Brunei – The race not to be left behind

Brunei’s economy grew 2.0% in the second quarter in 2013 despite the oil and gas sector recording a 0.6% decline year on year. Could this statistic be an indicator for the diversification away from its over-reliance of gas and oil resources?

Oil production in Brunei

Oil production in Brunei

Oil producing countries throughout the world have realized the need to diversify in order not

to be left behind. So too has Brunei joined the race to make itself not too dependent on oil in the years to come. Brunei is very small country with a wealthy economy which is mainly supported by crude oil and gas resources. Additionally, it has a very low unemployment rate of 3.7% and it is one of the wealthiest countries in Asia, with a nominal GDP per capita of US$ 50,300 in 2010. As the source of its wealth is its massive hydrocarbon resources, the primary sector (industrial sector) dominates the structure of the economy with 74%. The secondary sector (services sector) follows with 25%, while the tertiary sector (agricultural sector) is insignificant with 1%. Hydrocarbon production accounts for about 50% of Brunei’s GDP and 90% of its exports and government revenue, which highlights the economic domination by the oil and gas sector. If no new oil and gas fields are found, the country will run out of oil and gas in the coming 20-30 years. [1. http://www.asiatradehub.com/brunei/economy.asp]

How to get rid of the dependency of oil and gas and how could ASEAN’s objectives support Brunei by its diversification?

The government is planning and trying to diversify the economy into upgrading the labor force, reducing unemployment, strengthening the banking and tourist sector in order to decrease the dependency of the oil and gas sector.

Upgrading labor force – In 2007 Brunei launched “Vision 2035” (Wawasan 2035, Brunei’s

Education

Education

national vision) which includes three strategic goals: First a nation recognized by the accomplishments of its educated and highly skilled people; second quality of life among the top 10 nations of the world; third income per capita among the top 10 nations. Vision 2035 can be seen as a master plan for socio-economic development which is also focusing on education for example. [2. http://www.ilo.int/asia/countries/brunei-darussalam/lang–en/index.htm] In order to upgrade Brunei’s labor force they are trying to build a first class education system which provides for every citizen and resident. This should lead to the requirements of their changing economy and inspire life-long learning. ASEAN also has a 5 Year Education Work Plan which is focusing on strategic priorities. The sectors are ASEAN awareness, Access to quality education, Cross-border mobility and internationalization of education and support for other ASEAN sectorial bodies with an interest in education. [3. http://de.scribd.com/doc/116508108/ASEAN-5-Year-Education-Work-Plan]   [4. http://www.bedb.com.bn/why_wawasan2035.html]Another plan is to apply a standardized tertiary education system which is comparable with the Bologna Protocol in Europe as well. ASEAN is also focusing on educational cooperation with other countries. Therefore ASEAN had a Chinese-ASEAN Education Cooperation Week in September 2013. It was the 6th of such weeks to further build up the educational ties between ASEAN and China in order to establish mutually-beneficial collaborations for the development and growth of Southeast Asia and China. [5. http://www.seameo.org/index.php?option=com_content&view=article&id=498:seameo-co-organizes-6th-china-asean-education-cooperation-week&catid=121&Itemid=589]

Reducing unemployment – An economic strategy that shall create new employment for Bruneians. Expand business opportunities within Brunei through internal and external investments, both in downstream industries as well as in economic clusters beyond the oil and gas industry. [6. http://www.bedb.com.bn/why_wawasan2035.html]One example how the government and its agencies are trying to reduce the unemployment rate is the SLP. The Local Employment and Human Resource Development Agency (APTK) under the Ministry of Home Affairs, Mawardi bin Haji Mohammad developed the on-the-job training (SLP). This program is seen as a training of individuals through half a year of on-the-job-training followed by permanent working contract with the respective companies trainees were assigned to, during which time the government will also provide financial incentives on a monthly basis for a two-year period. [7. http://bruneiembassy.be/sultanate-moves-to-reduce-unemployment/] In January this year 37 participants graduated from a three month on-the-job-training and got full time contracts in their companies. [8. http://www.bt.com.bn/news-national/2014/01/22/37-graduate-slp%E2%80%99s-job-training]

