Country In Focus Brunei Economics Essay

Brunei, whose full name is also known as BRUNEI DARUSALLAM is a small country that became independent in the year 1984 .It is a tiny country of about 406,000 people. Comprising of Malays, who makes up the two -third of the population while the Chinese make up 16% of the population also. Also in the minority populace are the indigenous groups of who are the Muruts and Dunsuns,

It is divided into 4 districts, namely Brunei-Muara (capital),Tutong, Balait and Temburong. It became a British protectorate in the year 1888 and joined the ASEAN countries in 1984. Since 1962, Sultan Hassanal Bolkiah had ruled the nation and is said to be the seventh wealthiest individual whose worth is valued for about $42 billion dollars, all thanks to its vast reserve of oil and gas, It is a country where its citizens enjoy great subsidies from the government and pays no tax. Brunei has the second highest human development index among the South East Asia nations, according to .http://www.bbc.co.uk/news/world-asia-pacific-12990058.

The people of Brunei enjoys so much from its government .This is a country where education is free and compulsory from ages 5 to 16.The literacy percentage of the people of Brunei is 60%.

COUNTRY FACTS (courtesy BBC report on BRUNEI)

Full name: Brunei Darussalam

Population: 406,000 (UN, 2011)

Capital: Bandar Seri Begawan

Area: 5,765 sq km (2,226 sq miles)

Major languages: Malay, English, Chinese

Major religions: Islam, Buddhism, Christianity

Life expectancy: 76 years (men), 81 years (women) (UN)

Monetary unit: 1 Bruneian dollar = 100 cents

Main exports: Crude oil, liquefied natural gas, petroleum products

GNI per capita: High income: $31,800 (World Bank, 2009)

INVESTING IN BRUNEI

Brunei’s economy is based on oil and gas, while its major exports are crude oil, petroleum products and liquefied gas. This has made it to provide its citizens with the highest per capita incomes in ASIA. It solely relies on imported goods and manufactured products for the whole country. Brunei is a good investment haven because of its peaceful nature and stability in the polity. http://www.globserver.cn/en/brunei/doing-business

In making sure that business ethics are maintained, the Ministry of industry and Primary resources is solely in charge of facilitating and promoting trade in Brunei and is been sub- governed by the 4 tiers of chambers of commerce namely :

National Chambers of Commerce and industry

Brunei Malay Chamber of Commerce and Industry

Brunei international Chamber of Commerce and industry

Chinese Chamber of Commerce

ECONOMIC ANALYSES OF BRUNEI ECONOMY

Brunei earns about 95 % of revenue from export and this has led to their economy having a strong come back in 2010 after a little down turn and GDP rose by 5 % in the first half of 2010 http://www.globserver.cn/en/brunei/imf-consultation .

Presently the Brunei government is looking at diversifying into other economic areas while setting aside huge amount of money to back up this kind of initiative. This funds are been set aside in other to be assessed by genuine investors ,either through public private partnership or joint ventures ,especially in energy sectors, telecommunications and above all Food business industry.

Why invest in Brunei

So many factors could lure any interested investor into Brunei. The Government of Brunei has put so many measures in place to make the country suitable for an average investor, who is looking at his ROI to mature in the shortest period. In deciding whether or not to invest in Brunei certain factors needs to be looked into as to affirm its overall attractiveness and also by balancing it with other key factors as narrated by (Charles Hill 2009)

Economic policies: This has to do with the size of the Brunei economy, whose economic growth is based on its free market system and its capacity for growth (Charles Hill 2009). Brunei practices the Constitutional Sultanate type of government, (where all power is invested in the Sultan who doubles as the Prime Minister) .Although the Sultan has some 29 council members whom he consults, but in this case I do not think the opinion of this members really counts. The Sultan genuinely manages the wealth of the nation very well, as this is evident in the standard of living of the people of Brunei. He has also made provision for free education, free medicals, subsidized housing, and even the rice that is been sold to the masses enjoys a whole lot of subsidy.

The Sultan has been able to put in place good economic policies that would attract investors. Brunei government is looking ahead to the future where the natural oil and gas reserves may not be able to generate enough money for the economy. It is looking at ways to diversify into other sectors and with these kinds of plans, he needs foreign investors to do this for him.

Costs: Many factors like economic, political and legal factors determine the cost of doing business in a Brunei. For example, in Nigeria a foreign company trying to invest may have to pay off some cash to greedy politicians before been allowed to operate. This can be attributed to the ideology of the people. Whereas such an act is seen as a criminal offence in Brunei, because of Sharia law system being practiced. So also the infrastructural status of Brunei have been considered and found to be at par with some developed Asia countries within its environ which also help reduce cost of technological import on the part of an investor.

Risks: The risks of doing business in Brunei could also be determined by some factors such as political and economic factors

Political Risk: has been defined by (Charles Hill,2009)” as the likelihood that political forces will cause drastic changes in a country’s business environment that adversely affect the profit and other goals of a business enterprise. In his own opinion (S H Robock) believes that “political risk tends to be greater in countries experiencing social unrest and disorder. Such unrest he claims is more pronounced in countries where there are more than one ethnic group or countries where its resources has been mismanaged by different leaders and subsequently led to poor standard of living and inflation. With all these given examples, Brunei can be said to be free of any unrest as explained above because it has enjoyed a stable government for so many years and its ruler His Majesty Sultan Haji Hassanal Bolkiah who doubles as the Prime Minister, Minister of finance, and also as the defence Minister.

