With the recent descent of oil and gas prices on international markets, the role and future direction of the Sultanate’s industrial sector has never been of greater importance to Brunei Darussalam’s economy. Indeed, diversification away from a long-standing economic dependency on hydrocarbons is greatly contingent on the sector taking a larger share of the country’s GDP. This necessary shift towards a more knowledge-based, value-added manufacturing and industrial sector has also long been central to the development goals of the government.
A series of plans and programmes have thus been launched over the years with this objective in mind. These now add up to a framework that provides investors and enterprises with many opportunities and incentives to do business in the Sultanate. Yet, the industrial sector is also now operating in a much more globalised and regionalised context, heightening competition, as well as opportunities. The year 2016 has seen the start of the ASEAN Economic Community (AEC), which promises to see growth towards an open intra-ASEAN market, while on the horizon the Trans-Pacific Partnership – a massive international free trade deal that Brunei Darussalam has long championed – will also see further opening up. Opportunities are therefore expanding, albeit at a time of economic downturn, with government and business leaders anxious to see the Sultanate take a good share of the benefits to come.
Facts & Figures
According to data from the Department of Statistics (DoS) at the Sultanate’s Department of Economic Planning and Development (DEPD), out of a GDP at current prices of BN$17.8bn ($12.7bn) in 2015, the industrial sector was responsible for BN$10.9bn ($7.8bn). Within this, the majority at BN$7.7bn ($5.5bn) went to mining, which includes the oil and gas sector. Manufacturing – including petrochemicals, textiles, food and beverage, and other goods – accounted for BN$2.58bn ($1.8bn), or around 23%. With the country’s overall GDP shrinking in recent years, both industry and manufacturing earnings have also declined, with the former standing at BN$14.7bn ($10.5bn) in 2014 and the latter totalling BN$3.5bn ($2.5bn) in the same year.
DoS data from December 2015 shows that exports totalled BN$8.7bn ($6.2bn) in 2015, a 35.1% drop from BN$13.4bn ($9.5bn) in 2014. Mineral fuels again accounted for almost all of this at B$8.1bn ($5.8bn). Manufactured goods exports stood at BN$73.4m ($52.2m), with chemicals at BN$189.4m ($134.6m), and machinery and transport equipment at BN$244.3m ($173.8m). Miscellaneous manufactured articles accounted for a further BN$65.8m ($46.8m), bringing the total for non-oil-and-gas industrial sector exports to around BN$606.7m ($431.7m), or 6.9% of the total. Quite a high proportion of manufactured goods and non-oil-and-gas industrial products made in the country are thus consumed by the domestic market.
Imports of non-oil-and-gas industrial products are also much higher than exports. In 2015 imports for the Sultanate totalled BN$4.18bn ($3bn), a decline of 6.25% from BN$4.56bn ($3.2bn) in 2014. Machinery and transport equipment accounted for BN$1.49bn ($1.1bn) of this, followed by manufactured goods at BN$953.7m ($678.6m), miscellaneous manufactured items at BN$381.6m ($271.5m) and chemicals with BN$323.2m ($230m). This was a total of BN$3.91bn ($2.8bn), or 93.5% of total imports. In the non-hydrocarbons industrial sector the majority of manufactured goods sold in the country are made overseas. Indeed, this has long been Brunei Darussalam’s basic economic model: the Sultanate exports hydrocarbons and related products and imports higher-value-added manufactured goods and services.
Changing this model, however, is what the national vision, known as Wawasan 2035, is all about. By its completion date, Wawasan 2035 aims to see Brunei Darussalam rise to be among the top 10 countries in the world in terms of quality of life, with a well-educated and highly skilled population working in a dynamic and sustainable economy. The economic strategy within the plan aims to expand both the oil and gas downstream and economic clusters outside of the oil and gas sector. Local business development is also seen as a major part of the plan, with a boost to opportunities for small and medium-sized enterprises (SMEs) particularly stressed.
