The decomposition of gross exports into the five value-added categories shows that DAVAX, or the share of direct trading, consistently comprised the largest share of 45-60%. In other words, this is the amount of Brunei's value added flowing to its trading partners for consumption as final or intermediate goods in their own economy. Recall here that DAVAX is not a component of GVC-related trade and isolates the portion of gross exports for which this direct type of relationship applies. In 2021 the DAVAX component of Brunei's total exports amounted to USD3.5 billion against gross exports of USD6.4 billion. The predominance of DAVAX in Brunei's exports is a result of the high proportion of oil and gas exports, which are products primarily used as intermediaries. The remaining portion of exports is what comprises GVC-related trade or indirect trading. As evidenced from the export decomposition (Fig. 6.2), only the REX and FVA categories are significant for Brunei while REF and PDC constitute a negligible amount. REX indicates the continued flow of Brunei's value added down the value chain and is thus a measure of forward integration. FVA indicates the extent of imported inputs embedded in Brunei's exports, or backward GVC linkages, and is thus a measure of backward integration. In 2021 REX amounted to USD1.6 billion or 25% of total gross exports, while FVA amounted to USD1.3 billion or 20% of total gross exports. Total share of GVC-related trade for Brunei in 2021 amounted to USD2.9 billion or 45% of total gross exports.

Analysing Brunei's sectoral value-added decomposition of exports lends further insights towards understanding its participation in GVCs. Figure 6.3 shows the decomposition of Brunei's mining and quarrying sector, which mainly includes crude petroleum and liquefied natural gas and makes the highest contribution to the economy's gross exports. The sector entailed a persistently high share of DAVAX (55-65%) and a relatively low share of FVA (less than 10%). This makes intuitive sense as the sector consists of extractive industries that rely on factor endowments, leading to a higher proportion of trade in intermediates and a lower share of FVA in its gross exports. It is also pertinent to note the decline in the sector's overall share in gross exports and the simultaneous growth in its share of FVA in gross exports in the years 2020 and 2021. The sector's share in gross exports was 48% in 2020 and 43% in 2021 in comparison to 54% in 2019, while its FVA was 7.1% and 7.4% respectively in gross exports for the same period—the largest shares of FVA for this sector during the period of analysis. In tandem with global trends since the onset of COVID-19, Brunei's total output of the sector declined in 2020 due to a fall in oil prices and an unscheduled shutdown and maintenance of oil and gas facilities (IMF 2021). Consequently, production disruptions led to a decline in the sector's exports in 2020 and 2021, and increased the share of imported inputs embedded in its exports.

Figure 6.4 demonstrates the value-added decomposition of gross exports for the coke, refined petroleum and nuclear fuel sector, along with the sector's contribution to gross exports. This sector in Brunei primarily consists of petroleum oils and gases, and is one of the major contributors to gross exports, comprising about 35%, 43% and 45% of gross exports in 2019, 2020 and 2021 respectively. As the sector is closely linked to the oil and gas industry of Brunei, its DAVAX has followed a similar trend as the mining and quarrying sector, evidenced by the fact that the DAVAX shares have performed in accordance with the oil and gas prices for their respective
<figure><img src="image_51.png" /><figcaption>**Fig. 6.3** Brunei Darussalam: Gross exports decomposition for mining and quarrying, 2000, 2007–2021 (%). *Source* ADB (2022, 2023) and ADB estimates. *Note* Gross exports are decomposed using the methodology in Borin and Mancini (2019). The line shows the share of the mining and quarrying sector in Brunei’s gross exports for the given time frame</figcaption></figure>

<figure><img src="image_52.png" /><figcaption>**Fig. 6.4** Brunei Darussalam: Gross exports decomposition for coke, refined petroleum and nuclear fuel, 2000, 2007–2021 (%). *Source* ADB (2022, 2023) and ADB estimates. *Note* Gross exports are decomposed using the methodology in Borin and Mancini (2019). The line shows the share of the coke, refined petroleum and nuclear fuel sector in Brunei’s gross exports for the given time frame</figcaption></figure>

years. Further, the sector not only has negligible shares of REF and PDC but it also displayed a consistently limited share of FVA, as most of the trade is direct and involves intermediate inputs of extractive industries. On the other hand, although the sector has maintained relatively high shares of REX—as high as 67% in 2010—these shares have declined significantly in recent years—only 30% in 2021—possibly indicating more backward integration of the sector in GVCs.

In an economy dominated by the two aforementioned sectors, the sector for chemicals and chemical products, essentially a derivative of the oil and gas industry, gradually emerged as a major contributor to the gross exports of Brunei. An increasing trend has been witnessed in the sector's share of gross exports—particularly for
<figure><img src="image_53.png" /><figcaption>**Fig. 6.5** Brunei Darussalam: Gross exports decomposition for chemicals and chemical products, 2000, 2007–2021 (%). *Source* ADB (2022, 2023) and ADB estimates. *Note* Gross exports are decomposed using the methodology in Borin and Mancini (2019). The line shows the share of the chemicals and chemical products in Brunei’s gross exports for the given time frame</figcaption></figure>

specific products like hydrocarbons and methanol—which have remained slightly above 1% since 2015 (Fig. 6.5). Further, a decomposition of the gross exports of this sector illustrates that the share of DAVAX increased by more than 100%, from 16% in 2018 to 33% in 2019. This substantial increase in the domestic production of the sector may be attributed to the newly built refinery and petrochemical plant in Pulau Muara Besar, a joint venture between the government of Brunei and China’s Zhejiang Hengyi Industries, also known to be the largest foreign direct investment (FDI) in Brunei at USD3.4 billion (Hengyi 2024). Owing to such dedicated investments to augment the production of downstream segments of the energy sector in Brunei, it is reasonable to posit that the exports of this sector are likely to increase in the coming years.

### 6.3.2 GVC Participation Rates

The GVC participation rate enables a quantified assessment of the importance of GVCs in an economy. Although higher GVC participation can often stimulate economic activity, it can also increase an economy’s susceptibility to external shocks through value chains, thereby increasing vulnerabilities. GVCs inherently assign specialised tasks within production chains, thus increasing the reliance on both upstream and downstream customers, wherein a disruption in any part could impact other segments of the chain.

The GVC participation rate may be analysed through two possible approaches: (1) a trade-based approach which calculates the share of indirect trading in exports; and (2) a production-based approach which looks at the share of DVA (that is, GDP) that is exported in an unfinished state. The trade-based approach may be divided into a
<figure><img src="image_54.png" /><figcaption>**Fig. 6.6** Brunei Darussalam: Global value chain participation rates, 2000, 2007–2021 (%). *Source* ADB (2022, 2023) and ADB estimates. *Note* Production-based GVC participation rates are based on forward GVC participation rates as calculated in Zhi Wang et al. (2017a). Trade-based GVC participation rates are calculated following Borin and Mancini (2019)</figcaption></figure>

forward and a backward participation rate. While a forward trade-based participation rate indicates the share of the DVA exports that is re-exported to a third economy by the direct importer in gross exports, a backward trade-based participation rate is the share of FVA and PDC in domestic gross exports. Analysing these linkages from a broader value chain perspective indicates that, on one hand, constraints from suppliers can lead to production delays for an economy with significant backward linkages. On the other hand, demand side shocks due to economic turmoil in recipient economies can create production limitations or shutdowns in an economy with significant forward linkages. Borin and Mancini's (2019) trade decomposition framework enables the calculation of the trade-based participation indices for Brunei, assessed in the MRIOs for 2000 and 2007–2021 (Fig. 6.6). The participation rates follow the methodology elaborated on in Appendix A3.

It is observed that the forward participation rate in Brunei has been consistently higher than the backward participation rate during the period of study, corroborating Brunei's position in the upstream sections of GVCs. In other words, Brunei's inputs are utilised by other economies to a greater extent than other economies' inputs are utilised by Brunei. In 2010–2012 the forward participation rate was about three times the backward participation rate. However, since 2017 there has been a noticeable downward shift and simultaneous upward shift in the forward and backward participation rates respectively. In 2021 the forward participation rate was 25% while the backward participation rate was 20%. A comparison of Brunei's GVC participation rates with other related economies and some of world's leading exporters will help illustrate Brunei's position in GVCs (Figs. 6.7 and 6.8).

The backward and forward participation rates among the selected economies studied for a particular time period show considerable variation. Brunei has opposite patterns in backward and forward participation, with relatively low backward participation and high forward participation. This characteristic is not unexpected for a
<figure><img src="image_55.png" /><figcaption>**Fig. 6.7** Backward (trade-based) GVC participation rates, selected economies, 2000, 2007–2021 (%). Source ADB (2022, 2023) and ADB estimates. *Note* Trade-based GVC participation rates are calculated following Borin and Mancini (2019)</figcaption></figure>

<figure><img src="image_56.png" /><figcaption>**Fig. 6.8** Forward (trade-based) GVC participation rates, selected economies, 2000, 2007–2021 (%). Source ADB (2022, 2023) and ADB estimates. *Note* Trade-based GVC participation rates are calculated following Borin and Mancini (2019)</figcaption></figure>
commodity-dependent economy such as Brunei's. As oil and gas (and other related activities) account for the bulk of the economy, high forward linkages represent their use as intermediaries in other economies, while the relatively low backward linkages indicate that these industries are rather independent from other industries as their inputs often emanate within their own sub-industries. Interestingly, Brunei's position contradicts that of Singapore's, which has consistently remained at a backward participation rate of around 50% and forward participation rate of around 12%. These ratios indicate that while Singapore uses large shares of value added that originate from other economies (the backward path), its reliance on other economies for the use of its products is relatively low (the forward path).

### 6.3.3 Top Trading Partners by Value-added Category

Figure 6.9 shows Brunei's top trading partners between 2018 and 2021, disaggregated by the main value-added categories relevant for the economy: DAVAX, REX and FVA. It should be noted that exports are calculated for 2018–2021 to discount for any potential impact of external shocks such as the COVID-19 pandemic. It can be observed that the top destinations for Brunei's gross exports were Japan (21.4%), Australia (16.1%), South Korea (10.8%), Singapore (7.8%) and Malaysia (7.2%). Further, as trading was predominantly in the direct form, it is expected that the rankings do not significantly change when comparing with DAVAX. Consequently, while the top three destinations remained the same, Malaysia emerged as the fourth leading destination for DAVAX at 6.85%, closely followed by the People's Republic of China (PRC) at 6.77%. In terms of indirect trade, while the top three destinations retained their position once again in terms of exports that would be re-exported (REX), the shares were lower. For example, Japan constituted 17.2% of REX, in contrast to 23.8% of DAVAX; Australia and South Korea accounted for 15.5% and 12.9% of REX, in contrast to 17% and 10.9% of DAVAX. In terms of imported inputs embedded in Brunei's exports (FVA), Japan and Australia emerged as leading partners, with 20.6% and 14.7% of FVA, followed by Singapore at 8.9%, while South Korea descended to the fifth position at 7.5%.

It is pertinent to note the role of Southeast Asian economies as Brunei's top trading partners, especially Association of Southeast Asian Nations (ASEAN) members such as Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam. Evidence based on economic modelling suggests that intra-ASEAN trade has substantially increased since the formation of the ASEAN Free Trade Area (AFTA) agreement in 1992, which intended to facilitate international supply chains and trade within the region (Kien 2009; Koh 2013). Brunei is also a signatory of the Regional Comprehensive Economic Partnership (RCEP), one of the world's largest free trade agreements, signed in 2020 between the ASEAN member states and the five ASEAN dialogue partners, namely Australia, China, Japan, South Korea and New Zealand. The RCEP took effect on 1 January 2022 and is expected to not only strengthen Brunei's existing
<figure><img src="image_57.png" /><figcaption>**Fig. 6.9** Brunei Darussalam: Top trading partners by value-added category, 2018–2021 (%). *Source* ADB (2022, 2023) and ADB estimates. *Note* AUS = Australia, IND = India, JPN = Japan, KOR = Republic of Korea, MAL = Malaysia, PHI = Philippines, PRC = People's Republic of China, SIN = Singapore, TAP = Taipei, China, THA = Thailand, VIE = Vietnam. Gross exports are decomposed using the methodology in Borin and Mancini (2019)</figcaption></figure>

trade relationship with Japan and Australia but also foster a multilateral trading system and contribute to post-pandemic recovery efforts.

### 6.3.4 Export Diversification

Although the revenues from Brunei's exploitation of its extensive oil and gas endowments have facilitated a high standard of living for its citizens in the form of one of the highest per capita incomes in Asia, they have also entrenched the economy's dependence on a single commodity that is vulnerable to price fluctuations. As mentioned above, the fault lines created in the economy due to such a concentrated basket of exports were exposed during the global financial crisis in 2008 and again during the global oil price decline in 2014–2016. The economy relies on imports for most of its manufactured goods and agricultural products. Any attempt to mitigate the impact of potential future economic losses triggered by plummeting oil prices would require the government to diversify its sources of income by strengthening other sectors.

The current measure of economic vulnerability can be assessed through diversification indices, which are instrumental in an evaluation of the dependence of an economy on a particular sector. One of the widely used indices of export concentration is the Herfindahl–Hirschman index (HHI) that is traditionally estimated using values of gross exports and ranges between 0 and 1. However, with increasing integration of economies into GVCs, diversification measurements based on gross exports may be inadequate in reflecting contemporary production structures which are often fragmented and complex. Hence, accounting for value creation at each stage within GVCs is imperative to quantify the full scale of export diversification, especially for Asian
<figure><img src="image_58.png" /><figcaption>**Fig. 6.10** Herfindahl–Hirschman index based on DVA embedded on exports, selected economies. Source ADB (2022, 2023) and ADB estimates. Note Diversification is measured by the HHI. The HHI based on value added is calculated using the Borin and Mancini (2019) exports decomposition by origin sector. The markers represent the aggregate HHI based on value added for 2000, 2007–2021</figcaption></figure>

and Pacific economies with high trade linkages where measures of diversification based solely on gross exports may undermine results in comparison to the value-added approach. To this extent, estimating HHI using value-added exports instead of gross exports provides a more comprehensive picture of underlying economic structures and productive capacities of exporting economies (see Bajaj et al. 2022). Figure 6.10 shows HHIs based on DVA embedded in exports for Brunei, along with select ASEAN members and some major trade partners. Note that a higher HHI value implies higher specialisation or concentration, while a lower HHI value implies greater diversification. The indicators follow the principle of valuation adopted by the HHI and are elaborated in Appendix A4.

Among the 10 economies studied for the given time frame, Brunei showed the highest HHI (0.49) based on the value-added approach, implying that it was the least diversified. In comparison, Malaysia and the PRC had the lowest aggregate HHI, at 0.04 and 0.02 respectively, while other economies also appeared on the lower end of the scale with values of less than 0.1—except for Australia which had a relatively low aggregate HHI of 1.33. Brunei's high HHI is indicative of its high reliance on the oil and gas industry, which comprises a major share of its exports of DVA. Over the years, efforts to diversify the export basket of Brunei have been underway and shown positive results to some extent. The economy tended towards relatively higher diversification in 2021 with an HHI of 0.45. This could be attributed to the gradually enlarged share of chemicals and chemical products in exports due to increasing foreign investments in refineries and petrochemical plants since 2019.

While the surge in oil prices amid the Russian invasion of Ukraine may generate a significant trade surplus, the government of Brunei must also account for the negative externalities generated due to geopolitical and economic shocks, a growing population and depleting energy reserves. Moving forward, the presence of GVCs
must be leveraged to develop a diversified export portfolio focusing on sectors that can stimulate other sectors, attract foreign investment and reduce dependence on imports. Recognising this, economic diversification is prioritised under goal 3 of Wawasan Brunei 2035 (Brunei Vision 2035) that envisages a dynamic and sustainable economy and aims to accelerate economic growth while moving beyond the oil and gas sector and bolstering production and employment in other downstream industries (Prime Minister's Department 2023). The Economic Blueprint released by the government in 2020 as a part of Wawasan Brunei 2035 echoes its resolve to increase the contribution of the non-oil and gas sector (MoFE 2020). To this end, the blueprint has identified five priority sectors for growth: downstream oil and gas, food, tourism, information and communication technology (ICT), and services to spearhead economic development and diversification.

### 6.3.5 Position and Production Length

In the previous sections, it was established that firms, sectors or economies can participate in GVCs from two perspectives. First, a producer may supply a component that is exported to an economy for integration to a composite product before being brought to more economies for further enhancement or assembly. In this 'forward' perspective, value added from the originating producer is passed down to those further down the value chain. The economy that will be responsible for assembly down the line is also part of the same value chain, albeit being more of a recipient than a supplier of value added. In this sense, its involvement is from a 'backward' perspective.

With this in mind, it can be deduced that there is an element of position inherent in the analysis of GVCs, with economies or sectors either being placed at more 'upstream' or 'downstream' stages of production. Understanding and operationalising this dimension may have valuable uses, especially for providing key insights to policy and research questions regarding fragmentation of production. One way of quantifying an economy sector's position in GVCs is through the upstreamness index proposed by Thibault Fally (2012) and Pol Antràs and Davin Chor (2013, 2018). (An economy sector is a sector belonging to a particular economy.)

Before output is finally consumed, it goes through a set of procedures and transactions along the process of its creation. Some sectors may be farther from final demand in the sense that their outputs are used intermediately by several more sectors directly or indirectly. This distance is what the upstreamness index estimates under a simple yet intuitive formula that assigns weights expressed as shares (to gross output) of estimated intermediate use of an economy sector's output to numbers starting from one. Higher values of the index correspond to a sector being more relatively upstream while lower values indicate output that is closer to final consumption.

From 2000 to 2015 Brunei was more upstream than most economies, with a peak of 3.23 in 2008 (Fig. 6.11). However, due to a persistent downtrend caused by a myriad of factors, including falling oil prices and increasing dependence on exports of goods
<figure><img src="image_59.png" /><figcaption>**Fig. 6.11** Upstreamness, Brunei Darussalam and selected economies, 2000–2021. Source ADB (2023) and ADB estimates. Note Upstreamness indices are calculated following Fally (2012) and Anträs and Chor (2013, 2018)</figcaption></figure>

and services that did not originate from the primary sector, it was eventually overtaken by its neighbours Malaysia, Singapore and the PRC. Immediately following the onset of the pandemic, Brunei's upstreamness fell to 2.19, which was still marginally higher than the world average of 2.10.

Another way of measuring position in GVCs is proposed by Zhi Wang et al. (2017b). To arrive at this indicator, average production lengths based on forward and backward linkages must be derived. The former estimates the ‘footprints’ of an economy sector’s value added by estimating the total gross outputs it induces (ibid.). A sector’s value added may travel down the line of a production chain if it is embedded in a component that is integral to production processes of composite products and/or services. Higher estimates of average production lengths based on forward linkages reflect this possibility, with larger values implying a larger number of downstream stages a sector’s value added is used for.

On the other hand, average production length based on backward industrial linkages calculates the footprints of an economy sector's final goods and services by estimating the total intermediate inputs they induce (ibid.). When households, governments and investors demand output of a particular sector, it may rely on components or services offered by other sectors to meet these requirements. Higher estimates of this indicator therefore correspond to a greater number of upstream stages needed to satisfy an economy sector's final demand.

