Brunei's business climate real slow

Brunei's business climate real slow

By Bill Tarrant

BANDAR SERI BEGAWAN, Brunei (Reuter): Business is slow, real slow, at Brunei's over-the-counter stock exchange. The one listed stock hasn't budged all morning. Nobody has bought or sold any shares.

Things were different last July when the Islamic Bank of Brunei (IBB) offered the public 14 million shares in the country's largest financial institution through its newly launched securities subsidiary.

IBB was the first and only equity offering in the history of the tiny oil kingdom of Brunei. The issue was oversubscribed by two times and the stock shot up from its initial offer price of 2.00 Brunei dollars (US$1.42) to more than 8.00 Brunei dollars ($5.71).

But on a recent day in May it was trading at around 3.25 Brunei dollars, pretty much where it's been for the last several months. Sellers have overwhelmed buyers recently.

"We have yet to see investors taking the contrarian view," said IBB Securities Head of Operations Aidil Bahrin Mohamed Salleh.

But diplomats and financial analysts see the fledgling market as a step toward economic diversification in Brunei's one- commodity economy.

Brunei's 276,000 people have lived the good life in an economy that basically consists of a 50-50 partnership between Royal Dutch Shell and the Sultan's government.

Sometimes called the "Shellfare state", Brunei has no income or sales taxes. Houses, cars and even television sets are subsidized. There is no trade deficit or national debt.

Per capita GDP in 1993 was $23,433, one of the highest in the world. The country has 129,000 vehicles -- every other man, woman and child in Brunei is a car owner.

Thus it came as a great shock when the government suddenly announced in February that import tariffs on cars would be raised to as high as 200 percent from a flat 20 percent.

Like almost all government pronouncements, no explanation was given for the hike. And it triggered an unprecedented groundswell of negative public reaction, diplomats said.

"When you attack a Bruneian's ability to have a car, you're attacking his livelihood," said one senior western diplomat. "For the first time, you started to hear 'whose money is this', and 'why doesn't he undo it'.

He is Sultan Hassanal Bolkiah, the absolute monarch of Brunei. His family has ruled the sultanate for the past 600 years, the world's longest reigning royal family.

The Sultan is estimated to be worth $38 billion, a figure that would make him the world's richest man.

But his government has been running a budget deficit since oil prices started diving in 1989. It's not clear whether the rise in vehicle tariffs was to raise revenue or reduce traffic in car- happy Brunei, diplomats said.

Oil experts say Brunei has at most 40 years of oil reserves left, if it keeps pumping at the current rate of around 180,000 barrels a day. Oil earnings were around $2.5 billion in 1993 about the same as the previous three years.

With the population expected to double every 30 years, the government has announced an economic diversification program.

Some B$5.5 billion ($3.93 billion) has been allocated in the current five-year development plan to broaden the economy.

"The problem is there are not any great manifestations of it happening," said one western diplomat.

Brunei has a small manufacturing base, featuring a textiles factory and a canning and bottling plant.

Its biggest business outside oil is a cattle ranch in Northern Australia owned by the Sultan that is slightly larger than Brunei itself and which supplies all Brunei's beef.

An official business guide lists some of the advantages for foreign investors: no taxes, good infrastructure and 100 percent foreign ownership in many enterprises.

But diplomats cite Brunei's high cost of living, scarce and expensive workforce, and a ban on foreigners owning land as barriers to investment.

Yet even if the oil stopped flowing tomorrow, the income from investments managed by the Brunei Investment Authority (BIA) would keep the economy afloat, diplomats said.

The secretive BIA does not disclose anything about its portfolio. "People talk about $60 billion with an annual income of about $2 billion," the western diplomat said.

The one-share stock market is aimed at creating an economic environment that will entice Bruneians, long used to banking in Singapore, to keep their money in the country.

"The main reason was to give the public an opportunity to participate in the economy," said Aidil of IBB Securities.

"And, in the near future, open the eyes of other companies to list shares and lead to the establishment of a Brunei Stock Exchange," he said.