Saturday, July 26, 2014

Brunei Darussalam: Diversification High Stakes

The Oxford Business Group had the following news update on Brunei on 25th July 2014:

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Economic Update
High stakes for Brunei Darussalam diversification 

Brunei Darussalam | 25 Jul 2014

International agencies and local officials are warning that Brunei Darussalam must remain firmly focused on diversifying its economy away from a declining energy sector and on improving its human capital if it is to achieve sustainable growth in the medium term.

In a consultation document on July 9, the IMF said that GDP growth would reach 5.8% this year, after contracting 1.8% in 2013 due to the slowdown in the energy sector, noting that energy sector growth will slump to 0.6% in 2015 before recovering to 4.3% a year later. It forecast non-energy growth at 4.8% in 2015, falling back to 2.7% in 2016.

However, the IMF observed that the Sultanate, the fourth largest oil producer in Southeast Asia, remains dependent on oil and gas revenues to keep its economy afloat. It blamed "longer-than-expected maintenance of hydrocarbon facilities" for a slump in energy revenues in 2013, but also added that the energy sector would "rebound as production of hydrocarbons recovers".

Figures released by the Department of Economic Planning and Development Board (JPKE) on June 25 also pointed to the energy decline, with oil and gas sectors shrinking 10.3% in the first three months of the year. The JPKE recorded an 8.7% slide in the industrial sector due to a slowdown in manufacturing industries, and a 14% drop in the exports of good and services.

Inflation has remained stable with the IMF noting that consumer price inflation was contained at 0.4% in 2013, but said this was a result of the continued appreciation of the Singapore dollar, to which the Brunei dollar is pegged.

In search of new industries

Under the development plan Vision Brunei 2035, the country has put the emphasis on accelerating economic growth to a target average annual rate of 6% by increasing productivity, which it must achieve by becoming less reliant on the oil and gas sectors.

The IMF said while continued tightening of regulations would secure mid-term growth, "over the longer-term, careful fiscal planning and diversification away from hydrocarbons, while fostering private sector development, are key to employment creation and long-term sustainable growth."

Other financial institutions have expressed similar concerns about Brunei's reliance on oil and gas, which account for more than 60% of GDP and in excess of 90% of exports.

"It is urgent to foster the development of other high value-added manufacturing and services sectors," said the OECD in its Economic Outlook for Southeast Asia, China and India 2014.

The government has targeted a number of key sectors such as halal manufacturing, ICT, agro-industrial and the creative technologies.

“In terms of attracting foreign direct investment, Brunei has continuously prioritised sectors other than oil and gas especially in the key clusters of food, pharmaceuticals and cosmetics, renewable energy, data centres and disaster recovery centres,” Dato Ali Apong, Deputy Minister, Prime Minister’s Office and Chairman of the Brunei Economic Development Board (BEDB) told OBG.

“In recent months, we have garnered encouraging responses from foreign investors and in April 2014 we signed the land lease agreement for the establishment of a $50m carbon steel pipe manufacturing plant by Huludao City Steel Pipe Industrial Co. from China,” he added.

South Korean firm DongYang GangChul also unveiled plans in June to build a $107m aluminium manufacturing plant in Brunei. Meanwhile Simpor Pharma, a joint investment company between Canadian Viva Pharmaceutical, private equity fund Aureos (Brunei) Capital Sdn Bhd and a group of local investors, has set up a $26m facility to produce halal pharmaceutical products.

“In order to support the operational framework for such export-oriented projects, BEDB is also prioritising foreign direct investment in logistics services,” said Dato Ali Apong.

There is significant interest in the West to back Brunei's diversification. Britain, for example, said in February it wanted to assist the Sultanate with training, technical education and enhancing engineering skills, both in the energy sector and more broadly. The Netherlands said in April it was keen to contribute investment and know-how, with the maritime sector being a possible area for cooperation.

Investing in human capital

In its report, the IMF also noted the need for Brunei to create a productive labour force to help support successful diversification. "Active policies are needed to promote private sector employment and increase incentives to pursue higher education and training," it said.

The Brunei Times quoted local sources saying in May that better coordination and management of human resources in government and private sectors are essential in overcoming the so-called "brain drain" in Brunei, and that more people need to contribute in the local workforce.

Similar to many countries, Bruneian professionals are choosing to live and practice their skills abroad where they can earn a higher salary, according to international media. Doctors, lawyers, engineers and architects and also graphic designers, ICT professionals, media and communications graduates who are seeking 'to gain relevant experience abroad’ don’t return, according to a report in Invest Vine in October.