Average production lengths based on forward industrial linkages mirror upstreamness indices almost exactly, thereby preserving the narratives established above (Fig. 6.12, Panel 1). Minor discrepancies originate from the difference in economic interpretation and computation (ibid.). As for backward linkages, the reliance on
<figure><img src="image_60.png" /><figcaption>**Fig. 6.12** Average production length based on forward and backward industrial linkages, Brunei Darussalam and selected economies, 2000–2021. *Source* ADB (2023) and ADB estimates. *Note* Average production lengths are calculated following Wang et al. (2017b)</figcaption></figure>

primary sector exports, which have relatively less upstream production stages, is quite apparent with figures falling below the world average and most economies (Fig. 6.12, Panel 2). Despite this, moves towards economic diversification may already be displaying initial effectiveness as seen in the increasing trend of this indicator.

Using the framework of Wang et al. (2017b), average production lengths can be decomposed into three components: pure domestic production length, traditional production length and GVC production length. Pure domestic production length from the forward (backward) perspective refers to gross outputs (intermediate inputs) induced by an economy sector's value added (final goods and services) that do not involve any cross-border trade. Traditional production length and GVC production length, on the other hand, refer to the same transmission mechanisms but involve one border crossing and multiple border crossings respectively.

Panel 1 of Fig. 6.13 gives a breakdown of the average production length of Brunei based on forward industrial linkages. Across the years, the structure has been quite stable with component coefficients of variation ranging from 0.027 (traditional production) to 0.094 (pure domestic). GVC production has been the most dominant component with shares above 50% across all years. These suggest that Brunei's production follows a pattern of steady forward production length distribution, with value added inducing more gross outputs at higher levels of border crossings. A similar pattern of stability and shares dominated by the GVC production component is seen for the same economies in Fig. 6.1. Average production lengths based on backward industrial linkages present a similar structure for the case of Brunei, albeit with higher shares of GVC production—close to 60% (Fig. 6.13, Panel 2). Variability is also lower with component coefficients of variation ranging from 0.0128 (GVC production) to 0.0192 (pure domestic). Similar to production lengths based on forward industrial linkages, Brunei's production is in line with the relatively fixed structure of intermediate input dependence seen worldwide—a pattern that is more apparent for GVC-related transactions.

Based on the upstreamness and downstreamness analogues in Wang et al. (2017b), a measure of GVC position can be derived by getting the ratio between the two (that
<figure><img src="image_61.png" /><figcaption>**Fig. 6.13** Brunei Darussalam: Breakdown of average production lengths, 2000–2021. *Source* ADB (2023) and ADB estimates. *Note* Average production lengths are calculated following Wang et al. (2017b)</figcaption></figure>

is, the ratio of average production length based on forward industrial linkages to that based on backward industrial linkages). This relative measure adjusts for the possibility of having a mixed set of industries playing varying roles (more upstream or more downstream) in their respective value chains that fall under the same aggregate sector. The index has a straightforward intuition with higher levels translating to an economy sector being more upstream. In addition, due to the use of relative rankings, it is consistent to say that an economy sector being more upstream than another translates to the latter being more downstream than the former—a relationship not afforded by previous position indices.

Brunei, for the most part, has always been a more upstream economy in GVCs relative to its neighbours and major hubs such as the United States and the PRC. Its reliance on a primary sector dominated by industries supplying products (such as petroleum) that enabled manufacturing and services worldwide often translated to higher forward production lengths compared to backward production lengths. This means that Brunei's role in stimulating gross outputs through its value-added contributions was more pronounced compared to the part it played in inducing intermediate inputs to produce its final products. The trend, however, has been quite inconsistent, with large drops in 2000–2008, 2016–2018 and 2020–2021. It is worth noting that as of 2021 Brunei's average production line position in GVCs (1.029) has fallen below the world average (1.033) and some key exporting economies (Fig. 6.14).

Drilling down to Brunei's sectors, most appeared more upstream across all years with average production line positions in GVCs from the forward linkage outweighing their backward counterparts (Fig. 6.15). In 2021 sectors with the highest position indices were 'renting of machinery and equipment and other business activities', 'manufacturing, not elsewhere classified; recycling', 'textiles and textile products', 'electricity, gas, and water supply' and 'food, beverages, and tobacco'. On the flipside, those with the lowest indices were 'public administration and defence', 'health and social work', 'education', 'agriculture, hunting, forestry, and fishing' and 'coke, refined petroleum, and nuclear fuel'.

Overall, looking at measures of GVC position and production length support economy-wide trends for Brunei, starting with a growing, heavy reliance on the oil
<figure><img src="image_62.png" /><figcaption>**Fig. 6.14** Average production line position in GVCs, Brunei Darussalam and selected economies, 2000–2021. Source ADB (2021) and ADB estimates. Note BRU = Brunei, MAL = Malaysia, SIN = Singapore. Average production line positions are derived using the methodology of Wang et al. (2017b)</figcaption></figure>

<figure><img src="image_63.png" /><figcaption>**Fig. 6.15** Brunei Darussalam: Sectoral average production line position in GVCs, 2000–2021. Source ADB (2021) and ADB estimates. Note c2 = mining and quarrying, c8 = coke, refined petroleum and nuclear fuel. PLv_GVC = average production length forward, PLy_GVC = average production length backward. Average production length estimates are derived using the methodology of Wang et al. (2017b)</figcaption></figure>
and gas industry following the discovery of their reserves in the mid-1990s before an eventual drop in oil prices that catalysed policy responses that pushed for increased product diversification. Based on position indices, it is clear that the economy's productive sectors were more upstream than those elsewhere in the world. In more recent years, however, this became harder to sustain as dependence on the primary sector weakened, albeit not drastically.

In terms of production length, almost all of Brunei's sectors had higher forward than backward indices, which means that industries comprising them were more involved in upstream than downstream production processes. Economy-wide values reveal forward production lengths higher than world averages and most economies, with a stable composition being consistently dominated by GVC production. Brunei's backward indices, on the other hand, are noticeably lower than those of other economies and are similarly concentrated to production involving multiple border crossings. Signs of structural change, however, are already showing as forward production lengths have consistently decreased while backward production lengths reflect a gradual uptrend. Two sectors deserve a closer look, namely mining and quarrying (c2) and coke, refined petroleum, and nuclear fuel (c8) as these relate to the production of oil and gas. The former stayed as a relatively upstream sector in the years considered, although its GVC position index dropped from 1.138 in 2000 to 1.063 in 2021, thereby indicating a gradual shift to relative downstreamness. For the coke, refined petroleum and nuclear fuel sector, a declining trend in the forward production length that coincided with an increase in the backward production length has led to a transition into a relatively downstream position.

## 6.4 Conclusion

This chapter evaluated the different indicators of GVCs for Brunei using robust and sophisticated methods based on MRIO tables from the ADB MRIO database. The analyses presented here have corroborated the dominance of oil and gas products in Brunei's gross exports, and the consequent limitations in its current position in GVCs. While the global increase in oil prices amid recovery from the pandemic and the Russian invasion of Ukraine may favour Brunei's trade balance in the short term, a structural transformation of the economy is impending, given the intrinsic volatility of oil prices along with exhausting reserves. The following points highlight some of the potential policy directions for improving Brunei's role in GVCs and its overall economic stability.

First, capitalise on low-hanging fruits. While Brunei has already ventured into expanding the production and GVC participation of the downstream oil and gas industries, it must also focus on building investments in other sectors such as *halal* food, aquaculture and ICT. As global demand for *halal* products grows, it is an industry with significant potential to contribute to the economy of Brunei. Similarly, local fisheries have expanded their output consistently over the years, creating opportunities for expansion of exports for this sector. The economy can also expand
the contribution of services to GVCs by exploiting their role as intermediaries in manufacturing value chains that are highly dependent on communication, logistical and financial services.

Second, improve the ease of doing business. The economy consists of a fair number of small-scale businesses in the non-oil and gas sector. Reforms in creating a conducive business environment require policy interventions that streamline the regulatory requirements and licensing procedures for businesses. Bolstering the scale of these businesses, incentivising their exports and encouraging them to ‘think global’ will provide them a platform to compete outside the local market and participate in complex GVC structures.

Third, leverage trade agreements. Over the last few decades, Brunei has actively participated in free trade agreements with ASEAN members and other major economies like Japan, India, the PRC, Australia and South Korea on a bilateral basis. The increasing demand in ASEAN economies and the technological spillover from their production channels can be fundamental for Brunei to diversify its portfolio of exports while increasing its integration in GVCs. Brunei already has a host of prevailing regional trade agreements specifically designed to support the development of GVCs, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the RCEP. In addition to these regional agreements, the economy could benefit from transpacific free trade agreements with major economies, including the United States, Canada, Mexico and Brazil, as duty-free access to these markets will boost the competitiveness of Brunei’s manufacturers.

Lastly, embrace the digital. It has been recognised that digital technology has a pivotal role in enhancing the resilience of GVCs, especially by catering to the challenges ushered in by strict lockdowns and social distancing measures enforced during the pandemic, and by fostering economic recovery in a post-pandemic world. To this end, a digital transformation, including smart manufacturing processes, big data analysis and blockchain technology, can significantly support and sustain Brunei’s economic growth. However, such a transformation necessitates bridging the gap between the digital competencies of developed and developing economies by increasing investments in digital infrastructure and equipping the workforce with adequate skills to adapt to the rapidly evolving digital landscape.

Although international experience has shown that diversification away from the oil and gas sector is a protracted and complex process, it is possible when backed by conducive policies, strong leadership and technological advancements. While diversification has been incrementally advocated by the government of Brunei and further underscored in Wawasan Brunei 2035, immediate implementation of these plans is vital for improved economic productivity and wider integration of Brunei in GVCs.
# Appendices

## A1: Asian Development Bank Multiregional Input-Output Database

The Asian Development Bank (ADB) multiregional input-output (MRIO) database is a time series inter-economy input-output table maintained by a dedicated team at the ADB. It is freely available at https://kidb.adb.org/globalization. Officially published national supply-use tables (SUTs) and/or input-output tables (IOTs) serve as benchmarks in the construction of the MRIO database. In each national SUT or IOT, sector and product classifications are harmonised to follow the 35 sectors, and whenever necessary SUTs are transformed into IOTs following the industry technology transformation assumption discussed in the European Commission (2008).

Benchmark IOTs also serve as the base structure for producing the time series of the ADB MRIO tables, using published estimates on gross output, gross value added, taxes-less-subsidies on products, imports and exports sourced from national statistical agencies and central bank databases as control totals. The structure of imports and exports is based on bilateral trade data extracted from the United Nations Comtrade database and government trade and balance of payments statistics. Once the national IOTs are integrated into the MRIO database, accounts for the sectors of the 'rest of the world' are manually and systematically adjusted to ensure consistency with economy sector totals in the MRIO database.

The basic structure of each MRIO table is given below. It is composed of:

* Z = a matrix of intermediate uses

* Y = a matrix of final demands

* va = a vector of economy sectors value added

* x = a vector of gross outputs

Read vertically, the table shows the purchases of each economy sector, distinguished between intermediate inputs and primary inputs, the latter also called value added. Read horizontally, it shows the sales of each economy sector, distinguished between intermediate sales and final sales. The market-clearing condition stipulates that total purchases and total sales for each economy sector must be equal. This amount is total output.
<table><thead><tr><th></th><th>Economy A</th><th>...</th><th>Rest of the world</th><th>Economy A</th><th>...</th><th>Rest of the world</th><th>Total output</th></tr></thead><tbody><tr><td></td><td>c1...c35</td><td>...</td><td>c1...c35</td><td>f1...f5</td><td>...</td><td>f1...f5</td><td>x</td></tr><tr><td>Economy A</td><td>c1</td><td></td><td></td><td>Z</td><td></td><td></td><td></td></tr><tr><td></td><td>...</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td></td><td>c35</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td></td><td>...</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Rest of the world</td><td>c1</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td></td><td>...</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td></td><td>c35</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Value added</td><td></td><td></td><td></td><td></td><td></td><td></td><td>va</td></tr><tr><td>Total output</td><td></td><td></td><td></td><td></td><td></td><td></td><td>x</td></tr></tbody></table>

Source ADB (2023)

## A2: Description of Value-added Categories

<table><thead><tr><th>Term</th><th>Description</th></tr></thead><tbody><tr><td>DAVAX1</td><td>Exports of domestic value added absorbed by direct importer as final goods without passing through third economies</td></tr><tr><td>DAVAX2</td><td>Exports of domestic value added absorbed by direct importer as intermediate goods without passing through third economies</td></tr><tr><td>REX 1</td><td>Domestic value added in intermediate exports sent to and completed by partner economy and re-exported to third economy</td></tr><tr><td>REX 2</td><td>Domestic value added in intermediate exports sent to and re-exported by partner economy and eventually absorbed by third economy</td></tr><tr><td>REX 3</td><td>Domestic value added in intermediate exports sent to and re-exported by partner economy and eventually absorbed by partner economy</td></tr><tr><td>REF 1</td><td>Domestic value added in intermediates sent to and completed by partner economy then exported back to home economy</td></tr><tr><td>REF 2</td><td>Domestic value added in intermediates sent to and re-exported by partner economy and eventually absorbed in home economy</td></tr><tr><td>FVA</td><td>Portion of foreign value added in domestic exports excluding double counting</td></tr><tr><td>PDC 1</td><td>Pure double count of domestic origin</td></tr><tr><td>PDC 2</td><td>Pure double count of foreign origin</td></tr></tbody></table>
### A3: Calculation of GVC Participation Rates

A useful statistic derived from the Borin and Mancini (2019) framework is the GVC participation rate. ADB (2022) identifies two approaches to measuring this. The trade-based approach, used by Hummels et al. (2001) and Borin and Mancini (2019), is computed as:

$$GVCP^{Trade} = \frac{REX + REF}{Exports} + \frac{FVA + PDC}{Exports}$$

This rate may be divided into a forward participation rate and a backward participation rate, given by the first and second terms respectively.

The second approach is by Wang et al. (2017b). This production-based GVC participation rate is computed as:

$$GVCP^{Production} = \frac{DAVAX 2 + REX + REF}{GDP}$$

### A4: Herfindahl–Hirschman Index

The Herfindahl–Hirschman index (HHI) is a formal measure of export concentration or the degree to which an economy's export basket is dependent on specific products or markets. It is calculated by squaring the shares of each sector or product group in the total exports of the economy, and taking the sum of the squares:

$$H = \sum_{n=1}^{N} (S_{i}^{r})^{2}$$

The normalised HHI is estimated as:

$$H = \frac{\sum_{n=1}^{N} (S_{i}^{r})^{2} - \frac{1}{N}}{1 - \frac{1}{N}}$$

where $(S_i^r)^2$ is the share of gross output, exports or value added of sector i in the economy r. N is the number of sectors in economy r. The index is most sensitive to sectors or product groups that comprise a large share of an economy's export basket. The index values range between 0 and 1, where 0 implies a homogeneously diversified economy wherein all sectors have a perfectly equal share of output, exports or value added to the total economy and 1 implies an extremely concentrated economy with only one sector.
To this end, following the Borin and Mancini (2019) framework, a sector's gross exports can be decomposed into various components, including DVA based on forward linkages or DAVAX. HHI can then be estimated using gross exports and DAVAX separately and the two estimates can be read in parallel for a detailed understanding of the layered production processes and resulting export composition.

## A5: Upstreamness

Upstreamness estimates an economy sector's average distance from final demand. It is based on the index proposed by Fally (2012) and Antràs and Chor (2018) and is mathematically expressed as:

$$U_i^r = 1 \left( \frac{F_i^r}{X_i^r} \right) + 2 \left( \frac{\sum_{j=1}^{J} a_{ij}^{rs} F_j^s}{X_i^r} \right) + 3 \left( \frac{\sum_{s=1}^{S} \sum_{j=1}^{J} \sum_{t=1}^{S} \sum_{k=1}^{J} a_{ij}^{rs} a_{jk}^{st} F_k^t}{X_i^r} \right) + \dots$$

where *F* is final demand, *X* is gross output, *i* and *j* are economies, and *r* and *s* are sectors. The coefficient, *a*, with subscripts *ij* and superscripts *rs* corresponds to the dollar amount of sector *r*'s output from economy *i* that is needed to produce a dollar's worth of sector *s*'s output in economy *j*. Intuitively, higher values of the index result from terms with bigger weights not being zero, which means that an economy sector's output goes through more stages of production before its final consumption (Mariasingham et al. 2020).

## A6: Average Production Length

<table><thead><tr><td>Indicator</td><td>Label</td><td>Description</td></tr></thead><tbody><tr><td>PLv</td><td>Average production length based on forward industrial linkages</td><td>Total gross outputs induced by an economy sector's value added</td></tr><tr><td>PLv_D</td><td>Pure domestic average production length based on forward industrial linkages</td><td>Total gross outputs induced by an economy sector's value added that involve no border crossing</td></tr><tr><td>PLv_RT</td><td>Traditional average production length based on forward industrial linkages</td><td>Total gross outputs induced by an economy sector's value added that involve one (1) border crossing</td></tr></tbody></table>

(continued)
(continued)

<table><thead><tr><td>Indicator</td><td>Label</td><td>Description</td></tr></thead><tbody><tr><td>PLy_GVC</td><td>GVC average production length based on forward industrial linkages</td><td>Total gross outputs induced by an economy sector's value added that involve multiple (&gt;1) border crossings</td></tr><tr><td>PLy</td><td>Average production length based on backward industrial linkages</td><td>Total intermediate inputs induced by an economy sector's final goods and services</td></tr><tr><td>PLy_D</td><td>Pure domestic average production length based on backward industrial linkages</td><td>Total intermediate inputs induced by an economy sector's final goods and services that involve no border crossing</td></tr><tr><td>PLy_RT</td><td>Traditional average production length based on backward industrial linkages</td><td>Total intermediate inputs induced by an economy sector's final goods and services that involve one (1) border crossing</td></tr><tr><td>PLy_GVC</td><td>GVC average production length based on backward industrial linkages</td><td>Total intermediate inputs induced by an economy sector's final goods and services that involve multiple (&gt;1) border crossings</td></tr><tr><td>GVCPs</td><td>Average production line position in GVCs</td><td>Relative upstreamness index given by the ratio of average production length based on forward industrial linkages to average production length based on backward industrial linkages</td></tr></tbody></table>

## References

* Antràs, Pol, and Davin Chor. 2013. Organizing the global value chain. *Econometrica* 81(6): 2127–2204.

* Antràs, Pol, and Davin Chor. 2018. On the measurement of upstreamness and downstreamness in global value chains. Working Paper 24185. Cambridge, MA: National Bureau of Economic Research.

* Asian Development Bank [ADB]. 2022. *Key indicators for Asia and the Pacific 2022*. Manila: Asian Development Bank.

* Asian Development Bank [ADB]. 2023. Multiregional input-output database. https://kidb.adb.org/globalization. Accessed 29 Apr 2024.

* Bajaj, Pallavi, Kristina Baris, Patricia Gonzales, Christian Regie Jabagat, Janine Elora Lazatin, and Elaine Tan. 2022. A case for value-added exports in the estimation of export diversification in Asia and the Pacific. ABD Economics Working Paper Series No. 650. Manila: Asian Development Bank.

* Borin, Alessandro, and Michele Mancini. 2019. Measuring what matters in global value chains and value-added trade. Policy Research Working Paper 8804. Washington, DC: World Bank.

