Pampered People

In 1991, when the Seria oilfield in Brunei Darusssalam produced its billionth barrel of crude oil, Brunei Shell Petroleum built a monument near Well No. 1, composed of an Islamic arch topped with the national crest and flanked by a pair of hands open to the sky in thanks.

Thankful they should be. Brunei’s oil fields have been steadily pumping crude since 1929, delivering at least 200,000 barrels of oil a day and a level of wealth to the sultanate’s 380,000 citizens that most countries can only dream of, especially now that crude prices have reached stratospheric levels.

But how long can it last? According to a study by Rabobank, the Dutch financial services provider, Brunei’s wells will run dry in 2015—just a bit over eight years from now. A 2003 study by the World Markets Research Centre puts the end of the gravy train a year earlier, 2014. Natural gas, the other leg of Brunei’s economy, is expected to run out 10 years later, in 2025.

The tiny, isolated South Pacific island of Nauru is very much on Bruneian minds. In 1899, a British prospecting company discovered Nauru, which, it turned out later, was nearly solid phosphate fertilizer, guano left by tens of millions of years of birds on their annual migrations between Asia and Australia.

After World War II and a Japanese invasion that left only about 1,500 Nauruans alive, mining began in earnest, with an Australian company paying only a half-penny per tonne of phosphate shipped. Eventually, however, Australia and Nauru signed an out-of-court settlement for US$66 million, creating one of the highest living standards in Asia, and Nauru began living like there was no tomorrow.

There wasn’t. Eventually Nauru woke up broke. By the 1990s, phosphate mining had ruined the tiny island’s environment and the trust established to manage Nauru’s wealth had squandered most of the money, setting off tribal squabbles and instability. The island briefly became a tax haven and money laundering center until its bedraggled handful of citizens were forced to accept aid from the Australian government.

Is crude Brunei’s version of phosphate fertilizer?

“Brunei illustrates well the barriers facing a small but rich OEC (Oil Exporting Country) in economic diversification,” according to a report for the United Nations Framework Convention on Climate Change. ‘’The attempt to develop manufacturing is constrained by the smallness of the home market on the one hand and the lack of cost advantage for the export market on the other. What emerges most strongly from the studies of Brunei is, however, the deficiency in the process of human capital formation. A fundamental barrier here is the fact that the native population is accustomed to a standard of living that is provided by the state through oil revenue.”

The government is aware of the danger and has cut back crude production from 240,000 bbl/day to about 200,000 to make the resource last longer. Virtually since 1968, when the current sultan, Hassanal Bolkiah, inherited the throne from his father, officials have made economic development a government objective. Nonetheless, according to the government, crude and natural gas still account for 57 percent of gross domestic product. Hydrocarbons account for 90 percent of all exports, followed by timber at less than 5 percent.

And living in Brunei, a 5,765-sq. km double wedge of jungle and mangrove swamp—only 10 sq km of it in agricultural cultivation—stuck into the northern flank of Borneo, is pretty good. GDP was upgraded in early August by the Department of Economic Planning from B$9.8 billion to B$15.9 billion, raising annual per capita GDP to B$42,900, the highest in Southeast Asia—with just 28 percent of GDP derived from the private sector.

Some 65% of Bruneians work for the government. There are at least 180,000 cars, one of the highest levels of car ownership on earth. About a thousand of those are in the hands of the absolute ruler, who lives in the 1,762 room Istana, the biggest palace on the planet, a marble-covered behemoth whose domes are gilded with 22-carat gold leaf.

Nonetheless, nobody seems particularly envious. During Hari Raya, the traditional feast and visiting day that ends Ramadan, citizens flock to the Istana to look over the car collection.

Bruneians pay no income taxes. Government workers have access to free car and home loans and there is substantial subsidized housing available. Education is free, including government subsidized studies at overseas universities. Pilgrimages to Mecca are subsidized for many.

Hospital care costs a single Brunei dollar (US60¢) for citizens and the government pays to fly patients overseas if they require more intensive medical care. Petrol costs 50 Brunei cents a gallon. As many as 40,000 expatriates—19,000 of them Filipino and 11,000 from Indonesia—do most private-industry jobs because most Bruneians want only to work for the government.

