The Report: Brunei Darussalam 2014

Economy

With one of the world’s largest endowments of hydrocarbons reserves relative to the size of its population, Brunei Darussalam has naturally built its economy around the production and export of oil and gas. However, like many of the world’s traditional oil and gas producers, the Sultanate now faces the challenge of maturing fields. The non-energy private sector accounted for 23.3% of GDP in 2013, with $3.69bn of value added. The government’s gross spending came to $5.8bn in the fiscal year ending March 2013, equal to 35% of GDP. Fiscal surpluses in 2012-13 averaged around $3bn and the IMF expects they will average $4bn in 2014-19, implying that the Sultanate’s rainy day savings will continue to grow.

This chapter contains interviews with Pehin Dato Abd Rahman Ibrahim, Minister of Finance II; and Dato Ali Apong, Deputy Minister, Prime Minister’s Office, and Chairman of the Brunei Economic Development Board.

Trade & Investment

Driven mainly by offshore oil and gas infrastructure, Brunei Darussalam had an estimated stock of $14.2bn of inward foreign direct investment as of the end of 2013, equal to around $35,000 per capita. The country actively recruits foreign investment, offering generous tax incentives to targeted projects that bring in high-paying jobs, help diversify the economy, add value to existing oil and gas production, or efficiently substitute for imports. Foreign investors are paying close attention to how Brunei Darussalam handles its transition into sharia law. Although the Sultanate is not believed to be aiming for a radical implementation, there is concern that any sharia case opened against a foreigner could potentially damage the sense of security to which foreign investors and experienced professionals have grown accustomed.

This chapter contains interviews with Pehin Dato Lim Jock Seng, Minister of Foreign Affairs and Trade II; Jun Yanai, Senior Executive Vice-President and CEO, Energy Business Group, Mitsubishi Corporation; and Kevin Speed, Vice-President and Regional Business Leader, CAE Asia; as well as a viewpoint from Xi Jinping, President of China.

Regional Development

With a wealth of oil and natural gas reserves beneath its territory, Brunei Darussalam has been able to maintain a comfortable trade surplus and ranks among the top-five countries in the world in terms of GDP per capita in spite of producing little else domestically. According to the World Bank, introduction of the ASEAN Economic Community could boost annual income growth by 0.5-1% of GDP and increase foreign direct investment stocks. Negotiations are also taking place on the Regional Comprehensive Economic Partnership, which includes ASEAN members and six regional free trading partners. Beyond the advantages of stronger economic, strategic and logistical ties within the region, an increase of Brunei Darussalam’s manufacturing base will help the country fully capitalise on the advantages afforded by ASEAN membership and other future multilateral FTAs.

This chapter contains interviews with Le Luong Minh, Secretary-General, ASEAN; Pengiran Yura Kesteria PSN Yusuf, Executive Chairman, BIMP-EAGA Business Council; and Secretary Luwalhati R Antonio, Chair, Mindanao Development Authority.

Energy

Plans to complement domestic production by undertaking international exploration support the Sultanate’s target of reaching an output of 650,000 barrels of oil equivalent per day by 2035. Downstream, the government is investing in development of its petrochemicals sectors. The country today is primarily an exporter of liquefied natural gas, which is shipped to Japan, South Korea and Malaysia, and is a significant oil supplier to the Asia-Pacific region. Its oil and gas output is likely to stabilise in the near to mid-term as investment in both exploration and the development and refurbishment of older fields has significantly accelerated. In the longer run, the country’s success will largely depend on the size of its deepwater resources and how well the government can rally the resources for their exploration and development.

This chapter contains interviews with Pehin Dato Yasmin Umar, Minister of Energy; and Ken Marnoch, Managing Director, Brunei Shell Petroleum; along with a roundtable with Hj Awang Hj Ali, Executive Chairman, Belait Shipping; Supna Karwanamurthi, Managing Director, FLUX O.S.; Mohd Shafie Mohd Yusof, Managing Director, Petrokon Utama; and Amir Osman, Managing Director, PTAS Group.

Banking

Local conventional and Islamic banks as well as international bank groups are all active in the small and competitive Bruneian market. Sector growth has accelerated as authorities have eased up somewhat on restrictive regulations, and banks are looking forward to an improved climate as overall economic growth revives. While the climate for banking remains competitive and the scale of the market is small, credit growth rates in business lending are expected to remain strong as the government leans on local lenders to support development. With investment set to rise in offshore energy, downstream processing and infrastructure, banks could see more their credit portfolios grow.

