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and its Dependence on Oil and Natural Gas
Brunei
Situation Problem Solutions Conclusion
History of Brunei
Pre 1400s:Chinese Settlement
14th – 16th Century:Sultanate Ruled
Borneo & South Philippines
Loss of power withArrival of Europeans
Bruneian Empire
1888-1984:British Protectorate
Situation Problem Solutions Conclusion
Brunei: A Neo-Traditional State
Hassanal BolkiahSultan of Brunei
Absolute Monarchy
Prominent Royal Family with control of natural resources
The King’s Dilemma
Rely heavily onlavish welfare & subsidies
build platform onreligion, tradition,culture and etc.
Situation Problem Solutions Conclusion
Brunei: What is the Problem?
After 22 years,Oil will run out……
After 30 years,Natural Gases will run out……
How can a country so reliable on oil survive in the future?
Situation Problem Solutions Conclusion
Possible Solutions
Islamic Financial Hub
TourismsReal Estates
Pioneering Industries
Construct Comprehensive Banking SystemStrengthen Financial Reservez
Increase & Improve Human CapitalAttract Foreign Direct InvestmentEmphasize Energy-related Services
Situation Problem Solutions Conclusion
Solution Plan01 Attract FDI
02Strengthen Reserves & Infrastructure
03Become a Financial Hub
Human Capital04
Independent Authority05
Continuous
Attract FDI Financial Reserves Human Capital Authority
Attract Foreign Direct Investment
2005 2006 2007 2008 2009 2010 2011 2012 20130
200,000,000
400,000,000
600,000,000
800,000,000
1,000,000,000
1,200,000,000
1,400,000,000
895,000,00
0
FDI net inflows (US$)
Rising Trend, once peak in 2011
Data from the world bank
Attract FDI Financial Reserves Human Capital Authority
Current FDI in Brunei
Attract FDI
11 FDI Projects
$6.9billion
2462jobs
70%by locals
Attract FDI Financial Reserves Human Capital Authority
Why do we have FDI?
GlobalizationFree Flow of Capital
Improvements in Balance of Payment
Resources Stimulating Economic Growth
Rise inCorporate Activities
Rise InNational Income
Attract FDI Financial Reserves Human Capital Authority
Barriers to FDI
Corruption
Complex Screening&
Approval Process
Ineffective IntellectualProperty Law
Restriction on Foreign Ownership of Land
Transition into Sharia law- strict punishment, restrict on human rights
Attract FDI Financial Reserves Human Capital Authority
What can Brunei do?
Government Provide fiscal incentive Provide long term land
lease to foreign investors
Upgrade its Intellectual property rights
Reduce corruption and encourage transparency
Industry Financial & energy-
related service Business
ICT infrastructure Lifetime Learning
Transport & logistics Infrastructure
Attract FDI Financial Reserves Human Capital Authority
Solution Plan01 Attract FDI
Legal Construction
Continuous
Attract FDI Financial Reserves Human Capital Authority
Construct Comprehensive Banking SystemLegal Aspect
2004New Institution
Semi-democracy: higher investment securityRevival of Legislative Council
2011Monetary AuthorityAutoriti Monetari Brunei Darussalam (AMBD)- Financial Intelligence & Enforcement Division
NowFuture
Establish Competitive reserve requirement, interestrate ceilings, capital controls and Low Taxation
Attract FDI Financial Reserves Human Capital Authority
Solution Plan01 Attract FDI
Legal Construction
02Strengthen Reserves & Infrastructure
Supporting Banking System
Continuous
Attract FDI Financial Reserves Human Capital Authority
Banking System
Basel I
Basel III
Effective from 2010Capital Requirements
BaselII
Strengthen Capital Requirements Improve Ability of Absorbing LossShort/Long-term Funding
Key Components for Pillar 1
Capital Requirements Common Equity Tier 1 ratios:7% Required capital conservation buffer: 2.5%
Leverage Ratio: 5%zLiquidity Requirements LCR: 100% & NSFR:100%
Attract FDI Financial Reserves Human Capital Authority
Basel III Requirements – Target by 2019
Achieved Not Achieved
Leverage ratio
Capital Requirements Common equity Tier 1 Total risk-based capital Required capital
conservation buffer
Attract FDI Financial Reserves Human Capital Authority
Solution Plan01 Attract FDI
Legal Construction
02Strengthen Reserves & Infrastructure
Continuous
02Strengthen Reserves & Infrastructure
Supporting Banking System
Investment of Reserves
Attract FDI Financial Reserves Human Capital Authority
Investment of Reserves
Improvement ofHuman Capital
Construction of Marketplace
Construction of Business District
Infrastructure
Attract FDI Financial Reserves Human Capital Authority
Solution Plan01 Attract FDI
Legal Construction
02Strengthen Reserves & Infrastructure
Market for Hedging
Supporting Banking System
Investment of Reserves
Continuous
03Become a Financial Hub
Hub for Energy-related services
