Brunei's Future: Life After Oil Reserves Deplete

Brunei Darussalam's economy is heavily reliant on its oil and gas sector, which accounts for over 95% of its exports. With oil reserves expected to run out in 27 years, the country faces a challenging future. While Brunei has recognised the need to diversify its economy, progress has been slow. The country's high-income status and small population mean it will need to focus on high-value industries such as information and communications technology, creative industries, and financial services. To succeed, Brunei will need to address issues such as unemployment, brain drain, and a lack of foreign investment, while also dealing with the potential loss of subsidies and a declining GDP.

The economy will need to diversify beyond oil and gas

Brunei Darussalam's economy is heavily dependent on the oil and gas sector. Oil exports account for more than 95% of the country's total exports, and it has proven oil reserves equivalent to 188 times its annual consumption. However, it is estimated that these reserves will be depleted within 27 years, which poses a significant challenge to the country's economic future.

To address this impending crisis, Brunei must diversify its economy beyond oil and gas. While the country has recognised the importance of economic diversification and has made some progress, it still lags behind other resource-rich nations. A strategic plan is needed to broaden its sources of revenue and develop other industries. This strategy should focus on high value-added sectors such as information and communications technology, creative industries, and business and financial services.

One approach to encourage diversification is through fiscal policies and tax incentives that support the growth of specific high-value industries. The government can also attract foreign direct investment and establish joint ventures to accelerate infrastructure development, particularly in logistics for the export of non-oil products. Additionally, there should be a focus on improving human capital by ensuring that the skills and education of the workforce align with the requirements of a diversified economy.

Furthermore, a unified and strategic approach should be taken to develop the micro, small, and medium enterprise (MSME) segment of the economy. Financial support schemes and taxation policies can be designed to lower business costs and encourage loans for MSMEs in high-value-added sectors. This will help foster innovation, entrepreneurship, and economic growth beyond the oil and gas industry.

The establishment of Hengyi Industries, which produces petrochemical products using mostly imported oil, is a step towards diversification. However, more needs to be done to reduce the country's reliance on oil and gas, and the government must act swiftly to implement a comprehensive strategic plan to secure Brunei's economic future.

High-value industries like ICT and creative sectors should be targeted

Brunei Darussalam's economy is heavily dependent on the oil and gas sector. Oil exports account for more than 95% of the country's exports, and it has proven oil reserves equivalent to 188 times its annual consumption. However, these reserves are expected to run out in 27 years, which poses a significant challenge to the country's future economic prospects.

To address this impending crisis, Brunei should focus on diversifying its economy by targeting high-value industries like information and communications technology (ICT) and creative sectors. This strategy is crucial for a high-income economy like Brunei to maintain its economic growth and stability. Here are some specific measures that can be taken to achieve this:

• Fiscal policies and tax incentives: The government can utilise fiscal expenditures and tax incentives to prioritise and promote the growth of high-value-added industries like ICT. This can include providing funding, grants, or tax breaks to companies operating in these sectors.
• Foreign direct investment: Encouraging foreign direct investment (FDI) in the ICT and creative sectors can accelerate infrastructure development and provide the necessary capital and expertise to support these industries.
• Human capital development: Brunei should focus on improving the matching of skills and education with the requirements of a diversified economy. This includes investing in education and training programmes to ensure the local workforce has the necessary skills for high-value-added industries.
• Support for micro, small, and medium enterprises (MSMEs): A unified and strategic approach towards developing the MSME segment of the economy is essential. Financial support schemes and taxation policies can be designed to prioritise and reduce costs for MSMEs operating in high-value-added sectors.
• Infrastructure development: Accelerating infrastructure construction, particularly in logistics, will facilitate the export of non-oil and gas products, further contributing to economic diversification.
• Strategic planning: Brunei should formulate a comprehensive strategic development plan that coordinates different measures and policies to broaden its sources of income beyond oil.

By implementing these measures, Brunei can successfully target high-value industries like ICT and creative sectors, reducing its dependence on oil and gas, and ensuring long-term economic growth and resilience.

The government should encourage foreign direct investment

Brunei's economy is heavily dependent on oil and gas exports, which contribute about 50-60% to the country's GDP. The country has recognized the importance of diversifying its economy away from this reliance on oil and gas and has been working towards this goal for several decades. Foreign direct investment (FDI) is an important part of this strategy.

