ADB report: Brunei must improve business environment

Azlan Othman

ACCORDING to the Asian Development Bank’s (ADB) Outlook 2015 report released yesterday, Brunei Darussalam’s economy performed well in 2014.

But declining hydrocarbon production has weighed on Brunei’s economy. The gross domestic product (GDP) has contracted for two years and is projected to contract further this year. Consumer prices are forecast to ease for a second straight year. Growth in sectors unconnected to energy indicates that the country is making gradual progress towards broadening its economic base.

The report also said Brunei’s GDP growth is expected to slow down to -1.5 per cent in 2015. However for 2016, ADB anticipates Brunei’s GDP growth to rise to 0.8 per cent.

The ADB report added, subdued production and the impact of lower global prices for hydrocarbons will likely see GDP contract in 2015 before a slight rebound in 2016, assuming that some recovery in oil and gas output will occur.

Accurate forecasting is hampered by uncertainty over the timing of oil and gas production from new fields and of stoppages for maintenance of wells and pipelines. Prospects for growth also depend on the timing of several large construction projects.

The biggest is an oil refinery and aromatics cracker planned for Pulau Muara Besar with capacity to produce 160,000 barrels a day of petroleum products for domestic use and for export.

Also last year, investors from China signed a land-lease agreement with Brunei to build a $50 million carbon steel pipe factory. This plant is scheduled to start operating in 2017, with the capacity to produce 100,000 tonnes per year of welded rounding carbon steel pipes for the oil and gas and construction industries.

A company from South Korea signed a non-binding agreement to build a $107 million plant to produce 120,000 tonnes per year of aluminium billet casting and 48,000 tonnes per year of aluminium extrusions, mainly for export.

These projects are part of the government’s strategy to diversify the economy through export-oriented manufacturing and services. The government intends to build bridges, roads, and utilities for the projects.

However, the government has also signalled that its expenditure in the financial year 2015 is constrained by the slide in revenue from oil and gas. The budget is expected to fall into deficit before accounting for income from investments.

Consumer prices are forecast to decline marginally again this year, despite a recent uptick in prices and the potential for further depreciation of the Brunei dollar against the US dollar.

The report added, in 2016, prices are seen edging higher as domestic demand improves and global commodity prices turn up. Weak global oil and gas prices are projected to lower export receipts again in 2015.

Next year, rising oil prices and the anticipated pickup in oil production will see exports start to recover. Imports, too, are expected to decline in 2015 but bounce back in 2016 if substantial construction gets under way on proposed projects. Nevertheless, exports will still comfortably exceed imports to maintain substantial trade and current account surpluses.

The report added, heavy reliance on oil and gas sector leaves the economy vulnerable to swings in global energy demand and to the gradual depletion of hydrocarbon reserves. Aiming to diversify the economy, the government has identified certain industries and provides incentives to draw foreign investment to develop export-oriented businesses.

This includes petrochemicals, Halal products, information and communications, Islamic financial services, and aviation and oilfield support services. Incentives include the provision of land and infrastructure, liberal trade and labour policies, competitively priced utilities, and tax breaks.

From 2015, the government has cut the corporate tax rate to 18.5 per cent, abolished corporate tax for small businesses, and increased tax breaks for investment in plant, machinery, and industrial buildings.

Investments made and planned by foreign companies indicate, along with the gradual expansion of the domestic private sector, that the strategy is achieving some success. Nevertheless, more could be done. Brunei Darussalam is ranked near the middle of 189 countries in the World Bank’s Ease of Doing Business 2015, putting it above Indonesia but well below Singapore, Malaysia, and Thailand, and also under the Philippines and Vietnam.

Improving the business environment is key to attracting new investment and diversifying the economy, the report concluded.


Sumber - Borneo Bulletin Online