Brunei banknote

Brunei banknote

Strengthening the banking sector – A number of reform measures has been introduced to strengthen the financial sector. The financial sector is a key to the development of other non-energy sectors. In the financial sector, the Autoriti Monetari Brunei Darussalam (AMBD, the central bank) initiated measures to improve the regulatory framework and financial infrastructure. The in summer 2013 introduced interest-rate controls could affect financial intermediation negatively, as banks are now limited in their ability to adjust loan pricing to reflect risks. ‘’Key developments in the financial sector include the establishment of a credit bureau and plans to modernize the payments system, the refining of the national deposit insurance scheme, and tighter consumer lending regulations—initiatives that are expected to promote financial deepening and make the financial sector less vulnerable.’’ [9. https://globalconnections.hsbc.com/global/en/articles/brunei-economy-energy-revenue-supports-diversification-efforts]

“Considering that tourism is a priority sector under the Economic Community and that it constitutes a significant contribution to the integration of ASEAN countries, it is important to be ‘smart’ about visa facilitation for travel” [10. http://www.philstar.com/business/2013/06/05/950488/phl-asean-countries-agree-work-common-visa]

Strengthening tourism sector – The Tourism Master plan, designed by the Tourism Development Department, is the key to establishing Brunei as a standalone holiday destination. This plan outlines plans to develop several sub-segments including nature, Islamic tourism and heritage. Especially for nature travelers Brunei has unique spots in South East Asia such as the Mulu Cave in Sarawak, the biggest cave in the world. Sabah e.g. has the highest peak in Southeast Asia (Mount Kinabalu).On the other hand many critic doubt the government will not put enough effort in the improvement of making Brunei a standalone holiday destination rather than a stopover destination. On the Sixteenth Meeting of ASEAN Tourism Ministers (16th M-ATM) was held on 20 January 2013 in Vientiane, Lao PDR they further discussed their plans and projects for the development of the tourism sector in ASEAN. The Ministers are encouraging the further developing four main ASEAN tourism products, namely: nature, cultural and heritage, community, and cruise and river-based tourism. The Ministers supported the development of an ASEAN Ecotourism Strategic Plan that would recommend policies, strategies and action plans to improve the planning, management and operation of eco-tourism sites, products and services in ASEAN. [11. http://www.asean.org/news/asean-statement-communiques/item/the-sixteenth-meeting-of-asean-tourism-ministers-16th-m-atm] ASEAN Countries Agreed on Common Smart Visa The ministers and tourism authorities of four ASEAN nations agreed to collaborate on a common smart visa system last June 5, 2013 at the 22nd World Economic Forum (WEF) on East Asia 2013. Through the common smart visa system, movement of tourists across borders or traveling from one country to another will be facilitated more efficiently as compared to the traditional visa application. The new common visa system brings convenience to travelers in terms of visa processing. Once implemented, more travelers are expected to come thus creating investment opportunities. ASEAN countries are expected to benefit from the new visa system through growth in the tourism sector, increased investments in the industry and job creation. [12. http://www.slideshare.net/PhuketAttorneysThail/asean-27278450]

Finally, you can see that Brunei definitely has recognized the situation of their economy which will occur by not diversifying their economy in order to get rid of the dependency of the oil and gas resources. The number of plans and projects I have mentioned are good ideas such as upgrading the labor force or reducing the unemployment rate. Especially the strategy for reducing the unemployment rate seems to work out since people are getting full time contracts after their graduation form the training’s program. Furthermore, the objectives of ASEAN are also really helpful for the diversification in many different views such as the tourism sector where ASEAN where ASEAN tries to develop this sector. Additionally, the 5 Year Education Work Plan shows also the important focus of education in the Association of South East Asian Nations.  But for the tourism sector I don’t see plans to improve it in a good way that this sector can raise in the near future, at least not significantly. A reason for that is in my opinion that they are more focusing on Islam tourism instead of tourism for every ethnicity, since especially western tourist would bring a lot of money to Brunei when they would provide enough interesting things tourist such as improving the two spots I have mentioned such as the biggest cave in the world. But after the implementation of Sharia Law you also can’t really expect how man western tourist would enter Brunei, a country where are strict laws in progress. All in all Brunei is doing the right things for the diversification of its economy, and ASEAN has in addition to that a lot of helpful objectives but I don’t think that this will be enough to overcome the large dependency of their oil and gas resources.

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