But record low oil prices and a slow government response are proving disastrous for Brunei’s economy. In 2014, GDP contracted 1.5 per cent, followed by another contraction of 0.5 per cent in 2015. Government revenue has reportedly declined 70 per cent over the past three years, thanks in large part to the drop in global oil prices, drowning the Bruneian government’s budgets in red ink.
Plans to expand Brunei’s refining capacity will do little to address this steep economic decline. Chinese company Zhejiang Hengyi Group has plans to establish a new refinery in Brunei with a capacity of 148,000 barrels per day. But as recent economic research into ‘value added’ industries indicates, a refinery on the scale proposed by Zhejiang Hengyi Group would only add approximately 10 per cent to the value of a barrel of oil. Expanding refining capacity only leaves the Bruneian economy further at the mercy of the Organisation of the Petroleum Exporting Countries (OPEC), United States shale producers and other forces far beyond the island state.
In order to regain its prosperity, Brunei must seek to diversify its economy. More than 60 per cent of the country’s economic activity is linked to the oil and gas industry — clearly placing too many eggs in one fiscal basket.
Agriculture offers one promising alternative. Although Brunei does not export beef internationally, it has cultivated a premium halal brand sought after in many predominantly Muslim countries, for use by exporters that meet Brunei’s exacting standards regarding the slaughter of livestock.
Currently, Brunei imports more than 4000 head of cattle each year from Australia to slaughter, process and consume domestically as Brunei’s own feedlot system is woefully inefficient. Bruneian producers must import greater quantities of feed to make the same gains enjoyed by their Australian counterparts.
A concerted effort to improve the efficiency of domestic feedlots could allow Brunei to become a beef exporter in its own right, selling to discerning customers desiring only the most premium halal beef. Meanwhile, the production of other agricultural commodities should be aggressively expanded to position Brunei as a net exporter.
At the same time, the country should be selective about what markets it chooses to invest in. In 2013, the Bruneian authorities touted a US$21 million irrigation project connected to Imang Dam that could enhance rice production in the surrounding areas. But while Brunei has only a 60 per cent self-sufficiency rate for rice, the Thai Ministry of Agriculture anticipates that Thailand’s 2016–2017 rice production will yield 25 million tonnes. Brunei will only ever manage to reach a small market and has no competitive advantages to offer as far as rice is concerned.
Beyond the need for an important national conversation about the role agriculture can play in the Bruneian economy, and what commodities are worth greater investment, Brunei could find some success in developing its own unique ‘knowledge economy’. Like its premium halal brand for beef, Brunei could also develop for itself a reputation as a hub for the handling of halal cosmetics and pharmaceuticals.
That might well be the direction the country is taking, as a Halal Science Centre was launched in Brunei in July 2014 and partnerships were quickly established between this institution and Florida State University, the Graduate School of Engineering at Osaka University and the Japan Food Research Laboratories. The value of Brunei’s annual pharmaceutical exports is already expected to reach US$150 million by 2018 and the country possesses abundant biodiversity, offering the potential to develop new treatment options for domestic use and export to foreign markets.
Of course, US$150 million from halal pharmaceuticals will not fill the US$2.2 billion gap between spending and revenue in government budgets. Bruneian policymakers and civil society groups must not only discuss what else the country can offer beyond oil and gas, but also examine realistic alternative sources of revenue. These include particularly the implementation of a sales tax, a modest personal income tax and the elimination of loopholes that have made Brunei’s corporate income tax toothless.
Paul Pryce is Political Advisor to the Consul General of Japan in Calgary and a researcher for the Jakarta-based research institution UPH Analytics.
Other much larger countries like Venezuela and Russia which are so dependent on oil revenues are also struggling economically in today’s world where the price of oil has fallen so significantly.
Halal beef might offer Brunei one source of revenue but feedlots are notorious for being damaging to the environment. I would hope the country would proceed very cautiously in efforts to expand this aspect of its economy.
Perhaps cosmetics and pharma products offer better avenues? And how about environmentally friendly, even organic, agriculture? As Bruneimis close to other countries in the SCS and Australia could it grow and sell organic produce profitably to its neighbors?
