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Brunei

Charting a new course

Wealthy sultanate’s efforts to move beyond oil and gas sectors is leading to more diversified cooperation with China

cover P1 brunei

September 18-24, 2017
By HAKY MOON and SANDRA LEUNG in Hong Kong
For China Daily Asia Weekly

As oil-and-gas-rich Brunei moves to diversify its economy, China is emerging as the partner best suited to drive the process.

“From a purely commercial perspective it makes a lot of sense, because there is a lot of synergy between the two countries,” Paulius Kuncinas, Asia managing editor at Oxford Business Group, told China Daily Asia Weekly.

“China is a very active developer in energy infrastructure and Brunei is a big exporter of oil and gas,” he said.

“After the Trans-Pacific Partnership (TPP) failed, the US has clearly relinquished its role in the pursuit of engaging with Southeast Asia. That vacuum is now being filled by China.”

Twelve countries were involved in the TPP free-trade negotiations, and Brunei had hoped it would help diversify its economy. But with the exit of the United States this year throwing the deal’s future in doubt, China-led agreements have taken on a much greater importance in global trade and for Brunei specifically. Brunei’s cooperation with China has visibly increased.

A number of deals driven by Chinese investment are powering Brunei’s GDP.

Since 2014, the Brunei-Guangxi Economic Corridor has aimed to build bilateral trade and investment with the southern Chinese province, while creating a direct supply link. One of the projects under the corridor is an integrated fisheries venture, Hiseaton Fisheries, comprising an aquaculture farm, hatchery, processing factory and research center.

China is already the largest foreign investor in the small sultanate, with investment jumping 50 percent in 2015.

In late 2016, Brunei reported that nine foreign direct investment (FDI) projects in the works had a total value of $4.7 billion.

A big chunk of that is coming from a $3.4 billion oil refinery being built by privately run Chinese company Zhejiang Hengyi Group. The investment in the uninhabited island of Pulau Muara Besar could eventually add up to as much as 40 percent of Brunei’s GDP, which amounted to $11.4 billion in 2016.

“The Hengyi Industries crude oil refinery and aromatics cracker complex on Pulau Muara Besar is one of the largest single foreign direct investments the country has seen in recent years,” Abdul Rahman, Brunei’s second minister of finance, said at a signing ceremony on March 28.

The new refinery, scheduled for completion in 2019, will produce an estimated 8 million tons of crude oil per year in its first phase.

The facility will primarily provide feedstock for Hengyi’s massive Chinese production of pure terephthalic acid, or PTA, used in the manufacture of polyester. It will also churn out fuel, perhaps competing with the region’s leading oil distribution hub of Singapore.

Brunei is now looking for more investment and projects as it works to diversify its economy. Oil exports have been generating its wealth since the 1930s.

As much as 60 percent of the country’s economy is based on oil and gas exploration and production, petrochemical production and energy. The sector accounts for more than 60 percent of GDP and employs 24,000 out of a total population of 425,000.

According to the International Monetary Fund, Brunei was the fourth-richest country in the world in 2016 with GDP per capita of $78,369, measured by purchasing power parity. It ranks just behind Qatar, Luxembourg and Singapore, and ahead of Kuwait, Norway and the United Arab Emirates (UAE).

President Xi Jinping holds a welcoming ceremony for Brunei’s Sultan Hassanal Bolkiah in Beijing on Sept 13. Credit: Wu Zhiyi / China Daily

“Brunei is a classic case of huge dependence on an attractive commodity, where that commodity will eventually run out,” Jayant Menon, chief economist at the Asian Development Bank, told China Daily Asia Weekly.

Since 2006, Brunei’s oil production has dropped 40 percent while plummeting oil prices have cut a good deal of the value from what remains. Nearly 96 percent of Brunei’s exports are oil, gas and related products — a higher percentage than for Saudi Arabia, Kuwait or the UAE.

Reports in 2015 citing the BP World Energy Outlook claimed that Brunei, at its current pace of extraction, had enough oil left for just 22 years. Saudi Arabia, by comparison, had 63 years left, Kuwait had 89 and Canada more than 100.

