Where are we heading?

A couple of people asked me to comment on John Perry's resignation. In fact I have already heard about it a couple of months back and I started composing something which I thought I may want to post one day should the announcement came. So I prepared a long entry about it and about the economy etc. Last night, I started to think - put us in his position, would we have done any better? Would we have done thing any differently? We might and again we might not. Would we be able to change anything? And given all that, do I really really really want to post something? What good would it do? So I decided Naah.... and I deleted it not without regret. I think it would be best for all of us to look ahead rather than look back. We have to move on. I saw s@s has written a more succint post which I thought is more reflective of what a Bruneian would be thinking about the whole thing. Go and read it here. (Thanks s@s).

Sometime in September, I posted an entry about a book written by a Harvard Professor entitled "As the Future Catches You" which has a few interesting comments about Brunei. I also mentioned in the same entry about an email which I received talking about the differences between rich and poor countries. In the light of talking about the economy etc the book and the email might perhaps give us some pointers as to where we should be going.

"The Future of Brunei" was the title of an entry I wrote in August. The entry unfortunately was not as good as the title and all I did eventually was to point to the fact that our over reliance on the diminishing oil and gas reserves will create problems for us in the future. One Aaron John commented the following - ... we must start to open our eyes. We have to diversify our economy and not be wasteful. We have to start educating our children and youths about the seriousness of the situation. Teach them about our history. Enlighten them about other countries' success stories or failures. In the words of that politician character from The Manchurian Candidate "We must secure tomorrow today!

So, where are we heading? Over the years, the government has given us practically all the basic stuffs that we need to succeed - free education, free medical, free healthcare, subsidised housing, subsidised services, no personal income tax etc. The problem is we have become too reliant on all these. We don't know how to look after ourselves anymore. A lot of us, yours truly included, have always instinctively turned to the government when we started work. All the perks are there, so why worry - even though deep down we all know that we have to do something different - collectively. And we all know that our oil and gas will not last forever. We all know diversification of the economy from oil and gas is the answer. The question has always been - how do we get there?

Some argued that we should take full advantage of what we have the most at the moment and that is oil and gas. Use it to create subsidised industries to create businesses and jobs. This in a nutshell was BEDB's approach. Create an area - Sungai Liang was one such site - and turn it into a free trade zone area where everything can be created and manufactured within that area without being affected by the other laws of the country. In that area, it was envisaged that plants will be built run by the energy resources as well as the local raw materials needed to produce something else - the energy and the local raw materials to be sourced at a lower than world price - hence subsidised. The end results was supposed to be the creation of new jobs, new industries, new services, transfer of technology etc. How does that sound?

It sounds good, does it not? On the other hand, some also argued that our oil and gas is our lifeline. We must sell it to the world's market at market price and maiximise revenues out of it. To start any industry using subsidies from this must take into account the loss of revenue which may jepordise the future of the country. The loss of revenue if it is not equal to the job and business creation that was supposed to be generated would mean that the county might as well tolerate unemployment and probably lower growth in the short term as long as the state's coffers fill up. At the same time, it is also argued that using up the oil and gas resources for any subsidised industries would use up our reserves that much faster. And our economy is still not diversifying away from oil and gas. Once the resources get depleted, we are back to square one. How does that sound?

It sounds scary, does it not? What do we do? Some have argued the 'middle way' - given that no matter what we do, there will be great difficulty in creating subsidised business or creating subsidised jobs, so why not just maximise the sales of oil and gas and then used the proceed to provide unemployment benefits. That way everyone gains. How does that sound?

Sounds heavenly. (By the way, ever heard of what happen to the people of Nauru?) But what happens when the oil and gas runs out? In the older days, I remembered our elderly saying Brunei is a very lucky country. They used to say we have these three natural resources. Once the oil runs out, we rely on our sands, said to be the finest in the world (though I think the authorities have run some test and said that's not exactly true). Once the sands run out, we exploit our forests (in those days, the word environment does not exist, and not to mention in the 1960s, our population was barely 100,000 - any size forest was good enough). The thing was nobody ever mentioned, what happened after we run out of that too. So, back to what happens when the oil and gas runs out. Income from the sands and the forests, assuming we are exploiting them in a big way, will be way too small for it to replace the oil and gas income. Not to mention, we would also have a population base of people who have never worked but reliant on unemployment benefits.

