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Articles
Brunei Economy
and its Integration
in the Regional
Economic Activities*
Saiful Islam
Faculty of Business and Computing
Institute Technology Brunei-University /
Senior lecturer
Introduction
Since the 1997 Asian financial crisis trade
and investment integration among East Asian
economies has increased rapidly. This is reflected in the increased volume of exports and
imports, and expansion in the size of capital inflows and outflows. Brunei Darussalam has
increasingly participated in the East Asian
economy and has been integrated in the regional economic activities through trade and
foreign direct investment(FDI). While research on trade and financial integration has
been done for East Asia as a regional group (see
for example, Capannelli and Filippini, 2009;
Shin, 2008), we lack a comprehensive picture
of trade and financial linkages of individual
countries. This paper takes a first step towards
filling that gap.
Brunei is a tiny country but is not without
economic significance. Whilst it is a very small
player on the world oil and gas market, its revenues provide it with some le vera g e on
international investment markets. Brunei has
become the first country in Asia to establish
trade links with Japan in 1972 to supply LNG
(liquefied natural gas). Since then Brunei has
played a significant role in terms of exports and
imports to and from Japan and other countries
in East Asia. Brunei has become formally integrated in the economic activities of other
countries in ASEAN (Association of Southeast
Asian Nations) through joining the organization in 1984. In addition, Brunei has been an
active participant in BIMP-EAGA (Brunei Indonesia Malaysia Philippines-East ASEAN
Growth Area), which was launched in March
1994.
*The paper is dedicated to Professor Sumimaru Odano,
who introduced the idea, and the benefits,
of quantitative analysis into the mind
of the author of this paper at a critical juncture
of his life back in 1986.
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2011 spring / No.387
This paper examines the extent of the participation of Brunei in the economic activities of
other countries in East Asia. This article has
two main objectives. The first objective is to
provide an up to date account of economic
growth of Brunei. The second objective is to
explore the trade and investment linkages of
Brunei to various economic activities of other
East Asian economies.
The title of this paper contains the words regional economic activities. Region here refers
to East Asia which includes Japan, South Korea, and People’s Republic of China, and the
ten ASEAN countries (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines,
Singapore, Thailand and Vietnam). The term
East Asia is also called “ASEAN Plus Three”
since the cooperation between ASEAN and its
three dialogue partners was institutionalized in
1997. Economic activities are the production
and distribution of goods and services for the
satisfaction of human wants (Samuelson and
Nordhaus, 2006, p. 408). Examples of economic activities are farming, manufacturing
and mining. Brunei has oil and gas as main
economic activity, Japan and South Korea have
manufacturing as their main economic activity.
On a national scale, examples of economic activity include gross domestic product (GDP),
per capita GDP, international trade, and rate of
inflation. In this paper we explore how trade
and FDI activity of Brunei is linked to various
economic activities (e.g. farming, manufacturi n g a n d m i n i n g ) i n o th e r E a s t A s i a n
economies.
The remainder of this paper is organized as
follows. The next section shows comparison of
economic characteristics between Brunei and
other countries in the region for 2009. Eco-
Brunei Economy and its Integration
in the Regional Economic Activities
nomic growth of Brunei and sources of growth
is presented in Section III. Results of regression on sources of GDP growth of Brunei are
also presented in this section. Policies adopted
for promoting economic growth in Brunei is
presented in Section IV. Trade and investment
linkages of Brunei with the rest of East Asia are
then discussed in Section V, followed by a concluding section.
II
Brunei and
Other East Asia Today:
Some Data
Brunei Darussalam – the “Abode of Peace” –
is a small Sultanate, occupying 5,765 square
kilometers (2,226 square miles) on the northwest corner of the island of Borneo. The
country is slightly larger than Mie prefecture of
Japan. Brunei is bordered by the South China
Sea to the north and the Malaysian state of Sarawak to the south, east and west. It achieved
independence from the British in January 1984.
