The Future of Brunei Darussalam
Selected Scenario Analysis
Presentations for the Day
• Introduction by Haji Md Alimin
• Main paper presentation by Haji Mohd Rozan with
all group members fully supporting (from behind)
• Additional points by Lt Col Haji Harif on Security
aspects
• Additional points by Haji Md Alimin on Survey
Conducted
• Proposed extra presentation on present long term
economic planning work at JPKE by Haji Mohd
Rozan (as comparative study)- if time permits &
participants willing
• Question & Answers
Group Members
• Haji Mohd Rozan DP Haji Mohd Yunos
Acting Managing Director, TAP
• Haji Md Alimin Haji Md Tanjong
Acting Director of Administration & Finance, PWD
• Pg Sharifuddin Pg Hj Matali
Head of Resource Center, MIPR
• Lt Col Haji Harif Haji Ibrahim
Head of Legal Unit & Court Martial, RBAF
• Sr Supt Haji Abd Rahim Haji Mohd Noor
Deputy Director of Operations, RBPF
Executive Summary
• Current Prosperity in NBD due to bountiful oil &
gas resources & small population leading to high
levels of govt spending on large civil service, social
programs & infrastructure development
• However many concerns – increasing population,
decreasing oil production, increasing use of future
investments, weak private sector etc
• Key challenge in the group’s paper – how to
preserve current high standards of living otherwise
existence of country is at stake – preparing for the
future of Brunei Darussalam
Future of Brunei Darussalam
Part 1 - Introduction
Introduction
• NBD small country – Only 1/5 developed
• Old kingdom – documented evidence NBD already
existed in year 414 CE – over the years became great
by 15th Century and then dominated by European
powers and shrunk to current size
• Dependent on oil & gas found in 1929 (surplus trade
balance of around $5 billion in 2003 – 90% of total
exports earnings, 40% GDP and 90% government
revenues)
• Very high standard of living with subsidised public
services including education & medical
• Extremely large public service (even by middle east
standards)
Introduction (continued)
• Prosperity not just on wealth but has transformed
nation and people
• Latest World Bank Human Development Index 2002
shows Brunei on HDI Score of 0.867 ranking Brunei
33rd out of 177 countries, 2nd in ASEAN, highest
among similar economies in middle east
The Future of Brunei Darussalam
Part 2 – Concerns
Population and Employment
• Rising Population (2003 estimated 348,000) leading
to Pressure for Employment
• Population growth outstrip GDP growth leading to
lower GDP per capita
• At the same time very young population – 30%
under age of 15, 47% under age of 25
• Tiny growth in public service – mostly in teaching –
fiscal consolidation affect future growth
• Small growth in private sector (after crisis rebound)
– difficulty in sustaining growth in private sector to
accommodate all school leavers
• Current job seekers exceeded 7,000
Population Statistics
Population
Age
Below 15
Population
103,000
15 – 25
61,100
25 – 35
70,300
35 – 45
57,500
45 – 55
33,200
Above 55
23,700
Source: Economic Planning and Development Department
Employment Statistics
(All figures in thousands)
1998
1999
2000
2001
2002
2003
Population
323.1
316.9
324.8
332.8
340.8
348.8
of which Registered at
Employment Exchanges
6.5
5.2
7.0
8.6
5.5
…
Employment Private Sector
94.0
84.5
90.3
98.4
100.6
…
Employment Public Sector
38.3
38.0
39.7
39.8
41.1
41.5
of which Total Teachers
including UBD
7.4
7.6
7.6
7.7
8.2
8.7
Mixed Prospects
• Dependence on oil and gas reduced from 70% GDP
in 1975 to about 40% GDP at present
• In the non oil and gas sector, it is mostly in services
only, and almost not much else in other sectors
• Economic growth over last few years uninspiring
with negative growth in 1998 and 1992 and in most
years mostly in the low single digit with 2004
estimated at 1% (IMF) and 2.8% (JPKE)
• Income growth has not kept pace with population
growth
Brunei’s Economy
PRIVATE
GOV'T
20
03
20
01
19
99
19
97
19
95
19
93
19
91
19
89
OIL/GAS
19
87
19
85
100
90
80
70
60
50
40
30
20
10
0
GDP Economic Activity
GDP by Economic Activity
Agriculture
Forestry
Fishing
Mining
Utilities
Construction
Wholesale
Retail
Hotels
Transport
Bank
Insurance
Real Estate
Dw ellings
Services
Private Sector – Poor Performance
• Private sector still recovering from 1997/1998
financial crisis – most have recovered, some have
not gone back to pre 1997 and some have gone
worse (construction and dwellings)
• Private sector not fuelling any growth in the
economy and dependent very heavily on the
government
GDP Sectoral Development
Selected GDP Sectors
Agriculture
1997
153.2
1999
138.3
2003
180.7
Forestry Logging
Fishery
Construction
24.8
40.3
523.4
19.1
39.1
442.5
26.2
87.6
334.0
Wholesale
Retail
Restaurants Hotels
Communications
238.7
405.7
135.3
405.9
203.2
332.0
144.9
382.7
231.9
407.5
164.3
431.9
Banking Finance
Insurance
Real Estate
Ownership Dwellings
364.5
115.1
94.3
91.5
377.5
122.6
80.7
95.6
474.4
160.0
87.8
78.0
High Expenditures
•
•
•
•
Very high development and infrastructure
expenditures eg. 8th National Development Plan $7.3 billion
Need to maintain & build infrastructure – clinics,
roads, schools etc.
