Frontier Markets: Investing In Oil-Rich Brunei
Brunei Oil

The 2016 list of best places to invest by Site Selection Magazine is out, and in Asia the oil-rich kingdom of Brunei comes in at second place after the winner Singapore, on a per capita basis. Once the richest man in the world, the Sultan of Brunei has probably slipped down the scales because of the current depressed price of oil, which accounts for 62% of GDP and is the source of 90% of the government’s revenue.

The last quarter of 2015 saw a negative GDP growth of 0.5%, no doubt due to the slide in oil prices. However, to boost GDP the government in its 2016/17 budget expanded infrastructure spending. 2015 losses in oil revenue were offset by aggressive expansion in agriculture, fisheries, and forestry.

The Asian Development Bank projects that Brunei will return to positive growth on the back of the large infrastructure projects, but they also advise the country to take advantage of the low energy prices to reduce or eliminate subsidies on fuel and electricity, which are currently a burden to the government.

Now I know some people, not a lot but some, are wondering where in Asia Brunei is located and why as an investor should they care. First, Brunei is a small country located on the northeast coast of the island of Borneo, which itself is divided between Indonesia and Malaysia. And secondly, they have oil. A lot of oil. They are the fourth largest producer in Southeast Asia.

They are also in the process of developing a stock market in the very near future and have launched Sukuks, which are Islamic bond offerings. In April they launched one with a one-year maturity and the second with a three-month maturity, ending in July 2016. These bonds are best suited for infrastructure projects of which there are several under development.

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Of course being that oil is the major GDP driver, some western companies are active in Brunei—Shell (LSE: RDSA) for instance, and Baker Hughes (NYSE: BHI). But the major player is the Brunei National Petroleum Company, which interestingly has been expanding internationally, most recently into Myanmar.

Being a government owned enterprise, they are not traded on any exchange but with the upcoming launch of the Brunei Stock Market, this is a company that could be listed. Oil prices are depressed at present, and in my opinion are not a good investment long term. But who knows what 2017 will bring. I will certainly keep them on my watch list and update you with any new information.

Peter Kohli is CEO of DMS Funds.

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