Azlan Othman

Economic diversification has long been seen as a political priority for resource-dependent countries. This urgency is often underscored by cycles of boom and bust in commodity prices, as was the case in 2015 and, more recently, during the COVID-19 pandemic.

This was highlighted by the Center for Strategic and Policy Studies (CSPS) special feature on economic diversification in oil-exporting countries in their latest economic update on Brunei Darussalam on Wednesday.

Diversification helps reduce volatility by stabilizing export earnings and thus provides a more stable path for growth and development.

In addition to mitigating commodity price shocks, economic diversification is also important because it is usually accompanied by industrial modernization through the diffusion of technology and a shift to higher productivity sectors and industries. well paying jobs. In addition, it is necessary to prepare for future depletion of resources and to avoid unpleasant side effects resulting from a windfall of resources.

The economic diversification of the country’s fundamental economic structure, centered on hydrocarbons, has remained largely unchanged for decades.

The heavy dependence on oil and gas is evident, with gross domestic product (GDP), exports and government revenues moving in line with international oil prices.

There has been substantial progress towards diversification in recent years, especially after the start of Hengyi Industries’ petroleum and petrochemical refinery operations. In 2018, oil and gas accounted for 57% of nominal GDP, 91% of merchandise exports and 85% of government revenue. In 2020, the shares were 47 percent, 82 percent and 60 percent.

Policy advice offered to help oil-exporting countries diversify their economies generally focuses on improving the business environment, investing in human capital and infrastructure, and ensuring fiscal and monetary discipline. .

It is also recognized that there is no one-size-fits-all policy and that successful diversification requires taking into account the endowments, geography, institutions, governance and implementation capacity of the country.

In the case of Brunei, it should continue to exploit its competitive advantage in the energy field to build an internationally competitive industrial sector and by moving downstream and expanding into markets to higher added value and niche.

The co-location of petrochemical facilities with refineries as an operational synergy is an example of capturing more domestic value from hydrocarbons. The new ammonia and urea plant also has a competitive advantage due to the relatively low input costs, such as land, labor, electricity and feedstock (natural gas). . Brunei can also harness the enormous potential of renewable energy, especially the abundant solar resources.