How Can Brunei Diversify its Economy?

Brunei is closely depending on its hydrocarbon useful resource wealth, which offers greater than half of the nation’s revenue. The federal government has highlighted its issues in regards to the nation’s oil dependence, which leaves it susceptible to financial shocks. Brunei sees diversification as integral to its financial growth and has outlined plans to cut back oil dependency and develop different industries.

Hydrocarbon revenues nearly fully help Brunei’s financial system. In reality, the petroleum sector accounts for over half of the nation’s gross home product (GDP). The Sultanate, which is house to some 444,000 folks, produces roughly 127,000 barrels of oil per day (B/D) and 243,000 B/D equivalents of pure gasoline per day – the overwhelming majority of which is exported. Though comparatively small in comparison with different nations, these figures are sizeable when in comparison with Brunei’s inhabitants. Whereas oil and gasoline revenues imply Brunei has one of many highest per capita incomes in Asia, its dependency on a single commodity additionally signifies that it’s topic to market fluctuations.

What’s Brunei doing about its useful resource dependency?

Brunei’s authorities has tried to diversify the financial system away from hydrocarbons because the late 20^th century. This has included insurance policies and initiatives launched to develop different sectors, corresponding to agriculture, fisheries, tourism, and monetary companies. Nonetheless, thus far, these initiatives have did not see Brunei’s financial system actually diversify away from oil and gasoline.

In early 2021, the federal government launched a recent blueprint for reaching financial progress, primarily by way of diversification away from oil. The doc outlines the trail in direction of extra significant and high-value employment alternatives whereas taking a look at methods to implement the newest applied sciences. 5 precedence sectors have been focused for progress: downstream oil and gasoline, meals, tourism, data & communications know-how (ICT), and companies.

The non-oil and gasoline non-public sector grew 2.6 % on common since 2010. Nonetheless, the federal government is hoping to boost this progress, calling on Bruneian-owned companies to be formidable and drive progress by way of collaboration and by exploring new market alternatives. The state desires to see indigenous companies turn out to be extra internationalized and has outlined measures to assist obtain this. Rising companies needs to be a automobile to cut back unemployment. In 2019, the non-public sector accounted for lower than half (49.5 %) of employment. The general public sector accounted for 50.5 % of employment.

Extra broadly, the federal government desires to make sure the Brunei workforce is “future prepared”, and the nation is enticing to international direct funding (FDI), which amongst different standards, requires high-quality infrastructure and good governance.

Which industries can improve Brunei’s diversification agenda?

Sure industries usually tend to ship better in-country worth. These industries sometimes make use of bigger numbers of individuals, pay better salaries, and have a substantial variety of linkages to the broader financial system.  

Tourism

The sector can present 1000’s of jobs and usher in capital from overseas. It additionally creates a way of cultural trade between foreigners and residents. Nonetheless, the trade is usually cyclical in nations the place tourism is partially depending on the climate or seasons. Brunei boasts lovely seashores and guarded rainforests.

Finance

The finance trade creates 1000’s of high-paying jobs. It will possibly even have broader advantages, together with enhancing globalization and rising native entry to finance. The UAE, specifically Dubai, has established itself as one of many world’s prime monetary facilities, one thing which may have been troublesome to think about fifteen years in the past. Brunei can observe this blueprint.

Excessive-tech manufacturing

There may be some crossover between manufacturing inputs for oil and gasoline, and broader high-tech manufacturing operations. Excessive-tech manufacturing operations create well-paying jobs and extra broadly, the trade enhances native abilities and capabilities. Initiatives, corresponding to free zones, are essential to the event of those industries.

Logistics

Brunei might be well-positioned to turn out to be a logistics hub, though the area is already house to a reputed few like Singapore and Hong Kong. Brunei has a nationwide service airline and important maritime capabilities. Sitting on one of many busiest waterways on the earth, and in a fast-developing a part of the world, Brunei might turn out to be a commerce entrepot or new logistics hub. 

Diversification technique: Creating linkages and complementary industries

Linkages check with financial connections between the main sector, on this case, the hydrocarbon trade, and different components of the financial system. Ahead linkages embrace the processing of hydrocarbons. Downstream operations can ship extra employment alternatives and improve in-country worth from the main sector. Brunei has a number of downstream operations in-country.

A methanol plant has been operational in Brunei since 2010, whereas the multi-billion-dollar Pulau Muara Besar (PMB) Refinery and Petrochemical Plant opened on the finish of 2019. Part one of many PMB refinery commenced operations with a crude oil refining capability of 175,000 B/D.

A fertilizer plant with a manufacturing capability of 1,365,000 MT of urea per 12 months additionally commenced operations in early 2022. Oil trade by-products are used as a element to make business fertilizer. Native media counsel that the plant would make use of some 500 folks – primarily for native folks – whereas offering better in-country worth. The power is likely one of the largest fertilizer vegetation within the Southeast Asian area.

Almost about backward linkages, i.e., these which relate to the provision of inputs for useful resource extraction, Brunei, like many oil-rich nations, has launched its personal localization insurance policies. The Native Enterprise Growth framework offers choice to indigenous firms of their contracting actions. Tools or companies from abroad should even be equipped by way of an area agent or distributor.

Industrial capability and abilities related to oil and gasoline can support the event of different industries. For instance, the UK’s North Sea oil trade necessitated a extremely developed maritime trade, which in flip proved essential to the event of Britain’s offshore wind power sector. Nonetheless, whereas it has been urged that Brunei will develop offshore wind capability, that is but to occur. The nation has not readily adopted inexperienced energies. Brunei intends to extend sustainable power technology, but, solely 0.05 % of the ability generated got here from renewable sources in 2020. The federal government hopes to satisfy 30 % of its general energy technology combine with renewable power by 2035. Brunei’s inexperienced power journey began in 2011 when the 1.2 MW Tenaga Suria Brunei photovoltaic energy plant was opened. It will possibly energy 200 homes.

No confirmed technique for financial diversification

Many resource-rich nations have tried to cut back their reliance on hydrocarbon revenues. Nonetheless, most diversification methods have failed. In reality, there isn’t any confirmed methodology or blueprint for diversifying away from hydrocarbon dependency. The UAE and Saudi Arabia symbolize two hydrocarbon-rich nations which have invested significantly in diversification efforts. Regardless of the UAE showing like a contemporary and economically numerous state, roughly 30 % of the nation’s GDP is straight primarily based on its oil and gasoline output.

Whereas Brunei has made important progress to diversify its financial system, it’s going to require years of funding and coverage developments to create a wide range of internationally aggressive industries, strengthen the financial system to exterior shocks, and supply extra high-value employment alternatives.

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