COUNTRY PROFILE

Malaysia Brunei

Our quarterly Country Report on Malaysia and Brunei analyses current trends. This annual Country Profile provides background political and economic information.

1997-98

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July 1, 1997 Contents

Malaysia

3 Basic data

4 Political background 4 Historical background 8 Constitution and institutions 10 Political forces 13 International relations and defence

15 The economy 15 Economic structure 16 Economic policy 22 Economic performance 23 Regional trends

24 Resources 24 Population 26 Education 27 Health 27 Natural resources and the environment

28 Economic infrastructure 28 Transport and communications 29 Energy provision 30 Financial services 31 Other services

32 Production 32 Manufacturing 33 Mining and semi-processing 34 Agriculture, forestry and fishing 35 Construction

36 The external sector 36 Merchandise trade 38 Invisibles and the current account 39 Capital flows and foreign debt 39 Foreign reserves and the exchange rate

43 Appendices 43 Sources of information 44 Reference tables

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 2

Brunei

55 Basic data

56 Political background 56 Historical background 57 Constitution and institutions 58 Political forces 59 International relations and defence

61 The economy 61 Economic structure 62 Economic policy 63 Economic performance 63 Regional trends

64 Resources 64 Population 66 Education 66 Health 67 Natural resources and the environment

67 Economic infrastructure 67 Transport and communications 69 Energy provision 70 Financial services 71 Other services

72 Production 72 Manufacturing 73 Mining and semi-processing 74 Agriculture, forestry and fishing 75 Construction

76 The external sector 76 Merchandise trade 76 Invisibles and the current account 76 Capital flows and foreign debt 77 Foreign reserves and the exchange rate

78 Appendices 78 Sources of information 79 Reference tables

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Malaysia: Basic data 3

Malaysia

Basic data

Total area 329,758 sq km

Population 21.2 million (mid-1996 estimate)

Main towns Population in ’000 (1991)

Kuala Lumpur 1,145 Ipoh 383 George Town 220 Johor Baharu 328 Kuala Terengganu 228

Climate Tropical

Weather in Kuala Lumpur Hottest months, April and May, 23-33°C (average daily minimum and maxi- (altitude 39 metres) mum); coldest month, December, 22-32°C; driest month, July, 99 mm average rainfall; wettest month, April, 292 mm average rainfall

Languages Malay, Chinese, English, Tamil, Itan Dusan, Bajau and others

Measures Metric system with gradual conversion from UK (imperial) system. Local meas- ures include:

1 pikul=25 gantang=60.48 kg 1 koyan=40 pikul=2.419 tons

Currency Malaysian dollar or ringgit (M$ or RM)=100 sen (cents). Average exchange rates in 1996: M$2.52:US$1; M$3.93:£1 (cross rate). Exchange rate in late June 1997: M$2.51:US$1.

Time Peninsula: 7 hours ahead of GMT; Sabah and Sarawak: 8 hours ahead of GMT

Public holidays (1997) February 7-9 (Chinese New Year); February 9 (Hari Raya Puasa, end of Ramadan); April 29 (Vesak Day); May 1 (Labour Day); April 18 (Hari Raya Haji); June 3 (King’s birthday); July 18 (Prophet Muhammed’s birthday); August 31 (National Day); November (Deepavali); December 25 (Christmas Day)

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 4 Malaysia: Historical background

Political background

Historical background

British colonial rule The Sultanate of Malacca played a pivotal role in east-west trade from its foundation in the early 15th century, and for this reason was seized by the Portuguese in 1511. The Portuguese did not attempt to extend their influence into the Malay peninsula, nor did the Dutch who replaced them in Malacca in the 17th century. British influence in the area began when the East India Company obtained the island of Penang as a trading settlement in the late 18th century, after assisting the sultan of Kedah repel incursions from Siam (Thailand). Malacca and Singapore, obtained later, were ruled directly with Penang as the Straits Settlements. Influence was extended to the nine Malay sultanates on the peninsula, but internal government remained largely under the control of the traditional rulers, particularly in the four so-called Unfederated Malay States. The colonial administration encouraged (and sponsored) immigrants from southern China and southern India, whose employment in the tin mines and on the plantations speeded the transition from a trading outpost to a commodity producer. Small-scale workshops supporting primary industries introduced the first stages of industrialisation.

The Japanese, who occupied the country from 1941 to 1945, sought the cooper- ation of the Malay rulers. They regarded the ethnic Chinese as representatives of the enemy they had been fighting on the mainland of China since the mid-1930s, not least because the guerrilla resistance to the Japanese—although assisted by British forces—was mainly Chinese-led. After the war, members of the Malayan Communist Party (MCP) among the guerrillas started an insurrec- tion against the newly restored British colonial system. At the same time Malay nationalists campaigned for independence by peaceful means.

Rapid progress to full independence for the 11 peninsular states was an integral part of the anti-insurgency strategy. Power was handed over in 1957. The guerrilla war, referred to officially as “The Emergency”, continued for some time after, and with it the powers of indefinite detention without trial assumed by the colonial authorities under the Internal Security Act (ISA). The govern- ment has retained these powers although the last groups of communist insur- gents along the border with Thailand laid down their arms in 1989.

The Malays’ political Malays account for around 55% of the population, and have dominated the ascendancy— political system since independence. Their ascendancy has been assured by effective political structures formed around the Malay sultanates; the electoral system still makes support in the Malay-dominated rural areas crucial for polit- ical success at the national level. In Sabah and Sarawak indigenous minorities retain similar traditional political links.

—and the economic power The ethnic Chinese, who constitute some 25% of the population, enjoy greater of the ethnic Chinese economic power than the Malays, but have not matched their ethnic solidar- ity. They have long been urbanised, and form a higher proportion of the population in Malaysia than in other South-east Asian countries (apart from

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the special case of Singapore). As a result, Malaysian Chinese have constituted the urban proletariat and been not only shopkeepers, traders and successful entrepreneurs, but also artisans. While favouring Chinese candidates, Chinese voters have tended to divide on the class lines familiar in industrialised countries, some supporting Chinese right-of-centre parties in the government coalition, others left-of-centre opposition parties. Indians, 7% of the popul- ation, mostly vote on ethnic lines, expressed through the Malaysian Indian Congress (MIC), a member of the governing coalition, the Barisan Nasional (BN, National Front).

Post-independence From the time of Malacca’s trading pre-eminence to the present day, racial and internal tensions— cultural diversity have benefited the economy of the peninsula but have also given rise to intercommunal tensions. The need to contain and reduce these has been a constant theme of government policies and pronouncements: the prevention of communal strife has frequently been cited to justify the tight controls, both formal and informal, that the government exercises over the media, as well as the use of the ISA to detain opponents of the government. The principal Malay party, the United Malays’ National Organisation (UMNO), founded in 1946 as part of the Malay campaign for independence from colo- nial rule, has led all post-independence governments, but has had to find allies from other parties in order to command a parliamentary majority and has built its coalitions with parties representing other racial groups. The Alliance, the first post-independence coalition, consisted of UMNO, the Malaysia Chinese Association (MCA) and the MIC.

—and external conflicts When the peninsula-based federation was expanded to form Malaysia in 1963, the two former British-ruled areas in northern Borneo, Sarawak and Sabah, were included along with Singapore. This maintained a racial balance which would have been upset by the accession of Singapore alone, three-quarters of whose population are ethnic Chinese. There are large communities of Malays in the two Borneo states, and the aboriginal populations, in common with most of the indigenous peoples of South-east Asia, belong to broadly defined Malay ethnic groups, with cultural links—albeit distant and tenuous—with Malays of the peninsula. In the event, after a good deal of friction with the federal government, Singapore withdrew from the federation in 1965.

The establishment of Malaysia was marked by a series of military provocations by Indonesia, referred to as “Confrontation”, which fell just short of open warfare. At the time the president of Indonesia, which had taken over most of Borneo from the Dutch, was Sukarno, who hoped that Sarawak and Sabah would opt to join Indonesia along with most of the rest of Borneo. Malaysia’s armed forces were much smaller than Indonesia’s, but assistance from the UK, Australia and New Zealand helped to redress the imbalance. When Sukarno was replaced by Suharto, the policy of “Confrontation” was abandoned. Relations between the two countries have since been peaceful.

The emergence of the Following a fiercely fought general election in 1969, Malaysia suffered serious Barisan Nasional riots between Malays and Chinese, in which many were killed. In the political crisis that followed, the Alliance, which had ruled since independence, was replaced by a broader-based coalition, the BN. With some minor changes in the

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 6 Malaysia: Historical background

composition of the BN, the coalition has ruled the country ever since. The BN fought the 1995 general election as a coalition of 14 parties. In addition to the three original Alliance members, the other main parties were Gerakan (nomi- nally not ethnically based, but in effect a Chinese party) and two Sarawak- based parties, the Parti Pesaka Bumiputera Bersatu (PPBB) and the Sarawak United People’s Party (SUPP).

The New Economic Policy The BN government instituted the 20-year New Economic Policy (NEP), a pro- (1971-90)— gramme aimed at reducing interracial tensions by improving the incomes and economic power of Malays and indigenous minorities (referred to collectively as bumiputera, or sons of the soil, and amounting to around 60% of the total population). Ethnic groups in Sabah and Sarawak and, in theory at least, pre- Malay aboriginal groups (orang asli) on the peninsula, were also intended to benefit. Almost uninterrupted rapid economic growth since 1971 has made it possible to raise the status of bumiputera without transferring income and wealth from the ethnic Chinese, thereby avoiding serious intercommunal conflict.

The NEP extended to all bumiputera privileges Malays already enjoyed under Article 153 of the independence constitution, including job quotas in the public service, the reservation of certain economic activities and guaranteed land rights. The children of bumiputera were given preferential access to train- ing and higher education. In 1971 a constitutional amendment forbade the public questioning of these provisions. One of the main objectives of the NEP programme was to raise the proportion of corporate assets in bumiputera hands to 30%. A government fund and a unit trust were established to finance the transfer of equities in large companies, and approval of foreign investment projects was made conditional on the allocation of a proportion of equity to bumiputera. The 30% goal was moderate enough, relative to the 60% of the population intended to benefit from the programme, and acknowledged that substantial holdings would remain in the hands of both local ethnic Chinese and overseas investors.

—has been reinforced by a Alongside these economic measures the government started a programme to language policy establish exclusive use of Malay as the national language (bahasa Malaysia, or simply bahasa) for all administrative purposes and as the medium of instruc- tion in the state education system. This objective was presented as promoting national unity as well as reassuring Malay nationalists who had campaigned to downgrade English, which they regarded as a colonial legacy.

The requirement for all communications with government agencies to be in bahasa was widely ignored and rapidly became a dead-letter, but the rule affect- ing schools was strictly applied. English, Mandarin Chinese and Tamil, the commonest vernacular of the ethnic Indian-Sri Lankan population, continued to be used in the private sector and in ethnic primary schools, but in state secondary and tertiary institutions bahasa had to be used in all classes except those teaching foreign languages or preparing pupils for government- sponsored education abroad.

From the late 1980s there was growing criticism that the lack of familiarity with English was hindering the education of young Malaysians. By the 1990s the prime minister, Dr Mahathir Mohamad, once a leading advocate of the

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Malaysia: Historical background 7

language policy, was promoting the study of English again and advising that English be the medium of instruction in medicine, science and certain tech- nical subjects on the grounds that bahasa versions of up-to-date textbooks and research papers were not available. (He has gone on to acknowledge that most Malaysians will need to be more fluent in English if the country is to achieve his vision of full industrialised status.)

The NEP was succeeded by Some aspects of the NEP were reviewed as the programme neared its end in a less stringent NDP 1990. Attempts to make the job reservation and equity rules more stringent under the National Development Policy (NDP) which followed the NEP after 1990 were abandoned in the face of opposition from other ethnic groups. Instead, in recognition of the success of the NEP in raising the economic power of the Malays and other bumiputera, the NDP relaxed the requirements of the earlier programme.

The 1995 general election A general (federal) election and elections in most of the states were held on April 24-25, 1995, five months before the limit of the five-year parliamentary term. Elections in Malaysia have always been run strictly in accordance with the law, under the auspices of an independent electoral commission, but the government is favoured by the legal provisions covering the running of elec- tions. Using these provisions, in 1995 it kept the campaign period to the minimum of ten days, banned election rallies, ostensibly to avoid the risk of public disorder, and threatened to use its powers of detention, although it did not do so. In the three previous general elections held since Dr Mahathir came to power in 1981, the BN’s share of the vote had declined, falling to just 52% in 1990. This trend was decisively reversed in 1995 when the BN took over 65% of the votes cast and won 164 of the 194 seats in the lower chamber, the Dewan Rakyat, more than the two-thirds majority needed to pass constitutional amendments. It was also victorious in all the state assembly elections except in Kelantan. In the cabinet reshuffle that followed the election, Dr Mahathir reas- serted his primacy. He is maintaining a balance of power within the govern- ment and within UMNO. Although he turned 71 in December 1996, Dr Mahathir shows little inclination to retire.

Dr Mahathir The result of the general election, by adding further to UMNO’s awesome outmanoeuvres internal power of patronage, heightened competition for office within the party. Much challenges of this political jockeying was seen as an attempt by a new generation of UMNO politicians to achieve power and influence by promoting the early succession of the deputy prime minister, Anwar Ibrahim. Mr Anwar himself felt obliged to disclaim any ambition to hurry Dr Mahathir into retirement.

In the 12 months following the general election there were several other chal- lenges to Dr Mahathir’s authority. In his home state of Kedah his supporters were challenged in UMNO divisional elections, and the state chief minister, Osman Aroff, defied for over a year the prime minister’s attempts to remove him from office. In Sabah Dr Mahathir sought to prolong the tenure of an UMNO luminary, Salleh Said Keruak, as chief minister, thereby reneging on a promise to rotate the top job among the state’s three main ethnic communi- ties, but eventually found himself thwarted.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 8 Malaysia: Constitution and institutions

Recent election results (no of seats) 1986 1990 1995 Barisan Nasional (BN) 148 127 164 United Malays’ National Organisation (UMNO) 83 71 88 Malaysian Chinese Association (MCA) 17 18 30 Malaysian Indian Congress (MIC) 6 6 6 Gerakan Rakyat Malaysia 5 5 7 Parti Pesaka Bumiputera Bersatu (PPBB) 8 10 14 Parti Bangsa Dayak Sarawak (PBDS) 4 4 4 Sarawak National Party (SNAP) 5 3 4 Sarawak United People’s Party (SUPP) 4 4 6 United Sabah National Organisation (USNO) 0 6 – Parti Bersatu Sabah (PBS)a 15 – – SAPP – 0 2 LDP – 0 2 Hamin 1 0 0 BN Direct Candidate (BN) 0 0 1 Opposition 29 53 30 Democratic Action Party (DAP) 24 20 9 Parti Islam sa-Malaysia (PAS) 1 7 7 Parti Bersatu Sabah (PBS) – 14 8 Semangat ’46 (S46)b –86 Others 4 4 0 Total 177 180 194 a Split from the BN in 1990. b Part of UMNO in 1986, broke away in 1987, returned in 1996.

Source: Press reports.

Manoeuvring by Dr Mahathir in the months preceding UMNO’s triennial elec- tions in October 1996 likewise suggested that he felt his supremacy could be threatened by Mr Anwar and his impatient supporters. As a result he prevailed on the party’s supreme council to pass a resolution ruling out any contest for his own position as party president and that of deputy president held by Mr Anwar. (By political convention UMNO’s presidency carries with it the premiership). Nonetheless the party polls were an important indication of the level of support for the two men. They also showed that delegates were keen to maintain a balance of power between them so as to avoid a damaging split and thereby facilitate a smooth eventual handover from mentor to protégé. While Mahathir loyalists were ousted by Anwar suppporters in the contests for the leadership of the key women’s and youth wings of the party, the balloting for the three vice-presidential posts and the 25 contested seats on the supreme council underlined the prime minister’s enduring popularity.

Constitution and institutions

A federal constitutional Malaysia is a federal, constitutional monarchy within the Commonwealth. The monarchy position of king (yang di-pertuan agong, meaning “supreme ruler”) is rotated every five years. The nine-strong Conference of Rulers of the states of the penin- sula excluding Malacca and Penang (the sultans of Kedah, Perak, Johor, Selangor, Pahang, Terengganu and Kelantan; the yang di-pertuan besar, supreme minister of Negeri Sembilan and the raja of Perlis) elects one of its number to serve as king.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Malaysia: Constitution and institutions 9

The states’ constitutional Each of the 13 states has an Executive Council dealing with non-federal matters allegiances under a menteri besar (chief minister) who is answerable to elected state assem- blies. The constitutional head of each state government is either one of the traditional rulers or (in Penang, Malacca, Sabah and Sarawak) a state governor appointed by the king, on the advice of the federal government.

The federal parliament The federal parliament consists of an upper chamber, the Senate or Dewan Negara (Council of the Nation), of 68 members, of whom 42 members are appointed by the king and 13 pairs are elected by the state legislatures, and a lower chamber, the House of Representatives or Dewan Rakyat (Council of the People), directly elected by universal suffrage. The number of members of the Dewan Rakyat was increased from 180 to 194 for the 1995 general election.

Controlling the sultans Because of mounting friction between Dr Mahathir’s government and the trad- itional rulers, the powers that had been granted to the latter on independence were modified. Physical planning permits and the licensing of primary indus- tries, including the issue of logging licences, are granted at state level. Rulers and their families were accused by UMNO party members of profiting from using their power and influence in these fields. Individual rulers have also been criticised for overstepping constitutional limits and interfering in politics. In 1992 UMNO drew up a code of conduct for rulers, some of whom, however, refused to accept its terms. Among these were the sultan of Kelantan, whom some UMNO members from other states accused of favouring his kinsman, Tengku Razaleigh Hamzah, the former UMNO vice-president who in 1987 had broken away to form his own party, Semangat ’46 (S46), after narrowly losing to Dr Mahathir in a bitter contest for the party leadership (but returned to UMNO in 1996). A compromise was eventually reached in February 1993, and constitutional amendments were passed which limited their personal legal immunity.

Changes to the judicial The Malaysian judicial system still bears many of the formal characteristics of system the UK system that was inherited from the colonial period. In the early years of independence it changed little, but important changes have taken place in recent years, including the abolition of the jury system. The scope of the jury system was progressively narrowed until it was limited to murder cases only. In 1995 juries were abolished for these also. The rules governing the bench have also been altered, in some cases following political crises. As the changes have tended to increase the power of the executive and to reduce the scope for independent action by the judiciary, this has given rise to some disquiet. As with the traditional rulers, the government has established a code of conduct for judges, the breach of which could result in dismissal.

Many feared that in these circumstances the bench would be intimidated, but judges have continued to hand down independent judgments. Two cases in- volving prominent opponents of the government bear this out. A criminal offence resulting in a fine of M$2,000 (US$800) or a short prison sentence is sufficient to disqualify a parliamentary candidate from election. In one case, in 1994 (involving Joseph Pairin Kitingan, see below), a guilty verdict was fol- lowed by a sentence just below the disqualification threshold. In the other, in 1995, a fine of M$5,000 was upheld on appeal, but the appeal court judge ruled

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 10 Malaysia: Political forces

that the offence was not a criminal one, and that therefore the question of disqualification did not arise. However in April 1997 the Melaka high court controversially found the deputy secretary-general of the opposition Democratic Action Party (DAP), Lim Guan Eng, guilty of sedition and false publication and fined him M$15,000. He expects to lose his seat in the Dewan Rakyat if his appeal against the verdict—which is widely regarded as politically motivated—fails.

Political forces

UMNO is the dominant UMNO, the party of Malay nationalists in the colonial period, remains the most Malay party— important of the Malay parties. Its main Malay rival, Parti Islam sa-Malaysia (PAS, the All-Malaysia Islamic Party), a religious-based party, controls the state government of Kelantan in the north-east of the peninsula. PAS led a coalition that included S46, the party formed by Tengku Razaleigh following his break- away from UMNO until April 1996, when he opted to rejoin UMNO, a decision that was endorsed by that party’s supreme council a few weeks later.

The internally elected president of UMNO invariably serves as the country’s prime minister. Elections to leading party posts and to the UMNO supreme council (ten of the seats on which are in the gift of the party president) not only determine the leadership succession, but can also affect the posts occu- pied by ministers in cabinet. An incumbent leader is rarely challenged, but Dr Mahathir was almost defeated in the internal UMNO elections of April 1987, when Tengku Razaleigh stood against him.

—but has suffered from Tengku Razaleigh, a relative of the sultan of Kelantan and a former finance internal divisions— minister, was minister for trade and industry at the time he launched his challenge. He claimed that Dr Mahathir had broken a pledge to step down in his favour. The internal UMNO crisis that followed the election led to the setting up of S46, and to a legal challenge to the legitimacy of the UMNO party machine. To fight off the challenge, the government tried to influence the judiciary, and tightened further the entire range of internal security legislation and other statutes strengthening the powers of the executive.

The UMNO dispute coincided with a crisis in community relations resulting from government attempts to impose non-Chinese-speaking Malay adminis- trators on Chinese-medium primary schools. This move united the normally politically fragmented Chinese community. The government argued that the inter-ethnic tension it had itself aroused raised the risk of a repeat of the 1969 race riots. Claiming that it was acting to prevent racial disturbances, the government issued in October 1987 up to 100 orders under the ISA, detaining a number of politicians, journalists and community leaders. It also closed three newspapers.

—and legal challenges— If these moves were intended to deter UMNO dissidents from mounting their legal challenge to the April 1987 UMNO elections, they failed. When the case filed by UMNO dissidents was heard, the High Court, while finding no fault with the conduct of the elections, discovered that, as a result of lax supervision by central party officials, 30 UMNO branches had not been properly registered

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under the Societies Act, and therefore the party itself was illegal. This act had been introduced by Dr Mahathir to exercise administrative control over polit- ical and other voluntary bodies. The government was always ready to use the full force of the act against political opponents guilty of similar carelessness, so this was a great embarrassment.

—resulting in the Dr Mahathir’s supporters from the legally defunct UMNO immediately formed formation of UMNO Baru UMNO Baru (New UMNO) as a properly constituted society, with all branches correctly registered. At the same time, it ensured that opponents from the “old” UMNO were barred from joining. Tengku Razaleigh registered a party, which originally presented itself as the true successor of “old” UMNO. As this group, which was to become S46 ,had the support of the prime minister at the time of independence, Abdul Rahman, and the son of the founder of UMNO and Dr Mahathir’s immediate predecessor as prime minister, Hussein Onn, it had some justification for its claim to the party’s heritage.

The UMNO dissidents started legal proceedings to take over UMNO’s extensive assets. Pending the outcome of the case, the assets were in limbo. The govern- ment meanwhile strengthened its position by amending statutes controlling public meetings (the Police Act), the media (the Printing Presses and Public- ations Act), the Official Secrets Act and the Internal Security Act (ISA), and amended the constitution to establish its new code of conduct for the judiciary (see Constitution and institutions). When the UMNO dissidents’ appeal was about to be heard, the king suspended the lord president (Malaysia’s top judge). Many suspected that the king had acted on the advice of Dr Mahathir. A basis was found for accusing the lord president and two other judges of failing to observe proper legal procedures, and they were dismissed. New UMNO was allowed time to register all branches and thus return to legality, and after a lengthy legal examination it was ruled that the assets of UMNO properly belonged to the newly legalised party.

