Brunei: India’s trade potential

The first successes of the recently established free trade agreement (FTA) between Brunei and India have become evident, with Indian experts identifying the Sultanate’s construction sector as a promising area for trade expansion. The sector offers Indian firms a chance to tap into one of the Bruneian economy’s major growth drivers, with a swathe of major construction projects either under way or on the drawing board.

The FTA between India and Brunei is part of the wider FTA between the sub-continent and the ASEAN states. New Delhi has had to individually ratify the deal for each of the 10 member states of the association, with Brunei joining at the start of November to become the seventh participating ASEAN member. Cambodia, Laos and the Philippines remain have yet enter the agreement, with the Indian government saying that these countries will likely be approved in the coming few months.

Trade between India and Brunei stood at some $453m in 2009, according to the Indian Ministry of Commerce, only around 1% of the total $435bn in trade between India and ASEAN that year. Nonetheless, the Bruneian market has good potential for some Indian companies, according to a delegation of Indian trade experts who recently visited Bandar Seri Begawan, the capital. They highlighted the construction sector, in particular the segment concerned with chemical-based construction products, as a good area for investment.

“My exporters found the market to be very good and from experience, in terms of price Brunei is a good market for us,” said S. Sengupta, the deputy director of Capexi, the Indian Ministry of Commerce’s export promotion council.

The Sultanate’s construction sector has been constantly expanding in recent years. According to the Department of Economic Planning and Development (JPKE), at constant prices the construction sector was worth BN$488.9m ($354.9m) in 2007, BN$497.6m ($361.2m) in 2008 and a provisional BN$477.4 ($346.6m) in 2009. Over this period, the sector contributed around 4% of GDP.

Major construction projects under way currently include the Ministry of Development’s National Housing Programme, which aims to provide low-cost housing for 30,000 Bruneians. There is major work being carried out to construct an integrated waste-management system (IWMS), and a new dam at Ulu Tutong, estimated to cost about BN$120m ($87.1m). A complete refurbishment of Brunei International Airport is ongoing.

In addition, there is the Pulau Menara Besar (PMB) deepwater port project, which when completed will also house a manufacturing complex, including an aluminium smelter and an export processing zone for halal food on its 955-ha site. There are plans for lifestyle and tourism, economic, and community zones. Meanwhile, the 271-ha Sungai Liang Industrial Park (SPARK) will also be expanded with the construction of SPARK Zone Village, which will house amenities and facilities such as conference and meeting rooms, open office spaces for rent, a multi-purpose hall, an exhibition hall, banks, a pharmacy, eateries and retail shops. All of these are major attractions for construction companies around the world and Indian outfits are among the firms interested in winning contracts.

“Certainly there are high hopes because Brunei is a booming market, especially for its construction industry,” said Yasowant Roy, the director of the West Bengal-based KE Technical Textiles Ltd, who was in Bandar Seri Begawan with the Capexi visitors. Technical textiles include fibreglass fabrics for high-temperature and cryogenic applications, one example being geo-textiles, which are used for a variety of building tasks such as soil stabilisation. Waterproofing is another area of expertise, an important aspect of housing construction in a tropical country such as Brunei.

Yet while many of the large construction projects in Brunei attract overseas bidders, the picture is not always so clear for domestic companies. Few locals can match giant internationals when it comes to bidding wars, meaning that Bruneian firms tend to end up serving as subcontractors for the larger international enterprises. Yet advocates of free trade policies argue that while FTAs allow overseas enterprises better access, they also oblige locals to raise their game and open up opportunities overseas. Bruneian companies now have much greater access to Indian markets as well, and the rapidly growing Indian economy is a potentially massive money-spinner.

The FTA is thus likely to benefit many Bruneian companies, such as local construction outfits. Domestic companies may also benefit in terms of developing niche products that larger construction giants are obliged to subcontract – fulfilling Brunei’s development goal of creating a more knowledge-based and higher-value-added economy.