A string of major international trade agreements, due to be implemented in 2015, promise to strengthen and diversify Brunei Darussalam’s exports as it ramps up efforts to reduce its dependency on crude oil sales in the wake of plummeting prices.
The value of exports slumped 23.2% in October, due to lower shipments of oil, according to the latest figures from the Department of Economic Planning and Development. A 7.3% decline in oil exports was directly caused by the fall in average oil prices, it noted.
Brunei is a substantial producer and exporter of crude oil and natural gas for Asia and relies on hydrocarbon revenues for nearly two-thirds of its GDP according to the US Energy Information Administration. With Brent crude having nosedived since the end of last year − it was trading at 51/2-year lows of just above $50 per barrel in early January − there is likely to be more pain in store in 2015.
The IMF noted in July that the main risks to the economy stem from energy prices, but Brunei “appears well-cushioned by substantial fiscal buffers” thanks to prudent policymaking, which has provided large fiscal and current account surpluses.
The Sultanate is making strides to diversify its economy, as part of its Vision 2035 strategy, which aims to reduce its reliance on oil and gas and increase private-sector employment.
The Sultan and Yang Di-Pertuan of Brunei Darussalam said in November that it is looking to attract more investments in the exports, manufacturing and services sector while halal food processing, petrochemicals, ICT and high-tech industries remain a priority.
Competing trade deals
A number of regional and international trade agreements are in the pipeline for 2015. The most significant among them is the creation of the ASEAN Economic Community (AEC) − a single market for the ASEAN bloc to promote free movement of goods, investment, services and labour − which is due to be implemented by December.
According to Tim Gardener, global head of institutional client group at AXA Investment Managers, the AEC single market will help attract more investors through the introduction of a common set of rules that will alleviate any political risks.
Another key regional initiative with major implications for Bruneian exports is the Regional Comprehensive Economic Partnership (RCEP), which would encompass 16 countries and a population of more than 3bn. RCEP, dubbed one of the world's largest free trade pacts, was established by ASEAN and its six major trading partners Australia, China, India, Japan, Korea and New Zealand on the sidelines of the 21st ASEAN Summit held in Cambodia in 2012.
RCEP, also due to come into effect by the end of 2015, will allow member states to reduce trade barriers and harmonise the regulatory environment. The trade agreement, if it materialises, is expected to give Brunei a 6% hike in GDP by 2025, according to some estimates, with the non-oil sector tipped to contribute the most to economic growth.
Other broader international link-ups will help Brunei diversify its export commodities and partners. Sultan Hassanal Bolkiah said in November that good momentum was building towards the conclusion of the Trans-Pacific Partnership (TPP). Scheduled to start at the end of 2015, the US-led trade pact would establish a free-trade bloc among 12 countries in the Pacific Rim, reaching some 800m people.
“We hope that once the Trans-Pacific Partnership is concluded, more Bruneian companies will see opportunities to boost their exports to the US,” the US Ambassador to Brunei Darussalam, Daniel Shields, said in September.
Some commentators have argued that the two trade agreements represent a mutually exclusive choice between a China-centric option in the RCEP and a US-centric trade agreement in the TPP.
However, this ignores the fact that the former is more based on the consolidation of ASEAN free trade agreements, while the latter covers a wider variety of barriers to trade and investment that occur beyond national and regional borders. By positioning itself as a commerce hub, Brunei could become a bridge nation for the competing trade deals and maximise the potential to diversify its trade options.