The location of Brunei is shown in Figure 1.
Population of Brunei was estimated at
406,000 in 2009 and is growing at an average
rate of 2.1 percent per annum. Brunei has a
multi-racial society, comprising of 66.3 percent
Malays and 11.0 percent Chinese. The rest are
Indians, indigenous ethnic groups and expatriates. Brunei has a young population: 57 percent
are in the 20-54 working age, another 35 percent are below the age of 19 while only 8
percent are 55 and above.
Almost 75 percent of the land area in Brunei
is undeveloped and covered by tropical rainforest, with about 95.94 percent of the land area
belonging to the government and the rest
owned by private landowners (Shiem and Ee,
Saiful Islam
081
Figure 1: Brunei in East Asia
2005, p. 48). On the economic front, Brunei
was crowned champion in macroeconomic stability by the World Economic Forum, taking
the number-one position globally in the category in the “Global Competitiveness Report”
(Oxford Business Group, 2010, p. 8). One measure of macroeconomic stabilit y is low
inflation. Brunei has been successful in maintaining inflation at moderate levels. In 2009,
the consumer price inflation was recorded at 1.8
percent. The government subsidies on rice, sugar, fuel, and liquefied petroleum gas, which
allows consumer inflation to be more moderate
than it would otherwise be.
Oil and natural gas form the backbone of the
economy of Brunei, accounting for 60 percent
of GDP and 96 percent of exports in 2009.
This wealth of natural resources has enabled a
082
very high standard of living for its people in
terms of GDP per capita. In 2009, per capita
GDP for Bruneians was U.S.$25,386. This high
standard of living is also supported by a comprehensive welfare system that provides free
housing, education and medical care. In addition, there is no personal income tax.
Table 1 shows differences of Brunei with other East Asian economies in terms of land area,
population, total GDP, GDP per capita, real
GDP growth and rate of inflation for 2009.
One major difference among East Asian nations is population sizes. East Asia contains the
most populous countries in the world. With a
population of 1341 million in 2009, China is
the largest in the world in terms of population
size. Interestingly, one of the smallest countries
in the world can also be found in East Asia.
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2011 spring / No.387
With a population of only 406,000 in 2009,
Brunei is considered relatively small.
Economically, East Asia consists of countries
with widely varied living standards and growth
rates. With PPP (purchasing power parity)
GDP per capita of U.S.$ 1,197 and $1,993 respectively, Myanmar and Cambodia are very
poor relative to the rest of East Asia. On the
other hand, Brunei has one of the highest standards of living with GDP per capita at PPP in
U.S.$47,930. As seen in Table 1, poorer countries have higher growth rates: Laos 7.6 percent,
Myanmar 4.9 percent, and Vietnam 5.3 percent. A faster-growing country is also found in
East Asia. With a growth rate of 9.1 percent in
2009, China has received the biggest buzz in
the business and economic press in recent
years.
Another difference among the East Asian nations is shown in Lim (2009, p. 3). He suggests
that the political system differs greatly among
the Southeast Asian countries. For example,
Indonesia, the Philippines and Singapore are
republics, while Laos and Vietnam are communist states, and Brunei, Cambodia, Malaysia
and Thailand are constitutional monarchies. In
Myanmar, a military regime is running the
country. Japan is also a constitutional monarchy as shown in our another paper (Islam and
Odano, 2010). Some other economic comparisons between Brunei and Japan can also be
found in that paper.
Table 1: Key Economic Indicators of Brunei and Other East Asian Economies, 2009
Note: PPP is purchasing power parity
Source: Australian Government, Department of Foreign Affairs and Trade,
“Country and Region Fact Sheets” (updated in December 2010).
Available: http://www.dfat.gov.au/geo/fs/
Brunei Economy and its Integration
in the Regional Economic Activities
Saiful Islam
083
III
Economic Growth
of Brunei
This section looks at real GDP growth rates
of Brunei, and factors contributing economic
growth.