* European Commission. 2008. *Eurostat manual of supply, use and input-output tables*. Luxembourg: Office for Official Publications of the European Communities.
Fally, Thibault. 2012. Production staging: Measurement and facts. Boulder, Colorado, University of Colorado Boulder.

Hengyi. 2024. About us. https://www.hengyi-industries.com/about-us/. Accessed 27 Apr 2024.

Hummels, David, Jun Ishii, and Kei-Mu Yi. 2001. The nature and growth of vertical specialization in world trade. *Journal of International Economics* 54(1): 75–96.

Inomata, Satoshi. 2017. Analytical frameworks for global value chains: An overview. In *Global value chain development report 2017: Measuring and analyzing the impact of GVCs on economic development*, 15–35. Washington, DC: World Bank.

International Monetary Fund [IMF]. 2021. Brunei Darussalam: 2021 Article IV consultation—press release; staff report; and statement by the executive director for Brunei Darussalam. IMF Country Report No. 21/214. https://www.imf.org/en/Publications/CR/Issues/2021/09/16/Bru nei-Darussalam-2021-Article-IV-Consultation-Press-Release-Staff-Report-and-Statement-by- 465885. Accessed 29 Apr 2024.

Johnson, Robert C., and Guillermo Noguera. 2012. Accounting for intermediates: Production sharing and trade in value added. *Journal of International Economics* 86(2): 224–236.

Kien, Nguyen Trung. 2009. Gravity model by panel data approach: An empirical application with implications for the ASEAN Free Trade Area. *ASEAN Economic Bulletin* 26(3): 266–277.

Koh, Wee Chian. 2013. Brunei Darussalam’s trade potential and ASEAN economic integration: A gravity model approach. *Southeast Asian Journal of Economics* 1(1): 67–89.

Koopman, Robert, Zhi Wang, and Shang-Jin Wei. 2014. Tracing value-added and double counting in gross exports. *American Economic Review* 104(2): 459–494.

Mariasingham, Mahinthan Joseph, Kristina V. Baris, and Angelo Jose B. Lumba. 2020. Evolving trends in global value chain analysis: Country case studies of Brunei Darussalam, Malaysia, and Singapore. Conference Paper 333150, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.

Ministry of Finance and Economy, Brunei Darussalam [MoFE]. 2020. *Towards a dynamic and sustainable economy: Economic Blueprint for Brunei Darussalam*. Bandar Seri Begawan: Ministry of Finance and Economy. https://deps.mofe.gov.cn/DEPD%20Documents%20Libr ary/NDP/BDEB/Econ_Blueprint.pdf. Accessed 29 Apr 2024.

Prime Minister's Department, Brunei Darussalam. 2023. *Laporan Wawasan Brunei 2035, 2015– 2022*. Bandar Seri Begawan: Prime Minister's Department. https://www.wawasanbrunei.gov.cn/ Downloads%20Files/Laporan%20Wawasan%20Brunei%202035_2015-2022.pdf. Accessed 27 Apr 2024.

Stocker, Marc, John Baffes, and Dana Vorisek. 2018. What triggered the oil price plunge of 2014–2016 and why it failed to deliver an economic impetus in eight charts. World Bank Blogs, 18 January. https://blogs.worldbank.org/en/developmenttalk/what-triggered-oil-price- plunge-2014-2016-and-why-it-failed-deliver-economic-impetus-eight-charts. Accessed 29 Apr 2024.

Timmer, Marcel P., Erik Dietzenbacher, Bart Los, Robert Stehrer, and Gaaitzen J. de Vries. 2015. An illustrated user guide to the world input-output database: The case of global automotive production. *Review of International Economics* 23(3): 575–605.

US Energy Information Administration [EIA]. 2024. U.S. crude oil first purchase price. https://www. eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=f000000_3&f=m. Accessed 27 Apr 2024.

Wang, Zhi, Shang-Jin Wei, and Kunfu Zhu. 2013. Quantifying international production sharing at the bilateral and sector levels. Working Paper 19677. Cambridge, MA: National Bureau of Economic Research.

Wang, Zhi, Shang-Jin Wei, Xinding Yu, and Kunfu Zhu. 2017a. Characterizing global value chains: Production length and upstreamness. Working Paper 23261. Cambridge, MA: National Bureau of Economic Research.

Wang, Zhi, Shang-Jin Wei, Xinding Yu, and Kunfu Zhu. 2017b. Measures of participation in global value chains and global business cycles. Working Paper 23222. Cambridge, MA: National Bureau of Economic Research.
**Angelo Jose B. Lumba** is a Senior Researcher for the Asian Development Bank specialising in input-output analysis and global value chains. He was also a data scientist for the Pulse Lab of the UNDP Philippine Country Office, where he covers projects on climate finance, circular economy and use of non-traditional data for development. He is a PhD candidate in economics at the University of the Philippines Diliman.

**Mahinthan Joseph Mariasingham** is a Principal Statistician for the Asian Development Bank managing various projects on the System of National Accounts, global value chains analysis, big data and agricultural statistics, among others. He also oversees the compilation of the Bank's multiregional input-output tables, which are widely used by statistics offices, research institutions and multilateral organisations worldwide. Prior to being with the ADB, he worked for Statistics Canada as an analyst and statistician for more than 15 years. He obtained his master's and bachelor's degrees in economics from Queen's University, Canada.

**Arushi Gupta** is an economic and statistical analyst at the Asian Development Bank. She specialises in analysing diverse Asian-Pacific economies, employing advanced System of National Accounts frameworks like input-output and supply and use tables to evaluate global value chains, international trade flows and the economic impact of climate change. Prior to joining the ADB, she worked as a research associate at the Centre for Policy Research, New Delhi, India. She holds an MSc in international business economics and finance from Gokhale Institute of Politics and Economics, India.

**Open Access** This chapter is licensed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

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<figure><img src="image_64.png" /></figure>
<figure><img src="image_65.png" /></figure>

Chapter 7

Exploring Brunei Darussalam's Trade
Dynamics: Leveraging ASEAN Plus
Three and beyond from Its Production
Base

Pang Wei Loon

**Abstract** This chapter provides an overview and analysis of the trade linkages between Brunei Darussalam and its main trading partners. Given its small domestic market, the country has relied heavily on oil and gas exports to promote growth and sustain its high standard of living. At the product level, Brunei is mainly dependent on two products, crude oil and natural gas. Its main export markets have been to neighbouring countries in the Association of Southeast Asian Nations (ASEAN), such as Singapore and Malaysia, while Japan has always been a major export market and in recent years China is becoming a very important partner, especially in terms of imports. ASEAN Plus Three is currently one of the most important trading partners for Brunei but there is still potential to further boost trade and investment opportunities within this bloc. As a resource-based economy, Brunei is mostly involved in interindustry trade (trade in different products), although in recent years there has been a tendency to diversify into exports of methanol. There is also a higher level of intra-industry trade in crude oil, as Brunei has started production of processed petroleum. The higher level of intra-industry trade in these products can be attributed to joint ventures with firms from China and Japan. Recently there has also been an increase in China's investments into important industries in Brunei. The domestic content of gross exports is very high though it is focused mainly on exports of raw materials.

**Keywords** Brunei Darussalam • Trade • Association of Southeast Asian Nations (ASEAN) • Comparative advantage • Value added • Diversification

<footnote>Pang Wei Loon (✉)
UBD School of Business and Economics, Universiti Brunei Darussalam, Gadong, Brunei
Darussalam
e-mail: weiloon.pang@ubd.edu.bn</footnote>
## 7.1 Introduction

Trade is commonly considered one of the most important tools for developing countries to expand their resource base and finance their development programmes. The positive spillover effects from global integration and international trade can be realised through employment creation, an increase in domestic savings, an expansion of tradeable sectors, a more competitive environment that generates efficiencies, the facilitation of technology transfer, economic growth, an increase in access to capital and higher standards of living. The global trade to gross domestic product (GDP) ratio has increased from 25% in 1970, peaked at 61% in 2008 and went down to 52% in 2020 (World Bank 2022). The significance of economies of scale and product differentiation gives rise to the importance of firms in shaping global trade. The role of firms in international trade is also important in the context of global value chains (GVCs), which refer to the different stages of production that take place across multiple countries (Melitz 2003; Helpman et al. 2004; Chap. 6 in this volume). The rapid rise of the global trade to GDP ratio during the 1980s may also be attributed to the emergence of GVCs instead of just increased trade integration worldwide (Antràs 2020a). According to Pol Antràs (2020b), the recent slowdown in the global trade to GDP ratio is a natural consequence of the hyper-globalisation experienced from the late 1980s to early 2000s. It is crucial to coordinate the role of governance structures and institutional frameworks in shaping the distribution of gains from trade and investment in GVCs.

Many developing economies have managed to grow rapidly through trade liberalisation policies and participation in global trade. It is believed that countries that have embraced globalisation with the necessary reforms of liberalising markets and pursuing disciplined macroeconomic policies are likely to benefit from trade, gain global market share and be rewarded with larger private capital flows. Most countries have experienced an increase in income and standard of living due to their integration into the global economy (Sachs and Warner 1995; Frankel and Romer 1999). However, there are many economists who argue that the benefits of trade have been unequal and might not benefit some developing countries (Rodriguez and Rodrik 2000; Rodrik 2006; Stiglitz 2007; Chang 2008, 2010; Engel et al. 2021). Smaller domestic companies that are unable to adapt to the increasing competition might be adversely affected, resulting in output and job losses in certain economies (ESCAP 2019). Many developing economies are now important players in the global merchandise market, accounting for about 44% and 41% of global exports and imports respectively—this is a tremendous increase from about 18% in both categories in the early 1970s (UNCTAD 2020).

Similarly, consumers can benefit from access to a wider variety of products at more affordable prices (Pavcnik 2019). International trade is especially important for small and resource-rich economies to generate growth (Lindert and Williamson 2007). Resource-rich economies tend to have a lower level of economic diversification and a slower pace of development as most activities are concentrated in resource sectors, thereby neglecting other tradeable sectors (Venables 2016). Overall, the
role of firms in GVCs highlights the importance of understanding the dynamics of global production networks and the complex interactions between firms, countries and markets.

Brunei Darussalam is the fourth largest producer in Southeast Asia and a major exporter of liquefied natural gas (LNG) in the Asia-Pacific (CIA 2020). Brunei's economy is heavily reliant on the export of crude oil and natural gas, which comprise about 90% of the country's exports and about half of its GDP. This reliance has made the country's revenue particularly vulnerable to world fluctuations in oil and gas prices.

Table 7.1 presents the composition of Brunei's GDP using the expenditure approach from 2017 to 2021. It shows that the household consumption share of GDP was about 20% until 2020, with an increase to 24.85% in 2021, most probably due to the closed border effect of the COVID-19 pandemic. Given the small domestic market and an annual population growth of around 1% over the past decade, the country would need to rely on the global market to increase its GDP. Government consumption's share to GDP accounted for 22-26% of GDP. This is due to the fact that the economy is heavily driven by the public sector and the government provides a very generous social welfare system for its citizens. Further, over 80% of government revenues are derived from the oil and gas industry. Other revenue sources derived from rents, taxes, returns from investments and savings accounted for the remaining 20% in 2020 (DEPS 2021). Due to increasing government expenditure and declining revenues from oil and gas, the government has experienced a fiscal deficit over the past few years (ibid.). Hence, there is a need to enhance the role of the private sector to accelerate investment, generate more employment opportunities and reduce the burden on the government.

Brunei imports most of its products for consumption and the import to GDP ratio is normally 30-40%, but it increased to 67% in 2021. The increase is mainly in the mineral fuels and chemical sectors, especially starting from 2019. A reduction in imports would tend to increase GDP, reallocating income from foreign to domestic companies. However, the inward-looking policies of protectionism and import substitution tend to promote inefficiency—although they do improve food security. The country relies on imports for most of its consumption, though it has made strides in primary sectors such as vegetables and meat (DAA 2022). The country managed to achieve self-sufficiency in broilers and eggs, and 85% self-sufficiency for beef in 2021 (ibid.). There is a focus to attain self-sufficiency in the area of agriculture products such as tropical vegetables, fruits and mutton. In 2021 the country had 65% self-sufficiency in tropical vegetables, 42% in vegetables and 9% in rice (Kon 2021).

Exports and gross capital formation are the two main components to promote sustainable GDP growth for the country. Exports made up about 58% of GDP in 2019, with crude oil and natural gas accounting for more than 90% of export revenues. The decrease in revenue surplus and depletion of foreign reserves have made Brunei's economy more vulnerable to fluctuations in petroleum prices. Its revenue from oil and gas has dropped from about BND1.2 billion in 2011 to about BND1.2 billion in 2020 (DEPS 2021). It is expected that oil and gas will begin to deplete around 2035 (Sheith Khidhir 2018). This coincides with Wawasan Brunei 2035 (Brunei Vision 2035), a
<table><caption>**Table 7.1** Brunei Darussalam: Gross domestic product (expenditure type) in current prices, 2017–2021 (BND millions)</caption><thead><tr><th>Expenditure</th><th>2017</th><th>2018</th><th>2019</th><th>2020</th><th>2021</th></tr></thead><tbody><tr><td>Household final consumption expenditure</td><td>3,429.20<br>(0.20)</td><td>3,574.60<br>(0.20)</td><td>3,757.90<br>(0.21)</td><td>3,986.5<br>(0.21)</td><td>4,677.6<br>(0.25)</td></tr><tr><td>Government final consumption expenditure</td><td>4,434.30<br>(0.26)</td><td>4,418.10<br>(0.24)</td><td>4,601.20<br>(0.25)</td><td>4,186.9<br>(0.22)</td><td>4,225.2<br>(0.22)</td></tr><tr><td>Gross capital formation</td><td>5,829.00<br>(0.35)</td><td>7,515.50<br>(0.41)</td><td>7,107.00<br>(0.39)</td><td>6,844.2<br>(0.35)</td><td>5,886.1<br>(0.31)</td></tr><tr><td>Exports of goods and services</td><td>8,302.40<br>(0.50)</td><td>9,504.10<br>(0.52)</td><td>10,647.60<br>(0.58)</td><td>12,727.8<br>(0.66)</td><td>15,089.4<br>(0.80)</td></tr><tr><td>Imports of goods and services</td><td>5,962.80<br>(0.36)</td><td>7,679.80<br>(0.42)</td><td>9,291.10<br>(0.51)</td><td>8,741.7<br>(0.45)</td><td>12,602.1<br>(0.67)</td></tr><tr><td>Gross domestic product</td><td>16,747.70</td><td>18,300.70</td><td>18,375.00</td><td>19,315</td><td>18,822.0</td></tr></tbody></table>

Source DEPS (2021)

Note Numbers in parentheses are %

long-term development plan aimed to achieve a dynamic and sustainable economy by promoting a more robust private sector and cultivating an educated and skilled workforce. However, export diversification has been slow, despite improvements made in the past few years.

## 7.2 Literature Review

A traditional Ricardian theory of international trade is based on the concept of comparative advantage and it shows how the difference in the relative costs of two commodities is the main cause for trade. Countries specialise and export goods in which they have the highest comparative advantage. The Heckscher-Ohlin-Samuelson theory views differences in factor endowments as the main element determining comparative advantage. A country with abundant endowment exports the commodity which uses this factor intensively. Conventional theories of trade tend to support interindustry trade between countries. Interindustry trade refers to the international trade of different goods, such as the export of hydrocarbons for consumer goods. Under the classical theories of trade, there seems to be no reason for simultaneous export and import of any homogeneous product. In other words, countries that have similar technologies, endowments and preferences would have little reason to engage in trade. Brunei, being a resource-rich economy relying heavily on crude oil and natural gas, would fall under this category. However, since the establishment of the Hengyi petrochemical complex at Pulau Muara Besar in 2019 we can expect to see an increase in trade of similar products within an industry.
P.J. Verdoorn (1960), Bela Balassa (1965), Herbert G. Grubel and P.J. Lloyd (1975), and David Greenaway and Robert Hine (1991) show that much of the increase in trade in Europe took place in products within the same industry, also known as intra-industry trade. Paul Krugman (1983) stresses that most of the world's trade in manufactured goods is between countries with similar relative factor endowments. The expansion of the manufacture of differentiated products with brand-specific economies of scale leads to intra-industry trade.

Most trade between industrialised countries involves a bilateral trade of goods produced with similar factor proportions. The developments of intra-industry trade theory emphasise the role of increasing returns to scale and imperfect competition (Lancaster 1980; Helpman and Krugman 1989). These theories highlight economies of scale and product differentiation, contrasting classical theories of international trade. Economies of scale mean that more output can be produced at a lower cost. An industry characterised by such economies will tend to specialise in that product. Specialisation and trade will result in productive efficiency and an increase in welfare benefits to all trading countries. There will be a variety of products made in each industry under the conditions of increasing returns to scale. This argument is more apparent in manufacturing industries where goods are more complex in structure. The theory of intra-industry trade provides a better explanation of the empirical evidence of high volumes of trade between countries in similar goods (Brander 1981; Greenaway and Hine 1991; Greenaway et al. 1994; Davis 1995; Greenaway and Milner 2006; Brülhart 2009). Under imperfect competition and economies of scale, each country will only produce a certain subset of goods in each industry, following the intra-industry pattern, and trade will occur within the same industries but with different products.

Although interindustry trade still accounts for a major share of total trade in East Asia, there has been a surge in vertical intra-industry trade, involving trade in goods differentiated in quality (Fukao et al. 2003). Intra-industry trade may arise as different types of products are aggregated into one main category. Because of product differentiation, trade in goods within the same product category or simultaneous import and export of goods within the same industry are becoming more prevalent (ibid.; Greenaway et al. 1994). This seems to follow conventional theory by suggesting that each country will specialise and become an exporter in the industry in which it has a comparative advantage. James Brander (1981) has shown that trades in similar goods occur because of product differentiation or branding and such trade can improve welfare. The increasing scale of intra-industry trade and huge multinational enterprises have transformed conventional views on trade. In these models, markets are characterised by imperfect competition and increasing returns to scale. Because of consumers' love of variety, a country will import and export each variety, even if they fall under the same category of goods. The new source of gains from trade focuses on the importance of big enterprises where production is concentrated on the more efficient firms determining the export pattern of a country (Melitz and Trefler 2012).

Trade in sophisticated products normally involves multinational corporations (MNCs) where there is an export-oriented foreign direct investment (FDI) inflow to
pursue efficiency in terms of production cost. These gains are driven by the segmenta-
tion of production across countries and the interconnectedness between firms which
is defined by the GVC. Marcel Timmer et al. (2012) demonstrate that the share of
intermediate inputs in total production has increased for almost all economies, espe-
cially East Asian economies, which shows strong bilateral trade between members.
They also find that the global supply chain accounted for more than half the total
trade value. Global supply chains are growing rapidly due to the advancement of
technological innovation—countries move up the chain as they grow and develop
(Baldwin 2012). The surge in the volume of international trade can be attributed to the
rise in GVCs in the 1990s. As economies become more integrated, income levels and
productivity rise as FDI flows into developing countries (World Bank 2020). This is
especially true in manufactured products where many components are assembled to
form the final product. Many high-technology products are assembled in developing
countries because of their low costs; due to this, the domestic content of the value
added from processed trade has been an integral part of growth in most developing
countries. Timmer et al. (2014) find that the value added increases faster in emerging
countries, especially China, compared to more advanced countries. While conven-
tional trade theories focus on trade flows between countries, the concept of global
supply chains emphasise the production process of a product with value added in
each stage of production (Antràs 2020a).

