Brunei Darussalam: The Problem Of Economic Diversification


Dr AVM Horton

One of the fundamental problems facing Negara Brunei Darussalam (NBD) is the need for economic diversification away from dependence upon hydrocarbons.

The oil and gas industry provides 90 per cent of national export value and much of the government's revenue but a minimal proportion of total employment. The public sector is bloated, private business finds difficulty in competing, and manufactured goods are cheaper to import than to produce locally. Domestic food production, particularly of rice, is uneconomic. The problem is compounded by the small size of the domestic market. The country remains vastly wealthy, but is at the mercy of factors beyond its control, such as the international price of crude oil and the vagaries of world stock markets. Self-inflicted wounds have not assisted the sultanate's cause.

The issue of over-dependence on petroleum is almost as old as the industry itself: even British 'Residents' (colonial administrators) were aware of it in the 1930s. The current five-year plan (2001-05) is the eighth in a series stretching back to the 1950s designed to promote diversification. A budget of NBD$7 800 million has been approved, including $1 120 million for industry, $1 450 million for social services, and $1 150 million for public utilities.

Development funds of $1 000 million have been released for 2002, an increase of 82 per cent compared with the 2001 figure.* HM the Sultan stated that attention is being given to boosting the business sector and to reducing unemployment, which remains stubbornly high. The target was to achieve annual GDP growth of 3-5 per cent.

Emphasis was placed upon a project to develop Muara Besar, an island near the national capital, as part of a plan to establish NBD as a 'service hub for trade and tourism' (SHuTT) by 2003.

A fillip was also to be given to the construction sector, which had suffered grievously in recent years. Importance was attached to sharing opportunities with SMEs, which make up 95 per cent of businesses in the sultanate.

In the fourth quarter of 2001 several major developments took place. First, in an attempt to regain investor confidence the NBD government bought out foreign creditors of the defunct Amedeo Development Corporation. Secondly, a national oil company was founded in order to play a major role in hydrocarbon policy and to accelerate the development of a domestic industrial base. Thirdly, a Brunei Economic Development Board was established as a means to promote the sultanate as an investment destination. Plans are afoot to set up a Brunei Tourism Board on the Singapore model to take over responsibility for the promotion and coordination of tourism. The government also announced that it would be publishing a quarterly economic bulletin. The Brunei International Financial Centre, launched in July 2000 as an offshore haven for Islamic finance, continued to be fostered: in early 2002 the Royal Bank of Canada was granted a licence to operate in the sultanate. Some economists are reported to be pressing for the institution of an independent central bank, to be given the task of promoting financial stability.

Vehicle import duty was relaxed from the existing 40-200 per cent to only 20 per cent, thereby giving relief to car dealerships, a significant employer. The sultanate also hopes to become a supplier of halal meat to Indonesia, the Philippines, and even the People's Republic of China.

Implicit in some of these developments is the sultanate's desire to overcome the handicap of its small domestic market by promoting economic growth via regional organisations such as ASEAN, BIMP-EAGA (East ASEAN Growth Area), and further afield.

The crisis facing NBD is structural rather than superficial; and the foregoing measures may be tinkering rather than addressing the real issue. Dependence on hydrocarbons is likely to persist for some time yet.

* The NBD/Singapore dollar is currently at a slight premium (5%) to the Australian dollar.

WATCHPOINT: In the short-medium term, will tourism become a viable industry? Will the International Financial Centre succeed? Will a central bank be established? Will effective measures be designed to combat unemployment?


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