A: GDP Growth Rates
Economic growth is an increase in real gross
domestic product (GDP) (that is, GDP adjusted for inflation). The growth rate of real GDP
is the percentage change in real GDP from one
year to the next.
Growth of GDP for Brunei is heavily dependent on oil and gas sector and on development
projects of the government. As a small player in
the world oil and gas market, Brunei does not
play a significant role in the international pricing of oil and gas. The country is a price taker;
whatever price is set by the oil market, Brunei
has to take, and this will be reflected in GDP
of Brunei (Shiem and Ee, 2005, p. 47).
Figure 2 shows the GDP growth of Brunei
between 1994 and 2009. The overall GDP
growth rate figures during the period show the
economy recorded its peak in 1995 with a
growth rate of 4.5 percent. This was coincided
with the boom period of construction industry.
The main driver of the construction boom was
a large construction company – the Amedeo
Figure 2: Growth Rate of Real GDP for Brunei, 1994-2009(%)
Source: Data taken from Brunei Government, Brunei Darussalam Annual National Accounts 2000-2004 (2000
= 100) and Brunei Darussalam Statistical Yearbook 2008. Data for 2009 from Statistics Department,
Department of Economic Planning and Development, Prime Minister’s Office.
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2011 spring / No.387
Corporation. However, the last quarter of 1997
was marked with the East Asian financial crisis
and for Brunei economy, that event together
with drastic drop in the price of oil in 1998,
and the collapse of the Amedeo Corporation
in the same year (1998), brought the economy
down. In 1998 the price of oil has slumped to
its lowest of about U.S.$13 on average (Brunei
Government, 2003, p. 20). The adverse effect
of the low oil price has not only brought the
sector down with a negative growth of 9.0 percent but the whole economy was down with a
growth rate of -1.5 percent in 1997 and -0.6 percent in 1998.
Fortunately, though, the price of oil has recovered in short time and this could have
possibly brought the economy back to rate of
growth 3.1 percent in 1999 (Figure 2). For
Brunei, recovery in the international oil price
in 1999 was also followed by increase in the
level of oil production during the same year.
At the same time, the exchange rate of the
Brunei dollars with respect to U.S. dollars has
also increased, favorable for oil export (Brunei
Government, 2003, p. 22). After 1999, however, the growth rates fluctuated only slightly
until 2003 and in 2006 the economy was estimated to grow at 4.4 percent.
GDP growth slowed to 0.5 percent and 0.4
percent in 2004 and 2005 respectively, owing
to temporarily lower oil and gas production, as
production facilities were repaired and upgraded. The economy contracted again in 2008 and
2009 with a negative growth rate of -1.9 percent and -1.8 percent respectively. This was
again due mainly to lower oil and gas production and prices, and subsequent low earnings
from oil and gas exports.
Brunei Economy and its Integration
in the Regional Economic Activities
B: Sources of Economic Growth
As stated above sources of growth in Brunei
are natural resources (oil and gas), especially
abundant supply of oil. Therefore a great percentage of the GDP is from exports. Table 2
shows exports and other components of GDP
for Brunei from 1998 to 2009. From this table,
exports of goods and services accounted for
50.5 percent of current GDP in 1998. In 2009,
their share had increased to 72.8 percent. On
the other hand, share of imports of goods and
services had declined to 35.8 percent of GDP in
2009 from 57. 4 percent in 1998.
This section assesses whether export revenues
can lead to significant and positive economic
growth in Brunei. To achieve this, this section
uses a regression model to test the relationship
between exports and economic growth. Other
variables like imports and FDI flows to Brunei
may be added into the model to capture their
contribution to economic growth. The model
used here consists of four equations as follows:
log GDP = a0 + a1 log EX + u1 (1)
log GDP = b0 + b1 log EX + b2 log FDI
+ u2
(2)
log GDP = c0 + c1 log EX + c2 log IM + u3
(3)
log GDP = d0 + d1 log EX + d2 log IM
+ d3 log FDI + u4
(4)
GDP is gross domestic product of Brunei;
EX and IM are exports from and imports to
Brunei; FDI is total foreign direct investment
flows to Brunei; a, b, c, d are the coefficients to
be estimated; and u’s are the error terms. The
signs of a1, b1, b2, c1, c2, d1, d2, and d3 are expected to be positive.