7.3 Trade Relations in Brunei

7.3.1 Stylised Facts on Trade

Since the 1960s Brunei has maintained a trade surplus (Fig. 7.1). From the late 1970s to early 1980s, high oil prices and oil production resulted in a trade surplus of about USD3.9 billion. This surplus persisted even during the 1997–1998 Asian financial crisis, although it declined in the late 1990s, which can be attributed to the oil price depression. The oil price glut during the mid-1990s resulted in a record low surplus of about USD2 billion. After 1998 the country began to see another pattern emerging. Brunei’s earnings from oil and gas started to decline substantially due to a reduction in oil production. The country attained a record surplus of around USD9.4 billion in 2012 when oil prices soared above the USD100 mark. The economy managed a significant feat of maintaining a trade surplus over the period. However, there has been a decline in exports over the past few years while imports have remained steady. The current account surplus has declined, and this is a concern for the government and policy planners.

The export basket consists of different heterogeneous products. Aggregating all products into an export basket or sector would be too crude to gauge trade linkages between countries. At an aggregated level, all electronics products would be classified in the same category but might be very different from each other. To avoid this,
<figure><img src="image_66.png" /><figcaption>**Fig. 7.1** Brunei Darussalam: Exports and imports, 1960–2020 (USD millions). *Note* The exports and imports can be further categorised into trade at the product level. This provides more information and interest on patterns of trade between countries</figcaption></figure>

we use a disaggregated level of classification to investigate the trade linkages of Brunei. According to Peter K. Schott (2008), product-level data provide a better understanding as heterogeneity exists across products, even in the same industry. The Harmonised System (HS) is a standardised structure developed by the World Customs Organisation for classifying and coding goods for international comparison. The HS has been adopted by over 200 countries and accounts for about 98% of total world trade (WITS 2024). The system at the six-digit level (HS6) comprises approximately 5,300 product descriptions.

The total number of products exported and imported by Brunei is shown in Table 7.2. Brunei exported just under 100 products before 1997 and over 1,800 by 2019. Data at the product level are noisy and subject to measurement errors due to classification issues in HS revisions. Products recorded with 0 trade value are also dropped from our sample study. Many export earnings for products are negligible. We can see a considerable drop in exports once we filter out those with export values less than USD5,000. There are considerably more products imported due to the heavy reliance on imports for domestic consumption. There are 2,000–3,000 products which the country imported, and these numbers drop by around 30% if we filter out those valued at less than USD5,000.

Table 7.3 provides the top 10 exports and Table 7.4 the top 10 imports for Brunei. This is to offer a comparison of the trade structure for 2001 and 2019. In 2001, out of the total 1,129 products exported, Brunei's top two exports were crude oil (47%) and natural gas (46%). The textile industry prospered in the late 1990s and early 2000s, with exports going mainly to North America (ASEAN-Japan Center 2021). In 2001 manufacturing was mainly confined to the textile and apparel industry, with
<table><caption>**Table 7.2** Brunei Darussalam: Total export and import headings at product level, 1992–2019</caption><thead><tr><th>Year</th><th>Export headings (all)</th><th>Export headings (&gt;USD5,000)</th><th>Import headings (all)</th><th>Import headings (&gt;USD5,000)</th></tr></thead><tbody><tr><td>1992</td><td>61</td><td>40</td><td>2,167</td><td>1,736</td></tr><tr><td>1993</td><td>35</td><td>19</td><td>2,215</td><td>1,770</td></tr><tr><td>1994</td><td>67</td><td>59</td><td>2,181</td><td>1,804</td></tr><tr><td>1997</td><td>1,362</td><td>683</td><td>3,783</td><td>2,920</td></tr><tr><td>1998</td><td>1,445</td><td>642</td><td>3,786</td><td>2,711</td></tr><tr><td>2001</td><td>1,129</td><td>74</td><td>3,479</td><td>2,533</td></tr><tr><td>2002</td><td>1,216</td><td>102</td><td>3,551</td><td>2,582</td></tr><tr><td>2003</td><td>1,195</td><td>96</td><td>3,467</td><td>2,564</td></tr><tr><td>2004</td><td>1,834</td><td>809</td><td>3,773</td><td>2,774</td></tr><tr><td>2006</td><td>1,599</td><td>662</td><td>3,617</td><td>2,700</td></tr><tr><td>2007</td><td>1,695</td><td>727</td><td>3,657</td><td>2,768</td></tr><tr><td>2008</td><td>1,711</td><td>696</td><td>3,635</td><td>2,741</td></tr><tr><td>2009</td><td>1,853</td><td>748</td><td>3,631</td><td>2,803</td></tr><tr><td>2010</td><td>1,938</td><td>828</td><td>3,599</td><td>2,738</td></tr><tr><td>2011</td><td>1,950</td><td>823</td><td>3,584</td><td>2,726</td></tr><tr><td>2012</td><td>1,884</td><td>860</td><td>3,521</td><td>2,751</td></tr><tr><td>2013</td><td>1,798</td><td>883</td><td>3,524</td><td>2,782</td></tr><tr><td>2014</td><td>1,763</td><td>829</td><td>3,499</td><td>2,713</td></tr><tr><td>2015</td><td>1,895</td><td>878</td><td>3,543</td><td>2,750</td></tr><tr><td>2016</td><td>1,905</td><td>868</td><td>3,537</td><td>2,730</td></tr><tr><td>2017</td><td>1,922</td><td>864</td><td>3,505</td><td>2,767</td></tr><tr><td>2018</td><td>1,629</td><td>144</td><td>3,537</td><td>2,740</td></tr><tr><td>2019</td><td>1,890</td><td>869</td><td>3,537</td><td>2,742</td></tr></tbody></table>

*Source* Compiled from WITS (2024) using HS-92 classification

*Note* Data for 1995, 1996 and 1999 are missing

a combined share of more than 10% of exports. However, this industry declined rapidly due to stiff competition from China and India when the quota system was abolished. Reliance on crude oil and natural gas seems to have reduced slightly in 2019, with an export share of about 82.6%. The two exports which have seen an increase in the export share are refined petroleum and methanol. The two products had a combined export share of 10% in 2019. Methanol is an industrial chemical and considered a downstream product processed from natural gas and steam. Brunei Methanol Company is a joint venture between Mitsubishi Gas Chemical, Itochu and Petroleum Brunei which was established in 2006 (Oxford Business Group 2011). There has been an increasing trend of FDI from Chinese companies, such as Hengyi Industries and Beibu Gulf, to further develop downstream petrochemical industries and improve port facilities and equipment provided by the Muara Container Terminal
(see below). USD3.45 billion was invested in the first phase and another USD13.65 billion in the second phase, the largest investment in the country.

Table 7.4 shows the top 10 products by import share in 2001 and 2019. Crude oil and petroleum oil were the top imports in 2019. Since the Hengyi oil refinery became operational in 2019, the country has seen an increased share of import of crude oil. The two products were not on the list in 2001. At the product level, there are some products that are both exported and imported. We look next at the comparative advantage at the product level.

<table><caption>**Table 7.3** Brunei Darussalam: Top 10 products by export share, 2001 and 2019</caption><thead><tr><th rowspan="2">Rank</th><th colspan="3">2019</th><th colspan="3">2001</th></tr><tr><th>Product</th><th>Export value</th><th>(%)</th><th>Product</th><th>Export value</th><th>(%)</th></tr></thead><tbody><tr><td>1</td><td>Liquefied natural gas</td><td>3,000.0</td><td>42.05</td><td>Petroleum oils and oils obtained from bituminous minerals</td><td>1,600</td><td>47.33</td></tr><tr><td>2</td><td>Petroleum oils and oils obtained from bituminous minerals</td><td>2,900.0</td><td>40.58</td><td>Liquefied natural gas</td><td>1,500</td><td>46.04</td></tr><tr><td>3</td><td>Petroleum oils, etc. (excl. crude); preparation</td><td>532.1</td><td>7.57</td><td>Petroleum oils, etc. (excl. crude); preparation</td><td>63.6227</td><td>1.93</td></tr><tr><td>4</td><td>Methanol (methyl alcohol)</td><td>150.7</td><td>2.14</td><td>Garments, made up of fabrics</td><td>29.0575</td><td>0.88</td></tr><tr><td>5</td><td>Derricks, cranes or work trucks</td><td>45.3</td><td>0.64</td><td>T-shirts, singlets and other vests</td><td>21.2406</td><td>0.65</td></tr><tr><td>6</td><td>p-Xylene</td><td>41.9</td><td>0.60</td><td>Men's or boys' shirts of cotton, knitted</td><td>15.2454</td><td>0.46</td></tr><tr><td>7</td><td>Aromatic hydrocarbon mixtures</td><td>36.8</td><td>0.52</td><td>Dresses of cotton, knitted or crocheted</td><td>12.0307</td><td>0.37</td></tr><tr><td>8</td><td>Aircraft parts (not elsewhere specified)</td><td>35.9</td><td>0.51</td><td>Parts of garments or clothing access</td><td>10.6613</td><td>0.32</td></tr><tr><td>9</td><td>Chemical products and residual products</td><td>31.8</td><td>0.45</td><td>Jerseys, pullovers, etc. of cotton</td><td>10.557</td><td>0.32</td></tr><tr><td>10</td><td>Petroleum gases</td><td>30.6</td><td>0.44</td><td>Clothing accessories</td><td>9.6744</td><td>0.29</td></tr></tbody></table>

Source Compiled from WITS (2024) using HS-92 classification

Note Export value is measured in USD millions
<table><caption>**Table 7.4** Brunei Darussalam: Top 10 products by import share, 2001 and 2019</caption><thead><tr><th rowspan="2">Rank</th><th colspan="3">2019</th><th colspan="3">2001</th></tr><tr><th>Product</th><th>Import value</th><th>(%)</th><th>Product</th><th>Import value</th><th>(%)</th></tr></thead><tbody><tr><td>1</td><td>Petroleum oils and oils obtained from bituminous minerals</td><td>1,200.0</td><td>22.8</td><td>Parts of steam and vapour turbines</td><td>31.1</td><td>2.8</td></tr><tr><td>2</td><td>Petroleum oils, etc. (excl. crude)</td><td>411.2</td><td>8.1</td><td>Weft knits or crocheted fabrics</td><td>29.8</td><td>2.7</td></tr><tr><td>3</td><td>Automobiles with reciprocating piston</td><td>149.6</td><td>2.9</td><td>Unbleached woven fabrics of cotton</td><td>29.4</td><td>2.7</td></tr><tr><td>4</td><td>Parts of machinery, plant and equipment</td><td>112.2</td><td>2.2</td><td>Aircraft parts (not elsewhere specified)</td><td>27.3</td><td>2.5</td></tr><tr><td>5</td><td>Structures and parts of structures</td><td>110.8</td><td>2.2</td><td>Combed single cotton yarn</td><td>27.1</td><td>2.5</td></tr><tr><td>6</td><td>Taps, cocks, valves and similar appliances</td><td>103.8</td><td>2.0</td><td>Automobiles with reciprocating piston</td><td>22.3</td><td>2.0</td></tr><tr><td>7</td><td>Other medicaments</td><td>89.9</td><td>1.8</td><td>Live pure-bred breeding bovine animals</td><td>14.3</td><td>1.3</td></tr><tr><td>8</td><td>Coal gas, water gas, producer gas</td><td>86.8</td><td>1.7</td><td>Automobiles with diesel engine displacement</td><td>12.3</td><td>1.1</td></tr><tr><td>9</td><td>Aircraft parts (not elsewhere specified)</td><td>67.9</td><td>1.3</td><td>Pipeline, welded, riveted</td><td>11.9</td><td>1.1</td></tr><tr><td>10</td><td>Parts of aircraft engines</td><td>66.6</td><td>1.3</td><td>Tobacco</td><td>10.4</td><td>0.9</td></tr></tbody></table>

*Source* Compiled from WITS (2024) using HS-92 classification

*Note* Import value is measured in USD millions

### 7.3.2 Intra-industry Trade

The most common method for measuring intra-industry trade is the Grubel–Lloyd index. It measures the ratio of the net exports in a product category to its total trade. The index values vary between 0 and 1, with 0 representing complete interindustry trade and 1 representing complete intra-industry trade. When export equals import in a particular industry, the index equals 1. The index can also be considered a measure of the degree of trade overlap between exports and imports for a given commodity:

$$GL_{ijk} = 1 - \left( \frac{|X_{ijk} - M_{ijk}|}{X_{ijk} + M_{ijk}} \right) \quad (7.1)$$
where $X_{ijk}$ and $M_{ijk}$ define the exports and imports of country $i$ to country $k$ for product $j$.

At the product level, we found that the index for natural gas was very close to 0 before 2019, indicating interindustry trade. This is not surprising given that Brunei exports mainly oil and gas and imports manufactured goods. However, for 2019 we found a high level of intra-industry trade for crude oil and petroleum oil with values of 0.58 and 0.87 respectively. It seems Brunei imported a substantial amount of crude oil in 2019 (USD1.16 billion) from different sources, such as Nigeria, the United Arab Emirates and Kazakhstan. Brunei also imported USD411 million of petroleum oil in 2019, mostly from Singapore (68%) and China (14%). Hengyi started producing processed petroleum oil in 2019, coinciding with the massive imports of crude oil needed in the production process. There might be a need to import crude oil from other sources given that the country produces a daily average of 100,000 barrels of crude oil while the refinery plant can process more than 160,000 barrels a day.

### 7.3.3 Trade Agreements

Regionalism is a very important aspect of Brunei's international political and economic relations. It joined the Association of Southeast Asian Nations (ASEAN) in 1984 and, being a senior member, plays an important role. Today ASEAN consists of 10 member countries, with a population of 671 million and a combined GDP of USD3.6 trillion in 2022—it is considered the fifth largest economy in the world (ASEAN Secretariat 2023). The ASEAN Free Trade Area (AFTA) was established in January 1992 to promote regional economic integration by eliminating tariff and non-tariff barriers among its member countries. ASEAN now comprises about 8.5% of total world trade and is the fourth largest trading economic bloc after the European Union, the United States and China.

ASEAN Plus Three (APT), which includes China, Japan and South Korea, was initiated in 1997 and institutionalised in 1999 and has since become an important framework to promote political, social and economic stability in the East Asian region. APT is one of the biggest free trade agreements (FTAs) globally, with a population of about 2.1 billion people (over 28% of world population), GDP of about USD24 trillion (about 27% of global GDP) and total trade estimated at USD10.13 trillion. Already very large, and having generated massive FDI inflows and trade, APT still has huge potential for future growth (ASEAN Secretariat 2024a, b).

ASEAN's institutional deepening has continued apace over the last decade. A major development was the establishment of the ASEAN Community on 31 December 2015 which aims to incorporate the ASEAN Political-Security Community (APSC), ASEAN Economic Community (AEC) and ASEAN Socio-Cultural Community (ASCC). The AEC promotes free trade, services investments, skilled labour and capital mobility across the region. The objective of a single market and a single production base is currently a work in progress. The region has been successful in reducing tariffs in trade, though the problem of non-tariff barriers is on the rise
(Menon 2018). Christina Ruth Elisabeth (2019) notes that the majority of the non-tariff barriers were in the form of technical barriers to trade such as sanitary and phytosanitary export measures. Her report also finds that Brunei applies non-tariff barriers to animal, vegetable and food products, and adheres to a strict standard to protect its consumers and the environment.

FTAs and designating free trade regions are considered by policymakers to be the most effective instruments for trade liberalisation. With FTAs, trade and exchange rate regimes have been liberalised, with tariffs and non-tariff barriers lowered significantly in developing countries (Engel et al. 2021). Brunei has joined several FTAs through its membership of ASEAN, which include Australia, New Zealand, China, South Korea, Japan and India. The ASEAN–China FTA was signed in 2004 and tariffs on 7,000 product categories were eliminated in 2010. The ASEAN–Korea FTA was formed in 2007, and tariffs have been eliminated for 90% of traded products between the two partners. The ASEAN–Japan Comprehensive Economic Partnership in 2008 eliminated tariffs on 87% of product lines and facilitates cross-border investments between the partners.

Brunei was also one of the 11 signatories to the Trans-Pacific Partnership (TPP), which was effectively supplanted by the Regional Comprehensive Economic Partnership (RCEP) formed in December 2020, which is also an FTA between the ASEAN region and the Asia-Pacific countries of Australia, New Zealand, South Korea, Japan and China. As a small nation, Brunei does not have the power to voice its viewpoint at the international level on its own. These larger organisations provide a platform so that its aspirations have a better chance of being realised in a globalised world. Being a member of the World Trade Organisation (WTO), the country is entitled to most favoured nation (MFN) status. The MFN simple tariff rate declined to 0.21% in 2019 compared to 4.12% in 2001. The intra-tariff rate in ASEAN has been reduced from around 3% in 2005 to just 0.2% in 2017. Trade liberalisation under the FTAs helps to integrate the region more quickly and generate new economic activities.

### 7.3.4 Trade Partners

Brunei exports almost its entire export basket (99%) to the ASEAN Plus Six region (Australia, China, India, Japan, South Korea and New Zealand). China, South Korea and Japan are the most important market destinations for oil and gas. China's growth could create potential opportunities for the ASEAN region (Dizioli et al. 2016). China has been the largest investor in ASEAN since 2010 and its largest trading partner. However, it could pose a threat to some economies that cannot compete with China's overly competitively priced products. Given China's integration and huge market potential, especially in the ASEAN region, the expectation is that China will stimulate regional economic growth.

As mentioned above, Brunei's main export products are crude oil and natural gas; its main imports are food and consumer products. Table 7.5 shows the main export destinations for Brunei for 2010 and 2019. In 2010 Brunei exported about 43.5% of
its products to Japan. The export share to Japan declined to 31.4% in 2019, when Brunei exported about USD2 billion of LNG and USD138 million of crude oil. (It is worth noting that in 1984 Brunei exported about 68% of its total exports to Japan.) Over the years, the country's exports seem to have moved towards intraregional trade with ASEAN, with the market share to the region increasing from 12% in 2010 to 35% in 2019. Within ASEAN, Singapore, Malaysia and Thailand are top export destinations while Myanmar, Laos and Cambodia are also important. In 2019 Singapore was the second-largest export market for Brunei, comprising 13.7% of its total exports. Brunei is also starting to export to the Philippines and Vietnam—mostly methanol products.

Australia is Brunei's third-largest market, with a 10.2% market share comprising USD640 million of crude oil and USD67 million of petroleum oil exports. Brunei exports a relatively small percentage of its products to China as exports experienced a slight decline from 6.6% in 2010 to 6.1% in 2018. Currently, China imports its crude oil primarily from non-Organisation of the Petroleum Exporting Countries such as Russia, Oman and Brazil.