Chinese and multiracial At the time of independence, the Malaysian Chinese Association (MCA) was parties the unchallenged political representative of the ethnic Chinese. It rather quickly became the apologist for the government coalition in which it served, and was identified with the richer Chinese and business interests. Gerakan Rakyat, founded as a left-of-centre multiracial party, and the Democratic Action Party (DAP), also a multiracial party but somewhat further to the left, both attracted mainly ethnic Chinese voters (although the DAP also has promi- nent Indian and Malay members).

Business activities of One of the features of political activity in the past was open and direct partici- political parties pation by coalition parties in entrepreneurial activities and company owner- ship as means of obtaining party funds. UMNO, by far the biggest party (open since 1992 to other bumiputera besides Malays, and with a total membership approaching 2 million), had by far the biggest portfolio of businesses. These activities were criticised for putting temptation in the way of both businessmen and politicians. They were officially wound down, but the shares were trans- ferred to “safe hands”; in practice, groups or individuals with close links with influential members of UMNO.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 12 Malaysia: Political forces

The MCA was also engaged in business activities grouped under a holding company, Multi-Purpose Holdings (MPH). It has been less successful than UMNO in retaining influence over management after disposing of its shares in companies. In 1989 it rejected a hostile takeover bid by Hume Industries (part of the Hong Leong Group), but accepted a bid from Kamunting Corporation, which has close links with UMNO. After the takeover, Kamunting broke up MPH in an asset-stripping operation.

Political conflicts in Sabah It proved more difficult to exercise control through the Alliance and BN over the more ethnically diverse Sabah. Until recently, the Parti Bersatu Sabah (PBS) dominated politics in the state. It is led by Joseph Pairin Kitingan, a hereditary chief of the Kadazan people, the largest ethnic group in Sabah. The Kadazan have distant ethnic links to Malays, but are Christian, mostly Roman Catholic, a distinction which contributes to their political solidarity. Before the 1990 election, the PBS was part of the BN.

Main political figures

Dr Mahathir Mohamad: Prime minister since 1981, minister for home affairs and president of the United Malays’ National Organisation (UMNO). The architect of both the economic advance of the Malay community and the rapid industrial growth of Malaysia. Anwar Ibrahim: Deputy prime minister and minister for finance. As Dr Mahathir’s deputy he is the prime minister’s heir-apparent, although his rapid rise has created resentment among the UMNO old guard. His supporters are known as the Wawasan (Vision) team. Daim Zainuddin: Former minister of finance. He is still a member of parliament and has been appointed by Dr Mahathir as special economic adviser. In effect, an alternative finance minister without portfolio. Tengku Razaleigh Hamzah: Former minister of finance. After losing a challenge to Dr Mahathir in the internal UMNO elections of 1987, he and his supporters formed Semangat ’46 (S46). In 1996, as defections to UMNO became common and relations with coalition partner PAS deteriorated, Tengku Razaleigh negotiated the return en bloc of 400,000 S46 members to UMNO. Rafidah Aziz: Minister of international trade and industry. A close supporter of Dr Mahathir, and widely acknowledged to be one of the most able and successful ministers. In the October 1996 UMNO elections she lost the leadership of the women’s wing of the party, Wanata, a post she had held for 12 years. Abdullah Ahmad Badawi: Minister for foreign affairs. Regarded as a possible alternative successor to Dr Mahathir if Mr Anwar were to fall out of favour. Najib Tun Razak: Minister of education and formerly minister of defence. He is the son of a previous prime minister, Tun Razak. Education will remain an important ministry.

The PBS won the 1994 election, but only very narrowly, and within days a number of defections (including that of Mr Pairin’s younger brother, Jeffrey Kitingan) deprived the party of its majority. New parties formed by PBS defec- tors joined the BN, and the government coalition took control of Sabah. The fragmented PBS recovered sufficiently to win eight seats in the 1995 parlia- mentary election (it had won 14 in 1990, but the numbers were eroded by

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Malaysia: International relations and defence 13

defections in 1994) and it remains a significant political force. The difficulties Dr Mahathir had with the rotation of chief minister show that it will be no easy task for the BN to maintain control of the state.

International relations and defence

Dr Mahathir’s world view Malaysia has always been active in a number of international bodies, and under Dr Mahathir the country has adopted highly vocal positions on a num- ber of international questions. Dr Mahathir has also been noted for his refusal to heed criticism of his government’s human rights record and for his readiness to disparage the effects of press freedom and the more open democratic prac- tices of the USA and Europe. On the economic front, he has characterised many international initiatives on trade union rights and on environmental protection as measures devised by the rich, developed countries to obstruct the development of newly industrialising countries.

ASEAN, APEC and the proposed EAEC

Malaysia has also taken important regional initiatives. It was a founder-member of the Association of South-east Asian Nations (ASEAN), which comprises Indonesia, the Philippines, Singapore, Thailand, Brunei and Vietnam as well as Malaysia and is due to be enlarged to include Myanmar, Cambodia and Laos before the end of 1997.

Malaysia is also a member of the broader but looser-knit Asia-Pacific Economic Cooperation (APEC) forum, which includes Australia, New Zealand and countries of the American Pacific littoral and of East Asia. The USA and Australia are trying to increase this body’s cohesion and, in particular, to establish free trade among all its members.

At the 1991 ASEAN conference, Dr Mahathir proposed setting up another regional body, the East Asian Economic Group (later renamed the East Asian Economic Caucus, EAEC), to strengthen the negotiating power of Asian economies vis-à-vis such blocs as the EU and the North American Free Trade Area (NAFTA). In 1993 ASEAN members decided that EAEC should comprise the ASEAN countries, China, South Korea, Taiwan, Hong Kong and Japan. So far Japan, whose participation would be crucial to the success of the organisation, has shown no enthusiasm for the proposal, a bitter disappointment to Dr Mahathir, who assumes, probably rightly, that the Japanese are motivated by fear of aggravating already existing tensions with the USA on trade matters. The ad hoc group of Asian countries that met in Bangkok in March 1996 to discuss their joint positions prior to the historic Asia-EU meeting was hailed by Dr Mahathir as, in effect, the long-promised EAEC, but no moves to establish a permanent body have been made.

Malaysia’s reactions have not been wholly negative. For example, its deleg- ations to the Rio earth summit in June 1992 and to the International Tropical Timber Organisation (ITTO) initiated moves for consuming countries (ie rich industrialised countries) to help fund forest protection and replanting in poorer, log-exporting countries, and for the trade in temperate as well as tropi- cal timber to be monitored.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 14 Malaysia: International relations and defence

Defence links with the UK Malaysia has maintained bilateral defence and military training agreements with the UK, Australia and New Zealand, but has seen no contradiction in remaining a member of the Non-aligned Movement. Rumours of closer and more secret military links with the UK have always been denied. UK forces still retain open links with a jungle warfare school established in Johor during colonial days, but Dr Mahathir has denied that a large new military base and training establishment near Mersing in Johor state was being financed by the UK on condition that UK forces would enjoy open access to the facility. In early 1995 Dr Mahathir was given a conducted tour of the headquarters of the UK’s Special Air Services (SAS) at Hereford, a unique privilege for a visiting head of state.

Defence spending is rising Expenditure on defence is rising, as the end of the cold war has reduced the fast USA’s readiness to maintain the balance of power in Asia. Development ex- penditure on defence items quadrupled, to a total of M$6bn, under the Sixth Malaysia Plan, which ran to the end of 1995. The government has allowed M$7bn to the Ministry of Defence under the Seventh Malaysia Plan, of which M$6bn is to be spent on equipment already identified. The ministry is hoping for further allocations at the mid-term review of the Plan. A 15-year strategic plan will transform Malaysia’s forces from being confined mainly to serving in an anti-insurgency role to having a full capability to deter external threats. With this in mind the country has acquired a fleet of 28 British Hawk aircraft and 18 Russian MiG-29 fighters. Tenders are out for various naval craft, includ- ing submarines.

Territorial disputes The government insists that its greater armed strength will be used purely defensively, but that it is necessary to deal with the potential threat posed by the territorial disputes that are now the region’s main flashpoints. Malaysia is involved in a surprisingly large number of territorial disputes. They include those with Indonesia about the two islands of Sipadan and Ligitan, which lie off the coast of Sarawak and which Malaysia plans to development as tourist resorts; with Singapore over the island of Batu Putih (Pedra Branca); with Brunei over the Limbang enclave; with Thailand about the demarcation of the shared land border; and with the Philippines about the latter’s historical claim to Sabah. These disputes are all low-key, and there have been signs that the parties involved are willing to resolve the disputes about Sipadan and Ligitan and about Batu Putih by referring them to the International Court of Justice in The Hague. More potentially troublesome is Malaysia’s claim to some of the islands in the Spratly group to the north of Sabah. Other claimants are China, Taiwan and Vietnam (which claim sovereignty over all of the group), and the Philippines and Brunei (which, like Malaysia, claim just some of the islands). The islands themselves are insignificant, but possession of them would give their occupier claims to a large economic zone covering parts of the South China Sea that are thought to be rich in oil and gas and other resources, as well as control of strategic sea lanes linking Japan and the Middle East. In 1992 the Chinese government began to reassert its claim to the entire group. This prompted a unified response from the ASEAN countries. For its part, Malaysia has begun work on the tourist development of one island and Dr Mahathir asserted a claim to the island by a well-publicised overnight stay.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Malaysia: Economic structure 15

The economy

Economic structure

Main economic indicators, 1996

GDP growth (%) 8.2 Consumer price inflation (%)a 3.5 Savings ratio (% of GDP) 38.0 Current-account balance (M$ bn) –13.0b Current-account balance (US$ bn) –5.1b Total external debt (US$ bn) 28.9 Exchange rate average (M$:US$) 2.52 Population (million; mid-year estimate) 21.2

a National consumer price index. b National estimate.

Source: Bank Negara Malaysia, Annual Report.

Manufacturing becomes In the last 20 years Malaysia has industrialised rapidly. It has been transformed the dominant sector— from a country which depended for its prosperity and economic resilience on producing a wide spread of mineral and agricultural export commodities—tin, natural rubber, tropical timber and a number of minor minerals and agricul- tural products—into an economy dominated by manufacturing industry. Whereas in 1986 agriculture and manufacturing accounted for roughly equal proportions of GDP, by 1996 manufacturing was nearly three times as impor- tant as agriculture.

—although commodities In the world markets for some of its commodities Malaysia played a leading, are still important and sometimes dominant, role. It is still an important source of tin and rubber, although no longer the largest single supplier. It produces over half of the world’s palm oil. Within the primary commodities category, earnings from the relatively new items—palm oil, timber and oil and gas—now predominate, and manufactures account for about one-third of GDP and for close to 80% of gross export earnings. Electronic goods form the fastest growing and the single most important category. Malaysia now occupies as strong an international position in some parts of this sector as it once did in the supply of tin and natural rubber. Production is, however, heavily dependent on imported parts, which in some cases account for up to 80% of export value. The government is directing its attention to increasing the domestic content.

Geographical distribution Production of plantation crops is widely dispersed around all states of the of production federation. Primary oil and gas installations are necessarily located close to offshore sources. Terengganu on the east coast of the peninsula and Sabah on the island of Borneo have reception units. Manufacturing operations using oil and gas have grown up around these primary industries, such as the hot- briquetted iron-reduction plant using cheap gas on the island of Labuan, off Sabah. Other primary industries have generated similarly related manufac- turing units: a tinplate production line in the southern state of Johor serves Malaysia’s main fruit-canning industry, for instance.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 16 Malaysia: Economic policy

The main locations of export-oriented manufacturing have until now been the island of Penang and the central industrial belt to the west of Kuala Lumpur, the Klang Valley. Penang’s customs-free industrial zones have been the focus of investments by international electronics companies. The first investments came mainly from the USA and Japan, but now companies from Singapore, Taiwan and South Korea are also important. The Klang Valley has the largest and longest established concentration of general manufacturing operations. Other manufac- turing centres are now growing up, as a result of a deliberate government policy to achieve more dispersed development. The government is hoping to centre high-technology industry in the so-called Multimedia Super Corridor (MSC), a 750-sq km information technology zone being developed near Kuala Lumpur. The government is offering a package of incentives to information technology companies willing to set up operations in the corridor.

The high rates of investment needed to sustain rapid growth have been fi- nanced by consistently high domestic savings and substantial foreign direct investment (FDI). This combination has helped maintain fast growth while limiting inflationary pressure. Although the government allows free repatri- ation of profits, a high proportion of the returns on FDI is reinvested locally. This is not immediately clear from the official figures. In the balance of pay- ments, all profits on overseas-held equity in FDI joint ventures are shown as outflows, and funds which are immediately reinvested are shown as new FDI.

Comparative economic indicators, 1996

Malaysia Thailand Singapore Indonesia USA Japan GDP (US$ bn) 88 183 94 226 7,576 4,581 GDP per head (US$) 4,260 2,980 30,860 1,150 28,576 36,401 Consumer price inflation (%) 3.5 5.8 1.4 6.7 2.9 0.1 Current-account balance (US$ bn) 5.1 –14.7 14.8 –8.9 –165.9 66.0 Exports of goods (US$ bn) 76.6 54.5 125.0 51.5 612.8 400.3 Imports of goods (US$ bn) 73.1 66.8 131.3 46.9 799.2 316.7 Foreign trade (% of GDP)a 170.5 66.4 272.4 43.6 18.6 15.7 a Merchandise exports plus imports.

Sources: National sources; EIU.

Economic policy

Fiscal policy is generally Over many years the government has established a reputation for prudent prudent fiscal policies, maintaining budgets close to balance. There has usually been a substantial surplus of revenue over current expenditure. (See Reference table 1 for historical data on government finances.) Small deficits have arisen occa- sionally, when development expenditure has exceeded the current surplus. Bank Negara Malaysia (the central bank), maintains strict management of the growth of internal liquidity, in the interests of limiting any inflationary pres- sures resulting from vigorous economic expansion. Foreign currency exchange is controlled by Bank Negara, but there are few restrictions on international transactions. When necessary the bank has imposed controls on non-resident accounts to rein in liquidity growth. (See Reference table 2 for data on money

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Malaysia: Economic policy 17

supply growth, and Reference table 3 for interest rates.) Because the currency, the Malaysian dollar or ringgit, is strong, ordinary market intervention by Bank Negara is limited to smoothing fluctuations, and has usually been concerned to hold the exchange rate down, rather than to support it. There have been exceptions: in early 1996 and in April 1997, in response to adverse movements, Bank Negara intervened briefly to support the ringgit.

Government finances, 1996a

M$ m % change on 1995 Total revenue 58,280 14.4 Tax revenue 47,272 13.4 Direct taxes 25,851 13.9 Indirect taxes 21,421 12.9 Non-tax revenue 11,008 18.6 Total expenditure 56,465 15.0 Operating expenditure 43,865 19.9 Development expenditure 12,600 0.6 Balance 1,815 –2.4

a Federal budget.

Source: Bank Negara Malaysia, Annual Report.

The Seventh Malaysia Parliament approved the Seventh Malaysia Five-Year Plan (1996-2000) in May Plan— 1996. Annual economic growth targets are set at 8%—higher than earlier plans, but less than the 8.7% achieved in the five years to 1995. Job creation is not the priority that it was in previous plans. With unemployment down to 2.6% and acute labour shortages in many sectors, growth will increasingly be based on capital-intensive industries. This was already signalled in 1995, when the Malaysian Industrial Development Agency (MIDA) set a minimum capital/ labour ratio for new investment approvals. The plan also encourages the ex- pansion of the domestic and international services sectors. (The services deficit has been a persistent weakness in Malaysia’s overall balance of payments, although it declined to 7.9% of GNP in 1996 from 9.2% the previous year.)

—heralds a shift in The plan also officially shifts the emphasis from import substitution to export strategy orientation, but the strategy here is more equivocal. Past import substitution was aimed mainly at consumer goods or basic metal manufactures. This tactic failed to slow the overall growth of imports, because Malaysia’s very impressive rise in gross exports depended on manufactures that have a very high import content. The government is promoting substitution of these imports—a more difficult task, because components must match international competition on costs and quality in order to maintain the export record.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 18 Malaysia: Economic policy

Malaysia’s five-year plans Seventh Sixth Malaysia Plan Malaysia Plan Target Outturn Target Real GDP growth (%) 7.5 8.7 8.0 Inflation (%) 5.0 4.0 “Low” GNP per head (M$)a 9,947 9,786 14,788 Unemployment (%) 2.8 2.8 2.8 Budget balance (% of GNP)a –3.2 0.4 0.2 Current-account balance (% of GNP)a 1.6 –8.8 0.5

a End of period.

Source: Malaysia Five-Year Plan (1996-2000).

Development allocations (M$ m) Seventh Sixth Malaysia Plan Malaysia Plan Allocations Outturn Allocations Public sector Transport 12,881.6 11,594.7 15,484.2 Roadsa 8,451.0 7,572.6 9,838.8 Rail 1,802.6 1,735.4 3,370.0 Ports 434.0 410.9 486.8 Airports 1,833.0 1,780.6 1,266.0 Urban 361.0 95.2 522.6 Utilities 2,876.3 2,796.7 3,687.3 Water 2,749.5 2,671.9 3,575.3 Sewerage 126.8 124.8 112.0 Communications 76.3 71.0 58.6 Telecommunications & post 45.0 39.9 25.5 Meteorology 31.3 31.1 33.1 Sub-total 15,834.2 14,462.4 19,230.1 Privatised projects Roadsa 17,505.0 Ports 4,241.7 Airports 5,956.0 Telecommunications 25,400.0 Post 260.0 Water 2,571.7 Sewerage 1,759.4 Rail 10,600.0 Sub-total 68,293.8 Total 87,523.9

a Other than local roads and agricultural roads, which have an allocation of M$700m under the Seventh Plan.

Source: Malaysia Five-Year Plan (1996-2000).

Little debate over There is little debate about these general principles of economic management, principles of economic as the country’s performance has been consistently good, normally achieving management growth above 8% since the late 1980s, higher than even the ambitious growth targets set in the five-year plans. Low inflation, a strong currency and prudent economic management have been important adjuncts to the industrial policy

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Malaysia: Economic policy 19

that has been central to this success. Growth in manufacturing output has depended heavily on attracting direct investment, for both finance and the acquisition of technology. This trend will continue, especially as the govern- ment is now encouraging manufacturing which is higher value-added and more capital-intensive.

Worries about inflation However, the success of the government’s economic policies has increased and speculative flows— inflationary pressure both by increasing demands on national resources and by attracting speculative international funds and “hot money”. In the early 1990s the Kuala Lumpur Stock Exchange (KLSE) was a natural target for overseas fund managers eager to buy into emerging markets, as Malaysia offered political stability, a strong currency and sound economic fundamentals such as low debt, fast growth and moderate to low inflation. A large inflow of funds in 1993 drove up share prices on the KLSE and the international value of the ringgit, which in turn generated currency speculation.

—provoked draconian Financially induced inflationary pressure grew. Bank Negara’s currency oper- measures against hot ations and domestically oriented monetary management were ineffective money in 1993 and 1994— against the foreign-induced tide of liquidity. At the end of 1993 and in early 1994 Bank Negara introduced a series of draconian measures designed to drive out hot money and discourage future speculation from abroad, including the segregation of non-resident funds in special deposits (where they attracted negative interest) and strict limits on banks’ activities across frontiers. Hot money and speculative funds were withdrawn, and liquidity management be- came essentially a domestic matter again. However, there was much resent- ment at the side-effects of the policy; prices on the KLSE plunged and the international value of the ringgit fell sharply.

—which have now largely In the course of the next 12 months most of the special controls were lifted. But been rescinded foreign fund managers’ interest in emerging markets also waned. Analysts drew quite erroneous parallels between Malaysia and Mexico after the collapse of the peso, and non-residents drew down their holdings. The swift and determined action taken by Bank Negara in 1994 has had a lasting deterrent effect on speculative capital inflows, which have not responded with the same vigour to recent interest rate rises.

Policy on inflation is The government seeks to control inflation by means of monetary, fiscal and multifaceted— industrial policies, and also intervenes directly to monitor and control prices. Bank Negara deals with the monetary sources of inflationary pressure and, as it showed in 1994, is ready to use its exchange control powers to achieve this when needed. More recently, Bank Negara introduced ceilings on lending to the property sector and for the purchase of stocks and shares in response to the continuing unexpectedly strong growth in property and share financing in early 1997 and the potentially destabilising effect on the economy of asset price inflation. Meanwhile, the government maintains a fairly tight fiscal posi- tion. The budget has been in substantial surplus on the current account in recent years and only occasionally has development spending exceeded the current surplus. This fiscal prudence is reinforced by Malaysia’s high savings ratio, partly the result of compulsory payments into the Employees’ Provident

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 20 Malaysia: Economic policy

Fund (EPF). This is a virtually universal state savings scheme designed to pro- vide personal pensions, but also linked to house purchase. The mandatory rate of the EPF contribution from wages by employees was revised from 10% to 11% from January 1996. Employers were already required to contribute an add- itional 12% of pay, but some make voluntary extra payments, which are allow- able against tax. The ceiling for contributions under the tax concession was raised from 16% to 17% from January 1996. These EPF changes effectively compensated for an average reduction of just over 1 percentage point in in- come tax rates in the 1996 budget.

—but rapid growth has While the financial sources of inflation have generally been kept under control, created bottlenecks there are serious inflationary pressures at work in the real economy. Consis- tently rapid growth has led to shortages, some inefficiencies and rising imports. The government is reluctant to take drastic deflationary measures, fearing that they would endanger the high rate of private investment needed both to drive economic growth now and to provide the expanded capacity needed to sustain non-inflationary growth in the future. It has not yet done enough to ensure that supply capacity expands to meet demand. It has introduced some policy meas- ures, such as investment incentives and skills training programmes, aimed at reducing bottlenecks and developing the labour market. The government’s gen- eral economic and development policies are embedded within the framework of five-year plans, while it has undertaken direct investment and management of strategic industrial projects, such as the establishment of the first national car, the Proton, and the ambitious information technology zone being developed on the outskirts of Kuala Lumpur, the Multimedia Super Corridor.

Changing investment aims Plans for new industrial investments have to be submitted to the Malaysian Industrial Development Agency (MIDA), which operates under the Ministry for International Trade and Industry (MITI). MIDA had in the past been mainly concerned to keep FDI levels up; most applications were approved, provided investors complied with the equity guidelines for local and bumiputera owner- ship set out by the New Economic Policy (NEP) and its successor, the National Development Policy (NDP). It is now more selective, requiring higher levels of domestic content in new product lines and higher productivity. Conscious that the high import content of the manufacturing sector will be brought down only if there is a wider and deeper spread of support industries, the Second Industrial Masterplan (1996-2005) emphasises the need to establish successful concentra- tions of these industries. This ambitious blueprint, unveiled in November 1996, reiterates the government’s belief in the need to shift the manufacturing focus from the labour-intensive assembly of imported components towards capital- intensive high-technology processes that are increasingly indigenous. It also emphasises the importance of strengthening linkages within and between industries and of providing them with an appropriate foundation. This involves the development of human resources, physical infrastructure and other services.