For the past decade, Brunei had been finding only a half-barrel of new oil for every one it removed from the ground, the reports said.

“They are faced with that challenge, and the trick is to use the massive buildup in reserves to prepare to move out from oil and into other sectors,” said Menon. “If they do it sensibly and efficiently, they can adjust well to the next phase where there is less oil dependency.”

Enter China. Total Chinese investment in Brunei to date is estimated at around $6 billion and rising. This is largely due to China’s Belt and Road Initiative, a project that spans some 68 countries and international organizations, and aims to boost connectivity between Asia, Europe and Africa with a trade and infrastructure grid that revives the ancient Silk Road routes.

“Efforts should be made to enhance bilateral pragmatic cooperation in trade, investment and other fields under the framework of the Belt and Road,” Lim Jock Seng, Brunei’s second minister of foreign affairs and trade, said at the Belt and Road Forum for International Cooperation, in Beijing in May.

And Chinese investments in the country are diversified — from oil to fisheries.

On Feb 22, a joint venture between China’s Guangxi Beibu Gulf Port Group and a government-linked Brunei investment company started running Brunei’s largest container terminal.

Muara Port Company, a joint venture between Guangxi Beibu and Darussalam Assets, will manage operate, maintain and develop the Muara Container Terminal.

Brunei’s deputy finance minister, Amin Liew, also the CEO of Darussalam Assets, said the new venture would improve the terminal’s operational efficiency, cut logistics costs and boost cargo handling capacity.

Another area of Chinese investment in Brunei is aquaculture. The Hiseaton Fisheries deal last year will occupy 2,000 hectares of the country’s offshore aquaculture sites and is expected to create about 100 jobs.

The joint venture, in the coastal waters of Pelong Rocks, will cultivate and export golden pompano fish worth $300 million per year, according to Ali Apong, the minister of primary resources and tourism.

While ties between Brunei and China grow stronger, Kuncinas at Oxford Business Group pointed out that Brunei is in no way turning its back on the Association of Southeast Asian Nations (ASEAN).

“Brunei is still an active member of the ASEAN club,” he said. “Singapore still remains an important partner; second most important partner would be Malaysia, its large neighbor.”

Brunei’s growth prospects in the next few years depend mainly on the progress of oil and gas production and some FDI projects, as well as on the success of the sultanate’s ongoing diversification efforts, according to the ASEAN+3 Regional Economic Outlook 2017 report by the ASEAN+3 Macroeconomic Research Office.

Recent economic developments in Brunei have underlined the need for structural reform policies toward a more diversified and competitive economy, the report said.

It added that the Bruneian government has recently intensified its reform efforts to spur the private sector’s role in the economy and attract more FDI. For example, it has formed two statutory bodies: FAST (the FDI Action and Support Centre) and DARE (Darussalam Enterprise). These will facilitate FDI and develop domestic business.

Since GDP growth bottomed out in 2016, BMI Research now expects Brunei’s economy to recover this year, particularly if higher oil prices provide support.

However, the process of economic diversification in the country will likely remain slow due to poor investor interest and low levels of private sector participation.

BMI Research forecasts real GDP growth to average just 1.5 percent over the next five years, according to its report, Economic Analysis — Economic Diversification Will Remain A Piecemeal Process.

“Brunei has already understood that diversification is a must. It is definitely at the top of their mind and it is prioritized, but options are limited,” said Kuncinas. “The only options are low-labor and technology-intensive projects.”

Beijing meeting consolidates relationship

September 18-24, 2017
By ZHANG YUNBI

Infrastructure, health and defense affairs were among highlights of the cooperative documents signed following the meeting on Sept 13 between President Xi Jinping and Brunei’s visiting Sultan Hassanal Bolkiah.

During their meeting, Xi said the two countries should reinforce the exchange of governing experience, the synergy of their development strategies as well as pragmatic cooperation in various fields.

Both countries should strengthen cooperation in areas such as infrastructure construction, energy, halal food, agriculture and fisheries.

Hassanal, who is also the prime minister of Brunei, said his country supports the Belt and Road Initiative, which aims to improve connectivity along the ancient Silk Road routes.