Saiful Islam
085
Regression 1 tries to capture the effect of export on GDP, isolated from other factors.
Regression 2 includes the effect of exports and
FDI on GDP, regression 3 shows the effects of
exports and imports, and regression 4 combines the effects of exports, imports and FDI.
For estimating the model, annual time series
data are used for the period 1990-2009 (20 observations). Data for GDP, exports and imports
are taken from Brunei Government sources
(Annual National Accounts 2000-2004, Statistical Yearbook 2008 and 2000/2001 editions,
and External Trade Statistics 2008 edition).
FDI data are from UNCTAD (http://unctadstat.unctad.org ) and converted to Brunei
dollars (B$) using annual average exchange
rates as published in the same source.
The four regression equations are estimated
by OLS. The results are reported in Table 3.
Since the model is specified in terms of logarithms, the coefficient values give elasticity of
GDP growth with respect to the independent
variables. The examinations of the individual
variables show that only export gives the significant coefficient estimates. Considering all the
four regressions, we can say that a one percent
increase in export increases the GDP by approximately 0.63 percent. The coefficient for
imports is positive, although not significant.
The reason is that the imports of goods in Brunei, so far are more oriented on consumption
rather than on investments. Looking at the ef-
Table 2: Breakdown of GDP for Brunei, 1998-2009 (Percent of current GDP)
Source: Brunei Government, Annual National Accounts 2000-2004 (Table G.3, p. 96);
Brunei Government, Brunei Darussalam Statistical Yearbook 2008 (Table 3.8, p. 70);
Data for 2009 from Statistics Department, Department of Economic Planning and Development,
Prime Minister’s Office.
Note: Parts may not sum to 100 due to statistical discrepancy items.
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fect of FDI in regressions 2 and 4, we find a
negative coefficient, even though not statistically significant.
It is to be noted here that the OLS results
presented in Table 3 are corrected results for serial correlation. In our original estimation, DW
(Durbin Watson) statistics are low for all the
regressions. For example, with 20 observations
and two independent variables (logEX and
logFDI), we get DW = 0.8451. From Durbin
Watson table for sample size of 20 and two regressors, we find that lower and upper critical
values are dL = 0.862 and dU = 1.270 at the 1%
level of significance. Since our estimated DW
value of 0.8451 is less than 0.862, we have positive first-order serial correlation in the
residuals. We have corrected the serial correlation by using an autoregressive (or AR1) model.
The AR(1) is also called the Cochrane-Orcutt
correction for serial correlation. After we correct for serial correlation, DW values have
increased, so have the R2s, but the t-statistics
have fallen.
IV
Policies to Promote
Economic Growth
As the preceding section has emphasized,
economic growth of Brunei has depended
heavily on the revenue benefits of oil and gas
sector. The share of this sector in GDP stood at
60 percent in 2009, accounting for 96 percent
of total exports and 87 percent of government
revenue. The increased shares of oil and gas sectors in exports, together with its contribution
to government revenue are largely due to the
rise in oil and gas prices. Large share of oil and
gas in GDP has continued to be a cause for
concern in recent years, mainly due to fluctuations in oil and gas prices in the world market.
The fluctuations in international petroleum
prices highlighted the need for policies to encourage economic diversification and privatesector participation in the economy.