There are a number of issues with this article. Firstly, Brunei’s rice self-sufficiency is NOT 60per cent, it is 4per cent. http://www.bt.com.bn/news-national/2015/04/23/self-sufficiency-rice-production-only-4 Self-sufficiecy of 60 per cent is the goal of the Ministry of Industry and Primary Resources for 2015. This number was calculated by taking the overall rice consumed by Brunei and subtracting from it the total possible amount of rice that could be optimally grown on all land zoned for agriculture in the country. This is problematic as the majority of the land zoned for agriculture is not being used for this purpose, and rice output is chronically inefficient. There are number of reasons for this. Firstly, much of the land that is zoned for agriculture is not suitable. It is heavily forested and would require great labour and expense to clear it. Much of the historically fertile agricultural land has been utilised for residential areas. Secondly, very few Bruneians want to enter into the agricultural sector. With around 60 per cent of people employed in air-conditioned, office-based public sector jobs, hot agricultural work is unattractive. The majority of ‘farmers’ in the kingdom are ex-military men who grow rice to supplement their pension. They earn little and wouldn’t get by without their pension. They face difficulties in attracting workers as there is no specific agricultural worker visa, so workers are hired as domestic help and then repurposed as agricultural workers – putting them at risk of Dept of Immigration strife. Thirdly, the rice grown by Bruneians is unattractive to the local market. Most Bruneians are accustomed to imported Thai fragrant rice, so the much stodgier Laila and Titih varieties are unappealing. In addition to that, they are more expensive as imported rice is subsidised heavily by the government.
There are a number of other issues in rice production, including insufficient agricultural knowledge and poor agricultural infrastructure, which I can detail if needed.
Growing rice in Brunei has only ever been intended to lower the cost to the government of importing subsidised rice and ensure some supply in times of global uncertainty, not become a significant economic sector/export.
This article’s focus on agriculture seems woefully outdated – indeed it was the main focus of economic diversification back in the original National Development Plan [1953-1958]. If that particular plan has been failing for over 6 decades, one must wonder why the author believes this will change in the future?
The idea of Brunei Halal becoming a major Halal certifier is far off, and would be intended for nations with Muslim-minorities, not majorities as suggested. Around 2 years ago the brand was offered the opportunity to certify beef slaughtering in China, but lacked qualified inspectors to carry out the task. Considering there is no food science course available at any tertiary institution in the nation, that trend looks unlikely to change [a small numbers of students have been sponsored to study food science in Perth, Australia]. The re have been no media mentions of the Halal Science Centre referenced in the article since 2014, and it can’t be seen at the Bio-Innovation Corridor [locally known as AgroTech Park]. I would be interested in any corroborating information the author has on the centre.
Additional info on rice by a Bruneian PhD on the topic: https://selfsufficiencyricebrunei.wordpress.com/2011/10/15/problems/
This is an excellent article about the challenges facing my country! Thank you! A frank discussion is needed within Brunei, for sure.
Please disregard Alana’s comments. She is misinformed and referencing very outdated points, while your sources are post-downturn.
Apologies if I am misinformed, would love to know which references were incorrect/outdated, I’m more than happy to amend.
I agree a frank discussion needs to occur in Brunei. However, I also believe that that discussion needs to be based on correct data and innovation. Why rehash diversification plans that have been failing since the 1950s? New ideas, new policy and more consultation – to me, that’s the way forward out of this downturn.
This is a very politically correct analysis for Brunei by focusing on the agriculture sector. How many Brunei people pampered by the state for so long are prepared to “dirty their hands” in farming? My friends would rather sit back and enjoy the largesse handed out by the sultan rather than do the hard work. This country with a tiny land mass would have to import foreign labour for this sector. There is absolutely no mention of improving the quality of the labour force in Brunei. Why is the Brunei government reluctant to have a smart workforce like their have in Singapore or Switzerland, which are also small countries? Brunei’s patronage system would fail if this were to eventuate, and the fear of losing control of the rakyat (people) is keeping the government from empowering its people economically. This fear is unjustified as both the democracies in Singapore and Switzerland have shown.
Apart from oil and oil-related businesses, the only work in Brunei is retail and government,
All service industry jobs are performed by Thai, Filipino, Indonesian and Indian workers.
There is almost zero industry that isn’t directly supplying the oil industry, apart from housing (of which there is an oversupply).
The oil is slated to be sufficient for between 15 and 25 years until they will seriously need to curtail their output, at which time, the economy will effectively be bankrupt.
Too much frivolous spending and too little capital expended on schools, technical colleges, industry, training.
Lots of Bruneians have degrees from foreign universities, then get placed in government service, where the attitude is one of sloth and indolence.
Brunei needs entrepreneurs, but not in retail or housing projects, not in new public buildings, not in new malls and food courts, but in technology, engineering, etc.
I’m surprised so many of my Bruneian acquaintances are still investing in real estate. Who’s going to rent it when the oil is gone? 25 years is no time at all to create an industrialised middle class.