Price controls— The prices of rice and some other staple food items are directly controlled and a number of industrial products are subject to controls of varying rigidity. In 1995 the government was forced to allow a 10% increase in the price of cement (unchanged officially for 14 years) when shortages began to delay major

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Malaysia: Economic policy 21

infrastructure projects. The government has also used its powers first to post- pone and then to limit rises in the price of power supplied by the partly priva- tised electricity authority, Tenaga Nasional (see below). Car prices are monitored, but carmakers are usually allowed by MITI to pass on some cost rises.

—are accompanied by Some food prices have come down in the last two years as a result of reductions other measures— in import tariffs. The government has run a “price watch” system since the 1993 budget to ensure that traders pass on tariff cuts. In 1994 the prime min- ister launched a publicity campaign urging consumers to save money rather than spend it. This was relaunched in June 1995 as the “zero inflation” cam- paign, which featured, among other things, monthly “zero inflation days” when traders are enjoined to offer one-day discounts.

—but utilities costs pose a This concentration on day-to-day price effects has caused problems for the problem government. Soon after the 1995 election it reversed a decision to allow Tenaga Nasional (the partially privatised electricity authority serving peninsular Malaysia) to raise tariffs to cover payments on Independent Power Provider (IPP) contracts and funding for new capacity. Under the IPP scheme, the government licensed new private-sector power stations to offset shortfalls in power capacity, which had resulted in frequent and sometimes widespread power cuts. Tenaga Nasional is contracted to use IPP output regardless of the needs of its network, but was promised the right to pass on any higher costs that resulted.

Tenaga’s own construction programme relies heavily on loans from the World Bank, which are charged at low rates of interest only as long as it maintains a high credit standing, which requires the consistent achievement of an 8% return on fixed assets. At the end of 1995 limited tariff increases were allowed. As a concession to the “zero inflation” campaign, Tenaga was required to reduce tariffs for the first few units, while raising rates for large-scale consum- ers. If the government had not allowed for some increase in revenue, Tenaga would have been penalised by the World Bank. In April 1997 Tenaga was authorised to raise tariffs by 8.3% to help offset the burden of IPP purchases and fuel cost increases.

The CPI has been criticised The consumer price index (CPI) is the most widely cited measure of price movements. It is derived from a weighted average of the household expend- iture patterns of five income groups and includes 430 items, of which 20 are subject to price control. The 20 controlled items have a high weighting in the index. By concentrating its attention on these items, the government can manage the index and give the impression of controlling inflation. This policy of controlling prices reduces the hardships caused to poorer households by inflation (and may, as a result, have a knock-on effect on wage rates among the lowest-paid workers), but both the policy and the CPI conceal rather than combat underlying inflationary pressures. (See Reference table 7 for IMF and national consumer price indices.)

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 22 Malaysia: Economic performance

Inflation (% change) Average 1996 1992-96 Consumer price index (1994=100) 3.5 3.8 Source: Bank Negara Malaysia.

Economic performance

Export-oriented Malaysia suffered a brief recession in the mid-1980s, but since then has enjoyed manufacturing leads consistently fast growth. The main driving force of economic development has growth charge been investment in export-oriented manufacturing and the rapidly rising gross export earnings these industries have generated, although a deceleration in export growth rates in 1996 lowered domestic output and investment, espe- cially in the export-oriented electronics sector. Malaysia has been able to take advantage of the trend among companies in developed countries to relocate some of their production lines to lower-cost areas, using moderately advanced technology. Malaysia’s well-developed infrastructure and administration and well-educated workforce have attracted FDI, which has reduced the country’s requirement to borrow overseas or generate domestic funds to finance invest- ment. FDI has also simplified the process of breaking into new markets, because in most cases the marketing of output from the new production lines in Malaysia has been integrated with the investing companies’ existing worldwide production. There have also been gains from the constant effort to increase the internal pro- cessing of the primary materials on which Malaysia’s export revenue was formerly based. (Reference tables 4-6 provide data on gross domestic product.)

Gross domestic product (% real change) Average 1996 1992-96 Private consumption 8.0 7.0 Government consumption 0.4 6.5 Gross fixed investment 8.7 14.1 GDP 8.4 8.6 Source: Bank Negara Malaysia.

A reliance on inward The development strategy has carried some penalties. Although Malaysia’s net investment— foreign indebtedness is low, repatriation of FDI profits has become a large debit item on the invisibles account. For the time being, the need to finance these transfers has not imposed serious financial strain on the economy, as good prospects for further investment ensure that a high proportion of profits is immediately reinvested. It does make the economy vulnerable to changes in the relative attractiveness of different countries as locations for investment. In 1993 there was a fall in FDI as some of Malaysia’s most important investors turned their attention to China. A recovery in 1994 based on increased invest- ment in medium- to high-productivity processes persisted in 1995 and 1996 notwithstanding rising labour costs, especially for skilled workers, who in some industries became particularly scarce.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Malaysia: Regional trends 23

—and exports have a high More serious difficulties are caused by the fact that products of many of the import content fastest growing export industries have a high import content. The impact of this on the trade position and on economic performance is of increasing im- portance. Annual GDP growth has been at 8% or above since 1987, with the exception of the relative slowdown of 1992 when the government introduced deflationary measures to dampen growth in personal consumption in order to reduce a large current-account deficit that had started to develop in 1991. The export orientation of Malaysia’s fastest growing industries helped to offset the effects of falling personal consumption and to maintain economic growth at 7.8% even in that year. Almost all categories of imports were rising in 1991-92, but imports of consumer goods were growing particularly rapidly; the income elasticity of demand for imported consumer goods (ie the increase in spending on imports compared with the increase in personal incomes) has been high in Malaysia in recent years. A standstill in personal consumption was sufficient to correct the trade imbalance without disturbing the economy as a whole.

Regional trends

Development is Economic development had been concentrated on the western states of the concentrated on the peninsula even before industrialisation transformed the Klang Valley (central western peninsula Selangor, between Kuala Lumpur and the coast) and Penang. After trading operations had been established in the Straits Settlements, tin mining and plantation developments began in Selangor, Perak and Johor. These areas, together with Penang, still have the largest concentrations of manufacturing industry.

The east coast of the Successive five-year plans have fostered the location of industrial projects in peninsula and the Borneo new areas, still mainly in states on the west of the peninsula (Kedah, Negeri states Sembilan and Malacca). In the predominantly rural states on the east coast of the peninsula (Kelantan, Terengganu and Pahang), and the two Borneo states (Sabah and Sarawak), industrial activity is mainly related to the processing of local raw materials. Timber processing has developed in all of these states. Terengganu and the Borneo states house the onshore installations associated with the nearby offshore oil and gas production platforms; a steelworks in Terengganu was sited there to take advantage of low-cost natural gas; and a hot-briquetted iron works was set up on Labuan Island off Sabah for the same reason.

Kelantan is still dominated by agriculture, which accounts for about 30% of the state’s GDP. Rice and natural rubber account for two-thirds of the cultivated area. The state also accounts for 90% of domestically grown tobacco. There is substantial logging activity, but little local sawing and processing capacity. Parti Islam sa-Malaysia (PAS), the opposition Islamic-based party which con- trols the state government, is opposed to the development of heavy industry, and the federal government openly discriminates against opposition-held states in its development programmes. The population of Kelantan has one of the country’s lowest and slowest growing incomes per head.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 24 Malaysia: Population

Resources

Population

The Malaysian population grew at an average annual rate of 2.8% in the 1980s, but the growth rate slowed to 2.7% in 1991-95. The Seventh Malaysia Plan projects an average annual increase of 2.3% in 1996-2000. The rate of growth in peninsular Malaysia, where just under 82% of the population lives, has been slightly slower than in Sarawak and much slower than in Sabah (where the annual rate of growth has exceeded 4%), despite some internal migration from the Borneo states. Urbanisation has been proceeding rapidly. Towns accommo- dated 28.8% of the population in 1970, 34% in 1980 and 54.7% in 1995. (Refer- ence tables 8 and 9 provide historical data on population and the labour force.)

Population, 1995 (mid-year estimates) ’000 % Total 20,096.7 100.0 Malaysian 19,214.4 95.6 Bumiputera 11,820.3 58.8 Chinese 5,262.5 26.2 Indian 1,500.8 7.5 Others 630.8 3.1 Non-Malaysian 882.3 4.4 Age structurea 0-14 7,330 35.4 15-64 12,600 60.9 65+ 760 3.7 Median age 22.4 –

a End-1995 estimates.

Sources: Department of Statistics, Monthly Bulletin of Statistics; Malaysia Five-Year Plan (1996-2000).

Dr Mahathir advocates Many governments in Asia have introduced incentives to reduce population population expansion growth, but the Malaysian prime minister, Dr Mahathir Mohamad, has advo- cated a policy of population expansion, aimed at bringing the total to 70 mil- lion by 2095, on the grounds that Malaysia’s industrialisation programme, which is heavily dependent on export growth, would be helped by a larger domestic market. The average population density, at under 60 persons per sq km, is relatively low, and it may seem that more than three times the existing population could easily be accommodated. However, this figure conceals great disparities between the peninsula and the sparsely populated Borneo states; Sarawak has around 14.5 persons per sq km and Sabah fewer than 22, while on the peninsula the density is already about 113 persons per sq km.

Rapid population growth The rapid growth of the population has done more than increase the number has lowered dependency of potential customers; it has also reduced the dependency ratio of the popul- rates ation (the number under the age of 15 and over the age of 64 divided by the rest of the population), which fell from 93% in 1970 to 77% in 1980, 70% in 1990 and 64% in 1995. The World Bank has projected a continuous decline to 48% by 2025. The number of people of working age has grown swiftly because

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Malaysia: Population 25

the overall increase in the population has resulted as much from improved healthcare, which has increased the number of children surviving to adult- hood, as from the fecundity of the population.

Growth rates vary There has been a big difference in the rates of population growth between the between the main ethnic main ethnic groups. In the intra-censal period (1980-90) the overwhelmingly groups Malay, bumiputera population on the peninsula increased at an average annual rate of 3%. The Chinese population rose by only 1.8% per year, and the Indian community by 2.5%, close to the national average. During 1991-95, the three growth rates all slowed—the annual rates of growth of the bumiputera, Chinese and Indian communities were 2.7%, 1.3% and 1.5% respectively—but the spread between the different groups was maintained. There was significant emigration by the Chinese population, and this may have affected numbers, but the main reasons for the different growth rates of the populations of the main ethnic communities were probably their different geographical distrib- utions, income levels and traditions. The Chinese, long urbanised and enjoy- ing higher average incomes, now have smaller families; the Malay urban population is growing, but most families remain in rural areas.

Wage rates are rising fast Malaysia’s labour laws place limits on the formation and operation of trade unions, on the grounds that collective bargaining leads, among other things, to inflationary wage increases. However, after several years of fast growth and labour shortages, employers are bidding up wages without any pressure from unions. In the most industrialised areas there is high turnover of labour as workers move between jobs to the highest bidder and, as a result, average pay rates are rising faster than productivity. The effect is aggravated by employers who fail to provide training for their workers, but instead rely on poaching experienced workers from other companies, and provide for no subsequent increase in labour productivity. The government is concerned about the inflationary implications as well as the consequences of the trend towards filling lower-paid jobs by recruiting immigrant workers. This is an established practice in the construction and plantation sectors, which employ large num- ber of Indonesians, Bangladeshis and other immigrants.

Distribution of the labour force by occupation, 1995 (%) Professional & technical 10.3 Administrative & managerial 2.7 Clerical workers 10.1 Sales workers 11.3 Service workers 12.4 Agricultural labourers 21.0 Production workers 32.2 Source: Malaysia Five-Year Plan (1996-2000).

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 26 Malaysia: Education

Education

A long tradition of The government provides universal education up to secondary level, and there sending pupils abroad— is, in addition, a large number of private-sector schools and colleges. State tertiary educational institutions have been steadily expanded. There is a long tradition of sending pupils abroad for study, both on the part of families and on the part of the government. The numbers of children of secondary school age educated abroad and enrolments in private schools within Malaysia rose as a result of the switch to the use of Malay as the medium of instruction in all state secondary schools. Primary schools using Tamil and Mandarin Chinese continued to be maintained, originally for the benefit of ethnic-Indian and ethnic-Chinese families, although the ethnic background of children enrolled in Chinese primary schools is now more diverse.

—is supported by The government places great emphasis on raising the general level of educ- government programmes ational achievement and has long had extensive programmes for selecting and supporting Malaysian students at overseas colleges and universities. This in- cludes the provision of preparation courses before students leave Malaysia—the change to the educational use of Malay increased the importance of these courses, as most students were enrolled on courses overseas where the medium of instruction was English. Assistance mostly takes the form of soft loans, repayable when students graduate and take paid employment, although there is also some provision for some or all of an outstanding loan to be written off. Under the terms of the New Economic Policy (NEP), almost all government assistance was directed towards the children of bumiputera, and the largest single destination was the UK.

The row with the UK— However the preference for British colleges and universities waned in the wake of a row over increased fees at tertiary educational institutions in the UK for students not normally resident in the country. In response to this policy, introduced under the then prime minister, Margaret Thatcher, the Malaysian government introduced a policy of explicit discrimination against UK firms taking part in competitive tenders for government contracts in addition to switching assisted students to other English-speaking countries, mainly the USA and Australia, where it considered it would get better value for money. Although relations did improve, and Malaysian students began to take up places in the UK again, there was no return to the former heavy reliance on British colleges and universities.

—and the use of English as In 1994 Dr Mahathir signalled a partial reintroduction of the use of English. a medium of instruction Initially, he put the case for the use of English in medicine and certain tech- nical subjects in which up-to-date textbooks and research papers are over- whelmingly published in English. The government has also encouraged the growth of private schools and colleges using English. In addition, it is taking steps to upgrade the education system to render it more responsive to the needs of an economy which it hopes will undergo a far-reaching transformation during the lifetime of the Second Industrial Masterplan. The plan projects a tripling in the number of science and technology graduates and envisages incentives for foreign universities to set up campuses in Malaysia.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Malaysia: Health 27

Health

General improvement, but Healthcare provision has improved steadily. There was one doctor per regional differences 4,302 members of the population in 1970; in 1980 the ratio had improved to remain one per 3,568, and in 1995 it was one per 2,222. There remain wide geographi- cal variations in healthcare. Infant mortality rates for peninsular Malaysia as a whole fell from 24.0 per 1,000 live births in 1980 to 10.9 in 1995, but as recently as 1985 the rate had been 23 deaths per 1,000 live births in Kelantan, the mainly rural state in the north-east of the peninsula. Discrepancies also continue between urban and rural areas in public health provision, as symbol- ised by the supply of mains water, which was available to 96% of the urban population in 1991, but only to 66% of the rural population.

Natural resources and the environment

In the colonial period, economic development was dominated by tin mining and the cultivation of natural rubber, but there was a spread of other tropical products (such as timber, pepper and spices, and pineapple) helping to diver- sify export revenue. Depletion of the richest, lowest-cost tin deposits, rising labour costs and a period of low tin prices have combined to reduce local production and end Malaysia’s dominant position as the world’s largest pro- ducer of tin concentrates. However, it is still one of the world’s main centres of tin refining, although it has to supplement declining domestic mine output with imported concentrates.

Petroleum and natural gas Petroleum and natural gas are now more important mineral products, account- ing for export earnings of M$7.2bn and M$4.5bn respectively in 1996, com- pared with M$533m from tin. Both oil and natural gas are extracted from two main areas in the South China Sea, off Terengganu and off Sabah.

Rubber and palm oil Malaysia is no longer the world’s biggest producer of natural rubber, its declin- ing output having been overtaken by rising production in both Thailand and Indonesia in 1993. Plantation companies have been switching to the more profitable cultivation of oil palm for many years. Rising wage levels are now threatening the future profitability of oil palm cultivation: a large proportion of the unskilled labour on which the industry relies is now provided by immi- grants from poorer Asian countries. Nevertheless, Malaysia is still the world’s largest producer of palm oil.

Timber Malaysia has remained the world’s leading producer of tropical sawlogs. For some years its pre-eminence resulted partly from the flouting of controls on tree-felling by loggers. These controls are now being imposed more strictly and output has fallen. Bans on log exports, still in place on the peninsula, were originally imposed as much to encourage more downstream processing as to preserve the Malaysian rainforest. Controls are now linked to replanting, as the government has pledged to achieve a replacement rate of reafforestation early in the next century.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 28 Malaysia: Transport and communications

Domestic processing It has been the aim of successive Malaysian governments to raise earnings from all primary products, not only timber, by increasing the degree of domestic process- ing. The country now has large commodity-based industries: demand from its rubber goods manufacturers has reached the point where rubber must be imported because falling domestic output was fully committed to trading contracts.

Economic infrastructure

Transport and communications

A system under strain The provision of transport and communications infrastructure and services in Malaysia is of a high standard, but years of rapid growth have put more strain on it than it can bear. Urban roads, some trunk roads and the ports are congested. However, large-scale investments are being made to match provision to de- mand, with results that are already visible. Major toll road and port expansion projects have been completed (and more are under way), rail services are being upgraded (current work includes construction of a light-rail urban network serv- ing Kuala Lumpur) and the telephone system is being expanded. These develop- ments are reflected in the high sectoral growth rates of recent years. It is likely that these sectors will continue to grow faster than GDP as a whole over the medium term. (Reference table 10 provides a variety of transport indicators.)

The road network is being On independence, Malaysia inherited a trunk-road network and a mainline steadily improved— north-south railway system built to the high standards required for military deployment during the long “Emergency” of the 1950s and 1960s. Traffic generated by strong economic growth was already exceeding the capacity of the roads in the 1970s, and a high, seemingly ever-rising, level of spending on expansion and improvement has been maintained since then. Impatience with slow progress in the roadbuilding programme when it was in the hands of public agencies led the government to invite private groups to provide toll motorways. Under the Seventh Malaysia Plan (1996-2000) a total of 16,000 km of new roads are to be built; the public sector will spend M$9.8bn (US$3.9bn) on road development, while the private sector will provide M$17.5bn.

—but growth in port The country had been less well provided with facilities for seaborne trade. capacity has not matched There were long-established ports in the north at Penang-Perai and on the demand central west coast at Klang, but Singapore dominated long-haul trade in the colonial period—and it continues to maintain strong entrepôt trading links with Malaysia. There is now a larger deep-sea port capacity, including a number of new ports, on the peninsula and in Sabah and Sarawak, but it has been very hard to expand facilities in line with the extremely rapid increase in export flows.

A new international Rapid economic growth has also stimulated aircraft movements. The main airport airport, Subang, west of Kuala Lumpur, is being encroached on by housing and industry. A new international airport under construction at Sepang, further from the capital, is due to open on January 1, 1998. In addition, the latest five-year plan targets the expansion of the airports in Labuan and Langkawi.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Malaysia: Energy provision 29

Energy provision

Malaysia is well endowed with energy resources. It is a net exporter of oil and gas, which are extracted from beneath the bed of the South China Sea. Recep- tion installations in Terengganu handle the oil and gas extracted from fields a few kilometres east of the peninsula; other fields are located north of Sarawak and around the coast of Sabah. Coal is mined in Sarawak, and the high rainfall and rugged topography in both peninsular Malaysia and in Sarawak and Sabah provide extensive scope for hydroelectric power, much of which has still to be exploited. (Reference table 11 provides some national energy statistics.)

Power contracts awarded One result of rapid industrial development was that demand for power ran to the private sector ahead of the capacity to generate and distribute it. The former problem was resolved by the awarding of contracts in the early 1990s to private consortia, known as Independent Power Providers (IPPs), to build and operate power stations to feed the national grid. Largely as a result, potential supply now exceeds peak demand by about 50%. Recent power interruptions have been due to failures in the distribution system, which Tenaga Nasional, the state- controlled utility, is hoping to rectify by substantial investments during the coming years.

Hydroelectric schemes Most of the IPP stations use natural gas from small fields or associated oilfield gas (which would otherwise be flared wastefully) in combined-cycle gas-turbine generators. The World Bank has recommended maximum exploitation of this resource before Malaysia builds any more large hydroelectric stations. Never- theless, the government is proceeding with two very large hydroelectric schemes which involve the displacement of aboriginal families and the clear- ing and flooding of large areas of virgin rainforest, and which have been the subject of particular controversy.

Energy balance, 1996 (m tons oil equivalent) Oil Gas Coal Electricitya Other Total Primary supply Primary production 34.5 31.8 0.1 1.8b 2.4 70.6 Imports 11.0 0.0 1.4 0.0b 0.0 12.4 Exports –27.0 –17.3 0.0 0.0b 0.0 –44.3 Stock exchange 0.0 0.0 0.0 0.0b 0.0 0.0 Total 18.5 14.5 1.5 1.8b 2.4 38.7 Processing & transformation Losses & transfers 1.4 6.0 0.0 0.6 0.0 8.0 Transformation output 14.0 0.0 0.0 4.6c 0.0 18.6 Final consumption Transport fuels 7.8 0.0 0.0 0.0c 0.0 7.8 Industrial fuels 4.5 0.6 0.6 2.1c 0.1 7.9 Residential fuels 1.5 0.3 0.0 1.9b 2.3 6.0 Non-energy uses 1.4 1.4 0.0 0.0 0.0 2.8 Total 15.2 2.3 0.6 4.0c 2.4 24.5 a Primary electricity output, imports and exports are expressed as input equivalents, on an assumed generating efficiency of 33%. b Input basis. c Output basis.

Source: Energy Data Associates.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 30 Malaysia: Financial services

One of these schemes, on the River Pergau in the north-east peninsular state of Kelantan, is being built by British contractors who were awarded the tender for the work because the UK government offered a heavily subsidised loan out of aid funds to finance it.

The second of the large hydroelectric schemes, the 2,400-mw Bakun dam pro- ject in Sarawak, is more ambitious and technically much more difficult. It requires the flooding of an area of virgin forest larger than Singapore island. Power demand in Sarawak and the adjacent area will be quite insufficient to absorb the output. It is proposed to transmit the power to peninsular Malaysia via a 1,200-km cable, 650 km of which will run under the sea.

Financial services

Banking sector is well Malaysia has a fully developed range of commercial banks, merchant (invest- developed ment) banks and finance companies. A total of 36 commercial banks are cur- rently licensed. Sixteen of these are subsidiaries of international banking groups, some of them long-established in the country. Under a “Malaysian- isation” programme, these were incorporated locally, a process completed by October 1994. Commercial banks have generally enjoyed profitable expansion during the period of rapid economic growth, but competition has increased in recent years as a result of deregulation, and this has obliged banks to expand non-interest sources of income. (Reference table 12 provides historical data on banks’ assets and liabilities.)