A: Diversifying the Economy
Since 1986, the Brunei Government has
sought to diversify its economy away from the
upstream production of oil and gas. Priorities
for diversification include domestic food pro-
Table 3: OLS Estimates of GDP Determinants for Brunei, 1990-2009
Dependent Variable log GDP
Brunei Economy and its Integration
in the Regional Economic Activities
Saiful Islam
087
duction, value-added industries using local
resources (silica sand and clay, fish stocks and
forest timber) and eco-tourism. Over the years
new sectors are added to priority sectors for
economic diversification. In the current Ninth
National Development Plan (2007-2012) the
government has intensified efforts to diversify
the economy by promoting the downstream
and petrochemical industry, tourism, financial
services, and the development of halal products.
In relation to developing downstream industry, oil and natural gas sector has diversified by
adding LNG to its range of exported products.
Another downstream plant in the natural gas
sector is methanol plant. The plant began commercial production of methanol from natural
gas in May 2010, with plans to produce
850,000 tons annually. This methanol plant is
the first petrochemical project materialized under the leadership of the Brunei government.
The Japan Bank for International Cooperation
( JBIC) has provided financing in the methanol
plant of Brunei. For JBIC, it is the first project
in Brunei it supported in project financing.
The methanol plant has enabled Brunei to
use its own natural resources to produce valueadded products. For Japan, which relies on
Brunei for about 10 percent of its imports of
liquefied natural gas (LNG), the methanol
project is also important because it will
strengthen Japan-Brunei ties. Brunei has
worked with Japan since the 1970s to develop
its own LNG supply chain. In fact, the first
LNG project financed by the Export-Import
Bank of Japan ( JBIC’s predecessor) was located in Brunei. At present, about 90 percent of
the LNG produced in Brunei is exported to Japan (see Islam and Odano, 2010 for details).
088
Because methanol is one of the basic chemicals, there is extensive demand for it in
producing a variety of chemical products. That
demand is expected to grow considerably in
the future, especially for use as a low-pollution
fuel for biodiesel vehicles and as a source of hydrogen for fuel cells.
As part of the diversification strategy continued investment in agriculture to increase
national food security is also highlighted in the
current National Development Plan (20072012). In July 2009, His Majesty Sultan Haji
Hassanal Bolkiah officiated the harvesting of
Beras Laila - own rice variety of Brunei, which
is intended to improve the food security of the
country. During the same month, Brunei
launched its own international halal brand developed by the Ministry of Industry and
Primary Resources, which will build on Brunei’s reputation of compliance with Islamic
norms in food processing.
Despite the emphasis of the Government on
diversification, the economy seems to have become even more heavily dependent on the oil
and gas sector. Non-oil and gas sector remains
weak and underdeveloped. It would appear
that, overall, diversification policy of Brunei
has met with little success (WTO 2008, p. 11).
B: Developing Private Sector
The government has also laid emphasis on
private sector development as a strategy to foster economic growth. The purpose is to
enhance opportunities for supplementing income and to encourage employment in that
sector. The oil and natural gas currently contributes 60 percent of GDP of Brunei, but is
only able to provide jobs for about 3 percent of
its workforce. The rest of the employment mar-
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2011 spring / No.387
ket is the public sector, which has over the
years been trying to create enough jobs for all
Bruneians. The strategy to improve private sector include finance for construction of
infrastructure such as industrial estates and
other supporting facilities.
The government also provides a number of
tax incentives to stimulate investment by private sector. The investment incentives include
an exemption of the 30 percent corporate tax;
exemption from taxes on imported duties on
plant, machinery, and equipment; exemption
from taxes on imported raw material not available or produced in Brunei intended for the
production of the pioneer products. Despite
the provision of investment incentives for the
private sector success of achieving this goal has
been slow so far (WTO, 2008).
The government of Brunei has also made a
30-year plan for diversification. The long-term
development plan, Wawasan Brunei 2035,
states the need to shift emphasis from hydrocarbons towards value-added, downstream
activities, labor-intensive, knowledge-based industries, with the private sector playing an
increasingly important role. The council for
the Long-Term Development Plan released the
text of the Brunei Vision 2035 at the start of
2008 (Brunei Government, 2008).