Attract FDI Financial Reserves Human Capital Authority
Become a Financial Hub Long experience in oil trading large number of existing export markets
Volatility in oil prices in past 15 years:
2001$20/
barrel
2009$30/
barrel
2008$170/barrel
Reasons Increased demand from China and India Instability in Middle-East since Arab Spring Diverging global prices in expenses of East Asian countries competitiveness
Attract FDI Financial Reserves Human Capital Authority
Two Major Components
Non-Islamic Hedging Islamic HedgingThrough Brunei Banks
Organized Futures MarketEnergy commodities
Speculation through derivatives
Liquidity through offsettingMinor Marginal Deposits
Risk Management
Maqasid ash-shari-ah
First-mover Advantage
Japan, China, UK
Attract FDI Financial Reserves Human Capital Authority
Islamic Hedging
Situation
Risk Dilemma
Gharar Principle
Money Making
Owning Full Contract& Leasing
Buying contract at full price & selling back in instalments
Unbundle & repackageof risks
Conditions for Hedging
Inevitability
Likelihood of Failure
Causality
Attract FDI Financial Reserves Human Capital Authority
Reducing and managing costs for the purchase and delivery of natural gas, electricity and propane
Monitoring of Cost Reduction Plans assure clients are receiving what promised
Providing procurement and auditing services
Reducing transaction costs by data upload services
Investing in U.S. energy sector to help arbitrage prices Expanding sources, flexibility and enlarge the market
Hub for Energy-related services
Attract FDI Financial Reserves Human Capital Authority
Solution Plan
Improve
IncreaseHuman Capital
04Continuous
01 Attract FDILegal Construction
02Strengthen Reserves & Infrastructure
Market for Hedging
Supporting Banking System
Investment of Reserves03Become a Financial Hub
Hub for Energy-related services
Attract FDI Financial Reserves Human Capital Authority
Increase & Improve Human Capital
2000 2005 2010 20140
20
40
60
80
100
120
30.3 28.2 26.2 25.32
66.7 68.6 70.2 70.4
2.9 3.2 3.6 4.28
Age Distribution in Brunei
65+
15-64
0-14
Year
Perc
enta
ge(%
)
Total Population(2014):
426,000
Population Growth Rate: 1.34%
Fertility Rate: 2.01%
Adult Literacy Rate: 95.39%
Tertiary Enrolment Rate: 24.34%
Type of School No, Student
Teacher
Primary Education
200 31179 3258
Secondary School
38 34637 4018
Professional Technician School
11 3283 597
University 6 6179 654
Problem: Insufficient Labour Force to meet the demand for expertise required by Brunei’s development into a financial hub
Complication: Insufficient Labor Force to meet the demand for expertise required by Brunei’s development into a financial hub
Attract FDI Financial Reserves Human Capital Authority
Develop Plan of Human Capital
Long-term: ImproveShort-term: Increase Improve Working
Environment Develop own World Class
Human Capital Promote Lifetime
Learning Redefine Labor Relations
Professions Admission Scheme
Welfare for Expertise's Studying Aboard
Subsidizing Program Increase MNCs
Attract FDI Financial Reserves Human Capital Authority
01
03
04
02
Professions Admission Scheme
Prerequisite: Age & Education Financial ability Expertise/
Achievement Language
Proficiency
Welfare for Expertise's High Salaries Allowances Free Living
Studying Aboard Subsidizing Program min. of 3-5 working
years after graduation
Increase MNCs Bring in foreign
experts Attract
professionals
Short-Term: Increase
Attract FDI Financial Reserves Human Capital Authority
Long Term: Improve
World-ClassHuman Capital Branch school of
int’l university Int’l School
RedefineLabor Relations Labor Union Protection Laws
Improve Working Environment Safety Measures Atmosphere & culture
LifetimeLearning
On-the-job training Education Allowance
Attract FDI Financial Reserves Human Capital Authority
Solution Plan
Improve
IncreaseHuman Capital
04
Independent Authority05
Position in Islamic Hub
Financial / Energy services
Monetary / FDI
Continuous
01 Attract FDILegal Construction
02Strengthen Reserves & Infrastructure
Market for Hedging
Supporting Banking System
Investment of Reserves03Become a Financial Hub
Hub for Energy-related services
Attract FDI Financial Reserves Human Capital Authority
Autoriti Monetari Brunei Darussalam (AMBD) Financial
Intelligence and
Enforcement Division
Energy Investment
Division
Islamic Finance
Monitoring Board
Monitory Authority
Monitor & RegulateFinancial Market
Develop & RegulateEnergy-related Services
Maintain and DevelopRelations with other country
Situation Problem Solutions Conclusion
Four-tiered Results
01Sufficient Financial Reserve by FDI andpast energy revenues
02 Complete Infrastructure &Human Capital
03 Trading Market
04 Hub for Energy-related Services