Oil (and later gas) is the main source of Brunei’s economy. Brunei is the third-largest oil producer in Southeast Asia, averaging about 180,000 barrels (29,000 m³) a day.   It also is the fourth-largest producer of liquefied natural gas in the world. Brunei’s gross domestic product soared with the petroleum price increases of the1970s to a peak of $5.7 billion in 1980. The income derived from oil and gas enabled the Brunei Government to launch the Five-Year National Development Plans the first of which was started in 1953 and the second in 1962.

Economy from the 10th century A.D. to the 19th century A.D.

Brunei’s economy before the discovery of oil can be described according to certain periods of time.   During   Brunei’s early period, its economy depended on external trade. The earliest Chinese accounts of Boni gave details of Brunei’s external trade which was based mainly on exports of foodstuffs, jungle produce, and minerals, while imports were mostly confined to manufactured products. These accounts also outlined Brunei’s trading relationship with   China which predated the 10th century A.D. Brunei also had trade relationships with its neighbors such as Java, Cochin, Pahang, Trengganu, and Kelantan. Trade was controlled by the King, and business between traders could only be carried out with the King’s approval. The King would receive special gifts, as would the members of his entourage. According to A. V. M. Horton, the pre-Islamic Brunei empires (from 7th to 9th centuries) depended on prosperity on gold and camphor derived from the west coast of Sabah and the Philippines.

After the 10th century, accounts of Brunei’s economy can be found in Chinese sources. Boni’s wealth was portrayed in the 13th-century account of   Chau Ju-Kua, Inspector of Foreign Trade in the Province of Fukien. In his Chu-fan-chi (Record of foreign Nations) he wrote about the wealth of Boni, its camphor, and its large fleet. However, by the end of the 14th century, as recorded in the Chinese account, Boni had become poor. This was as a result of the activities of the Sulu (Boni’s former vassals) which ransacked and looted Boni. When a Chinese embassy reached Boni in 1371, it found ‘little more than a poor fishing village.’ Here, the Chinese envoys’ description of Boni emphasized its poverty:

The country of P’o-ni [sic] is hot and torrid with frequent storms. The town has no outer wall, and its defense is effected by a fence of tree poles. The Residence of the king has upper stories, the roofs of which are covered with pie-to (nipa palm?) leaves. The kinetics his hair in a   knot wears a piece of colored cloth around his waist and goes barefooted.

Boni became a dependency of Majapahit until the latter weakened after the death of Hayam Wuruk in 1368. Although the official relationship between Brunei and China was distant during this period, trade was still conducted between the two countries.

 In the early 16th century, there was a revival of Brunei’s power and economy. Antonio Pigafetta (Ferdinand Magellan’s chronicler) in his account of Brunei in July 1521 recorded Brunei’s immense wealth and power. He visited the Sultan’s palace and described it as follows:

The men in the palace were all attired in cloth of gold and silk which covered their privies and carried daggers with gold hafts adorned with pearls and precious gems, and they had many rings on their hands.   We returned upon the elephants to the governor’s house, seven men carrying the king’s presents to us, and always preceding.

During the reign of  Sultan  Bolkiah, Brunei expanded to its greatest extent where it experienced the re-establishment of the third time of thalassocracy which embraced the trading ports of  Borneo,  Sulu, and the   Philippines.12  In this period, Brunei’s power and wealth could have been the result of the fall of Malacca to the Portuguese in 1511. Writing in about 1586, a Spaniard described the city of Brunei as it had been in 1578:

The city was very large and rich and was built over a very broad and deep river and had the appearance of another   Venice.   The buildings were of wood, but the houses were excellently constructed, many of them being constructed of stonework and gilded, especially the King’s palaces which were of huge size.  The city contained a very sumptuous mosque, a very large and interesting building, quite carved with half relief and gilded.

