EXHAUSTIBLE NATURAL RESOURCE EXPLOITATION IN ECONOMIC DEVELOPMENT : CASE OF BRUNEI

Abstract

In 1929, Shell discovered commercial quantities of oil in the Serai area. For many years after that Brunei was still predominantly a poor country. The oil industry brought neither significant wealth nor development to Brunei. It was after the first oil crisis in 1973 that Brunei became a wealthy nation. Instability of oil exports from Middle East resulted in many neighbouring countries in Asia favouring oil exports from Brunei because it offers a stable continuous supply of oil and liquefied natural gas to them. During this time, Brunei enjoyed an accumulation of financial assets and an increase in income. Brunei's economy is today overwhelmingly dominated by the exhaustible resource sector, which accounts for a large percentage of its gross domestic product and exports. As such, a major concern is the need for prudent management of resource revenue. However, it also highlights the need for Brunei to diversify into other activities because it is presently exploiting an exhaustible resource that is estimated to run out in a few decades. This academic exercise seeks to examine, in particular, the economic implications that dependence on resource revenue have for Brunei. The concepts of linkage effect, Dutch disease and export instability were used for this discussion. More specifically, the implications a natural resource industry have on the overall economic development were looked into. For example, an attempt was made to see how the oil industry has led to the setting up of other related industries. Various other points of views on other resource rich countries were used to highlight issues relevant to Brunei.