Several institutions have a role in the implementation of Wawasan 2035, which is subdivided into a series of five-year national development plans. The DEPD is one of these, with the Brunei Economic Development Board (BEDB) being another. The latter is a corporate body designed to attract foreign direct investment (FDI) and to channel it into four priority sectors: life sciences, agri-business, ICT and services. These are typical of the strategy, targeting high-value-added, knowledge- and high-tech-based industries that can leverage some of the Sultanate’s natural advantages to win a greater share of GDP for non-energy sectors.
Another key organisation in the industrial sphere is Business Management Sites (BMS), which was formerly known as the Brunei Industrial Development Authority (BINA). A major governmental reorganisation undertaken in late 2015 placed BMS under the Energy and Industry Department, which in turn comes under the Prime Minister’s Office and is now known by the acronym EIDPMO. This department contains four sub-divisions: innovative technology and creative industry, global halal industry development, cottage industry/cooperatives and business environment. The BMS now also has responsibility for the Ease of Doing Business Unit and the National Standards Centre, which had previously been under the Ministry of Industry and Primary Resources, which has been renamed the Ministry of Primary Resources and Tourism (MPRT). The EIDPMO is headed by the minister for energy and industry, with two permanent secretaries under him, one for energy and the other for industry. The centralising of these two sectors under one roof shows the close connections that exist between them, with oil and gas often the basis of the manufacturing sector.
The minister of energy and industry is also chairman of the board at Darussalam Enterprises (DARe), a new statutory body that aims to help grow and support local businesses. Currently headed by Soon Loo as its managing director and CEO, DARe has a major private sector emphasis, with 80% of its board of governors now made up of private sector representatives. DARe also runs the Business Support Centre (BSC), which started operations in April 2016 and aims to help facilitate SME operations and attract FDI. Located in the Anggerek Desa Technology Park, BSC will act as a single portal for businesses to access and submit applications for licences, permits and registrations, as well as paying taxes and applying for industrial land permits.
DARe has also brought under its umbrella all the industrial estates formerly run by the BEBD and BMS. The new body thus manages 17 sites nationwide, each of which has a particular industry and business focus. The sites have connected infrastructure and land that can be leased at highly competitive rates. Those parks that were previously run by BINA tended to have more of a domestic market focus, while those run by the BEBD were generally clusters aimed at the export market, as well as at developing particular priority industries. Now these can all be integrated.
Companies that decide to set up in the industrial zones and parks enjoy a number of benefits. For example, according to the 2001 Investment Incentives Order, industries that are involved in activities that Brunei Darussalam currently lacks on a scale necessary to meet its needs can claim pioneer status. This entitles such firms to tax relief for five years if their capital expenditure is BN$500,000-2m ($355,000-1.4m), or eight years if it is more than BN$2.5m ($1.8m). Other incentives include exemption from income tax and import duties, exemption of certain dividends from tax and the carry forward of losses and allowances. Post-pioneer-status companies may still be entitled to a six-year period of certain dividend exemptions, deductions of losses and adjustments of capital allowances.
These tax and Customs benefits are in addition to the benefits provided by the one-stop shop nature of the parks themselves, which also provide less expensive land, utilities and infrastructure. The specialisation of each park, located close to resources necessary to its specialisation, also brings synergies and additional cost savings.
Perhaps the most ambitious of the industrial zones now under DARe’s remit is Pulau Muara Besar (PMB). This is an artificial offshore island, located close to the Port of Muara, the Sultanate’s main maritime hub. In May 2015 the BEDB, which was then in charge of the project, held a signing and ground-breaking ceremony for PMB with China Harbour Engineering Company, which is undertaking the construction of a 2.7-km bridge connecting PMB to the mainland, along with associated roads and utilities. This marked the beginning of the latest phase in a mammoth project that will see the 955-ha island transform into a thriving site for chemicals, petrochemicals, ship maintenance, repair and overhaul, and marine supplies.
