The Future of Brunei Darussalam

Selected Scenario Analysis

Presentations for the Day

• Introduction by Haji Md Alimin • Main paper presentation by Haji Mohd Rozan with all group members fully supporting (from behind) • Additional points by Lt Col Haji Harif on Security aspects • Additional points by Haji Md Alimin on Survey Conducted • Proposed extra presentation on present long term economic planning work at JPKE by Haji Mohd Rozan (as comparative study)- if time permits & participants willing • Question & Answers

Group Members

• Haji Mohd Rozan DP Haji Mohd Yunos Acting Managing Director, TAP • Haji Md Alimin Haji Md Tanjong Acting Director of Administration & Finance, PWD • Pg Sharifuddin Pg Hj Matali Head of Resource Center, MIPR • Lt Col Haji Harif Haji Ibrahim Head of Legal Unit & Court Martial, RBAF • Sr Supt Haji Abd Rahim Haji Mohd Noor Deputy Director of Operations, RBPF

Executive Summary

• Current Prosperity in NBD due to bountiful oil & gas resources & small population leading to high levels of govt spending on large civil service, social programs & infrastructure development • However many concerns – increasing population, decreasing oil production, increasing use of future investments, weak private sector etc • Key challenge in the group’s paper – how to preserve current high standards of living otherwise existence of country is at stake – preparing for the future of Brunei Darussalam

Future of Brunei Darussalam

Part 1 - Introduction

Introduction

• NBD small country – Only 1/5 developed • Old kingdom – documented evidence NBD already existed in year 414 CE – over the years became great by 15 th Century and then dominated by European powers and shrunk to current size • Dependent on oil & gas found in 1929 (surplus trade balance of around $5 billion in 2003 – 90% of total exports earnings, 40% GDP and 90% government revenues) • Very high standard of living with subsidised public services including education & medical • Extremely large public service (even by middle east standards)

Introduction (continued)

• Prosperity not just on wealth but has transformed nation and people • Latest World Bank Human Development Index 2002 shows Brunei on HDI Score of 0.867 ranking Brunei 33 rd out of 177 countries, 2 nd in ASEAN, highest among similar economies in middle east

The Future of Brunei Darussalam

Part 2 – Concerns

Population and Employment

• Rising Population (2003 estimated 348,000) leading to Pressure for Employment • Population growth outstrip GDP growth leading to lower GDP per capita • At the same time very young population – 30% under age of 15, 47% under age of 25 • Tiny growth in public service – mostly in teaching – fiscal consolidation affect future growth • Small growth in private sector (after crisis rebound) – difficulty in sustaining growth in private sector to accommodate all school leavers • Current job seekers exceeded 7,000

Population Statistics

Population Age Below 15 15 – 25 25 – 35 35 – 45 45 – 55 Above 55 Source: Economic Planning and Development Department Population 103,000 61,100 70,300 57,500 33,200 23,700

Employment Statistics

(All figures in thousands) 1998 1999 2000 2001 2002 2003 Population 323.1

316.9

324.8

332.8 340.8 348.8

of which Registered at Employment Exchanges 6.5

5.2

7.0

8.6

5.5

… Employment Private Sector 94.0

84.5

90.3

98.4

100.6

… Employment Public Sector of which Total Teachers including UBD 38.3

7.4

38.0

7.6

39.7

39.8

7.6

7.7

41.1

8.2

41.5

8.7

Mixed Prospects

• Dependence on oil and gas reduced from 70% GDP in 1975 to about 40% GDP at present • In the non oil and gas sector, it is mostly in services only, and almost not much else in other sectors • Economic growth over last few years uninspiring with negative growth in 1998 and 1992 and in most years mostly in the low single digit with 2004 estimated at 1% (IMF) and 2.8% (JPKE) • Income growth has not kept pace with population growth

Brunei’s Economy

100 90 80 70 60 50 40 30 20 10 0 19 85 19 87 19 89 19 91 19 93 19 95 19 97 19 99 20 01 20 03 PRIVATE GOV'T OIL/GAS

GDP Economic Activity

GDP by Economic Activity Agriculture Forestry Fishing Mining Utilities Construction Wholesale Retail Hotels Transport Bank Insurance Real Estate Dw ellings Services

Private Sector – Poor Performance

• Private sector still recovering from 1997/1998 financial crisis – most have recovered, some have not gone back to pre 1997 and some have gone worse (construction and dwellings) • Private sector not fuelling any growth in the economy and dependent very heavily on the government