Economy Risk :According to (Charles hill, 2009) “defined it as the likelihood that economic mismanagement will cause drastic changes in a country’s business environment that hurt the profit and other goals of a particular business enterprise” .Brunei economy has been the cynosure of all eyes as regards its boisterous economy. Lately the Sultan of Brunei has taken a major step in reshaping the future of the country’s economy, pointing out the need for the country to diversify into other sectors, such as tourism, agriculture and fishery. Nevertheless, Brunei’s economy is jeering up for the future especially as it welcomes investors from the outside world, who will help develop the IT sector and its proposed ISLAMIC banking.

Measures put in place by Brunei Government to attract and stinulate foreign investors

The Sultan has passed Flexible business laws guiding the modus operandi of business investors in Brunei where ownership of business for foreign investors could be as high as 100% ownership.

Brunei government has put in place a Zero company Tax policy for foreign investors of up to 8yrs. This implies that there is no tax on personal income, payroll or even on the export.

Brunei has one of the best living conditions and standards in the region, this is visible in the lifestyle and good health the citizens so enjoy

Being a small country, the local market is small also, there is relatively no competition within the foreign investors / market

Brunei government has been able to invest so much into the economy of the country and this has helped it to achieve a Low and cheap Utility cost

The laws governing foreign investors are quite flexible and investor friendly in Brunei.

There is possibility of 100% foreign ownership in investment

There is provision of investment incentive by the Government for new investors, which helps to nurture your business from starting up the business ,passing through growth till it reaches expansion stage

Creation of new economic strategy to reduce unemployment and increase other business opportunities

An infrastructure development programme to ensure Government keeps investing by partnering with external stakeholders

A security strategy to ensure Brunei’s political stability, where all citizens and foreigners feel secure while they go about their daily business

With all these evident measures, it is easy to say that it more of advantage to invest in Brunei where the polity is stable and enjoys good policies from the Sultan who has managed to give back proceeds from the crude oil back to its citizens.

PROPOSED MARKET ENTRY / BUSINESS STRATEGY

After deciding on choice of country to move into, another uphill task is to decide how to enter the market. There are different types of market entry but it is necessary to consider other factors that helps make the right choice of entry. Each market entry has its merits and demerits. However, there is also need to say that there is no perfect entry as far as this strategy is concerned. Many factors could be considered while choosing the type of market entry options to choose from. There are different kinds of models, but for purpose of this report I have decided to recommend the SWOT ANALYSIS STRATEGY

This implies that organizations should adopt a strategy that is most suitable for it, which helps it to achieve its internal capabilities (strength and weakness) while also considering the external capabilities such as opportunities and threats. (Kenneth Andrews, 1970).

Also other entry mode could be analysed as against the options mentioned earlier. These include considering the options of Exporting products directly in to Brunei which will in turn increase the cost of transportation

Franchising is another method through which a company might want to use to gain entry into a country but it also comes with its own problems such as not having control over quality of one’s product.

Other methods that could be looked into are Joint ventures and full ownership of subsidiaries.

HOW TO REGISTER A BUSINESS ENTERPRISE IN BRUNEI

It is important to outline what type of food product and items that will be offered to the public. Research should be carried out on the type of food that is acceptable to the people of Brunei putting into consideration that it is an Islamic country. There is need to create an operating plan

Sourcing for good location to establish the business is very important. Other facilities such as warehouse, storage, and equipment should be considered at this stage. It is important to also keep in mind if the property for the business would be bought , rented or even be built to suit the kind of business being proposed

It is necessary to register the business name with the local authority at the chambers of commerce and industry office for proper documentation and licensing

.Employ a tax expert to clarify all tax issues as the case may be and all other necessary permits that may be needed

RECOMMENDATION

The following factors were considered before arriving at this recommendation

Supportive Environment: the Government of Brunei believes in sustaining the human environment through right practice as regards industrial pollution and emission. Any company that is found guilty is banned and evicted from its location. There is heavy investment in infrastructures and facilities.

Infrastructure: Brunei can comfortably boast of well-developed infrastructures compared to its surrounding neighbors. Its telecom industry is well developed that an average Brunei citizen could boast of having a phone. The sea port that serves the country has also been improved upon to serve all kinds of maritime business. While its road are of good standards.

Taxation: Brunei does not operate income tax or export tax, which proves as a good starting point for a new investor.

Import duty: Imported goods, foodstuffs and materials for industrial use do not pay import duties.

It is evident that investment in Brunei has more of opportunities than risk, because of all the aforementioned reasons above.

I would recommend an investment in Brunei. Considering all the right policies the government has been able to put in place.

CONCLUSION

I am pleased to inform you that after putting in a lot of work and information gathering into this report, I am strongly of the opinion that investing in Brunei would not be regretted as evident in this report.

Though it is a small country but, its ROI will be achieved over a short period of time, if all the variables are to be considered such as the Risks, economic policies, and cost implication of doing business in Brunei which is very low. I would suggest an overall overview of this report, where all the merits are deeply looked into and used as a parameter for investing in Brunei.

With the government planning to diversify into other sectors of the economy, It is my belief that Brunei will begin to enjoy more influx of foreign workers, foreign investors, and even huge number of tourist.

Another area that needs to be looked into as regards investing in Brunei is the futuristic plan of the region. This is a plan that the Sultan has proposed to take them through a journey of 20years. Within this period, it has made plans to invest in building more high rise structure, roads, airports, universities, hospital, and make the region attractive to the outside world. It also plans to be self-sufficiency in the year 2015.

In all of these, the Sultan has a major role to play. The Sultan has been able to maintain a stable government and economy .It is my opinion that the political stability will not experience any changes in a long while as the ruling family intends to maintain its grip on power by not allowing any political process that would want to usher in a new government.

Although there have been a little complain about the extravagant lifestyle of the royal family, no real opposition has come out to publicly condemn this government. If things remains as it is with no change in power ,then Brunei’s economy stability is guaranteed which is most suitable for any investor.