Brunei’s economic landscape is intricately linked to the oil and gas sector and its high dependence on the sector has encountered significant hurdles in recent years amid increasingly volatile global energy prices and challenges in domestic production.
Growing concerns surrounding the fossil fuel industry as the world transitions towards renewable energy adoption have added to the complexities of navigating the energy sector.
Therefore, to address these challenges, stepping up economic diversification is crucial to safeguard the nation’s longer-term growth while fostering resilience.
This was said by Senior Economist at the ASEAN+3 Macroeconomic Research Office (AMRO) Andrew Tsang, following a report by AMRO recently.
According to AMRO’s Annual Consultation Report on Brunei Darussalam 2023, inward foreign direct investment (FDI) can play a transformative role in Brunei’s economic diversification efforts.
Inward FDI directed to strategic sectors can help steer the country towards a more balanced economic structure while bringing in capital investment, technology diffusion, and job creation.
Policymakers in many developing countries have long emphasised the importance of FDI as a strategy for economic development.
The challenge lies in the identification and selection of FDI projects. Experiences from other countries suggest that a successful FDI strategy entails a careful selection of suitable projects that align with a country’s economic diversification goals and comparative advantages.
“It is imperative that new FDI projects are closely aligned with the diversification goals within the country’s broader sustainable development strategy. For example, it is essential for FDI to foster local employment while creating economic spinoffs that could benefit other industries,” said Tsang.
The selection of the new FDI projects should also prioritise the promotion of a sustainable environment, such as the adoption of eco-friendly technologies and adhering to stringent environmental regulations. Diversification strategies should leverage the country’s comparative advantages, including natural resources and abundant capital.
“Commendable progress has been made in recent years to diversify Brunei’s economy. This can be seen in the downstream non-oil and gas sector, where robust activities have helped to support economic growth amid challenges faced by the upstream oil and gas sector,” said Tsang.
Strategic attraction of FDI in the downstream sector, such as the likes of Hengyi Industries Sdn Bhd and Brunei Fertiliser Industries Sdn Bhd, has proven to be successful. A similar strategic approach should be adopted in attracting FDI in other priority sectors, such as food (including halal and agrifood businesses), tourism, and info-communication technology (ICT), to sustain the pace of economic diversification.
“For example, in the food industry, Brunei can harness its marine resources to step up the development of the aquaculture industry. Endowed with rich biodiversity, Brunei benefits from the advantages of having rich genetic diversity and species selection suitable for aquaculture production,” it said in the report. By amalgamating the country’s natural resources with high technology and more skilled labour from abroad, Brunei can potentially attract more FDIs into strategic industries, such as food and aquaculture production.
“Encouragingly, that in recent years, tangible progress has been witnessed in recent FDI announcements, such as the expanded investments in the aquaculture sector, encompassing barramundi and salmon farming in Tutong and Belait districts.
“These FDI projects are well aligned with Brunei’s comparative advantages,” said Tsang.
Beyond the near term, it is crucial to nurture the development of a knowledge-based economy. This would unlock the promise of future diversification potential by unleashing future FDI and bringing about the upgrading of economic growth potential.
One critical enabler is human capital development. Adequate investment in education and training would be essential to closing the skills gap, particularly in the modern services sector, such as digital technology, which is emerging as a new growth area.
Brunei has also done well in other important growth enablers, such as developing a robust institutional framework and investing in physical infrastructure.
In retrospect, FDI has played a pivotal role in fostering economic growth in Brunei over the past decade and will continue to be a key development strategy in the future. Targeting and harnessing selective FDI in strategic non-oil and gas sectors is fitting and necessary. – Azlan Othman