High welfare and subsidies expenditures – free
medical, free education, subsidised housing,
welfare assistance, old age pensions, rice etc
High maintenance cost of government owned
companies and services – small/no profits (no
official public reports)
(Note - However it has to be noted that all the government owned
companies bring social benefits which need to be taken into
consideration rather than using financial results alone to judge their
performances.)
Royal Brunei Airlines Performance
Royal Brunei Airlines Profit/Loss History
$20
(B$ milion)
-$40
-$60
-$80
-$100
-$120
-$140
Source: Prime Minister’s Office (Restricted Papers)
20
04
20
02
20
00
19
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
19
80
-$20
19
78
19
76
$0
Security Expenditure
• High military and security spending maintaining all
military and security apparatus – RBAF, RBPF, ISD
and various agencies
• According to “www.nationmaster.com”, Brunei
ranked 4th in the world in terms of spending per
capita on military (US$920 per person) behind Israel
(US$1,466), Singapore (US$969) and USA (US$953)
• Continuously need more and better equipment
• Cost of controlling crime – crime rate still rises
albeit slowly from 3,085 in 1999 to 4,796 in 2004
Government Finances
• Government finances are now heavily dependent on
oil and gas comprising some 70% to 90% of
government revenues – if revenues drop – finances
drop unless new sources of revenues are tapped
• But statistics indicated present source of oil
production which is peaking now will start to decline
around 2010 unless new sources are found
• Similarly for gas – with estimated high usage by new
energy dependent industries and depleting
production will begin to decline too unless new
sources are found
Forecasted Oil Production
‘000 bbls/d
250
200
BBJV
150
BSP
Forecast
100
50
20
04
20
07
20
10
20
13
20
16
20
19
20
22
20
25
20
28
20
31
20
34
20
37
20
40
20
43
20
46
20
49
0
Forecasted Gas Production & Usage
TRILLION CUBIC
FEET (TCF)
TCF
0.6
0.6
PRODUCTION
0.5
0.5
DEMAND LINES
LNG CONTRACT EXTENSION
OPORTUNITY
0.4
0.4
EXISTING BLNG
CONTRACT
0.3
0.3
0.2
0.2
DOWNSTREAM INDUSTRY PROJECTS
0.1
0.1
INLAND POWER GENERATION
2050
2049
2048
2047
2046
2045
2044
2043
2042
2041
2040
2039
2038
2037
2036
2035
2034
2033
2032
2031
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
COMPANY'S OWN USE
0.0
0.0
Hopes on the Horizon
The Future of Brunei Darussalam
Part 3 – Brunei Darussalam at the Crossroads
Existing Pillars Threatened
1. Abundant
Natural
Resource
Wealth
4.
Developed
Framework
Infrastructure
MAINTAIN
HIGH LIVING
STANDARD &
WELFARE
STATE
2. Small
Country &
Population,
Developing
Economy
3. National
MIB
Philosophy,
Peaceful and
Apolitical
At the Crossroads
• Key Challenge – how to preserve high standards of
living
• Need to establish medium term oriented fiscal
framework
• Wide ranging structural reforms to diversify
economy
• Maintain political and security stability
• Use opportunity of high current oil prices
The Future of Brunei Darussalam
Part 4 – Preparing for the Future
Preparing for the Future
• Government Finances – need to be strengthened to
avoid being severely compromised thus leading to
social and political problems, uncertainties and
upheavals
• Private Sector – need a diversified and healthy
private sector to drive economic growth, jobs and
reduced dependence on government
• Economic Foundation – need to lay or relay new
foundation, structural changes
• Political and Security Structure – need to secure,
maintain and defend peace, economic interests and
territorial rights
Government Finances
Govt Income from
public
Government Total
Expenditure (Yg=Eg)
Another alternative is
to reduce expenditure
A2
B
A1
Fall in income from
non-public (eg oil
income) need to be
compensated from
increased income from
public (eg higher taxes
or higher charges etc)
Govt Income from nonpublic
Government Finances
• Income from non-public sources (such as oil & gas,
investment revenues etc) dependent on resources
and difficult to change
• Income from public sources – such as corporate
taxes, user charges, customs duties, excise duties,
VAT etc can be made higher or wider and new
charges or taxes can be imposed with effects and
ramification
• Government Expenditure can be controlled eg
removed subsidies with effects and ramification
• Bills and bonds can be introduced to lessen other
burdens but in long term need to be repaid back
Government Finances
• Determine amount of investments that can be used
to compensate for loss of income
• Introduce financial instruments
• Broaden tax base
• Introduce new taxes and new charges
• Clear prioritisation & eliminate wastage
• Identify and Remove subsidies
• Establish clear priorities in budgeting – move to
accrual budgeting (national interests vs ministerial)
• Reconsider strategies of government owned
companies
• Establish commission to review government
expenditure
Private Sector
• Expand size by corporatising government agencies
• Encourage local & foreign investments by reducing
and simplifying government procedures
– Transparent process & competitive market driven
outcomes
– Contracting out non-core services
– Effective Investment Promotion Board
– Continuously monitor Investment Incentives Act
– Review and remove restrictive regulations
Private Sector
• Develop local SMEs
– Providing easier access to funding
– Establishing fund to assist SMEs
– Improve structure of government contracts and
tenders
