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and its Dependence on Oil and Natural GasBrunei History of Brunei

Pre 1400s:Chinese Settlement

14th 16th Century:Sultanate Ruled

Borneo & South PhilippinesLoss of power withArrival of Europeans

Bruneian Empire

1888-1984:British Protectorate

2

Brunei: A Neo-Traditional StateHassanal BolkiahSultan of Brunei

Absolute Monarchy

Prominent Royal Family with control of natural resources

The Kings DilemmaRely heavily onlavish welfare & subsidies

build platform onreligion, tradition,culture and etc.

Brunei: What is the Problem?

After 22 years,Oil will run outAfter 30 years,Natural Gases will run outHow can a country so reliable on oil survive in the future?

Possible Solutions

Islamic Financial Hub

Tourisms

Real Estates

Pioneering Industries

Construct Comprehensive Banking SystemStrengthen Financial ReservezIncrease & Improve Human Capital

Attract Foreign Direct Investment

Emphasize Energy-related Services

Solution Plan01Attract FDI02Strengthen Reserves & Infrastructure03Become a Financial HubHuman Capital04Independent Authority05Continuous

Guillermo: Intro+Legal+market for mortgagingLirim: Investment + energy-related servicesCynthia: Banking system + independent authorityClare: Attract FDIRebecca: Human Capital + conclusion6

Attract Foreign Direct InvestmentRising Trend, once peak in 2011

Data from the world bank

7

Current FDI in Brunei

Attract FDI

11 FDI Projects

$6.9billion

2462jobs

70%by locals

Why do we have FDI

GlobalizationFree Flow of Capital

Improvements in Balance of Payment

Resources Stimulating Economic Growth

Rise inCorporate Activities

Rise InNational Income

Globalisation- Free flow of financial capital and human capitalSeeking extra resources for stimulating economic growthImprove the Balance of PaymentRise in national incomeRise in corporative activities

9

Barriers to FDI

Corruption

Complex Screening&Approval Process

Ineffective IntellectualProperty Law

Restriction on Foreign Ownership of Land

Transition into Sharia law- strict punishment, restrict on human rights

What can Brunei do?

GovernmentProvide fiscal incentiveProvide long term land lease to foreign investorsUpgrade its Intellectual property rightsReduce corruption and encourage transparency

IndustryFinancial & energy-related serviceBusinessICT infrastructure Lifetime LearningTransport & logistics Infrastructure

Solution Plan01Attract FDI

Legal ConstructionContinuous

Guillermo: Intro+Legal+market for mortgagingLirim: Investment + energy-related servicesCynthia: Banking system + independent authorityClare: Attract FDIRebecca: Human Capital + conclusion12

Construct Comprehensive Banking SystemLegal Aspect

2004New InstitutionSemi-democracy: higher investment securityRevival of Legislative Council

2011Monetary AuthorityAutoriti Monetari Brunei Darussalam (AMBD)- Financial Intelligence & Enforcement Division

NowFutureEstablish Competitive reserve requirement, interestrate ceilings, capital controls and Low Taxation

http://www.ambd.gov.bn/about-ambd

13

Solution Plan01Attract FDI

Legal Construction02Strengthen Reserves & Infrastructure

Supporting Banking System

Continuous

Guillermo: Intro+Legal+market for mortgagingLirim: Investment + energy-related servicesCynthia: Banking system + independent authorityClare: Attract FDIRebecca: Human Capital + conclusion14

Banking SystemBasel IBasel III

Effective from 2010Capital RequirementsBaselIIStrengthen Capital Requirements Improve Ability of Absorbing LossShort/Long-term FundingKey Components for Pillar 1

Capital RequirementsCommon Equity Tier 1 ratios:7%Required capital conservation buffer: 2.5%Leverage Ratio: 5%z

Liquidity RequirementsLCR: 100% & NSFR:100%

Basel III Requirements Target by 2019AchievedNot Achieved

Leverage ratio

Liquidity RequirementsLCRNSFR

Capital RequirementsCommon equity Tier 1 Total risk-based capital Required capital conservation buffer

Solution Plan01Attract FDI

Legal Construction02Strengthen Reserves & InfrastructureContinuous02Strengthen Reserves & Infrastructure

Supporting Banking System

Investment of Reserves

Guillermo: Intro+Legal+market for mortgagingLirim: Investment + energy-related servicesCynthia: Banking system + independent authorityClare: Attract FDIRebecca: Human Capital + conclusion17