This chapter contains interviews with Dato Haji Mohd Rosli, Former Managing Director, Autoriti Monetari Brunei Darussalam; and Pierre Imhof, CEO, Baiduri Bank.

Islamic Financial Services

Islamic banking and insurance, or takaful, are becoming the dominant forms of banking and insurance, and inbound foreign investments are increasingly channelled into Islamic markets. The Sultanate’s largest bank is an Islamic lender, dominating the domestic market as well as developing into an international player in Islamic finance. The rise of takaful has been aided by strong support from the government and close relationships with local Islamic banks.

This chapter contains an interview with Javed Ahmad, Managing Director, Bank Islam Brunei Darussalam.

Insurance

Although the business environment for insurers is challenging, Brunei Darussalam’s small insurance industry continues to expand gradually. Increasingly high court awards to accident victims have affected the profitability of mandatory automotive and workers’ compensation lines, while the government’s local business development policies and support for sharia-compliant insurers are squeezing conventional players. The sector should get a boost from investment growth in industrial segments and planned government expenditure on infrastructure. However, it will continue to be difficult for the sector to accelerate significantly given the high level of economic security enjoyed by Bruneian citizens and the limited ability of local insurers to serve the economy’s dominant economic sector.

This chapter contains an interview with Osman Jair, Chairman, Brunei Insurance and Takaful Association, and Managing Director, Insurance Islam TAIB.

ICT

The ICT sector has been singled out as a priority in Brunei Darussalam’s long-term strategic development plan, Wawasan Brunei 2035, which has set an ambitious target for the sector to contribute 5-6% to national GDP by 2015, compared to an estimated 2% in 2013. Although dial-up internet connections continue to dwindle, broadband connections witnessed a dramatic resurgence starting in 2013. Strong investment in mobile and fixed telecoms infrastructure is providing a durable, capable and efficient backbone that will serve as a solid foundation to build upon for future public and private ICT growth opportunities. Private sector participation should pick up in the ensuing years as the technology becomes more widely accepted and utilised, and the expansion of home-grown ICT start-ups should provide an additional push through the creation of a more locally relevant context.

This chapter contains interviews with Haslina Taib, CEO, BAG Networks; and Suhaimi Hussain, CEO, DST.

Transport & Infrastructure

Situated along crucial sea shipping routes on the southern edge of the South China Sea, Brunei Darussalam is well placed to take advantage of growing trade within the region. Under the 10th National Development Plan, running from 2012 to 2017, the government has allocated 19.7% of the budget to communications and transportation projects. Major investments in infrastructure are designed to have an impact beyond simply serving domestic demand, and are geared towards encouraging more international shipping lines and logistics operations to set up shop locally. Far exceeding the Sultanate’s current demand for passenger and cargo traffic, improvements across a number of modes will serve to ensure ample room for growth in the years to come.

This chapter contains interviews with Pehin Dato Suyoi Osman, Minister of Development; and Dermot Mannion, Deputy Chairman, Royal Brunei Airlines.

Construction & Real Estate

The drive for economic diversification has led to significant expenditure on infrastructure in areas such as industrial parks, irrigation works, telecoms and the national transport network. Public spending dominates the construction sector, and around 80-90% of works are carried out by the state. Increased government expenditure will ensure that public projects continue to drive growth, although the announcement of a number of large-scale private industrial projects in 2013 and 2014 should provide more opportunities for construction firms as well. Given the demand for housing, there could be further growth in the private residential market in the future, provided regulations governing ownership are clarified. According to official figures, the real estate sector accounted for 2.38% of GDP in 2013, worth $337m. Residential property values grew by around 10% in 2013, driven largely by the ongoing land shortage, increases in labour and construction material costs, and overall inflation.

This chapter contains an interview with Bobby Chua, Vice-Chairman, Swee.