However, from the end of the 16th century until the 18th century, Brunei’s economy weakened following the occupation of   Manila (which was once under Brunei’s influence) by the   Spanish before the end of the   16th century.  When the Spanish occupied Manila, trade between Brunei and Manila was severed and Manila did not send any more tributes to Brunei.  Brunei’s trade with Manila included iron and tin, porcelain, copper gongs, benzoin, India cloth, tempered iron, pans, spearheads, knives, and other goods to trade for gold, slaves, and cowries.

Between   1661   and   1673, Brunei’s economy suffered, even more, when it experienced a succession dispute which led to a   civil war between   Sultan Abdul Mubin and   Sultan   Muhyiddin.  As a   result of the dispute, Brunei’s politics were destabilized and its economic activities were interrupted for at least twelve years. After the civil war, Brunei lost control of North Borneo when it came under Sulu’s hegemony (which proclaimed its independence). The emergence of new governments such as   Sambas, Banjarmasin, and   Sukadana also affected   Brunei’s economy as traders who used to come to Brunei to trade now spread out to the new trading ports. In other words, they no longer came only to Brunei’s port to trade. Furthermore, the Chinese traders ceased coming to Brunei, and trade was mostly taken by European traders who practiced a trade monopoly. Between 1840 and 1890, Brunei’s economy weakened even further as Brunei experienced the rapid disappearance of its territories to the Brooke family in Sarawak and the   British   North   Borneo   Company in North   Borneo.  The loss of   Brunei’s territory was a result of Britain’s imperial policy which allowed Brooke to expand its territories with limited interference from Britain. At this time, Britain did not raise objections to the private efforts of   British citizens or British sponsored trading companies to own settlements in Northern Borneo as Britain could exercise indirect control over new territories that were strategically and commercially important to them.

It was during this time that James Brooke acquired half of Brunei’s territory. In July 1842, Brooke obtained the country of   Sarawak (i.e., the portion of what is now Sarawak extending from Cape Datu to the   Sadong River) which was rich in antimony for an annual tribute of $2,500. This was as a result of Pengiran Muda Hashim’s agreement with James Brooke that the former would make James Brooke a governor of   Sarawak if he could put an end to the rebellion in   Sarawak.   After Sarawak was officially surrendered to him by Sultan Omar Ali Saifuddin II (r. 1824 –1852) in 1847, James Brooke expanded its territory (from one area to another) usually at the expense of Brunei’s Sultans.

In 1861, James Brooke expanded its territory between Rajang and the Bintulu Rivers (the area rich in jelutong, beeswax, and rice) including Rivers Mukah (a center of sago trade) and Oya. He gained the rivers after he had taken sides in the local disputes in the territory. In 1861, James Brooke visited Brunei to negotiate Mukah where Britain interfered in the negotiation and took Brooke’s side.  As a result, an agreement was reached by which Mukah and Bintulu were ceded in return for the payment of $4,500 per year to the Sultan. As a result of the cession of Mukah, Brunei lost its valuable sago exports to Singapore from this territory.

However, could it be that the discovery of oil at the Rajah Brooke’s coal mine in   Berambang   Island in   1903 influenced   Britain to reconsider its policy towards Brunei? In 1903, Hewett reported that ‘oil had been discovered in Brunei with every indication of being in great abundance’.  When   McArthur was sent to   Brunei to report on conditions there in 1904, one of the first matters on which the Acting Consul reported was the granting of the oil concessions. John Anderson told him to discourage oil concessions ‘in its present circumstances’.  Although   the   Brookes’ rights on   Berambang   Island were   secured, others might still acquire concessions elsewhere. The Sarawak agent had made an offer for a concession, but the Sultans would not give a definite answer. Hewett thought that the Sultan might turn to others.

In Hewett’s dispatch to Lansdowne, he mentioned that ‘the Sultan…neither refused nor accepted…I have no doubt he will do all he can to sell it to other people first before accepting the Rajah’s offer’. In the dispatch of the Colonial Office to the Foreign Office, Britain’s concern over the oil concession is clear: ‘it would appear to Mr  Chamberlain to be very desirable that whatever influence can be legitimately brought to bear upon the Sultan, should be used to prevent a concession for working this oil into the hands of a private adventurer’. From here one can see that Britain was deeply concerned about the oil concessions lapsing to another foreign power. Thus, it appeared that in order to secure it, Britain needed to reconsider its policy towards Brunei.