So, what do we really do then? In a way we have already begun our journey to diversify the economy. MIPR has, whether impressive or otherwise, depending on your point of view, managed to increase a number of activities in the agro-fisheries areas. Our fisheries activities has increased in leaps and bounds. Our agriculture has incrased its production. We are self sufficient in chickens, eggs and vegetables. There are some industries, not as much as one like, but still there. Other aspects of the economy such as our financial centre has started to operate. Not many Bruneians have realised it. Brunei now host some of the world's biggest banks operating under the international finance center - Societe Generale, Royal Bank of Canada, OCBC of Singapore and CIMB of Malaysia, to mention some of them and a few more are expected very soon. Asset management companies are also here. The latest to open is the Singapore based UOB Asset Management. So there are already opportunities in the financial sector. Microsoft too will be opening its office soon in Brunei and hopefully this will spearhead the information technology sector.

We have begun the journey. Though the speed admittedly, not as slow as glacial speed, but definitely not rabbit fast either. Some economists say because we are suffering from 'Dutch disease' so trying to move away from oil and gas will be a difficult journey. For the non-economists, 'Dutch disease' is a theoretical concept where it is argued that a nation with natural resources will cause movements away from the non-natural resources sector (such as other industries and agriculture) by making them less competitive as resources move to the natural resources sector due to the natural resource boom. This is caused by a resource movement effect which causes the demand for labour for the natural resource sector to increase; as well as a spending effect as the extra revenues allow for employment in other sectors thus moving labour away from the 'lagging sectors'. In Brunei's case, the spending effect is more visible as the government sector is so much bigger than any other sectors combined. The size of the Brunei government in terms of proportion to the size of the population is bigger even when compared to countries in the middle east with similar economic activities and sizes.

One solution would be to reduce the size of the government. I am pretty sure you can think of all the implications for doing that. At the same time, are the private sector ready to take up the role of the government? So, would such a policy create more employment in the private sector or would it create more unemployment? What would more unemployment mean? We have in effect an interesting conundrum. You are on a log in a river. There is a tiger waiting for you on the river bank but there is also a crocodile waiting to pounce on you should you turn back. There are solutions to our problems but they are not easy ones.

Comments

Mr J said…
Is the country contemplating on tourism industry as a way to diversify the economy in a sustainable way? With the promotion of eco-tourism, this is a great opportunity to make use of what we have. With the benefits of tourism, we can slowly diversify away from oil and gas.

I would like to direct a few questions: How much does the government spend on promoting Brunei as a tourist destination in other countries? Promotion is argubly the best way to tempt people to come to Brunei to enjoy
its unique culture.

I believe that if you compare the standard of international airport with neighbouring countries such as Singapore and Malaysia, Brunei's standard is not competitive enough. Is there any work being done or any major plans to upgrade the facilities of the airport?
mr j said…
I might be wrong here but the last time I was back in Brunei Timothy Ong was the chairman of BEDB and John Perry was the CEO. Has John Perry been promoted? Well, this is surprising news that he is resigning because I had an opportunity to listen to a talk given by John Perry which was quite promising and ambitious with the promise of many jobs being available with the Sungai Liang and Pulau Muara Besar projects. Any particular reasons he gave for resigning?
Anonymous said…
I work for Shell and would like to post a comment here.
I understand the need to diversify. But why should we be spent our precious gas reserve on something totally new and unproven? The amount of gas earmarked for the Sungai Liang project may sound small, but quite significant amount actually.
Lets just use them for export as LNG, where it is sold at a premium price. The infrastructure for LNG is already there and despite all the current projects to upgrade it, the amount of money needed for the projects are still significantly less than what would be required to build totally new plants. In BLNG itself, more than 80% of its staff are Bruneian and quite a handful of its senior positions are held by Bruneians.
To build new plant for the methanol,urea and aluminium projects,a huge sum of money would be required. Where will they get the money from? And the projects are reportedly able to provide 1000+ new jobs, but who will fill them up? Remember when we first started the garment manufacturing industry and the promise of providing thousands of new jobs for Bruneians? Let cast our mind back and see who actually filled up those jobs. Bruneians? Foreigners(Filipinos, Indians and the rest)? And for aluminium industry, most of its raw materials need to be brought into Brunei. And has anyone done any research on its environmental effects?
Bruneians are not really known for their penchant for hard labour. So what should we do? Do more on our tourism and financial sectors. The activities directly involving these industries may not provide jobs for many, but other supporting industries may benefit from them.
And lets do something about making Brunei as a halal food hub. From what I gather, many countries, including some Arabian and European countries, were impressed with our effort to become a halal food hub. We have started something and it seems to be working. Being a dry country certainly helps us along. And we could perform a fardhu kifayah obligation too.
Anonymous said…
Hi there:

