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Even as the external environment continues to pose fresh challenges, Brunei appears to be one of the most resilient countries in South East Asia benefiting from new policy initiatives and government-backed projects.
In the state budget announced in March, the government clearly identified its economic priorities, allocating $720m of the $3.4bn total funding to boost social services, transport and communication, public utilities, information and communication technology, public buildings, security and science, as well as research and technology development.
Of this, $204m was directed to social services, to improve education and the development of human resources, while a further $150m was set aside to support the activities of Brunei's economic development board in developing economic clusters.
One of the main planks in the government's platform of economic diversification is bolstering and opening up the Islamic finance industry. In November, after two years of debate, new legislation was ratified allowing the entry of foreign banks into the sector, as well as fully codifying Islamic financial activities in Brunei.
Prior to the amendments to the banking regulations, the Islamic sector of the industry was restricted to local companies, with foreign players in the market limited to conventional banking.
A number of foreign banks, including HSBC and Singapore-based OCBC, have announced plans to set up Sharia-compliant operations in Brunei, with new entrants expected to follow.
While improving its credentials as a centre for Islamic finance, Brunei also sees great promise in the halal products sector, both through supplying Sharia-compliant goods and services and establishing itself as an accreditation centre for such products.
Through the Brunei Halal Brand (BHB), launched in August 2007 as a mark of quality for halal goods produced locally, Brunei is now providing certification services to foreign producers wishing to guarantee their products meet the requirements of purity set out by Sharia law.
This certifying process will be boosted by the New Halal Science Centre, a research institute designed to develop new products and test existing ones. The centre will be the cornerstone of the government-backed agro-technological park at Tungku, scheduled to open in 2009. It will support the BHB project through providing opportunities for firms involved in research on halal products as well as industrial activities.
The year 2008 was also marked by the government's pledge to step up the country's environmental laws by extending the area listed as forest reserves from 41% of the Sultanate's forested land to 55%. The move, which bans logging activity from the designated areas, aims to both preserve Brunei's pristine virgin forests and support efforts to make Brunei a premium destination for eco-and adventure tourism.
Brunei also stepped up efforts to improve the infrastructure vital to trade. In particular, it launched a project in October to develop a large scale deepwater port at Pulau Muara Besar to serve as a major regional cargo and transshipment centre. When completed in 2012, the port will be able to handle up to 800,000 TEUs (20-foot container equivalent) annually. The port will also be the centerpiece of an industrial zone for halal food processing and a hub for manufacturing industries, including a proposed aluminium smelter.
While the government is working to prepare the economy for the time when the wells run dry, fossil fuels continue to be the mainstay of the Brunei economy. According to an International Monetary Fund (IMF) report issued in May, oil and gas sales provide 90% of the government's export earnings and contribute to 50% of its real GDP.
Though it is estimated that Brunei has sufficient reserves to maintain production at present levels for at least 20 years - the country is currently conducting further surveys to identify new deposits - short-term revenue is expected to shrink when year-end figures are released, due to the dramatic fall in energy prices in the later part of 2008, a situation that will extend into the new year.
Brunei is also broadening the base of its energy industry, building a $400m facility in the Belat district to process methane extracted from the Sultanate's gas fields. When completed in 2010, the plant will be able to produce of 850,000 tonnes of methanol annually, most of which will be exported.
In April, the Brunei National Petroleum Company (BNPC) signed an agreement with Japanese firms Kokuka Sangyo and Itochu to establish a joint company to transport the output from the plant. The two Japanese companies will have a 30% and 20% stake respectively in the new company while BNPC's subsidiary PB Logistics will hold the remaining 50% of shares.
Though lower energy prices may reduce Brunei's export earnings in 2009, strong trade surpluses in the preceding years should allow the government to carry forward its programme of economic growth and infrastructure development, while at the same time maintaining its fuel and food subsidies.