Brunei welcomes Chinese enterprises making investments and developing business there, and the country is ready to further maintain high-level contacts with China and expand cultural exchanges.

Hassanal was making his second state visit to China — the first was in 2013.

Speaking about the South China Sea, Xi said the current situation is increasingly stable. China is ready to work with parties concerned, including Brunei, to make the South China Sea a sea of peace, friendship and cooperation, he said.

Brunei is ready to work with China to champion peace and stability in the South China Sea and continue to nurture the ties between the Association of Southeast Asian Nations (ASEAN) and China, Hassanal said.

Before arriving in Beijing, Hassanal attended the 14th China-ASEAN Expo in Nanning, in South China’s Guangxi Zhuang autonomous region.

China appreciates Brunei pushing forward the development of the China-ASEAN relationship, Xi said.

Unleashing tourism potential Brunei banks on travelers from China and elsewhere in the region to fuel this fast-growing sector of the economy

September 18-24, 2017
By HAKY MOON
in Hong Kong
For China Daily Asia Weekly

Visit a zero dust country, said a South Korean travel agency’s advertisement for Brunei. Experience the world’s only seven-star hotel, said another. And there were also offers of “filial duty” package tours or “reminder honeymoons”.

Marketing efforts like these are just a sample of the response throughout Asia to Brunei’s renewed push to boost its tourism industry, which is part of moves to diversify the nation’s economy.

“I definitely have plans to visit Brunei,” said Shaan Yeat Amin Ritual, an employee at Tesla Tech, a Malaysian IT firm. As well as the compact country’s cultural mix and beautiful mosques, he said its lack of congestion — compared to places like Hong Kong or Singapore — appeals to him.

Brunei has long relied on the extraction and production of oil as the main engine of its economy. Nestled on the northern coast of Borneo and bordering Malaysian territory, Brunei has natural tourism appeal. This could help it tap the rapidly growing outbound tourism from countries all over the region, but most notably from China.

As part of Brunei’s Strategic Plan 2016-2020 to develop its tourism sector, more chartered flights are being set up.

“Chartered flights are a way to test the market,” said Salinah Salleh, head of marketing and promotion with Brunei’s Ministry of Primary Resources and Tourism.

“If demand grows, Royal Brunei Airlines will put in bigger planes. After that, we could get Korean Air to come in. It depends on the volume and how the market performs.”

In July 2016, a weekly service from Zhengzhou, in Central China’s Henan province, was launched. In December, a twice-weekly flight from Seoul, South Korea, began, and a weekly service from Xi’an, in Northwest China’s Shaanxi province, was launched in mid-January this year.

These efforts have been paying off. In the first quarter of 2017, the total number of international tourist arrivals to Brunei International Airport was 67,956, compared to 56,431 in the same period a year earlier — an increase of 20 percent. The figures were released by Brunei’s Ministry of Primary Resources and Tourism.

River taxis wait along the Brunei River for passengers heading to the Water Village (background) in Bandar Seri Begawan. Credit: AFP

The rapid increase in tourist arrivals is due to the rising demand for international travel among Asia’s growing middle class, along with more efficient air connectivity as chartered flights to Brunei spring up around the region.

A key driver of growth, too, is the global economic recovery. Visitors are coming from other member countries of the Association of Southeast Asian Nations (ASEAN), also from elsewhere in Asia, and from Australia, New Zealand, Europe and North America.

Travelers from East Asia accounted for almost 25 percent of the increase in international tourism to Brunei. ASEAN countries followed, with hikes of just over 16 percent.

Given the geographic proximity, it is no surprise that Malaysia is the most important source of tourists, followed by China, Indonesia, the Philippines and Singapore. These five countries accounted for about 66 percent of tourist arrivals in the first quarter of this year.

About 42 percent of visitors to Brunei went there for leisure or holidays. And these holidaymakers came mostly from Malaysia and China.

The increase in tourism arrivals goes hand in hand with ongoing plans the government is implementing to diversify the economy away from a long-established reliance on oil.

Brunei aims to develop multiple industries as part of this diversification strategy, which includes establishing free trade zones to boost trade, attracting high-end industries like pharma, expanding the influence of its port as a hub for energy infrastructure, developing a halal food industry, and shoring up the tourism sector.