John Perry forget this is Brunei Way of taking thing slow. He is hired to present some possible strategies to diversify at the end of the day, whatever is the proposal and the CONSEQUENCES of the proposal have to be swallowed by BRUNEIAN. Right now, Brunei is not in a hurry to jump into whatever might causes possible damage to this land, eventhough,on the other hand, there is some "benefit". Personally, I think the Muara Port idea is SUPERT but the aluminium smelting factory, I don't think it's a good idea because of the byproduct. Can't imaging! Take your time!
Anonymous said…
im scared..somebody has to figure out somethin soon!!
Harbinger said…
If you always do, what you've always done. You'll always have, what you've already got.

Is this true? and will it be enough, as the future catches up with us?
Awang Jambol said…
I think we are really blessed not just by our natural resources but also by our small size. Size does matter when we talk about our country. Aren't we fortunate that Brunei is so small, even if our oil dries up today, we still can survive for the next few decades or so in the worst case scenario but of course with strict rations. But then we wouldn't just rest on our laurels.

Commendable efforts made since 1989 when MIPR was established have somewhat borne some fruits. It's slow but progressing. It seems so obvious when a country relies heavily on a particular sector, the answer is economic diversification. While there is a beauty of being small, there is also a major downside to our small size. We are just small in many ways. If you refer to your post yesterday from the IMF report, our tiny economy is not even the size of one of the top Fortune 500 companies. Our population is so small, even if each and every person of our 375,000 people is economically productive (which is of course impossible) either in government or non-government sector, our size of economy is still small by any standard. I guess we just have to live with this fact in many years to come.

Lets think about it. When we start diversifying into manufacturing, we are short of labour and raw materials. Abundant land and tax holiday are not good enough. Expanding agriculture production is notable but only to the extent for domestic consumption. Aquaculture which includes fisheries is a sector which has its fair share of constraints in respect of capacity, market forces, and waters zoning. Tourism is undeniably lacklustre. There is a lot more to tourism than just offering cheap air fare and treasure hunt. Tourism is reflective of a country and its content, its culture, its history, its accomplishments, its identity, and so on. I think it will take a while before tourism can really make its mark in our economic statistics. Make no mistake though, we have made much progress since 1989. Whether enough or not, it depends on us just like you said.

On the other hand, the service sector particularly the financial services sector has been incresingly pro-active lately ever since we open up to the outside world. Investment banking, asset management, Islamic fund management, and so on are the buzzwords in the financial scene nowadays. You are certainly in a position to talk about this aspect but I think it eventually comes back again to our size. Our small size. In any business sector be it services, manufacturing, wholesale or retail, volume is key. Market forces or demand and supply always play the key role in business. An overflow of demand would usher investors into the country in flock while an oversupply would drive them away. What is it in our case? May be you can elaborate further but I notice these foreign financial institutions come here eyeing for soecific target market. Despite our small size, there may be plenty of room for niche business. In fact, due to our limited capacity, the businesses here tend to do better when they cater their services for the niche market.

Ultimately, is there a perfect solution to our problems? I guess it's a perplexing question to answer because there are just a myriad of contributing factors which are not on our side. Would reducing the government size be the answer? You're right, it would just lead us to conundrum one after the other. For instance, the last RKN calling for larger proportion of funds from the private sector is hardly a reality.

