Brunei Darussalam looks diversify its economy and develop human capital

While both 2015 and 2016 have held numerous important changes for Brunei Darussalam, the nation has long maintained its unique balance of tradition and modernity. Situated along the coast of the South China Sea, the Sultanate covers 5765 sq km on the north-western coast of the island of Borneo. It shares the island of with the Malaysian states of Sabah and Sarawak, as well as the five provinces of Indonesian Kalimantan. As the sole fully-sovereign nation on Borneo, Brunei Darussalam has maintained its current form of sovereignty since its independence from the UK in 1984.

The Sultanate’s identity far predates that year, however. The current ruling royal family, the House of Bolkiah, established the Sultanate in 1368 through the first Bruneian sultan, Muhammad Shah. Following a prosperous “Golden Age” in the late 15th and early 16th centuries, which saw the Sultanate significantly expand its influence and borders, European influence arrived in the year 1521, beginning with the landing of a Portuguese expedition under Ferdinand Magellan.

Relations with European superpowers were volatile. The engagement of Spanish fleets at sea eventually resulted in extensive trade disruption and economic decline. British influence in the Sultanate arrived in 1846, leading to the establishment of Brunei Darussalam as a British Protectorate for nearly a decade between the years 1888 and 1984. Under Sultan Omar ‘Ali Saifuddien III, who reigned between 1950 and 1967, the nation pursued greater self-rule, culminating in independence from the UK in 1984 under the current ruler, His Majesty Sultan Haji Hassanal Bolkiah. Brunei Darussalam has since experienced rapid economic growth and has amassed significant wealth due, in large part, to its natural assets in the form of petroleum and natural gas fields. Moving forward, however, the Sultanate is targeting sustainable economic growth through the promotion of non-energy related industries and the development of its local human capital.

Government

Brunei Darussalam has maintained a stable form of government since its independence. The current ruler, Sultan Bolkiah, has served as head of state since 1967, and also performs duties as prime minister, minister of defence, minister of finance, minister of foreign affairs and trade, and supreme commander of the Royal Brunei Armed Forces. The Sultanate follows succession protocol according to male primogeniture, and HRH Prince Al Muhtadee Billah, Crown Prince of Brunei Darussalam, born in 1974 and the eldest son of Sultan Bolkiah, is first in the line of succession. Brunei Darussalam can be classified as a unitary Islamic monarchy, with the Legislative Council of Brunei forming the Parliament.

The Cabinet of Brunei, which forms the chief executive body of the Sultanate, is composed of the Sultan in his roles as prime minister, minister of finance, minister of defence, and minister of foreign affairs and trade; the crown prince in his role as senior minister; as well as the ministers of communication; culture, youth and sports; development; education; energy and industry; health; home affairs; primary resources and tourism; religious affairs; and second ministers of finance, and foreign affairs and trade.

Geography & Language

Brunei Darussalam is split into four separate districts. Brunei-Muara District, housing the Sultanate’s capital, Bandar Seri Begawan, is the smallest by area but by far the largest by population and it is home to 290,300 people, or around 70% of the Sultanate’s total population of 411,900. The district contains Brunei Darussalam’s government ministries and the majority of its private businesses, as well as housing the Brunei International Airport and Muara Port. Belait District, the western-most of the four, is home to the nation’s crucial oil and gas industry and is separated from the capital by the suburban Tutong District. The fourth district of Temburong is an exclave, split from the rest of Brunei Darussalam by the Malaysian district of Limbang. It contains much of the Sultanate’s virgin rainforests and is a popular ecotourism destination. The four districts are divided into 38 sub-units called mukims. The terrain in the central and southern part of the country is low and hilly, and rises to about 300 metres in the hinterland. The north of the country is characterised by a wide coastal plain leading up to Mount Pagon in the Temburong District, which reaches a height of 1840 metres above sea level. The interior of the country is covered in lush green rainforest and a dense, intricate system of mangrove rivers in the north.

The main language spoken in the Sultanate is Bahasa Melayu (Malay), although English is widely spoken and is the principal language in business. A number of Chinese dialects are spoken by the Chinese community, including Hokkien, Mandarin, Hakka and Cantonese. Around 6% of the country’s overall population are indigenous people – Ibans, Murut and Dusun – who maintain their own distinct identity and language. Ethnically, Malays form approximately two-thirds of the local population, followed by Chinese with 7% and other nationalities – primarily Filipinos and Indonesians who traditionally work in the services sectors – with 21%.