Ample provision for losses Although there have been some cases of bad debts and non-performing loans, as well as instances of fraudulent trading, during the economic boom, the system has ample provision for any likely level of write-offs; and the banks have had no difficulty in observing or exceeding the requirement of Bank Negara Malaysia (the central bank) to provide 1% of outstanding loans to cover for these risks. Bank Negara requires banks to maintain a minimum risk- weighted capital ratio (RWCR) of 8%; the average for commercial banks at the end of 1995 was 11.5%.

“Reasonable cost” loans Malaysian banks are required to provide loans “at reasonable cost” to priority sectors; from April 1994 these comprised all bumiputera groups, low-cost housing and small-scale enterprises. Since March 1996 banks have had to extend loans equivalent to 20% of their outstanding loans at the end of 1992 to bumiputera borrowers; they are required to have loans outstanding to individuals (regardless of race) for the purchase of at least 75,000 housing units, each costing M$100,000 or less; and they must have loans of at least M$80m, half of them to bumiputera enterprises, outstanding via the Credit Guarantee Corporation (CGC), the government body which backs small and medium-sized companies.

Strengthening local banks With the government committed under World Trade Organization (WTO) agreements to free trade in services early in the next decade, Bank Negara is acting to forge a core group of domestic banks capable of competing effectively with foreign players in the liberalised local and regional markets. This exercise began in 1994 with the division of banks into two categories, Tier One and Tier

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Malaysia: Other services 31

Two. To qualify for Tier One status banks are required to meet a number of criteria relating to capital adequacy, asset quality, management efficiency, earnings performance and liquidity. At the end of 1996 eleven banks had made the grade. This carries certain privileges lesser banks do not enjoy, including the right to issue negotiable instruments, participate in equity derivatives and share borrowing, and to expand overseas. Bank Negara hopes to facilitate the emergence of no more than a handful of resilient, well-capitalised institutions by encouraging a wave of mergers and takeovers resulting from increasingly restrictive sets of conditions.

The promotion of Islamic The government is promoting Islamic banking in parallel with the traditional, banking commercial banking system and in 1996 took several steps to boost this sector. In late 1996 a total of 46 financial institutions (24 commercial banks, 19 finance companies and three merchant banks) were offering Islamic banking services under the interest-free banking system. Although Islamic operations still con- stitute only a small proportion of total business (as of July 1996 “Islamic” deposits amounted to M$5.6bn, about 2% of toal deposits in the financial system), Malaysia has achieved more than most other Islamic countries in this respect, and its developments are regarded as models by them.

Capital market The government is making a bid for Kuala Lumpur to become a regional finan- liberalisation cial centre. In June 1995 a wide range of measures liberalising the Malaysian capital market was introduced. These included the lowering of commission rates on the Kuala Lumpur Stock Exchange (KLSE), the easing of controls on loans secured against shares and less stringent conditions for overseas fund managers. Overseas funds can now set up 100% subsidiaries for conducting non-Malaysian business, and rules on work permits for expatriate staff have been relaxed. Foreign fund managers will no longer be excluded from handling domestic funds such as the Employees’ Provident Fund (EPF), which now has total assets in excess of M$100bn. Capitalisation of the KLSE (M$807bn at the end of 1996) is already larger than that of any other exchange in South-east Asia, but the government in Kuala Lumpur has lagged behind Singapore in opening up the exchange to overseas brokers. Foreign brokers have to put KLSE trades through local firms, for which they have to pay a fee. However, in April 1997 the regulatory Securities Commission authorised the primary listing of foreign companies on the KLSE, albeit laying down tight conditions. Appli- cants are required to have at least 50% of their operations outside the country and a similar proportion of their capital held by Malaysians. (Reference table 13 includes some historical data on the stock exchange.)

Other services

Services (including financial services) accounted for 44.7% of GDP in 1996, making it the largest single sector. Activity in the services sector as a whole has generally risen faster than overall GDP, increasing by over 9% annually in 1993-96. This reflects the success of official policies to promote the sector so as to boost exports and encourage import substitution.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 32 Malaysia: Manufacturing

Retail services Turnover in the retailing and catering sector, which at 12.4% of GDP in 1996 forms the largest subsector of the services sector, fluctuates widely with move- ments in the rate of growth of personal consumption. Retail turnover rose by 21.1% in 1995, compared with a rise of 7.5% in 1994, and a decline of 1.4% in 1993.

Tourism A steady expansion in tourism and business travel throughout the 1990s— partly due to increased government support—has helped to offset this effect. Following the formation of the Ministry of Tourism in 1987 the government sponsored two “Visit Malaysia” years, one in 1990 and one in 1994. As a result of the campaign, tourist arrivals rose by 12%, from about 6.4 million in 1993 to 7.2 million in 1994. Investment in the tourism industry has been most evident in the rapid expansion in hotel accommodation; the number of hotels nation- wide rose by 4.6% to 1,276 in 1996.

Production

Manufacturing

There was already a long history of investment in import-substitution indus- tries and an established policy of building industries based on increased inter- nal processing of output from domestic primary industries when, over 20 years ago, the government set out to build up export-oriented manufacturing capac- ity based on inward direct investment.

The manufacturing sector, 1996 (%) Output growth 12.2 of which: export-oriented 9.9 domestic-oriented 14.8 Share of labour force 27.0 Share of total outstanding loans 16.7 Capacity utilisation 80 Source: Bank Negara Malaysia, Annual Report.

Industrial investment While the government aims to stimulate inward investment, all industrial remains subject to an projects are subject to an approval system, operated through the Malaysian approval system Industrial Development Agency (MIDA). This involves vetting equity stakes, financing, technology transfer, local content and, increasingly, the products and processes concerned. In the past the government seemed ready to welcome any investment promising industrial employment, but it now acknowledges that skilled and semi-skilled workers constitute an increasingly scarce resource: the average unemployment rate was down to 2.6% in 1996 and is lower than this in some urban areas. MIDA no longer grants approvals to low-productivity industries, and the government is encouraging existing low-productivity industries to relocate in Thailand or Indonesia. In this respect, Malaysia is following a pattern set by development authorities in Singapore 20 years ago. (Reference table 14 details changes in the output of the manufacturing sector.)

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Malaysia: Mining and semi-processing 33

Mining and semi-processing

Main minerals products, 1996

Crude oil (’000 b/d) 715.2 Liquefied natural gas (m standard cu ft/d) 3,374 Tin (’000 tons) 5.2 Copper (’000 tons) 86 Source: Bank Negara Malaysia, Annual Report.

Crude oil output and Minerals output accounts for over 40% of Malaysia’s industrial production, but refining most of the total is made up of petroleum and natural gas (marketed as liquefied natural gas, LNG). In recent years, about 60% of crude oil output has been produced by platforms off Terengganu. A new oilfield off Sarawak helped to raise that region’s share of total output to 29%, the balance being produced off Sabah. Crude oil output had been stable at around 650,000 barrels/day (b/d) in recent years, but the addition of the new production platform off Sarawak (the 13th in Sarawak and the 33rd in Malaysia as a whole), helped to boost output to over 715,000 b/d in 1996. Oil refining capacity has been expanding steadily. During 1995 four long-established refineries (two in Port Dickson, one in Lutong and one at Kerteh) and a new one, which opened in Malacca in 1994, processed about 330,000 b/d of crude oil, 92.5% of which was of domestic origin.

Gas In contrast with the relative stability of crude oil output, production of natural gas tripled between 1990 and 1995, and rose by a further 20.4% to 3,374m standard cu ft in 1996. The marketing of this greatly increased production was possible because of a large export-oriented project (Malaysia Liquefied Natural Gas Dua) serving mainly Taiwan and South Korea, and higher offtake by a number of gas-fired power stations—Tenaga Nasional now runs seven, and four gas-fired Independent Power Providers (IPPs) have been commissioned since 1994—and by the Public Utilities Board of Singapore. (Reference table 15 in- cludes historical data on minerals production.)

Tin and other minerals Malaysian output of tin concentrates still reflects the precipitous decline in mining activity that resulted from the chronic surplus in tin supply in the mid-1980s. The 5,174 tons of tin in concentrate produced in 1996 (19% down on 1995) were derived from only 40 units of all types, compared with the 141 units in operation as recently as 1990. However, a shortage in domestic sup- plies resulted in a 54.7% rise in imports of tin in concentrate in 1996.

Malaysia’s other main minerals operation is the Mamut copper mine in Sabah. After operating at a rate of just over 100,000 tons of copper annually for some years, output fell in 1996 to 82,000 tons (copper content). Iron ore output rose 57.6% to 291,000 tons. Production at a second bauxite ore body began in 1995, raising output by 6.1% to 184,000 tons in that year, and by a further 18.6% to 219,000 tons in 1996.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 34 Malaysia: Agriculture, forestry and fishing

Agriculture, forestry and fishing

Output in the agricultural, forestry and fisheries sectors taken together has sustained an annual growth rate of around 2.5% over the last four years. However, the relative importance of these rural-based sectors within the eco- nomy as a whole has declined because of the rapid growth of the industrial and services sectors. (Reference table 16 gives historical data on agricultural and forestry production.)

The most important activities are:

• subsistence or domestic food production (fisheries and the cultivation of rice being the most important subsectors);

• plantation crops for international markets, of which rubber, palm oil, cocoa, fruits, pepper and coconut oil are the leading ones; and

• timber.

Each category operates under its own particular constraints.

Agriculture and forestry production, 1996

Palm oil (’000 tons) 8,386 Rubber (’000 tons) 1,084 Sawlogs (’000 cu metres) 30,304 Source: Bank Negara Malaysia, Annual Report.

Rice Production of padi-rice, once the dominant subsistence crop of Malay farmers, has been threatened by the general drift to the towns, competing uses for land and competition for labour from manufacturing industry. The government has a number of schemes for raising yields and productivity. These have had some success in a few areas, by improving pest control, consolidating small cultivated areas and generally improving farm management. However, their net effect has been only to slow down the decline in output, which stagnated at 2.1m tons in 1996. Malaysia is now a net importer of rice. It imported 427,600 tons in 1995, about one-fifth of national consumption, at a cost of M$356m. The balance of payments would benefit if Malaysian padi farmers were to increase production to a self-sufficiency level. As a potent symbol of traditional Malay life, padi production continues to attract special government help. However, it is no serious disadvantage for Malaysia to depend on imports for a proportion of its needs. Thailand and Vietnam are important surplus countries in the region where agricultural labour and other production costs are lower than in Malaysia.

Natural rubber Natural rubber is Malaysia’s longest established, large-scale agricultural prod- uct. Although refinements in plant breeding and biological controls have raised yields and enabled growers to manipulate output, the availability of cheap or family labour is crucial to productivity levels. Plantation companies rely increasingly on immigrant labour, and have steadily converted plantings to more profitable oil palm. The main source of output is now the smallholder sector. Production has been declining since the late 1980s, and amounted to 1.1m tons in 1996. (For detailed information on Malaysia’s rubber see EIU’s quarterly publication, Rubber Trends.)

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Malaysia: Construction 35

Palm oil The palm oil sector also recruits workers from low-wage countries in the region because of the difficulties in competing for labour with manufacturing ind- ustry. Despite the difficulties, output of palm oil and from industries based on palm oil continues to expand. World sales of palm oil have grown, partly because incomes have been rising in countries where there remains market potential for edible oils (in the developed countries consumption per head of vegetable oils and fats has reached a plateau) and partly because palm oil has been able to take market share from other oils and fats. Attempts have been made by producers of other oilseeds, particularly in the USA, to associate health risks with palm oil, but these have failed. On the contrary, palm oil has gained from a perception that it is a healthy alternative to animal fats and the products of some other oilseeds, and it is also favoured because it is not pro- scribed by any religious dietary rules (an important selling point in Pakistan, India and the Central Asian republics).

Tropical timber Malaysia is pre-eminent as a supplier of tropical timber. It has frequently been criticised for allowing the destruction of its rainforests by logging companies. In the interests of maximising income from forest products it gradually ex- tended the banning of direct export of sawlogs from all states except Sarawak (although in the case of Sabah, the embargo was partly lifted in late 1996). It has also increased statutory and administrative controls on logging and has begun to enforce the conditions applying to logging licences more strictly (including requirements for reafforestation). As a result, log production has fallen, affecting both exports and output of sawn timber within Malaysia. As the country has been such an important source of supply, this decline had until recently put upward pressure on the international prices of both logs and sawn timber, which had mitigated the effect on export earnings. In the past two years however, the export unit value of sawlogs declined, owing mainly to reduced demand for sawlogs in Japan.

Construction

Construction has been an important contributor to GDP growth during various periods of Malaysia’s history. The sector expanded strongly in the late 1970s and early 1980s, as a result of rising demand for housing and various large-scale public infrastructure projects. The sector’s growth slowed in 1984, however, as tighter controls were placed on government expenditure, and the number of housing starts in peninsular Malaysia contracted in 1987-88. Since 1989 growth in the sector has been strong, with continued increases in residential starts accompanied by rapid expansion of non-residential work. (See Transport and communications for details of infrastructure projects, and Reference table 17 for historical data on construction starts and completions.)

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 36 Malaysia: Merchandise trade

The external sector

Merchandise trade

Export growth has been International merchandise trade has already played an important role in the matched by increasing past, when the country depended mainly on the export of raw materials. This imports openness has increased as the country has industrialised, because indus- trialisation has been based on the rapid development of export-oriented manu- facturing industries and on imported inputs. As many of the fastest growing production lines, particularly in the electronics sector, were set up on the basis of low local content, the bill for the import of manufactures has risen as well as revenue from exports. Malaysia’s exporters have been very successful in achiev- ing rapid increases in sales, and maintaining expansion during the recent period of slow growth in world trade, but their own import requirement has been rising at much the same rate.

Foreign trade, 1996 (M$ m) Exports (fob) Electronic components 35,233 Electrical appliances 8,920 Other electrical machinery 60,038 Textiles, clothing & footwear 6,906 Processed palm oil 9,266 Crude petroleum 7,212 Total incl others 196,692 Imports (cif) Intermediate goods for manufacturing 75,956 Machinery 21,035 Metal products 11,615 Transport equipment 9,038 Consumer durables 5,456 Total incl others 197,310 Source: Bank Negara Malaysia, Annual Report.

In most years in the recent past Malaysia has run a small surplus in merchan- dise trade, and a large and growing deficit on the invisibles account, reflecting the high import content of exports and the limited development of the dom- estic services sector. However, having deteriorated in 1994 and 1995, the visi- bles trade position improved significantly in 1996 owing mainly to a sharp deceleration in import growth (to 2.6%) relative to that of exports (7.3%). The trend reflected a virtual stagnation in imports of investment goods—partly attributable to slowing international demand for electronics products—as well as weaker demand for intermediate and consumption goods. (Reference tables 18 and 19 give exports and imports divided up by main commodity groups, by value; Reference tables 20 and 21 give exports and imports by type of goods.)

The strong yen has The government has been especially sensitive to the impact of imported implications for import supplies on Malaysia’s trade position, because a large proportion is bought costs from Japan, much of this total under yen contracts. The long-term aim of the Malaysian government to increase the domestic content of goods made with

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Malaysia: Merchandise trade 37

overseas investment and technology has in a number of cases been frustrated by the failure of Japanese partners to transfer the necessary technology. Without elaborate and difficult design changes, Malaysian production lines are obliged to continue to buy in parts from Japan, almost regardless of costs.

Already a source of irritation, this was transformed into a serious grievance as the yen appreciated, spurring the government to set higher domestic content requirements on new investment applications to the MIDA in the electronics sector. It also stepped up the drive to seek substitute designs for Japanese parts used in other manufactures—most notably for the “national car”, the Proton. Both Citroën and the Rover Group were approached for help in this respect, and in late 1996 Proton bought Lotus, the struggling but prestigious UK car manufacturer, for M$210m. However, during 1996 the ringitt appreciated by 13.5% against the yen, translating into cheaper imports from Japan and con- tributing to an 8.9% decline in Japanese imports, to M$48.4bn. (Reference table 22 gives a full listing of main trading partners.)

Trade with the USA The USA is the second most important source of imports, selling in 1996 goods worth M$30.5bn, 4% less than in 1995. Malaysia’s exports to the USA fell by 6.5% to M$35.8bn, allowing Singapore to regain the position it lost to the USA in 1994 as Malaysia’s biggest market. Singapore purchased M$40.3bn of Malaysian goods in 1996, some 7.2% more than in the previous year.

ASEAN trade relations are After Japan and the USA, Malaysia’s imports in 1996 were mainly sourced from dominated by Singapore its partners within the Association of South-east Asian Nations (ASEAN), from other Asia-Pacific countries and from the EU. Singapore, the USA and Japan are the main destinations for exports. Exchanges within ASEAN have been grow- ing, and Malaysia has had a consistently strong surplus with the grouping. The totals in both directions are dominated by Singapore, from which Malaysia received 13.3% of its imports and to which it sent 20.5% of its exports in 1996. Given the size of the Singapore economy, exchanges on this scale are likely to include large quantities of entrepôt trade.

Main trading partners, 1995 (% of total) Exports to: Imports from: Singapore 20.5 Japan 24.5 USA 18.2 USA 15.5 Japan 13.4 Singapore 13.3 Hong Kong 5.9 South Korea 5.2 Taiwan 4.1 Taiwan 5.0 Thailand 4.1 Germany 4.3 Source: Bank Negara Malaysia, Annual Report.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 38 Malaysia: Invisibles and the current account

Invisibles and the current account

The current account, 1996 (US$ bn unless otherwise indicated) Merchandise exports 76.4 Merchandise imports –73.0 Trade balance 3.4 Invisibles credits 17.3 Invisibles debits 24.7 Invisibles balance –7.4 Net transfers –1.1 Current-account balance –5.1 Source: Bank Negara Malaysia, Annual Report.

(Reference tables 23 and 24 provide full breakdowns of the balance of pay- ments, on the bases of IMF and national calculations.)

Malaysia has a large deficit in invisibles trade. The two largest categories of net payments are both a product of the successful industrialisation drive: they are investment income, mainly from foreign direct investment (FDI), and services associated with merchandise trade (insurance and freight).

Investment income deficit The deficit on the investment income account—M$11.6bn of a total services is substantial deficit of M$18.8bn in 1996—somewhat overstates the position. Bank Negara Malaysia (the central bank) treats all profits on the overseas equity of FDI ventures as if they are payments across the exchanges, even if they are retained and reinvested. Such reinvestments are then treated as capital inflows, which totalled M$11.3bn in 1996. On the other hand, the net figure conceals the scale of gross profits due to non-residents. These were M$16.8bn in 1995 and M$17.8bn in 1996.

A large and growing flow of profits to overseas equity holders is the inevitable consequence of an FDI-financed industrialisation programme. Rising remit- tances from overseas investment by Malaysian companies may reduce the net size of the deficit, but as the government has relaxed rules which formerly limited the proportion of equity in approved investments non-residents were allowed to own, gross profits due to non-residents could rise still faster.

Transport services growth The weakness in Malaysia’s trade-related services is of long standing, but has fails to keep up with trade been highlighted recently by rapid export growth. Local companies providing turnover services, such as the Malaysian International Shipping Company (MISC), have expanded, but not as fast as trade.

Demand for shipping services was not advancing in exact proportion to the expansion of trade—as unit values were rising, the value of trade increased faster than the total tonnage—but it was rising more rapidly than local supply. This contributed to the widening deficit on the freight and insurance compo- nent of the services account, from M$7.4bn in 1994 to M$8.8bn in 1995, although it fell back to M$8.5bn in 1996.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Malaysia: Capital flows and foreign debt 39

Capital flows and foreign debt

International Malaysia has a low rate of international indebtedness on both official and indebtedness is low private account. The government has established a habit of advance payment (prepayment) of official debt, which has reduced the burden of debt servicing still further. The effects of the rapid rise in the yen, which was reversed to a limited extent in the past two years, has been much less of an extra burden on Malaysia than on other ASEAN countries because only a relatively small pro- portion of the country’s debt (16% at end-1996) is denominated in yen. The government has long been sensitive to the exchange risk of yen loans, and has tried to hold down borrowing from Japanese sources, particularly because Japanese institutions have insisted on lending only on a yen basis, despite repeated requests for loans to be denominated in a basket of currencies. (Refer- ence table 25 sets out World Bank data on debt, while Reference table 26 covers aid commitments.)

Restrictions on hot The Malaysian government’s assistance to both domestic and foreign-owned money flows industry, its success in attracting FDI and its careful financial management have all helped to sustain a net inward flow of private long-term capital, which has enabled the country to reduce its external debt. However, as the 1990s pro- gressed, the same features of the economy attracted hot money and speculative investment funds. Early in 1994 Bank Negara imposed temporary restrictions and penalties on the holding of domestic ringgit accounts and short-term debt instruments by non-residents. There followed large net withdrawals of short- term funds—M$8.5bn in total in 1994, following net inflows in each of the four previous years. The situation was reversed in 1995 and 1996 when private short- term inflows amounted to M$2.4bn and M$11.2bn respectively. Net long-term capital inflows, having risen from M$11.9m in 1994 to M$16.2m in 1995, fell back to M$12bn in 1996. External borrowings by non-financial public enter- prises declined from M$10bn in 1995 to M$8.1bn in 1996.

Foreign debt, 1996

Total debt (M$ bn) 72.6 % of GDP 55.8 Total debt-service ratio (%) 5.2 Interest-payments ratio 1.7 Source: Bank Negara Malaysia, Annual Report.

Foreign reserves and the exchange rate

Foreign reserves are Malaysia recorded a surplus on the overall balance of payments in 1996, after substantial two years in which deficits on both the current and capital account obliged Bank Negara to draw down foreign exchange reserves. At M$70bn (US$27.1bn), reserves of gold and foreign exchange were below Malaysia’s total identified external debt of M$72.6bn, and were equivalent in value to over four months’ retained imports. Holdings of special drawing rights (SDRs) have increased because Malaysia has in recent years been a net creditor of the IMF, and re- ceived quasi-interest in the form of increased drawing rights. (Reference table 27 provides information on foreign reserves.)

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 40

Comparative economic indicators, 1996

Gross domestic product Gross domestic product per head $ bn $

South Korea 490.1 Singapore 30,857

Taiwan Hong Kong

Indonesia Taiwan

Thailand South Korea

Hong Kong Malaysia

Thailand Singapore

Philippines Malaysia

Indonesia Philippines

Vietnam Vietnam

Brunei (a) Brunei (a) 0 5,000 10,000 15,000 20,000 0 100 200 300

(a) Not available. (a) Not available. Sources: EIU estimates; national sources. Sources: EIU estimates; national sources.