 After the introduction of the residency system

The problem with   Brunei’s economy in its early stage of the   Residency System according to McArthur was that Brunei had no public treasury and it ‘had no government in the usual sense of the term only ownership’. The Sultan and his pengirans held all the land and people lived on it divided under three forms of tenure: kerajaan (crown lands), Kuripan (lands held by the wazirs as appanages) and tulin (private hereditary domains). Under this system, the owners of the kerajaan, kuripan and tulin could impose taxes upon the people who lived in their territories as they wished and everything they earned from these territories went into their pockets. When the Residency System was introduced in 1906, the land tenure system in Brunei was scrapped. In accordance with the 1905 – 06 Agreement, the Sultan and wazirs gave up their traditional rights of income from kerajaan and kuripan holdings. In return, they received fixed annuities of $12,000 and $6,000 respectively. All lands became state property except those held with registered titles.   The   British administration borrowed money from the   Federated   Malay   States where some of which were used to redeem the lands. During the years between 1906 and 1909 at least$7,045 was spent on the redemption of tulin rights. The government also bought monopolies as no administration was possible as long as these monopolies remained in existence; a loan of $200,000 was obtained from the Federated Malay States (FMS)to enable the government to buy them out. Toward 1908, the original Malayan loan was already virtually exhausted. By 1914, no less than $439,750 had been borrowed,

Of which   $72,009   had been used for the redemption of monopolies. Once monopolies affecting trade had been redeemed, a fixed scale of import duties was introduced.

In 1906, Brunei’s source of revenue came mainly from licenses, customs, land and mining, poll-tax, postal revenue, launch fares and freight, market boat tax, interest, court fines, and fees, and overissues refunded. Brunei’s revenue for the year1906   was   $28,174.  In 1907, its revenue increased to $51,777   as there was a significant rise in customs revenue, but the state’s economy was in deficit as the total expenditure exceeded revenue. Until the discovery and development of oil, Brunei’s economy produced nothing which could generate a   substantial income for the government. In 1914, its economy was about $40,000 in deficit. In this year rubber, which had been introduced in Temburong in 1908, was exported for the first time but the export value contributed little to the national exchequer. Initially, the main exports of Brunei were cutch and sago. Sago was the staple industry on the Belait, Tutong and Temburong Rivers. The approximate value of the exports of sago in 1915 was $37, 229. The exports of sago had not been encouraging however as a result of its very low price. The cutch industry, which was operated by the   Island   Trading Syndicate (established in   Brunei Town since   1900), exported tonnes of bark extract (cutch), but its export value was again trivial. Nevertheless, cutch was Brunei’s most valuable single export from 1906 to 1922 (except in 1918and 1921).

In 1921 when the government for the first time imposed a tax on the export of coal, its export value was also little. One of the reasons for this was the shortage of shipping.  Moreover, the Brooke ton colliery suffered heavy losses from the outset and it was not until 1917 that a minuscule surplus was shown on a year’s trading. Although good profits were made in the years 1918 – 1920, the colliery lapsed into the red in 1922, and despite small surplusses in 1923 and 1924, Brooke closed the mine in November of the latter year.  Since the transfer of these rights to Brunei, various syndicates were interested in carrying out mining. However, their inability to attract sufficient capital brought their efforts to naught.  In 1924 the output of cutch decreased and the sago trade continued to decline. There was a   drop in the output of the cutch industry partly because of the short-sighted policy of the   Island Trading   Syndicate which had not re-forested in the Temburong District.  The sago industry weakened because the price of sago was very low. Consequently, many peasants turned to the rubber industry which was more profitable.  The rubber plantations were operated by smallholders and estates in the Temburong, Tutong, and Brunei districts. In 1925, when the export of rubber reached its peak of $1,859,736, there was a surplus in Brunei’s revenue of about $69,973.52The rubber industry was however hit hard by the 1930s depression. During the slump in the price of rubber, the planters began to pay more attention to their sago plantations which had been badly neglected since rubber planting began to engage their attention.  Over 6,000 pikuls of sago flour were exported in 1930 against 3,000 pikuls in 1929 and there was also a much-increased production for local consumption mainly as an insurance against a possible failure of the rice harvest. By the end of the year, however, the price of sago flour had fallen so low that it hardly paid to produce it for export.53 Only 2,206 pikuls of this product to the value of $3,485 were exported as against 6201 pikuls to the value of $21,481 in 1930. The price declined to such an extent that the working of sago flour was rather uneconomical.

