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.