Consumer prices Gross domestic product % change, year on year % change, year on year

Philippines Vietnam

Indonesia Malaysia

Vietnam Indonesia

Hong Kong Singapore

South Korea Thailand

Thailand South Korea

Taiwan Malaysia

Philippines Taiwan

Hong Kong Brunei Brunei (a) Singapore 0246810

0246810 (a) Official estimate, 1995. Sources: EIU estimates; national sources. Sources: EIU estimates; national sources.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997

42 Malaysia: Foreign reserves and the exchange rate

Few controls on foreign All payments to non-residents, including repatriation of invested capital (in- exchange transactions cluding reinvested profits) and profits and dividends from either direct or portfolio investments, are freely permitted through authorised dealers (al- though some transactions with Israel may require approval from Bank Negara). Banks are required to seek approval from the governor of the central bank for payments in respect of investments in securities or immovable property abroad. The use of domestic borrowing to finance investments abroad is gener- ally not encouraged. Under the package of exchange control liberalisation measures introduced in December 1994 residents, who had previously been required to sell the proceeds of export sales to Bank Negara for ringgit, were allowed to retain a proportion in new foreign currency accounts with selected local banks. This package, plus a June 1995 measure which liberalised the capital markets, have enhanced the efficiency of cross-border transactions.

Bank Negara and the The international value of the ringgit is managed by Bank Negara in relation to ringgit an international basket of currencies, but with allowance for some appreciation reflecting the underlying strength that it owes to Malaysia’s buoyant export performance and high rate of capital inflows. There were wide fluctuations in the value of the currency during 1993-94—a strong rise followed by a sharp fall—because of the inward flows of investment and speculative funds men- tioned above, and Bank Negara’s subsequent restrictions on non-resident hold- ings. Most of the measures were dismantled from late 1994 onwards, but speculative funds have not returned. Fundamental factors resulted in a gradual strengthening of the ringgit against the US dollar until July 1995 when the yen started to fall against the US dollar and the ringgit followed it. The ringgit stood at M$2.54:US$1 at the end of the year but strengthened to M$2.50:US$1 during the first half of 1996 before falling back to M$2.52:US1 by the year’s end. (Reference table 28 provides historical data on exchange rates.)

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Malaysia: Sources of information 43

Appendices

Sources of information

National statistical sources Bank Negara Malaysia, Annual Report, Kuala Lumpur

Bank Negara Malaysia, Monthly Statistical Bulletin, Kuala Lumpur

Department of Statistics, External Trade Summary, Kuala Lumpur

Department of Statistics, Survey of Manufacturing Industries, Kuala Lumpur

Department of Statistics, Yearbook of Statistics, Kuala Lumpur

Economic Planning Unit, Seventh Malaysia Five-Year Plan (1996-2000)

Malaysian Industrial Development Agency (MIDA), Statistics on the Manufacturing Sector, Kuala Lumpur

Ministry of Finance, Economic Report (annual), Kuala Lumpur

International statistical Bank for International Settlements, International Banking and Financial Market sources Developments (quarterly)

IMF, International Financial Statistics (monthly)

International Institute for Strategic Studies, Military Balance (annual)

OECD, Financial Statistics (monthly)

OECD, Geographical Distribution of Financial Flows to Developing Countries (annual)

UN, Monthly Bulletin of Statistics

UN, World Investment Report (annual)

World Bank, World Debt Tables (annual)

World Bank, World Development Report (annual)

Select bibliography H Crouch, Government & Society in Malaysia, Cornell University Press, Singapore, 1996

C de Ledesma et al, Malaysia, Singapore & Brunei: The Rough Guide, Penguin, Harmondsworth, 1995

Economist Intelligence Unit, Malaysia to 2003: From redistribution to growth, London, 1994

K M Endicott, An Analysis of Malay Magic, Oxford University Press, Oxford, 1991

E T Gomez, Political Business, James Cook University, Queensland, 1994

Government of Malaysia, Information Malaysia Yearbook, Kuala Lumpur

R Karim, Ceritalah, Times Books, Kuala Lumpur, 1996

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 44 Malaysia: Reference tables

B T Khoo, Paradoxes of Mahathirism, Oxford University Press, New York, 1995

M Mahathir, The Challenge, Pelanduk, Petaling Jaya, 1986

M Mahathir, The Malay Dilemma, Times Books, Singapore, 1970

V S Naipaul, Among the Believers, Penguin, Harmondsworth, 1982

R O’Hanlon, Into the Heart of Borneo, Salamander, Edinburgh, 1984

UNIDO, Malaysia: Sustaining the Industrial Investment Momentum, Vienna, 1991

A R Wallace, The Malay Archipelago, Macmillan, London, 1869

Reference tables

Reference table 1 Government financesa (M$ bn unless otherwise indicated) 1993 1994 1995 1996b 1997c Total revenue 41.7 49.4 51.0 58.3 61.1 Tax revenue 31.9 37.5 41.7 47.3 n/a Direct taxes 17.1 20.2 22.7 25.9 n/a Indirect taxes 14.8 17.3 19.0 21.4 n/a Non-tax revenue 9.8 12.0 9.3 11.0 n/a Total expenditure 41.3 45.0 49.1 56.5 56.8 Operating expenditure 32.2 35.1 36.6 43.9 41.7 Development expenditure 9.1 10.0 12.5 12.6 15.1 of which: surplus over operating expenditure 9.5 14.4 14.4 14.4 19.4 Balance 0.4 4.4 1.9 1.8 4.3 GNP at current market prices 153.5 176.4 208.1 237.8 268.8 Overall balance (% of GNP) 0.2 2.5 0.9 0.8 1.6

a Federal budgets. b Preliminary. c Projected.

Source: Bank Negara Malaysia, Annual Report 1996.

Reference table 2 Money supply (M$ m unless otherwise indicated; end-period) 1992 1993 1994 1995 1996 M1 30,395 41,792 46,472 51,924 61,431 % change 13.0 37.5 11.2 11.7 18.3 M2 114,481 139,800 160,367 198,873 240,429 % change 19.1 22.1 14.7 24.0 20.9 M3 159,178 196,611 222,330 271,948 333,613 % change 19.6 23.5 13.1 22.3 22.7 Source: Bank Negara Malaysia, Monthly Statistical Bulletin.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Malaysia: Reference tables 45

Reference table 3 Interest rates (%; end-period unless otherwise indicated) 1992 1993 1994 1995 1996 US$ 3-month commercial paper (average) 3.8 3.2 4.7 5.9 5.4 3-month interbank (average) 8.0 6.5 5.5 6.8 7.4 3-month government securities 7.1 5.0 4.6 5.9 6.4 Retail banking base lending (average) 9.3 8.2 6.8 8.0 9.2 Retail banking savings deposits (average) 3.3 4.0 3.5 3.7 4.1 Sources: Bank Negara Malaysia, Annual Report; IMF, International Financial Statistics.

Reference table 4 Gross domestic product

1992 1993 1994 1995 1996 Total (M$ bn) At current prices 147.8 161.8 190.3 218.7 246.8 At constant (1978) prices 93.1 100.6 109.9 120.3 130.2 Real growth (%) 7.8 8.3 9.2 9.5 8.2 Per head (M$ ’000) At current prices 7.9 8.4 9.5 10.6 11.7 At constant (1978) prices 5.0 5.3 5.5 5.8 6.1 Real growth (%) 5.3 5.5 3.8 6.4 5.6 Sources: Bank Negara Malaysia, Annual Reports; Ministry of Finance, Economic Reports.

Reference table 5 Gross domestic product by expenditure (M$ bn; current prices) 1992 1993 1994 1995 1996 Private consumption 75.1 81.3 92.6 104.7 117.0 Government consumption 19.3 21.6 23.9 27.6 28.0 Gross fixed investment 53.5 63.4 76.3 94.1 104.4 Net exports of goods & non-factor services 2.0 –0.2 –3.0 –8.2 1.6 Change in stocks –1.4 –0.9 0.5 0.5 –1.4 GDP 148.5 165.2 190.3 218.7 249.6 Source: Bank Negara Malaysia, Annual Report 1996.

Reference table 6 Gross domestic product by sector (M$ m; constant 1978 prices) 1992 1993 1994 1995 1996 Agriculture 15,468 16,205 16,047 16,230 16,616 Mining 8,075 8,039 8,241 8,979 9,325 Manufacturing 26,859 30,324 34,782 39,825 44,664 Construction 3,619 4,023 4,589 5,385 6,085 Services 40,430 44,394 48,711 53,303 58,159 Total GDP (less bank charges plus import duties) 92,866 100,617 109,915 120,308 130,226 Source: Bank Negara Malaysia, Annual Report.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 46 Malaysia: Reference tables

Reference table 7 Prices and earnings

1992 1993 1994 1995 1996 IMF consumer price index (1990=100) 109.3 113.2 117.4 123.6 128.0 % change 4.7 3.6 3.7 5.2 3.6 National consumer price index (1994=100) 93.1 96.4 100.0 103.4 107.0 % change 4.7 3.5 3.7 3.4 3.5 Sources: Bank Negara Malaysia, Annual Report; Ministry of Finance, Economic Report; IMF, International Financial Statistics.

Reference table 8 Population

1992 1993 1994 1995 1996 Population (m) 19.1 19.7 20.1 20.7 21.2 % change 2.4 2.6 3.1 2.0 3.0 Source: Bank Negara Malasysia, Annual Report.

Reference table 9 Labour force (’000) 1992 1993 1994 1995 1996a Total employed 7,096 7,396 7,618 7,915 8,180 Agriculture, forestry & fishing 1,738 1,680 1,585 1,429 1,376 Mining 37 36 36 41 42 Manufacturing 1,639 1,742 1,892 2,052 2,209 Wholesale & retail trade 1,382 1,292 1,318 1,330 1,350 Finance, insurance & business services 300 332 352 379 395 Transport & communications 326 344 366 395 420 Government services 858 864 868 872 877 Other services 262 514 542 687 732 Construction 507 544 598 659 705 Electricity, gas & water 47 48 61 71 74 Unemployed 301 231 216 225 218 Total labour force 7,370 7,627 7,834 8,140 8,398 a Estimates.

Source: Bank Negara Malaysia, Annual Report.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Malaysia: Reference tables 47

Reference table 10 Transport statistics

1991 1992 1993 1994 1995 Rail Passenger journeys (’000) 8,307 8,199 7,057 5,988 5,722 Passenger train-km (’000) 4,128 4,240 4,238 n/a n/a Freight train-km (’000) 3,858 3,058 2,834 n/a n/a Goods traffic (’000 tons) 4,367 3,572 3,326 5,234 5,294 Length of track (km) 1,777 1,777 1,777 1,791 1,791 Road Registrations at year-end (’000) 5,917.7 6,315.8 6,722.4 6,166.4 6,802.4 Cars 1,986.8 2,117.2 2,254.8 2,284.0 2,532.4 Motorcycles 3,257.5 3,477.8 3,707.5 3,257.4 3,564.8 Goods vehicles 418.1 447.0 470.1 389.3 430.7 Other vehicles 255.3 273.8 290.1 235.7 274.5 New registrations (’000) 437.9 393.7 383.9 510.4 635.9 Cars 166.5 128.2 130.1 179.3 248.4 Motorcycles 218.5 219.1 217.5 281.8 307.3 Goods vehicles 33.7 28.7 21.5 27.2 41.4 Other vehicles 19.2 17.9 14.9 22.1 38.7 Air traffic Aircraft movements (’000) 317.3 381.1 372.7 383.7 n/a Domestic 260.1 314.9 299.3 302.1 n/a International 57.1 66.2 73.3 81.6 n/a Passengers embarked (’000) 10,033.9 10,988.5 11,485.9 12,229.1 n/a Domestic 6,675.4 7,376.2 7,515.7 7,813.8 n/a International 3,358.6 3,612.3 3,970.2 4,415.2 n/a Cargo handled (’000 tons) 282.8 291.2 312.0 381.4 n/a Domestic 81.3 84.3 92.5 99.8 n/a International 201.5 206.9 219.5 281.6 n/a Sea traffic Cargo loaded/discharged at principal ports (’000 tons) 49,484 52,725 57,756 67,652 71,286 Loaded 17,968 19,723 20,972 23,474 25,187 Discharged 31,516 33,002 36,784 44,178 46,099 Source: Department of Statistics, Yearbook of Statistics.

Reference table 11 National energy production

1991 1992 1993 1994 1995 Crude oil (’000 tons)a 30,765 31,291 30,583 31,115 33,327 Natural gas (m cu ft) 574,237 642,540 765,445 862,085 1,024,913 Coal (tons) 64,861 74,483 263,604 173,749 n/a Electricity (m kwh) 28,374 32,024 35,579 40,058 46,632 a Including condensates.

Source: Department of Statistics, Yearbook of Statistics.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 48 Malaysia: Reference tables

Reference table 12 Banking statistics

(M$ m) 1992 1993 1994 1995 1996 Domestic banks Assets 132,525 167,905 184,336 227,035 278,432 Deposits (excl repos) 81,420 98,283 115,229 145,972 182,501 Loans 77,589 86,440 100,251 132,580 167,416 Foreign banks Assets 41,253 54,332 54,885 65,179 79,706 Deposits (excl repos) 24,636 33,928 35,842 41,267 49,820 Loans 28,132 30,795 33,900 42,427 50,286 Source: Bank Negara Malaysia, Monthly Statistical Bulletin.

Reference table 13 Stock-market indicators Kuala Lumpur Stock Exchange 1992 1993 1994 1995 1996 KLSE composite market index (Apr 4, 1986=100) 644 1,275 971 995 1,238 Value of shares traded (M$ bn) 51.5 387.3 328.1 178.9 463.3 Volume of shares traded (bn) 19.3 107.8 60.1 34.0 66.5 Market capitalisation (M$ bn) 246 620 509 566 807 No of companies listed 369 413 478 529 621 Source: Bank Negara Malaysia, Annual Report.

Reference table 14 Manufacturing production

(% change, year on year) 1992 1993 1994 1995 1996 Chemicals 7.1 7.1 10.9 7.3 17.9 Electrical & electronic products 11.5 13.4 20.1 20.8 10.1 Off-estate processing 10.5 7.6 6.1 5.3 7.5 Food 6.2 6.2 4.8 3.9 3.9 Non-metallic mineral products 10.2 4.7 11.6 8.4 20.5 Wood products 22.1 22.1 7.5 7.2 14.9 Textiles 16.1 19.4 16.4 6.9 7.0 Tobacco products –5.1 –6.6 –0.6 2.6 6.5 Transport equipment –6.2 3.6 14.0 24.1 20.4 Basic metals 18.5 11.1 15.0 12.4 17.1 Rubber products 11.5 26.4 14.0 11.4 11.8 Metal products 43.3 57.6 33.4 41.1 8.9 Petroleum products 33.9 –8.3 14.8 16.4 8.2 Beverages 3.7 –11.2 15.9 5.8 15.3 All manufacturing industries 10.2 12.9 14.7 14.5 12.2 Source: Bank Negara Malaysia, Annual Report.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Malaysia: Reference tables 49

Reference table 15 Minerals production 1992 1993 1994 1995 1996 Petroleum (’000 b/d) 659.0 647.6 660 705 715 Natural gas (’000 tons) 12 14 16 20 24 Bauxite (’000 tons) 331 69 174 184 219 Copper (’000 tons) 112 100 106 88 86 Tin (’000 tons) 14 10 6.5 6.4 5.2 Source: Bank Negara Malaysia, Annual Report.

Reference table 16 Agricultural and forestry production

1992 1993 1994 1995 1996 Palm oil (m tons) 6.4 7.4 7.2 7.8 8.4 Rubber (m tons) 1.2 1.1 1.1 1.1 1.1 Sawlogs (’000 cu metres) 43,511 37,260 35,672 32,200 30,304 Sawn timber (’000 cu metres) 9,484 9,226 8,484 6,850 n/a Cocoa (’000 tons) 220 200 177 152 122 Source: Bank Negara Malaysia, Annual Report.

Reference table 17 Construction statistics 1990 1991 1992 1993 1994 Construction starts (m sq metres) n/a n/a 6.1 9.9 17.0 Residential n/a n/a 4.1 5.4 10.2 Non-residential n/a n/a 2.1 4.5 6.8 Construction completions (m sq metres) n/a n/a 5.7 6.8 9.1 Residential n/a n/a 3.1 4.3 5.4 Non-residential n/a n/a 2.6 2.4 3.7 Source: Bank Negara Malaysia, Annual Report.

Reference table 18 Exports (M$ m; fob) 1992 1993 1994 1995 1996 Food, beverages & tobacco 3,954 4,160 4,583 4,915 n/a Crude materials 11,081 10,984 11,473 11,995 n/a Mineral fuels 13,418 12,471 11,339 13,034 n/a Animal fats & oils 6,875 7,242 10,484 12,639 n/a Chemicals 2,123 2,639 4,016 5,685 n/a Manufactured goodsa 8,831 11,600 13,710 16,351 n/a Machinery & transport equipment 45,411 58,797 81,887 102,139 n/a Miscellaneous manufacturesb 11,504 12,524 14,390 16,127 n/a Other goods 460 821 2,039 2,101 n/a Total exports 103,657 121,238 153,921 184,986 196,692 a Includes leather, rubber, cork and wood, paper, textiles and yarn, iron and steel, non-ferrous metal and metal manufactures. b Includes furniture and parts, building fixtures, travel goods, clothing, footwear, photo equipment.

Sources: Department of Statistics, External Trade Summary; Ministry of Finance, Economic Report.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 50 Malaysia: Reference tables

Reference table 19 Imports (M$ m; cif) 1992 1993 1994 1995 1996 Food, beverages & tobacco 5,869 6,207 7,024 8,447 n/a Inedible crude materials 2,630 3,264 3,733 4,655 n/a Mineral fuels 4,243 4,247 3,967 4,336 n/a Animal fats & oils 331 404 557 380 n/a Chemicals 8,163 8,848 10,343 13,785 n/a Manufactured goods 16,270 17,705 21,135 26,975 n/a Machinery & transport equipment 55,711 65,439 92,390 116,744 n/a Miscellaneous manufactures 5,869 6,521 8,007 9,530 n/a Other goods 2,354 4,770 8,765 9,489 n/a Total imports 101,440 117,405 155,921 194,345 197,310 Sources: Department of Statistics, External Trade Summary; Ministry of Finance, Economic Report.

Reference table 20 Key exports (M$ m) 1992 1993 1994 1995 1996 Traditional exports Processed palm oil 4,735 5,093 8,478 10,399 9,266 Crude petroleum 9,122 7,926 6,546 6,701 7,212 Sawn timber 3,488 4,546 4,331 3,839 3,309 Rubber 2,357 2,132 2,357 4,038 3,510 Sawlogs 3,851 2,914 2,543 2,264 2,282 Liquefied natural gas 2,712 2,655 2,361 3,171 4,458 Petroleum products 1,206 1,291 1,749 n/a n/a Tin 721 489 507 545 533 Non-traditional exports Electronic components 14,357 18,751 24,816 33,207 35,233 Office machinery & parts 4,938 6,840 9,508 n/a n/a Telecommunications equipment 439 5,691 8,258 n/a n/a Radios 4,430 5,376 7,421 n/a n/a Video recorders 2,632 4,050 6,008 n/a n/a Clothing 4,772 5,024 5,374 n/a n/a Television sets 2,162 3,180 4,528 n/a n/a Sources: Department of Statistics, External Trade Summary; Bank Negara Malaysia, Annual Report; Ministry of Finance, Economic Report.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Malaysia: Reference tables 51

Reference table 21 Key imports (M$ m) 1992 1993 1994 1995 1996a Electronic components 13,681 18,318 28,146 n/a n/a Telecommunications equipment 4,436 5,876 7,608 9,083 4,939 Aircraft & parts 3,757 4,368 5,387 6,325 2,338 Parts for office machinery 2,332 2,577 3,677 5,367 4,707 Iron & steel products 2,439 2,979 3,343 3,665 2,333 Petroleum products 3,248 3,097 2,850 3,233 2,518 Knocked-down motor cars 1,281 1,347 1,934 3,057 1,941 a January-July.

Sources: Department of Statistics, External Trade Summary; Yearbook of Statistics.

Reference table 22 Main trading partners (M$ m) 1992 1993 1994 1995 1996 Exports to: Singapore 23,860 26,259 31,843 37,584 40,289 USA 19,279 24,641 32,524 38,279 35,821 Japan 13,921 15,741 18,551 23,449 26,378 Hong Kong 3,925 5,002 7,101 9,899 11,588 Taiwan 3,229 3,888 4,590 5,813 8,074 Thailand 3,785 4,360 5,802 7,258 8,069 UK 4,176 5,121 5,841 7,484 6,780 South Korea 3,549 4,189 4,311 5,162 5,999 Germany 4,156 4,432 5,087 5,927 5,982 China 1,961 3,095 5,063 4,904 4,734 ASEAN 30,530 33,735 41,792 50,392 55,414 EU 15,407 17,574 21,991 26,274 26,984 Total incl others 103,657 121,238 153,921 184,987 196,692 Imports from: Japan 26,366 32,255 41,680 53,089 48,399 USA 16,024 19,857 26,021 31,413 30,495 Singapore 15,970 17,873 21,991 24,080 26,340 South Korea 3,103 3,602 4,978 7,965 10,235 Taiwan 5,761 6,297 7,960 9,914 9,821 Germany 4,271 4,505 6,543 8,613 8,431 Thailand 2,516 2,916 3,857 5,132 6,522 Australia 2,699 3,324 4,619 5,259 5,560 UK 3,466 3,673 4,998 5,480 5,139 France 1,322 1,675 4,069 5,918 3,958 ASEAN 20,722 23,204 29,233 33,748 38,848 EU 12,644 13,667 23,044 29,962 28,404 Total incl others 101,440 117,405 155,921 194,345 197,310 Source: Bank Negara Malaysia, Annual Report.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 52 Malaysia: Reference tables

Reference table 23 Balance of payments, IMF estimates (US$ m) 1991 1992 1993 1994 1995 Goods: exports fob 33,712 39,823 46,238 56,897 72,053 Goods: imports fob –33,321 –36,673 –43,201 –55,320 –72,153 Trade balance 391 3,150 3,037 1,577 –100 Services: credit 4,374 4,989 6,412 9,320 11,269 Services: debit –6,564 –7,336 –9,516 –12,052 –14,442 Income: credit 1,425 1,609 2,007 2,308 2,605 Income: debit –3,898 –4,752 –5,218 –5,903 –6,841 Current transfers: credit 215 296 469 411 377 Current transfers: debit –126 –124 –181 –182 –229 Current-account balance –4,183 –2,167 –2,991 –4,520 –7,362 Capital-account balance –51 –40 –88 –82 –101 Net direct investment 3,998 5,183 5,006 4,342 4,132 Net portfolio investment 170 –1,122 –709 –1,649 –440 Net other investments 1,453 4,685 6,507 –1,405 3,730 Net errors & omissions –151 79 3,624 154 –1,724 Overall balance 1,236 6,618 11,350 –3,160 –1,765 Memorandum item Total change in reserve assets –1,236 –6,618 –11,350 3,160 1,765 (– indicates inflow) Financing (– indicates inflow) Movement of reserves –1,236 –6,618 –11,350 3,160 1,765 Use of IMF credit & loans 00 0 0 0 0 Liabilities constituting foreign authorities’ reserves –1 3 7 –3 –1 Exceptional financing 00000 Source: IMF, International Financial Statistics.