Leading the way with this is Hengyi Industries, which is currently engaged in phase one of a $4bn integrated refinery and aromatics cracker complex. The facility has a design capacity of 1500 kilotonnes per annum (kta) of paraxylene, 800 kta of benzene, 990 kta of chemical light oil, and 3390 kta of gasoline and diesel. Dredging and land reclamation for the island was due to end in March 2016, with construction of the facility, in which the government has a 30% share, scheduled to begin around the end of 2016. Completion is likely in 2018, with some 780 people expected to be employed by the facility.
The Bruneian authorities hope that the complex will act as a major magnate for other downstream industries to locate on the island, while in and of itself it should make a significant contribution to the Sultanate’s GDP. While most of its output will be heading for China and other Asian markets, it could also potentially act as a supplier to local chemicals and petrochemicals sectors. The complex will in any case use natural gas from Brunei Darussalam, along with Qatar, as its main source of feedstock.
Not far from PMB lies the Salambigar Industrial Park (SIP), a 121-ha site that is also just 11 km from Brunei International Airport. SIP has two current tenants, one of which is Simpor Pharma, the Sultanate’s first pharmaceuticals manufacturing plant. This produces over-the-counter drugs, halal-certified generics and ethical drugs, health supplements and cosmetics. The second tenant is HLDS, which produces carbon steel pipes.
Moving further west, Digital Junction is a 15-ha site that is currently home to CAE MPTC, a multi-purpose training centre. Bukit Panggal Industrial Park covers 50 ha of land, which have been designated for energy-intensive manufacturing, as the park is next to a 110-MW combined-cycle power plant. Continuing along the coast, the Telisai Industrial Park offers some 2808 ha of mixed industrial land. In early 2016 the transportation infrastructure for the park was still being added to, with a link road and highway being worked on. Golden Corporation is a major tenant, working in the food processing sector. Sungai Liang Industrial Park is a 271-ha petrochemicals zone next door to Brunei Liquefied Natural Gas’s main complex. The Brunei Methanol Company (BMC) is currently tenanted in the park, with a 24-ha plant.
BMC is a joint venture between Mitsubishi Gas Chemical Company, PetroleumBRUNEI and ITOCHU Corporation. The firm began commercial operations in 2010, when it was the largest post-independence industrial project in the country. The BMC plant has a nameplate capacity of 2500 tonnes per day of Federal Grade AA methanol, a key ingredient in the production of a range of chemicals and petrochemicals.
DARe is also involved in two specialised industrial zones, the Brunei Bio Innovation Corridor (see analysis) and the Anggerek Desa Technology Park, which hosts the BSC. The latter is also home to the iCentre, which runs an incubation programme for technology and innovation-based start-ups. The park is also the location for the Knowledge Hub, a centre for facilitation and promotion of research and development activities, along with the digital Design and Technology Building, which offers space for company offices, conferences, exhibitions and meetings.
In addition to its halal food processing industry (see analysis), the Sultanate has also placed a major focus in recent years on aquaculture, with the result being a thriving seafood processing industry. In administrative terms, fisheries is now a department of the MPRT, following the reorganisation of government ministries in late 2015, while the EIDPMO maintains its role as the downstream, processing and packaging sector overseer. The Department of Fisheries estimates that the sector is worth around BN$200m ($142.3m) a year, 35% of which is from aquaculture and 9% from seafood processing.
A key success story in the latter subsector is Golden Corporation, which was established in Telisai Industrial Park by Taiwanese investors. Employing 180 people, this $24m project produces fish meal and fish oil, processes shrimp and tuna for export, and runs its own hatcheries for sea bass and shrimp. The Brunei Times reported in April 2015 that Golden Corporation formed a joint venture with Taiwan’s He Xin Farm Group and Singapore’s Sunland Agri-Tech to develop a multi-purpose farming and organic fertiliser facility at Lumapas, near the capital, which is expected to be fully operational by the end of 2016. Meanwhile, Gold Coin Holdings, a global manufacturer of livestock feed, also runs a 75,000-tonnes-per-annum (tpa) mill in the country from which it intends to export, partly to its old location in neighbouring Malaysian Labuan.