Industry & Agriculture

The 2014/15 budget allocated $92.9m, out of a total of $902.4m, for the industry and trade sector under the 10th National Development Plan. Much of the current manufacturing sector is built around downstream energy applications, such as petrochemicals, although the country continues to encourage growth in other light industry and knowledge-based segments, including ICT and niche halal products. The Sultanate is focusing development on some of its key strengths, such as its young and well-educated workforce, developed infrastructure and abundance of energy. Agriculture, forestry and fisheries contributed just 0.73% to GDP in 2013 with $114.8m, requiring the import of around $470m worth of food each year. Recent strategic shifts have placed a new premium on reaching self-sufficiency in food production, including a new $3.14m project entailing the construction of an agricultural industrial park. Development of agro-industry and processing capacity with a bent towards exports is expected to provide long-term value for the sector, provided it can continue to attract investment. This chapter contains interviews with Pehin Dato Yahya Bakar, Minister of Industry and Primary Resources; Vijaya Rajendram, CEO, Neptune Bio-Innovations; and Feby Latip, Deputy CEO, Ghanim International Food Corporation.

Tourism & Culture

Home to unspoiled jungle habitats, unique and rich cultural heritage, and miles of pristine sand beaches, all of which is supported by modern and efficient infrastructure, Brunei Darussalam has all the makings of an attractive holiday destination. Already a leading segment within the tourism sector as a whole, the cruise ship industry provides the Sultanate with perhaps its greatest single avenue to increase visitor footfall and spending in the country. Cruise ship tourists from 24 ports of call visited the Sultanate in 2013, up 40% over 2012. Boosting this segment further remains a priority. If further developed, other niche categories, such as ecotourism, bird watching, scuba diving and trekking journeys could also prove to be strong draws, particularly if developed in conjunction with larger Borneo travel packages including Malaysian and Indonesian components.

This chapter contains an interview with Mariani Haji Sabtu, Acting Director, Tourism Development Department.

Education

The Ministry of Education’s plan for the 2012-17 period includes three focus areas: teaching and learning excellence; professionalism and accountability; and efficiency and innovation, all bolstered by 14 strategic objectives and 18 key performance indicators. Complementing the transformation of its basic education system is an equally ambitious overhaul of tertiary institutions designed to combat unemployment across a broad range of sectors and skill sets. The sector benefits from substantial funding. In the 2014/15 budget, for example, the Ministry of Education received the second-largest allocation of any state entity at $604.5m or 13% of the total.

This chapter contains an interview with Pehin Dato Abu Bakar Apong, Minister of Education.

Health

Having already drastically reduced mortality rates and increased life expectancy by tackling the problem of communicable diseases and instituting nationwide universal health services, the Sultanate is now shifting its efforts towards combating non-communicable diseases such as diabetes, heart disease and cancer. Although Brunei Darussalam’s substantial hydrocarbons exports and relatively small population have so far enabled the government to provide high-quality care to all Bruneians, the existing system is unlikely to be sustainable in the long term due to rapid increases in health care costs and the finite nature of the country’s resources. In the long term the expansion of the private sector could help to shape the future evolution of the health sector as a whole.

This chapter contains an interview with Dr Kenneth Y Y Kok, Medical Director, Brunei Cancer Centre.

Tax

In partnership with Deloitte, this chapter gives an overview of Brunei Darussalam’s tax environment as it applies to businesses and investors. It also features a tax viewpoint from Pengiran Moksin, President, Brunei Darussalam Institute of Certified Public Accountants, and Partner, Deloitte, on the tax environment.

Legal Framework

In partnership with Dr Colin Ong Legal Services, this chapter outlines the parallel systems of statutory and sharia law which operate in Brunei Darussalam, highlighting how this legal framework affects businesses and investors. It also contains a viewpoint from Colin Ong, Managing Partner, Dr Colin Ong Legal Services, and President, Arbitration Association Brunei Darussalam.

The Guide

This chapter offers useful information for visitors to Brunei Darussalam, including hotels and contact numbers for embassies, banks, taxi services and emergency services. The chapter also contains facts for visitors such as visa requirements and dress codes and offers tips for etiquette, transport and communication services in the Sultanate.

Table of Contents

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Tax

In partnership with Deloitte, this chapter gives an overview of Brunei Darussalam’s tax environment as it applies to businesses and investors. It also features a tax viewpoint from Pengiran Moksin, President, Brunei Darussalam Institute of Certified Public Accountants, and Partner, Deloitte, on the tax environment.