And as with trade and investment, Brunei is looking to China to fuel the growth of its inbound tourism industry. While Brunei wants to attract tourists from all over the world, it is particularly keen to lure more of the 100 million travelers departing from China every year.

In 2016, Brunei, with a population of around 425,000, received 40,383 Chinese tourists — an increase of 18.7 percent from 2015.

Based on statistics provided by the Tourism Development Department, tourism revenue generated by the Chinese market in 2016 was estimated at $4.7 million, with an average stay of 2.8 days.

Brunei now offers Chinese tourists visas on arrival. Previously, Chinese visitors were issued 14-day visas upon arrival, but only if their journeys were arranged through a travel agency. Also, Chinese business tourists used to require a sponsor in Brunei.

“Chinese tourists are important for Brunei Darussalam, and the increase in direct flights as well as tourist arrivals will spur local employment opportunities in the tourism sector,” said Salleh from the Ministry of Primary Resources and Tourism.

She was speaking at the Brunei International Airport on July 18 to welcome Lucky Air’s first flight from Kunming, capital of Southwest China’s Yunnan province, to Brunei.

And three days earlier, the Kunming-based low-cost carrier also expanded its network from Nanning, in South China’s Guangxi Zhuang autonomous region, to Bandar Seri Begawan, Brunei’s capital.

However, to attract more Chinese visitors, Brunei must compete with a number of other countries looking for a larger share of the Chinese market. At the same time, Brunei is also looking beyond China to elsewhere in the region, including South Korea.

In January and February this year, more than 1,500 South Korean tourists traveled to Brunei on twice-weekly chartered flights. These flights are the result of a joint collaboration between Royal Brunei Airlines and Sinar Tours.

Also fueling the expected increase in visitors from South Korea is the favorable response to a Brunei holiday package rolled out on a South Korean shopping channel. The package attracted a record-high 3,500 calls for inquiries, and nearly 2,000 bookings.

“It’s an Islamic country, which seems a little distant for (South Koreans) who have traveled all over Southeast Asia,” said one tourism agent in South Korea. “Brunei provides a unique experience, and many seniors, especially those in their 50s and 60s, are taking more interest in Brunei.”

Meanwhile, tourists from Australia and New Zealand jumped 8.4 percent in the first quarter, while the number of visitors from further away grew by 6.6 percent.

Tapping global demand for halal food Brunei’s strictly monitored domestic market makes it a premium high-end source for certified products

September 18-24, 2017
By SANDRA LEUNG in Hong Kong
For China Daily Asia Weekly

The development of Brunei’s domestic halal food industry to serve the growing global market could emerge as a significant part of its efforts to break away from oil production as the economy’s primary source of income.

Brunei is a Muslim majority country surrounded by other countries with large Muslim communities — chiefly Malaysia and Indonesia, which is home to the world’s largest Muslim population.

Appropriately, Brunei is looking to leverage its national brand, bruneihalalfoods, to tap the growing global demand for halal products, which has been on the rise both for religious and health reasons.

The Arabic word halal means “permissible”, and halal food refers to food products that Muslims are allowed to eat — as opposed to haram foods like pork that are strictly forbidden.

The Brunei-developed brand, launched 10 years ago, is backed by an industry certification process that is among the most stringently tested and monitored in the world, managed by the country’s Ministry of Religious Affairs.

With strong domestic demand despite a small population, and the relatively large market for halal products within the country and nearby region, Brunei’s halal industry could emerge as a powerful global competitor.

Brunei has a population of around 425,000 people — so, clearly, if the industry is to take off it must reach beyond the domestic market. This could prove challenging for producers not used to competing in the global arena.

“When it comes to Brunei’s halal production, I’m not that optimistic about it,” Paulius Kuncinas, Asia managing editor at Oxford Business Group, told China Daily Asia Weekly.

“There is growth in the premium halal sector definitely, and Brunei can position itself as a premium high-end halal product certification center, because they have a strict halal code there.”

A key strength of the sector is the standards enforced by regulators. “They have high requirements on traceability. This appeals to narrow segments, so I can see there is an opportunity there,” said Kuncinas.