Regional Leader

Commanding the second-highest GDP at current prices per capita of all the ASEAN nations, at $40,979 in 2014 and trailing only Singapore, Brunei Darussalam remains one of the most advanced economies in the South-east Asian region. Following its successful chairmanship of ASEAN in 2013, Brunei Darussalam will look to continue in its role as a regional leader in areas ranging from defence to commerce . Despite being among the seven sovereign states with overlapping maritime claims in the South China Sea along with China, Indonesia, Malaysia, the Philippines, Taiwan and Vietnam, Brunei Darussalam has played a key role in presenting a united ASEAN counterweight to the established regional powers. Brunei Darussalam’s neutrality along with its state-of-the-art defence facilities and training capacity leave it uniquely equipped to spearhead the region through such international diplomatic disputes. The integration of the ASEAN Economic Community in 2015 has seen the Sultanate further entrench itself within the regional economy, with the ultimate objective of establishing a highly competitive single ASEAN market integrated into the global economy. The targeted ASEAN Single Shipping Market and ASEAN Single Aviation Market, including the ASEAN Open Skies policy, will further serve to see the smallest ASEAN member state capitalise on its strengths through the enhancement of regional connectivity.

Economic Diversification

Historically, the oil and gas industry has dominated the Bruneian economy and has allowed the Sultanate to amass its considerable wealth. However, the nation is making earnest efforts to diversify its economy in order to ensure future economic stability and sustainability. In 2015 Brunei Darussalam’s oil production estimates increased slightly to 125,000 barrels per day, up from 124,000 the previous year; a slow increase, largely due to ongoing maintenance work on ageing assets and infrastructure.

Although the government’s 2014 “Energy White Paper” is optimistic about the levels of oil and gas production the Sultanate can achieve by the year 2035, owing to targeted secondary and tertiary recoveries from existing assets and increased exploration, as well as upstream international ventures, Brunei Darussalam has significantly ramped up its focus on other industries. Non-oil and gas industries have increasingly contributed to the Sultanate’s revenues in recent years, accounting for 42% of the national GDP in the first half of 2015, up from 39.9% in the same period of 2014 and 34.8% in the same period in 2013.

Central to the Sultanate’s diversification efforts is the attraction of foreign direct investment through joint ventures set up with large international companies across various sectors. Largely thanks to the efforts of the Brunei Economic Development Board, the nation has successfully brought in several major international investments in recent years. Notable joint ventures include the development of a refinery and aromatics cracker plant with Zhejiang Hengyi of China, an aluminium smelting plant with DongYang GangChul of South Korea and a multi-purpose defence and aviation training centre with CAE of Canada. The Sultanate is also targeting growth in bio-industry through investments in research and development, as well as expanding the reach of its halal food industry.

Local Content

Brunei Darussalam has also set its sights on the further development of its local human capital across multiple industries in order to stifle unemployment and ensure the longevity of local businesses. The most notable efforts undertaken have been in the oil and gas industry, with the Local Business Development framework outlining local content goals and requirements for companies within the industry in a bid to advance local capacity. International companies operating within the Sultanate carry out a crucial role in these efforts, contributing through technology and knowledge transfer while partnering with their Bruneian counterparts.

The development of local content has not been restricted to oil and gas, however, with other sectors such as industry and construction undergoing similar initiatives. Concurrently, Brunei Darussalam is in the midst of transforming its educational capacity to meet the demands of industry, through an overhaul of its technical and vocational education system as well as the identification of key areas of development in the Ministry of Education’s 2012-17 Strategic Plan.

Legal Transition Under Way

While Brunei Darussalam has long maintained a dual legal system based on both English common law and Islamic sharia law, 2013 saw the codification of sharia law through the declaration of the Sharia Penal Code Order. Set to be implemented in three gradual phases, the rollout of the Sharia Penal Code Order began with the enforcement of the first phase in May 2014.

Within the Sultanate, the penal code is seen, in large part, as a preventive measure rather than a punitive one, and as a codification of a pre-existent ideology. Furthermore, sharia law in Brunei Darussalam is set to be implemented solely in accordance with stringent evidentiary conditions, with the existing common law penal code continuing to apply in all other instances.

Outlook

Despite entering various transitional phases, whether economic or legal, Brunei Darussalam remains well positioned to continue in its current trajectory of steady economic growth and continuing political stability. The increasing focus on economic diversification, and the ongoing growth of those industries bodes well for the Bruneian economy, as does further exploration and improved efficiency in the oil and gas industry, which promises to help the recovery of that sector.

Furthermore, the ongoing development of local capacity across various industries will ensure sustainable growth, hand-in-hand with increased investments from abroad, and the coming years will see Brunei Darussalam further ensconce itself within both the ASEAN and global economies.

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