Economy and Trade
Bordering the South China Sea and Malaysia, the Sultanate of Brunei became a British protectorate in 1888, and achieved independence in 1984. The same family has ruled the country for more than six centuries, and now presides over an economy that boasts one of the highest per capita GDPs in Asia. Brunei last held elections in March 1962. It is a constitutional sultanate, with the Legislative Council consisting of members appointed by the sultan. The economy encompasses a mixture of foreign and domestic entrepreneurship, government regulation, welfare measures, and village tradition. Crude oil and natural gas production account for just over half of GDP and more than 90% of exports. Substantial income from overseas investment supplements income from domestic production. The government provides all medical services, together with free education through to university, and also subsidizes rice and housing. Brunei’s leaders are concerned that steadily increasing integration into the world economy will undermine internal social cohesion.
Economic Policy over 12 Months
The country is rich in natural resources and has a strategic location within the region. The majority of the country is covered in tropical rainforests, and ecotourism is gaining importance in Brunei’s economic activities. The government recognizes that its future wealth, beyond oil and gas, lies in the knowledge and skills of its people, which is one of the main reasons why university education is free. Having a highly skilled workforce has been central to the government’s desire to transform Brunei into a diversified, industrialized economy, and skilled workers remain in short supply.
Plans for the future include upgrading the labor force, reducing unemployment, strengthening the banking and tourism sectors, increasing agricultural production, and, in general, further widening the economic base beyond oil and gas. The main focus of attention on the development of human resources has been a focus on managerial and industrial skills, with particular emphasis on entrepreneurial skills (source: official government website).
Brunei’s main exports consist of three major commodities, crude oil, petroleum products, and liquefied natural gas, which are sold largely to Japan, the United States, and ASEAN countries. The government’s move to promote non-oil and gas activities gathered momentum in the 1990s, and has continued ever since. The success of its early initiatives can be seen from the fact that, in 1996, non-oil and gas activities were already contributing 64% of GDP, compared to just 24.3% in 1991.
The Sultanate also sees encouraging more foreign direct investment (FDI) as a way of strengthening the country’s underdeveloped private sector. Boosting the activities of this sector will greatly assist in the movement away from a reliance on non-renewable resources. As a member of the Asia-Pacific Economic Council (APEC), which includes a number of countries in the region, Brunei is benefiting from the overall efforts being made by APEC to understand and encourage FDI flows right across the region. The Sultanate has a strong legal infrastructure backed by a competitive market environment, both of which will be attractive to foreign investors. The Brunei Investment Incentive Act (1975) provides tax advantages for start-up businesses, and ongoing incentives throughout a company’s growth and expansion. These tax advantages are rated by APEC as “comparable, if not better, than those already offered by other countries in the region.” Foreign investors are allowed to own and operate companies, and there are flexible forms of joint venture and minority participation available as well. No foreign ownership of land is allowed. Instead, foreign companies can apply to lease land for industrial development. Importantly, the Brunei dollar is a convertible currency, and the government does not maintain any currency controls. Nor does it limit remittances, loans, or lease payments, according to APEC.
Economic Performance over 12 Months
An International Monetary Fund (IMF) country report on Brunei (published in January 2008) pointed out that the country’s economy contracted during the first half of 2007, following a decision by the government to cut back on energy production to both facilitate maintenance of oil and gas installations, and to optimize and conserve oil reserves. However, the IMF said that the government and the private non-energy sector provided what it termed “a positive impetus to growth” through 2007.
Inflation remained low at 0.1%, thanks in part to the Sultanate’s ability to impose price controls. Credit growth rose to 5% in the first half of 2007, following a contraction in 2006. The country’s banking system still has some legacy debt issues, harking back to financial problems in the country’s corporate sector during the 1990s. Local bank capital adequacy ratios were high, at close to 20%, the IMF said.
Until the sudden fall in oil prices as the global slowdown took hold in late 2008, high oil and gas prices had driven large fiscal and current account surpluses. The IMF noted that the Sultanate was pursuing a sensible policy of saving a significant percentage of energy-related revenue windfalls, and investing those sums abroad. The primary fiscal surplus reached 21.5% of GDP in the financial year 2006/07. The current-account surplus reached 56% of GDP in 2006, reflecting high energy exports.
The IMF expects growth to remain weak for the near term, but to recover as the global recession eases. Brunei was due to extend the 2007 maintenance work on its oil field installations during 2008, which the IMF expected to depress export earnings and GDP growth. Over the medium term, growth of 3% per year should be achievable, it said.
The country’s main medium-term challenge, apart from the global downturn, is finding ways of deepening and strengthening the diversification of the economy. Key reforms will include developing domestic capital markets, introducing education and training programs to achieve a more appropriate labor skills mix, and improving the business environment. Brunei has also put in place a strong financial supervisory and regulatory framework, including an anti-money-laundering regime. It has worked to harmonize Islamic banking and insurance law and regulations with conventional regulation, to create a level playing field for all the country’s banks.
Support for Inward Investment and Imports
In November 2001, the Brunei Economic Development Board was formed, with the primary responsibility of attracting and retaining local and foreign direct investment to further diversify the economy. Its primary focus is in attracting investment in advanced technology industries, and skill-intensive services with good export market prospects.
Tax Exemptions
Further information on these can be obtained from the Brunei Economic Development Board
Statistics
GDP growth: −0.5% (2008, IMF)
GDP per capita: US$54,100 (2008)
CPI: 0.8% (IMF)
Key interest rate: 5.5%
Exchange rate versus dollar: BND per US dollar—1.5886 (2006) (the Brunei dollar is now pegged to the Singapore dollar 1:1)
Unemployment: 3.7%
FDI: N/A
Current account deficit/surplus: U$7.939 billion (2008, IMF)
Population: 381,371
Source: CIA World Factbook except where stated
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