Investment of Reserves

Improvement ofHuman Capital

Construction of Marketplace

Construction of Business District

Infrastructure

Solution Plan01Attract FDI

Legal Construction02Strengthen Reserves & Infrastructure

Market for Hedging

Supporting Banking System

Investment of Reserves

Continuous03Become a Financial Hub

Hub for Energy-related services

Guillermo: Intro+Legal+market for mortgagingLirim: Investment + energy-related servicesCynthia: Banking system + independent authorityClare: Attract FDIRebecca: Human Capital + conclusion19

Become a Financial HubLong experience in oil tradinglarge number of existing export markets

Volatility in oil prices in past 15 years:

2001$20/barrel2009$30/barrel2008$170/barrelReasons Increased demand from China and India Instability in Middle-East since Arab Spring Diverging global prices in expenses of East Asian countries competitiveness

Remember to talk about why we have chosen the energy-related services

20

Two Major Components

Non-Islamic HedgingIslamic Hedging

Through Brunei BanksOrganized Futures Market

Energy commodities

Speculation through derivatives

Liquidity through offsetting

Minor Marginal Deposits

Risk Management

Maqasid ash-shari-ah

First-mover Advantage

Japan, China, UK

Islamic Hedging

Situation

Risk Dilemma

Gharar Principle

Money Making

Owning Full Contract& Leasing

Buying contract at full price & selling back in instalments

Unbundle & repackageof risks

Conditions for Hedging

Inevitability

Likelihood of Failure

Causality

Reducing and managing costs for the purchase and delivery of natural gas, electricity and propane

Monitoring of Cost Reduction Plansassure clients are receiving what promised

Providing procurement and auditing services

Reducing transaction costs by data upload services

Investing in U.S. energy sector to help arbitrage prices Expanding sources, flexibility and enlarge the marketHub for Energy-related services

Remember to talk about why we have chosen the energy-related services23

Solution Plan

Improve

IncreaseHuman Capital04Continuous01Attract FDI

Legal Construction02Strengthen Reserves & Infrastructure

Market for Hedging

Supporting Banking System

Investment of Reserves

03Become a Financial Hub

Hub for Energy-related services

Increase & Improve Human CapitalTotal Population(2014):426,000Population Growth Rate:1.34%Fertility Rate:2.01%Adult Literacy Rate:95.39%Tertiary Enrolment Rate:24.34%

Type of SchoolNo,StudentTeacherPrimary Education200311793258Secondary School38346374018Professional Technician School113283597University66179654

Problem: Insufficient Labour Force to meet the demand for expertise required by Bruneis development into a financial hubComplication: Insufficient Labor Force to meet the demand for expertise required by Bruneis development into a financial hub

Develop Plan of Human CapitalLong-term: Improve

Short-term: Increase

Improve Working EnvironmentDevelop own World Class Human CapitalPromote Lifetime LearningRedefine Labor Relations

Professions Admission SchemeWelfare for Expertise'sStudying Aboard Subsidizing ProgramIncrease MNCs

01

03

04

02

Professions Admission SchemePrerequisite:Age & Education Financial abilityExpertise/ AchievementLanguage ProficiencyWelfare for Expertise'sHigh SalariesAllowancesFree LivingStudying Aboard Subsidizing Programmin. of 3-5 working years after graduationIncrease MNCs Bring in foreign expertsAttract professionalsShort-Term: Increase

Long Term: Improve

World-ClassHuman CapitalBranch school of intl university Intl School

RedefineLabor RelationsLabor UnionProtection Laws

Improve Working EnvironmentSafety MeasuresAtmosphere & culture

LifetimeLearningOn-the-job trainingEducation Allowance

Solution Plan

Improve

IncreaseHuman Capital04Independent Authority05

Position in Islamic Hub

Financial / Energy services

Monetary / FDI

Continuous01Attract FDI

Legal Construction02Strengthen Reserves & Infrastructure

Market for Hedging

Supporting Banking System

Investment of Reserves

03Become a Financial Hub

Hub for Energy-related services

Guillermo: Intro+Legal+market for mortgagingLirim: Investment + energy-related servicesCynthia: Banking system + independent authorityClare: Attract FDIRebecca: Human Capital + conclusion29

Monitory AuthorityMonitor & RegulateFinancial MarketDevelop & RegulateEnergy-related ServicesMaintain and DevelopRelations with other co