Brunei Darussalam Year in Review 2015
Oxford Business Group issued this report on 19 January 2016:-
Brunei Darussalam Year in Review
Economic News Update
19 Jan 2016
While 2015 saw some progress in Brunei Darussalam’s ongoing diversification efforts, the challenging external climate, together with an increasingly competitive regional environment, further underscored the importance of pursuing non-oil revenue sources.
Lower global energy prices, on top of weaker commodity earnings, sparked a significant drop in government revenues in 2015, prompting both the public and private sectors to sharpen their focus on other areas of the economy, including financial services, the halal industry and tech start-ups.
However, a relatively strong Bruneian dollar and lower commodity prices also served to curb inflation over the year, with the consumer price index up by a marginal 0.1% year-on-year (y-o-y) in November, according to the Autoriti Monetari Brunei Darussalam (AMBD).
The year ahead looks set to bring new opportunities from regional initiatives, notably the newly launched ASEAN Economic Community (AEC). Progress in the Trans-Pacific Partnership also bodes well for the Sultanate, although both initiatives are likely to increase competition amongst signatories looking to position themselves as investment destinations.
According to the IMF, the economy is expected to rebound in the coming years, with GDP growth forecast to reach 3.2% and 3.8% in 2016 and 2017, respectively, before scaling up to 11.2% by 2019.
Energy earnings down
News at the end of 2015 that oil prices had fallen to their lowest level since the height of the global financial crisis in 2008 reaffirmed the extent of the challenge facing Brunei Darussalam. The hydrocarbons sector traditionally accounts for roughly 60% of GDP and more than 90% of government revenue.
Brent crude futures dipped close to $30 per barrel in mid-January, while liquefied natural gas (LNG) prices were down 26.5% on the year, according to Platts Japan/Korea Marker, with the average spot price of LNG cargoes arriving in north-east Asia dropping to $7.40 per million British thermal units in January.
Lower energy receipts triggered a third consecutive year of recession in the Sultanate, with the economy expected to contract by around 1.5% in 2015, according to IMF estimates.
However, this marks an improvement over the 2.3% decline registered in 2014 and the 2.6% y-o-y contraction recorded in the first six months of the year, according to the AMBD. The first-half decline was a function of negative growth in both the hydrocarbons and non-hydrocarbons sectors, which shrank by 3.5% and 1.5% y-o-y, respectively.
Although the government trimmed the FY 2015/16 budget by $250m, the country is expected to post a fiscal deficit of 16% of GDP for the year, in contrast to the 28% surplus recorded in 2011.
While further spending cuts are widely expected, Brunei Darussalam is moving ahead with several key infrastructure developments, including the BN$1.6bn ($1.1bn) Temburong Bridge project.
Expected to be completed in 2019, the 30-km dual two-lane highway will connect the Brunei Muara District with Temburong to the south-east, with the initial phases of construction to handled by a combination of local, South Korean and Chinese firms.
The year also brought some positive news in the energy sector, as the Sultanate moved ahead with counter-cyclical spending measures.
The majority state-owned Brunei Gas Carriers took delivery of another LNG tanker in July as part of its plans to upgrade its fleet. The Amadi, constructed by South Korea’s Hyundai Heavy Industries, should help the country deliver larger cargoes more efficiently, providing a welcome boost in an increasingly competitive market.
Meanwhile, work continued on the new oil refinery and aromatics cracker complex on the Pulau Muara Besar (PMB) industrial island, with ground broken in May for a bridge linking PMB to the mainland.
According to estimates from economists at the Asian Development Bank, the plant is expected to inject around $2bn per year into the Bruneian economy, boosting GDP by 2% once fully operational, with completion forecast for 2018.
Expanding regional and international trade remains a key strategic focus of the Sultanate, with a series of regulatory changes and liberalisation measures enacted in 2015.
In March Brunei Darussalam outlined plans to change its tariff structures, improve foreign direct investment rules and enact a National Competition Law ahead of the year-end launch of the AEC. According to regional press reports from early January, the Sultanate has achieved nearly all the tariff cuts envisaged in the AEC’s “Blueprint 2015” master plan.
The year also saw reforms aimed at easing the process of doing business in Brunei Darussalam, led by improvements to the licensing process for start-ups.
A single business licence has been introduced, replacing the variety of licences issued by multiple authorities that were previously required. Additionally, a new authority was established to oversee licensing procedures, and an online portal to the Registrar of Companies and Business Names was created, allowing users to pay fees remotely.
According to media reports, the country’s streamlining efforts have reduced the wait time for licensing from three months to just a few days.
In addition, the Sultanate’s financial sector is expected to undergo significant development in the next two years.
In May the AMBD announced plans to launch a securities exchange as early as 2017, following the introduction of new capital market rules in February. The new securities exchange will enable Brunei Darussalam to ramp up its role in the increasingly integrated ASEAN capital markets, allowing businesses to access funding via listings and other available instruments.
In another landmark move, the AMBD said in mid-June that it plans to issue long-term sukuk (Islamic bond) for the first time. Expected to take place in 2016, the issue will broaden and deepen the country’s Islamic bond market, marking the end of an era dominated by maturities of one year or less.
Such reforms should help Brunei Darussalam prepare for a year that looks set to bring a mix of new opportunities and familiar challenges.