Especially telling is Kampung Ayer, the extensive water village on stilts that houses tens of thousands of people in Bandar Sri Begawan, the country’s capital, at the mouth of the Brunei River. Every seemingly modest house sprouts a satellite dish—and some have as many as three. Houses routinely have three televisions, one for local TV, one for satellite TV and another for DVDs. The parking lots on either bank of the river are filled with hundreds of cars.

Elsewhere, there are scores of parks, beaches, underwater playgrounds and other natural attractions.

The Temburong National Forest is usually thronged with visitors, lots of them high school students learning about environmentalism. There is almost no pollution except that which blows across from Kalimantan when Indonesians lay waste to huge swathes of forest by burning. The infrastructure system is brilliant, with 3,300 km of wide roads and dual carriageways.

And Brunei is absolutely globular with mosques—110 of them for Muslims, who comprise 67% of the population. The most elaborate is the Jame’Asr Hassanil Bolkiah, opened in 1994 to commemorate the sultan’s 25th year on the throne. It is topped with 29 turrets to denote his position as the 29th sultan in a kingdom that once stretched from the Philippines across Borneo. Hassanal is one of the world’s longest-reigning monarchs as well as prime minister, defense minister, finance minister and head of Islam. His mosque, in addition to other breathtaking treasures, contains a stunning 3.5 tonne central chandelier composed of crystal and solid gold suspended by a single cable (skittish worshipers refused to kneel under it for more than six months when the mosque opened fearing it would crash down on them.)

Crime is virtually nonexistent. A recent foray to Brunei turned up only a couple of crimes on the pages of the Borneo Bulletin—one the theft of a pet goat, the other the arrest of two youths for attempting to smuggle a trunkload of frozen chicken wings in from Malaysia. Chicken-wing smuggling apparently is a relatively big business because Brunei’s halal, or Islamic dietary standards, are far stricter than Malaysia’s.

In this pampered atmosphere, getting Bruneians to worry about the oil is difficult to say the least despite constant exhortations from the Sultan, who used his 60th birthday speech in July to call for economic diversification and better planning, which he said is “important for strengthening the country’s survival.”

“There tends to be a layer of complacency,” said a senior Brunei civil servant in an interview. “Every time the question comes up of oil running out, someone says some new oil wells have been found,” although reserves are classified as an official state secret.

Some efforts at diversification have ended in unmitigated disaster. The sultan’s brother Jefri is thought to have blown as much as US$40 billion in astonishingly bad or venal investments through the Brunei Investment Agency, which was responsible for investing the proceeds from the country’s energy extraction, and Amedeo Development Corp., Prince Jefri’s personal corporate plaything.

When Amedeo collapsed in 1998, the infuriated sultan banished Jefri to England, where he remains today, and sold some 10,000 items putatively worth US$17 billion in a debtor’s sale that brought only about US$2 billion. A long string of lawsuits has continued ever since. The collapse of Amedeo actually triggered a recession in the oil-steeped kingdom. “Public finances have yet to recover from the so-called ‘Jefri Scandal,’” said a 2003 report by the World Markets Research Centre.

The more destructive outcome of the Amedeo collapse, however, may well have been its long-term impact on the Brunei Investment Agency and its government offshoots, which have been frantically gun-shy ever since about where to place the kingdom’s fabled foreign reserves. Those at one time were thought to amount to as much as U$100 billion, although Jefri’s misadventures and the Asian Financial Crisis of 1997 shrank the excess. Although the sultanate’s foreign reserves are a state secret, observers put them currently at US$40-60 billion.

The government would like to style itself on Dubai, which has had huge success as an investment center for the oil-rich kingdoms that surround it, but so far its efforts have been minimal, and largely stymied, partly out of an unwillingness to think with Dubai’s brand of daring. The government in 2000 enacted statutes creating the Brunei International Finance Center to draw banks, insurance companies, mutual and securities funds and other parts of the financial industry to the Sultanate. Unfortunately, at least 47 other countries had the idea first, including the Cook Islands, Macau, the Marianas, the Marshall Islands, Nauru, Niue, Samoa and Vanuatu, not to mention such well-established regional powerhouses as Hong Kong and Singapore.