These comments match the reality that the country’s products, led by bruneihalalfoods, have a fair amount of appeal and have experienced growth in the premium halal sector.

“Brunei Darussalam’s intention with launching the bruneihalalfoods brand has been to capture more of the global market,” Feby Latip, deputy CEO of Ghanim International Food Corporation, told Oxford Business Group in 2014. “Indeed, the brand has positioned itself to be very outward-looking.”

Ghanim has marketed and distributed bruneihalalfoods products outside the country since 2009.

“While we are also playing a key role in developing local small and medium-sized enterprises within the agricultural sector, the focus is to target the huge international market for halal food. The demand is clearly there, so gaining a stronger foothold in the global market is just a matter of pushing the BH brand and what it stands for,” Latip said.

Devotees study the Quran at the Jame’Asr Hassanil Bolkiah Mosque in Bandar Seri Begawan, Brunei. The Muslim majority country is developing its halal food industry. Credit: Tim Graham / Robert Harding Heritage

It is little surprise that the global halal industry has become increasingly attractive to investors. Muslims make up 23 percent of the global population, which translates to about 1.8 billion consumers, and this particular segment is growing by about 3 percent every year.

By 2020, Muslims should account for 26 percent of the global population — about 2.2 billion people. Transparency Market Research estimates the global halal food market could be worth more than $10.5 trillion by 2024, up from $2.7 trillion in 2015.

The growth is likely to be based on a new wave of young, educated and savvy Muslims who have altered the religious demographic. They embrace their religion with a contemporary mindset, and they favor Western-style products and aspire to modern lifestyles as they become more integrated into the global economy, according to the Global Islamic Finance Report, an annual industry publication.

As a result, they are opening up a new market for mainstream products that are also halal.

Halal food is also increasingly in demand in foreign markets. In the United Kingdom, for example, it has gained greater significance over the past few years.

Mohammad Yasmin bin Umar, Brunei’s minister of energy and industry at the prime minister’s office, said in a media announcement in June last year that “103 Tesco and 114 Asda stores across the UK are selling bruneihalal products”.

The UK market for halal food is expected to be greater and more lucrative than China’s, according to Abdalhamid Evans, managing director and senior analyst at Imarat Consultants.

Evans also believes that the demand for halal food is expected to increase as the UK exits the European Union. “For the time being, the UK market is underserved,” he said, “to the tune of $1.17 billion.”

Closer to home, demand for halal food is also increasing in the Philippines, which has a minority but significant Muslim population. The Philippines is also a producer of halal food, but its certification process has lacked the credibility of Brunei’s.

Brunei’s halal certification program, managed by the Ministry of Religious Affairs, is driven by a tightly regulated process and is well-known for its quality.

Brunei and the Philippines signed a memorandum of understanding on the halal industry on April 27 in Manila, during Sultan Hassanal Bolkiah’s state visit. The bilateral agreement aims to foster cooperation in the halal industry and halal products development, reduce technical barriers to trade, and facilitate bilateral relations between Brunei and the Philippines, particularly with respect to halal export development and promotion programs.

Domestically, the halal food industry of Brunei also faces rapid growth as demand, targeted consumers and agricultural output are all set to increase.

The halal food market has grown steadily in recent years and represents around 20 percent of the country’s food industry. The market is expected to grow by more than 70 percent by 2050. That expansion is likely to be fueled by increasing demand for halal products, not only from Muslims but also non-Muslims looking to halal food for health reasons.

Meanwhile, Brunei’s halal food producers have already begun to diversify the range of products on offer. Simpor Pharma, a pioneer contract manufacturer of pharmaceutical products and health supplements, has launched a line of halal health supplements, the first of their kind.

Brunei looks to RCEP boost The proposed free trade agreement could help the country’s small businesses expand across the region

September 18-24, 2017
By HAKY MOON
in Hong Kong
For China Daily Asia Weekly

Brunei is increasingly reliant on regional deals as the country looks to ramp up trade across Asia and further afield.

New free trade agreements (FTAs) in the works — most notably the Regional Comprehensive Economic Partnership (RCEP) — will serve as an important basis of the country’s development as its economy, long based on oil, now seeks to diversify.

