With the year-end target launch of the ASEAN Economic Community (AEC) looming, Brunei Darussalam is moving to make its business climate more competitive via a raft of regulatory changes.
The Sultanate’s businesses have high hopes for the AEC, particularly regarding the single regional common market and production base. However, the approaching deadline has increased the focus on areas still requiring attention, such as a skills gap in the local workforce and restrictive competition legislation.
Breaking down the barriers
In what marked a key step forward, the permanent secretary at the Ministry of Foreign Affairs and Trade, Lim Jock Hoi, outlined plans in March to change tariffs, enact a National Competition Law and better protect foreign direct investment (FDI).
Brunei Darussalam is also moving to provide enterprises with a stable operating environment, make business practices more flexible and improve cost competitiveness, according to the minister. “There will be more transparent rules and regulations for importers and exporters, as well as access to settlement procedures for when trade disputes arise,” he said.
The permanent secretary added that the introduction of a National Competition Law aimed at “discouraging restrictive business practices” would benefit consumers and small businesses. Current regulations, he explained, were rooted in providing protection for exporters of locally made products and designs.
The AEC will allow the free flow of goods, services, investments and skilled labour, while also facilitating the movement of capital across the region. Full integration will see tariffs and non-tariff barriers reduced, while in the longer term the AEC would target their removal altogether.
Plenty of potential
The AEC could provide a potential boon for domestic firms, with figures putting the region’s combined GDP in 2013 at $2.4trn. However, there is consensus among domestic firms that changes are needed if the country is to benefit from what the community has to offer.
Tim Gardener, global head of the institutional client group at AXA Investment Managers, believes the common set of rules that the AEC single market is set to create will boost Brunei Darussalam’s efforts to attract investors.
Whether local businesses have the capability to meet their regional competitors head-on will be determined by how effectively they can leverage trade initiatives, such as the reduction of tariffs, he added. Some of the less-developed ASEAN economies, such as Myanmar, Cambodia and Laos, still rely heavily on tariffs for government revenue, while maintaining protectionist trade policies.
The Sultanate’s labour market and small and medium-sized enterprise segment have also emerged as topical issues ahead of integration. Smaller businesses currently account for 22% of total employment in the country, which remains dominated by the oil and gas sector. This is well below the range of 60-97% across ASEAN.
Preparation is key
An International Labour Organisation (ILO) report produced in February cited agriculture and non-oil and gas and knowledge-based economic activities as the priority sectors for investment in Brunei Darussalam. “For both Singapore and Brunei Darussalam, the challenge is to develop workforce skills in innovation and research and development,” the report stated.
In its findings, the ILO also highlighted the need for the Sultanate to adopt and fully implement the Brunei Darussalam Quality Framework, a national qualification plan, in line with its bid to become a more diversified, knowledge-based economy, and benchmark this with the emerging ASEAN Qualifications Reference. Increased collaboration between the public and private sectors to reap the rewards of joint investment in knowledge exchange would also benefit the country, the ILO said.
The group’s findings echo those of regional officials. Commenting in The Brunei Times last August, the minister counsellor of economy at the Indonesian Embassy in Brunei Darussalam, Rudhito Widagdo, said Bruneian workers needed to be prepared for tough competition from ASEAN countries. “Brunei has to ready its human resources professionally,” he said.
In a January survey by the Global Intelligence Alliance, Indonesia and Singapore were named as the ASEAN countries with the most to gain from the AEC, with respondents finding that the Sultanate needed to up its focus on developing infrastructure and legislative framework. There are signs that the tempo of reforms is increasing. However, with the AEC set to bring major changes to the region, experts say that preparation is key and time is of the essence.