With all these uncertainties, one thing for sure about Brunei is that it is indeed an Abode of Peace. Brunei is truly a nation of peace and 'rahmat'. I am grateful that I am a Bruneian. We are among the safest countries in the world, among the cleanest, among the well educated, among the healthiest, among the most literate, among the widely ICT wired, and among many other things. What more can one ask for?
Anonymous said…
hear... hear...

an insightful comment by awang jambol, one that can even be a separate posting by itself.
Anonymous said…
as you've said Mr. Br, a significant part to our problem has its roots within our tendency to be over reliant and laid back. But the question is what is it going to take for us to make those decisions and those sacrifices? are we ready? are we able to do so before its too late?...what is it going to take? the future of our economy surely does not only lie on the government's shoulders but it is also the people's responsibility.
Anonymous said…
actually, there's no need to mention about Mr. Perry, forget him. besides, what's he really achieved for us besides all talk? i just wonder how much the government had paid him over the years? we should learn that from our past mistakes, that our own people are just as good or even better than the orang putehs. anyway, was there really a missed opportunity for brunei? for me, we have to think for our next generation our sons and daughters who's going to inherit all this from us... Mr. BR, i agree with your positive comments 100% and i m sure with all your honesty and patrioticness towards our nation, you can do 100 times much better than job than any socalled "great" orang puteh, as long as we do the job yang telah diamanahkan as if we are doing the job for ourselves/ family :)
Anonymous said…
With all due respect, Mr Perry didnt just quit for nothing. It's true we can be just as good as the orang putehs but there is a good reason why he was hired, it was because he was qualified and experienced for the job. If we are to think about the future generations, we should think about what will happen when our natural resources are depleted. What are future generation going to inherit then? I am sure there have been missed opportunities for Brunei. But with whom does the fault lie? I'll leave that to those who are better informed. I remember attending the AsiaInc forum about 3 years ago when the BEDB were presenting their plans for Brunei, until today we havent seen anything materially implemented. How long does it have to be until we see large scale projects being implemented for the diversification of our economy?
livingsun said…
firstly, i congratulate Mr BR for such an excellent post, nobody can talk about our nation's situation better than you do. i read in another bruneian's blog that your are a "grandmaster" in blogging but actually not just blogging lah as proven by this post.

anyway, ive mentioned about airports here in the past. airports, is an area where we can look to improve on, the spiral effect would be to help our only airline company perhaps... whats so great about singapore or malaysia airports? the range of duty free shopping? the airports facilities? i m sure we can make it ten times better. not so sure about making new ones though, since ive seen how big the current airport is occupying our lands over google earth's.

our economy definitely needs to diversify but in small bits like the way our airport was built dulu, it started small but slowly grew in size, this the right approach to do things, orang lama2 paham tu :)

so, we start small, dont be in a rush to grow big and gamble all our eggs in one basket, macam gagar tia plang. we all know manufacturing plants are the cause of pollution, health hazard indirectly causing cancer etc. for e.g. alcoa, an aluminium smelting co. is one of the biggest polluter in america if i m not mistakenlah. so, why should we concentrate on the primary industry (manufacturing) when all our unemployed are graduates and intelligent people ? nda jua kan menukul basi aluminium... paloi tu eh, macam zaman "colonial masters" dulu tu. "think tank" kitani ada. we should be in the tertiary services industry, tourism, high tech industry etc... even look for alternative natural resources to generate power e.g. build dams, windmills, water, solar or even alternatives to petrol, hydrogen as alternative for cars fuel macam durang d south america, investments in new technologies macam di canada banyak tu, financial services etc. or even as suggested by the shell guy, a halal food hub, its a secondary industry or even tertiary, we have the knowledge and provide services to check the "halalness" but start small lah, i heard malaysia managed to grab the "halal gelatine" venture few years back, i wonder what came of it? yg penting our nation has a "niche" in producing something, cari tia, produce kunyit in mass, packaging it etc? heheh...

basically, its like when i met an aussie on the plane many years ago (who's a businessman selling surf boards in the UK!) .. anyway, he sees me with my family and that's when he gave me some advice. he said that we need to be self sufficient in life, but he was talking about raising a family. he says, if we have our own land and modest housing (rather than buying expensive cars like kids nowadays once they get a job etc), no one can throw us out and we can start planting our own fruits and veggies, he says.

