Long-term prospects for Brunei’s economy are grim, unless changes are made
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JAKARTA – In the short term, the outlook for the economy of Brunei-Darussalam is positive, with annual growth in gross domestic product (GDP) expected to approach 6 per cent for 2014, after contracting last year. Longer term, however, the outlook for the US$16 billion economy is murky, at best.
Everyone and anyone with an interest in Borneo’s state-funded comfort zone warns that the country’s economy remains over reliant on gas and oil. Hydrocarbons account for 60 per cent of GDP and 90 per cent of exports, but a study by oil giant BP from 2012 estimated that the country’s oil reserves could run out in less than 20 years, with gas reserves given perhaps 10-15 years longer.
In a July report, the International Monetary Fund (IMF) counselled that “over the longer-term, careful fiscal planning and diversification away from hydrocarbons, while fostering private sector development, are key to employment creation and long-term sustainable growth.”
The government – which is little more than an extension of the Sultan, Hassanal Bolkiah, who has been in power since 1967 – is aware of the threat on the horizon A starry-eyed, long-term blueprint for the economy, called Vision Brunei 2035, talks about increasing the productivity of the country’s cosseted workforce, while recognising the need to reduce dependence on oil and gas.
“It is urgent to foster the development of other high value-added manufacturing and services sectors,” reported the Organisation for Economic Cooperation and Development (OECD), in its Economic Outlook for Southeast Asia, China and India 2014.
The government claims it is already focusing on other options. “In terms of attracting foreign direct investment, Brunei has continuously prioritised sectors other than oil and gas, especially in the key clusters of food, pharmaceuticals and cosmetics, renewable energy, data centres and disaster recovery centres,” Dato Ali Apong, Chairman of the Brunei Economic Development Board (BEDB), told the Oxford Business Group, a consultancy that publishes reports on the country’s economy.
Ali Apong cited lucrative new investments, including a Chinese steel pipe-making plant, an aluminium plant to be built by South Korea’s DongYang ChangChul, and a deal between a local private equity fund and Canada’s Viva Pharmaceutical to produce Brunei-made halal medicines.
The Sultanate has long sought to tap the pious demographic among the world’s 1.6 billion Muslims, with halal versions of tourism, science and food all being talked up as potential drivers of the local economy – perhaps an apposite commercial adjunct to Brunei’s recent passing of what by regional standards is a harsh version of sharia law.
And adoption of strict sharia law will surely give pause for thought to would-be foreign investors, who may need to persuade foreign staff to relocate and tough out Brunei’s moralistic, conservative social scene. Even before the introduction of the harsher sharia law earlier this year, alcohol and even cigarettes were hard to come by in the Sultanate, as The Edge Review reported in late 2013.
For now, foreign investors will have to bring in staff, because Brunei does not keep enough skilled workers at home. Doctors, lawyers, engineers and architects from Brunei seeking “to gain relevant experience abroad” often do not return, reported Investvine.com last year.
Perhaps those educated Bruneians who are exposed to the world outside are reluctant to return to the stultifying moralism and tedium of life back home – and this, despite state-funded education and healthcare in a county that, after Singapore, is Southeast Asia’s second wealthiest per capita
Either way, the Sultanate needs to sort out its education system, and its non-state, non-energy employment options. The IMF recently called on Brunei to create a more productive labour force to help support plans to develop the economy outside of the dominant energy sector. “Active policies are needed to promote private sector employment and increase incentives to pursue higher education and training,” the IMF recommended.
The private sector currently accounts for only 20 per cent of the country’s GDP – or about twice that of government spending – with the rest accounted for by oil, gas and liquefied natural gas (LNG) manufacturing. Of the almost 120,000 private sector jobs, only 25 per cent are held by Bruneians, according to 2010 data. In other words, foreigners do the menial and the high-end work, while Bruneians work in the public sector.
Another survey – the Global Innovation Index, drawn up by the Institut Européen d’Administration des Affaires (INSEAD) – ranked Brunei 88th out of 143 countries covered, down 14 places from 2013. The conclusion was that Brunei was not so much going backwards, but rather standing still, while other countries made gains. Relative to its GDP per capita, Brunei was described as an underperformer, with “middle-income” neighbours such as Thailand and Malaysia all placing above the Sultanate.