Brunei: Adjusting to new economic requirements

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Arno Maierbrugger
By Arno Maierbrugger

The long-anticipated report of the Asian Development Bank (ADB) Asian Development Outlook 2013 came out recently, and it is interesting what the report has to say about Brunei.

First of all, economic growth in the Sultanate slowed to an estimated one per cent in 2012, owing to weakness in production and exports of crude oil, which is way below all other Association of Southeast Asian Nations (ASEAN) peers except Singapore.

We learn the lesson that a mature oil and gas-(O&G) based economy, such as Brunei’s, has reached a point in its cycle where it is about time to rethink the economic road map in order to avoid the pain Singapore feels by having seen its economy actually contracting in the first quarter of 2013 by 1.4 per cent compared to the previous quarter. An alarming figure for the city state, in fact.

Brunei’s latest official data put gross domestic product (GDP) growth at 0.6 per cent in January-September 2012 from the same period in 2011, which is basically stagnant. The fundamental problems of Brunei are similar to Singapore, albeit the economic structure of both nations is quite different.

However, labour shortage and slowing (oil) exports are the factors that are putting pressure on Brunei, paired with the problem of attracting not too many new industries because Brunei’s market is so small.

For the longer-term development gains need to be made toward broadening Brunei’s economic base. The government has identified several industries for development, principally downstream petrochemicals, tourism, Islamic businesses including halal products and financial services, and information and communication technology (ICT) services. Domestic institutions are being brought into play in the push for economic diversification.

In 2012, the government established an investment holding company called Darussalam Assets to improve the financial performance of government-owned firms and to take a strategic role in diversification efforts.

The monetary authority Autoriti Monetari Brunei Darussalam (AMBD) started making preparations to establish a national payment and settlement system, in part to develop the Islamic finance industry and promote the country as an Islamic finance hub. Other initiatives, such as expanding the country’s role as a halal hub and unique halal branding are adding dynamics to the strategy.

Just recently, Brunei has announced to enter a partnership with Thailand on food security and halal trade, which will, without doubt, further boost the industry, given the fact that Thailand is the largest food producer in Southeast Asia.

Such partnerships not only drive diversification efforts, they can also overcome the problem that Brunei is perceived by many multinationals as a market being too tiny to even think of setting up shop here.

Brunei needs to enlarge its “virtual” economic size far beyond its borders which also includes stepping up Brunei’s overseas investment and, if done so, it can become one of the countries that benefit the most from a new ASEAN Economic Community with envisaged borderless trade and free financial transfers.

The biggest asset, however, for Brunei remains its wealth. Despite slowing GDP growth, private consumption is increasing and inflation is kept low. The buoyant consumption stems from high employment and the tax-free environment.

With a GDP per capita at $44,000 in 2012, Brunei came third in what the ADB defines as developing Asia, behind Singapore and Hong Kong. Thus, the Sultanate has the leeway to adjust its economy to the macro-economic challenges it faces without causing much of a stir.

 

This comment is part of Inside Investor’s weekly column series in Brunei’s leading newspaper Brunei Times and is published every Monday.

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Reading Time: 2 minutes

By Arno Maierbrugger

The long-anticipated report of the Asian Development Bank (ADB) Asian Development Outlook 2013 came out recently, and it is interesting what the report has to say about Brunei.

Reading Time: 2 minutes

Arno Maierbrugger
By Arno Maierbrugger

The long-anticipated report of the Asian Development Bank (ADB) Asian Development Outlook 2013 came out recently, and it is interesting what the report has to say about Brunei.

First of all, economic growth in the Sultanate slowed to an estimated one per cent in 2012, owing to weakness in production and exports of crude oil, which is way below all other Association of Southeast Asian Nations (ASEAN) peers except Singapore.

We learn the lesson that a mature oil and gas-(O&G) based economy, such as Brunei’s, has reached a point in its cycle where it is about time to rethink the economic road map in order to avoid the pain Singapore feels by having seen its economy actually contracting in the first quarter of 2013 by 1.4 per cent compared to the previous quarter. An alarming figure for the city state, in fact.

Brunei’s latest official data put gross domestic product (GDP) growth at 0.6 per cent in January-September 2012 from the same period in 2011, which is basically stagnant. The fundamental problems of Brunei are similar to Singapore, albeit the economic structure of both nations is quite different.

However, labour shortage and slowing (oil) exports are the factors that are putting pressure on Brunei, paired with the problem of attracting not too many new industries because Brunei’s market is so small.

For the longer-term development gains need to be made toward broadening Brunei’s economic base. The government has identified several industries for development, principally downstream petrochemicals, tourism, Islamic businesses including halal products and financial services, and information and communication technology (ICT) services. Domestic institutions are being brought into play in the push for economic diversification.

In 2012, the government established an investment holding company called Darussalam Assets to improve the financial performance of government-owned firms and to take a strategic role in diversification efforts.

The monetary authority Autoriti Monetari Brunei Darussalam (AMBD) started making preparations to establish a national payment and settlement system, in part to develop the Islamic finance industry and promote the country as an Islamic finance hub. Other initiatives, such as expanding the country’s role as a halal hub and unique halal branding are adding dynamics to the strategy.

Just recently, Brunei has announced to enter a partnership with Thailand on food security and halal trade, which will, without doubt, further boost the industry, given the fact that Thailand is the largest food producer in Southeast Asia.

Such partnerships not only drive diversification efforts, they can also overcome the problem that Brunei is perceived by many multinationals as a market being too tiny to even think of setting up shop here.

Brunei needs to enlarge its “virtual” economic size far beyond its borders which also includes stepping up Brunei’s overseas investment and, if done so, it can become one of the countries that benefit the most from a new ASEAN Economic Community with envisaged borderless trade and free financial transfers.

The biggest asset, however, for Brunei remains its wealth. Despite slowing GDP growth, private consumption is increasing and inflation is kept low. The buoyant consumption stems from high employment and the tax-free environment.

With a GDP per capita at $44,000 in 2012, Brunei came third in what the ADB defines as developing Asia, behind Singapore and Hong Kong. Thus, the Sultanate has the leeway to adjust its economy to the macro-economic challenges it faces without causing much of a stir.

 

This comment is part of Inside Investor’s weekly column series in Brunei’s leading newspaper Brunei Times and is published every Monday.

Brunei Times logo

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