GDP Sectoral Development

Selected GDP Sectors Agriculture Forestry Logging Fishery Construction Wholesale Retail Restaurants Hotels Communications Banking Finance Insurance Real Estate Ownership Dwellings 1997 153.2

24.8

40.3

523.4

238.7

405.7

135.3

405.9

364.5

115.1

94.3

91.5

1999 138.3

19.1

39.1

442.5

203.2

332.0

144.9

382.7

377.5

122.6

80.7

95.6

2003 180.7

26.2

87.6

334.0

231.9

407.5

164.3

431.9

474.4

160.0

87.8

78.0

High Expenditures

• • • • Very high development and infrastructure expenditures eg. 8 th National Development Plan $7.3 billion Need to maintain & build infrastructure – clinics, roads, schools etc.

High welfare and subsidies expenditures – free medical, free education, subsidised housing, welfare assistance, old age pensions, rice etc High maintenance cost of government owned companies and services – small/no profits (no official public reports) (Note - However it has to be noted that all the government owned companies bring social benefits which need to be taken into consideration rather than using financial results alone to judge their performances.)

Royal Brunei Airlines Performance

Royal Brunei Airlines Profit/Loss History -$60 -$80 -$100 -$120 -$140 $20 $0 -$20 19 76 -$40 19 78 19 80 19 82 19 84 19 86 19 88 19 90 19 92 19 94 19 96 19 98 20 00 20 02 20 04

Source: Prime Minister’s Office (Restricted Papers)

Security Expenditure

• High military and security spending maintaining all military and security apparatus – RBAF, RBPF, ISD and various agencies • According to “www.nationmaster.com”, Brunei ranked 4 th in the world in terms of spending per capita on military (US$920 per person) behind Israel (US$1,466), Singapore (US$969) and USA (US$953) • Continuously need more and better equipment • Cost of controlling crime – crime rate still rises albeit slowly from 3,085 in 1999 to 4,796 in 2004

Government Finances

• Government finances are now heavily dependent on oil and gas comprising some 70% to 90% of government revenues – if revenues drop – finances drop unless new sources of revenues are tapped • But statistics indicated present source of oil production which is peaking now will start to decline around 2010 unless new sources are found • Similarly for gas – with estimated high usage by new energy dependent industries and depleting production will begin to decline too unless new sources are found

Forecasted Oil Production

Forecasted Gas Production & Usage

Hopes on the Horizon

The Future of Brunei Darussalam

Part 3 – Brunei Darussalam at the Crossroads

Existing Pillars Threatened

1. Abundant Natural Resource Wealth 4. Developed Framework Infrastruc ture MAINTAIN HIGH LIVING STANDARD & WELFARE STATE 3. National MIB Philosophy, Peaceful and Apolitical 2. Small Country & Population, Developing Economy

At the Crossroads

• Key Challenge – how to preserve high standards of living • Need to establish medium term oriented fiscal framework • Wide ranging structural reforms to diversify economy • Maintain political and security stability • Use opportunity of high current oil prices

The Future of Brunei Darussalam

Part 4 – Preparing for the Future

Preparing for the Future

• Government Finances – need to be strengthened to avoid being severely compromised thus leading to social and political problems, uncertainties and upheavals • Private Sector – need a diversified and healthy private sector to drive economic growth, jobs and reduced dependence on government • Economic Foundation – need to lay or relay new foundation, structural changes • Political and Security Structure – need to secure, maintain and defend peace, economic interests and territorial rights

Government Finances

Govt Income from public B A2 A1 Government Total Expenditure (Yg=Eg) Another alternative is to reduce expenditure Fall in income from non-public (eg oil income) need to be compensated from increased income from public (eg higher taxes or higher charges etc) Govt Income from non public

Government Finances

• Income from non-public sources (such as oil & gas, investment revenues etc) dependent on resources and difficult to change • Income from public sources – such as corporate taxes, user charges, customs duties, excise duties, VAT etc can be made higher or wider and new charges or taxes can be imposed with effects and ramification • Government Expenditure can be controlled eg removed subsidies with effects and ramification • Bills and bonds can be introduced to lessen other burdens but in long term need to be repaid back

Government Finances

• Determine amount of investments that can be used to compensate for loss of income • Introduce financial instruments • Broaden tax base • Introduce new taxes and new charges • Clear prioritisation & eliminate wastage • Identify and Remove subsidies • Establish clear priorities in budgeting – move to accrual budgeting (national interests vs ministerial) • Reconsider strategies of government owned companies • Establish commission to review government expenditure