DARe plays a key role in helping start-ups and SMEs develop their businesses, with a wide recognition in government that the success of diversification relies heavily on these varieties of enterprise. In this, the organisation’s Enterprise Development Programme (EDP) has a key role. The EDP first assesses companies in terms of their level of maturity and then assigns appropriate programmes to them. This may begin at the level of a simple business idea, with outreach programmes, competitions and presentations aimed at encouraging would-be entrepreneurs to pursue their dreams.
Later on, grants, networking opportunities, incubation schemes, hands-on mentoring programmes, seed funding and equity investment all are made available, with the final stages, when the company’s turnover exceeds BN$1m ($712,000), being government support for international expansion. The EDP also aims to funnel enterprises and support programmes towards developing a smaller number of specialised, high-focused outfits that are high-value-added, bringing greater returns for the country than previous, more general business support schemes.
The Heavier Hitters
At the heavy industry end of the spectrum, Brunei Darussalam meets most of its domestic needs for raw and basic materials with imports. One exception is the cement industry, where Butra Heidelberg Cement (Brunei Cement) has long been a major local supplier to the construction sector, while being the only local manufacturer. In 2000 international giant Heidelberg Cement acquired a 50% stake in the company and its cement grinding facility, which is located near the capital, Bandar Seri Begawan. That stake has been increased over the years and now stands at 70%. The remainder is owned by Bruneian firm PJ Corp.
According to Brunei Cement, total production for the company has risen and fallen largely with the fortunes of the local construction sector, as the company does not export production, but directs it all to the local market. In 2015 Brunei Cement produced 242,224.91 tonnes of cement, and sold 246,607.69 tonnes of ordinary Portland cement.
The excess is likely due to sales of stockpiles. Both figures were up on 2014, when they stood at 213,763.25 tonnes and 221,340 tonnes, respectively, although they were down from 2011, 2012 and 2013. Much of this is due to the slowdown in the economy itself. This sector relies heavily on government projects, many of which were badly affected by the slump in revenues from the oil and gas sector.
The company also manufactures sulphate-resistant cement for oil wells, along with other speciality cements using imported clinker and gypsum, with demand for these products badly affected by the slump in hydrocarbons prices. With a built-in capacity of 550,000 tpa, the plant has long been working at 50-60% capacity. Imported cement is a major challenge for the company, as it can be cheaper, particularly at present when there is a glut in the local market. More regional cement plants are also up and coming, with all 10 ASEAN countries having cement industries and rival plants nearby in neighbouring Sarawak and Kalimantan.
The AEC is also likely to see imported cement become even cheaper in the years ahead. Yet, at the same time, prices of imported clinker and gypsum are also likely to fall, cutting Brunei Cement’s costs of production. The firm thus may be able to maintain its competitive edge, while as the local player its access to local government and government projects also stands it in good stead.
Another company producing with an eye on the local construction sector, while in this case being chiefly export driven, is HLDS. The firm manufactures steel pipes at its new BN$50m ($35.6m) greenfield facility in the SIP. The plant, which was still under construction in 2016, is expected to have an output of 100,000 tpa of welded round steel pipes, with an expected export value of BN$100m ($71.2m) a year.
The general global economic slowdown and the recent sustained fall in oil and gas prices have set Brunei Darussalam and its industrial sector some major challenges. Indeed, while previous years have seen an oft-stated intention to diversify the economy away from hydrocarbons, now the implementation of such a policy has become critical. There are positive signs, however, that the government is highly aware of this and is moving fast to put a greater emphasis on this major economic, and even psychological, shift. Reorganisation and a renewed level of commitment to the policy are evident, with organisations like DARe clearly stepping in a positive direction. The year ahead then, will see the country’s entrepreneurs and administrators forge ahead with these initiatives, albeit in a world experiencing strong economic headwinds. The longer term, however, is likely to see the Sultanate reap the benefits, with the country’s private sector and foreign investors likely to be some of the biggest beneficiaries.
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