$42,900 GDP per capita - are Bruneians now richer?

The Economic Planning and Development Department (JPKE) finally announced last Monday the much awaited ‘new’ GDP for Brunei. The last issue of the Brunei Economic Bulletin published by JPKE was for the 2nd quarter of 2005 which was released in December last year (all the Bulletins are available on bruneiresources website. I was told then that's why the 3rd and 4th quarters as well as the 2006 issues are on hold was that JPKE was revising certain figures. So now we know. The press release for the revised GDP is also available for downloading on the same site.

Brunei Darussalam’s GDP for 2005 is now B$15.9 billion which is revised from B$9.9 billion. So we have at a stroke raised our GDP by some B$6 billion. This makes our GDP per capita B$42,900 which should move us a few places up the GDP per capita world league table and probably (I could be wrong with my calculations here) should move us slightly ahead of Singapore. Someone commented yesterday on my Cbox, what does the revised figure mean for Brunei? Does it make me any richer? Do I feel richer?

First of all, we have to remember that GDP is only a measure of the size of the economy and is supposed to be the total market value of all goods and service produced within that economy at that particular point in time. If you did some economics, the basic equation will be GDP or Y=C+G+I+X-M which is the private sector + government + investment + exports – imports. All that JPKE indicated by the new GDP figure is that the size of the Brunei economy is much larger than originally estimated. According to JPKE, the improvements are due to a more comprehensive data coverage, new data sources, improved estimation methodology (still estimation, mind you) and adoption of two different approaches to GDP compilation. Previous GDP estimates only used the production approach.

So, all we now have is that the size of the Brunei economy has been ‘wrong’ or underestimated all this while. Given the new GDP per capita, our economy is now at par with the more advanced Asian economy and ranked about middle with the more advanced European economy. But the absolute total size is still small. So even with improvements with GDP measurements, there is no direct benefit to each and every single one of us because it is only the size of the economy that has ‘changed’. The biggest problem is that GDP per capita is used as an indicator of living standards as this is the only measurement which is available to every country in the world but it is not designed to be that. Our B$42,900 share of the GDP just means that you and I are living and working in a much larger economy than you think you used to be. That is all.

The measurement of GDP regardless of improvements made to the estimation still relies on many things which are not fairly measured. It ignores my mother’s and my mother-in-law’s efforts in raising their children for instance. Both my mother and my mother-in-law are full time mothers. Their efforts are not counted towards the GDP calculations as they are not ‘paid’. But if my father and my late father-in-law had employed maids, cooks and gardeners in order to do the same thing they do, then the salaries they received are counted towards GDP. If you buy nasi katok, that will be counted but if you make them, it is not counted. If your house burnt down and you rebuild it, it will be counted but if your house maintain as it is, it doesn’t count. And yet for all intent and purpose, you only have that one house whether newly built or an old one. You are probably worse off as now you have to find money to build that new house. Furthermore GDP per capita does not make any distinction as to whether you are in the richer or poorer category. If you are newly graduated and joined the government, the salaries you received are lower than that of the GDP per capita. Does it matter

So, at the end of the day, all we have is that GDP is only a measurement of the size of the economy. By its very nature, it does not attempt to do anything else. As it is the only common measurement available, it is us that tend to make much of it especially in using it to compare with other countries ‘development’.

What is really important are the changes in GDP every year as that does indicate whether or not the economy has progressed or components in the economy has changed. In this case, JPKE in their announcement has said that between the years of 2000 to 2005, the Brunei economy expanded in real terms at an average of 2.0% with the oil sector growing at 0.8% and non-oil sector growing by 3.6% per annum. This is good news as the private sector especially non-oil can absorb more people joining the workforce every year. But is 2.0% per annum good enough? If our population grows at around 2.1% per annum, then again we will face problems in the future regardless of how high our GDP per capita is currently.

I wouldn’t rejoice too much that our GDP per capita has allowed us to leapfrog over several countries and make us ‘richer’ than some others. Though it does give us bragging rights and we also know our places in the pecking order of the world's economies at least in relative terms. But at the end of the day, what is important is that the expansion of the size of the economy matters much more as the bigger the growth the economy, the more it is able to absorb the growth in the population and hence the better the future for our children.

Comments

HoneyBee said…
Hie MrBR,

Burning midnite oil? posting the blog at 1am plus huh.. :)

I just want to comment JPKE should in future speed up their analysis. Its already August.

