Economy Report

ECONOMY REPORT - BRUNEI DARUSSALAM
(Extracted from 2002 Economic Outlook)

REAL GROSS DOMESTIC PRODUCT : Brunei Darussalam’s economy grew at 1.5 percent in 2001, down from 2.8 percent in the previous year. The slowdown was mainly attributed to the fall in the world oil prices but at the same time there was also a drop in Brunei’s production due to September shut down (for repair and inspection) of plant in one of the major off-shore complexes in.

The primary sectors comprising agriculture, forestry and fisheries grew by 2.3 percent in 2001, up from 1.8 percent in 2000. The agriculture and fisheries sectors provided the main impetus for growth where the agriculture sector grew by 2.9 percent from 1.7 percent, while the fisheries sector fell by 2.5 percent from 2.6 percent in the previous year.

The mining, manufacturing and quarrying sector grew at 1.0 percent, down from 3.5 percent in 2001. The construction sector grew by 1.1 percent, i.e., from -3.5 percent in 2000 to -2.4 percent in 2001. This slow growth was due to the prudent fiscal policy which badly affected the construction industry.

The electricity, gas and water sector grew by 4.8 percent in 2001, up from 3.5 percent IN 2000. Electricity production grew by 4.3 percent compared to 3.5 percent in 2000. Meanwhile water consumption remains at 3.9 percent.

Wholesale and retail trade rose by 2.1 percent, a significant improvement compared to a contraction of 2.0 percent in 2000. Imports of food, manufactured goods and miscellaneous manufactured articles grew by 22.7 percent, 15.4 percent and - 7.6 percent respectively in 2001, compared to - 2.7 percent, 12.5 percent and 12.0 percent in 2000.

The restaurants and hotels sector grew at 2.5 percent in 2001, up from 1.8 percent in 2000 whilst transport, storage and communication sectors rose by 2.7 percent in 2001, up from 0.9 percent in the previous year. Growth in these sectors are largely attributed to ‘Visit Brunei Year 2001.’

INFLATION : The average Consumer Price Index (CPI) inflation registered at 0.6 percent in 2001 compared to 1.2 percent in 2000. This was in spite of a rise in the cost of transport and communication which increased by 1.8 percent, miscellaneous items by 1.1 percent, housing by 0.4 percent and clothing and footwear grew at 0.1 percent.

The average low estimate for the whole year for 2001 is attributed to a substantial drop in the CPI due to the ‘Brunei Grand Sale’ activities in November and December.

EXTERNAL TRADE

Exports

Total exports decreased by 5.7 percent to BN$6,348.9 million in 2001 from BN$6,732 million in 2000. Petroleum exports (crude and condensate) decreased by 8.6 percent, reflecting lower oil price and volume (oil price decreased by 16.3 percent), while exports of LNG increased by 0.7 percent. Total oil and gas exports decreased by 4.6 percent from BN$5,884.3 last year to only BN$5,612.1 in 2001.

The total value of garments export increased by 27.7 percent i.e. from BN$310 million in 2000 to BN$396 million in 2001. However, overall non-oil and gas export decreased by 13.1 percent, from BN$847.7 million in 2000 to BN$736.8 million in 2001. This was partly because of continuing drop in re-exports, from BN$375.5 million in 2000 to BN$340.8 million in 2001.

Japan remained the dominant export market which account for 43.6 percent of total exports in 2001. This is followed by ASEAN (23.3 percent), Korea (11.3 percent) and USA (8.3 percent). Brunei exports to ASEAN dropped by 15.2 percent in 2001 compared to 2000 due to the current economic slow down currently affecting the region.

Imports

In 2001, total imports increased by 10.3 percent. In value terms, food increased by 21 percent, followed by animal and vegetable oils and fats (14.09 percent), manufactured goods (14.09 percent), chemicals (13.36 percent) and machinery and transportation equipments (6.5 percent). Imports of mineral fuels decreased by 54.22 percent, while crude material inedible decreased by 4.23 percent and beverages and tobacco by 4.03 percent.

Looking at the origin of imports in 2000, 52.64 percent of total imports were from ASEAN countries. Imports from the European Union accounted for a 15.31 percent share. Imports from Japan and the USA accounted for 6.38 percent and 8.77 percent shares respectively.

Current Account Balance

In 2000, an increase in exports improved the current account balance. In 2001, the trade surplus were reduced by 5.0 percent, mainly due to the effects of decreases in production and prices of oil and gas. As a result, the current account surplus had decreased from BN$6,907 million (93 percent of GDP) in 2000 to BN$6,561 million (86 percent of GDP) in 2001 (excluding foreign investment income).

