The Economic Engine Of Brunei: Oil And Gas Exploration

what main eceomic activity is done in brunei

Brunei's economy is largely dependent on the export of crude oil and natural gas, which make up over half of its GDP and over 90% of its exports. The country is the third-largest oil producer in Southeast Asia and the ninth-largest producer of liquefied natural gas in the world. While the government has made efforts to diversify the economy, oil and gas still dominate economic activity. Brunei's other economic sectors include agriculture, forestry, fishing, and banking. The country has a high per capita GDP, and its citizens enjoy a comfortable quality of life with various government subsidies and no taxes.

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Brunei's oil and gas industry

Brunei's economy is largely dependent on its oil and gas industry, which has dominated the country's economic landscape for over 90 years. The sector contributes significantly to the country's growth, with the energy sector alone accounting for 64.7% of the country's GDP in 2022. Brunei Shell Petroleum (BSP) is the largest oil producer in the country and is jointly owned by the Brunei government and the Royal Dutch/Shell group of companies.

The history of the oil industry in Brunei dates back to 1899, when the first exploration well was drilled near the capital, Brunei Town. The discovery of the Seria field in the Belait District in 1929 marked a significant milestone, leading to the country's first oil export in 1932. Since then, Brunei has established itself as the third-largest oil producer in Southeast Asia, with an average daily production of about 180,000 barrels.

Brunei is also a prominent player in the liquefied natural gas (LNG) market, ranking as the ninth-largest producer globally. The country's LNG plant, which opened in 1972, is one of the largest in the world. Over 82% of the LNG produced is sold to Japan under a long-term agreement, making Japan the primary customer for Brunei's LNG exports.

In recent years, Brunei has made efforts to diversify its oil and gas portfolio by investing in the expansion of downstream industries. This strategy aims to enhance the country's position in the oil and gas value chain and pave the way for new skills and technology. Additionally, the establishment of the Petroleum Authority of Brunei Darussalam in 2019 underscores the country's commitment to a progressive and resilient oil and gas industry that can adapt to the changing market.

The oil and gas industry in Brunei faces some challenges, including the need to explore new reserves through deep-sea exploration, which can be costly. Moreover, the country's economy remains vulnerable to fluctuations in petroleum prices, and efforts to diversify into non-petroleum sectors like agriculture, forestry, fishing, and banking have met with limited success. Nevertheless, the sector continues to play a pivotal role in driving Brunei's economic growth and development.

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Foreign investment and trade

Brunei has an open economy that is favourable to foreign trade and foreign direct investment (FDI). The country has a stable political climate and is generally sheltered from natural disasters. Its central location in Southeast Asia, good telecommunications and airline connections, business tax credits in specified sectors, and the absence of income, sales, or export taxes make it an attractive prospect for investors.

The Brunei Economic Development Board (BEDB), formed in 2001, is the government's frontline agency for promoting and facilitating foreign investment. BEDB works with foreign and domestic investors to develop new economic opportunities in areas where Brunei has a competitive advantage, such as downstream oil and gas, manufacturing, food, tourism, and information and communication technology. The BEDB also helps to streamline the process for entrepreneurs and investors to establish businesses.

The government encourages FDI in the domestic economy by offering various investment incentives through the Ministry of Finance and Economy. There are no restrictions on foreign ownership of companies incorporated in Brunei, and the corporate income tax rate is the same for both locally and foreign-owned companies. However, at least one director of a locally incorporated company must be a resident of Brunei, unless an exemption is obtained. All businesses in Brunei must be registered with the Registry of Companies and Business Names at the Ministry of Finance and Economy. Foreign investors can fully own incorporated companies, foreign company branches, or representative offices, but not sole proprietorships or partnerships.

Brunei is a member of the Association of Southeast Asian Nations (ASEAN), which has Free Trade Agreements (FTAs) with Australia, New Zealand, China, India, and South Korea, and a Comprehensive Economic Partnership Agreement with Japan. The country also has Bilateral Investment Treaties with Bahrain, China, Germany, India, the Republic of Korea, Kuwait, Oman, and Ukraine. Additionally, Brunei is a signatory to the OECD multilateral Convention on Mutual Administrative Assistance in Tax Matters and is a member of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting.

Brunei's regulatory system has been criticised for its lack of transparency, particularly in lawmaking processes and impact assessments. The country's legal system includes two parallel systems: one based on common law and the other on Islamic law. In 2016, a Commercial Court was established to protect investors' rights and enforce contracts. The country has also strengthened its protections for intellectual property rights (IPR).

Brunei's state-owned enterprises (SOEs) lead key sectors of the economy, including oil and gas, telecommunications, transport, and energy generation and distribution. These enterprises receive preferential treatment when responding to government tenders.

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Agriculture and self-sufficiency

Brunei's economy is largely dependent on the export of its vast reserves of oil and natural gas. However, the country has been attempting to diversify its economy and reduce its dependence on a single commodity, which makes it vulnerable to market fluctuations. One of the sectors that have been identified as a priority for economic diversification is agriculture.

Brunei has been working towards achieving self-sufficiency in food production, especially in the context of the Covid-19 pandemic, which disrupted global food systems and highlighted the importance of sustainable agriculture. The country has implemented various initiatives, strategies, and policies to boost domestic agricultural production and reduce its reliance on food imports.