i look at his advice on our nation's context. there's not really any missed opportunity. we still have a strong economy and the basic things are provided by our government in order succeed, if i may quote Mr BR. we need to educate our kids to live sederhana, bahapa tah kan membazir, wasteful etc. makan tiap hari dikadai sedangkan membali baras dan lauk d pasar masak di rumah pun cukup udah untuk hidup. kalau nya nada masa kan masak, cari tah masa atu. rahmat bah kitani di brunei ani. orang luar negeri lagi susah hidupnya. masa ku (pramba, kaola, saya) naik mrt d singapura ngalih kesana kemari, masa bulan puasa lagi and yet the muslims d sana find the time to do their jumaat, terwaih prayers walaupun akhir balik kraja.

alhamdulillah jua lagi kitani rahmat di brunei ani, nda tekana "durian" atu macam philippine, nau'uzubillah. talking about durians, why cant we start growing our durian "kunings"? i know the thais send their people to do PhDs in making / improve their durians, monthongs. etc, the key start small, minta tia TOL ah...

anyway, jangan tah panic, biar tia, bisia orang luar atu macam2 plang komen tentang minyak kitani kan abis tia, atau itu ini tah lagi kitani "how pampered". i read a lot of negative comments about brunei's economy and future but we know our situation like Mr BR himself, so there's no need to rush into things, to gamble on things which other nations dont even consider. kalau inda silap, ada udah kali smelting plant di bintulu, sarawak etc.? lagi basar nyinta..

Even if its true, we lost an opportunity say $100 billions even, but, if in the process the country has to lose our $200 billions. do the islamic way, never ever gamble, after all thats our MIB concept. whats the worse can happen? kitani mesti berusaha dan bertawakal, so dun be scared. we r only scared if we only think of money to buy new nokia N95 udah kah masa ani? kan bahapa eh... awg jambul, amba setuju tu kurapak biskita... jgn gagas, kalau makan "rations" pun ok jua lah, alhamdulillah, syukur...

adangtah tu lai, nada guna2 tu dipikirkan lagi, adatah sebabnya tu ceo BEDB atu quits mengkali, ndatah tau kitani, tapi yang clear the plans atu alum convincing enough for government kitani, walaupun sampai terbatuk2 org kitani kan mendangar cakap bis ceo atu tapi kalau nda lu'us ca'anya payah saja kan ditu'uti, SESUAI UDAH TU... ada jua kali masa asiainc forum ah... d empire kan? i don't see, hear anything in "substance", full of hot air sja eh, apalagi yang monitor group atu talking rubbish pasal our nation's economy, upstream, downstream, leftstream, rightstream, heheh, banyak org kitani nda setuju tu. SO, START SMALL FROM BASICS, tu nah merambat lauk ah... heheh

anwyay, Mr BR, moite, ur da man!!! keep up these great posts coming... Insya Allah Brunei akan selamat. Amin Ya rabbal 'alamin.
livingsun said…
apakantu tujuan "niche" ah... liat dulu many other small countries, ok jua... negara iceland for example damit jua tu tapi economy nya?

apa niche nya? iatah tu nah... nda tau?

blajar tah dulu d sekolah, banar tu awg jambul? heheh
Anonymous said…
I wonder whether the Sg Liang project is actually feasible to begin with. And even if it is, how much diversification can it add to our current economy? Maybe it would help but surely I don’t think it’s the magic answer. Just hope that we’re not jumping the band wagon (moving to down stream industries and becoming a financial hub/centre) following other countries without properly examining the benefits.

This talk about ‘economic diversification’ has been in the air for yonks but to date, the amount of diversification we have done is little compared to what have talked about. I think we have quite a way to go before great ideas can easily take off the ground. We need to ask ourselves, is Brunei ready (as someone has already mentioned)? Do we have the necessary legal system to support such ideas in place? Accountability? Is our system still full of red tapes? How open is our economy? Infrastructure check? Do we have a conducive playground for foreign or local investors? If you’re a big time investor, would you invest here? Why not our neighbouring countries or Mid-East? Sure we have free education, free medical facilities, no income tax, stable social security… but are these enough? At the end of the day, investors will invest in places where they can get maximum returns for the lowest possible ‘risk’ and costs. I don’t mean to sound pessimistic on our country’s outlook on economic diversification but these are the hard facts and from what I can see… It’s real. Having said all this, I have faith in our country to diversify the economy in a timely manner and sustain our economic prosperity. Brunei Yakin!