Reference table 24 Balance of payments, national estimates (M$ bn) 1992 1993 1994 1995 1996 Merchandise exports fob 100.9 118.4 148.5 179.5 192.6 Merchandise imports fob –92.3 –110.2 –143.9 –179.5 –184.0 Trade balance 8.6 8.2 4.6 0.2 8.6 Services credit 17.3 22.3 31.3 35.7 43.6 Services debit –31.9 –39.0 –48.3 –54.7 –62.4 Net current transfers 0.3 0.5 0.4 0.1 –2.8 Current-account balance –5.6 –7.9 –12.1 –18.7 –13.0 Official long-term capital (net) –2.9 1.0 0.5 5.8 0.7 Private long-term capital (net) 13.2 12.9 11.4 10.3 11.3 Long-term capital (net) 10.3 13.9 11.9 16.2 12.0 Basic balance 4.7 6.0 0.2 –2.5 –1.0 Private short-term capital (net) 12.0 13.9 –8.5 2.4 11.2 Net errors & omissions –0.8 9.4 0.4 –4.3 –4.0 Overall balance 16.7 29.2 –8.3 –4.4 6.2 Source: Bank Negara Malaysia, Annual Report.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Malaysia: Reference tables 53

Reference table 25 External debt, World Bank estimates (US$ m unless otherwise indicated; debt stocks as at year-end) 1991 1992 1993 1994 1995 Total external debt 18,155 20,024 26,148 29,537 34,352 Long-term debt 16,081 16,385 19,197 23,348 27,078 Public 13,614 12,377 13,460 13,650 15,857 Private 12,467 4,008 5,737 9,698 11,220 Use of IMF credit 00000 Short-term debt 2,074 3,639 6,951 6,189 7,274 Public & publicly guaranteed long-term debt 13,614 12,377 13,460 13,650 15,857 Official creditors 4,598 4,514 4,470 5,082 4,976 Multilateral 1,942 1,861 1,626 1,721 1,645 Bilateral 2,656 2,652 2,843 3,361 3,331 Private creditors 9,016 7,863 8,991 8,568 10,881 of which: banks 2,213 2,064 3,035 3,458 4,370 bonds 5,333 4,095 4,185 3,939 5,381 Total debt service paid 3,000 4,261 4,594 6,127 6,532 Principal 1,841 3,154 3,420 4,700 4,942 Interest 1,159 1,107 1,173 1,427 1,591 Short-term debt 188 176 284 394 404 Long-term debt 971 932 889 1,033 1,187 Ratios (%) Total external debt/GNP 40.7 36.8 43.8 44.0 42.6 Debt-service ratio 7.6 9.2 8.6 9.3 7.8 Short-term debt/total external debt 11.4 18.2 26.6 21.0 21.2 Concessional long-term loans/long-term debt 15.8 15.9 14.6 14.0 11.6 Variable interest long-term debt/ long-term debt 49.8 51.6 51.7 59.0 57.3 Source: World Bank, World Debt Tables.

Reference table 26 Official development assistance (US$ m) 1989 1990 1991 1992 1993 Bilateral 499.3 1,526.2 1,374.8 1,207.7 4,657.2 of which: Japan 612.1 576.3 837.9 868.6 1,641.3 UK 20.9 382.3 413.2 558.5 568.1 USA –122.0 664.0 –89.0 –182.0 1,850.0 Multilateral 23.1 89.6 99.1 2.8 –185.3 Total (incl others) 516.6 1,612.3 1,469.9 1,208.3 4,473.4 of which: grants 132.8 166.7 173.4 171.4 182.9 Source: OECD, Geographical Distribution of Financial Flows to Aid Recipients.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 54 Malaysia: Reference tables

Reference table 27 Foreign reserves (US$ m at end-period unless otherwise indicated) 1992 1993 1994 1995 1996 Foreign exchange 16,784 26,814 24,888 22,945 26,156 SDRs 113 121 135 151 166 Reserve position at the IMF 330 315 400 678 688 Total reserves excl gold 17,228 27,249 25,423 23,774 27,009 Gold (national valuation) 115 115 122 124 120 Total reserves incl gold 17,343 27,364 25,545 23,898 27,129 Memorandum item Gold (m troy oz) 2.39 2.39 2.39 2.39 2.39 Source: IMF, International Financial Statistics.

Reference table 28 Exchange rates (M$ per unit of currency; period averages) 1992 1993 1994 1995 1996 US$ 2.5472 2.5741 2.6243 2.5044 2.5159 ¥100 2.0120 2.3214 2.5586 2.6626 2.3183 S$ 1.5638 1.5933 1.7490 1.7669 1.7843 £ 4.4952 3.8665 3.9934 3.9532 3.9291 DM 1.6338 1.5580 1.6298 1.7475 1.6719 Swfr 1.8166 1.7428 1.9279 2.1179 2.0355 HK$ 0.3291 0.3328 0.3312 0.3236 0.3267 SDR 3.5733 3.5941 3.7199 3.7787 3.6526 Nominal effective exchange rate index (1990=100) 107.1 111.1 110.3 110.3 113.7 Sources: Bank Negara Malaysia, Quarterly Statistical Bulletin; IMF, International Financial Statistics.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Brunei: Basic data 55

Brunei

Basic data

Land area 5,765 sq km

Population 260,482 (1991 census); 305,100 (1997 official estimate)

Main towns Bandar Seri Begawan (population 46,000, 1991 estimate)

Seria Kuala Belait Tutong Muara Bangar

Climate Tropical

Weather in Bandar Seri Hottest month, August, 24-33°C (average daily minimum and maximum); Begawan (altitude 300 coldest month, January, 24-30°C; driest months, February and August, 100 mm metres) average rainfall; wettest months, January and November, 325 mm average rainfall

Languages Malay; Chinese and English also used

Measures Metric system. Local measures include:

1 gantang=4 chupak=4.546 litres 1 kati=16 kahil=0.6 kg 1 koyan=40 pikul=2.419 tons

Currency Brunei dollar or ringgit (Br$)=100 sen (cents). Annual average exchange rates in 1996: Br$1.41:$1; Br$1.30: ¥100. Exchange rates in early July 1997: Br$1.44:$1; Br$1.26: ¥100.

Time 8 hours ahead of GMT

Public holidays (1997) January 1 (New Year’s Day); January 10 (beginning of Ramadan); January 28 (Anniversary of Revelation of Koran); February 7 (Chinese New Year); February 9 (end of Ramadan); February 23 (National Day); April 18 (Hari Raya Haji); May 9 (Hizrah); June 1 (Royal Brunei Armed Forces Day); July 15 (Sultan’s birthday); July 18 (Prophet Muhammed’s birthday); November 28 (Isra Meraj); December 25 (Christmas Day)

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 56 Brunei: Historical background

Political background

Brunei Darussalam, or Brunei Abode of Peace, is a small autocratic sultanate located on the north-west coast of Borneo. It is surrounded by the East Malaysian state of Sarawak, and Sabah and Indonesian Kalimantan are close neighbours. The sultan, His Majesty Paduka Seri Baginda Sultan Haji Hassanal Bolkiah Mu’izzaddin Waddaulah, is also prime minister, minister of finance and minister of defence. There is a hereditary aristocracy. Brunei’s oil and gas ind- ustry has made this small state one of the richest in the world. GDP per head, which stood at Br$23,502 ($15,361) in 1994, is officially estimated to reach Br$28,300 by 2000.

Historical background

Colonialism and decline The Brunei sultanate rose to prominence in the 15th and 16th centuries, when the country controlled coastal areas of north-west Borneo, parts of Kalimantan and also the southern Philippines. Brunei’s wealth and power were founded on trade, particularly the export of camphor, pepper and gold. After the 16th century the onset of European colonialism signalled the beginning of a long period of decline. Brunei’s outlying possessions were lost to the Spanish and Dutch. In the 19th century, internal strife hastened Brunei’s decline and most of its remaining Borneo territory was lost to James Brooke who had acquired Sarawak in 1841. Fearing absorption by Sarawak, Brunei voluntarily became a British protectorate in 1888. The Limbang district was lost to Sarawak in 1890, splitting the country into two. The loss of Limbang is a matter that still clouds the relationship between Brunei and Malaysia.

The 1906 treaty In 1906 a treaty was signed between the UK and Brunei making Brunei a full protectorate. The treaty assured the succession of the ruling dynasty and introduced a resident who advised the sultan on all matters except those con- cerning local customs and religion. The residents gradually introduced a West- ern-style civil service which today is the largest employer of Brunei Malays. In 1929 oil was discovered in Seria and oil and gas continue to be the basis of the country’s wealth.

Moves to independence The present sultan’s father, Omar Ali Saifuddien, ascended the throne in 1950 on the death of his brother. The sultan was keen to maintain a separate Brunei identity, and to control the oil wealth, and was against proposals to merge Brunei with Sarawak and British North Borneo (Sabah). In an attempt to head off potential discontent in the post-war years, public spending was increased. In 1959 a written constitution was introduced giving Brunei internal self-rule under British protection. The constitution allowed for a Legislative Council. Elections were held in 1962 and the Partai Rakyat Brunei (PRB), or Brunei People’s Party, won a landslide victory. However, the party was prevented from forming a government and staged an armed rebellion. With the aid of British Gurkha units flown in from Singapore, the sultan rapidly crushed the revolt and a state of emergency was declared under which the PRB was banned. The party operated in exile but their relevance and influence waned. In 1996 the

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Brunei: Constitution and institutions 57

few remaining members were allowed to return to Brunei on the condition that they did not participate in political activity. The state of emergency has since been renewed every two years (see Constitution and institutions).

In October 1967 Sultan Omar Ali Saifuddien abdicated and named as successor his eldest son, who is the present sultan.

After 96 years of British protection, Brunei became a fully independent, sover- eign state on January 1, 1984.

Constitution and institutions

Brunei’s first written constitution dates from 1959 when the Residency Agreement of 1906 was revoked, transferring the resident’s powers to the sultan and various appointed officials beneath him, including the menteri besar or chief minister (now the prime minister). The UK retained responsibility for defence, foreign affairs and internal security. A high commissioner replaced the resident. In 1971 the constitution was amended to give the sultan control over all inter- nal matters, while the UK remained responsible for defence and foreign affairs. With independence in 1984 Brunei gained full sovereignty over all its affairs.

The sultan is assisted by The constitution lays down that the sultan is head of state with full executive five councils authority, assisted and advised by five councils: the Religious Council, the Privy Council, the Council of Ministers (the cabinet), the Legislative Council and the Council of Succession.

The Religious Council is responsible for advising the sultan on matters relating to Islam; the Privy Council on the award of honours; and the Council of Succession determines the succession to the throne in the event of a dispute. The Legislative Council, initially to be a part-elected body, became solely an appointed body after the abortive rebellion in 1962 and in 1984 was sus- pended. The sultan has since ruled through emergency decrees. The Council of Ministers became the cabinet in 1984. The sultan is prime minister, finance minister and minister of defence. One brother, Prince Mohamed Bolkiah, is minister of foreign affairs.

The national ideology With the Legislative Council suspended and political parties proscribed, the sultan and his government have been espousing a national ideology, Melayu Islam Beraja (MIB, or Malay Muslim Monarchy). This concept justifies preserv- ing the absolute monarchy and invokes Brunei’s history and Islam in support of the sultanate.

MIB, a fusion of Islamic values and Brunei Malay culture, presided over by the sultan as defender of race and faith, has become the touchstone of loyalty. In the small, hierarchical society of Brunei it is not acceptable for any Malay to question any aspect of MIB, whether it be the paramountcy of the Malays in Brunei, the piety and authority of the sultan or the “Islamisation” of govern- ment policy and of society at large.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 58 Brunei: Political forces

Political forces

All these factors—the banning of the PRB, the state of emergency, the presence of Gurkha troops, press censorship, the influence of MIB, community and family pressures, and cultural and religious values—deter criticism of the sys- tem and political activity.

The emergence of In 1985 the Parti Kebangsaan Demokratic Brunei (PKDB), or Brunei National the PKDB Democratic Party, emerged, attracting around 3,000 members, mostly Malay businessmen and professionals. When in 1988 the party called for an end to emergency rule and for free elections to be held, with the sultan as head of state, its leaders were imprisoned and the party banned. The Partai Perpaduan Kebangsaan Brunei (PPKB), or Brunei National United Party, which had split from the PKDB in 1985, was more closely allied to the government and never attained the same level of support as the PKDB. In February 1995 the PPKB was permitted to hold its first national assembly for ten years, but its activities are circumscribed and the party has little influence.

Political parties are seen The government does not see any place for liberal democracy. It argues that as inappropriate people’s concerns and views can be voiced through officials at the local level. In February 1993 the Mukim (district) and Kampong (village) Consultative Council was established. The council’s first general assembly was held in May 1996. These grass-roots appointees are seen as the most appropriate means of consultation between government and people.

Although MIB has put an end to political parties and any plans for an elected legislature, the fact that the PKDB could attract so many members, even in such a conservative, closely knit society, suggests that a substantial number of edu- cated Malays desire change. From time to time anonymous critical pamphlets, known as surat layang, have circulated. They never find fault with the sultan but request him to take note of such matters as incompetence and corruption in the government bureaucracy. The government’s usual response is to con- demn “rumour-mongering”. New technology, such as satellite television and the Internet, is exposing an increasing number of inhabitants to a world be- yond the confines of Brunei society.

Chinese play a negligible The Chinese, who number between 60,000 and 70,000 (although the govern- part in politics ment underestimates the actual figure), have considerable economic influence and expertise, but play a negligible role in politics. By focusing exclusively on the Malay community, MIB can only add to the existing discrimination against the Chinese and so further alienate them.

Indigenous groups remain Indigenous groups, although recognised as such, tend to remain on the fringes on the fringes of society unless they convert to Islam and intermarry with Malays. Their trad- itional beliefs are tolerated but periodic attempts at conversion to Christianity by groups based in neighbouring Sarawak have alarmed Brunei’s Islamic relig- ious authorities.

The armed forces are not a The Royal Brunei Armed Forces (RBAF), numbering 4,500, are not a threat to threat to the government the government. However, the sultan prefers to entrust his safety, including

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Brunei: International relations and defence 59

guarding the arsenal of the RBAF, to his Gurkha Reserve Unit, whose presence, along with that of the British Gurkhas (who are in Brunei to protect the oil- fields from external attack and do not carry out internal security functions) lessens the chance that the RBAF may turn against the sultan.

The aristocracy appears Palace intrigue surfaces from time to time in the coffee-shop gossip of Brunei. content, but not so others The sultan’s immediate family appears satisfied, either holding cabinet posts or having expanding business interests. Brunei’s aristocracy seems content with the social status, privileges and business connections associated with rank. Prince Jefri, who introduced the live broadcasting of London’s Capital Radio in Brunei and instigated the building of the amusement park at Jerudong, believes that such generosity will commend him to the people. However, those edu- cated Bruneians who do not have royal connections feel increasingly frustrated at being left on the fringes.

The Islamic resurgence Brunei has remained a conservative, orthodox religious backwater, yet the has had some impact Islamic resurgence, most noticeable in the urban areas of Muslim South-east Asia, has had some impact. The sultan has become noticeably more pious since the late 1980s. The government has adopted more Islamic policies under the umbrella of MIB. The authorities banned the sale and public consumption of alcohol in January 1991, thereby creating a lucrative trade in alcohol smuggled in from neighbouring Sarawak and Labuan. Islamic principles have been intro- duced into the financial sector with the setting up of the Brunei Islamic Trust Fund (TAIB) and the Islamic Bank of Brunei (IBB). Under the Seventh National Development plan (1996-2000), more money has been allocated to the build- ing of mosques and religious schools, and the government intends to upgrade the level of religious education in the country. An Islamic college has been built in Tutong district and an Arabic school in the capital. An Islamic radio station commenced broadcasting in May 1997.

The direction of this Islamic resurgence is very much determined by the government. True Islam is presented as being synonymous with the sultan and the government. Any Islamic teaching that runs counter to the status quo or any criticism of the sultan, the MIB or the country is forbidden. The sultan and other government officials regularly warn the population to be wary of such thinking or action, which it portrays as deviationist and an attack upon Islam. Islamic rituals and practices are increasingly promoted and outside Islamic teachings and influence deliberately lessened. Islam is seen as a major force to counteract undesirable behaviour such as the growing problem of drug addic- tion, the increase in divorce and domestic violence and rising debt (particularly credit-card debt and car repossessions).

International relations and defence

The importance of ASEAN Brunei is a member of the UN, the Islamic Conference Organisation and the Non-aligned Movement. However, it is its membership of the Association of South-east Asian Nations (ASEAN), which the country joined in 1984 on gain- ing independence, that is of particular importance. ASEAN provides Brunei with a framework for dealing with affairs in the region and worldwide, and

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 60 Brunei: International relations and defence

membership has helped to improve relations between Brunei and fellow mem- bers Malaysia and Indonesia. Bilateral ties with Malaysia have improved throughout the 1990s with regular visits by senior government officials and ministers. Brunei and Singapore have longstanding close ties. Singapore’s Senior Minister, Lee Kuan Yew, makes occasional visits to Brunei and his advice is sought on a range of matters.

The East ASEAN In March 1994 the East ASEAN Growth Area (EAGA), comprising Brunei, the Growth Area East Malaysian states of Sarawak and Sabah, the southern Philippines island of Mindanao and the Indonesian provinces of Kalimantan, Sulawesi and Maluku, was formally set up. Brunei is well placed in EAGA because it is in the geo- graphical centre of the area. EAGA members cooperate to raise capital, upgrade facilities and infrastructure, and educate and train their workforces. Although EAGA is an intergovernmental initiative, the private sector has a major role to play. Brunei is keen to invest in EAGA countries and believes that it has the capital and infrastructure to be a major player in air and sea transport in the region. Royal Brunei Airlines (RBA) is keen to tap into the growing EAGA market for flights. The airline increased the number of its flights within the region and in the last three years introduced new flights and continues to expand.

Defence links Brunei has had longstanding defence ties with Singapore and the UK. It has had close, and continuing, military ties with Singapore since the 1970s, and both Singapore and the UK make use of jungle training facilities in Temburong, as well as participating in joint military exercises with Brunei. Brunei lays claim to part of the Spratlys in the South China Sea, as do China, Malaysia, the Philippines, Taiwan and Vietnam. Brunei is the only country not to have deployed troops on the disputed territory, although this issue is part of the reason behind its upgrading of military hardware.

The armed forces Brunei’s armed forces total about 5,000 personnel. In 1991 the Royal Brunei Armed Forces were reconstituted into separate services: land, navy, air, the Armed Forces Services and the Armed Forces Training Centre. In 1997 the army numbered 3,900, the navy 700 and the air force 400. A large proportion of the defence budget is spent on acquiring military hardware. In 1996 several pur- chases were finalised: three corvette-sized offshore patrol vessels to be delivered in 2000 and four Sikorsky Black Hawk helicopters to be delivered in 1997-98. Brunei is likely to acquire up to 30 British Aerospace Hawk jets over the next few years. Expansion of the armed forces is limited by a lack of willing person- nel rather than by a lack of funds. Military numbers are boosted by the pres- ence of the sultan’s Gurkha Reserve Unit (totalling more than 2,300 personnel) and a separate British Gurkha battalion (800 Gurkhas and 200 UK support forces) based in Seria to protect the oil facilities. In February 1997 the then UK defence secretary, Michael Portillo, said that the Gurkhas would stay in Seria beyond 2000. Brunei pays for the battalion, but it is under UK command.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Brunei: Economic structure 61

The economy

Economic structure

Main economic indicators, 1995a

Real GDP growth (%) 2.0 Consumer price inflation (%) 6.0 Average exchange rate (Br$:US$) 1.417 Population (’000)b 305.1

a Official estimates. b 1997.

Source: Ministry of Finance, National Accounts Section, Economic Planning Unit.

The oil and gas sector Brunei’s economy is dominated by the oil and gas sector, which in 1995 con- dominates the economy tributed 36% to GDP, down from about 40% the previous year. The non-oil government sector contributed about 31% and the non-oil private sector about 33%. The hydrocarbons sector has been showing a steady decline in its percent- age contribution to GDP; during the 1980s this fell from 70% to 50%. The continuing reduction reflects the decline in oil prices and the increase in the growth of government and private-sector spending. The main non-oil sectors contributing to GDP in 1995 were community, social and personal services (primarily government spending on health, education, defence, etc) 33.8%; construction 5.7%; transport and communications, 4.2%; retail trade 4.6%; and banking and finance 4.2%.

The construction sector is heavily dependent on government development projects. In 1990 the industry went into severe recession as a result of reduced government project spending, exacerbated by delays in payment by govern- ment departments. Since 1991 the sector has grown, with the building of new government offices on the outskirts of the capital as well as in the districts. The ongoing development of government housing resettlement schemes has fur- ther boosted the construction sector. Since 1995 major projects have involved the upgrading of transport infrastructure at the airport near the capital (a new control tower was completed in 1996) and at the seaport at Muara as well as large-scale improvement of the country’s roads. There has also been a boom in private housebuilding and commercial property, including a number of new palaces for the royal family. Much of this construction is undertaken by com- panies associated with various members of the royal family.

The transport sector has become an increasingly important contributor to Brunei’s economy, led in part by the development of the Brunei International Airport and the expansion of Royal Brunei Airlines’ services. In transport serv- ices Brunei is coming to the fore in the Association of South-east Asian Nations (ASEAN), in particular the East ASEAN Growth Area (EAGA), which suggests that the growth of the sector will be boosted still further in the coming years. The government aims to develop Brunei’s role as a regional trade and tourism centre under a new programme, the Service Hub for Trade and Tourism (SHuTT). Brunei Malays find employment in this sector far more appealing than in other industries.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 62 Brunei: Economic policy

Agriculture, fisheries and forestry are at present of limited importance to the economy, contributing 2.7% of GDP in 1994. All three sectors are growing, especially fisheries, but development is constrained by the reluctance of younger Bruneians to work out of doors.

Food and beverage processing and garment manufacturing are the main non- hydrocarbons industries in Brunei. In 1994 the country’s six garment factories exported clothing worth an estimated Br$40m ($26m) to Europe and the USA. The government is keen to see the development of the furniture-making, pot- tery, tile, cement, chemicals, plywood and glass industries.

Industry, apart from hydrocarbons-related activity, remains in its infancy, despite the government’s commitment to industrial diversification. The Seventh National Development Plan (1996-2000) emphasises, as did the fifth and sixth plans, the need to diversify from heavy dependence on the hydro- carbons sector. Although the government is developing the infrastructure, the rhetoric about industrial diversification is only slowly being matched by results. The domestic market is small; there is a lack of skilled labour; and red tape and poor coordination between government departments deter domestic and foreign investment.

