For Brunei Darussalam, 2009 was a year of consolidation and laying the foundations for future growth, even as the economy contracted slightly and some key sectors felt the pinch as the global financial crisis took hold.
According to a report issued by the Asian Development Bank (ADB) in mid-December, Brunei Darussalam's economy was expected to contract by 1.2% in 2009, mainly due to lower world demand for energy and the fall in energy prices from the preceding year. GDP will post positive gains in 2010, climbing by 2.3% as a result of rebounding demand for hydrocarbons and rising fuel prices, the bank said, while inflation will come in at 1.2% after running at around 1.5% for 2009.
While the ADB's projected rate of growth for Brunei Darussalam is lower than its expectations for the rest of South-east Asia, which the bank predicts will see GDP expand by 4.5% in 2010, the forecast increase for the Sultanate marks a return to normal growth levels.
One of the factors cited by the ADB for the expected growth in the new year was a forecast increase in non-oil exports, especially products marketed under the Brunei Halal Brand, aimed at developing the Sultanate into a leader in the field of sharia-compliant goods and services.
The Brunei Halal Brand project and other state-backed programmes were given support through the government's budget for the 2009-10 financial year. The budget forecasts a deficit of $620m, a difference between revenues of $2.58bn and projected outlays of $3.2bn. Though the budget went in to deficit, it also provided for an increase in expenditure of $130m, with much of the extra spending being directed towards supporting the non-energy segment of the economy.
This additional spending included $440m for the construction of basic public facilities and infrastructure; $77m for the management, operation and implementation of information and communications technology projects; and $115m to fund state agencies to plan and implement programmes to increase the competitiveness of the nation's economy and attract foreign investment.
The year also saw Brunei Darussalam make further strides in developing itself as a centre for Islamic finance, with the Sultanate's sharia-compliant lenders increasing their presence on the international stage. In July, Bank Islam Brunei Darussalam, was named along with BNP Paribas, CIMB, Deutsche Bank and HSBC as one of the co-managers of the Islamic Development Bank's (IDB) latest sukuk issue, which was held in September. The issue was highly successful: it was twice oversubscribed and raised $850m, well above the minimum target of $500m set by IDB.
At the other end of the capital flow, the Brunei Investment Agency, the Sultanate's sovereign investment arm, announced in October that it had become a shareholder in a newly launched Islamic financial services firm, Fajr Capital. Other stakeholders in the Dubai-headquartered firm, which has an initial capital of $600m, include Malaysian sovereign investment fund Khazanah Nasional Berhad, the Abu Dhabi Investment Council, and the private Saudi-based firm MASIC. The aim of the new company is to focus on financial services and complementary opportunities in the broader economy in key Muslim markets including Brunei Darussalam.
The energy sector still generates most of the country's wealth, contributing more than 90% of state revenue and accounting for some 95% of total exports.
In 2009 hydrocarbon output remained at below 200,000 barrels per day (bpd), partly due to efforts to prolong the life of existing fields and a result of maintenance and upgrade work being carried out on facilities.
Output is expected to start to rise again in 2010 as Brunei Shell Petroleum begins to ramp up production from new fields such as Bugan, located some 20 km off the coast. The project was completed 16 months ahead of schedule, and in mid-November the first deliveries of oil were made from the newly commissioned field.
While work is continuing to boost upstream production, an increasing emphasis is being put on downstream activities in Brunei Darussalam, including a proposal to build a second oil refinery. The plan, sponsored by private firm PetroBru, foresees the construction of a $4.3bn refinery capable of processing 200,000 bpd, using imported feedstock rather than the output form local fields. Under the proposal, the plant would be located at Pulau Muara Besar, the massive port and industrial centre being developed by the Brunei Economic Development Board. Currently, the government is assessing the findings of a feasibility study into the proposal, submitted by PetroBru in late August.
Brunei Darussalam's downstream capacity will receive a significant boost early in 2010 when the country's first petrochemicals plant comes on-line, with work on a $450m methanol processing facility at Lumut moving towards completion as 2009 came to a close.
Though Brunei Darussalam has managed to mitigate most of the effects of the global recession, it still had an impact, with the slowdown of the economy prompting a more cautious approach among consumers, with many apparently holding off on major purchases. One example of this was in automotive sales, which eased 10% across the first 10 months of 2009, with just 10,499 vehicles rolling off the lots by the end of October, according to figures issued by the Brunei Automobile Association in late November.
Though Brunei Darussalam has witnessed some impact from the global slowdown, the combined effect on GDP is still far less than that suffered by some of its neighbours. The country enjoys a very strong fiscal position and having carefully invested in reinforcing key industries while building up new sectors in 2009, Brunei Darussalam should start to reap the benefits in 2010.