Given the proposed RCEP and other regional pacts, the withdrawal of the United States from the mega trade deal known as the Trans-Pacific Partnership (TPP) agreement is not likely to be a huge blow to Brunei.

The RCEP is a proposed FTA between the 10-member Association of Southeast Asian Nations (ASEAN) — Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam — and the six countries with which ASEAN has existing FTAs: Australia, China, India, Japan, South Korea and New Zealand.

“There are arguably greater opportunities for Brunei’s small to medium-sized enterprises (SMEs) from the Regional Comprehensive Economic Partnership, as key markets are closer,” Jayant Menon, lead economist at the Asian Development Bank (ADB), told China Daily Asia Weekly.

“The TPP focused on intellectual property protections that favored big pharma, mostly in the US, and not the firms generally found in Brunei.”

The TPP was a huge FTA that would have brought together about a dozen economies, accounting for almost one-fourth of global trade.

A final agreement was signed in February 2016 after seven years of negotiations. Despite that agreement, the US pulled out of the deal earlier this year after Donald Trump became president.

The TPP could have had a negative impact on Brunei’s state-owned enterprises (SOEs).

For example, specifications on the treatment of SOEs in the TPP would have imposed limits on the sectors that they could operate in or the market share they could enjoy.

The proposed RCEP has quickly stepped in to fill the void left by the TPP.

The TPP deal required that SOEs do not receive subsidies for international business expansion. Brunei’s SOEs are the backbone of the country’s economy, operating in areas such as oil and gas, telecoms, transport and energy.

Additionally, the TPP sought to encourage private enterprise, and Brunei’s SMEs would have had to contend with a much more competitive environment. In Brunei, SMEs’ share of GDP is 23 percent.

The proposed RCEP has quickly stepped in to fill the void left by the TPP.

“Brunei is a member of ASEAN, and will be a member of RCEP too, when it is concluded,” said Menon. “RCEP could help with Brunei’s attempts to become a financial center through its regulatory harmonization efforts.”

Prospective RCEP member states have a combined population of 3.4 billion people with a total GDP of $49.5 trillion.

Negotiations for the RCEP started in late 2012 and while it has taken longer than expected, it is now moving forward. The delays were partly due to some of the countries involved, such as India and China, not having existing FTAs with each other.

“While not the same type of deal as TPP, Brunei could use the agreement to push for restructuring and encourage diversification in its wake,” Deborah Elms, executive director at the Asian Trade Centre and an expert on free trade deals, told China Daily Asia Weekly.

Menon noted that as part of ASEAN, Brunei is party to all the ASEAN+1 FTAs, which cover all the other non-ASEAN countries in RCEP. “So, Brunei’s key FTAs come through this channel — membership of ASEAN — not membership of TPP or other bilateral routes,” he said.

In an effort to reap the full benefits of the proposed RCEP trade deal, Brunei is now increasingly providing more support to its SMEs.

In March, the sultanate launched a center to boost SMEs, the Longrich Centre Brunei Darussalam. The center aims to promote self-employment among locals and act as a platform for Brunei’s SMEs to promote their products at home and abroad.

It was inaugurated by Kamaruddin bin Talib, chairman of the National Chamber of Commerce and Industry Brunei Darussalam.

“The current task is to promote Brunei’s small and medium enterprises on the global and local market,” said Zailan bin Mohd Don, adviser to the chamber.

“The available market is insufficient to propel SMEs to contribute toward the GDP, and Brunei must widen its scope to include the rest of the region,” he added.

He also pointed out that SMEs are not the same in all countries.

“In Brunei, SMEs are considered as small-scale dealers and retailers, instead of the production industries that they are in China. Given Brunei’s location at the center of ASEAN and the East Asian growth area, it will surely see the benefits of partnership on production capacity in halal products,” he said.

At the time that the Longrich Centre Brunei Darussalam was launched, the Brunei government also established a new free trade zone (FTZ).

The goal of the FTZ is to help make Brunei a competitive destination for investors through the expansion of manufacturing activities and exports as well as re-exports.

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