Inflation Brunei is heavily dependent on imports and has been affected by trends in worldwide inflation and currency fluctuations. Domestic inflation, which in 1975-84 averaged 5.8% per year, dropped in the early 1990s before increasing in 1993. The application of a high import duty on cars from January 1995 was a main cause of the acceleration of average annual inflation in 1995—from 2.4% in 1994 to 6% the following year. The 1996 rate was 2.5%. (Reference table 5 provides historical data on consumer prices.)

The government has imposed a series of price controls and subsidies on essen- tial foods and petrol. Inflation has also been constrained by the strength of the Singapore dollar, to which the Brunei currency is tied.

Economic policy

The Seventh National Development Plan (1996-2000) published in 1997, cata- logues the government’s spending proposals. Expenditure for the plan period was set at Br$7.2bn compared with Br$5.5bn for the 1991-95 plan, Br$3.73bn for the 1986-90 plan and Br$1.7bn for the 1980-84 plan.

Nearly 30% of spending during the 1996-2000 plan has been allocated to social services, including: government employee housing and resettlement schemes (Br$1,042m); education (Br$407m); public facilities (Br$265m); medical and health (Br$103m); and (Islamic) religious affairs (Br$52m).

Public utilities have been allocated 22% of expenditure, more than half of which is for electricity infrastructure development. Another 20% of the plan’s budget is to be spent on transport and communications, including roads (Br$690m) and telecommunications (Br$394). A further Br$528m is to be spent on defence and internal security projects.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Brunei: Economic performance 63

Public finance Government revenue, excluding income from international reserves, amounted to Br$4.3bn in 1994 (the latest available figure). The main source of income for the government is company tax, set at a rate of 30%. Most tax revenue comes from the oil and gas sector, although its percentage of the total is declining: the oil and gas sector contributed 75% of government revenue in 1996, compared with 84% in 1991 and 92% in 1988. No personal income tax is levied in Brunei. Other sources of government revenue are receipts from government property and import, excise and stamp duties, and licence fees. (See Reference table 1 for historical data on government finances and Reference table 2 for money supply figures.)

Summary of government finances, 1995 (Br$ m) Total revenue 4,407.2 Total expenditure 3,656.4 Source: Ministry of Finance, Treasury Department.

Economic performance

Gross domestic product Average 1995 1990-94 % real change 2.0 0.5 Source: Ministry of Finance, Brunei Darussalam Statistical Yearbook.

GDP fell sharply during the 1980s as a result of the world oil glut and the consequent fall in prices. The performance of the economy has been erratic during the 1990s, real growth reaching 2.0% in 1995, the most recent year for which data are available, having attained 1.8% in 1994.

During the 1980s the fall in oil prices increased the non-oil sector’s share of GDP, as did also a growing construction industry and expanding service indus- tries, particularly in transport and communications. Improvements to infra- structure and facilities have also buoyed up the non-oil sector’s share of GDP. (Data on GDP growth and GDP by sector are given in Reference tables 3 and 4.)

Regional trends

The population of the Bandar Seri Begawan is the capital city. As a result of several serious fires, as well capital city is falling as government resettlement schemes, people have moved into suburbs and towns in the surrounding Brunei-Muara district and, while this district has experienced the greatest rise in population, the population of Bandar Seri Begawan itself has fallen to less than 47,000; and the population of Kampong Ayer, the village that makes up part of Bander Seri Begawan, has dropped to less than 25,000. More than 65% of the population of Brunei now lives in the Brunei-Muara district. Although there has been development throughout the country, the bulk of new office, housing and infrastructure construction has occurred in the capital and in the surrounding Brunei-Muara District.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 64 Brunei: Population

Resources

Population

Brunei’s population was 260,482 at the time of the 1991 census, a 35% increase since the last census in 1981, implying a population growth rate of 4.4%. Popul- ation was estimated at 305,100 in 1997. The projected population for 2000 is 340,000. Average life expectancy at birth was estimated to be 74 years in 1997.

Population by district, 1997

Brunei-Muara 201,100 Belait 61,800 Tutong 33,500 Temburong 8,700 Total 305,100 Source: Ministry of Finance, Brunei Darussalam Statistical Yearbook.

Malays are in a clear Estimates for 1997 suggest that 67% of the population was Malay (including numerical majority— Muruts and Dusuns) and 15% Chinese. Other indigenous groups probably account for 5% of the population. Some Chinese leaders claim that the real figure for Chinese is much higher than officially admitted. Other communities, predominantly workers from ASEAN and South Asia, make up 12%.(Further data on population are given in Reference table 6.)

—but the Chinese play a The Chinese play a dominant role in private-sector activity, particularly as dominant role in shopkeepers, in the services industries and in the construction and oil and gas private-sector activity sectors. Their post-independence status is potentially a major problem. Only about 9,000 are thought to be citizens. The government estimates another 20,000 are permanent residents and 10,000 are stateless people. The pressure on the Chinese community increased in September 1984 when the sultan announced a tightening of nationality regulations, under which Chinese would qualify for citizenship only if they had lived in the country continu- ously for 25 years during the 30 years before application. The previous criterion had been 20 years of permanent residence during the past 25 years. There has been some emigration of Chinese, but no mass exodus has occurred. Most are waiting to see what changes may take place in a country whose rulers have declared that they wish it to become 100% Muslim. The more aggressive pro- motion of the national ideology of Melayu Islam Beraja (MIB) since 1991 has further increased the unease of the Chinese community.

Illegal immigration Illegal immigration has been high in recent years, especially from Indonesia, Sabah and Sarawak. A highly lucrative trade in immigrant workers has been established, which the government has been trying to stamp out.

One-third of the working Estimates put the working population at about 130,000 in 1996, of whom population are foreigners 55,000 were foreigners. The public sector accounts for about half the total labour force. Brunei Shell Petroleum (BSP), Royal Brunei Airlines (RBA), the banks and the construction sector account for much of the rest. In 1991 68% of

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Brunei: Population 65

Brunei citizens and permanent residents were employed in the public sector. Only a small percentage of Bruneian Malays are taking up employment in the private sector, where the Chinese community and foreign nationals make up the bulk of the workforce. A large number of unskilled and manual workers, particularly in the construction industry, come from Sarawak, Thailand, the Philippines and Bangladesh. Large numbers of skilled and professional staff, both in the public and private sectors, come from Malaysia, the Philippines, the Indian subcontinent and the UK. The number of foreign workers is pro- jected to grow to 70,000 in 2001 and 99,000 in 2011.

Malays shun many sectors Most Brunei Malays (bumiputeras) aspire to work in government service, BSP, RBA or in more prestigious jobs in the private sector, such as in the banks. Bumiputeras generally shun the construction industry, agriculture and other sectors regarded as having low status, such as the retail trade. Attitudes of employers accentuate the trend in that they prefer to employ foreign nationals who are cheaper, less demanding and reputedly harder-working and more reliable than locals.

The government regularly berates its citizens for being too choosy about jobs and calls on employers to take on and train more local staff. The government has committed funds in the Seventh National Development Plan (1996-2000) for training, career guidance and incentives (such as day care centres) to en- courage more women to enter the workforce. The government is concerned with the social consequences of employing large numbers of foreigners, but even if more bumiputeras were to work in the private sector, their numbers are too small to fill all available jobs.

“Bruneisation” of the There is a policy of “Bruneisation” of the workforce; it has already affected BSP workforce where the prospects of promotion for Chinese staff are becoming increasingly limited. The two largest foreign banks, the Hongkong and Shanghai Banking Corporation and Standard Chartered Bank, under pressure from the govern- ment, have increased the number of bumiputeras on their staff. Qualified Brunei Malay staff are keenly sought and can command high salaries, especially those with specialist skills in business, banking and computing. Local banks (Islamic Bank of Brunei, Development Bank of Brunei and Baiduri Bank) have a re- cruited a large number of Brunei Malays. There is still a widespread belief that a position in government service can be taken for granted by educated Malays, even though the government has stated that the civil service cannot maintain its past growth levels and that people will have to turn to the private sector.

The labour force, 1991

Employers 1,018 Employees 101,377 Own account workers 3,902 Family workers 489 Unemployed 5,209 Total labour force 111,995 Source: Ministry of Finance, Brunei Darussalam Statistical Yearbook.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 66 Brunei: Education

In July 1992 the sultan announced that a workers’ provident fund, the Tabung Amanah Pekerja (TAP), would be set up. The scheme provides savings for retirement. Non-pensionable government servants and employees in the pri- vate sector contribute 5% of their wages; the employer also contributes 5%. The fund aims to encourage more locals to join the private sector.

Education

In 1995 there were 170 government pre-primary and primary schools and 37 general secondary schools. Some 55,241 children were in pre-primary and primary education and 27,801 in secondary education, taught by around 5,540 teachers. Many of the teachers are expatriate, principally from Malaysia but also from the UK.

The medium of instruction at secondary and tertiary level is mainly English, although English skills in Brunei vary widely. Although there have been at- tempts to modernise the curriculum and teaching methods, current methods of instruction (which emphasise rote learning) do not appear to foster creative and critical thinking skills among students. This inclination is generally sup- ported by the attitude of suspicion maintained by the authorities towards the world outside Brunei, as well as by the nature of Brunei society and culture.

The two main tertiary institutions are the Universiti Brunei Darussalam (UBD) and the Institut Teknologi Brunei (ITB). UBD has about 1,200 students, mostly undertaking teaching degrees. There is a Petroleum Geo-Science Department at the university, part-funded by Brunei Shell, which has attracted regional inter- est. The ITB has about 300 students and offers diploma-level courses in engi- neering, business studies and computer science. Graduates of ITB have been able to find well-paid jobs in the private sector, in Brunei Shell and in Royal Brunei Airlines.

Many Bruneians still need to undertake university studies overseas, although the government has been keen to reduce the number of students exposed to ideas and lifestyles outside the country. Brunei elites prefer to send their chil- dren to the UK and Australia for secondary and university education.

Health

Medical and dental services were, until recently, provided free to Brunei citi- zens and to those (and their dependants) employed in government service. Since 1995 a nominal fee has been charged for hospital and dental visits.

The central referral hospital is the 538-bed Raja Isteri Pengiran Anak Saleh (RIPAS) Hospital in Bandar Seri Begawan. There are government hospitals in Kuala Belait, Tutong and Bangar. Brunei Shell Petroleum has a 91-bed hospital at Seria. In addition there are five military hospitals with 79 beds. There are community-based outpatient services provided in health clinics and health cen- tres throughout the country. A flying medical team uses a RBAF helicopter to visit remote villages in the interior of the country. For medical care not available in Brunei, citizens are sent overseas, usually to Singapore, at government expense.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Brunei: Natural resources and the environment 67

In 1994 there were 214 government doctors (97 in 1984), 30 government dentists (13 in 1984) and 1,146 nurses (525 in 1984).

The main health concerns are those relating to affluence. A diet rich in protein and high in fat, and containing many processed foods, has contributed to an increase in obesity, diabetes and cardiovascular diseases, problems exacerbated by an emphasis on eating at social gatherings, a sedentary lifestyle, and a limited awareness of the benefits of exercise.

Natural resources and the environment

Brunei comprises two sections which are separated by the district of Limbang in Sarawak. The larger, western part of the country consists of the districts of Brunei-Muara, including Bandar Seri Begawan, Tutong and Belait. The eastern part of Brunei, Temburong district, is sparsely populated and predominantly forested. Brunei’s 161-km coastline faces the South China Sea. The population centres are concentrated along the coast; large areas of the interior are still covered in primary forest.

Brunei has a high rainfall and water is in plentiful supply. Poor maintenance of the water infrastructure results in heavy loss owing to leakage and occasional interruption of supply. Under the Seventh National Development Plan (1996- 2000), Br$306m has been allocated for building and upgrading water supply infrastructure.

Large parts of the interior are designated as either national park or protected forest and there is acknowledgement within the government that this is a valuable resource that must be protected. There is concern about large-scale development along the coast. High-quality silica sands along the coast could be utilised in glass manufacture.

Economic infrastructure

Transport and communications

Roads The total length of roads in Brunei was 2,457 in 1994, the latest official figure. The number of vehicles in that year was 160,469 of which 133,973 were private cars. (Transport statistics are given in Reference table 7.)

There is ongoing development of the country’s road infrastructure, both build- ing of new roads and widening existing roads. Since 1995 most road junctions in the capital have had traffic signals installed. By 1996 all main roads had had street lighting installed or upgraded. The 135-km road that runs from Muara along the coast to Kuala Belait is being developed from a two-lane road to a four-lane motorway. The main route from the capital to the coast, the Tungku Link Road, has been upgraded to a four-lane motorway. Nearly Br$700m has been allocated in the Seventh National Development Plan to roadbuilding. The government believes an aggressive roadbuilding and upgrading programme is the best solution to the problem of traffic congestion.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 68 Brunei: Transport and communications

Interest-free government car loans for civil servants, subsidised motor fuel, low road tax and the poor state of public transport—there are no railways—have encouraged private car ownership. Delays during the morning, lunchtime and evening rush hours in and around the capital, Bandar Seri Begawan, are now common. The construction in 1996 of an underground carpark in the city centre and a programme of relocating government offices to the outskirts of the capital have helped reduce congestion in the immediate city centre.

In an attempt to control private car ownership the government announced in February 1995 that tariffs on imported cars would increase from a flat rate of 20% to between 40% and 200%, depending on the size of the car. The main effect of this policy has been to raise the price of secondhand cars and to increase bank loans for car purchases.

There have been only minor attempts to improve public transport in the country, although the government acknowledges that high car ownership and poor public transport are causing problems. Four bus lines, the Circle, Central, Southern and Northern Lines, serve Bandar Seri Begawan and its environs. Bus services to other districts remain infrequent and irregular. More bus routes and more affordable taxi fares have been promised under the Seventh National Development Plan.

Ports and shipping Rivers remain an important means of transport. The Brunei, Belait and Tutong rivers are navigable. The main port is at Muara, 27 km from the capital. In 1994 nearly 1.8m tons of freight were discharged at the port, 50% of it originating from Singapore. In May 1994 the Muara Export Zone, a free-trade area, was created to be the entry point for goods destined for the East ASEAN Growth Area (EAGA). The port has warehouses, container yards, freezer facilities, fish han- dling facilities and cement silos. There are regular freight services to Singapore and Malaysia, as well as to Hong Kong, Thailand, Taiwan, the Philippines and Indonesia. Under the Seventh National Development Plan a dedicated con- tainer terminal will be built at Muara, the Export Zone will be enlarged and the port deepened to allow access to larger container vessels. The government is also looking into privatising some of the port’s operations. Bandar Seri Begawan port is primarily used by passenger vessels serving the Brunei River and Temburong district and the Malaysian ports of Limbang, Lawas and Labuan.

Air transport Royal Brunei Airlines (RBA) serves Abu Dhabi, Bahrain, Bali, Balikpapan (Kalimantan), Bangkok, Beijing, Brisbane, Calcutta, Darwin, Dubai, Frankfurt, Hong Kong, Jakarta, Jeddah, Kuala Lumpur, Kota Kinabalu (Sabah), Kuching (Sarawak), London, Manila, Muscat, Osaka, Perth, Singapore, Taipei and Zurich. Flights to Ho Chi Minh City, Paris and the USA are planned. Short-haul flights have been introduced to Miri and Bintulu in Sarawak, to Labuan Island and, in conjunction with Malaysian Airlines, to Davao in the southern Philippines. Brunei started short-haul (aside from Kuching and Kota Kinabalu) flights only in 1995 but is keen to develop services and become the air- transport hub of EAGA. RBA has a fleet of seven Boeing 767-300ERs and three Boeing 757-200s. Two Fokker 50 Turbos service the short-haul flights. The sultan’s fleet, which is separate from RBA, has eight aircraft including a Boeing 747.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Brunei: Energy provision 69

Telecommunications Jabatan Telekom Brunei (JTB, or Brunei Telecoms Department), is the main provider of telecommunication services in Brunei. A private company, DSTCom, provides cellular mobile services. The government is looking at pri- vatising some sections of JTB.

Under the Seventh National Development Plan (1996-2000) nearly Br$400m is being invested in the development of telecommunications infrastructure. The Ministry of Communications is supervising the development of a multimedia superhighway, to be known as the Brunei Information Superstructure.

Digital optical fibre submarine cables link Brunei with other ASEAN countries and beyond. There are telecommunications satellites at Telisai.

Satellite dishes were initially available only to institutions such as banks and embassies. In 1994 the government agreed to make satellite dishes available to those who paid the Br$2,000 licence fee. In 1996 the fee was reduced to Br$25, producing a surge in demand for satellite dishes.

Brunei was connected to the Internet in September 1995, through Brunet. A second Internet service, Muaranet, has been proposed.

Media The government publishes a weekly Malay newspaper, Pelita Brunei, which is a cross between a royal court circular and an Islamic religious tract. There is a weekly Malay tabloid, Media Permata, published since 1995. The English- language Borneo Bulletin has been published daily since 1990 and circulates in Brunei, Sarawak and Sabah. Since 1997 all journalists and editorial staff in Brunei have had to register with the prime minister’s department.

The Singapore Straits Times and a range of Malaysian newspapers are widely read in Brunei. The Malay-language media in Malaysia provide a source of ideas and views for Bruneians, beyond the limited horizons and uninspiring cover- age of the Brunei media. There are very few bookshops in Brunei.

Radio Brunei has six channels including Malay, English and Chinese. An Islamic radio channel started broadcasting in May 1997. The single television network broadcasts in Malay and English. Satellite and Malaysian television, videos and video-discs provide an alternative to government broadcasts.

Energy provision

Most of Brunei’s energy production is exported. Electricity production has grown steadily in recent years, reaching 1.47bn kwh in 1994. Consumption reached 1.33bn kwh in that year, of which 58.4% went on domestic power and lighting, and 40.7% to industrial loads. In 1993 some 1.28m barrels of petrol were consumed, along with 736,000 barrels of diesel. Natural gas consumption has nearly doubled over the last ten years. (National statistics on energy prod- uction are given in Reference table 8.)

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Energy balance, 1996 (m tons oil equivalent) Oil Gas Coal Electricity Other Total Primary production 8.15 10.40 0.00 0.00 0.02 18.57 Imports 0.20 0.00 0.00 0.00 0.00 0.20 Exports 7.80 7.80 0.00 0.00 0.00 15.60 Primary supply 0.55 2.60 0.00 0.00 0.02 3.17 Losses & transfers 0.08 2.53 0.00 0.02 0.00 2.63 Transformation output 0.00 0.00 0.00 0.13 0.00 0.13 Final consumption 0.47 0.07 0.00 0.11a 0.02 0.67

Note. Net transformation comprises transformation input and output, plus energy industry fuel and losses. a Output basis.

Source: Energy Data Associates.

Financial services

There are nine banks operating in Brunei. The two largest foreign banks in Brunei are the Hongkong and Shanghai Banking Corporation and the Standard Chartered Bank; both have branches throughout the country. There are a num- ber of Malaysian banks with branches in the country and three local banks: the Islamic Bank of Brunei (IBB), Baiduri Bank and the Development Bank of Brunei (DBB). (Statistics on the assets and liabilities of the banking sector are given in Reference table 9.)

The IBB The Islamic Bank of Brunei, launched in January 1993, replaced the Inter- national Bank of Brunei. The bank is housed in a new building in the centre of the capital and has eight branches around the country. The IBB offers savings and loan facilities in accordance with Islamic principles. In June 1993 the IBB floated 14 million new shares, offered at Br$2.00 per share in lots of 100 units. The offer allows Brunei Muslim citizens the opportunity to participate in share dealing, also in accordance with Islamic principles. The bank has set up a securities division that deals in IBB shares.

The IBB has a golden share which gives the royal family the right to make the final decisions relating to the bank’s business. The royal family owns 80% of the bank’s paid-up capital, while Japan’s Daiichi Kangyo Bank holds the remaining 20%. The 14 million new shares represent 28% of IBB’s enlarged share capital.

Islam and the banking The other Islamic financial institution is the Tabung Amanah Islam Brunei system (TAIB), or Brunei Islamic Trust Fund. It was launched in October 1992 to promote investment and trade and to participate in the economic develop- ment of the country. The fund has about 10,000 depositors who have invested about Br$100m.

The launching of both the IBB and the TAIB reflects the desire of the sultan and his government to provide institutions that conform and harmonise with Islamic principles, regarded not only as a religious obligation but as a means of further promoting the national ideology of Melayu Islam Beraja. The IBB and TAIB complement the existing banking system rather than competing with it.

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It is unlikely that the Brunei Investment Agency will adopt Islamic banking and investment practices.

Other local banks Baiduri Bank has three branches and the government-owned Development Bank of Brunei has two. The two banks, both of which started operations in 1994, focus on corporate and personal banking. Much of their new business comes from personal loans. With the rise in car prices, and an unchanged level of interest-free government loans for civil servants, the banks have been called on to meet a large increase in demand for loans for car purchases.

In 1996 Baiduri Bank had a fully paid-up capital of Br$50m and made a pre-tax profit of Br$9.8m. The principal shareholder of the bank is Baiduri Holdings, which controls the QAF Group (the leading food distributor in Brunei) and is also active in the press and shipping. Other shareholders include Royal Brunei and Banque Paribas, the latter providing technical assistance to the bank.

Other services

The retail sector Until the late 1980s the retail sector in Brunei was not particularly sophisti- cated. Aside from the local tamu or market, there were only coffee shops, general provisions shops, Chinese supermarkets and a few Chinese restaurants. In 1986 the Japanese store group Yaohan opened its first department store in Brunei. Larger supermarkets have opened and an increasing number of restau- rants and local fast-food outlets (Sugar Bun and Jollie Bee) appeared through- out the late 1980s and early 1990s.

Since 1995 a more international range of shops has come to Brunei; fast-food chains McDonalds, Pizza Hut and Kentucky Fried Chicken now have outlets in Brunei, as does the Body Shop. Yaohan has opened another department store. Royal Brunei Catering owns several of the larger new restaurants in Brunei. Much of this new retail development is occurring at Gadong, just outside the capital. In the centre of Bandar Seri Begawan, the new Sultan Foundation complex of shops and offices is seeking upmarket shops as tenants.

Tourism Until a few years ago the only tourists visiting Brunei were relatives and friends of expatriates who were working there. A range of factors have militated against tourism; limited access to alcohol, the high cost of accommodation, the lack of accommodation and transport outside the capital and the perception that there is little of interest to see in the country.

The year 2000 has been designated “Visit Brunei Year”. To promote tourism further the government plans to establish a National Tourism Organisation. Brunei believes it can develop tourism but certain government officials are concerned about the undesirable cultural influences that accompany mass tourism. In 1996 Brunei had 450,000 visitors: more than 90% came from the neighbouring Malaysian states of Sabah and Sarawak. Brunei is trying to en- courage tourists from ASEAN, Australia, the EU, Japan and Taiwan, and hopes to raise annual tourist visits to 1 million by 2000.

Royal Brunei Airlines is marketing Brunei as the entry point for the region, suggesting especially that a visit to Brunei can be added to visits to Sabah and

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 72 Brunei: Manufacturing

Sarawak. Passengers on RBA flights from Australia are stopping over in Bandar Seri Begawan in increasing numbers.