Brunei's main imports used to be from the ASEAN region, which comprised about 51% of Brunei's import basket in 2010. At that time, within the ASEAN region, Malaysia and Singapore had the biggest import shares at 23.6% and 19.1% respectively. China has also emerged as an important source of imports as its market share in Brunei has increased dramatically from near non-existence before the 1980s to 13.2% in 2019. Products imported from China are mainly machinery appliances and parts, iron or steel articles, mineral fuels and chemical products. (In what appears

<table><caption>**Table 7.5** Brunei Darussalam: Exports to major trading partners, 2010 and 2019</caption><thead><tr><th>Rank</th><th>2010</th><th>Export value (USD millions)</th><th>%</th><th>2019</th><th>Export value (USD millions)</th><th>%</th></tr></thead><tbody><tr><td>1</td><td>Japan</td><td>3,872.0</td><td>43.5</td><td>Japan</td><td>2,206.9</td><td>31.4</td></tr><tr><td>2</td><td>South Korea</td><td>1,486.5</td><td>16.7</td><td>Singapore</td><td>966.9</td><td>13.7</td></tr><tr><td>3</td><td>Australia</td><td>919.9</td><td>10.3</td><td>Australia</td><td>715.7</td><td>10.2</td></tr><tr><td>4</td><td>Indonesia</td><td>632.2</td><td>7.1</td><td>Malaysia</td><td>611.5</td><td>8.7</td></tr><tr><td>5</td><td>China</td><td>586.9</td><td>6.6</td><td>India</td><td>602.4</td><td>8.6</td></tr><tr><td>6</td><td>India</td><td>496.1</td><td>5.6</td><td>Thailand</td><td>552.1</td><td>7.8</td></tr><tr><td>7</td><td>South Asia</td><td>496.1</td><td>5.6</td><td>China</td><td>429.1</td><td>6.1</td></tr><tr><td>8</td><td>New Zealand</td><td>377.8</td><td>4.2</td><td>South Korea</td><td>338.1</td><td>4.8</td></tr><tr><td>9</td><td>Singapore</td><td>251.2</td><td>2.8</td><td>Vietnam</td><td>198.7</td><td>2.8</td></tr><tr><td>10</td><td>Malaysia</td><td>132.4</td><td>1.5</td><td>Philippines</td><td>119.0</td><td>1.7</td></tr><tr><td></td><td>ASEAN</td><td>1,106.7</td><td>12.4</td><td>ASEAN</td><td>2,486.8</td><td>35.3</td></tr><tr><td></td><td>APT</td><td>7,052.0</td><td>0.79</td><td>APT</td><td>5,460.9</td><td>0.78</td></tr><tr><td></td><td>APS</td><td>8,845.7</td><td>0.99</td><td>APS</td><td>6,779.6</td><td>0.99</td></tr></tbody></table>

*Source* Compiled from WITS (2024)
<table><caption>**Table 7.6** Brunei Darussalam: Imports from major trading partners, 2010 and 2019</caption><thead><tr><th>Rank</th><th>2010</th><th>Import value (USD millions)</th><th>%</th><th>2019</th><th>Import value (USD millions)</th><th>%</th></tr></thead><tbody><tr><td>1</td><td>Malaysia</td><td>599.6</td><td>23.6</td><td>China</td><td>672.0</td><td>13.2</td></tr><tr><td>2</td><td>Singapore</td><td>485.0</td><td>19.1</td><td>Singapore</td><td>639.7</td><td>12.5</td></tr><tr><td>3</td><td>Japan</td><td>252.5</td><td>10.0</td><td>Malaysia</td><td>605.3</td><td>11.9</td></tr><tr><td>4</td><td>United States</td><td>246.6</td><td>9.7</td><td>United States</td><td>322.6</td><td>6.3</td></tr><tr><td>5</td><td>China</td><td>199.2</td><td>7.8</td><td>Germany</td><td>322.1</td><td>6.3</td></tr><tr><td>6</td><td>Thailand</td><td>136.5</td><td>5.4</td><td>Nigeria</td><td>287.5</td><td>5.6</td></tr><tr><td>7</td><td>United Kingdom</td><td>109.4</td><td>4.3</td><td>United Arab Emirates</td><td>256.2</td><td>5.0</td></tr><tr><td>8</td><td>Germany</td><td>77.7</td><td>3.1</td><td>Japan</td><td>207.0</td><td>4.1</td></tr><tr><td>9</td><td>Indonesia</td><td>64.8</td><td>2.6</td><td>Kazakhstan</td><td>203.6</td><td>4.0</td></tr><tr><td>10</td><td>Korea, Rep</td><td>56.1</td><td>2.2</td><td>Indonesia</td><td>130.6</td><td>2.6</td></tr><tr><td></td><td>ASEAN</td><td>1,298.9</td><td>51.2</td><td>ASEAN</td><td>1,637.5</td><td>32.1</td></tr><tr><td></td><td>APT</td><td>1,806.7</td><td>71.2</td><td>APT</td><td>2,610.9</td><td>51.2</td></tr><tr><td></td><td>APS</td><td>1,891.1</td><td>74.5</td><td>APS</td><td>2,760.6</td><td>54.1</td></tr></tbody></table>

*Source* Compiled from WITS (2024)

to be an outlier, Brunei imported USD1.6 billion from China in 2018, which is more than its USD1.3 billion of imports from the entire ASEAN region that year.) (Table 7.6).

### 7.3.5 Trade by Sectors

Although the product level provides a clearer understanding of trade between two regions, it is messy to tabulate and summarise trade flows for all 5,000 products. Tables 7.7 and 7.8 illustrate Brunei's trade with ASEAN Plus Three by 10 sectors classified by the standard international trade classification (SITC) at the 1-digit level. Not surprisingly, Brunei's exports to APT are concentrated in two sectors: mineral fuels (95%) and chemical products (4.6%). These two sectors account for a combined USD1.6 billion, which is more than Brunei's total exports to the combined ASEAN region. Mineral fuels are the main export sector to Japan and South Korea, accounting for more than 99% of Brunei's total exports to these two countries. Brunei's largest export sector to China is also the chemical and animal oil sectors (90%). China has been one of the world's largest net oil importers in recent years and is looking to acquire fuels from neighbouring countries. In terms of energy security, Brunei might have the potential to provide oil and gas to meet China's rising demand for fuels. Brunei's exports to APT in the other sectors are minimal and do not contribute much
<table><caption>**Table 7.7** Brunei Darussalam: Exports to APT by sector, 2019 (USD1,000)</caption><thead><tr><th>Sector</th><th>ASEAN</th><th>China</th><th>Japan</th><th>South Korea</th></tr></thead><tbody><tr><td>Food and live animals</td><td>801.4</td><td>1,086.7</td><td>754.4</td><td>0.0</td></tr><tr><td>Beverages and tobacco</td><td>1.9</td><td>0.0</td><td>15.6</td><td>0.0</td></tr><tr><td>Crude materials, inedible, except fuels</td><td>181.0</td><td>0.9</td><td>0.0</td><td>368.4</td></tr><tr><td>Mineral fuels, lubricants and related materials</td><td>1,530,015.0</td><td>0.0</td><td>2,267,501.1</td><td>606,379.7</td></tr><tr><td>Animal and vegetable oils and fats</td><td>0.0</td><td>118,569.7</td><td>0.0</td><td>0.0</td></tr><tr><td>Chemicals and related products</td><td>74,048.2</td><td>109,064.3</td><td>13,487.0</td><td>6,173.1</td></tr><tr><td>Manufactured goods classified</td><td>1,838.9</td><td>63.9</td><td>0.0</td><td>13.8</td></tr><tr><td>Machinery and transport equipment</td><td>757.0</td><td>0.6</td><td>153.2</td><td>0.0</td></tr><tr><td>Miscellaneous manufactured articles</td><td>2,055.3</td><td>0.1</td><td>0.0</td><td>0.0</td></tr><tr><td>Commodities and transactions</td><td>207.5</td><td>11.0</td><td>7.5</td><td>0.8</td></tr></tbody></table>

*Source* Compiled from WITS (2024) using SITC 1 data

to the export share. A potential sector Brunei could tap into is agriculture, fishery and services products, given the increasing Chinese demand.

Brunei's main import source is China, followed by the ASEAN region. Its imports from China, Japan and South Korea are mainly machinery and manufactured goods. Imports from the ASEAN region are more evenly distributed between the sectors of food products, manufactured goods and machinery.

### 7.3.6 Trade Intensity Index (TII)

Ramkishen Rajan and Rahul Sen (2002) stress that trade shares are an incomplete indicator of the intensity of bilateral trade relations as they do not consider a country's trade exposure with the rest of the world. The degree of bilateral trade linkages between Brunei and APT can be more appropriately measured using the bilateral trade intensity index (TII). The TII is used to determine whether the ratio of a country's exports to a specific trading partner is relative to world exports, thus providing a basis for their importance in world trade. It is defined as the share of one country's exports to a partner divided by the share of world exports to the partner. The index can be represented as:

$$TII_{ij} = \left( \frac{X_{ij}}{X_{it}} \right) / \left( \frac{X_{wj}}{X_{wt}} \right) \qquad (7.2)$$
<table><caption>**Table 7.8** Brunei Darussalam: Imports from APT by sector, 2019 (USD1,000)</caption><thead><tr><th>Sector</th><th>ASEAN</th><th>China</th><th>Japan</th><th>South Korea</th></tr></thead><tbody><tr><td>Food and live animals</td><td>313,952.2</td><td>20,370.6</td><td>1,228.0</td><td>1,737.8</td></tr><tr><td>Beverages and tobacco</td><td>30,925.5</td><td>55.3</td><td>79.5</td><td>250.7</td></tr><tr><td>Crude materials, inedible, except fuels</td><td>25,875.7</td><td>4,008.9</td><td>2.3</td><td>983.4</td></tr><tr><td>Mineral fuels, lubricants and related materials</td><td>266,439.8</td><td>280.5</td><td>373.7</td><td>198.4</td></tr><tr><td>Animal and vegetable oils and fats</td><td>12,492.6</td><td>0.0</td><td>0.0</td><td>3.3</td></tr><tr><td>Chemicals and related products</td><td>160,103.4</td><td>45,407.3</td><td>5,755.7</td><td>5,684.5</td></tr><tr><td>Manufactured goods classified</td><td>180,127.3</td><td>818,537.4</td><td>46,345.4</td><td>44,600.0</td></tr><tr><td>Machinery and transport equipment</td><td>245,845.3</td><td>663,273.1</td><td>104,280.0</td><td>41,712.9</td></tr><tr><td>Miscellaneous manufactured articles</td><td>110,650.0</td><td>89,305.3</td><td>2,591.7</td><td>1,895.3</td></tr><tr><td>Commodities and transactions</td><td>527.9</td><td>173.0</td><td>5.1</td><td>56.5</td></tr></tbody></table>

*Source* Compiled from WITS (2024) using SITC 1 data

where $X_{ij}$ and $X_{wj}$ are the values of country $i$'s exports and world exports to country $j$, and where $X_{it}$ and $X_{wt}$ are country $i$'s total exports and total world exports respectively. A trade intensity of greater (less) than 1 implies that the bilateral trade intensity between the two countries is higher (lower) compared to the rest of the world.

Figure 7.2 provides the TII of Brunei-ASEAN and Brunei-APT. Brunei's TIIs with ASEAN and APT have values of more than 1, indicating strong trade linkages. However, there seems to be a downward trend in the APT TII over the years, falling from about 9 in the late 1980s to about 4 in 2018. Although the index is still high, this seems to indicate that the rest of the world's trade linkages with APT, one of the biggest trading blocs in the world, are getting more intensive. The results are as expected given the importance of ASEAN and APT to Brunei and how most of the country's exports and imports involve APT.

The revealed comparative advantage (RCA), also known as the Balassa index, has often been used to access a country's export potential (Balassa 1965; De Benedictis and Tamberi 2001; Reyes 2014). The RCA measures a country's relative export performance for a product as a ratio of the world's total export share of that commodity. Countries with similar RCA indices for a commodity are unlikely to have high bilateral trade intensities unless they are trading in similar goods. RCAs measured at very disaggregated levels might indicate a potential export advantage that should be capitalised on. The RCA index of country $i$ for product $k$ is often measured by the product's share in the country's exports to its share in world trade:
<figure><img src="image_67.png" /><figcaption>**Fig. 7.2** Brunei Darussalam: TII with ASEAN and APT, 1980–2019. *Source* Author's calculations from data derived from WITS (2024)</figcaption></figure>

$$RCA_{ij} = \left( \frac{X_{ik}}{X_{it}} \right) / \left( \frac{X_{wk}}{X_{wt}} \right) \qquad (7.3)$$

where $X_{ik}$ and $X_{wk}$ are the values of country i's exports of product k and world exports of product k, and where $X_{it}$ and $X_{wt}$ refer to the country's total exports and world total exports. If the index is greater than 1, the country has a comparative advantage in that product.

At the HS6 product level, we found that Brunei has a comparative advantage in 88 out of the 1900 products (4%) it exports. The top five exports were compiled with the RCA index (Table 7.9).

We also found that Brunei's major trading partners such as China, Japan, Singapore and Malaysia have a comparative advantage in manufactured goods, machinery, animal and vegetable oil, and miscellaneous products. Most economies in APT are developing countries that export such products. There are many products in which

<table><caption>**Table 7.9** Brunei Darussalam: Top exports of RCA index, 2019</caption><thead><tr><td>Rank</td><td>RCA</td><td>Product description</td></tr></thead><tbody><tr><td>1</td><td>83.79</td><td>Natural gas, liquefied</td></tr><tr><td>2</td><td>10.69</td><td>Petroleum oils and oils obtained from bituminous</td></tr><tr><td>3</td><td>1.98</td><td>Petroleum oils, etc. (excl. crude); preparation</td></tr><tr><td>4</td><td>77.88</td><td>Methanol (methyl alcohol)</td></tr><tr><td>5</td><td>58.29</td><td>Derricks, cranes, or work trucks fitted with a c</td></tr></tbody></table>

*Source* Author's calculations from WITS (2024)
countries like China do not have a comparative advantage, such as the fuels, food and mineral industries.

### 7.3.7 Processed Products Trade

Traded products normally consist of inputs assembled from different parts of the world, especially for manufactured products where many components are assembled to form the final product. However, when China exports assembled iPods, the full USD150 is recorded as an import from China though the value added is only USD4 (Linden et al. 2009). Similarly, Xing Yuqing (2019) shows that China's contribution to the iPhone's global value chain has improved significantly, rising from 1.6% for the iPhone 3G in 2009 to 10.4% for the iPhone X in 2018. However, concentrating solely on Apple products like the iPod and iPhone may not accurately reflect China's overall contribution to manufactured products. The value added during the production process might not be correctly reflected in conventional trade flows. The Trade in Value Added (TiVA) is a joint initiative by the Organisation for Economic Co-operation and Development (OECD) and the WTO to address the value added of a product by different producers globally using a world input-output table. The 2023 edition of TiVA currently provides input and output tables covering 45 unique economic activities for 76 economies (including ASEAN) with data from 1995 to 2020 (OECD 2024). The GVC advocates specialisation leading to an increase in firms' productivity and income, supporting growth and poverty reduction in developing countries. Almost all countries are involved in the GVA, which can be primarily classified into export primary products for processing, assembling and re-exports, and manufactures of sophisticated goods. Most of Brunei's exports are raw materials for further processing. In the past few years, it has ventured into the manufacture of downstream products such as methanol and petroleum oil.

The domestic value added (DVA) of gross exports for Brunei in each sector is shown in Table 7.10. A DVA ratio close to 1 indicates a high level of domestic content while a ratio close to 0 indicates a low level. We can see that the DVA for all industries is very high—in the range of 0.6–1. Most ASEAN economies are deeply integrated in GVCs, especially those involved in manufacturing sectors. Brunei is an exception in this region due to its reliance on crude oil and natural gas. In mining and quarrying, the DVA fluctuates from 0.85 to 0.95—this is expected given that oil and gas are resource materials. Manufacture of food products seem to have the lowest DVA at around 0.5 in 2020, probably due to the country importing the raw materials. However, their share of total exports is very small. Agriculture, forestry and fishing has a relatively low DVA as well, with a range from 0.6 to 0.8. Given that the country mainly exports locally sourced primary products, the DVA should be relatively higher. If Brunei does indeed diversify its export basket, we could see a higher level of intra-industry trade in the mining industry at the product level, which could lead to a drop in the mining and quarrying industry DVA.
<table><caption>**Table 7.10** Brunei Darussalam: Domestic value added of gross export, 1995–2020 (ratio)</caption><thead><tr><th>Sector</th><th>1995</th><th>2000</th><th>2005</th><th>2010</th><th>2015</th><th>2020</th></tr></thead><tbody><tr><td>Agriculture, forestry and fishing</td><td>0.67</td><td>0.71</td><td>0.83</td><td>0.67</td><td>0.67</td><td>0.64</td></tr><tr><td>Industry (except construction)</td><td>0.94</td><td>0.92</td><td>0.93</td><td>0.92</td><td>0.90</td><td>0.82</td></tr><tr><td>Manufacture of chemicals and non-metallic mineral products</td><td>0.95</td><td>0.93</td><td>0.95</td><td>0.93</td><td>0.92</td><td>0.77</td></tr><tr><td>Manufacture of coke and refined petroleum products</td><td>0.95</td><td>0.93</td><td>0.94</td><td>0.93</td><td>0.91</td><td>0.77</td></tr><tr><td>Manufacture of food products</td><td>1.00</td><td>0.67</td><td>0.57</td><td>0.67</td><td>0.56</td><td>0.50</td></tr><tr><td>Manufacturing</td><td>0.84</td><td>0.89</td><td>0.73</td><td>0.84</td><td>0.86</td><td>0.77</td></tr><tr><td>Mining and extraction of energy producing products</td><td>0.95</td><td>0.93</td><td>0.93</td><td>0.92</td><td>0.90</td><td>0.85</td></tr><tr><td>Mining and quarrying</td><td>0.95</td><td>0.93</td><td>0.93</td><td>0.92</td><td>0.90</td><td>0.85</td></tr><tr><td>Other service activities</td><td>0.87</td><td>0.90</td><td>0.85</td><td>0.87</td><td>0.87</td><td>0.75</td></tr><tr><td>Total services (incl. construction)</td><td>0.85</td><td>0.85</td><td>0.88</td><td>0.83</td><td>0.82</td><td>0.78</td></tr><tr><td>Total—All activities</td><td>0.93</td><td>0.92</td><td>0.93</td><td>0.91</td><td>0.89</td><td>0.82</td></tr></tbody></table>

*Source* Compiled from the Trade in Value Added (TiVA) database (OECD 2024)

Export diversification is considered a pivotal factor for economic growth which can reduce a country's vulnerability to global world shock, leading to sustainable growth in the long run (OECD and WTO 2019). Export diversification infers the broadening of its production base, either for domestic or export purposes. With a small domestic market, the country will need to look beyond its borders to promote economic growth through an expansion of its export base. Ricardo Hausmann and Bailey Klinger (2007) develop the product space to investigate the structure and sophistication of exports. They find that a country's speed of export diversification depends on its current export basket and how closely it is related to more sophisticated products. The process of moving to new export products is a process of structural changes in comparative advantage through capital accumulation. Every product involves input that is slightly differentiated from every other product; however, the degree of input substitution is easier for closely related products because of knowledge spillovers and existing necessary infrastructure. Hence the structure of the product space will tend to predict the evolution of a country's potential exports. Manufactured products make up the core of the product space and are closely linked to many other products, while mining products in crude form lie on the boundary and have linkages to other products. This rationale forms the basis of the argument that countries producing manufactured goods will find it easier to diversify their production base due to the strong linkages of the more sophisticated goods. For a resource-rich country like Brunei which relies heavily on hydrocarbons it is more appropriate to diversify into the more sophisticated downstream petroleum refinery industries such as petrol, gasoline, diesel oil, jet fuel, lubricants and other forms of petrochemicals. This strategy is in line with the government's diversification policy.
Exporting firms self-select export markets and tend to be bigger and more produc-
tive than non-exporting firms, although exporting does not always increase produc-
tivity (Bernard and Jensen 1999). Domestic investments and business are usually of
small scale, hence there is a need to attract FDI and capital accumulation into the
country to promote exports.

