MSMEs drive Brunei’s economy

Azlan Othman

Brunei Darussalam is trying to diversify the economy towards more sustainable growth while recognising the role micro, small and medium-sized enterprises (MSMEs) play as drivers of growth.

In 2017, MSMEs accounted for 97.2 per cent of enterprises and employed 57.3 per cent of the workforce. In 2018, they contributed 35.5 per cent of gross domestic product (GDP). Most MSMEs belong to the services sector and are dominated by traditional wholesale and retail trade.

The market for bank credit has grown, but MSME lending and alternative finance markets have yet to be developed, according to a new report from the Asian Development Bank (ADB).

There were 5,876 MSMEs in Brunei in 2017, with 2,442 micro enterprises and 3,434 small enterprises. MSMEs accounted for 97.2 per cent of total active enterprises registered in the Registry of Companies and Business Names, a 2.7 per cent increase from 2016. By 2017, 71.6 per cent of MSMEs were in services (34.9 per cent in wholesale and retail trade, 4.4 per cent in transportation and communication, and 32.3 per cent in other services represented by accommodation and food), followed by construction such as material suppliers (12.4 per cent) and manufacturing (11.1 per cent).

MSMEs in Brunei operate within the small domestic market in stable businesses such as trade, accommodation and restaurants, with only a small portion exposed to global markets. Domestic MSMEs have yet to participate in global value chains.

Developing agricultural value chains is an important policy in Brunei, especially for food processing such as shrimp, catfish, and corned beef. Supported by the Halal certification programme, food products are of high export quality and hold the potential to internationalise agribusiness. The Halal industry has also expanded into products such as cosmetics and pharmaceuticals. Halal branding will serve as a conduit for MSMEs to access international markets.

The government is also promoting MSME participation in government projects to enhance their market access. But it is a challenge for MSMEs to participate in this kind of projects as they need funds. Improvements are needed in the government to commerce payments procedure – late payments is frequently raised at the business help desk operated by DARe (Darussalam Enterprise), a government agency for MSME support.

Digital connectivity has also expanded across Brunei. In 2018, mobile subscriptions reached 565,949 (or 131.9 per 100 people), a 3.9 per cent increase in number. Individual Internet use also surged, from 71.2 per cent of total population in 2015 to 94.9 per cent in 2017 (the latest available year). E-commerce has been expanding rapidly. The Authority for Info-communications Technology Industry (AITI) reported that 76 per cent of the population uses e-commerce. Clothing and accessories are the most popular online purchases, followed by travel services, cosmetics, and healthcare products. Major e-commerce service providers include foreign companies such as eBay (US), Zalora (Singapore), Amazon (US), AliExpress (China), and Lazada (Singapore, owned by the China’s Alibaba Group).

There are autonomous business networking communities that support MSME development in Brunei. The National Chamber of Commerce and Industry (NCCI) – which includes the Brunei Malay Chamber of Commerce and Industry and the Chinese Chamber of Commerce and Industry – was established in 1985 to guide and assist enterprises in the country.

The Young Entrepreneurs Association of Brunei (YEAB), established in 2000, supports entrepreneurs by facilitating business linkages locally and internationally.

The association has a network of more than 170 young entrepreneurs at various stages of growth and across diverse industries — including information and communications technology (ICT), fashion, food processing, and oil and gas industry.

Given the sultanate’s strong Islamic brand, Islamic-based entrepreneurship could become lucrative such as Al-Huffaz Management (Islamic education matching), Tarbiyyah Global (Islamic programme for children), and Mindplus (digital learning platform).

The number of entrepreneurs is increasing, pushed by the government’s commitment to develop a business ecosystem and reduce the relatively high level of unemployment (6.8 per cent in 2019), by making entrepreneurship a more attractive career path.

The government’s i-Ready Apprenticeship Programme connects unemployed graduates to public and private sector industries, opening opportunities for MSMEs to scale up manpower with less financial burden as the government provides a monthly allowance to participating graduates for a maximum of three years.

However, developing entrepreneurship has faced challenges, such as a lack of large businesses for MSMEs to service, regular consumer outflow to neighbouring Malaysian provinces of Sabah and Sarawak, entrepreneurs’ lack of international exposure, and limited financing capabilities.

The ADB noted that the majority of micro enterprises are owned by women and the government support on capacity building and networking would help them prepare to scale up.

The report added that there is no active credit guarantee scheme in the country. The non-bank finance industry is small and has yet to fulfil MSME financing needs; all licensed finance companies and pawnbrokers are bank subsidiaries. MSME access to bank credit is limited and the government-owned Bank Usahawan and DARe were unable to meet MSME demand for financing.

Comprehensive regulatory and policy framework for digital financial services was established between 2017 and 2019; but there are no domestic-oriented fintech firms yet in the country.