V
Trade and Investment
Linkages of Brunei
with Other East Asian
Economies
This section seeks to establish the degree of
integration of Brunei into the East Asian economy. Brunei has expanded its trade relations
with the global economy through bilateral and
Brunei Economy and its Integration
in the Regional Economic Activities
multilateral free trade agreements. It signed its
first bilateral free trade agreements with Japan
in the ‘Brunei-Japan Economic Partnership
Agreement (BJEPA)’ in June 2007. The agreement entered into force on 1 July 2008, and has
11 chapters on various trade issues such as investment, customs and cooperation between
the two countries.
A: Trade Linkage
The trade linkages are seen when Brunei exports goods to East Asia and imports another
goods from East Asia. The relative importance
of the trading relationship between Brunei and
other East Asian economies can be measured
using the intensity of trade. The intensity of
trade is defined as follows:
xbct
Xbt
mbct
Import intensity =
Mbt
Export intensity =
where xbct denotes total nominal exports
(B$ value) from Brunei to country c (c = Cambodia, Indonesia, Japan, etc) during period t;
mbct denotes total nominal imports (B$ value)
from country c to Brunei during period t; and
Xbt and Mbt denote total global exports and
imports of Brunei during period t.
Tables 4 shows the export intensity results
between Brunei and other East Asian countries
from 1998 to 2009. The export share of Brunei
was higher with Japan, Korea and Indonesia in
2009, the share is 0.46 for Japan, 0.12 for Korea, and 0.11 for Indonesia. This finding
suggests that Brunei has strong trade (export)
integration with these three countries in the region. In contrast, export share of Brunei is 0.02
for Malaysia and Thailand. Export trade of
Saiful Islam
089
Brunei with Japan declined to 46 percent in
2009 from 52 percent in 1998.
Table 5 shows the import intensity results for
Brunei. The results show that the import share
for Brunei was higher with Singapore (0.26),
and Malaysia (0.19) in 2009. The share of Japan
and China are close to 0.1. The results suggest
that Brunei depends significantly on Malaysia
and Singapore as its sources of import.
From Table 4, major export trading partners
of Brunei in 2009, were Japan, Korea and Indonesia in decreasing order of importance. Top
exports from Brunei to these countries were
crude oil and natural gas (see Table 6).
Export of natural gas (LNG) from Brunei to
Japan was up 86 percent to B$5975 million in
2008, while export of crude oil was down 26
percent to $479 million. However, in 2009 exports of both LNG and crude oil from Brunei
to Japan declined to 22 percent and 72 percent,
respectively, compared to 2008. The fall in import of crude oil by Japan reflects Japanese
concern of environmental pollution. Burning
of oil produces more pollution than gas. In
contrast, export of crude petroleum from Brunei to China and Thailand was up 660 percent,
and 77 percent respectively, in 2009.
B: FDI Linkage
Investment linkages come when Brunei invests money in East Asia and East Asian
countries invest in Brunei. Total foreign direct
Table 4: Export Intensity of Brunei 1998-2009
Source: Calculated by author from Brunei Government data,
Brunei Darussalam External Trade Statistics 2008 (Table 13);
and from 2009 data from Statistics Department,
Department of Economic Planning and Development, Prime Minister’s Office.
Note: “0” means nil and “0.0000” means data not meaningful.
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Table 5: Import Intensity of Brunei 1998-2009
Source: Calculated by author from Brunei Government data,
Brunei Darussalam External Trade Statistics 2008 (Table 12);
and from 2009 data from Statistics Department, Department of Economic Planning and Development,
Prime Minister’s Office.
Table 6: Major Export Commodities from Brunei to East Asian countries,
2006-2009 (Millions of Brunei Dollars)
Source: Brunei Government, Brunei Darussalam Statistical Yearbook 2006, 2007 and 2008 editions;
Data for 2009 from Statistics Department, Department of Economic Planning and Development,
Prime Minister’s Office. Percent growth (2008 to 2009) is calculated by author.