7.4 Foreign Direct Investment in Brunei

Brunei's long-term vision of Wawasan Brunei 2035 aims to produce an educated and skilled workforce, a dynamic and sustainable economy, and a high quality of life. To achieve these objectives, the country needs to attract a large inflow of FDI to provide a huge boost to the economy. The government sees the need to enlarge the private sector and stimulate it to play a more active role in the economy. FDI provides access to new technology, capital, research and development facilities, and management know-how for a host region, which in turn increases economic development. FDI plays a more important role than domestic investment for the transfer of technology, contributing to growth. FDI can also contribute to GDP and income growth through technological improvement and capital accumulation (Zhuang 2008; Engel et al. 2021). The flow of FDI to ASEAN from the rest of the world reflects integration to the global economy in terms of investment and capital flows. ASEAN has remained a major destination of FDI inflows, with USD148 billion in 2018, which accounted for about 11% of total FDI flows. This is a significant increase from FDI inflows of USD102 billion in 2010.

ASEAN is a top destination for FDI inflows among developing countries, but the most significant FDI destinations are Europe (21%) and the United States (19%). Singapore, despite being the second smallest country in ASEAN in terms of population, accounted for 52% of total FDI inflows into the ASEAN region in 2018. Vietnam (10%) and Indonesia (15%) were the next largest recipients of FDI. Brunei had the lowest share in the region, with an inflow of USD504 million. We provide the ratio of FDI to GDP as it provides a better indicator (Fig. 7.3). The ratio is considerably high in 2019 (3%) and 2000 (15%). The FDI ratio peak seems to follow the global FDI trend where it builds up before the dot-com crash in 2000 and falling sharply to around 2%. Another period with a sharp drop was 2014, which coincided with the oil price slump.

The manufacturing sector, which mainly refers to the petrochemical processing industry, has the largest share of FDI, followed by the real estate and wholesale and retail trade sectors. The government has been actively looking to attract FDI into tourism and the business services, downstream oil and gas, halal foods, technology and creative industries. The two largest foreign investments received to this day are a methanol distillery, partially financed by the Japanese Mitsubishi Gas Chemical, and a petrochemical venture by the Chinese Zhejiang Hengyi Group.

Hengyi Industries is a petrochemical joint venture between Brunei and China in which the Brunei government has a 30% stake. The plant started its installation in
<figure><img src="image_68.png" /><figcaption>**Fig. 7.3** Brunei Darussalam: FDI to GDP ratio, 1990–2019 (%). *Source* Data from World Bank (2022)</figcaption></figure>

2017 to build a 935-ha integrated oil refinery and aromatics plant on Pulau Muara Besar. This is the biggest investment by a private Chinese company in Brunei, with USD3.4 billion allocated for phase 1 and USD13.65 billion for phase 2 (Chen 2020). The plant is expected to produce 1.5 million tonnes of paraxylene and 500,000 tonnes of benzene annually during phase 1, and to increase its output in phase 2 by 1.5 million tonnes of paraxylene and ethylene annually. The plant will diversify into downstream products to cater to domestic demand and export the rest to China. The plant has the capacity to produce 8 million tonnes of crude oil annually and 13 different types of petroleum products. Hengyi's production of processed oil started in 2019 and the company recorded USD3.5 billion of revenue in 2020—about 4.48% of Brunei's GDP. It reported a total export of 6.38 million tonnes of petroleum products and 1.7 million tonnes of petrochemical products (Wong 2021). The company also contributes to employment and currently employs about 447 local staff (40% of the workforce). The spillover effects include business opportunities for 87 local enterprises and indirect employment for 1500 individuals in the services sector (ibid.).

Another major investment is the joint venture between Mitsubishi Gas Chemical, Itochu and Petroleum Brunei launched in 2006. The biggest stakeholder is Mitsubishi Gas Chemical (50%) while Itochu and Petroleum Brunei have a 25% stake (Cobley 2007). The plant comprises a 16-ha plot in the 271-ha Sungai Liang industrial park zone, which Brunei wants to turn into a world-class centre for the oil- and gas-based industries. The joint venture, also known as the Brunei Methanol Plant, started production in 2010 and can produce 850,000 tonnes of methanol for export.

Both these joint ventures have contributed to exports and downstream industries experienced a four-fold increase in production from 2019 to 2020 (Borneo Bulletin 2021). Another ongoing project is the ammonia and urea plant operated by Brunei
Fertilizer Industries. The industrial plant started in 2018, is owned mainly by the Brunei government and is situated on a 55-ha site in Sungai Liang industrial park. Its first urea drop took place in January 2022. The plant consists of three parts: offsite and utilities, ammonia and urea plants. It can produce 2,200 metric tons of ammonia per day and 1.36 million metric tons of urea per year. This can be converted to 1.365 metric tonnes of fertiliser to be exported regionally for agriculture use (Wong 2020; BFI 2024).

In line with the Belt and Road Initiative, China's Guangxi Beibu Gulf International Port Group formed a joint venture with Darussalam Assets to privatise the Muara Port Company in 2017. The company will manage, operate, maintain and develop the Muara Container Terminal. The development is an ongoing plan to expand the port to accommodate two vessels, increasing its annual capacity from 280,000 twenty-foot equivalent units (TEUs) to 500,000 TEUs (Ain 2021).

## 7.5 Conclusion

Brunei needs to expand its industrial base to diversify its exports. Its export base is still very much concentrated on the oil and gas industry. The results showed that Brunei has a very low aggregate intra-industry trade with APT, and trade between the two partners involves different products. Brunei's exports are mainly oil and gas, while its imports are mainly equipment and consumer goods. It is no wonder that interindustry trade patterns dominate while intra-industry trade is almost non-existent. However, in recent years there has been an increase in Brunei's export in the downstream petrochemical industry, such as methanol and petroleum oil, leading to a rise in intra-industry trade in these two products and signalling export diversification. These are brought about by joint ventures and investments by Chinese and Japanese firms. Brunei's exports mainly make their way to Japan and some ASEAN members such as Singapore and Malaysia. China is currently not a major export destination. However, it could very well be one of the biggest markets in the future due to the establishment of Hengyi. The company is set to export processed oil back to China after meeting domestic demand. The emergence and growth of China have made it one of the largest consumers for energy and a major source for energy growth over the past few decades and there is also certainly potential for Brunei to cater to the growing demand for fertilisers in the region.

According to early forecasts, Brunei needs to sustain an annual GDP growth of 5-6% to achieve its Wawasan Brunei 2035 goals (DEPD 2007), and this might be a challenge considering all the factors discussed in this chapter. However, there are some positive notes to be taken, given that the country has branched out into the production of methanol and processed oil, which is a more sophisticated process of production. The value-added contribution for sophisticated goods is naturally higher due to advanced technology and innovation. Given the spillover effects of FDI, the government is aggressively trying to attract investments. Brunei's corporate tax rate stands at 18.5%, ranking second in the ASEAN region behind Singapore.
Additionally, there is the opportunity for 100% foreign ownership and joint ventures with the Brunei government. The relevant authorities are committed to improving the business environment through processing and regulations. Brunei was ranked fourth in the ASEAN region and 66th globally out of 190 economies in terms of ease of doing business in 2021. The country has consistently ranked first in the 'getting credit' category.

There has been an increasing trend of FDI from Chinese companies such as Hengyi Industries and Beibu Gulf to develop the downstream petrochemical industries and to improve port facilities and equipment provided by the Muara Container Terminal. China's FDI into Brunei is expected to increase in the near future. It should be noted that Brunei embarked on its development and diversification path at a later stage compared to other developing ASEAN countries. Overall, it is encouraging to see that Brunei's economy has made some progress over the years towards achieving its goal of export diversification.

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**Pang Wei Loon** is currently an Assistant Professor in Economics at UBD School of Business and Economics, Universiti Brunei Darussalam. He holds a PhD in economics from the University of Sussex, UK, and an MSc in economics from the University of Manchester, UK. His research expertise lies in the domains of international economics, applied economics and development economics, with a particular emphasis on investigating the role of trade and investment in fostering economic growth, particularly in developing and emerging economies. He has published in journals such as *Annals of Tourism Research*, *Journal of Travel Research* and *International Journal of Sociology and Social Policy*, among others.

**Open Access** This chapter is licensed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

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<figure><img src="image_69.png" /></figure>
Part II

The Transition of Brunei Darussalam's
Economy
<figure><img src="image_70.png" /></figure>

Chapter 8

Meeting the Skills Demands
of Employers in Brunei Darussalam:
Where Do the Youth Stand?

Adilah Hisa, M. Muzamil Naqshbandi, and Fadzliwati Mohiddin

**Abstract** To better understand how young people are progressing in meeting changing workplace demands, it is salient to probe the sentiments of employers who hold a fundamental role in youth employability. This chapter presents the main ingredients for enhancing employability from the perspective of employers in Brunei Darussalam. It specifically explores the fundamental employability skills needed by youth in the marketplace and their current potential in executing such skills from the employers' standpoint. The discussion highlights key opportunities and provides recommendations to the relevant stakeholders about potential avenues to pursue in order to alleviate unemployment in Brunei. The findings enrich the extant literature by delivering empirical evidence on youth employability skills, a topic of significant interest and value to young job seekers. At the same time, the chapter provides insights for educators and practitioners to implement fruitful initiatives for managing unemployment in Brunei.

**Keywords** Brunei Darussalam · Youth employability · Employability skills · Unemployment · Job demands

Adilah Hisa (✉) · M. Muzamil Naqshbandi

UBD School of Business and Economics, Universiti Brunei Darussalam, Gadong, Brunei

Darussalam

e-mail: adila.hisa@ubd.edu.bn

M. Muzamil Naqshbandi

e-mail: muzamil.naqshbandi@ubd.edu.bn

Fadzliwati Mohiddin

School of Business, Universiti Teknologi Brunei, Gadong, Brunei Darussalam

e-mail: fadzliwati.mohiddin@utb.edu.bn
## 8.1 Introduction

In the current dynamic and competitive job market, developing employability skills becomes a central objective for young people to prosper in their future endeavours. Employers are now seeking a particular set of skills from young job seekers, with reference to the skills required to execute a specific job (Kenayathulla et al. 2019). With the ever-changing and demanding needs of the contemporary workplace, employers' expectations of such skills have inevitably shifted from a narrow focus on technical expertise to more generic soft skills (Teng et al. 2019). Such employability skills—characterised by an array of abilities and personal attributes necessary for youth to gain successful employment and thrive in their career—represent a fundamental antecedent to youth employability (Osmani et al. 2019).

To be employable in the twenty-first-century workforce, job candidates require essential skills, such as decision-making, problem-solving and analytics, time management and communication, as formal education may inadequately reflect the job experiences and training acquired (Kenayathulla et al. 2019; Adely et al. 2021). Scholars have argued that employers demand competent individuals as the capabilities they contribute to their work reflect an increase in organisational outcomes, including firm performance and organisational effectiveness (Pang et al. 2019; Jiang et al. 2012; Otoo 2019; Potnuru et al. 2021). While youth may see themselves as favourably competent in capability ratings due to their high level of skills satisfaction, employers may hold different judgments that reflect their work standards (Messum et al. 2017; Lisá et al. 2019; Al-Shehab et al. 2021). Therefore, gaps between employers' demands of generic skills and youth competence in those skills still prevail (Pang et al. 2019). Mitigating this mismatch is a huge challenge and remains a priority for the concerned stakeholders as it contributes to unemployment (Adely et al. 2021).

Against this backdrop, this chapter builds on the challenging youth marketplace in Brunei Darussalam, where the country is beset with responding to the employability skills desired by employers while concurrently facing a high unemployment rate among local youth. To better comprehend where youth lie in meeting the demands of employers in the job market, we explore the interaction between employers' expectations of youth employability skills and youths' competence in those skills from the employers' standpoints. Examining and understanding these viewpoints can help policymakers develop a strategic response to effectively overcome the skills mismatch among the youth that triggers unemployment issues in Brunei. The chapter also presents areas of opportunities for concerned stakeholders in Brunei to enhance youth employment outcomes, especially in terms of the generic skills they need to make themselves more employable in the job market.
## 8.2 Background Context: Brunei Darussalam

Being a small country with an area covering 5,765 km², Brunei is one of the Association of Southeast Asian Nations (ASEAN) countries struggling with unemployment rate fluctuations. Brunei comprises four districts: Brunei-Muara, Belait, Tutong and Temburong, with the majority (72.4%) of the total reported population of 450,500 in 2023 in the Brunei-Muara district. As the labour force comprises individuals aged 18 to 59 years, the total number of employed individuals was recorded as 208,449 in 2023 (DEPS 2023).

Nevertheless, Brunei faces unemployment problems like many other countries, especially among the local youth. The overall unemployment rate in Brunei showed an increase from 6.8% in 2019 to 7.4% in 2020 though this fell to 5.3% in 2023. In 2017 Brunei reported the highest youth unemployment rate of 28.9% compared to its peers in the ASEAN region (IMF 2019: 29). In the same year, its neighbour Indonesia occupied second place (14.6%), followed by Malaysia (11.6%) and Singapore (9.7%), with Cambodia having the lowest unemployment rate of 0.4% in the region (World Bank 2024). However, the rate of unemployed youth aged between 15 and 24 reduced in 2021 (16.5%) compared to 2020 (25.8%). Yet most unemployed youth in Brunei struggle to secure employment even after a year of job hunting, and the highest portion of them were those with secondary, vocational and tertiary education backgrounds (DEPS 2021).

Wawasan Brunei 2035 (Brunei Vision 2035) emphasises that one of Brunei's strategic goals is to produce highly educated, skilled and accomplished people. The national target is to focus on human resource development to achieve a skilled workforce that serves as the key driver of economic growth and development. Past studies have shown that an important factor of unemployment in Brunei is the significant disparity between the skill required for the job and the job expectations in the marketplace, and that younger graduates are more inclined to be unemployed (Cheong and Lawrey 2009; Siti Fatimahwati and Siti Rozaidah 2020; Rizzo et al. 2016). Scholars have also argued that employers are often challenged with locating skilful employees in a particular field and searching for candidates with the right skills adds to their concern (Siti Fatimahwati and Siti Rozaidah 2020).

Additionally, employers in Brunei find that the level of awareness of local youth on the critical employability skills needed for their employment journey is relatively scarce. This, in turn, may result in young individuals who are not ready for Brunei's dynamically changing workforce environment (ibid.). This is supported by Giuseppe Rizzo et al. (2016), who suggest that unemployed Bruneian graduates are apt to neglect the importance of soft skills and place relatively greater focus on hard skills such as information and communication technology (ICT), languages, literacy and numeracy skills. Along these lines, Siti Fatimahwati and Siti Rozaidah (2020) conclude that Bruneian youth do not receive adequate information on the requisite employability skills they need to prosper in their career journey. Such information, if greatly enriched, can help youth understand the significance of employability skills
and likely facilitate their motivation to develop their competencies, which is crucial for meeting employers' demand in the marketplace.

Given the skills mismatch noted above and the high unemployment rate in Brunei, this chapter has three goals: first, to investigate the employability skills needed by youth as expected by employers; second, to examine the current potential of youth in executing these employability skills from employers' standpoints; and third, to provide critical recommendations for relevant stakeholders to reduce the skill imbalances and alleviate the unemployment issue in Brunei.

## 8.3 Methods and Materials

We used quantitative primary data to answer the objective of our study. The data were collected from 200 respondents working in Brunei's private and public sectors. Participants were surveyed through a questionnaire built upon the bases of competence model (Evers and Rush 1996). The questionnaire was distributed online and offline. Paper surveys were administered through personal visits to the organisations to ensure a higher response. The survey asked employers to rate their perceptions of the importance and competence level of the skills required by youth in their career journey. Employability skills were categorised under 14 major components: oral communication, written communication, listening, interpersonal skills, learning, leadership, decision-making, problem-solving/analytic, personal strengths, time management, coordinating, managing conflict, risk-taking and creativity/innovation/change. We used 30 items to capture employability skills, measured on a scale from 0 (no significance/competence) to 3 (major significance/competence). Sample items include: 'Ability to identify problems', 'Ability to make decisions in a short period of time' and 'Ability to give direction and guidance to others'.

Respondents were employers serving in organisations in Brunei. Out of 200 distributed questionnaires, 154 respondents returned a completed questionnaire (77% return rate). About 55% of the responses were completed by female employers and the remaining by male employers. Of the respondents, 44% were 40 years old and above, 34% were 30-40 years old and 22% were 30 years old and below. Employers serving in the government sector constituted a majority (77%) of total respondents and 56% of respondents had work experience of more than 10 years.

## 8.4 Analysis and Results

We present below the study's findings, focusing on employers' views on top employability skills and the competence level of youth in executing those skills.
### 8.4.1 Top Requisite Employability Skills

From the employers' standpoints, listening is the most valuable employability skill youth need in the job market, with a score of 92.9% (Fig. 8.1). This is followed closely by oral communication (91.6%), learning (91.1%), leadership (91.0%) and interpersonal skills (90.9%), each in the top five most essential employability skills as rated by the employers. Risk-taking (76.4%) and managing conflict (81.6%) were perceived as the least fundamental employability skills.

To determine if any significant differences related to sectors exist, we conducted an independent sample t-test and found a significant difference in the mean importance of employability skills between two groups (t(152) = -4.562, p < 0.001). In Table 8.1 we present the requisite employability skills rated by employers based on their sector. From the sectoral perspective, employers in private organisations highly value personal strength, listening, interpersonal and leadership skills. Meanwhile, in the government sector, listening, oral communication and learning were deemed the top three most important skills. The findings imply that employers in both sectors perceive managing conflict and risk-taking as the least important employability skills youth require in the marketplace.

