ECONOMY

Brunei's economy enjoyed moderate growth in the mid-2000s, primarily due to high world oil and gas prices. However, Brunei's growth has fallen sharply in recent years. In 2009, GDP shrank from U.S. $15.6 billion (BND 20.4 billion) to U.S. $12 billion (BND 15.6 billion). Brunei continues to have one of the lowest GDP growth rates of any ASEAN nation; however, Brunei is also ranked as having one of the highest rates of macroeconomic stability in the world and the highest in Asia. Brunei’s conservative economic policies insulated it from much of the global financial crisis in 2008-2009.

Brunei is the fourth-largest oil producer in Southeast Asia, averaging about 175,000 barrels a day in 2008. It also is the ninth-largest exporter of liquefied natural gas in the world (according to the Brunei Economic Development Board). 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. Liquefied natural gas output averages 895 million cubit feet/day. Overall oil production has declined in recent years, and growth rates have fallen significantly. Brunei’s oil reserves are expected to last 25 years, and natural gas reserves 40 years. However, potential new onshore fields may add to the lifespan of the reserves.

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 (formerly 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. As the operator of the recently resolved Brunei-Malaysia deepwater block CA-1, Total's production of oil and gas will be significantly increased in the future.

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. The two countries have stated they have reached a joint production resolution to the conflict. Two on-shore blocks are being explored following awards to two consortia--both Australian-led operations. Australia, Indonesia, India, and Korea were the largest customers for Brunei's oil exports, consuming more than 70% of Brunei's total crude exports. Other countries, including New Zealand and China, each purchased more than 7% of Brunei’s total crude exports (2009 Brunei Darussalam--External Trade Statistics).

Almost all of Brunei's natural gas is liquefied at Brunei Shell's Liquefied Natural Gas (BLNG) 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. According to BLNG, the agreement calls for Brunei to provide over 6 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 700,000 tons of LNG annually to the Korea Gas Corporation (KOGAS) as well. In the second quarter of 2008, total natural gas production reached 0.855 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 United States eliminated its garment quota system at the end of 2004. However, with 75% of total garment exports valued at U.S. $66 million, the United States remains the largest export market for garments. 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. The $400 million methanol plant, fed by natural gas, came on line in 2010. The plant has the capacity to produce 2,500 metric tons of methanol per day. 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 facility. 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 work force of 188,800 in 2008, with a derived unemployment rate of 3.7% (2009 Brunei Darussalam Key Indicators--BDKI).

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 throughout the past decade. Official statistics show Singapore, Malaysia, the United States, and China as the leading suppliers of imports in 2009. The United States was the third-largest supplier of imports to Brunei in 2009.

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 government encourages foreign investment in Brunei. 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. However, foreign direct investment (FDI) outside the oil and gas industry remains limited.

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, aquaculture, and fisheries are among the industrial sectors that the government has selected for highest priority in its efforts to diversify the economy. The Philippines and China are currently involved with the largest joint projects with the Government of Brunei to increase agriculture and fisheries production. American firms are consulting on aquaculture projects.

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 serviced by a large number of banks given its size. Islamic banking is growing, primarily in the Islamic bond (sukok) market. Offshore banking and business incorporation remains a small sector in the overall financial services market. 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. While ecotourism is growing, the overall impact for economic diversification is limited.

GDP (2009, Government of Brunei): U.S. $12.0 billion (BND 15.6 billion; 2009 GDP figures released by Department of Economic Planning and Development).
Growth rate (2008, Government of Brunei): -1.9%.
Natural resources: Oil and natural gas.
Trade: Exports--oil, liquefied natural gas, petroleum products, garments. Major markets--Japan, Korea, Indonesia, India, Australia. Imports--machinery and transport equipment, manufactured goods. Major suppliers--ASEAN, United States, European Union, Japan, China.