Academic journal article Journal of Southeast Asian Economies

Determinants of Supply of Non-Oil Exports in Brunei Darussalam

Academic journal article Journal of Southeast Asian Economies

Determinants of Supply of Non-Oil Exports in Brunei Darussalam

Article excerpt

I. Introduction

Brunei Darussalam (hereafter Brunei) is a small country at the northern tip of the Borneo Island in Southeast Asia, with a population of about 348,800 in the year 2002 (Government of Brunei Darussalam 2003). The country is largely dependent on oil and gas for exports with the oil and gas sector currently contributing about 40 per cent of its gross domestic product (GDP). Rapid development of the oil and gas sector as the backbone of the economy since the early 1960s, when the first major offshore oil deposits were discovered, led to the establishment of an extensive government welfare system. Bruneian citizens enjoy such benefits as free medical care and free education from primary school to university level. The country is currently facing economic problems related to the 1997/98 Asian financial crisis, relatively low world oil prices, and domestic issues linked to high levels of government expenditures that have exceeded revenues each year from 1988 to 2001 except for the years 1993, 1994, and 2000 (Government of Brunei Darussalam 2003). The government deficits have been financed by income generated from Brunei overseas investments. The country is heavily dependent on merchandise imports, which accounted for about 30 per cent of GDP from 1990 to 2000 (Government of Brunei Darussalam 2003). Over this same period, Brunei experienced a declining balance of merchandise trade due to relatively low world oil market prices and increases in imports driven by high population growth rate (Anaman and Buffong 2001).

Table 1 summarizes annual constant compound growth rates of ten selected macroeconomic variables for Brunei over the two periods, 1971-90 and 1991-2000. Over the period 1971-90, which coincided with two major international oil price shocks, the country sustained modest economic growth (as measured by real GDP) of about 5.1 per cent. Per capita real GDP grew by about 1.7 per cent. Growth was also modest for total exports and imports over the period. Employment in both the private and the government sectors grew at a relatively fast pace. However, during the last decade of the twentieth century (1991-2000), the economy slowed down considerably with negative growth rates in both real GDP and per capita real GDP. Over this period, the growth rates of both private sector and government labour forces fell substantially as compared with the earlier two decades. The growth of total exports and imports also declined. The general decline of the economy from 1991 to 2000 appeared to have been partly driven by the relatively low world oil prices during that period. Given the instability of world oil prices and heavy dependence of the economy on oil, Brunei needs to promote development of non-oil exports for long-term sustainable development. This was recognized in the Eighth Five-Year Development Plan (2001-05) with the government's broad-based diversification strategy emphasizing development of non-oil exports, tourism, and offshore financial services (Government of Brunei Darussalam 2001).

Non-oil exports from Brunei are made up of (1) exports produced within the country involving some value-adding activities, and (2) re-exports. Re-exports are exports of goods previously imported into Brunei such as machinery and cars for which there has not been any value added to the products. In this paper, we call the first category of non-oil exports, actual non-oil exports, to distinguish them from re-exports. Levels of actual non-oil exports were modest in the 1960s but declined in the 1970s and early 1980s, the period of very high world prices. In 1961, the real value of actual non-oil exports was about B$8.5 million measured in year 2000 constant dollars. These non-oil exports consisted mainly of food products and rubber. The real value of non-oil exports fluctuated from 1962 onwards till 1987. In 1987 they were worth only B$1.95 million. From 1988, the non-oil export sector underwent a transformation with the establishment of several factories producing garments. …

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