Oil stabilisation fund creation sought

Ubaidillah Masli
BRUNEI-MUARA
Friday, January 27, 2012

BRUNEI should establish a fund to retain and convert some of the wealth generated from oil and gas into human capital through investments in education and skill-building, a foreign expert said.

This, said Professor Dr Jorg Beutel, would ensure the sustainable development of the economy.

In measuring sustainable development, Beutel explained that economists would have to consider increases in produced capital and human capital and the decrease in natural capital which together form gross capital and its relation to gross national income (GNI) to deduce a country's net or "genuine" savings rate.

"You would hope, specifically for a country in which the population is growing, that the gross capital of all three is not declining every year because then, we would be in trouble.

"You would become poorer," said Beutel, who is a professor of Economics and Environmental Sciences at the Hochschule Konstanz University of Applied Sciences in Germany.

"It would also allow a certain substitution between the three forms of capital," he added.

"This is why I would like to encourage you to establish an oil stabilisation fund or future generation fund because you should transfer your oil and gas (wealth) into education and man-paid capital, because then the gross capital will remain in place."

Beutel, a senior research associate for DIW econ GmbH, was involved in the team of German consultants that helped produce Brunei's Input-Output Table for 2005, which was unveiled last Tuesday.

The table is aimed to be used as a tool for effective policy planning and decision making.

Based on the comprehensive data compiled, however, it showed that Brunei was in the red for its adjusted net savings, a yardstick used by the World Bank to assess nations.

"Unfortunately (for Brunei), we have a negative number here.

"The share of Gross National Income is minus one per cent, so net savings is negative, which means that gross capital stock is declining but still at the moderate rate of minus one per cent," the consultant said.

"But it's not growing despite the population growing," he added.

"So this is not a good piece of information that I have to give."

Initially, Brunei had "one of the highest (gross national) savings ratio on Earth" at 53.5 per cent of GNI, but this was before deductions of fixed capital consumption and energy depletion, among other deductions in natural capital.

The figure turned out negative primarily due to the "very heavy" percentage share of energy depletion, at 44.3 per cent, from the country's GNI.

"We are an oil and gas producer for a real long time in the economic history. So gradually, these sources are depleting than when we started," he said.

He added: "(With activities like) deep sea drilling, this is very heavily allocated and this calculation is based on the same methodology implemented by the World Bank, so this information is comparable."

From fossil fuel to education

Meanwhile, Beutel noted that expenditure on education, which was added on because it was considered an investment to the nation, was "not bad" at 3.6 per cent of national income.

"But it is not a world record... So we could do be better, specifically, when we have to transform fossil fuel into education into human capital," he said.

The deductions of mineral depletion, net forest depletion and particulate emissions damage to Brunei's environment were negligible, while damage from carbon dioxide emissions were "not a bad result", recorded at a cost of 0.4 per cent of GNI.

"We must try to (pursue the path) of transforming natural capital your energy, your fossil fuels into physical man-made capital," Beutel reiterated.

Dipetik dari - The Brunei Times