Meanwhile, in 1931, a report on the possibility of developing Brunei coal was made by a geologist of the Federated Malay States (FMS) Mines Department. This report stated that the development of coal mining would be very expensive and difficult due to the peculiar nature of the seams. The Syndicate that was negotiating at the beginning of the year found themselves unable to accept the conditions laid down by the Brunei government and consequently no interest was shown by any company.55Other   resources being tried out in order to generate income for Brunei’s treasury included timber. However, since the government was struggling to keep up with domestic demand only a small amount of timber was exported. The government experimentation with cash crops such as tea, coffee, manila hemp, and cotton was also unsuccessful.56 When McArthur reported that Brunei would become a prosperous state because of its fertile soil, it would appear that he was being somewhat over-optimistic. Very little of Brunei’s soil is suitable for agriculture because of the intense leaching of nutrients caused by heavy tropical rainfall.  G.E.  Wilford described Brunei’s soil as ‘mostly thin and poor in assimilable bases and many are highly acid’.

The dried prawn trade which was started in 1918 also brought in little revenue to Brunei, as did the export of arts and crafts such as brass, silverware, sarongs, baskets, and hats. In the 1930s weaving began to decline because Brunei producers were unable to compete with Japanese production.58 As stated before, the chief source of income for Brunei’s treasury was revenue from customs duties levied mainly on imports. The government opium monopoly was the next most important item.  Opium however provided a   much smaller share of Brunei’s revenue than was the case in the Straits Settlements or the Federated Malay States (FMS). Further revenue came from license fees, land rents and survey fees, interest, and the rare issues of new stamps.   Thus, until the development of the oil industry, Brunei’s economy produced nothing which could generate a   substantial income for the government. As a   result, development in   Brunei was modest.  With Brunei’s limited economy, only a few specialized departments namely Agriculture, Posts, Customs, Public   Works, Police, Health, and   Education were established. Nevertheless, the modest development in Brunei continued after the first twenty years of the discovery of oil as the British Residency was too cautious to spend the money(for Brunei’s development and welfare of the people) as it feared that the oil wells in Brunei would stop producing oil and because of the initial administrative experience of ‘grappling with a nearly bankrupt State’. Nevertheless, the discovery of oil in Brunei in 1929 changed Brunei’s economy drastically.

 Issue after the discovery of oil

With its oil-based economy, Brunei was able to unleash mega-development plans every five years. In the   First   Five-Year   National Development Plan, $100 million was allotted by the government for the development of various fields such as communication and infrastructure. Within the Second Five-Year National Development Plan (1962 – 1966), in the 1963 December budget, $30million was apportioned for development; of which a good slice went to improve health, education, and public works. The Legislative Council also passed the National Development Fund Bill, authorizing the expenditure of $47 million. On the other hand, as a result of oil production, the original sources of Brunei’s income such as exports of rubber, sago, and cutch were gradually neglected. Brunei became too dependent on oil and it is still very much dependent on revenues from oil and gas to finance its development programs.

