ECONOMY
Brunei's economy enjoyed moderate growth in the mid-2000s, primarily due to high world oil and gas prices. Recently, Brunei's growth has fallen sharply. In 2007, the government reported a growth rate of 0.6%. Brunei continues to have one of the lowest GDP growth rates of any ASEAN nation.
Brunei is the third-largest oil producer in Southeast Asia, averaging about 193,832 barrels a day in 2007. It also is the ninth-largest exporter of liquefied natural gas in the world. Like many oil producing countries, Brunei's economy has followed the swings of the world oil market. Economic growth has averaged around 2.8% in the 2000s, heavily dependent on oil and gas production. Oil production has averaged around 200,000 barrels a day during the 2000s, while liquefied natural gas output has been slightly under or over 1,000 trillion btu/day over the same period. Oil production has dropped slightly in recent years, and growth rates have fallen more significantly. Brunei is estimated to have oil reserves expected to last 25 years, and enough natural gas reserves to last 40 years.
Brunei Shell Petroleum (BSP), a joint venture owned in equal shares by the Brunei Government and the Royal Dutch/Shell group of companies, is the chief oil and gas production company in Brunei. It also operates the country's only refinery. BSP and four sister companies--including the liquefied natural gas producing firm BLNG--constitute the largest employer in Brunei after the government. BSP's small refinery has a distillation capacity of 10,000 barrels per day. This satisfies domestic demand for most petroleum products.
The French oil company Total (then known as ELF Aquitaine) became active in petroleum exploration in Brunei in the 1980s. The joint venture Total E&P Borneo BV currently produces approximately 35,000 barrels per day and 13% of Brunei’s natural gas.
In 2003, Malaysia disputed Brunei-awarded oil exploration concessions for offshore blocks J and K (Total and Shell respectively), which led to the Brunei licensees ceasing exploration activities. Negotiations between the two countries are continuing in order to resolve the conflict. In 2006, Brunei awarded two on-shore blocks--one to a Canadian-led and the other to a Chinese-led consortium. Australia, Indonesia, and Korea were the largest customers for Brunei's oil exports, taking over 67% of Brunei's total crude exports. Traditional customers Japan, the U.S., and China each took around 5% of total crude exports.
Almost all of Brunei's natural gas is liquefied at Brunei Shell's Liquefied Natural Gas (LNG) plant, which opened in 1972 and is one of the largest LNG plants in the world. Some 90% of Brunei's LNG produced is sold to Japan under a long-term agreement renewed in 1993. The agreement calls for Brunei to provide over 5 million tons of LNG per year to three Japanese utilities, namely to TEPCo, Tokyo Electric Power Co. (J.TER or 5001), Tokyo Gas Co. (J.TYG or 9531) and Osaka Gas Co. (J.OSG or 9532). The Japanese company, Mitsubishi, is a joint venture partner with Shell and the Brunei Government in Brunei LNG, Brunei Coldgas, and Brunei Shell Tankers, which together produce the LNG and supply it to Japan. Since 1995, Brunei has supplied more than 700,000 tons of LNG to the Korea Gas Corporation (KOGAS) as well. In 2007, total natural gas production reached 1.021 billion cubic feet per day. A small amount of natural gas is used for domestic power generation. Since 2001, Japan remains the dominant export market for natural gas. Brunei is the fourth-largest exporter of LNG in the world (according to the Brunei Economic Development Board) behind Indonesia, Malaysia, and Australia.
The government sought in the past decade to diversify the economy with limited success. Oil and gas and government spending still account for most of Brunei's economic activity. Brunei's non-petroleum industries include agriculture, forestry, fishing, aquaculture, and banking. The garment-for-export industry has been shrinking since the U.S. eliminated its garment quota system at the end of 2004. The Brunei Economic Development Board (BEDB) announced plans in 2003 to use proven gas reserves to establish downstream industrial projects. In 2006, the Brunei Methanol Company, a joint venture between Petroleum Brunei, Mitsubishi, and Itochu, was established. Initial construction on a $400 million methanol plant, fed by natural gas, was started in 2007 and the plant is expected to come on line in 2010. The government has plans to build a power plant in the Sungai Liang region to power a proposed aluminum smelting plant that will depend on foreign investors. A second major project depending on foreign investment is in the planning stage: a giant container hub at the Muara Port facilities. BEDB appointed a port operator, International Container Terminal Services Inc. (ICTSI) from the Philippines.
The government regulates the immigration of foreign labor out of concern it might disrupt Brunei's society. Work permits for foreigners are issued only for short periods and must be continually renewed. Despite these restrictions, the estimated 100,000 foreign temporary residents of Brunei make up a significant portion of the work force. The government reported a total work force of 188,000 in 2007, with a derived unemployment rate of 3.4%.
Oil and natural gas account for almost all exports. Since only a few products other than petroleum are produced locally, a wide variety of items must be imported. Nonetheless, Brunei has had a significant trade surplus in the 2000s. Official statistics show Singapore, Malaysia, Japan, the U.S., and China as the leading importers in 2006. The United States was the third-largest supplier of imports to Brunei in 2007.
Brunei's substantial foreign reserves are managed by the Brunei Investment Agency (BIA), an arm of the Ministry of Finance. BIA's guiding principle is to increase the real value of Brunei's foreign reserves while pursuing a diverse investment strategy, with holdings in the United States, Japan, Western Europe, and the Association of Southeast Asian Nations (ASEAN) countries.
The Brunei
Government encourages more foreign investment. New enterprises
that meet certain criteria can receive pioneer status, exempting
profits from income tax for up to 5 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.
One of
the government's priorities is to encourage the development of
Brunei Malays as leaders of industry and commerce. There are no
specific restrictions of foreign equity ownership, but local participation,
both shared capital and management, is encouraged. Such participation
helps when tendering for contracts with the government or Brunei
Shell Petroleum.
Companies
in Brunei must either be incorporated locally or registered as
a branch of a foreign company and must be registered with the
Registrar of Companies. Public companies must have a minimum of
seven shareholders. Private companies must have a minimum of two
but not more than 50 shareholders. At least half of the directors
in a company must be residents of Brunei.
The government
owns a cattle farm in Australia through which the country’s
beef supplies are processed . At 2,262 square miles, this ranch
is larger than Brunei itself. Eggs and chickens are largely produced
locally, but most of Brunei's other food needs must be imported.
Agriculture and fisheries are among the industrial sectors that
the government has selected for highest priority in its efforts
to diversify the economy.
Since 2002, the government has worked to develop Brunei as an international offshore financial center as well as a center for Islamic banking. Brunei is keen on the development of small and medium enterprises and has established a technology incubator to encourage the development of an information technology industry. Brunei has also promoted ecotourism to take advantage of the over 70% of Brunei's territory that remains primal tropical rainforest. Brunei is a participant and seeks to take a leadership role in the trilateral Heart of Borneo conservation initiative.
GDP (2007, Government of Brunei): U.S. $12.341 billion.
Growth rate (2007, Government of Brunei): 0.6%.
Natural resources: Oil and natural gas.
Trade: Exports--oil, liquefied natural gas, petroleum products, garments. Major markets--Japan, Korea, ASEAN, U.S. Imports--machinery and transport equipment, manufactured goods. Major suppliers--ASEAN, Japan, U.S., EU.