Brunei has an open economy that is favorable to foreign trade and investment. The government has implemented various measures to attract FDI, including providing investment incentives, streamlining the process of establishing businesses, and improving protections for intellectual property rights. The Brunei Economic Development Board (BEDB), under the Ministry of Finance and Economy, is the government's frontline agency for promoting and facilitating foreign investment.

There are no restrictions on foreign ownership of companies incorporated in Brunei, and the corporate income tax rate is the same for locally and foreign-owned companies. The Business License Act (Amendment) of 2016 and the Miscellaneous License Act (Amendment) of 2015 have made it easier and quicker for entrepreneurs and investors to establish businesses. These amendments have reduced the number of business activities that require a license and shortened the wait times for new business registrants to start operations.

Brunei's stable political climate, strategic location in Southeast Asia, excellent infrastructure, well-educated and English-speaking population, and lack of income, sales, or export taxes make it an attractive destination for potential investors. The country also offers business tax credits in specified sectors.

To further encourage foreign direct investment, the government should continue to improve the ease of doing business in the country, including by enhancing the transparency of its regulatory system. Additionally, the government should prioritize the development of high value-added sectors such as information and communications technology, creative industries, and business and financial services. Fiscal expenditures and tax incentives can be used to support the growth of these industries.

The government should also focus on improving human capital by ensuring that the skills and education of the workforce align with the requirements of a diversified economy. This includes promoting education and training in the fields of high value-added industries and the services sector.

By implementing these strategies, the government can encourage foreign direct investment and help Brunei successfully diversify its economy away from its dependence on oil and gas.

Tourism could be a valuable source of jobs and foreign capital

The government has also been pushing initiatives to spur tourism growth, such as the Tutong Destination Programme, a pilot project to increase tourism in the Tutong District, and various birdwatching workshops. Additionally, Brunei has been participating in more trade shows and roadshows outside the country to promote itself as a tourist destination.

While the contribution of tourism to the country's gross domestic product (GDP) is still relatively low, figures show that it is increasing. In 2013, tourism contributed only 1.5% to the GDP, but this was expected to increase by 5.1% in 2014 and by 4.8% annually for the next ten years. This indicates that the government's efforts to promote tourism are having some success.

Furthermore, tourism supported 5,000 jobs in Brunei in 2014, equivalent to 2.4% of total employment. However, it is worth noting that a significant proportion of these jobs were filled by foreign workers due to a skills-job mismatch among local job seekers. Addressing this mismatch and improving the country's vocational and technical education are crucial to ensuring that locals can benefit from the job opportunities created by the tourism sector.

To further develop the tourism sector, Brunei needs to invest in both hard and soft infrastructure. This includes improving airport connectivity, ground infrastructure, and tourist service infrastructure, such as accommodation and car rentals. Additionally, the country should focus on establishing niche markets for its tourism sector by leveraging its rich culture and biodiversity. Promoting ecotourism and Islamic tourism could be particularly successful for Brunei.

Overall, tourism has the potential to be a valuable source of jobs and foreign capital for Brunei, but it will require continued commitment and investment from the government and private sector to realise this potential fully.

Unemployment may skyrocket without oil

Brunei's economy is heavily dependent on its oil and gas sector, which accounts for 90% of government revenue and 90% of exports. While the country has recognised the importance of diversifying its economy, it remains less diversified than other resource-rich nations. As a result, unemployment may skyrocket if no alternative sources of income are established.

Unemployment in Brunei is already a pressing issue, with high rates across all education levels. The youth are particularly affected, with an unemployment rate of 28.9% in 2019, the highest in the Association of Southeast Asian Nations (ASEAN). Insufficient job opportunities in the oil and gas sector contribute to this issue, and it will only worsen if the industry declines or collapses.

The country's heavy reliance on oil and gas makes the economy vulnerable to fluctuations in global energy prices and the depletion of reserves. With Brunei's oil reserves estimated to last only 27 years, the need for economic diversification is urgent. Failure to establish alternative industries will likely result in a significant increase in unemployment as the oil and gas sector declines.

To address this impending crisis, Brunei should focus on high-value-added sectors such as information and communications technology, creative industries, and business and financial services. Fiscal policies, tax incentives, and foreign direct investment schemes can encourage diversification and the development of non-oil and gas exports. Additionally, improving education and skill-matching can promote high-value-added industries and the services sector.

By taking proactive measures, Brunei can reduce the risk of skyrocketing unemployment and build a more resilient and diverse economy. However, if the country continues to rely heavily on its oil and gas sector without transitioning to new industries, the consequences for employment and the economy as a whole could be dire.

Frequently asked questions