This article first appeared in East Asia Forum on March 19, 2025.
Brunei experienced strong economic growth in 2024, buoyed predominantly by its oil and gas sectors, though sustaining this growth in the near future may prove challenging. The nation is recognizing the need for diversification, with new opportunities for economic diversification arising such as advancements in the tech industry, shifting global supply chains and the global shift toward renewable energy. But constraints related to its labor market, bureaucracy and cultural expectations pose significant challenges.
Brunei’s economic growth rebounded strongly in 2024, driven by a recovery in its upstream and downstream oil and gas sectors after a protracted period of weakness. The new Salman oilfield started production in October 2023, while the multiyear rejuvenation of mature offshore assets began to pay dividends. Downstream activities also resumed after an extensive maintenance period at a major refinery and petrochemical plant.
Over the 12 months leading up to the end of September 2024, the economy grew by an impressive 6.4 per cent — a rate unseen since the late 1970s before Brunei’s independence. But sustaining this growth in 2025 is unlikely as base effects fade. Though oil production recovered to approximately 100,000 barrels per day in 2024, up from less than 90,000 barrels per day in 2023, it remains less than half of its peak of 220,000 barrels per day in 2006. Natural gas production has followed a similar trajectory of decline.
Growth in the agriculture and services sectors was more subdued. Still, there were notable achievements. Brunei exported its first batch of commercial-scale processed beef products to Singapore in December 2024, following the success of chicken egg exports in 2023. A new Brunei-based airline, GallopAir, commenced operations on 31 December 2024, with its inaugural charter flight from Guangzhou to Brunei.
Despite these positive developments, Brunei’s economic prospects remain challenging. The welfare state is still heavily dependent on hydrocarbons, which account for roughly three quarters of total exports and government revenue. Efforts to diversify the economy, which began with the first National Development Plan in the 1950s, have seen limited success. The nation’s aspirations for long-term prosperity and global competitiveness, outlined in Wawasan Brunei 2035, will remain challenging without effective economic diversification and job creation.
Brunei’s growth constraints stem from structural and policy factors that limit its long-term development. These include a small domestic market, labor market rigidities and bureaucratic inefficiencies.
One of Brunei’s enduring challenges is sluggish private sector-driven growth, reflecting weak entrepreneurship and persistent skills mismatch. Most citizens are employed in the public sector, while the private sector heavily relies on inexpensive, low-skilled foreign workers. The sharing of resource wealth through generous public sector employment — providing attractive wages and better working conditions — has created a large middle class while stifling entrepreneurial ambition and skewing education choices, hindering private sector-driven diversification.
Government efforts to address these challenges include encouraging entrepreneurship, aligning curricula with industry needs and attracting foreign investment with ‘Bruneianization’ — workforce localization policies and skills transfer programs. Yet cultural expectations for secure, high-paying public sector jobs are difficult to change.
Some countries with similarly unique constraints have managed to diversify their economies. The United Arab Emirates has successfully transformed into a global hub in tourism, finance, logistics, and real estate through massive infrastructure investments, liberal foreign ownership rules and large-scale immigration. Brunei’s stronger emphasis on preserving its cultural identity and national workforce participation makes it difficult to replicate this model. Still, Brunei can learn from — and tailor — this model in its unique context to balance conservatism with economic openness.
Brunei should establish realistic long-term economic goals and identify higher value-adding sectors that can open more diversification opportunities based on existing capabilities. For instance, Brunei’s small but highly educated population and strong internet penetration could support a tech-driven economy. Diversifying into new growth areas would almost certainly require new investments and strategic importing of foreign workers, while continuing to develop the local workforce. There is no ready blueprint to inform the ideal socially balanced policy mix — being open to experimentation and easing the binding growth constraints will be crucial.
The return of industrial policy and shifts in global supply chains due to geopolitical tensions and the COVID-19 pandemic also present new opportunities for economic diversification. Several ASEAN economies, particularly Vietnam and Malaysia, have capitalized on the ‘China+1’ strategy as firms and policymakers seek import and manufacturing base diversification. Brunei should leverage its neutral foreign policy stance to capture a share of shifting trade and investment flows, particularly in oil and gas, petrochemicals, solar power and the halal industry.
The global energy transition also offers Brunei opportunities to venture into renewables and clean fuels. While Brunei has made modest advances, such as installing solar photovoltaic panels and initiating a demonstration hydrogen project, regional neighbors are progressing faster. Sarawak is advancing with floating solar projects, a hydrogen-powered autonomous rapid transit system, two hydrogen production facilities and the Kasawari Carbon Capture and Storage project that will be developed into a regional hub.
The development of Indonesia’s new capital, Nusantara, in East Kalimantan is an economic catalyst for Borneo. Seaports in Sabah and Sarawak are gearing up to handle imports of construction materials for the capital’s development. A potential Trans-Borneo Railway could further enhance connectivity and economic growth.
With intensifying global competition, Brunei can no longer afford to rely on past successes and must act decisively to capitalize on these opportunities. The state plays a critical role in driving industrial development — the underdeveloped private sector cannot provide the scale necessary to spearhead economic diversification. Brunei must be willing to make long-term bets in strategic areas, leveraging its geography, affordable energy, substantial financial reserves, highly educated population and regional integration.