• Encourage investment by reviewing and restrictions
on ownership and development of land
• Facilitate private sector liquidity by ensuring on
time payment from government and improving
government’s payment and financial systems
Private Sector
• Expand and enhance competitiveness of oil and gas
industry
– Leveling competitive playing field by removing
access to existing infrastructure
– Improve efficiency in exploration by providing
access to data
– Improving incentives to promote development of
areas straddling different operators and
concessions
– Explore external oil and gas related
opportunities through newly established
Petroleum Brunei Company
Private Sector
• Promote economic diversification
– Strengthening role & capabilities of Resource
Center
– Expand coverage of Investment Treaties and
Taxation Agreements
– Assist successful local companies to develop
local technical and managerial competencies
– Strengthen capacity and professionalism of
various chambers of commerce in providing
support to businesses in Brunei
Economic Foundation
• Modernizing Brunei Darussalam's legal and
regulatory framework by:– reviewing and modernizing of legal, regulatory
and judicial framework;
– accelerating and expanding current efforts to
improve the transparency of government policies
and regulations;
– establishing tribunals, small claims courts or
equivalent including commissioners for appeals
and effective redress for the public; and
– widening legal aid to individuals or small
businesses;
Economic Foundation
• Enhancing human resource development and
deployment by:– launching a comprehensive training program;
– undertaking the comprehensive review of Brunei
Darussalam's national education policy;
– Facilitating work in world-class corporations;
– establishing job centers;
– strengthening labour database for matching;
– relaxing the limitations on entry requirements by
skilled foreign HR in selected sectors;
– encouraging sharing of expertise & mobility
between private and public enterprises.
Economic Foundation
• Launching a concerted drive to enhance
productivity within the public and private sectors by
establishing a National Productivity Board to
coordinate the efforts required to raise productivity
in Brunei Darussalam;
• Establishing a first class communications and
information technology infrastructure through
public and private sector investment by building a
world-class IT and communication infrastructure to
keep pace with productivity improvements through
technology;
• Undertaking a comprehensive study on setting up a
local stock exchange to allow wider equity
ownership of local companies;
Economic Foundation
• Setting up investment funds for greater participation
in economic development projects - including stock
ownership plans for privatized and corporatized
projects;
• Creating investment opportunities for local and
foreign investors through privatization;
• Introducing greater scope for investment in Brunei
Darussalam by reviewing the restrictions on the
ownership of property by permanent residents and
non-residents; and
• Devising and implementing a comprehensive
program for developing local businesses drawing
from the successful experience of Brunei Shell
Companies in this area.
Security & Political Structure
•
For security and prosperity, 3 policy priorities:– The cohesion and stability of the nation guided
by the Malay Islamic Monarchy philosophy;
– A stable regional environment in which its
membership of ASEAN enables it to pursue
national goals free from external interference;
– The maintenance of its defence capabilities
including its armed forces to:• Preserve the nation’s sovereignty.
• Protection of its territorial integrity and
interests.
• Maintain freedom and independence.
Security & Political - Internally
• To address potential concerns of
– New threats to national security
– Populace wish to participate & have voices
• Continue current government efforts for greater
participation through LegCo and DistrictCo
• Joint operations between various security and
defence agencies coordinated by DEC
• Review and restructure RBPF
Security & Political - Internally
• Improving RBPF
– Restructure along lines of RBAF
– Improved HR policies and career structure
including training and HRD
– Study on actual needs of RBPF
– Improved equipment and facilities
– Improved intelligence network
– Continue existing policies include watch scheme
– Establish civil defence – volunteers & NSmen
– Improving image and morale
Security & Political - Externally
• Shaped by key trends in regional political
environment including move towards multinational
peacekeeping & disaster reliefs
• Pacifist nature of Brunei to remain cornerstone & to
promote regional & global peace
• Pursues through diplomacy and other regional
security arrangements
• But need to maintain a robust and flexible defence
capability as a form of deterence and to carry out
tasks for border integrity, maritime areas, national
airspace, countering terrorism, protection of assets
and other tasks
• Continuously reviewing defence structure &
capability
Final Points
• Important for a national masterplan not just on
economic masterplan but a national national
masterplan taking a look at everything and
coordinating everything at national level
• Important to tell the public through the government’s
information and broadcasting machineries so that
there will be general acceptance and understanding
why certain policies need to be carried out