Just my two cent thoughts…
Anonymous said…
I think that risks need to be taken to ensure success and learning from previous experiences. We need to see the light that nothing can come free. All aspects of life needs to be considered including education. Our children need to be educated on how to problem solve and start thinking critically on how to shape Brunei's future. I know for a fact that the metality of relaxness is difficult to get rid off. But I'm sure with god's will that if we try and we learn we can get there.

My point is that we should not just rely on oil and gas and their by-products. We should be more creative. For example singapore which is much smaller than Brunei with no resources. They are on the verge of a developed country and we should follow their lead in ensuring that our beloved Brunei will have a certain future.

I don't know how my comment here will affect the future. But I hope for everyone that reads this comment will have a thought. I'm sure that together and with the right support we can have a beeter future for our children.
Anonymous said…
In investments, diversification would normally be linked strongly with the term 'correlation' or better yet, the 'lack of correlation'.

A correlation figure of 1 indicates a direct relationship/or co-movement between one with another. A correlation of zero indicates no relationship, while a figure of -1 informs us that the underlying possess an inverse relationship with one another.

In the case of the ethanol or sg liang projects, our competitive advantage in attracting FDI have always been our readily available and 'cheap' energy supplies (subsidised rates as highlighted by BR).

The dependency of these projects to our energy industry has been well documented and confirms the correlated relationship between them. So the senario is as such, if our energy supplies become depleted, our so called diversification projects will also be severely impacted (and may not survive) as well... all within the same period of time... double whammy. So don't these ideas sound flawed???

Let's now support MIPR's efforts on its fisheries, agriculture and halal initiatives (& don't forget the financial sector initiatives either) - All of which have little correlation to the energy sector.
Anonymous said…
I'd like to second some of the points that have been mentioned above.

I agree with selling a lot of oil and gas in the market while prices are currently high (high Demand from growing economies and Supply still on the low side due to lack of oil capex in the 90s) and using that revenue for investment into diversification efforts. We can conserve our reservoirs when oil/gas prices are lower.

I also agree with the double whammy risk of leveraging into industries that directly depend on our oil and gas resources. We need industries that don't go down with the ship if oil and gas run out.
Anonymous said…
Brunei has everything it needs (Brains and Money) to succeed in what ever it chooses to do.

It just needs to choose.
Anonymous said…
When you talk about attracting investors to a country, its a bit like invting someone into your home in the hope that they might like to rent a room.

Do you do all your housekeeping and renovation before you even start advertising and speaking to potential tenants? How long would that take? How do you know that its what will be a deciding factor for them?

As they could be tenants for a long time (30+ years) it might sound logical to engage them to see what requirements they might have for the room, so you could factor it into your renovation.

This would save costs and time, and make the propect of the room that much more enticing to the tenant, as its meets their specific requirements.

But If you do all this and are in two minds whether you want to rent out the room. If you then decide not too rent it out, it sends a bad message to future tenants.

Not to mention the renvotors.
Anonymous said…
Sad to read that nothing came out really positive and concrete from all the above responses.

Why cant we think of Going-Forward strategy? We must come out from our comfort zone and do something for our future generation.

As Mr BR said, 'there are solutions to our problems but they are not easy ones.'
Anonymous said…
Its sad to see John Perry go. Hes done so much for Brunei whether we realise it or not. Hes a mover and to be able to move things as much as he had in such a short time is incredible. And to be able to get foreign parties interested in investing in Brunei, come on, who else has been able to that in the last few decades? I dread thinking about the person who will replace him. He has a large boot to fill and for our sake i hope he can.
JackAss` said…
The problem is, we dont need the investment, but the expertise to run any project in Brunei. If our govt dont care about us, we can have anything we want, from aerospace technology to nuclear weapon. Maybe its can contribute to our economy, but how about our citizen? Nada point apa apa pun kalau ganya nanti org luar saja yg bekaja. Even BSP baru baru ani saja jumlah local berkeraja arah dorang labih dari 70%....

I believe benda anilah yang buatkan BEDB payah mencari suitable partner.
Anonymous said…
er jackass, what are u talkin about? Doesnt the expertise come with the investment? Who s gonna come here without any investment? As for the rest of what u said, think long term man..
majin11 said…
I once got the chance to meet John Perry during my school trip to BEDB. QUite an energetic and confident person, i must say.

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