Nonetheless, says Fajdilla Abubakar, the center’s assistant finance officer, some 5,000 companies have registered. Six international banking licenses have been issued, along with two international securities licenses. And, unlike many other offshore centers, Brunei has an internationally acceptable money-laundering law and a requirement that registered companies have a physical address in the sultanate, which may well deter some of the seamier ones from doing business.

Another Islamic investment vehicle is the sultan’s vast cattle ranch in Northern Australia, which covers more land than Brunei itself and delivers subsidized beef to the motherland. In a memorandum of understanding between Brunei and some Australian companies, the government indicated it would seek to “make Brunei Darussalam one of the leading players in the global halal map.”

That project, however, is unlikely to create any Brunei-based labor, since it would make no economic sense to bring beef to Brunei, either before or after slaughter, before delivering it to the Islamic countries of the Middle East.

A more attractive scheme is Brunei’s ambition to become an ecotourism destination. With the fabled rainforests of Borneo falling to the chainsaw at a depressing rate, Brunei could well end up the most heavily jungled locale on the 427,500 square km island—and easily the most accessible. Natural attractions include peaks rising to more than 1,000 meters, carefully stewarded and spectacular, with long-tailed macaques flitting through the mangrove swamps, proboscis monkeys, the occasional, elusive cloud leopard and hundreds, perhaps thousands, of species of flora and fauna.

The Temburong National Park is 50,000 hectares of thick virgin jungle featuring seven km of walkway, reachable only by longboat and including tree houses 30 meters up into the dipterocarp canopy, hanging bridges, bats, bugs, monkeys, butterflies, ferns and a spectacular, vertigo-inducing treetop observation post 50 meters high.

For better or worse, however, the biggest setback to tourism that Brunei faces may be that the country is bone dry—unlike Dubai, which allows tourists to do as they please. While locals often drive over the border to Malaysia and buy duty-free booze, which border guards wink at, the last bar for tourists, in the Sheraton Utama Hotel, went dry on Dec. 31, 1997.

During the 1990s, the country also sought to diversify through garment manufacture, which briefly flared as Brunei’s second-biggest export industry after hydrocarbons, then disappeared with the end of the Multi Fibre Agreement. The agreement, which gave Southeast Asian countries quotas on exports of textiles and clothing to the US and the EU, drew flocks of Malaysian garment-makers to the sultanate, and thousand of Filipino, Indonesian, Thai and Bangladeshi workers to sew “Made in Brunei” labels into the garments. Very few Bruneians went to work in the factories, or even wanted to. What it did draw was considerable labor unrest as rock-throwing Filipino workers, furious at being forced into contracts different from the ones they had signed when they left their own country, went on strike in what newspapers described as the biggest and longest-running labor dispute in Brunei’s history. The shocked government unceremoniously deported 300 Filipino workers.

Ultimately, when the MFA lapsed the quota-shopping manufacturers simply packed up, fired all the workers, and moved on.

The government has now turned to more conventional issues: a port on a nearby island as well as a joint venture agreement with Alcoa to develop an aluminium smelter that would produce 300,000 tonnes of primary aluminium per year, with the possibility of a series of downstream industries such as production of cans and other products to employ local citizens. The Economic Development Board has also entered into negotiations to establish ammonia/urea and methanol plants that would invest US$600 million with the capacity of producing 2,000 tonnes of ammonia and 3,500 tonnes of urea per day, the only world-scale urea manufacturing facility in Asia.

The plant, however, would employ only 200 people, with the possibility that spin-off industries would create 300 more jobs. A US$288 million methanol plant would also create 120 to 130 jobs.

But Brunei today has 7,300 people out of work, presenting a vexing problem. And, said a top EDB official in an interview: “My personal view is that I am not sure the government is in any hurry to create jobs. There have to be ways of creating jobs. The oil and industry creates revenue but no jobs.”

That seems to square with Bruneians themselves, who apparently are in no hurry to take private industry jobs even if they were there, leaving most to expatriate labor. One company director said he recently hired five Brunei college graduates, only to lose three in a matter of weeks when government jobs came open.

Says the EDB official: “Trying to get Bruneians to get up and go for a walk (get involved in private enterprise) is like trying to get them to go to the dentist.”