Private Sector

• Expand size by corporatising government agencies • Encourage local & foreign investments by reducing and simplifying government procedures – Transparent process & competitive market driven outcomes – Contracting out non-core services – Effective Investment Promotion Board – Continuously monitor Investment Incentives Act – Review and remove restrictive regulations

Private Sector

• Develop local SMEs – Providing easier access to funding – Establishing fund to assist SMEs – Improve structure of government contracts and tenders • Encourage investment by reviewing and restrictions on ownership and development of land • Facilitate private sector liquidity by ensuring on time payment from government and improving government’s payment and financial systems

Private Sector

• Expand and enhance competitiveness of oil and gas industry – Leveling competitive playing field by removing access to existing infrastructure – Improve efficiency in exploration by providing access to data – Improving incentives to promote development of areas straddling different operators and concessions – Explore external oil and gas related opportunities through newly established Petroleum Brunei Company

Private Sector

• Promote economic diversification – Strengthening role & capabilities of Resource Center – Expand coverage of Investment Treaties and Taxation Agreements – Assist successful local companies to develop local technical and managerial competencies – Strengthen capacity and professionalism of various chambers of commerce in providing support to businesses in Brunei

Economic Foundation

• Modernizing Brunei Darussalam's legal and regulatory framework by: – reviewing and modernizing of legal, regulatory and judicial framework; – accelerating and expanding current efforts to improve the transparency of government policies and regulations; – establishing tribunals, small claims courts or equivalent including commissioners for appeals and effective redress for the public; and – widening legal aid to individuals or small businesses;

Economic Foundation

• Enhancing human resource development and deployment by: – launching a comprehensive training program; – undertaking the comprehensive review of Brunei Darussalam's national education policy; – Facilitating work in world-class corporations; – establishing job centers; – strengthening labour database for matching; – relaxing the limitations on entry requirements by skilled foreign HR in selected sectors; – encouraging sharing of expertise & mobility between private and public enterprises.

Economic Foundation

• Launching a concerted drive to enhance productivity within the public and private sectors by establishing a National Productivity Board to coordinate the efforts required to raise productivity in Brunei Darussalam; • Establishing a first class communications and information technology infrastructure through public and private sector investment by building a world-class IT and communication infrastructure to keep pace with productivity improvements through technology; • Undertaking a comprehensive study on setting up a local stock exchange to allow wider equity ownership of local companies;

Economic Foundation

• Setting up investment funds for greater participation in economic development projects - including stock ownership plans for privatized and corporatized projects; • Creating investment opportunities for local and foreign investors through privatization; • Introducing greater scope for investment in Brunei Darussalam by reviewing the restrictions on the ownership of property by permanent residents and non-residents; and • Devising and implementing a comprehensive program for developing local businesses drawing from the successful experience of Brunei Shell Companies in this area.

Security & Political Structure

• For security and prosperity, 3 policy priorities: – The cohesion and stability of the nation guided by the Malay Islamic Monarchy philosophy; – A stable regional environment in which its membership of ASEAN enables it to pursue national goals free from external interference; – The maintenance of its defence capabilities including its armed forces to: • Preserve the nation’s sovereignty.

• Protection of its territorial integrity and interests.

• Maintain freedom and independence.

Security & Political - Internally

• To address potential concerns of – New threats to national security – Populace wish to participate & have voices • Continue current government efforts for greater participation through LegCo and DistrictCo • Joint operations between various security and defence agencies coordinated by DEC • Review and restructure RBPF

Security & Political - Internally

• Improving RBPF – Restructure along lines of RBAF – Improved HR policies and career structure including training and HRD – Study on actual needs of RBPF – Improved equipment and facilities – Improved intelligence network – Continue existing policies include watch scheme – Establish civil defence – volunteers & NSmen – Improving image and morale

Security & Political - Externally

• Shaped by key trends in regional political environment including move towards multinational peacekeeping & disaster reliefs • Pacifist nature of Brunei to remain cornerstone & to promote regional & global peace • Pursues through diplomacy and other regional security arrangements • But need to maintain a robust and flexible defence capability as a form of deterence and to carry out tasks for border integrity, maritime areas, national airspace, countering terrorism, protection of assets and other tasks • Continuously reviewing defence structure & capability

Final Points

• Important for a national masterplan not just on economic masterplan but a national national masterplan taking a look at everything and coordinating everything at national level • Important to tell the public through the government’s information and broadcasting machineries so that there will be general acceptance and understanding why certain policies need to be carried out