Road to Diversification

This is the kind of news that I love to read in the morning. Hopefully this too.

Salaam.

Road to Diversification

There has been another ‘exciting’ development in Brunei’s quest to diversify its economy (or I hope it is what we are doing), and that is Brunei wishes to be the ‘city in the garden’. Is this just a mere statement or is this a real project with plans and strategies already being formulated? If it is a real project, I would love to know and maybe contribute ideas but if it isn’t, then Brunei better do something about it because you can’t just announce to the world that you want to be something and not do it and expect the world to forget.

The thing about us in Brunei is that we love to make fancy headlines: ‘halal branding’, ‘heart of Borneo’, 'Kingdom of Unexpected Treasures', ‘service hub (ShuTT)’, ‘ICT park’, ‘offshore financial centre’, ‘Brunei Inc. (or something like that)’, just to name a few. Please don’t take me wrong, I’m not saying that we shouldn’t do this or we cannot dream big but I have yet to see the end products.

I think the main reason why we have not achieved anything in relation to these ‘fancy’ projects or actually ANY project is that there is a lack of detailed plan and strategies. Even if there is one, it is never shared with the public let alone debated. Even worse it is sometimes not even shared among the relevant agencies. As a result the public, including the private sector, do not understand, never mind contribute, and therefore the project is not appreciated and supported.

Take for example ‘halal branding’. Seriously, I don’t fully understand what is it that we want to do? What is our objective? Can it create massive employment? Can it increase food production? How much resources are we devoting? What is our problem? Why does it take so long? How can we help? Do we mean to say that ‘Brunei Halal’ is better that ‘Malaysia Halal’ or ‘Thailand Halal’? Because believe me, when I go to a shop abroad I only look for ‘Halal’ products. Taste and packaging play a more important role in my decision to buy a particular halal product.

I am no expert but I think it is high time that Brunei goes to the basic of development and economic diversification. Instead of devoting our energy and resources to fancy projects, wouldn’t it be better to concentrate in the actual production? I for one want to hear plans for massive agricultural production or fishery or any kind of manufacturing. It sounds boring but it is what we most need to survive. Do remember that we only have 25 years to turn our economy around. And that is not a very long time.

Salaam.

Banks and Investment

The Minister of Finance II said:

"The banking industry, in this country today, sits on over $13 billion in
public deposits, much of which invariably end up being invested offshore and
as these deposits represent a vital capital resource of the country, ideally
it should be deployed for the country's benefit"

I absolutely agree with him! And I also support his encouragement for the financial institutions to:

"...shift towards corporate lending and investment banking and wealth management
and other fee-based activities would be heeded and responded to not just in
letter but also in spirit by all financial institutions in the country."

(here for full news)

However, I cannot help feeling envious towards Malaysia which has the SME Bank or Thailand which also has its own SME Development Bank (which incidently are the subsidiaries of their respective Finance Ministries) to look (solely) after their SMEs' development needs.


Salaam.

Rejuvenate Brunei's GLCs

What interests me the most, while browsing the World Trade Policy Review of Brunei, is this bit of information:

(Per cent of GDP, unless otherwise indicated)
Saving and investment 2002 2003 2004 2005 2006
Gross national savings 47.2 48.6 51.4 59.1 62.4
Gross domestic investment 21.3 15.1 13.5 11.4 10.4
Savings-investment gap 26.0 33.6 37.9 47.8 52.1

(sorry, I'm no good in pasting the Table. For the full set click here and I refer to Table 1.2)

The saving-investment gap is huge! And the gap is because there is too much saving and too little investment (which isn’t usually the case in many countries). Now, if you’re an economics student and using Year 1 Macroeconomics, you will know that this excessive saving means there is a capital account surplus which could lead to a glut in the economy which eventually could lead to a recession.

Now, my question is why oh why are we acting as if we do not have enough capital to move the economy? To be specific, we are acting as if we’re having a gap that is caused by too little saving and therefore needs an external financing i.e. the FDI. And I have the impression that we seem to be helpless without the FDI. Now, I’m not saying that FDI is not important and I’m sure I don’t have to enumerate the reasons why we need an FDI. What I’m trying to say is that, given the availability of excessive domestic capital, it is high time that Brunei should also place the importance of the domestic investment in the effort to diversify the economy.

Despite the excessive capital however, the private sector in Brunei is weak, both in terms of resources and expertise, to undertake any major domestic investment. Therefore it is imperative (and equally inevitable) for the government sector to assist the private sector development, in particular, to do the investing.

To tell you the truth, at the beginning I wanted to propose the establishments of government-linked companies (GLCs) the likes of Singapore, but then I remembered, we DO have GLCs! Unfortunately for some reasons our GLCs are very quiet (if not, I wouldn’t have forgotten hehe) and do not appear to be spearheading the investment efforts.

I’m sure by now, many of you will be saying that Brunei’s GLCs won’t work because their managers and Board of Directors are civil servants who lack business acumen, risk-averse, slow in decision-making and their investments mainly political as opposed to commercially motivated. TRUE! And for this precise reason, I believe we need to rejuvenate our GLCs by removing (or perhaps reducing) the number of civil servants in the companies. Let’s put true entrepreneurs and real managers. If we can’t find locals then for the love of Brunei, hire (the best money can buy) foreign experts! Because the lack of competent local human resource to drive the economy is our main problem in the first place (which is nothing to be ashamed of, given our small population and the current nature of our economy, however this does not mean that Brunei’s HR should forever be at the current state) and I don't see anything wrong in hiring foreign talents. Nevertheless, we should be using Singapore as an example. Singapore’s phenomenal economic growth is, after all, the result of its strategy of ‘state capitalism’.


Let’s face the fact, we are not exactly a foreign investment magnet and on its own, our private sector is too weak and too small to drive the economy. At the same time, our oil is depleting. Therefore, I believe the inevitable solution is for the government, through its GLCs, to assume a proactive role both in the entrepreneurial development and the economic diversification effort. For the GLCs to assume this role efficiently, they need to have adequate resources and most importantly become proper business entities which mean risk-taking and being competitive. It is time for the government to let go its domineering role in the GLCs’s decision-makings and to also take the risk. Because if it doesn’t, then the only alternative for Brunei is for us to pray (very hard) for oil to never runs dry.

Salaam.