finalized MGMT4230_Presentation

and its Dependence on Oil and Natural Gas

Brunei

Situation Problem Solutions Conclusion

History of Brunei

Pre 1400s:Chinese Settlement

14th – 16th Century:Sultanate Ruled

Borneo & South Philippines

Loss of power withArrival of Europeans

Bruneian Empire

1888-1984:British Protectorate


Brunei: A Neo-Traditional State

Hassanal BolkiahSultan of Brunei

Absolute Monarchy

Prominent Royal Family with control of natural resources

The King’s Dilemma

Rely heavily onlavish welfare & subsidies

build platform onreligion, tradition,culture and etc.


Brunei: What is the Problem?

After 22 years,Oil will run out……

After 30 years,Natural Gases will run out……

How can a country so reliable on oil survive in the future?


Possible Solutions

Islamic Financial Hub

TourismsReal Estates

Pioneering Industries

Construct Comprehensive Banking SystemStrengthen Financial Reservez

Increase & Improve Human CapitalAttract Foreign Direct InvestmentEmphasize Energy-related Services


Solution Plan01 Attract FDI

02Strengthen Reserves & Infrastructure

03Become a Financial Hub

Human Capital04

Independent Authority05

Continuous

Attract FDI Financial Reserves Human Capital Authority

Attract Foreign Direct Investment

2005 2006 2007 2008 2009 2010 2011 2012 20130

200,000,000

400,000,000

600,000,000

800,000,000

1,000,000,000

1,200,000,000

1,400,000,000

895,000,00

0

FDI net inflows (US$)

Rising Trend, once peak in 2011

Data from the world bank


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


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?

Government Provide fiscal incentive Provide long term land

lease to foreign investors

Upgrade its Intellectual property rights

Reduce corruption and encourage transparency

Industry Financial & energy-

related service Business

ICT infrastructure Lifetime Learning

Transport & logistics Infrastructure



Legal Construction

Continuous


Construct Comprehensive Banking SystemLegal Aspect

2004New Institution

Semi-democracy: higher investment securityRevival of Legislative Council

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

NowFuture

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



Legal Construction


Supporting Banking System

Continuous


Banking System

Basel I

Basel III

Effective from 2010Capital Requirements

BaselII

Strengthen Capital Requirements Improve Ability of Absorbing LossShort/Long-term Funding

Key Components for Pillar 1

Capital Requirements Common Equity Tier 1 ratios:7% Required capital conservation buffer: 2.5%

Leverage Ratio: 5%zLiquidity Requirements LCR: 100% & NSFR:100%


Basel III Requirements – Target by 2019

Achieved Not Achieved

Leverage ratio

Capital Requirements Common equity Tier 1 Total risk-based capital Required capital

conservation buffer



Legal Construction


Continuous



Investment of Reserves



Improvement ofHuman Capital

Construction of Marketplace

Construction of Business District

Infrastructure



Legal Construction


Market for Hedging



Continuous

03Become a Financial Hub

Hub for Energy-related services


Become a Financial Hub Long experience in oil trading large number of existing export markets

Volatility in oil prices in past 15 years:

2001$20/

barrel

2009$30/

barrel

2008$170/barrel

Reasons Increased demand from China and India Instability in Middle-East since Arab Spring Diverging global prices in expenses of East Asian countries competitiveness


Two Major Components

Non-Islamic Hedging Islamic HedgingThrough Brunei Banks

Organized Futures MarketEnergy commodities

Speculation through derivatives

Liquidity through offsettingMinor 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 Plans assure 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 market



Solution Plan

Improve

IncreaseHuman Capital

04Continuous

01 Attract FDILegal Construction


Market for Hedging


Investment of Reserves03Become a Financial Hub



Increase & Improve Human Capital

2000 2005 2010 20140

20

40

60

80

100

120

30.3 28.2 26.2 25.32

66.7 68.6 70.2 70.4

2.9 3.2 3.6 4.28

Age Distribution in Brunei

65+

15-64

0-14

Year

Perc

enta

ge(%

)

Total Population(2014):

426,000

Population Growth Rate: 1.34%

Fertility Rate: 2.01%

Adult Literacy Rate: 95.39%

Tertiary Enrolment Rate: 24.34%

Type of School No, Student

Teacher

Primary Education

200 31179 3258

Secondary School

38 34637 4018

Professional Technician School

11 3283 597

University 6 6179 654

Problem: Insufficient Labour Force to meet the demand for expertise required by Brunei’s development into a financial hub

Complication: Insufficient Labor Force to meet the demand for expertise required by Brunei’s development into a financial hub


Develop Plan of Human Capital

Long-term: ImproveShort-term: Increase Improve Working

Environment Develop own World Class

Human Capital Promote Lifetime

Learning Redefine Labor Relations

Professions Admission Scheme

Welfare for Expertise's Studying Aboard

Subsidizing Program Increase MNCs


01

03

04

02

Professions Admission Scheme

Prerequisite: Age & Education Financial ability Expertise/

Achievement Language

Proficiency

Welfare for Expertise's High Salaries Allowances Free Living

Studying Aboard Subsidizing Program min. of 3-5 working

years after graduation

Increase MNCs Bring in foreign

experts Attract

professionals

Short-Term: Increase


Long Term: Improve

World-ClassHuman Capital Branch school of

int’l university Int’l School

RedefineLabor Relations Labor Union Protection Laws

Improve Working Environment Safety Measures Atmosphere & culture

LifetimeLearning

On-the-job training Education Allowance


Solution Plan

Improve

IncreaseHuman Capital

04

Independent Authority05

Position in Islamic Hub

Financial / Energy services

Monetary / FDI

Continuous

01 Attract FDILegal Construction


Market for Hedging


Investment of Reserves03Become a Financial Hub



Autoriti Monetari Brunei Darussalam (AMBD) Financial

Intelligence and

Enforcement Division

Energy Investment

Division

Islamic Finance

Monitoring Board

Monitory Authority

Monitor & RegulateFinancial Market

Develop & RegulateEnergy-related Services

Maintain and DevelopRelations with other country


Four-tiered Results

01Sufficient Financial Reserve by FDI andpast energy revenues

02 Complete Infrastructure &Human Capital

03 Trading Market

04 Hub for Energy-related Services

finalized MGMT4230_Presentation

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Transcript of finalized MGMT4230_Presentation