After a sharp slide on the World Bank’s ease of doing business index in the “Doing Business 2015” report, Brunei Darussalam launched a host of new reforms aimed at making the country’s investment climate more attractive and competitive. New businesses in low-risk sectors are now able to receive a licence and begin operations in a tenth of the time, while ongoing efforts to bolster foreign direct investment (FDI) and streamline investment procedures will offer further long-term benefits. This is of particular importance in light of depressed global oil markets, which have impacted revenues and exports in Brunei Darussalam, making economic diversification a pressing concern for policymakers.
Drop In 2015
The government has committed itself to reforms aimed at improving the investment climate, after it fell 46 spots on the ease of doing business index in 2015 to 101st place from 59th place in 2014. Although the decline was driven more by other countries’ improvements than by regressive new policies in Brunei Darussalam, the Sultanate’s rankings for six of ten indicators fell in 2015. Brunei Darussalam performed particularly poorly in the starting a business category, where it ranked 179th place, and saw its rankings in the registering property, getting credit, protecting minority investors, enforcing contracts and resolving insolvency also decline.
Brunei Darussalam has endeavoured to improve its ranking on the survey for a number of years, establishing a dedicated Ease of Doing Business Unit (EDBU) in May 2012, a Business Facilitation Centre Unit under the Ministry of Industry and Primary Resources (MIPR), and the Authority for Building and Construction Industry (ABCI) at the Ministry of Development, which acts as a one-stop shop for any new construction projects and investors. The EDBU was reassigned to the Business Environment Division, under the Department of Energy and Industry at the Prime Minister’s Office (PMO), in December 2015.
In the wake of the 2015 results the MIPR called for reforms, which have resulted in a host of new initiatives aimed at attracting investment, supporting diversification and improving the business climate. One of the most significant of these reforms occurred in January 2015, when the Miscellaneous License Act was amended to cut down on the wait time for new businesses to start operations. This allowed low-risk enterprises, including restaurants and retail units, to significantly reduce the time it takes to establish a business.
The government has also announced plans to reform bankruptcy laws, working with the PMO, the Attorney’s General Chambers and the judiciary to implement a reform giving insolvent companies the option of receivership prior to declaring bankruptcy. The government’s two-tiered approach to legal reforms first emphasised dispute resolution, with the country introducing alternative commercial dispute settlement mechanisms, including the January 2013 establishment of the Small Claims Tribunal in addition to the Brunei Darussalam Arbitration Centre. In February 2016 officials announced that the Small Claims Tribunal, which provides a “time efficient and inexpensive forum” to resolve civil claims not exceeding $10,000, would expand across all four districts in Brunei Darussalam. The establishment of more streamlined cooperation between relevant stakeholders, specifically the Labour Department and the Department of Economic Planning and Development, will assist with the resolution of small claims.
The second tier of legal reforms emphasises bankruptcy law, and in July 2015 Mariani Haji Sabtu, head of the EDBU, announced the introduction of the Insolvency Order, which came into effect in April 2016. The Insolvency Order established formal mechanisms to rescue an insolvent company, incorporating international best practises to establish a receivership framework. According to the EDBU, the order “is intended to create a shift in the insolvency culture, with a greater emphasis placed on company rescue and rehabilitation, and protection for all creditors and debtors”.
It appears that the measures implemented by the EDBU have proven effective, and Brunei Darussalam improved considerably on the World Bank’s 2016 ease of doing business index. The Sultanate climbed 17 spots to 84th place, driven by a 105-spot jump in the “starting a business” category, where it ranked 74th place out of 189 economies surveyed. On the 2015 survey, the World Bank reported that it took an average of 540 days to establish a business in Brunei Darussalam, compared to 150 days in Singapore and 425 days in Malaysia; in 2016, however, this was reduced to just 14 days. The World Bank also reported that improved online procedures and simplified pre-registration and registration formalities in the Sultanate had improved the ease of doing business. Commenting on the improved 2016 ranking, the PMO said, “The process to start a business in Brunei has improved dramatically since the beginning of the year through the elimination of the miscellaneous licensing requirements and streamlining of other steps.”
There were also improvements recorded in the “paying taxes” category, where Brunei Darussalam rose from 30th to 16th place. The World Bank said that this was due to the Sultanate having made it easier for companies to pay taxes, as well as reducing the corporate tax rate from 20% to 18.5%, allowing more deductible expenses, and increasing the capital allowance for industrial buildings. Other notable gains were for “dealing with construction permits”, in which the Sultanate rose from 53rd to 21st place; “enforcing contracts”, which saw Brunei Darussalam rise from the 139th to 113th ranking; and “getting credit”, which rose from the 89th spot to hit 79th in 2016.
The World Bank announced in November 2015 that Brunei Darussalam stood as one of the most-improved countries on the 2016 survey, alongside Costa Rica, Kazakhstan and Kenya. The country’s “distance to frontier” score, which measures progress in business regulatory reforms, rose from 58.02 to 62.93 out of a possible 100, and it also jumped two spots to become the fourth-highest-ranked ASEAN country, behind Singapore, Malaysia and Thailand.
However, further reforms are needed as the Sultanate continues to struggle in the trading across borders (121st), enforcing contracts (113th) and especially the registering property (148th) categories. Ongoing reforms and upcoming trade deals aim to diversify the economy and attract new FDI (see Trade & Investment chapter), which should support steady long-term transformation.