Brunei Economy and its Integration
in the Regional Economic Activities
Saiful Islam
091
investment in Brunei was U.S.$311 million in
2009, compared with U.S.$852 million per year
during 1995-2005 (UNCTAD, 2010). Outward
FDI flows from Brunei was U.S.$30 million in
2009, this figure is similar to that of average annual FDI (U.S.$33 million) during 1995-2005.
Another fact is that FDI inward flows to Brunei is declining since 1995 (Table 7).
FDI inward and outward flows between Brunei and other East Asian economies are not
available for 2009. The latest data available in
Statistics of Foreign Direct Investment in
ASEAN (2006) are for the period 1995-2005.
FDI inflows and outflows between Brunei and
East Asian economies are presented in Table 8.
From this table, FDI outflow from Brunei to
East Asia is much lower than FDI inflow from
East Asia.
Brunei invested U.S.$472.97 million in East
Asia during 1995-2005. Sixty three percent of
this went to Malaysia (U.S.$298.51), 41 percent
to Singapore (U.S.$194.89), and a very small percent to Philippines, Thailand and Vietnam. The
majority of FDI from Brunei to East Asia was
Table 7: Inward and Outward Flows of FDI to and from Brunei,
Selected Years (Millions of U.S. dollars)
Source: UNCTAD, World Investment Report 2010. “Country Fact Sheet: Brunei Darussalam”.
Available: www.unctad.org/sections/dite_dir/docs/wir10_fs_bn_en.pdf
Table 8: Brunei’s Investment in East Asia and East Asia’s Investment
in Brunei, 1995-2005
Source: Compiled by author from ASEAN Secretariat data,
Statistics of Foreign Direct Investment in ASEAN, Eighth edition 2006. Tables 2.1.4 and 4.1.3.
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2011 spring / No.387
in the trade and commerce sectors – none went
into mining and quarrying or manufacturing.
On the other hand , Br unei re c eive d
U.S.$1840.7 million from East Asia. Of total
FDI from Asian countries, Singapore, Japan
and Malaysia accounted for a combined 93.9
percent, with Indonesia and Korea accounting
for 5.22 percent.
VI
Conclusion
Above analysis on Brunei economic growth
and on trade and investment relationship between Brunei and other East Asian countries
revealed some important results. First, our discussion of some indicators suggests that Brunei
is a small country with high standards of living
after Japan and Singapore.
Second, the relationship between economic
growth, exports, imports, and FDI are investigated for Brunei using regression analysis for
the period 1990-2009. Our results suggest that
export is an important determinant of growth
of Brunei. The impact of FDI and imports on
growth is not significant.
Third, exports from Brunei comprise of oil
and gas which accounts for 96 percent of total
exports, 87 percent of government revenue and
60 percent of GDP in 2009. Fluctuations in
international petroleum (oil and gas) prices
highlighted the need for diversification of the
economy from oil and gas to other non oil private sector. Priorities for diversification include
mainly developing downstream industry, tourism and financial services.
Fourth, export from Brunei to East Asia remains heavily concentrated in Japan, Korea and
Indonesia, accounting for 68 percent in 2009.
Japan is the most important trading partner for
Brunei Economy and its Integration
in the Regional Economic Activities
Brunei, receiving 46 percent of export from
Brunei, although export declined from 51 percent in 1998.
Fifth, crude oil and LNG are major exports
from Brunei – LNG to Japan and Korea, and
crude oil to Indonesia. Import from East Asia
to Brunei remains mainly concentrated in two
countries, with Singapore 26 percent and Malaysia 19 Percent in 2009. Machinery and
transport equipment, food, and manufactured
goods are major imports from East Asia.