HoneyBee
Anonymous said…
Thanks Mr.Br for the insight. I did do economics for my IGCSE and thats what I thought if GDP increased it would mean that the economy of the country would be better, all the talk about the calculations were confusing. I do love to know about the country's well being economically, politically (if it exists) and statistically. Thanks for the insight Mr.BR, you really do provide a very useful guide with your blogs. Thanks for clearing the issue up. You've gained a loyal reader here. God Bless!

AvidReader
farina said…
Just out of curiosity,out of the total GDP, how many percent comes from oil revenue, and how many from the private sector?
Aaron John said…
When I was studying, I thought GDP accounting was a straightforward process and an accurate indicator. Now that I'm working, I found out that this is not the case. Different countries use different methods and it is always a topic of controversy. China revised its GDP last year and became the 6th largest economy in the world overnight. Despite this, many experts still think that the figure is understated.

Many countries (especially emerging economies) tend to understate their GDPs for political and financial reasons. One of those reasons is to be continously eligible for loans from financial institutions such as the IMF. Another possible reason is to gain or maintain an advantage in trade negotiations.

GDP is at best only an estimate. As a measure of welfare, economists have been using other indicators. One of the latest ones that I thought was interesting was done by Adrian White, an Analytic Social Psychologist from the University of Leicester. He publlished the World Happiness League Table. Each of the country's score was based on four components namely SWL (satisfaction with life) index calculated from data published by New Economics Foundation (2006), Life Expectancy from UN Human Development Report (2003), GDP per capita from figure published by the CIA (2006) and access to secondary education rating from UNESCO (2002).

Brunei came ninth. The top ten was made up of Denmark, Switzerland, Austria, Iceland, Bahamas, Finland, Sweden, Bhutan, Brunei Darussalam and Canada. Other countries in the ranking include Luxembourg (the undisputed champion when it comes to GDP per capita) - 12th, Malaysia - 17th, USA - 23rd, Germany - 35th, UK - 41st, Italy - 50th, Singapore - 53rd, France - 62nd and Japan - 90th.
Airul said…
GDP only measures growth and its a measure that everyone uses, they never focus on the happiness index in economic reviews. That's a problem.

Increase in GDP just means that nations are accumulating wealth and does not reflect if quality of life of the people.

Have a measure that's based on distriubution of wealth, then we'll see how wasteful we all are and how much other people are suffering.
Anonymous said…
Why in oil price rise there is no changes in country development/economics?
Anonymous said…
Gross Domestic Product, or GDP, as Mr BR mentioned, is a measure of the SIZE of the economy. It is equal to national income = national expenditure = national output. They are different ways of essentially the same thing. Difficulty in measurements mean that they are not always the same. GDP growth is the measure of CHANGES in GDP. GDP per capita is the sum of GDP divided by the population number.

Just because GDP per capita in Brunei is bigger than Singapore, it is still way below in terms of GDP so theres not much to brag about. A higher GDP per capita would actually only be beneficial if we had a high national savings rate. Savings = Investment which is the driving force for economic or GDP growth.

The problem with using a happiness index is that it is a subjective issue as it is even harder to quantify or even agree on the use of components which such an index would comprise. However, it is a fertile area in economics where academics are making rapid progress.

A Lorenz Curve and Gini coefficients are used as measures of income inequality.
unharm6187 said…
Woah. A lot of economists here. :)

Like Aaron John, Airul and Anonymous said, GDP doesn't give an accurate indication on the happiness level.

Are we happy being in Brunei? Not just based on Satisfaction with Life, life expectancy figures, GDP per capita and education.

I mean, ask yourself. On a scale on 1 to 10, 1 being the least and 10 the most, are you happy in Brunei?

I'd give it a 6. Entertainment & recreation, job prospects, lack of variety of the degrees offered at UBD, the fact that it's who you know that determines your success in career rather that what you know, the health sector a bit lacking in some areas, the fact that Foundation courses aren't recognised widely, the construction sector which is dominated by non-Bruneians.

I acknowledge that the Bruneian economy is improving. The MoH initiates tackling heart diseases, the avian flu and HFM disease and is also improving nurses training. Mother told me about the Gleneagles at JPMC. That's a good progress. But I've been hearing people flying off to Singapore for medical treatment. Our young doctors are still in training, but that's another problem. Due to better job prospects elsewhere, our doctors decided not to join the MoH. The fact that the government is pushing for a bigger private sector, I say that's a good move. Hopefully, the sector diversifies at a faster rate.

Comments from the non-yellow IC holders might give a more realistic view since they are not heavily subsidised like us yellow IC holders.
Some things you could measure; if you have more to add, please feel free to comment accordingly. Remember to translate all time saved into a monetary value per week, month and / or year.

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