Trump’s exit from the TPP and his travel ban from Muslim majority countries are two potent threats to Brunei going forward.
The global fallout from Donald Trump’s victory is the topic du jour for both American and international media outlets. Key elements of this coverage are Trump’s decision to withdraw from the Trans Pacific Partnership (TPP) and his travel ban. These actions, and his victory over Hillary Clinton in general, has serious ramifications for one country in particular: Brunei.
The tiny Southeast Asian sultanate is often overlooked, yet it has a direct link to the recent American election, and in turn has been directly affected by its outcome. The Sultan of Brunei is a long-standing friend of the Clintons and has donated between one and five million dollars to the Clinton Foundation. The Sultan’s relationship with the Clintons even became an election issue, as Donald Trump sought to connect Hillary, free trade and the pro-Sharia law sultanate. In 2015, Trump stated that “The Sultan of Brunei has pushed oppressive Sharia law, including the punishment of death by stoning for being gay. The government of Brunei also stands to be one of the biggest beneficiaries of Hillary’s Trans-Pacific Partnership – which she would absolutely approve if given the chance.”
Trump’s statement spoke to both conservatives concerned about trade and sharia law, as well as LGBTQ allies and Clinton detractors on the left. By pointing out Hillary’s connection to the Sultan, Trump helped remind many liberals and celebrities of their activism against Brunei during the previous year. Following Brunei’s 2014 decision to implement a sharia-based penal code, there followed a massive international protest movement headed by Hollywood A-listers and business leaders like Richard Branson. The main focus of these protests became the luxury hotels run by the Brunei Investment Agency (an arm of the Finance Ministry) under the Dorchester Collection brand.
As if this was not enough, Brunei’s recent December 23rd decision to ban public Christmas celebrations only adds fuel to the fire, as the ‘War on Christmas’ is a favourite Republican bugbear. Consequently, Brunei has no friends in the new Trump administration, nor among the administration’s many liberal opponents. Trump’s exit from the TPP and his travel ban from Muslim majority countries are two potent threats to Brunei going forward.
Brunei’s economic woes
With regards to the TPP, the collapse of that agreement is a major blow to Brunei, which has been trying to diversify its economy after several years of contraction due to low oil prices. 60% of GDP and 90% of government revenue comes from oil, a dependency which has left the country in serious financial straits: between 2013 and 2016 government revenue declined by 70%. Brunei’s budget deficit is set to reach $2.65 billion, or 17% of GDP. This is proportionally higher than Greece’s shortfall during the height of the Euro Crisis. This state of affairs is reflected in the government missing its 2016/2017 fiscal year growth target of 2.3% – the country’s actual growth for this period currently stands at 0.37%.
Brunei’s highly subsidized welfare state and reliance on foreign workers are familiar problems for many oil kingdoms, resulting in low native work force participation rates. The fact that Brunei recently celebrated the certification of its first native Bruneian actuary shows just how far the country has yet to go.
Key hurdles for investment in Brunei are its complicated parallel legal codes for Muslims and non-Muslims, as well as its tight media control. Despite the world’s third highest social media penetration rate (86%), users are regularly threatened with indefinite imprisonment without trial under the Internal Security Act. Moreover, the sudden shuttering of the country’s second largest newspaper – the Brunei Times – in November 2016, (coincidentally after a piece critical of Saudi hajj fees), has left both citizens and investors without independent input. The lack of critical domestic news, and scarcity of international reporting on Brunei is a major obstacle for potential investors. Efforts to diversify away from oil will be severely hampered if these elements remain.
While oil prices have increased, it remains essential that Brunei diversify its economy, yet its forays into Islamic finance have been modest, as both Malaysia and Indonesia are dominant players in this sector. Similarly, efforts at boosting manufacturing have stalled, as the country’s small population of under half a million cannot compete with regional leaders such as Thailand. Add to this the fact that 90% of Bruneians regularly cross-border shop in Malaysia, and the local economy faces serious headwinds.
With TPP dead, China consolidates influence
Consequently, the TPP was seen as a prime opportunity to gain access to key markets. Its collapse effectively leaves China’s Regional Comprehensive Economic Partnership (RCEP) as the only game in town. The problem for Brunei is that it already has either multilateral (via ASEAN) or bilateral free trade agreements with all RCEP member states. Conversely, the TPP would have given Brunei valuable access to American, Canadian, and Mexican markets. As a result, RCEP membership adds little new benefits to Brunei, at the cost of making the country further beholden to China.
Brunei has already received $6 billion worth of Chinese investments in its extractive sector in return of Bruneian silence China’s overlapping territorial claims in the South China Sea. Moreover, Chinese financial institutions are expanding into Brunei, with the Bank of China launching the sultanate’s first Chinese bank in December 2016. China also constitutes Brunei’s second largest source country for tourists (after Malaysia). These developments increasingly put Brunei at Beijing’s mercy, a trend that will only continue as the sultanate faces an unsympathetic American administration for the next four years.
Will Trump’s travel ban be expanded?
The collapse of the TPP, a weak economy, and the need to diversify leaves Brunei with limited options. This leaves flagship investments, notably the Dorchester Collection, of the Brunei Investment Group holding the reins. With its brand already severely damaged in 2014, the Dorchester Group could find itself in trouble again if Trump expands his travel ban.
There is already speculation that Trump’s travel ban excludes countries which he has business dealings with. Brunei’s low standing in the eyes of President Trump and the American people, combined with its ties to the Clintons, and the fact that the Dorchester Collection is a competitor of the Trump hotel empire, all put it and the sultanate in jeopardy.
This is especially true if Trump reacts to the kinds of (unsubstantiated) statements about Brunei and the region in general made by individuals like Philippine President Duterte, who has warned of ISIS retreating to the region should they lose the Middle East.
“[ISIS has] this dream of a caliphate kingdom that would comprise of Indonesia, the Philippines, Malaysia and Brunei,” claims Duterte, likely referencing radical groups such Abu Sayyaf that have pledged allegiance to ISIS.
Trump’s existing low opinion of Brunei, combined with regional Islamist threats and the sultanate’s hardline interpretation of Sharia (and accompanying Wahabi ties to Saudi Arabia), could convince him to add it to his ban list. Given the President’s nature, anything can happen.
Under the Radar uncovers political risk events around the world overlooked by mainstream media. By detecting hidden risks, we keep you ahead of the pack and ready for new opportunities.
Under the Radar is written by Senior Analyst Jeremy Luedi.