Finally, Brunei invested U.S.$472.97 million
in East Asia during 1995-2005. Sixty three percent of this went to Malaysia, 41 percent to
Singapore, and a very small percent to Philippines, Thailand and Vietnam. The majority of
FDI from Brunei to East Asia was in the trade
and commerce sectors – none went into mining and quarrying or manufacturing.
Given the reliance of Brunei on external
trade, and the relatively high proportion of export trade accounted for by three East Asian
countries ( Japan, Korea and Indonesia ), and
import trade by Singapore and Malaysia Brunei
will need to continue a critical interest in maintaining strong external relations in terms of
trade and investment. For this purpose, much
of economic focus of Brunei has to be concentrated on improving access for Brunei products
in the East Asian and global markets.
There may be scope for outward FDI from
Brunei to Sabah and Sarawak states of Malaysia, Southern Philippines and Kalimantan and
Sulawesi provinces of Indonesia. These areas
are poor, less developed and suffer from poor
infrastructure. These states and provinces and
oil rich Brunei are partners of BIMP-EAGA
subregion. As a rich partner of EAGA, Brunei
entrepreneurs can investment in energy sector
Saiful Islam
093
and marine fishing joint ventures in the EAGA
countries. In particular, with experience in the
oil and gas sector, Brunei entrepreneurs are
able to invest in larger projects like developing
and processing natural resources of the subregion .
⦿Brunei Government (2003) /
Brunei Economic Bulletin, Volume 2, Issue 3,
October, Department of Economic Planning
and Development, Prime Minister’s Office.
⦿Brunei Government (2001) /
Brunei Darussalam Statistical Yearbook 2000/2001,
Department of Statistics,
Department of Economic Planning and Development,
Prime Minister’s Office
⦿Capannelli, Giovanni and Carlo Filippini (2009)/
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THE HIKONE RONSO
2011 spring / No.387
Brunei Economy and its Integration
in the Regional Economic Activities
Saiful Islam
Trade and investment integration in East
Asia has increased considerably after the 1997
Asian financial crisis. Oil-rich Brunei has increasingly participated in this process, through
trade and FDI activities. This paper looks at the
extent of the participation of Brunei in the economic activities of the region. The main
objectives of this paper are to provide an up to
date account of the economic growth of Brunei, and to explore trade and FDI activities of
Brunei in other East Asian economies.
Section II of this paper compares economic
characteristics of Brunei with other East Asian
economies. Statistical data shows that Bruneians enjoy a standard of living that is third
highest in East Asia after Japan and Singapore
in terms of per capita GDP. Its PPP (purchasing power parity) GDP per capita of U.S.$
47,930 is second only to Singapore.
Section III looks at real GDP growth of Brunei and sources of growth. Our regression
analysis on the sources of growth shows that
export and economic growth of Brunei is positively related for the period 1990-2009.
Section IV is about government policies to
stimulate economic growth. The government
has sought to diversify the economy away from
oil and gas by promoting downstream industry,
tourism, and financial services and halal products.
Brunei Economy and its Integration
in the Regional Economic Activities
Finally, Section V explores trade and investment linkages of Brunei with other East Asian
economies. Our results show that export from
Brunei to East Asia (export integration) remains heavily concentrated in three countries,
with Japan, Korea and Indonesia, accounting
for 68 percent in 2009. Crude oil and LNG are
major exports from Brunei – LNG to Japan
and Korea, and crude oil to Indonesia. Import
from East Asia to Brunei (import integration)
remains mainly concentrated in two countries,
with Singapore 26 percent and Malaysia 19 percent in 2009. Machiner y and transport
equipment, food, and manufactured goods are
major imports from East Asia.
Brunei invested U.S.$472.97 million in East
Asia during 1995-2005. Sixty three percent of
this went to Malaysia, 41 percent to Singapore,
and a very small percent to Philippines, Thailand and Vietnam. The majority of FDI from
Brunei to East Asia was in the trade and commerce sectors – none went into mining and
quarrying or manufacturing.
Saiful Islam
095