management) status was achieved in 2005. The company is also committed to the development of local businesses: Bruneian contractors have been allocated nearly 70% of the BSPC's committed spending of NBD$3,000 million (BBO 8.3.06).

In May 2006 Toshihiro Nikai, Japanese Minister of Economy, Trade and Industry, held talks in Tokyo with Pehin Dato Yahya Bakar (Minister of Energy, NBD). His main concern was to ensure continuing stability of supply. Around 90% of NBD's LNG exports go to Japan, accounting for around 10% of the recipient's total requirements (BBO 13.5.06). It was announced shortly afterwards that the two nations had agreed to start negotiations on an Economic Partnership Agreement (BBO 25.5.06).

An energy market consultant, cited in the Borneo Bulletin, confirmed that the PRC has been the dominant driving force behind rising Asian oil demand. There was speculation in March that the oil price might scale US$100 per barrel in due course, particularly should production be disrupted by an untoward event. In the longer term, however, downward pressure on pricing was thought to be probable (BBO 17.3.06). In April-May the cost of Brent crude fluctuated in the US$68-74 range whilst in August (coinciding with the war in Lebanon) it was floating at US$74-78 (DT London). Demand is not the only factor causing high oil prices: world refineries are running at near-full capacity, for example, and OPEC has limited scope to increase production (BBO 17.3.06).

On 6 February the Brunei National Petroleum Company announced the successful bidders for two onshore blocks. One consortium, which includes QAF Brunei Sdn Bhd, was awarded Block 'L', covering the whole of Brunei-Muara District and parts of Tutong and Temburong. A second consortium, uniting China Oil USA (Macao) Company Ltd (ChinaOil), Valiant International Petroleum Ltd, and Jana Corporation Sdn Bhd, was awarded Block 'M', which occupies most of Belait (BBO 7.2.06).

NBD suffers from 'poor economic competitiveness', according to a recent report which ranked the sultanate sixty-ninth out of the eighty-one countries surveyed. This result was attributed to a 'weak private sector' and the 'need for a new engine of growth within the country' (BBO 4.3.06). The good news is that such potential is not lacking. Sungai Liang is being planned as an industrial park housing petrochemical projects, which should in turn generate spin-off industries and supporting utilities. What is more, Muara Besar Island is to be developed as a combined port, export-processing zone, and manufacturing centre, with a possible aluminium smelter under consideration as well. The total investment in these undertakings would be NBD$3,600 million (BBO 4.3.06; BBO 24.3.06; Pelita Brunei 29.3.06:1).

His Majesty the Sultan has stressed the importance of strengthening the private sector in national economic development. As part of this drive, the Telecommunications Department (Jabatan Telekom Brunei) was corporatised on 1 April 2006. JTB's existing functions were to be split between two successor organisations, namely Syarikat Telekom Brunei Berhad (TelBru), registered on 30 May 2002 (BBO 30.5.02), and the Authority for Info-Communications Technology Industry (AiTi), which was founded at the beginning of 2003. TelBru had been entrusted with delivering telecommunication services in the country, whilst AiTi was to be responsible for regulating the local ICT industry as well as representing the sultanate internationally on such matters (BBO 17.3.06; Borneo Bulletin Sunday, online, 2.4.06).

The era of the low-cost airline has finally dawned in NBD. AirAsia opened its website on 2 June to allow travellers to book tickets on the BSB-Kuala Lumpur route; the service, with an initial annual capacity of 50,000 seats, commenced on schedule on 11 July. Dato Hamdillah Wahab, Deputy Minister of Industry and Primary Resources, argued that AirAsia offered an opportunity to achieve substantial growth in the tourism industry, particularly with Visit Brunei Year 2008 in mind (BBO Sa.3.6.06; BBO W.12.7.06).

The automobile (retail) sector was not being so happily placed: dealers reported a 20% fall in business in January-June compared with the same period last year. Part of the reason is that sales in 2005 were artificially boosted by 'panic buying' prompted by fears of a credit squeeze by financial institutions (BBO 8.4.06; BBO 19.7.06). On the other hand, there were positive indications in the construction sector. It was reported that house-owners had been renovating their properties and various developments had been taking place in the commercial sector. This upturn was expected to have a multiplier effect on other industries and to help SMEs, which made up 95% of the total enterprises in the country and contributed 45% of the nation's total employment (BBO 26.5.06).

The number of registered 'job-seekers' (which usually includes those in employment, but looking for something better) stood at 7,370 in May 2006. Pehin Dani Ibrahim, Deputy Minister of Home Affairs, urged the unemployed to be less selective and stated that the 'tendency to perceive employment in the private sector as a temporary phase whilst awaiting entrance into government service' needed to be changed. For its part, the Labour Department had organised since 2001 an 'apprenticeship training scheme' for graduates and diploma-holders in order to encourage the recruitment of local people by the private sector (BBO 4.8.06). Earlier, in May, HRH the Crown Prince had himself urged graduates to make themselves more 'marketable' (BBSO 21.5.06).

It remains to be seen whether the private sector will be able to improve upon its current 28% share of GDP in line with His Majesty's wishes.

WATCHPOINT: The high price of oil ought to be bringing renewed prosperity to the sultanate as the financial scandals of recent years fade into the background. However, whether this is actually the case must be monitored further.

 

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