Brunei Darussalam: During The Second Quarter of 2003 – Tensions With Malaysia and Further Efforts At Economic Diversifi


Dr AVM Horton

The main development during the second quarter of 2003 was a dispute between Negara Brunei Darussalam (NBD) and Malaysia concerning offshore waters and associated hydrocarbon rights. In mid-2002 a Malaysian oil-strike was made at Kikeh, nearly one hundred miles offshore from Sabah. Consortia licensed by the NBD government were operating in adjacent areas. In March-April 2003, overlapping claims to territorial waters resulted in a naval standoff between the two countries and a suspension of prospecting work on both sides of the divide. In May HM Sultan Hassanal Bolkiah and Prime Minister Mahathir met at Penang in an inconclusive attempt to resolve the issue. Then, in early July, the Deputy Prime Minister of Malaysia (Datuk Seri Abdullah Ahmad Badawi) arrived in the sultanate for renewed discussions. The NBD government's website issued a bland statement on 10 July to the effect that NBD and Malaysia hoped for a 'better and continuous bilateral relationship which will benefit the two countries'. Further talks have been scheduled.

The intractable Limbang controversy also reared its head; this is usually a symptom of tension between Bandar Seri Begawan and Kuala Lumpur.

Limbang is a wedge of Malaysian territory, which splits NBD into two disconnected sections. The annexation of Limbang by Sarawak in 1890 has never been recognised by the sultanate. Dr Mahathir expressed a hope that the question might be resolved once and for all before his retirement in October. One way to do so would be to restore the district to NBD; but such an action might raise awkward questions about Malaysia's title to other river valleys formerly belonging to the sultanate. Conversely, were NBD to accept any solution short of full restoration of Limbang, the sultan's government might leave itself open to charges of national betrayal. Malaysia has already rejected any idea of bringing the matter before the International Court of Justice. So a settlement will be far from easy.

A transfer of sovereignty would not be entirely disadvantageous to the people of Limbang. The Borneo Bulletin (online version) noted on 3 July that in terms of income per capita, NBD stands fourth in Asia (after Japan, Singapore and Hong Kong) and thirty-second in the world. Similarly, in the UN human development index NBD ranks first in the Muslim world and fifth in Asia. On the other hand growth of income per head in the sultanate is one of the poorest of any country.

Transport is one sector where improvement might be possible. On 25 April 2003 Royal Brunei Airlines launched an NBD$1,120 million strategic plan under which its fleet would be expanded from its present ten aircraft to eighteen by 2013. The airline had been enjoying something of a revival in its fortunes, the period between September 2002 and February 2003 being 'the best-ever in the airline's history in terms of profitability'. The market then collapsed because of the SARS outbreak; but recovery is now taking place. The new plan has been designed to support the NBD tourism industry and business community as well as to 'contribute long-term sustainable employment opportunities for Bruneians'. Existing services are to be expanded and new destinations added. The airline expects to make a loss in 2003-4, but hopes to enjoy rising profits from 2005-6 onwards.

Expansion in the air is to be accompanied by expansion at sea. As part of its plan to become 'a principal hub port in the BIMP-EAGA region', Muara Port officially launched three new direct shipping services to China, Thailand and Indonesia on 8 April. The Brunei Economic Development Board (BEDB) has also announced the creation of a free-trade port at Pulau Muara Besar (an island opposite Muara Port with proximity to deep water). As an initial step the Halcrow Group has been engaged to study the possibility of developing the island. The substantive project (should it go ahead), coupled with an aluminium-smelting plant to be built at Sungai Liang, might create five thousand jobs over the next five years, approximately equivalent to the current level of unemployment in the sultanate. Another major venture in prospect is a rubber reprocessing plant, an MOU for its construction having been signed on 10 July by the ACI Corporation Ltd of the UK. But it remains to be seen whether local unemployed people will actually take up the new employment possibilities or whether the labour will have to be imported, as is largely the case with the garment trade.

Besides transport and factories, economic diversification away from over-dependence upon oil and gas might also be made into the financial sector. In a titah (speech) on 4 May, HM the Sultan noted the positive contribution made to the national economy by the rapid development of Islamic banking during the previous ten years. The prospects for further growth were good. Furthermore, at international level, the government had agreed that NBD's Islamic financial institutions should use their expertise to help Thailand establish its first Islamic bank.

As a colophon to this report, it might be noted that France is now a major investor in NBD, with strength particularly in banking and insurance, automobiles, armaments, tyres, and mobile telephones. It is not unlikely that more French companies will set up offices in the sultanate in the future, thereby aiding the diversification process.

(Acknowledgements to the Borneo Bulletin (online) and Far Eastern Economic Review)

WATCHPOINT: How soon will a solution be reached to the offshore dispute with Malaysia? Will Dr Mahathir achieve his ambition to settle the Limbang issue prior to his retirement?


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