Economy and Trade
Bordering the South China Sea and Malaysia, the Sultanate of Brunei became a British protectorate in 1888 and achieved independence in 1984. The same family has ruled the country for more than six centuries, and now presides over an economy that boasts one of the highest per-capita GDPs in Asia. Brunei last held elections in March 1962. It is a constitutional sultanate, with a legislative council consisting of members appointed by the sultan. The economy encompasses a mixture of foreign and domestic entrepreneurship, government regulation, welfare measures, and village tradition. Brunei’s economy is dominated by the oil and gas sector, which contributes nearly two thirds of nominal income. Oil and gas exports earn about 95% of Brunei’s export revenues, and generate about 90% of government revenue. Per-capita GDP is one of the highest in the world (estimated at US$32,000 in 2010). The authorities have adopted a prudent fiscal strategy to save oil revenues for future generations, mainly through the General Reserve Fund managed by the Brunei Investment Agency (BIA).
Economic Policy over 12 Months
The country is rich in natural resources and has a strategic location within the region. Most of the country is covered in tropical rainforests, and ecotourism is gaining importance in Brunei’s economic activities. The government recognizes that its future wealth, beyond oil and gas, lies in the knowledge and skills of its people, which is one of the main reasons why university education is free. Having a highly skilled workforce has been central to the government’s desire to transform Brunei into a diversified, industrialized economy, and skilled workers remain in short supply.
Plans for the future include upgrading the labor force, reducing unemployment, strengthening the banking and tourism sectors, increasing agricultural production, and, in general, further widening the economic base beyond oil and gas. The main focus of attention in the development of human resources has been a focus on managerial and industrial skills, with particular emphasis on entrepreneurial skills.
Brunei’s main exports consist of three major commodities—crude oil, petroleum products, and liquefied natural gas (LNG)—which are sold largely to Japan, the United States, and Association of Southeast Asian Nations (ASEAN) countries. According to an IMF report published in June 2011, government policies increasingly emphasize economic and commercial viability in supporting development spending. Government funds were set up with an explicit purpose of supporting profit-oriented projects through public–private partnerships and joint ventures in non-energy sector development, especially in food, aquaculture, medicine, and telecommunication industries. Five consecutive years of corporate income tax cuts have brought the rate down.
The IMF says that the authorities also continue to make rapid progress in financial sector reforms. The establishment of the Autoriti Monetari Brunei Darussalam (AMBD) and the Deposit Protection Scheme on January 1, 2011 marked milestones in building strong financial institutions and strengthening financial sector stability, the organization said. As a result of prudent credit policies, banks’ excessive exposure to personal, and in particular, credit card debt has been reduced.
The IMF has commended the government for running a flexible and prudent fiscal policy during the global economic crisis. This policy has cushioned Bruneians from the impact of the global economic crisis and stimulated growth in 2010. With the economic recovery firmly in place, fiscal policy has now automatically shifted back into a savings mode. The further reduction in the corporate income tax in 2010 has helped businesses and made Brunei’s corporate tax rates competitive in the region, says the IMF.
Economic Performance over 12 Months
According to an IMF report published in June 2011, economic growth rebounded strongly in 2010 after two years of decline, mainly due to the recovery of oil and gas production. Real GDP rose by 5.5% in the first half of 2010. For the year, GDP growth is estimated at 4%. The current account surplus has also rebounded, benefitting from higher world oil prices. Inflation remains contained as a result of the appreciation of the Brunei dollar and continued price controls.
The IMF believes that the economic outlook is also highly positive. New oil and gas finds and exploration agreements are expected to extend the life of Brunei’s hydrocarbon reserves. Higher world oil prices will boost fiscal revenues in the near term. In 2011, growth will be supported by both higher oil production and public expenditures, according to the IMF. Over the medium term, annual GDP growth of around 3% is projected. Growth will be sustained by new investments in oil and gas explorations and extractions, as well as the implementation of economic diversification projects. Accelerated structural reforms and successful implementation of the various economic diversification initiatives could increase growth further.
The government encourages foreign investment in Brunei. New enterprises that meet certain criteria can receive pioneer status, exempting profits from income tax for up to five years, depending on the amount of capital invested. The normal corporate income tax rate is 30%. There is no personal income tax or capital gains tax. However, foreign direct investment (FDI) outside the oil and gas industry remains limited.
Support for Inward Investment and Imports
In November 2001, the Brunei Economic Development Board (BEDB) was formed, with the primary responsibility of attracting and retaining local and foreign direct investment to further diversify the economy. Its primary focus is in attracting investment in advanced technology industries and skill-intensive services with good export market prospects.
Further information on these can be obtained from the BEDB.
GDP growth: 4.1% (2010 est.)
GDP per capita: US$51,600 (2010 est.)
CPI: 1.8% (official, 2009)
Key interest rate: 5.5% (December 31, 2009 est.)
Exchange rate versus US dollar: B$1.36 (2010)
Unemployment: 3.7% (2008)
Current account deficit/surplus: US$7.024 billion (2008 est.)
Population: 401,890 (July 2011 est.)
Source: CIA World Factbook except where stated