Saiful Hazmi Hj Sulaiman, an officer from the Ministry of Industry and Primary Resources (MIPR), floated the possibility of establishing a national planning board for human resources to help tackle the issue.

"Most agencies have their own human resource planning, but what they lacked is coordination among them, (and) what needs to be carried out is to 'negotiate' and cooperate among them," he told an executive development programme for middle management officers.

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Friday, July 11, 2014

Brunei Darussalam: Strengthening Infrastructure Backbone

On my birthday, 10th July 2014, the Oxford Business Group had this following update on Brunei:

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Economic Update
Brunei Darussalam strengthening infrastructure backbone 

Brunei Darussalam | 10 Jul 2014

Greater investment and an increased pace of new project launches should see Brunei Darussalam’s transport and logistics reinforced over the next few years, building on recent improvements to the Sultanate’s infrastructure.

A series of reports earlier this decade identified deficiencies in Brunei’s transport and logistics infrastructure chain, which were seen as holding back economic development and diversification. A 2011 comparative study compiled by the Singapore-based Asia Competitiveness Institute on the economic merits of the ASEAN bloc countries found Brunei had structural weaknesses within its logistics infrastructure, in particular its ports.

In addition, the World Economic Forum (WEF) ranked Brunei 57th out of 144 countries for the standard of its ports, 61st in terms of the competitiveness of its air services infrastructure in its “Global Competitiveness Report 2012-13”. It also noted that the inadequate supply of infrastructure was a major inhibiting factor in conducting business in the country.

But a steady stream of new projects is targeting some of the identified weaknesses, as well as building on existing strengths, boosting connectivity within the Sultanate and across the broader region.

The increased flow through the project pipeline was reflected in the WEF’s 2013-14 report, which found a significant improvement in two out of the three key sectors. Though the study found that road infrastructure had slipped slightly down the ratings, dropping to 35th overall, the quality of Brunei’s port infrastructure had pushed it up to 49th globally, while for aviation the climb was nearly as marked, rising to 55th.

Building links

Several years ago, the government laid out some of its infrastructure goals under the “Brunei 2035” vision , a long-term development plan aimed at diversify the country’s economy with a focus on public-private sector partnerships in the infrastructure sector. One example of projects under the initiative is Brunei’s transport master plan, which will overhaul the public transport system in a bid to develop a sustainable transport service network across rail, road and river.

Another infrastructure project being rolled out is an expansion of the Muara Port facility. The increased wharf will allow for larger container ships to berth and boost the port’s cargo handling capacity. There is also a focus on improved road connectivity between logistics hubs, including the 2.7-km bridge to link the Pulau Muara Besar port and manufacturing centre with the mainland. The Temburong Bridge and associated roadwork will connect Temburong district directly with the rest of the country.

Another mega bridge project, which has already started construction and will be the first of the bridges due to be completed in 2016, is the 607-metre Sungai Brunei Bridge which will connect Jalan Residency in Bandar with Kg Sungai Kebun in Lumapas as well as help reduce transit times between regions.

Bobby Chua, vice-chairman of building firm Swee, which last year signed a $139m joint venture contract alongside South Korea’s Daelim Industrial to build the Sungai Brunei Bridge, said the transport developments will help open up the regions, bringing with them economic expansion, tourism and trade. “Business will be generated along these corridors, showing that infrastructure projects such as these go a long way towards the sustained growth in these regions,” Chua told OBG. “The Bruneian construction sector will have no shortage of projects in the next decade,” he added.

Aviation lift-off

The aviation sector is also benefitting from the surge in infrastructure development. Despite improvements having already been felt, Brunei’s International Airport is in the final stages of further upgrades. When completed by early next year, the B$150m ($120.24m) upgrade will see the passenger handling capacity of the airport doubled to 3m a year, with a new arrivals and departure halls, luggage handling facilities and expanded parking.

Despite proposals, plans for a second runway have been put on-hold for now, which could impose restrictions on air traffic in the years to come. If the Sultanate wants to develop into a transport and logistics centre further down the road, a secondary facility may have to be developed, as has previously been flagged by government ministers.

While there has been a general improvement in Brunei’s transport and logistics infrastructure, its ratings in this category are still well short of its overall ranking, with the WEF assessing the Sultanate’s competitiveness as being 26th out of 148 countries in its latest report.

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