Brunei Darussalam: Economy Set To Rebound
Economy set to rebound
on: April 11, 2017
| Azlan Othman |
AFTER several years of declining gross domestic product (GDP), falling consumer prices and widening fiscal deficits, Brunei Darussalam is poised for a mild turnaround, the Asian Development Bank (ADB) said.
Large construction projects and recovering oil and gas production and prices are expected to lift GDP and inflation into positive territory and narrow the fiscal gap.
Sustainable long-term growth demands substantial reforms to the business environment to attract foreign investors to new industries, the bank said in its Asia Development Outlook (ADO) 2017 for Brunei Darussalam published recently.
A projected modest increase in hydrocarbon exports for higher prices should restore GDP growth this year and next. Several large construction projects will provide additional impetus if they proceed as planned.
GDP is forecast to grow by one per cent in 2017, quickening to 2.5 per cent in 2018. Inflation is forecast to be 0.1 per cent this year and the next. Construction is expected to swing from contraction in 2016 to expansion in 2017.
Hengyi Industries from the People’s Republic of China plans to start building this year an oil refinery and aromatics cracker plant with more than $4 billion investment once a bridge and jetties are completed at the site on Pulau Muara Besar.
Construction is expected to take at least two years, with exports scheduled to start in late 2019, the report said.
Public construction projects undertaken in the country include the $1.1 billion Temburong Bridge which will continue into 2019. The economy is showing tentative signs of gradual diversification away from oil and gas.
A company from the People’s Republic of China plans to develop the Muara Port, and another is building a $50 million plant to make carbon steel pipe, ADB noted.
Turkish firms have pledged to invest $1.3 billion in a project to make ammonia and urea from natural gas which is expected to start construction this year or next and produce fertiliser for export in about three years.Another $30 million will be invested in a factory to make margarine from imported palm oil. Meanwhile, investors from Singapore and Taiwan are developing aquaculture, an industry that is expected to expand production from this year.
The report also highlighted the establishment of a centre that trains helicopter and fixed-wing pilots and other ventures that produce animal feed, Halal food, and pharmaceuticals.
The ADO report also noted that higher global oil and gas prices augur well for government revenues. Nevertheless, the financial year 2017 budget trims nominal expenditure by 5.4 per cent from the previous year’s budget.
At the same time, officials are considering how to target subsidies better and broaden the revenue base. Subsidies for household electricity consumption have been trimmed for bigger users and progressive tariffs are expected for commercial users.
Fiscal deficits are projected to narrow over the forecast period.
The deficits are financed by transfers from a fiscal stabilisation fund. In the medium term, GDP growth is expected to pick up as work is completed to make existing fields more reliable and bring new gas fields on stream.
Encouragingly, over recent years the government has taken steps to improve the business climate by lowering the corporate income tax rate to 18.5 per cent with tax exemptions for pioneer industries, allowing 100 per cent foreign ownership in domestic companies, competitively pricing land and utilities in industrial parks and establishing a special office in the Brunei Economic Development Board to fast-track foreign investment projects.
It has also outlined plans for a free-trade zone to attract foreign direct investment. These reforms enabled the country to move up significantly in the World Bank’s latest Doing Business ranking, from 97 among 189 countries surveyed in 2016 to 72 among 190 in 2017, the report said.
Nevertheless, Brunei Darussalam lags less prosperous neighbours such as Malaysia and Thailand. Moreover, it ranked a low 142 in terms of trading across borders and 134 in property registration, behind not only Malaysia and Thailand but also Indonesia, the Philippines, and Vietnam.
It was far down the rankings in protecting the rights of minority shareholders (102) and contract enforcement (93).
Ranking Brunei Darussalam 58 among 138 economies, the Global Competitiveness Report 2016-2017 of the World Economic Forum cited not only the country’s extremely small market but also its bureaucracy as significant hindrances to doing business.
Compliance with border procedures is highly time-consuming, discouraging investment in export-oriented industries.
Substantial scope exists for the government to streamline procedures and make the country’s non-hydrocarbon sectors more attractive to foreign investors, ADB said.
Courtesy of Borneo Bulletin