Brunei needs quicker diversification, says new analysis
A Southeast Asian economic think tank has warned that the small nation of Brunei needs a broader “strategic plan” to diversify its economy away from oil which is expected to run out in about 27 years.
The Singapore-based ASEAN+3 Macroeconomic Research Office, or AMRO, said in its latest annual consultation report on Brunei released in mid-January 2022 that Brunei is facing “major downside risks” if its economy continues to revolve around oil and gas. The country’s high dependence on the industry makes it “highly susceptible to both domestic and external shocks” in that sector.
A much greater diversification of the economy “cannot come soon enough,” the report said.
The study comes at a time when Brunei’s crude oil production plunged to a record low in the third quarter of 2021 as the second Covid-19 wave took a toll on the economy. Gross domestic product shrank for the fourth consecutive quarter to a negative growth of 2.2 per cent in the period, prolonging the country’s recession, according to official figures by the country’s Department of Economic Planning and Statistics.
Less diversified than other oil-rich nations
While Brunei has made progress in economic diversification in recent years, the country remains less diversified than other oil-rich economies such as the United Arab Emirates, Indonesia and Malaysia, the report said, adding that there had been recent activities to expand the petrochemical sector, which – however – still depends on oil production.
While Brunei authorities have planned since the late 1990s to expand the economy towards non-oil industries, diversification is still lacking a clear and stringent strategy and should focus more on high value-added sectors such as information and communications technology and creative industries, as well as business and financial services, the report noted.
Fiscal support an tax incentives
To establish a strategic development plan, the country should coordinate different measures, including fiscal expenditures and tax incentives to helps grow certain high value-added industries, Andrew Tsang, AMRO’s country economist for Brunei, said.
The authorities should also encourage diversification through foreign direct investment incentive schemes and set up joint ventures to accelerate infrastructure construction to improve logistics for trade and export of non-oil and gas products, he added.
Focus on skills development
The Bruneian government should also focus in human capital and improve skills and education of its workforce to support the diversification, Tsang said.
Brunei should further take a unified and strategic approach towards the development of the micro, small and medium enterprise segment of the economy, it added. For example, the financial support scheme for those companies should prioritise loans for those in high value-added sectors and establish more favourable taxation policies.
“Brunei’s revenues continue to be highly dependent on the oil and gas industry, and the economy as a whole is vulnerable to fluctuations in global energy prices and the steady depletion of oil reserves,” Tsang said, adding that “a much greater diversification of the economy” was imperative for the nation.
A Southeast Asian economic think tank has warned that the small nation of Brunei needs a broader “strategic plan” to diversify its economy away from oil which is expected to run out in about 27 years. The Singapore-based ASEAN+3 Macroeconomic Research Office, or AMRO, said in its latest annual consultation report on Brunei released in mid-January 2022 that Brunei is facing “major downside risks” if its economy continues to revolve around oil and gas. The country’s high dependence on the industry makes it “highly susceptible to both domestic and external shocks” in that sector. A much greater diversification of the...
A Southeast Asian economic think tank has warned that the small nation of Brunei needs a broader “strategic plan” to diversify its economy away from oil which is expected to run out in about 27 years.
The Singapore-based ASEAN+3 Macroeconomic Research Office, or AMRO, said in its latest annual consultation report on Brunei released in mid-January 2022 that Brunei is facing “major downside risks” if its economy continues to revolve around oil and gas. The country’s high dependence on the industry makes it “highly susceptible to both domestic and external shocks” in that sector.
A much greater diversification of the economy “cannot come soon enough,” the report said.
The study comes at a time when Brunei’s crude oil production plunged to a record low in the third quarter of 2021 as the second Covid-19 wave took a toll on the economy. Gross domestic product shrank for the fourth consecutive quarter to a negative growth of 2.2 per cent in the period, prolonging the country’s recession, according to official figures by the country’s Department of Economic Planning and Statistics.
Less diversified than other oil-rich nations
While Brunei has made progress in economic diversification in recent years, the country remains less diversified than other oil-rich economies such as the United Arab Emirates, Indonesia and Malaysia, the report said, adding that there had been recent activities to expand the petrochemical sector, which – however – still depends on oil production.
While Brunei authorities have planned since the late 1990s to expand the economy towards non-oil industries, diversification is still lacking a clear and stringent strategy and should focus more on high value-added sectors such as information and communications technology and creative industries, as well as business and financial services, the report noted.
Fiscal support an tax incentives
To establish a strategic development plan, the country should coordinate different measures, including fiscal expenditures and tax incentives to helps grow certain high value-added industries, Andrew Tsang, AMRO’s country economist for Brunei, said.
The authorities should also encourage diversification through foreign direct investment incentive schemes and set up joint ventures to accelerate infrastructure construction to improve logistics for trade and export of non-oil and gas products, he added.
Focus on skills development
The Bruneian government should also focus in human capital and improve skills and education of its workforce to support the diversification, Tsang said.
Brunei should further take a unified and strategic approach towards the development of the micro, small and medium enterprise segment of the economy, it added. For example, the financial support scheme for those companies should prioritise loans for those in high value-added sectors and establish more favourable taxation policies.
“Brunei’s revenues continue to be highly dependent on the oil and gas industry, and the economy as a whole is vulnerable to fluctuations in global energy prices and the steady depletion of oil reserves,” Tsang said, adding that “a much greater diversification of the economy” was imperative for the nation.
