A version of this article was first published in Borneo Bulletin on May 22, 2024.

Brunei‘s economic landscape is intricately linked to the oil and gas (O&G) sector. The nation’s high dependence on the O&G sector has encountered significant hurdles in recent years amid the increasingly volatile global energy prices and challenges in domestic production.

Growing concerns surrounding the fossil fuel industry as the world transitions toward renewable energy adoption have added to the complexities of navigating the energy sector.

To address such challenges, stepping up economic diversification is crucial to safeguard Brunei’s longer-term growth, while fostering resilience.

According to AMRO’s 2023 Annual Consultation Report on Brunei, inward foreign direct investment (FDI) can play a transformative role in Brunei’s economic diversification efforts. Particularly, inward FDI directed to strategic sectors can help to steer the country toward a more balanced economic structure, while bringing in capital investment, technology diffusion and job creation.

Brunei is not alone in its quest for more sustainable growth. Policymakers in many developing countries have long emphasized the importance of FDI as a strategy for economic development. The challenge lies in the identification and selection of FDI projects. Experiences from other countries suggest that a successful FDI strategy entails a careful selection of suitable projects, one that aligns with a country’s economic diversification goals and comparative advantages.

It is imperative that new FDI projects are closely aligned with the diversification goals within the country’s broader sustainable development strategy. For example, it is essential for the FDI to foster local employment, while creating economic spinoffs that could benefit other industries.

The selection of the new FDI projects should also prioritize the promotion of a sustainable environment, such as the adoption of eco-friendly technologies and adhering to stringent environmental regulations. Diversification strategies should leverage the country’s comparative advantages, including natural resources, and abundant capital.

Harnessing FDI in strategic sectors

Commendable progress has been made in recent years to diversify the economy. This can be seen in the downstream non-O&G sector, where robust activities have helped to support economic growth amid challenges faced by the upstream O&G sector.

Strategic attraction of FDI in the downstream sector, such as the likes of Hengyi Industries and Brunei Fertilizer Industries, has proven to be successful. A similar strategic approach should be adopted in attracting FDI in other priority sectors, such as food (including halal and agrifood business), tourism, and info-communication technology (ICT) in order to sustain the pace of economic diversification.

For example, in the food industry, Brunei can harness its marine resources to step-up the development of the aquaculture industry. Endowed with rich biodiversity, Brunei benefits from the advantage of having rich genetic diversity and species selection suitable for aquaculture production.

By amalgamating the country’s natural resources with high technology and more skilled labor from abroad, Brunei can potentially attract more FDIs into strategic industries, such as food and aquaculture production.

Encouragingly, in recent years, tangible progress has been witnessed in recent FDI announcements, such as the expanded investments in the aquaculture sector, encompassing barramundi and salmon farming in Tutong and Belait districts. These FDI projects are well-aligned with Brunei’s comparative advantages.

Unlocking future diversification potential

Beyond the near term, it is crucial to nurture the development of a knowledge-based economy. This would unlock the promise of future diversification potential by unleashing future FDI and bringing about the upgrading of economic growth potential.

One critical enabler is human capital development. Adequate investment in education and training would be essential to close the skills gap, particularly in the modern services sector, such as digital technology, which is emerging as a new growth area. Nevertheless, Brunei has done well in other important growth enablers, such as developing a robust institutional framework and investing in physical infrastructure.

In retrospect, FDI has played a pivotal role in fostering economic growth in Brunei over the past decade and will continue to be a key development strategy in the future. Targeting and harnessing selective FDI in strategic non-O&G sectors is fitting and necessary, particularly at a time when the Brunei economy is facing strong headwinds in its upstream O&G sector.