The wealth from oil did not only enable the government to start on super development plans, it also enabled Brunei to maintain its sovereignty (though small in size) as a Malay Islamic Monarchy. In the 1950s, when the Colonial Office proposed to associate Brunei closely with Sarawak and North Borneo and then with Malaya (before being granted independence) Sultan Omar Ali Saifuddien III disregarded it. One of the reasons was that the Sultan did not want to share Brunei’s oil wealth with Sarawak and North   Borneo.  Then again in the 1960s   when the   Malayan   Prime Minister Tunku Abdul Rahman proposed the formation of the Federation of Malaysia consisting of Malaya, Singapore, Sarawak, Sabah, and Brunei, the Sultan rejected the idea and this was partly because he did not want the Malaysian government to control Brunei’s oil revenue.

During the discussions between the   Malayan government and   Brunei, the former insisted that the control of Brunei’s oil revenue should be passed to the federal government ten years after Brunei’s entry into Malaysia. However, the Sultan wanted to retain Brunei’s control over any revenue and income relating to oil in perpetuity. The Malayan government also wanted the right to tax immediately any new oil and mineral finds discovered after the   Sultanate joined   Malaysia, whereas the   Sultan maintained that   Brunei should retain such revenue.   It thus looked as if the Federal government wanted to control Brunei’s oil wealth. Brunei would not surrender its oil wealth to the Federal government because it would be left with nothing. The failure to reach any consensus regarding the future of Brunei’s oil economy with the Federation became one of the main reasons for the Sultan’s refusal to join Malaysia in 1963. Indeed, the Sultan had already stated in his correspondence to Tunku Abdul Rahman between July 1961 and October 1963 that Brunei should only join the federation if the   Malayan government could accept all of   Brunei’s terms.

   With its oil economy, Brunei was able to retain the British   Gurkha forces in   Brunei.  According to   Major   General Lewis   Pugh,  the Sultan’s objective for retaining British military protection was undoubtedly the result of security concerns, that is to ‘secure the safety, economic stability and progress of Brunei in the face of a political threat should Brunei become independent, in the short term from Malaysia and in the longer term from Indonesia’.

The economic situation in early Brunei depended on trade where exports were mainly of raw materials. Although Brunei was described as a rich empire in the 13thcentury, in the 14th century Brunei was poor as a result of the activities of Sulus whoraided and ransacked Boni. And although Brunei’s economy revived in the early 16thcentury, from the end of the 16th century until the 18th century, Brunei’s economy weakened following the absorption of Manila by the Spanish before the end of the16th century. Between 1661 and 1673, Brunei’s economy suffered, even more, when it experienced succession disputes where Brunei’s economy was disrupted for about twelve years.  From the mid -19th century until the end of that century, Brunei’s economy suffered further as a result of Brooke’s activities in Sarawak (which were either directly or indirectly supported by Britain) and the Sultan’s limited control over his peoples, territories, and revenues. As Brunei shrunk in size so did its economy, and because of its insignificant size and economy the Foreign and the Colonial Offices preferred it to be absorbed within   Sarawak.   However, McArthur’s report which suggested that Brunei would become self-sufficient after an initial loan and would become a prosperous state because of its trade, fertile soil and natural and mineral resources saved Brunei from extinction.

Nevertheless, when the Residency System was introduced in Brunei in 1906, the   British administration struggled to find ways to generate income for the government’s treasury. The British administration had to scrap the land tenure systemin order to generate income for Brunei’s coffers. Cutch, sago, and coal, which were the main exports of Brunei, were not encouraging as they faced problems from the early stage of the residency period. In the 1920s, the cutch industry faced decreased outputs a result of the reduction of the cutch trees; sago production also declined as the price of sago was very low and the coal industry export value was small as a result of the shipping problem.  

Other resources such as timber, dried prawns, and arts and crafts also brought in little revenue to   Brunei. Until the oil breakthrough and the growth of oil in Brunei, there was nothing that could bring in large revenue for the government. The discovery of oil in Seria in   1929   however proved significant for Brunei’s economy and helped preserve   Brunei’s sovereignty as a   Malay Islamic Monarchy.

By Sanjida Xannat