EMPLOYMENT

Total employment grew by 1.9 percent in 2001 to 144,000 as a result of a favorable economic growth performance of 1.5 percent. Two thousand seven hundred new jobs were created. The overall labour force participation rate (LFPR) in 2000 was 65.1 percent. There was an increase in the female LFPR from 55.1 percent in 2000 to 55.5 percent in 2001. During the same period, the male LFPR also showed an increase from 73.8 percent in 2000 to 74.2 percent. From 2000 to 2001, the unemployment rate remained at 4.7 percent. Despite the economic crisis experienced by Brunei since the end of 1997, the percentage of migrant workers in the private sector increased slightly from 73.9 percent (66,700 workers) in 2000 to an estimated 74.9 percent in 2001 (72,000 workers). The role of these workers in Brunei’s economic development is still vital, particularly in the pursuit of her economic diversification drive.

FISCAL POLICY

The government continued its prudent fiscal policy following the fall in revenue from hydrocarbon exports following to the fall in the oil price and the lower demand for petroleum products from importing partners since mid-September 2001.

Total government expenditure in 2001 stood at an estimated BN$3,744.4 million, a reduction of about 10.8 percent from BN$4,196.5 million in 2000. The reduction was due to 13.4 percent decrease in current expenditure. Capital expenditure also fell by 3.9 percent compared to 2000.

In 2001, government revenue fell around 23.6 percent* from BN$5,084.4 million in 2000 to BN$3,883.6 million in 2001. The decrease was mainly due to reduction in revenue from the oil sector following the fall in oil and gas prices and production in 2001.

MONETARY POLICY

Fluctuation in the exchange rate over the period continued to affect the growth of GDP. Brunei Darussalam continued its effort to create an environment supportive of economic recovery by strengthening its financial position. This helped to facilitate infrastructure and economic development activities, to improve the balance of payment position to control the domestic inflation rate and to preserve price stability.

Exchange Rate

The movement of Brunei currency against the US currency was quite stable in 2000, at an average exchange rate of BN$1.74, and increase to BN$1.84, a net 5.8 percent by the end of 2001.

Interest Rate

The Brunei prime rate moves with the prime rate in Singapore plus a margin between 0.25 and 0.5 percent and acts as a benchmark lending rate only. However in practice a lower rate is applied to preferred customers and to consumer loans. The Brunei Bankers’ Association also sets monthly maximum rates for savings and time deposits up to BND 50,000 and BND 100,000 respectively, though not in a fixed relation to the prime rate. Interest on deposits above BN$100,000 are freely determined. Demand deposits are not remunerated, except those of the government which earn 2.5 percent annually.

MEDIUM-TERM OUTLOOK

The performance of Brunei Darussalam’s economy in 2002 still very much dependent on price of oil and gas and the implementation of the government’s various projects and programmes under the 8th National Development Plan covering the period 2001-2005. Oil sector’s growth for 2001 has been revised from initial estimate of 4.0 percent to 0.8 percent following the fall in oil prices since mid-September 2001. However the price is expected to grow and stablise around 5.0 percent in the first quarter of 2002. This is partly due to the agreement made by the OPEC and the five non-cartel producers to slice almost two million barrels per day from world supplies from 1 January.

The growth of the non-oil sector in 2001 was revised downward from 2.9 percent to 2.2 percent, where the government sector growing at 2.1 percent from initial estimate of 3.0 percent whilst the private sector grew at 2.4 percent from initial estimate of 2.8 percent. In 2002, government is expected to grow at the same rate at last year i.e. around 2-3 percent and the private sector is expected to perform better than in 2001. The retail trade; electricity, gas and water; transport, storage and communications; banking, finance and insurance; and mining, quarrying & manufacturing sectors provide the main impetus for growth in the non-oil sector. The GDP outlook for 2002 is expected to be around 3-4 percent and the inflation is expected to be maintained at around 1 to 2 percent.

Some important factors which would significantly influence the macro-economic performance of Brunei Darussalam in the medium-term, are:

• The BND1 billion allocated for the implementation of the 8th National Development Plan in 2002;

• The impact of commercialisation, corporatisation and privatisation of some government activities;

• The improvement of the business and investment climate to encourage foreign direct investment (FDI);

• The establishment of Brunei Darussalam as an International Financial Centre;

• The reduction in vehicle import tax since November 2001; and

• The production levels and the price of the oil and gas exports.

The economy’s population will continue to grow at a moderate rate of between 2.0 percent and 2.5 percent in the years ahead. It is estimated it will grow from 344,500 in 2001 to 351,400 in 2002. Total labour force will also increase, by 2.7 percent to 156,300 in 2002. Similarly, employment, migrant workers and the unemployment rate will also be expected to grow, to 4.6 percent, 4.0 percent, and 4.7 percent respectively in 2002.

In 2002, the current account balance and government revenue is expected to increase with the expected favorable prices of oil and gas.

RECENT ECONOMIC DEVELOPMENT

THE $1 BILLION DEVELOPMENT BUDGET FOR THE YEAR 2002

Brunei Darussalam has faced economic difficulties over the past few years following the East Asian financial crisis. The sharp drop in oil prices and the crisis, had heavily affected many individuals and businesses in the country. In an effort to recover from these economic difficulties, his majesty the Sultan and Yang Dipertuan of Brunei Darussalam, during the 7th Asean Summit on the 6 November 2001, has announced the allocation of $1 billion development budget for the year 2002 under the (current) 8th NDP. The objective of the fund injection into the NDP is to ensure that the development projects and programs can be effectively implemented so as to accomplish the target of reaching the economic growth of between 5.0 and 6.0 percent p.a. The budget allocation is also aimed at reducing the high cost of living to certain extent, increasing job opportunities and boosting business growth in the country so as to regain the confidence of investors.