We also compared the employers' perceptions of employability skills across different work experience groups. Employers who served their organisation for more than 10 years placed high importance on listening skills (92.7%), followed by oral communication (91.3%) and interpersonal skills (90.4%) (Table 8.2). Employers with work experience of 10 years and below indicated that the top three skills were listening (93.0%), leadership (92.5) and oral communication (92.0%). We conducted a t-test for the two groups of employers of different work experience and found no

<figure><img src="image_71.png" /><figcaption>Fig. 8.1 Brunei Darussalam: Importance of employability skills (%)</figcaption></figure>
<table><caption>**Table 8.1** Brunei Darussalam: Employability skills importance by employers' sector (%)</caption><thead><tr><th rowspan="2">Employability skills</th><th colspan="4">Level of importance</th></tr><tr><th>Private</th><th>Rank</th><th>Government</th><th>Rank</th></tr></thead><tbody><tr><td>Oral communication</td><td>85.8</td><td>5</td><td>93.4</td><td>2</td></tr><tr><td>Written communication</td><td>75.9</td><td>12</td><td>89.5</td><td>9</td></tr><tr><td>Listening</td><td>87.0</td><td>2</td><td>94.6</td><td>1</td></tr><tr><td>Interpersonal</td><td>86.6</td><td>3</td><td>92.2</td><td>5</td></tr><tr><td>Learning</td><td>85.2</td><td>6</td><td>92.9</td><td>3</td></tr><tr><td>Time management</td><td>85.0</td><td>7</td><td>91.7</td><td>6</td></tr><tr><td>Personal strength</td><td>87.7</td><td>1</td><td>91.3</td><td>7</td></tr><tr><td>Problem-solving/analytic</td><td>84.7</td><td>8</td><td>90.8</td><td>8</td></tr><tr><td>Coordinating</td><td>76.9</td><td>11</td><td>86.2</td><td>12</td></tr><tr><td>Decision-making</td><td>79.6</td><td>10</td><td>88.1</td><td>11</td></tr><tr><td>Leadership</td><td>86.1</td><td>4</td><td>92.5</td><td>4</td></tr><tr><td>Managing conflict</td><td>71.3</td><td>14</td><td>84.7</td><td>13</td></tr><tr><td>Risk-taking</td><td>73.1</td><td>13</td><td>77.4</td><td>14</td></tr><tr><td>Creativity/innovation/change</td><td>79.9</td><td>9</td><td>88.5</td><td>10</td></tr></tbody></table>

significant difference in mean employability skills importance ($t(152) = -0.340, p > 0.001$).

The findings suggest that employers with different work experiences have similar opinions on how they rate the importance of employability skills. Both groups included listening, oral communication and learning skills in their top five most important employability skills. In addition, these employers perceived employability skills associated with coordination, managing conflicts and risk-taking as skills with the least importance.

## 8.4.2 Competence in Executive Employability Skills

In the context of youth's overall level of competence in executing employability skills, employers view that youth lack employability skills associated with managing conflict (58.2%), risk-taking (58.4%), problem-solving/analytics (62.1%) and decision-making (63.1%). In contrast, employers perceive listening, oral communication and learning as the top three skills in which youth have major competencies (Fig. 8.2).

Comparing perceived competence in executive employability skills by sector, employers from private organisations viewed youth as lacking competence in skills related to managing conflict (61.1%) and problem-solving (63.4%) (Table 8.3). On the other hand, most employers in the government sector perceived that youth have a high level of competence in listening (78.0%) and written communication skills
<table><caption>**Table 8.2** Brunei Darussalam: Employability skills importance by employers' work experience (%)</caption><thead><tr><th rowspan="2">Employability skills</th><th colspan="4">Level of importance</th></tr><tr><th>More than 10 years</th><th>Rank</th><th>10 years and below</th><th>Rank</th></tr></thead><tbody><tr><td>Oral communication</td><td>91.3</td><td>2</td><td>92.0</td><td>3</td></tr><tr><td>Written communication</td><td>87.7</td><td>9</td><td>84.6</td><td>11</td></tr><tr><td>Listening</td><td>92.7</td><td>1</td><td>93.0</td><td>1</td></tr><tr><td>Interpersonal</td><td>90.4</td><td>3</td><td>91.5</td><td>6</td></tr><tr><td>Learning</td><td>90.4</td><td>4</td><td>92.0</td><td>4</td></tr><tr><td>Time management</td><td>88.9</td><td>7</td><td>91.8</td><td>5</td></tr><tr><td>Personal strength</td><td>89.9</td><td>5</td><td>91.2</td><td>7</td></tr><tr><td>Problem-solving/analytic</td><td>88.9</td><td>8</td><td>90.0</td><td>8</td></tr><tr><td>Coordinating</td><td>84.7</td><td>12</td><td>83.1</td><td>12</td></tr><tr><td>Decision-making</td><td>85.1</td><td>10</td><td>87.6</td><td>10</td></tr><tr><td>Leadership</td><td>89.8</td><td>6</td><td>92.5</td><td>2</td></tr><tr><td>Managing conflict</td><td>83.1</td><td>13</td><td>79.6</td><td>13</td></tr><tr><td>Risk-taking</td><td>77.4</td><td>14</td><td>75.1</td><td>14</td></tr><tr><td>Creativity/innovation/change</td><td>84.9</td><td>11</td><td>88.6</td><td>9</td></tr></tbody></table>

<figure><img src="image_72.png" /><figcaption>**Fig. 8.2** Brunei Darussalam: Competence in executive employability skills (%)</figcaption></figure>

<table><caption>**Table 8.2** Brunei Darussalam: Employability skills importance by employers' work experience (%)</caption><thead><tr><th rowspan="2">Employability skills</th><th colspan="4">Level of importance</th></tr><tr><th>More than 10 years</th><th>Rank</th><th>10 years and below</th><th>Rank</th></tr></thead><tbody><tr><td>Oral communication</td><td>91.3</td><td>2</td><td>92.0</td><td>3</td></tr><tr><td>Written communication</td><td>87.7</td><td>9</td><td>84.6</td><td>11</td></tr><tr><td>Listening</td><td>92.7</td><td>1</td><td>93.0</td><td>1</td></tr><tr><td>Interpersonal</td><td>90.4</td><td>3</td><td>91.5</td><td>6</td></tr><tr><td>Learning</td><td>90.4</td><td>4</td><td>92.0</td><td>4</td></tr><tr><td>Time management</td><td>88.9</td><td>7</td><td>91.8</td><td>5</td></tr><tr><td>Personal strength</td><td>89.9</td><td>5</td><td>91.2</td><td>7</td></tr><tr><td>Problem-solving/analytic</td><td>88.9</td><td>8</td><td>90.0</td><td>8</td></tr><tr><td>Coordinating</td><td>84.7</td><td>12</td><td>83.1</td><td>12</td></tr><tr><td>Decision-making</td><td>85.1</td><td>10</td><td>87.6</td><td>10</td></tr><tr><td>Leadership</td><td>89.8</td><td>6</td><td>92.5</td><td>2</td></tr><tr><td>Managing conflict</td><td>83.1</td><td>13</td><td>79.6</td><td>13</td></tr><tr><td>Risk-taking</td><td>77.4</td><td>14</td><td>75.1</td><td>14</td></tr><tr><td>Creativity/innovation/change</td><td>84.9</td><td>11</td><td>88.6</td><td>9</td></tr></tbody></table>
(76.8%), and low competence in risk-taking (55.4%). An independent sample t-test showed no significant mean differences in employability skills competence between the two sectors ($t(152) = 0.703, p > 0.001$).

The findings therefore indicate that employers of different sectors perceive the level of competence of employability skills in a similar manner. Both groups agreed that youth have minor competence in employability skills associated with problem-solving/analytics, decision-making and conflict management. Regardless of employability skills rankings, the employers believe youth have major competence in oral communication, written communication, listening, interpersonal skills, learning, time management, personal strength and leadership.

Table 8.4 shows the competence in executing employability skills as reported by employers in different work experience groups. The data illustrate that employers with more than 10 years of work experience perceived that youth have major competence in listening (78.2%), written communication (75.9%) and learning (74.7%). Meanwhile, employers with work experience of 10 years and below believe youth have high competence in learning, listening and oral communication. However, a t-test showed no significant difference in the mean employability skills competence perceived by employers in different work experience groups ($t(152) = -0.764, p > 0.001$). With respect to their work experience, the findings suggest that both groups believe youth have major competence in oral communication, written communication, listening, learning and interpersonal skills. Further, these employers felt that youth lacked competence in executing skills associated with risk-taking,

<table><caption>**Table 8.3** Brunei Darussalam: Employability skills competence by employers' sector (%)</caption><thead><tr><th rowspan="2">Employability skills</th><th colspan="4">Level of competence</th></tr><tr><th>Private</th><th>Rank</th><th>Government</th><th>Rank</th></tr></thead><tbody><tr><td>Oral communication</td><td>76.9</td><td>2</td><td>73.5</td><td>5</td></tr><tr><td>Written communication</td><td>69.4</td><td>7</td><td>76.8</td><td>2</td></tr><tr><td>Listening</td><td>75.9</td><td>4</td><td>78.0</td><td>1</td></tr><tr><td>Interpersonal</td><td>74.1</td><td>5</td><td>74.3</td><td>4</td></tr><tr><td>Learning</td><td>77.8</td><td>1</td><td>76.3</td><td>3</td></tr><tr><td>Time management</td><td>76.9</td><td>3</td><td>68.9</td><td>7</td></tr><tr><td>Personal strength</td><td>73.1</td><td>6</td><td>68.1</td><td>8</td></tr><tr><td>Problem-solving/analytic</td><td>63.4</td><td>13</td><td>61.7</td><td>12</td></tr><tr><td>Coordinating</td><td>65.7</td><td>12</td><td>66.7</td><td>9</td></tr><tr><td>Decision-making</td><td>66.3</td><td>11</td><td>62.1</td><td>11</td></tr><tr><td>Leadership</td><td>68.5</td><td>8</td><td>72.9</td><td>6</td></tr><tr><td>Managing conflict</td><td>61.1</td><td>14</td><td>57.3</td><td>13</td></tr><tr><td>Risk-taking</td><td>68.5</td><td>9</td><td>55.4</td><td>14</td></tr><tr><td>Creativity/innovation/change</td><td>67.3</td><td>10</td><td>63.2</td><td>10</td></tr></tbody></table>
<table><caption>**Table 8.4** Brunei Darussalam: Employability skills competence by employers' work experience (%)</caption><thead><tr><th rowspan="2">Employability skills</th><th colspan="4">Level of competence</th></tr><tr><th>More than 10 years</th><th>Rank</th><th>10 years and below</th><th>Rank</th></tr></thead><tbody><tr><td>Oral communication</td><td>73.3</td><td>5</td><td>75.6</td><td>3</td></tr><tr><td>Written communication</td><td>75.9</td><td>2</td><td>74.1</td><td>5</td></tr><tr><td>Listening</td><td>78.2</td><td>1</td><td>76.6</td><td>2</td></tr><tr><td>Interpersonal</td><td>73.9</td><td>4</td><td>74.6</td><td>4</td></tr><tr><td>Learning</td><td>74.7</td><td>3</td><td>79.1</td><td>1</td></tr><tr><td>Time management</td><td>68.9</td><td>7</td><td>73.3</td><td>6</td></tr><tr><td>Personal strength</td><td>66.9</td><td>8</td><td>72.3</td><td>7</td></tr><tr><td>Problem-solving/analytic</td><td>60.5</td><td>12</td><td>64.2</td><td>11</td></tr><tr><td>Coordinating</td><td>66.7</td><td>9</td><td>66.2</td><td>10</td></tr><tr><td>Decision-making</td><td>62.3</td><td>11</td><td>64.2</td><td>12</td></tr><tr><td>Leadership</td><td>71.6</td><td>6</td><td>72.1</td><td>8</td></tr><tr><td>Managing conflict</td><td>59.8</td><td>12</td><td>56.2</td><td>14</td></tr><tr><td>Risk-taking</td><td>55.2</td><td>14</td><td>62.7</td><td>13</td></tr><tr><td>Creativity/innovation/ change</td><td>62.3</td><td>10</td><td>66.5</td><td>9</td></tr></tbody></table>

managing conflict, problem-solving/analytics and decision-making, suggesting that young people need to make efforts to develop these skills.

### 8.4.3 Summary of Results

To summarise the findings of our study concerning unemployment in Brunei, the chapter explores employers' expectations of employability skills and their perceptions of youth's competencies in those skills. The findings help comprehend better where youth stand in meeting the demands of employers in the job market.

Overall, the data show that the top five skills employers' demand are listening, oral communication, learning, leadership and interpersonal skills. Youth are perceived to be competent in these skills. However, slight differences in percentage between the level of significance and perceived competence explain that employers still expect more from youth in their execution of the requisite employability skills. This is because communication skills, such as effective listening and interpersonal skills, are evident in increasing employees' well-being in the workplace and reflects positively on the organisation through desirable job outcomes (Dehghan and Ma'toufi 2016; Bregenzer et al. 2020; Mencl et al. 2016; Johanim et al. 2019).
Past studies also show that leadership competencies are a significant predictor of managerial performance and that the learning skill contributes to superior job performance (Jena and Kumar Sahoo 2014; Park and Choi 2016). In addition, employers believed that youth lack competence in managing conflict and risk-taking, though surprisingly both skills were rated least important. Organisations tend to steer clear of conflicts at all costs because managing conflict poses a substantial challenge to the management (Ongori 2009). Further, even though risk-taking is vital for improving the performance of organisations, employers may not value such skills as risky behaviour can have a detrimental effect on organisational outcomes (Games and Rendi 2019; Wicks et al. 1999).

## 8.5 Policy Recommendations

In mitigating the evident skills mismatch, higher education institutions are central to connecting young graduates to the labour market (Mohammad Fauzan and Naqsh-bandi 2022). They are the key players driving youth employability, enabling graduates to engage with relevant employers and actively meet market needs. However, recent studies have suggested that youth are not sufficiently exposed to the proper application of employability skills and information on the requisite skills for their career journey is not available (Kenayathulla et al. 2019; Siti Fatimahwati and Siti Rozaidah 2020).

Universities should therefore consider modifying their academic curricula to equip young graduates with the appropriate skill set to remain relevant and attractive in the job market. This is because academic qualifications alone are no longer enough to gain employment (Adely et al. 2021). As a result, the education system needs to be more responsive to job market demands by aligning its strategies to enable students to develop skills that reflect the requirements. Embedding employability attributes within the curriculum can be a starting point to fulfil this initiative. As such, attention may be focused on implementing practical projects and assignments to expose youth to labour market realities. University career talks are important, especially for final-year students, so they can become more aware of the job market and better understand the job skills demands and requirements. Additionally, coordination among employers of different sectors can ease youth's access to up-to-date information (Siti Fatimahwati and Siti Rozaidah 2020).

However, higher education must be connected to training needs. Fida Issa J. Adely et al. (2021) argue that the nature of skills acquired does not merely come from education but from training and on-the-job learning. A mandatory industrial work placement or an internship programme can thus assist youths' career development, provided that the goal is not only to expose youth to real workplace settings but also to develop the knowledge, skills and abilities necessary for their successful transition to the workplace. These on-the-job training programmes need comprehensive evaluation to ensure that youth can competently apply the capabilities learned to their work-related tasks.
Moreover, studies have shown that unemployed youth lack vocational skills and are more interested in office-based work in the government sector rather than manual, skilled and semi-skilled sectors in technical, agricultural and business environments (Siti Fatimahwati and Khairul 2019). This will likely hinder their motivation to explore the diverse skills available outside their expertise, affecting their access to the job market (Siti Fatimahwati and Siti Rozaidah 2020). Rizzo et al. (2016) find that about one in five unemployed graduates participate in training programmes and their participation becomes more frequent after 12 months of being unemployed. Given this, collaboration between higher education institutions and the job industry needs to be strengthened further to meet the needs of the dynamic workforce. Through these collaborations, youths' skills can be developed to ensure that highly competent and job-ready youth equipped with skills relevant to the nation's growth and development can be produced. The outcomes of discussions among institutions and industries concerning the skills required for a particular job can also be disseminated publicly to enhance youth's awareness of key employability skills. Further, industry representatives can work together to highlight the importance of skill development and training programmes among youth and encourage their participation in these programmes to boost their employability skills acquisition.

The government should also take stock of the effectiveness of its employability programmes. Since early 2017 a government body through JobCentre Brunei has implemented initiatives such as the i-Ready programme, a job training scheme aimed at providing local youth graduates with genuine workplace environment experience (Siti Fatimahwati and Siti Rozaidah 2020). Such initiatives aim to create job opportunities for local job seekers, stimulating their employability and marketability and consequently addressing the unemployment issue in the country (JobCentre Brunei 2024). Although the current initiatives may be making a difference in the lives of jobseekers, a measurement of the actual effectiveness of such programmes, especially in equipping youth with the skills needed for them to be industry-ready, seems to be missing (Siti Fatimahwati and Siti Rozaidah 2020). Hence, authorities must consider a profound and comprehensive evaluation of such programmes. For instance, they may use the peer evaluation approach and the self-assessment questionnaire through Donald Kirkpatrick's four-level approach: reaction, learning, behaviour and results (Reese-Durham 2005; Tamkin et al. 2002). This can further improve current employability programmes to provide better preparation for youth's transition to the workplace and address the gaps between youth's skills and employers' demands.

## 8.6 Conclusion

The chapter shows that employers put high expectations on youth candidates regarding their employability skills. In particular, a gap is evident in the competence of youth in executing employability skills and the importance of those skills as perceived by employers. Bruneian youth must therefore seek opportunities to develop their skills, especially those employers demand in the job market. Such development
is crucial to meet the expectations of employers and minimise the mismatch between the skills of youth and the skills sought by employers. Youth must first develop an awareness of the skills that are in demand in the job market and then take initiatives to close the gap. Young people enter the workforce and progress their career journey towards prosperity through employers, whose high expectations of youth open doors for young workers with potential for skill development and shun those with low-level competencies.

At the same time, the role of higher education institutions is paramount in preparing youth to be an integral part of the workforce once they graduate. Specifically, the higher education system can focus on developing skills and capabilities by restructuring the existing curricula to produce job-ready youth. Youth employability can further be bolstered through cooperation between the government and industry players.

Youth must also clearly understand their skill development objectives. Gaining the right skill set will allow them to thrive in their career journey and increase their capacity to gain promising employment, perform better and contribute meaningfully to national development. Lastly, it may be an opportune time to evaluate the effectiveness of job training initiatives such as the i-Ready programme and make timely amendments if required.

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Adilah Hisa is an Assistant Researcher at the School of Business and Economics, Universiti Brunei Darussalam. She holds a PhD in management from Universiti Teknologi Brunei. She has presented her research in various professional meetings and is currently involved in collaborative projects with researchers from UBD. Her research interests are focused on leadership, youth development, training and development, human resource management, employability, knowledge management and organisational behaviour. Her publications (as coauthor) include: Examining knowledge and skills acquisition from youth leadership programs in Brunei: Is self-esteem the missing link in training transfer? *Higher Education, Skills and Work-Based Learning* (2024).

M. Muzamil Naqshbandi is an Associate Professor at the School of Business and Economics, Universiti Brunei Darussalam. He previously worked at the University of Dubai, United Arab Emirates, and Universiti Malaya, Malaysia. Before joining academia, he worked in non-banking financial services and the media. He is the associate editor of *Management Decision* and *Technology Analysis & Strategic Management*, and senior associate editor of *FIIB Business Review*. His current research is focused on open innovation, leadership and knowledge management. His recent publications include: The role of AMO HR practices and knowledge sharing in developing a learning organizational culture: Evidence from the United Kingdom. *Journal of Knowledge Management* 28(4) (2024); and, On the soft side of open innovation: The role of human resource practices, organizational learning culture and knowledge sharing. *R&D Management* 53(2) (2023).