Cruise ships visiting Sabah and Sarawak now call at Muara and passengers are given a day trip around Bandar Seri Begawan. The main tourist attractions are the various palaces, mosques and other public buildings; the Royal Regalia Building, which replaced the Churchill Museum; the Brunei Museum and the Malay Technology Museum; and Kampong Ayer (the water village). Out at Jerudong, near to the sultan’s second palace and polo club, is Jerudong Park. This new amusement park and food centre has been attracting large numbers of tourists from Sarawak and Sabah—the main draw being that the rides are free. There are plans to develop the park in eight phases. A 600-room luxury resort, with accompanying golf course, already exists there.

The large areas of Brunei that are still covered in primary forest have been earmarked as sites for ecotourism. However, until transport and accommod- ation facilities are improved outside the capital, this market is likely to remain underdeveloped.

Production

Manufacturing

The Industrial Trade Development Council was set up in 1992 to promote dialogue between the public and private sectors, in order to encourage eco- nomic diversification, an objective reflected in the last two development plans and the current one. The Seventh Plan (1996-2000) earmarks more than Br$500m for the development of the industrial sector. An industrial develop- ment fund will be set up, and funds made available for the construction of a technology park.

Twenty-three industrial sites are being established, the first being at Beribi outside the capital. However, most of the existing operators are small-scale businesses such as car-repair and maintenance workshops. The main large-scale industries are food and beverage processing, cement production, garment mak- ing and pre-cast concrete structure production.

Manufacturing’s potential Food processing and furniture making are two industries targeted for further has not been realised development. The government believes that pottery, tiles, cement, chemicals, plywood and glass all have potential, of which only a little has been realised. Bureaucratic obstacles and delays, a shortage of skilled labour, the small dom- estic market, an unwillingness on the part of the government to underwrite risk-taking ventures and the fact that foreigners are prohibited from owning land have all deterred foreign capital and technology from investing in ind- ustry in Brunei. The contribution of manufacturing to GDP increased from 0.8% in 1980 to 1.7% in 1990 and to 3% in 1995.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Brunei: Mining and semi-processing 73

Mining and semi-processing

Brunei’s wealth is based on its hydrocarbons reserves, which at the beginning of 1993 were estimated at 1.4bn barrels of oil, expected to last another 25 years, and 320bn cu metres of gas, which should last another 40 years. However, production will probably continue for much longer: the government has adopted a national depletion policy aimed at conserving resources and con- tinuing exploration to open up new fields. (Data on oil and gas production are given in Reference table 10.)

The Brunei Oil and Gas In 1993 the Brunei Oil and Gas Authority was established. Its main function is Authority to advise and make recommendations to the sultan on all matters relating to oil and gas. The authority plans and controls every phase of activity of hydro- carbons exploration, development, processing and conservation. The authority is also responsible for awarding mining concessions and contracts.

Brunei Shell Petroleum Brunei Shell Petroleum (BSP) has seven offshore and two onshore oilfields in Brunei. The Brunei government is an equal shareholder with the Royal Dutch Shell Group in the company.

Oil production peaked at about 250,000 barrels/day (b/d) in 1979, but was then cut back to a ceiling of 150,000 b/d in the 1980s as a conservation measure. During the Gulf crisis, production was allowed to rise to 152,000 b/d in 1990 and 162,000 b/d in 1991, and peaked at 182,000b/d in 1992. Output averaged about 175,000b/d in 1993 and 179,000b/d in 1994, but fell to around 165,000 in 1995.

A 10,000 b/d BSP refinery at Seria has met domestic demand for petroleum products since 1983. Production of unleaded motor fuel started in 1992.

LNG sales Brunei’s liquefied natural gas (LNG) sales are now nearly 6m tons/year (t/y) and are as important a revenue earner as oil exports. A small amount of LNG is for domestic consumption (10%), but the bulk of it is purchased by three Japanese utility companies: Tokyo Electric, Tokyo Gas and Osaka Gas. Seven 75,000-cu metre tankers, owned and operated by Brunei Shell Tankers, ship the LNG to Japan.

After prolonged negotiations, a new 20-year contract was signed in April 1993 between Brunei Coldgas (the marketing arm of Brunei LNG) and the Japanese utility companies. Under the contract, the quantity to be shipped is to increase by about 8.5% to 165 cargoes per year (with the option of an additional five cargoes per year). In 1991 Japan imported LNG worth US$1.07bn from Brunei. The contract raised prices by about 10%. As part of the contract Brunei’s LNG plant at Lumut, one of the world’s largest, was upgraded and a new Br$100m loading facility was opened in 1993. In June 1994 Brunei Coldgas and the Korea Gas Corporation of South Korea signed an agreement under which 700,000 t/y of LNG was delivered to Korea Gas in 1995 and 1996.

Gas discoveries throughout the 1990s and the likelihood of further finds mean that Brunei can easily meet existing contracts and will be able to benefit from growing demand in Asia for LNG, primarily for power generation. Thailand, Taiwan and Guangdong province (China) are all potential customers.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 74 Brunei: Agriculture, forestry and fishing

Agriculture, forestry and fishing

Bruneians show little Bruneians show little interest in working on the land, and at the same time interest in working on the there are plentiful job opportunities in the public service and in the oil ind- land ustry. As a result, agriculture accounts for less than 3% of GDP and the country has to import 80% of its food. The government’s objective is to produce 7% of the country’s rice requirements by 2000. Rubber production is now negligible. (Reference table 11 includes data on agricultural production.)

Brunei is nearly self-sufficient in vegetables, and the production of tropical fruit is being encouraged. Cattle, both beef and dairy, buffalo and goat rearing are also being promoted. The rearing of pigs has been banned since 1993. The country is self-sufficient in egg production and nearly self-sufficient in poultry. The government has tried to stimulate interest in agriculture by establishing model farms and by providing agricultural training, advice and support from the Agriculture Department. Infrastructure and facilities are being upgraded in rural areas. The government wants the private sector to become more heavily involved in agriculture.

Forestry Because of Brunei’s mostly urban population and the wealth derived from hydrocarbons, the country has not needed to turn to timber for revenue; thus forest exploitation has been limited. No timber is exported, so large-scale forest destruction has not occurred. Timber extraction for local consumption is al- lowed, but only under strict control by the Forestry Department. The depart- ment is concerned about the growing number of cases of illegal logging, especially near the borders of the country.

Brunei is one of the few countries in the region where widespread felling of the forests for shifting cultivation or the timber industry has not occurred. This explains why more than 80% of Brunei is still under forest, with nearly 60% still under primary forest.

In 1989 a National Forestry Policy was issued, providing guidelines for the maintenance of forestry resources and outlining forestry programmes and prac- tices. The policy stressed that forestry could no longer be equated just with timber extraction but that forests also had important environmental, bio- technological, economic and social functions.

The Forestry Department has been upgrading a number of sites around the country for recreational use. A national park is to be developed in the Temburong district. A rattan plantation is to provide canes for the furniture industry. A programme of forest plantations, covering 30,000 ha, is to be devel- oped over the next 30 years. (Historical data on forestry output are given in Reference table 12.)

Fishing Fish plays an important part in the Brunei diet and consumption has increased rapidly throughout the 1990s. In 1996 more than 60% of fish and prawns sold in Brunei were imported, mostly from neighbouring Sarawak and Sabah. An- nual production of fish in 1996 was about 1,200m tons and 350m tons of prawns, worth Br$8.3m. The industry expects to increase production to Br$11m by 2000. Fish landing complexes have been built at Muara and Kuala

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Belait. Aquaculture is being developed, both freshwater and marine. Freshwater ponds cover 10 ha but there is the potential to add another 40 ha of ponds.

Construction

The construction industry, which contributed 5.7% of GDP in1996, is of key importance to the economy, although the sector’s performance depends heav- ily on government spending patterns. Poor management, lack of manpower and materials, and payment delays by government departments are major constraints on the industry.

In the run-up to independence in 1984 there was a construction boom, as many public buildings were erected, including the sultan’s palace. A post- independence slump in the industry was followed in the late 1980s by an upturn, resulting from government spending on infrastructure projects such as the Br$45m Benutan storage dam, improvements in road and telecommun- ications facilities, and state housing projects. The Housing Development Department (formerly the Resettlement Department) is overseeing the develop- ment of eight major resettlement sites, which will house more than 70,000 people. The largest is outside Bandar Seri Begawan, at Lambak Kanan, where over 2,000 houses will accommodate 14,000 people on 630 ha. Under the Seventh National Development Plan, Br$918.3m has been allocated to housing projects.

A number of fires over the past few years have destroyed many of the old shophouses that used to make up Bandar Seri Begawan, and the sites have been cleared for building banks and office complexes. A major new development which opened in 1993 is the headquarters of the Islamic Bank of Brunei.

Several new shopping and office complexes have opened in and around the capital in 1994, 1995 and 1996. An underground carpark in the city cen- tre was opened in 1995. In 1994 and 1995, new offices were constructed for Immigration and National Registration, the Ministry of Industry and Primary Resources and for the Language and Literature Bureau. A National Archives is under construction. A new swimming pool was completed in 1995 and other sports facilities are under construction. A Br$60m control tower at Brunei Inter- national Airport was completed in early 1996. In the centre of Bandar Seri Begawan a new luxury office and shopping complex, owned by the Yayasan Sultan (Sultan Foundation), opened in late 1996.

Under the Seventh National Development Plan there is an ongoing pro- gramme of construction of government offices, hospitals, schools, mosques, fire stations and sporting facilities throughout the country. Housing and road- building programmes will also continue.

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The external sector

Merchandise trade

Brunei used to run large trade surpluses, but these contracted after 1985 be- cause of the fall in oil prices and a surge in imports related to industrialisation and higher living standards. Higher hydrocarbons exports and the strengthen- ing Brunei dollar produced a short-lived reversal in the trend of declining surpluses in 1991, but lower oil prices and volumes in conjunction with big increases in imports led to trade deficits in 1993-95. (Historical data on foreign trade are given in Reference tables 13-16.)

Foreign trade, 1995a (Br$ m) Merchandise exports 2,131 Merchandise imports –3,548 Trade balance –1,417 Sources: IMF, Direction of Trade Statistics.

Exports are dominated by petroleum products: in 1994 crude oil and partly refined petroleum accounted for 45% of total exports and natural gas for a further 47%. By far the most important export market is Japan, which took 57% of Brunei’s exports in 1995, according to IMF figures.

Invisibles and the current account

Statistics are scarce for non-merchandise trade or capital flows. According to the Brunei Chamber of Commerce, invisibles payments (probably running at about Br$1bn per year) and workers’ remittances (estimated at Br$200m per year) are offset by income received from investments. Oil and gas remain Brunei’s principal exports; the value of these exports has declined, causing the trade balance to fall into deficit in recent years.

Capital flows and foreign debt

The sultan has invested abroad in his own right. Notable acquisitions include the Dorchester Hotel in London, the Ritz Hotel in Paris, the Beverly Hills Hotel in California and the New York Palace Hotel.

A number of Brunei companies, including those with royal connections, have been investing in Vietnam and China since 1993. Brunei is investing in the East ASEAN Growth Area (EAGA), especially in developing the region’s trans- port infrastructure.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Brunei: Foreign reserves and the exchange rate 77

Foreign reserves and the exchange rate

Brunei’s large foreign reserves now stand at an estimated US$40bn and gener- ate a substantial investment income, believed to exceed the combined revenue from oil and gas. About one-third of the reserves are managed day to day by the Brunei Investment Agency (BIA), while the remainder are divided between eight foreign institutions. Up to 80% of the investments are government bonds, and the balance is held in cash, equities, gold and real estate.

The currency in Brunei is the Brunei dollar or ringgit, which is fully inter- changeable at par with the Singapore dollar. Thanks to Singapore’s economic strength, both currencies have appreciated steadily in recent years. (See Refer- ence table 17 for historical data on exchange rates.)

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 78 Brunei: Sources of information

Appendices

Sources of information

National statistical sources Negara Brunei Darussalam Bandar Seri Begawan: National Development Committee, Ministry of Development, Seventh National Development Plan 1996-2000, 1997

Statistics Division, Economic Planning Unit, Ministry of Finance, Brunei Darussalam Statistical Yearbook (annual), Bandar Seri Begawan

Statistics Division, Economic Planning Unit, Ministry of Finance, Census of Population 1991, 1992

Statistics Division, Economic Planning Unit, Ministry of Finance, Demographic Situation and Population Projections 1991-2011, 1994

Select bibliography J Bartholomew, The richest man in the world: the Sultan of Brunei, Viking, London, 1989

Borneo Bulletin (daily), Kuala Belait

G Braighlinn, Ideological Innovation under Monarchy: Aspects of Legitimation Activity in Contemporary Brunei, VU University Press, Amsterdam, 1992

Brunei Darussalam in Profile, Shandwick, London, 1989

Brunei Shell, Brunei Darussalam: A Guide, Seria, 1992

Lord Chalfont, By God’s Will. A Portrait of the Sultan of Brunei, Weidenfeld and Nicolson, London, 1989

Department of Information, Brunei Darussalam Newsletter (fortnightly), Bandar Seri Begawan

Economic Development Board, Explore Brunei: a Visitor’s Guide, Bandar Seri Begawan, 1992

D Leake, Brunei: the Modern Southeast Asian Islamic Sultanate, McFarland & Co, Jefferson, NC, 1989

D S Ranjit Singh, Brunei, 1839-1983: The Problem of Political Survival, Oxford University Press, Singapore, 1994

G Saunders, A History of Brunei, Oxford University Press, Kuala Lumpur, 1994

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Brunei: Reference tables 79

Reference tables

Reference table 1 Government finances (Br$ m) 1991 1992 1993 1994 1995 Total revenue 2,686 2,730 3,416 4,318 4,407 of which: revenue from government property 1,022 1,189 2,018 2,952 n/a duties, taxes & licences 1,466 1,292 1,144 1,100 n/a Total expenditure 2,760 3,057 3,397 3,384 3,656 of which: ordinary 1,944 2,136 2,281 2,235 n/a development 370 461 690 735 n/a Source: Ministry of Finance, Treasury Department.

Reference table 2 Money supply (Br$ m) 1991 1992 1993 1994 1995 Currency in circulation 425 460 479 515 574 Demand deposits 1,848 2,028 2,032 3,966 3,644 M1 2,273 2,488 2,511 4,481 4,218 Fixed deposits 1,288 1,522 1,935 2,040 n/a Saving & other deposits 1,136 903 999 1,078 n/a M2 4,696 4,913 5,445 7,599 n/a Source: Brunei Currency Board.

Reference table 3 Gross domestic product

1991 1992 1993 1994 1995 Total (Br$m) At current prices 6,621 6,565 6,585 6,686 7,067 At constant (1974) prices 3,736 3,698 3,548 3,612 3,684 Real change (%) 3.6 –1.0 –4.1 1.8 2.0 Per head (Br$) At current prices 25,401 23,865 23,459 23,501 23,162 At constant (1974) prices 14,351 13,483 13,254 12,696 12,075 Real change (%) –1.3 –6.0 –1.7 –4.2 –4.9 Sources: Ministry of Finance, Brunei Darussalam Statistical Yearbook; government estimates.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 80 Brunei: Reference tables

Reference table 4 Gross domestic product by sector (Br$ m; current market prices) 1991 1992 1993 1994 1995 Agriculture, forestry & fishing 160 166 174 180 188 Mining, quarrying & manufacturing 3,096 2,856 2,626 2,455 2,535 Electricity, gas & water 62 64 67 70 74 Construction 303 316 334 364 405 Wholesale trade 500 430 424 392 383 Retail trade 273 285 295 307 325 Restaurants & hotels 73 78 86 96 108 Transport, storage & communications 297 310 318 338 299 Banking & finance 235 241 254 274 298 Insurance 70 74 77 82 90 Real estate & business services 67 70 74 76 80 Ownership of dwellings 66 69 73 76 80 Community, social & personal services 1,568 1,783 1,948 2,153 2,390 Less banking charges –149 –157 –164 –176 –188 GDP 6,621 6,585 6,586 6,687 7,067 Source: Ministry of Finance, Brunei Darussalam Statistical Yearbook.

Reference table 5 Consumer prices

1991 1992 1993 1994 1995 Consumer price index (1990=100) 101.6 102.9 107.3 109.9 116.5 Consumer prices (% change) 1.6 1.3 4.3 2.4 6.0 of which: food 2.5 0.8 2.6 1.2 n/a clothing & footwear 1.1 3.0 8.6 2.8 n/a housing 0.9 –0.2 5.3 2.8 n/a transport & communications 1.4 2.0 5.1 4.7 n/a Source: Ministry of Finance, Brunei Darussalam Statistical Yearbook.

Reference table 6 Population 1991 1992 1993 1994 1995 Male 137,616 141,300 145,800 150,000 n/a Female 122,866 126,500 130,500 134,500 n/a Total 260,482 267,800 276,300 284,500 296,000 of which: Malay 174,319 179,800 185,200 190,600 197,136 Chinese 40,621 41,300 42,600 43,800 45,880 Sources: Ministry of Finance, Brunei Darussalam Statistical Yearbook; Europa Publications, The Far East and Australasia 1997.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Brunei: Reference tables 81

Reference table 7 Transport and telecommunications statistics

1991 1992 1993 1994 1995 Roads (km) 2,371 2,417 2,443 2,457 n/a Vehicles (no) 134,903 144,159 153,351 160,469 167,786 of which: private cars 113,990 120,381 128,182 133,973 141,371 Scheduled aircraft movements (no) n/a 6,556 7,456 10,149 n/a Aircraft passengers (no, inward) 289,614 349,620 390,774 392,209 448,400 Seaborne cargo discharged (’000 tons) 1,105 1,377 1,635 1,769 n/a Telephones (no) 60,701 67,293 76,900 61,620a 68,100 a Direct exchange line.

Sources: Ministry of Finance, Brunei Darussalam Statistical Yearbook; Brunei Darussalam Key Indicators; Europa Publications The Far East and Australasia 1997.

Reference table 8 National energy statistics

1990 1991 1992 1993 1994 Electricity production (m kwh) 1,172 1,269 1,380 1,445 1,471 Electricity consumption (m kwh) 1,018 1,069 1,118 1,250 1,330 of which: domestic 587 595 629 731 768 Natural gas production (m cu metres) 8,462 8,589 9,246 9,789 9,851 Natural gas domestic consumption (m cu metres) 34 36 41 57 57 Source: Ministry of Finance, Brunei Darussalam Statistical Yearbook.

Reference table 9 Banking statistics (Br$ m) 1990 1991 1992 1993 1994 Assets of banks 5,284 4,976 6,322 6,568 8,811 of which: amounts due from banks outside Brunei 2,186 1,771 2,407 3,037 5,158 loans & advances 1,255 1,831 1,927 2,410 3,237 Liabilities of banks 5,284 4,976 6,322 6,568 8,811 of which: time deposits 1,093 1,288 1,522 1,935 2,040 Source: Ministry of Finance, Brunei Darussalam Statistical Yearbook.

Reference table 10 Oil and natural gas production

1990 1991 1992 1993 1994 Oil (’000 b/d) 152 162 182 175 179 Gas (m cu metres) 8,977 9,208 9,850 9,959 10,245 Source: Ministry of Finance, Brunei Darussalam Statistical Yearbook.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 82 Brunei: Reference tables

Reference table 11 Agricultural production (’000 tons) 1990 1991 1992 1993 1994 Rice 0.93 0.88 0.74 0.79 0.51 Vegetables 2.14 3.08 2.44 4.50 4.82 Fruit 0.54 1.82 1.21 0.85 0.89 Source: Ministry of Industry and Primary Resources.

Reference table 12 Forestry production (’000 cu metres) 1990 1991 1992 1993 1994 Round timber 101.6 90.8 117.2 119.2 123.9 Sawn timber 67.2 54.2 61.0 30.0 n/a Firewood 0.1 0.1 0.1 0.1 0.1 Source: Ministry of Industry and Primary Resources.

Reference table 13 Foreign tradea (US$ m) 1991 1992 1993 1994 1995 Merchandise exports fob 2,466 2,496 2,373 2,128 2,131 Merchandise imports cif –1,111 –2,427 –2,607 –3,151 –3,548 Trade balance 1,355 69 –234 –1,023 –1,417

a Deduced from trading partners’ returns and subject to a wide margin of error.

Source: IMF, Direction of Trade Statistics.

Reference table 14 Key exports (Br$ m) 1990 1991 1992 1993 1994 Crude petroleum 2,040 2,025 2,036 1,786 1,476 Petroleum products 225 206 121 122 n/a Natural gas 1,605 1,897 1,562 1,591 1,561 Sources: Ministry of Finance, Brunei Darussalam Statistical Yearbook; Brunei Darussalam Key Indicators; Europa Publications The Far East and Australasia 1997.

Reference table 15 Key imports (Br$ m) 1990 1991 1992 1993 1994 Industrial & other machinery 174 183 n/a n/a n/a Road motor vehicles 166 159 n/a n/a n/a Electrical machinery apparatus & appliances 126 156 n/a n/a n/a Iron & steel 130 124 n/a n/a n/a Sources: Ministry of Finance, Brunei Darussalam Statistical Yearbook; Brunei Darussalam Key Indicators.

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997 Brunei: Reference tables 83

Reference table 16 Main trading partnersa (US$ m) 1991 1992 1993 1994 1995 Exports to: Japan 1,543 1,233 1,287 1,079 1,220 Thailand 203 199 206 166 263 Singapore 165 242 196 189 203 UK 8 208 414 416 182 USA 26 28 29 43 36 Philippines 96 83 46 33 14 Others 425 433 134 202 213 Total 2,466 2,496 2,373 2,128 2,131 Imports from: Singapore 245 730 698 897 1,612 UK 78 418 495 595 444 Malaysia 107 165 207 287 326 USA 152 498 526 414 209 Japan 175 175 140 147 144 Germany 47 70 63 93 135 France 11 50 84 177 95 Others 296 321 394 542 583 Total 1,111 2,427 2,607 3,152 3,548

a Deduced from trading partners’ returns and subject to a wide margin of error.

Source: IMF, Direction of Trade Statistics.

Reference table 17 Exchange rates (Br$ per unit of currency unless otherwise indicated; annual averages) 1992 1993 1994 1995 1996 US$ 1.629 1.616 1.527 1.417 1.410 ¥100 1.286 1.453 1.581 1.506 1.296 DM 1.043 0.977 0.941 0.989 0.937 SDR 2.294 2.256 2.187 2.150 2.047 M$ 0.639 0.628 0.582 0.566 0.560 Thai baht 0.071 0.064 0.061 0.057 0.056 NT$ (100) 6.474 6.124 5.788 5.351 5.135 Nominal effective exchange rate index (IMF, 1990=100) 108.0 109.9 114.3 117.7 123.3 Sources: IMF, International Financial Statistics; Central Bank of China, Financial Statistics.

Editor: Elisabeth Paulson All queries: Tel: (44.171) 830 1007 Fax: (44.171) 830 1023

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997