KKP Wasan Rice Field Project: A Case Study on Economic Diversification Program in Brunei Darussalam

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INTRODUCTION

Economic diversification (ED) as a planning tool is widely used by many oil-rich countries as a strategy aimed to achieve their overall development objectives. This diversification strategy is considered imperative in order to counter instability in global oil prices (Gelb, 2010; Guillaumont, 1999); poor market conditions especially worsening terms of trade (see Thirwall, 2003: 663-666 and UNCTAD, 2002, Chapter IV-B for reviews of the numerous studies on the debate of the trends in terms of trade); depletion of mineral resources (Pezzey, 1992), economies of scale and external economies especially in manufacturing and reduction of portfolio risk (Zhang, 2003).

The drive towards diversifying the economy has been undertaken by many oil-based economies and has been subject to intense discussion for a long period in particular due to the negative effects associated with petroleum resources on the economic growth (e.g. Auty (1997, 2001); Sachs and Warner (1995) for resource curse thesis and Corden (1984) for the Dutch Disease). The sectors a country's chosen tend to be diverse but overall the emphasis tends to be focused on developing its non-oil sector and expanding the private sector.

One such country that has been for decades implementing ED is Brunei Darussalam (hereafter referred simply as Brunei). Brunei, like other oil-rich economies (see for e.g. Looney, 1994 for details of diversification in Arab countries) has been continuously attempting to widen its economic base. The economy is still solely dependent on its oil and gas industry for its gross domestic product (GDP) since the discovery of oil in 1929. Brunei is the third largest oil producer in Southeast Asia and it produces 163,000 barrels per day. It is also the fourth largest producer of liquefied natural gas in the world. Due to the non-renewable nature of oil and gas and the associated problems arising from dependence of these resources such as unsustainable revenues, high unemployment (details of this will be examined in Section 1.3), the government has long been prioritizing economic diversification as part of the country's national development agenda. This was explicitly detailed out during the Second National Development Plan (NDP) for the period 1962-66 (Cleary and Wong, 1994:81). From the analysis of the various NDPs, several economic sectors have been identified as having the potential to contribute to the idea of diversifying the economy. Among the sectors identified are the development of primary sectors (agriculture, fishing and forestry); service industry (e.g. international financial center); and oil and gas downstream ...