THE ALLOCATION OF $1 BILLION DEVELOPMENT BUDGET BY SECTORS

The $1 billion allocation for the year 2002 represents an 82 percent increase in the budget allocation compared to the 2001 budget of around $550 million. The budget allocation will be used to finance new projects and to pay for existing and newly completed projects. The public utilities sector, comprised of electricity, sanitation, water and drainage and considered one of the priority sectors, has been given a substantial allocation of $256,440,000 or 25.6 percent of the total development budget. This is followed by the transportation and communications sector with a total allocation of $189,861,000 (19.0 percent). The social services sector, comprised of education, medical and health, government housing, national housing, religious affairs and public facilities and environment has been given an allocation of $166,837,000 (16.7 percent) and the industry and commerce sector, consisting of agriculture, fishery, forestry, entrepreneurial development and industrial development was allocated $131,789,800 (13.2 percent). The newly introduced sectors under the current 8th NDP namely information and communication technology; human resources and science and technology; and Pulau Muara Besar project have been allocated $51,000,000 (4.8 percent), $47,655,000 (0.5 percent) and $5,000,000 (0.5 percent) respectively.

SHORT-TERM ECONOMIC RECOVERY PLAN PHASE 2

The second phase of the BN$200 million Short-term Economic Recovery Plan was announced recently at a press conference held at the Department of Economic Planning and Development. Various projects and programmes have been identified for the remaining plan budget allocation of $115 million. They are as follows:

• Continuing the construction of 250 public housing and other related infrastructure works;

• Completing the Computer for Schools and BruNet Expansion projects, through the upgrading of internet and ICT training in all schools and educational institutions (worth $6.9 million);

• Continuing the promotion of the tourism and hospitality industry training by widening its scope through the inclusion of other sectors, e.g., by improving and upgrading ICT skills of both job seekers and those currently in the labour force (worth $3.1 million);

• Constructing of additional tourism facilities to contribute towards the tourism and hospitality industry;

• BN$31 million maintenance projects for government buildings, compounds and assets; and

• BN$30 million additional Working Capital Credit Fund.

ECONOMIC DEVELOPMENT BOARD

The Brunei Economic Development Board was formed on the 26 November 2001 through the Brunei Economic Development Board (Amendment) Order 2001. One of the main roles of the newly established Brunei Economic Development Board is to promote Brunei Darussalam as an investment destination and the new appointees are expected to carry out this task through the Brunei Economic Development Board.

As a government statutory body, the Brunei Economic Development Board has autonomy to carry out its role and responsibilities according to the Brunei Economic Development Board (Amendment) Order 2001.The main role of the Board is to stimulate the growth, expansion and development of the economy by promoting Brunei Darussalam as an investment destination. The Board will also be responsible for implementing government policies and preparing investment promotion plans, incentives and marketing strategies to attract foreign and local investment in advanced technology industries and skill intensive services which enjoy good export market prospects.

Apart from the above roles of promoting the aforementioned industries through joint ventures, the board will assist and facilitate industrial development as a whole, including supporting the development of small and medium-sized enterprises. Presently the focus and priority of the board is to prepare, promote and develop industrial sites, and also strategic and competitive facilities for prioritised industries. This includes the development of Pulau Muara Besar.

This year Brunei Darussalam is all set to carry out BDN$1 billion worth of projects and development programmes to help spur the economic situation of the country to a more progressive mode to make it attractive for businesses and investors.

The Government of His Majesty the Sultan and Yang Di-Pertuan of Negara Brunei Darussalam is entrusting several senior officials and prominent local business figures to sit as executives and members on its newly formed Economic Development Board which will be the steering body guiding the nation towards greater economic growth.

The new appointees of the Board are as follows:

1. Chairman: Dato Paduka Awang Haji Yusof bin Haji Abdul Hamid;

2. Deputy Chairman: Mr Timothy Ong Teck Mong;

3. Ex-officio Members: Permanent Secretary, Ministry of Industry and Primary Resources; The Chairman currently holds Chief Executive Officer of the Board; and a representative from Ministry of Finance;

4. Other Members: Awang Haji Kamis bin Haji Tamin, Acting Director General, Department of Economic Planning and Development; Yang Dimuliakan Pehin Orang Kaya Seri Dewa Major General (R) Dato Seri Pahlawan Haji Awang Mohammad bin Haji Daud; Pengiran Dato Paduka Sharifuddin bin Pengiran Haji Metali; and Awang K.V. Tan.

Annex I

BRUNEI: OVERALL ECONOMIC PERFORMANCE

Annex II

BRUNEI: FORECAST SUMMARY