Are civil servants a major damper on development?

First of a series

Civil servants in the middle and lower levels in Brunei Darussalam are "a major constraint" to development.

This was the assessment of economic research and analysis expert Manu Bhaskaran who outlined six points that make up the Sultanate's "weak enabling environment" that is curbing its capacity to expand beyond the oil and gas sector.

Bhaskaran is the director and chief executive officer of Centennial Asia Advisors, Singapore. The Centennial Group is a strategic advisory firm with international recognition.

In his report published in the CSPS Strategy and Policy Journal published by the Centre for Strategic and Policy Studies, Bhaskaran noted the "culture of risk aversion" among civil servants, that forms part of an environment that stands in the way of economic diversification. The journal's first edition, which focused on economic diversification, was released in July this year.

"First, we find there is an insufficient clarity of purpose," he said in his paper titled "Economic Diversification in Brunei Darussalam. "In the case of Brunei, it is not public knowledge what the rate of depletion of oil and gas reserves are and just how urgent (or not) economic diversification is," said Bhaskaran, who leads the Centennial Group's strategic advisory initiatives in developing Asian markets.

He observed during his visits and meetings in Brunei that there is a lack of clarity about how far economic diversification should be pursued if such efforts might potentially undermine some other social or political objectives.

In his second point, Bhaskaran said that while senior civil servants are comparable with counterparts in the rest of Asia, it is clear to him that those in the middle and lower levels are a major constraint in the country's development.

"There is clearly a culture of risk aversion and lack of accountability," he said, adding that there are no apparent penalties for failure to achieve objectives.

"Thirdly, we find several structural weaknesses in the Brunei corporate sector as companies do not keep proper accounts because of anomalies in the tax regime. While banks have adapted to such conditions, we found that they are just not lending as much as they could if companies were better structured," said Bhaskaran.

Bhaskaran also noted that the "excessive government control" of land, which is a key factor of production, has contributed to the corporate sector weakness.

He stated in his paper that as of 1999, 95.4 per cent of land in Brunei belonged to the state and there had been several occasions where new business ventures failed to get off the ground because the authorities were too slow to grant permission for land use or for change in the tenure.

Bhaskaran's fourth point focuses on economic scale. The way to get over it is to go for scale in regional hub activities such as an airport, sea or the regional centre for business headquarters on which Brunei will have to fight with Hong Kong and Singapore, he said.

"While human capital in Brunei is relatively good, too few students reach tertiary level and the prevalence of government jobs and subsidies creates a set of incentives that do not propel workers to strive and compete," Bhaskaran said.

In the sixth and final point, he said that high wages and low productivity in Brunei have led to high unit costs.

"The structural distortion in the labour market is believed to be the result of the dominance of just two major employers: the government and the oil and gas sector," he said. "In addition, the lack of economic scale ... could also be behind the high unit costs."

In its quest for diversification, however, Brunei has to be careful about what activities it focuses on, said Bhaskaran who heads the Centenial Group's economic research practice which provides in-depth analysis of Asian macro trends for investment institutions, governments and companies with interests in the region. The Sultanate has to make sure any economic activities are viable.

Manu Bhaskaran, told The Brunei Times in an email interview that for Brunei to succeed, it may be necessary to be focused on specific niches where it can have a unique advantage.

"Brunei is like Singapore, a small economy with few economies of scale, except perhaps in the size of its investment fund. It is also not as favourably located as Dubai, Singapore or Hong Kong in terms of a hinterland," said Bhaskaran.

"So it has to be careful about what activities it focuses on," Bhaskaran said, adding: "Take halal activities, Malaysia is trying that, as is Indonesia. They have the market size, headstart, base of manufacturing and supplier activities."

Asked about Brunei being a hub, whether in terms of air or sea, in competition with Hong Kong and Singapore, Bhaskaran said that the Bimp-Eaga market might be the hinterland that Brunei can work with, but progress has been slow.

"My honest assessment is that it will take years to get off the ground, if ever," he said.

However, Bhaskaran said that Brunei is a well-governed state, far ahead of most of its peers in terms of an administration which is not only honest and competent, but quite far-sighted as well.

Dato Paduka Hj Ali Hj Apong, CSPS chairman, said he hoped that the release of the journal could make a real contribution to policy debate in Brunei and thus assist in good policy formulation for the development of the country.

Tomorrow: What can Brunei do?

The Brunei Times