Fadzliwati Mohiddin is the Dean of the School of Business, Universiti Teknologi Brunei. She holds a PhD in information systems from Curtin University of Technology, Australia. She has worked on several ICT projects for Brunei Darussalam's Ministry of Education and has been a judge for business and ICT competitions such as the Asia Pacific ICT Award and the Brunei ICT Award. Her current research interests include management information systems, leadership, e-government and general management. She is the coauthor of: Examining knowledge and skills acquisition from youth leadership programs in Brunei: Is self-esteem the missing link in training transfer? *Higher Education, Skills and Work-Based Learning* (2024).
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<figure><img src="image_74.png" /></figure>

Chapter 9

Exploring the Potential
of Community-based Agritourism
in Brunei Darussalam

Wei Lee Chin and Siti Fatimahwati Pehin Dato Musa

**Abstract** The purpose of this chapter is to explore the potential of community-based agritourism in Brunei Darussalam. Agritourism is developing across Southeast Asia as an important form of tourism. However, it is not integrated into Brunei's national tourism framework as in other Association of Southeast Asian Nations (ASEAN) member states where there are designated areas for agritourism to be developed and assistance for the local farming community. This study applies a strengths, weaknesses, opportunities and threats (SWOT) analysis to leverage the strengths and opportunities, rectify the weaknesses and overcome the threats of community-based agritourism in Brunei. A total of 23 respondents—volunteers, government officials and farm owners from three small farms in remote villages—were interviewed. This study reveals that community-based agritourism has led to positive impacts in four main facets—economic, environmental, sociocultural and educational—all of which greatly benefit farm owners, villagers, farmers and local youth. Although agritourism farms struggle from internal and external disadvantages such as funding deficiencies and small-scale production, those problems can be eased with more support from public and relevant organisations to secure the operations of farms. Grassroots initiatives can achieve state-wide significance if incorporated into the nation-building strategy as supporting a growing sector.

**Keywords** Brunei Darussalam • Agriculture • Agritourism • Community-based tourism • Meliponiculture • Farm-to-table • SWOT analysis

Wei Lee Chin (✉)

Faculty of Arts and Social Sciences, Universiti Brunei Darussalam, Gadong, Brunei Darussalam
e-mail: weilee.chin@ubd.edu.bn

Siti Fatimahwati Pehin Dato Musa

UBD School of Business and Economics, Universiti Brunei Darussalam, Gadong, Brunei
Darussalam
e-mail: fatimahwati.musa@ubd.edu.bn
## 9.1 Introduction

Agritourism is defined as 'visiting a working farm or any agricultural, horticultural, or agribusiness operation for the purpose of appreciation, enjoyment, education, or recreational involvement with agricultural, natural or heritage resources' (Tew and Barbieri 2012: 216). This definition is highly pertinent to Brunei Darussalam and neighbouring states as it encourages a strategy of diversifying a working farm or other agricultural settings to include recreational or leisure activities for visitors in order to generate revenue or add value to the farm (Barbieri and Streifeneder 2019). This form of tourism is increasingly being adopted due to the numerous economic and non-economic benefits that the affected communities and destinations could obtain. Studies have shown that agritourism assists smaller or family farms to stay in business and maximise farm productivity by offering recreational activities while preserving their agricultural heritage (Tew and Barbieri 2012). This is important as direct economic benefits might signify an improvement in the quality of life of residents (Chin 2017; Chin et al. 2017; Chin and Hampton 2020). Recreational activities for agritourism include U-pick (where tourists harvest crops for themselves), orchard tours, wildlife observation, foraging, hunting, fishing and other outdoor activities.

Agritourism is increasingly recognised as an important side activity or diversification of family farming businesses into tourism or hospitality activities. Several studies focus on established farms and plantations in Southeast Asia that are now popular agritourism attractions, particularly in Indonesia (Ummiroh and Hardiyani 2013; Budiasa and Ambarawati 2014), Malaysia (Norudin et al. 2015; Ling et al. 2017), Thailand (Songkhla 2012), the Philippines (Manalo et al. 2019) and Vietnam (Nguyen et al. 2018). Labels such as agrotourism, agritourism, rural tourism, farm tourism and farm-based tourism are often used interchangeably; agritourism is used in this chapter for consistency and clarity (Barbieri and Mshenga 2008). However, we wish to reiterate that agritourism goes beyond visiting a working farm or doing only farming-related activities and includes educational and recreational opportunities such as culinary activities, culture and heritage, and health and wellness.

Agritourism is also not identical to rural tourism but is seen as a branch or subdivision of it. For instance, Thailand's agritourism concept includes other tourism categories such as community tourism, agribusiness, culinary tourism, as well as health and wellness tourism (Srithong et al. 2019). Malaysia's agritourism is often seen as a combination of farm-based and cultural tourism. Brunei is significantly less visible in the agritourism field within the region and little research has been done on its agriculture let alone agritourism. Brunei's agritourism concept includes a combination of community-based tourism, such as homestays, culinary experiences and agricultural activities (Najib and Chin 2021; Amalena and Chin 2021; Siti Fatimahwati and Chin 2021, 2022). There are no official farms or plantations that identify themselves as agritourism spots, but several agritourism areas have been developing over the years and showed great resilience during the COVID-19 pandemic (Chin and Siti Fatimahwati 2021). Agritourism has become a recent topic of debate as it is considered a significant tool for rural development policies to diversify the
economy and encourage entrepreneurship in the countryside. The lack of research on this topic has cut off the opportunity for Brunei to pursue economic diversification via agritourism. To remedy this paucity, this chapter looks at various economic, environmental, social and community potentials of agritourism in Brunei. This study is based on field research, interviewing 23 respondents of three study areas: Sumbiling Eco Village, Eco Ponies Garden and Tasbee Meliponiculture Farm. It examines the context of agritourism in Brunei by applying the strengths, weaknesses, opportunities and threats (SWOT) analysis framework.

Among Association of Southeast Asian Nations (ASEAN) countries, Brunei's agritourism is still in its infancy compared to popular agritourism destinations in neighbouring states. In most ASEAN countries, there are designated or gazetted areas where agritourism can be developed to assist the local farming community. In Malaysia, for instance, Cameron Highlands has historically been predominantly used for agriculture plantations and the government has gazetted the location to be used for agritourism development (Norudin et al. 2015; Ling et al. 2017). Although agritourism may not be firmly established in Brunei, it is slowly becoming more popular with some small farms. At a glance, Brunei is an oil- and gas-reliant state, but historically agriculture has been ingrained in the lives of local communities in the form of subsistence farming (Siti Fatimahwati et al. 2020). In 2018 Brunei reframed its agriculture industry towards a market-oriented goal. Various policies and efforts have been undertaken by government departments to improve agricultural production over the years.

The country has been making significant progress in the tourism industry, with a slow but steady growth rate from 218,214 visitors arriving by air in 2015 to 333,244 in 2019 (Tourism Development Department 2021). However, tourism was badly affected globally during the COVID-19 pandemic and Brunei was no exception. International tourism came to a standstill during the pandemic, but fortunately Brunei's environment provides an abundance of natural assets that could potentially accommodate agritourism and help the sector rebound. The development of community-based tourism became synonymous with the concept of village homestays in rural areas, advanced in conjunction with the ASEAN community-based tourism programme (ASEAN Secretariat 2016). Other types of community-based tourism or its connection to agritourism have not been officially recorded under related ASEAN-Brunei programmes. There are established community-based tourism locations in Brunei that are more than just homestay programmes, involving agriculture, indigenous food and cultural heritage of certain ethnic groups such as Dusun and Iban that have been featured in local media (Wardi 2018). The Ministry of Primary Resources and Tourism has initiated some efforts to market Dusun heritage and tradition in the Tutong district as part of community-based tourism. In other words, Brunei's agritourism is seen as community-based tourism on a working farm for the purposes of recreation and education, including a range of different cultural, culinary, and health and wellness activities. Some tourism activities involve learning about the farm and its people, indigenous ancestral cooking methods, jungle foraging in their own forest conservation area, harvesting fruit and vegetables in the garden, cooking classes and agriculture workshops.
## 9.2 Methodology

The data collected in this research are based on three study areas: Sumbiling Eco Village, Eco Ponies Garden and Tasbee Meliponiculture Farm. Sumbiling Eco Village has been operating since 2007 and is considered by the international media as a successful model for a sustainable forest stay that has adopted the popular glamping concept (Board 2018). It is located in Temburong district, on what used to be an abandoned paddy field owned by indigenous Iban villagers. It has since been developed and now consists of an outdoor dining hall, several cabins on the riverbank, a wooden tower, an organic farm, a river tubing base, a jungle camp and a forest trekking area. The organic farm is a working farm that the Iban manage. It is akin to a small backyard farm, seamlessly joining as part of the forest. Many wild fruit and vegetation endemic to Brunei grow naturally there, such as different types of wild ferns (pakis), local coffee trees, bananas, rambutan, bamboo shoots (rebung), wild herbs, wild ginger (tuhau), herbal tea (misai kucing), pineapple, passion fruit, longan, local sweet corn, lemongrass, peanuts, sugar cane, water spinach (kangkong), tapioca (ubi kayu) and cassava leaves (pucuk ubi). The yield of the farm is too small to sell in the market consistently, but it is sold to neighbouring villagers. Due to the inconsistent yield, the owner and Iban community decided to switch their strategy to concentrate on providing experiences for tourists. The agritourism activities in Sumbiling Eco Village include forest exploration and culinary experiences. Tourists trek in the forest with a local guide and learn about the different types of forest herbs or wild vegetables, which they are encouraged to harvest for themselves. There are also cooking classes in the forest using the harvested ingredients, and all dishes are based on Iban food heritage.

Eco Ponies Garden, the second study area, is located in the remote village of Lamunin in Tutong district. It has been officially operating since 2015 and it has established its reputation as the pioneer of the farm-to-table experience and is known for its esoteric gastronomy, with a unique dining style in an outdoor hideout kitchen attached to an open farm cottage (Wardi 2020). Also known as a village getaway destination, the 2-ha farmland has a lot of on-site agritourism activities such as jungle foraging in its very own forest conservation area, harvesting fruit and vegetables in the garden, cooking classes, agriculture workshops, planting local vegetables in designated plots and using indigenous Tutong ancestral cooking methods for an alfresco jungle farm dining experience. The farm incorporates polyculture of various local vegetables and fruit, paying particular attention to wild herbs and flowers. Similar to Sumbiling Eco Village, the farm itself is an extension of the forest and most plants are transplanted from the jungle to different parts of the garden. Eco Ponies Garden is also active in off-site activities, claiming to be a community platform for local food producers. The system of Eco Ponies Garden is altruistic, often sharing the villagers' agricultural knowledge of the wild jungle herbs needed to prepare their unique cuisine.

Tasbee Meliponiculture Farm is a tiny stingless bee farm that has been operating since 2009 in a remote village permeated by the jungle in Tutong. It is an acclaimed
international tourist attraction that headlined the local media for years (Pelita Brunei 2016; Wardi 2018, 2020). The bee farm sits on a hill next to the owner's house, accompanied by a gallery, a looking tower overviewing the dense jungle below and a walkway balcony at the edge of the hill with a top that serves as a hanging garden for a passion fruit vine. About 18 species of stingless bees inhabit the meliponary in various wooden hives attached to tree logs and scattered from the hilltop towards the downslope. While there are many other commercial and non-commercial meliponists in Brunei, only Tasbee Meliponiculture Farm decided to adopt a less lucrative approach by not charging entrance fees or mass-producing honey. It advocates a travel-to-farm concept, focusing on attracting tourists to come to harvest the raw honey themselves. Tasbee Meliponiculture Farm is more than just a bee-keeping farm—the meliponary is surrounded by unorganised intercropping of various fruit and flowers such as strawberries, apples, grapes, dragon fruit, durian, passion fruit, rambutans and simpor. Honey extraction is the core agritourism activity, but tourists are also allowed to U-pick fruit during season and learn to make value-added products such as raw propolis resin, propolis serums, honey soaps, beeswax aromatherapy candles and keychains.

Past studies indicate that holding interviews is a common data collection method in the field of agritourism research (Songkhla and Somboonsuke 2012; Budiasa and Ambarawati 2014; Hepburn 2015; Rambodagedara et al. 2015; Choenkwan et al. 2016; Liu et al. 2017). This exploratory study employed semi-structured interviews to collect data. This method is less restrictive and provides more opportunity to better understand respondents' viewpoints on their agritourism businesses. The farms are small operations with a limited number of respondents, so on-site interviews were possible and a direct communication approach was more appropriate. Interviews were conducted with farm owners, staff, team members, farmers, volunteers, collaborators and relevant government officials. The list of respondents shows the stakeholders involved in the agritourism community (Table 9.1). Interviews were only carried out with respondents who were actively involved to ensure in-depth details were gathered. Volunteers in this study were younger individuals who were paid to work on a short-term basis on site. All the interviews lasted more than an hour. Questions were tailored according to the respondents' roles to get an in-depth understanding about their contributions, perspectives or activities on tourism, culture, environmental sustainability and financial progress. Although the research is focused on the farms, additional data were gathered from two relevant government officials to understand institutional perspectives of agritourism in Brunei. A SWOT analysis was carried out by structuring the data into main categories: strengths, weaknesses, opportunities and threats.
<table><caption>**Table 9.1** Community-based agritourism fieldwork research: List of respondents</caption><thead><tr><td>No</td><td>Role</td><td>Age (years)</td><td>Length of service/ operation</td><td>Interview duration (minutes)</td></tr></thead><tbody><tr><td>P1</td><td>Founder</td><td>40–50</td><td>5 years</td><td>240</td></tr><tr><td>P2</td><td>Cofounder</td><td>40–50</td><td>5 years</td><td>80</td></tr><tr><td>P3</td><td>Farmer</td><td>40–50</td><td>4 years</td><td>66</td></tr><tr><td>P4</td><td>Farmer</td><td>30–40</td><td>5 years</td><td>66</td></tr><tr><td>P5</td><td>Volunteer</td><td>30–40</td><td>2 months</td><td>63</td></tr><tr><td>P6</td><td>Volunteer</td><td>30–40</td><td>2 months</td><td>72</td></tr><tr><td>P7</td><td>Volunteer</td><td>30–40</td><td>2 months</td><td>66</td></tr><tr><td>P8</td><td>Volunteer</td><td>30–35</td><td>2 weeks</td><td>78</td></tr><tr><td>P9</td><td>Adviser</td><td>50–60</td><td>2 years</td><td>64</td></tr><tr><td>P10</td><td>Staff</td><td>20–25</td><td>4 years</td><td>72</td></tr><tr><td>P11</td><td>Owner</td><td>50–60</td><td>11 years</td><td>82</td></tr><tr><td>P12</td><td>Volunteer</td><td>20–25</td><td>2 weeks</td><td>72</td></tr><tr><td>P13</td><td>Volunteer</td><td>20–25</td><td>2 weeks</td><td>75</td></tr><tr><td>P14</td><td>Volunteer</td><td>20–25</td><td>2 weeks</td><td>84</td></tr><tr><td>P15</td><td>Owner</td><td>50–60</td><td>13 years</td><td>95</td></tr><tr><td>P16</td><td>Manager</td><td>50–60</td><td>13 years</td><td>78</td></tr><tr><td>P17</td><td>Staff/farmer</td><td>70</td><td>13 years</td><td>63</td></tr><tr><td>P18</td><td>Staff/farmer</td><td>50–60</td><td>13 years</td><td>60</td></tr><tr><td>P19</td><td>Staff/guide</td><td>25–35</td><td>10 years</td><td>65</td></tr><tr><td>P20</td><td>Tour guide</td><td>45–55</td><td>5 years</td><td>72</td></tr><tr><td>P21</td><td>Marketing collaborator</td><td>30–40</td><td>3 years</td><td>60</td></tr><tr><td>P22</td><td>Government official</td><td>—</td><td>—</td><td>60</td></tr><tr><td>P23</td><td>Government official</td><td>—</td><td>—</td><td>66</td></tr></tbody></table>

## 9.3 SWOT Analysis of Community-based Agritourism

The study aims to evaluate the present status and potential of community-based agritourism in Brunei by applying a SWOT analysis to disclose internal strengths and weaknesses as well as external opportunities and threats (Mondal 2017). Internal factors are the relevant strengths and weaknesses within the system, whereas opportunities and threats are exogenous factors that enable or hinder the organisation from achieving its goal (Wasike et al. 2011). In the field of tourism, SWOT strategies are mostly used to develop strategies in relation to a destination (Bhatta et al. 2020). Table 9.2 outlines the results of the SWOT analysis on the potential of community-based agritourism in Brunei.
<table><caption>**Table 9.2** Brunei Darussalam: SWOT analysis on the potential of community-based agritourism</caption><thead><tr><th>Strengths</th><th>Weaknesses</th></tr></thead><tbody><tr><td><strong>1. Income generation</strong><ul><li>Tourism income to the farms</li><li>Income to the community</li><li>Alternative agrifood production</li><li>Established agritourism assets</li></ul></td><td><strong>1. Financial constraints</strong><ul><li>Limited funding resources</li><li>Difficulty in pricing products and packages</li></ul></td></tr><tr><td><strong>2. Sustainable environmental practices</strong><ul><li>Preservation of the natural environment</li><li>Eco-friendly practices</li><li>Multifunctional farm</li><li>Agroforestry</li><li>Ecological awareness</li></ul></td><td><strong>2. Lack of institutional support and collaboration</strong><ul><li>Agritourism still in the developing stage in comparison to neighbouring countries</li><li>No proper national framework to set up agritourism</li><li>No proper management system</li><li>Insufficient domestic tourism promotion</li></ul></td></tr><tr><td><strong>3. Sociocultural awareness</strong><ul><li>Sociocultural exchanges</li><li>Preservation of local cultures and heritage</li><li>Appreciation for local food and agriculture</li><li>Farm-to-table experience</li></ul></td><td><strong>3. Small-scale and seasonal nature of farms</strong><ul><li>Small-scale production</li><li>Small and unstable income</li><li>Seasonal produce/agrifood</li><li>Inconsistent tourist reviews</li></ul></td></tr><tr><td><strong>4. Human resource development</strong><ul><li>Educational</li><li>Temporary employment for local volunteers</li><li>Upskilling and reskilling local staff</li></ul></td><td><strong>4. Lack of human resources and expertise</strong><ul><li>Lack of human capital/staff</li><li>Unsustainable voluntourism</li></ul></td></tr><tr><td><strong>Opportunities</strong></td><td><strong>Threats</strong></td></tr><tr><td><strong>1. New tourism strategy for Brunei</strong><ul><li>Diversifying tourism at agriculture farms</li><li>Strengthening community-based tourism</li></ul></td><td><strong>1. Stiff competition domestically and regionally</strong><ul><li>Competition from neighbouring countries</li><li>Cheaper prices in other countries</li><li>Domestic competition</li><li>Conventional tour operators</li></ul><strong>2. Environmental challenges</strong><ul><li>Environmental degradation</li></ul></td></tr></tbody></table>

### 9.3.1 Internal Analysis of Strengths

The literature confirms that agritourism has positive economic impacts on the farming community (Songkhla and Somboonsuke 2012; Budiasa and Ambarawati 2014; Ling et al. 2017; Nguyen et al. 2018; Manalo et al. 2019). The findings show that agritourism activities in Brunei provide additional revenue to farm owners and local communities. One of the most lucrative agritourism events at Eco Ponies Garden is its annual farmers market where farmers from around the village are invited to sell their own products, typically fruit and vegetables, at the farm cottage. Interviews reveal that farmers were able to earn around BND1,000 individually in one day. The