One of the main focuses of Brunei's agricultural development is rice production. The country aims to increase its rice self-sufficiency rate and reduce its dependence on rice imports from countries like Thailand, Cambodia, and Vietnam. In 2017, local rice production accounted for only 4.7% of national self-sufficiency, and the country has set targets to increase this rate. To achieve this, Brunei has allocated more land for rice cultivation, introduced new, higher-yielding strains of paddy, and upgraded its irrigation and drainage systems.

In addition to rice, Brunei has also made progress in other agricultural sectors. By the early 21st century, the country had become self-sufficient in the production of poultry and eggs and was approaching self-sufficiency in vegetables. The country has also recorded increases in fruit and meat production, with self-sufficiency rates of 37% and 30%, respectively.

The government has played a significant role in supporting the agricultural sector through various policies and initiatives. For example, the Ministry of Primary Resources and Tourism has worked to improve production infrastructure and adopt new rice varieties with higher yields. The government has also provided subsidies for seeds, equipment, fertilizers, and pesticides, and invested in research and development to improve the quality of domestic rice production.

While Brunei still has a long way to go to achieve complete self-sufficiency in food production, the initiatives and investments made by the government and private stakeholders show a strong commitment to this goal. By emphasizing sustainable agricultural practices and reducing its dependence on food imports, Brunei is working towards a more resilient and diversified economy.

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Economic diversification

Brunei's economy is largely dependent on the export of crude oil and natural gas, which account for 60% of its GDP and more than 90% of exports. The country is the third-largest oil producer in Southeast Asia and the ninth-largest producer of liquefied natural gas worldwide. However, recognizing the need to diversify its economy and reduce dependence on a single commodity, the government has been working to develop other sectors.

One of the key areas of focus for economic diversification in Brunei is agriculture. Historically, agriculture, fishing, and forestry were the mainstays of the country's economy, but they declined in importance after the discovery of petroleum resources in the 1920s. By the early 21st century, the Bruneian government had implemented programs to stimulate local fisheries and develop the agricultural industry. As a result, Brunei became self-sufficient in poultry and egg production and significantly increased local rice production, although it still falls short of meeting domestic demand.

Another sector that has been targeted for economic diversification is financial services. Brunei has a well-educated and largely English-speaking population, excellent infrastructure, and political stability, making it an attractive destination for foreign investment. The country offers various investment incentives and has a low crime rate, good schools, and low utility costs. Additionally, Brunei has a stable currency, the Brunei dollar, which is pegged to the Singapore dollar at a one-to-one ratio.

The government has also been working to develop the tourism sector as part of its economic diversification efforts. Brunei's central location in Southeast Asia, good telecommunications, and airline connections, along with its stable political situation, make it a welcoming destination for tourists and investors alike. The country's unique cultural heritage, reflected in its national philosophy of the Malay Islamic Monarchy, also offers a distinctive appeal to visitors.

While Brunei has made strides in diversifying its economy, oil and gas remain the dominant sectors, and the country continues to be vulnerable to fluctuations in the energy market. However, with continued efforts to develop new industries and attract foreign investment, Brunei is working towards a more resilient and diverse economic future.

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Government spending and revenue

Brunei's economy is largely dependent on its exports of crude oil and natural gas, with the petroleum sector accounting for over half of its GDP. The country's substantial foreign reserves are managed by the Brunei Investment Agency (BIA), an arm of the Ministry of Finance and Economy.

In the 1970s, the Bruneian government 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 globally to provide for future generations. However, since 1986, petroleum revenues have decreased, and government spending has increased. The government has been running a budget deficit since 1988, and the economy has become more vulnerable to petroleum price fluctuations.

Brunei's gross domestic product (GDP) soared with the petroleum price increases of the 1970s, reaching a peak of $5.7 billion in 1980. It then declined for five consecutive years before falling by almost 30% in 1986 due to a combination of sharply lower petroleum prices and voluntary production cuts in the country. In recent years, GDP growth has been:

  • 3.5% in 1996
  • 4.0% in 1997
  • 1.0% in 1998
  • An estimated 2.5% in 1999

The Asian financial crisis in 1997 and 1998, coupled with fluctuations in oil prices, has created uncertainty and instability in Brunei's economy. The collapse of Amedeo Development Corporation, the country's largest construction firm, in 1998 also caused Brunei to slip into a mild recession.

Brunei's government revenue totalled 3,532.960 BND million in 2024, a decrease from 6,345.380 BND million in 2023. Government expenditure in 2024 was 5,946.340 BND million, down from 6,084.920 BND million in 2023. The government has a basic policy of diversifying the economy away from oil and gas, and leaders are concerned that increased integration into the world economy will undermine internal social cohesion.

The petroleum industry generates more than half of Brunei's GDP, although it employs a small portion of the labour force. Oil and gas constitute nearly all of the country's export earnings and have generally resulted in trade surpluses since the early 1970s. The return on the country's substantial foreign investments has become an important source of income.

Frequently asked questions

The main economic activity in Brunei is the exploitation of its vast reserves of petroleum and natural gas.

The petroleum industry generates more than half of Brunei's GDP.

Oil and gas account for more than 90% of exports.

Other industries in Brunei include agriculture, forestry, fishing, and banking.

Brunei's nominal GDP was USD 16.7 billion in 2022.

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