Brunei: A Developing Country In The Modern World

Brunei is a small, equatorial country in Southeast Asia, situated on the northern coast of the island of Borneo. It is bordered by the South China Sea and the Malaysian state of Sarawak, which divides it in two. Brunei is a wealthy country, considered one of the richest in Asia, with a GDP ranking of ninth in the world by gross domestic product per capita at purchasing power parity. Its wealth is derived from its extensive petroleum and natural gas fields, which make up more than 80% of its exports and over half of its GDP. This has allowed Brunei to preserve its vast virgin rainforest and provide its citizens with a high quality of life, including free healthcare and education. However, its heavy dependence on natural resources also makes it vulnerable to market conditions.

The term Third World was originally used during the Cold War to refer to neutral countries that were not aligned with either the West (NATO) or the Communist bloc. Today, the term generally describes developing countries with underperforming or underdeveloped conditions in need of improvement. While there is no definitive list of Third World countries, they are often identified by economic factors such as GDP and GNP, as well as other factors like life expectancy and literacy rate.

Considering Brunei's economic strength, high standard of living, and political stability, it would not be classified as a Third World country.

Brunei's wealth

Brunei is a small but wealthy country located on the northern shore of the island of Borneo in the South China Sea. It has a population of less than 500,000 and is ruled by the Sultan, one of the richest men in the world, whose family has been in power for the past 600 years.

In addition to its natural resources, Brunei also has a strong investment portfolio. The country's substantial foreign reserves are managed by the Brunei Investment Agency (BIA), which seeks to increase the real value of Brunei's foreign reserves while pursuing a diverse investment strategy. The BIA has holdings in the United States, Japan, Western Europe, and the Association of Southeast Asian Nations (ASEAN) countries. Some notable investments include the Dorchester Hotel in London, the Beverly Hills Hotel in California, and the Holiday Inn in Singapore.

While Brunei's wealth has brought a high standard of living for its citizens, there are also concerns about the country's economic future. Brunei's economy is heavily dependent on oil and gas, and there are limited other industries. The country has taken steps to diversify, such as developing a world-class petrochemical hub called SPARK, but oil and gas still account for most of its economic activity. There are also concerns about the eventual depletion of oil reserves, which could have serious consequences for the country's economy and society.

In terms of economic development, Brunei is considered a developing country by the International Monetary Fund (IMF) due to its lower economic performance. However, it is classified as a high-income country, with an average annual income of USD 34,970, and is among the 10 richest countries in the world in terms of purchasing power parity.

Brunei's economic growth

Brunei's economy is a mixture of foreign and domestic entrepreneurship, government regulation and welfare measures, and village traditions. The country is small but wealthy, and its economy is almost entirely supported by exports of crude oil and natural gas, with revenues from the petroleum sector accounting for over half of its GDP. Brunei is the third-largest oil producer in Southeast Asia and the ninth-largest producer of liquefied natural gas in the world.

In the 1970s, Brunei invested sharply increasing revenues from petroleum exports and maintained government spending at a low and constant rate. This allowed the government to build its foreign reserves and invest them worldwide to provide for future generations. Brunei's gross domestic product (GDP) soared with the petroleum price increases of the 1970s to a peak of $5.7 billion in 1980. However, since 1986, petroleum revenues have decreased, and government spending has increased, resulting in a budget deficit. The economy has become more vulnerable to petroleum price fluctuations, and GDP growth has been slower.

Brunei's economy was affected by the Asian financial crisis in 1997 and 1998, as well as fluctuations in oil prices. In addition, the collapse of Amedeo Development Corporation, the country's largest construction firm, caused Brunei to slip into a mild recession in 1998.

Brunei's substantial foreign reserves are managed by the Brunei Investment Agency (BIA), an arm of the Ministry of Finance and Economy. The BIA aims to increase the real value of Brunei's foreign reserves while pursuing a diverse investment strategy. The government has shown progress in its basic policy of diversifying the economy away from oil and gas. The country is actively encouraging more foreign investment and has implemented initiatives such as pioneer status for new enterprises, exempting profits from income tax for a certain period.

In 2015, Brunei experienced its third year of economic recession, the only ASEAN nation to do so at the time. This was due to declining oil prices and a drop in production caused by maintenance and repair work at major oil wells. The country registered a rebound in 2022, with economic growth of $16.68 billion, a 19.1% increase from 2021. However, the risks to the economic outlook remain, including potential new COVID-19 variants, increased global uncertainty associated with the escalation of the war in Ukraine, and monetary tightening from the US.

Brunei's political system

Brunei is an absolute monarchy, with the Sultan of Brunei serving as both head of state and head of government. It is the only ruling monarchy in Southeast Asia and one of seven monarchic dictatorships in the world.

The Sultan holds absolute executive authority and appoints the legislative council members and the supreme court. The Sultan and Prime Minister roles are hereditary, with the current ruler, Sultan Hassanal Bolkiah, in power since 1967. The Sultan also serves as the state's prime minister, finance minister, defence minister and foreign minister.

The Legislative Council is a unicameral legislature with no political authority. Its members are appointed by the Sultan, and it has not held direct elections since 1962. The Council's role is to advise the Sultan, create laws, oversee budgets, and voice objections to the executive branch's actions.

Brunei has been stable due to its high oil revenue, which has allowed it to provide extensive social services like free education and healthcare to its population. This welfare state model helps the regime maintain control as citizens are dependent on the state.

The country gained independence from British rule in 1984 and has operated as a constitutional monarchy since.

Brunei's status as a developed country

Brunei is considered a developed country, though it is not technically a First World country as the term was originally used to describe countries that were politically aligned with NATO and the United States during the Cold War.

Brunei's wealth is derived from its extensive petroleum and natural gas fields. The country ranks ninth in the world by gross domestic product per capita at purchasing power parity. It has a very high Human Development Index (HDI) ranking, second only to Singapore among Southeast Asian states. Bruneians enjoy free healthcare, free education, and low-priced petrol. The country has also been able to preserve its virgin rainforest, resulting in lush areas like Ulu Temburong National Park.

However, as is the case with many resource-rich countries, Brunei's natural resource dependence also makes it vulnerable to market conditions. As of 2024, oil and gas make up more than 80% of Brunei's exports and more than half of its GDP. The government has been working to diversify its economy and reduce its dependence on the oil industry, focusing on building the service sector, among other things.

Brunei's late start to the "modern era" as one of the last countries to gain independence from the British Empire has meant that, while urban hubs like Bandar Seri Begawan and Belait District (the oil capital) have developed quickly, there is still a clear gap in quality of life between these areas and the rural villages in the country's interior.

Brunei's future economic prospects

Brunei's economy is almost entirely supported by exports of crude oil and natural gas, with revenues from the petroleum sector accounting for over half of its GDP. Brunei is the third-largest oil producer in Southeast Asia and the ninth-largest producer of liquefied natural gas in the world. The country's gross domestic product (GDP) soared with the petroleum price increases of the 1970s to a peak of $5.7 billion in 1980. However, since 1986, petroleum revenues have decreased, and government spending has increased, resulting in a budget deficit. This has made Brunei's economy more vulnerable to fluctuations in petroleum prices.

Brunei's economic growth in 1999 was estimated at 2.5% due to higher oil prices in the second half of the year. The Asian financial crisis in 1997 and 1998, coupled with fluctuations in oil prices, created uncertainty and instability in the country's economy. In addition, the collapse of Amedeo Development Corporation, Brunei's largest construction firm, caused the country to slip into a mild recession in 1998.

Brunei's economic outlook for 2024 is positive, with a forecasted growth of 2.7%. The non-oil and gas sector is expected to continue its modest expansion, reflecting a structural transition towards diversifying the economy. The largest contributor to GDP growth in 2024 is still expected to be the oil and gas sector and its downstream segments. The downstream industry, which includes oil refining, is expected to contribute to improved production in the near term, with planned diversification into other new products lending support to growth.

In the longer term, the Bruneian government remains committed to diversifying the economy towards a sustainable and low-carbon model. The country's substantial foreign reserves are managed by the Brunei Investment Agency (BIA), which aims to increase the real value of the country's foreign reserves while pursuing a diverse investment strategy. While comprehensive strategies and performance indicators have been identified to achieve national climate objectives by 2035, more efforts are needed to achieve the ambitious net-zero target. Brunei's leaders are concerned that increasing integration into the world economy will undermine internal social cohesion. However, the country has taken steps to become a more prominent player in the region, such as serving as chairman for the 2000 Asia-Pacific Economic Cooperation (APEC) forum.

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