Crisis-proof Governance

ETHOS Issue 06, July 2009

PARTICIPANTS:

Mr Sa Bali Abas, Permanent Secretary, Prime Minister’s Office, Brunei

Mr Sabir Said Al-Harbi, Director General, Economics Statistics, Ministry of National Economy, Oman

Mr Solomon Molebatsi Sekwakwa, Permanent Secretary, Ministry of Finance & Development Planning, Botswana

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How is the current global economic crisis affecting your country, and how is your government responding?

SA BALI: Brunei is an oil-producing country. Crude oil and gas provide approximately about 70% of GDP; almost 90% of our exports come from oil and gas. Obviously, the dramatic drop in oil prices from around $140 to around $40 has greatly reduced the revenue we have been privileged to enjoy thus far. At the same time, Brunei imports most of our goods. So with the price of imported goods ballooning, local inflation is also going up. In order to counter this, we have looked into tightening our fiscal policies and being more prudent.

SABIR: Even in the oil-producing Arab world, the impact of the crisis will differ from country to country. Oman is similar to Brunei: 40% of our GDP and 60% of government revenue come from oil. So declining prices may affect public finance. But even with current oil prices at around $45 per barrel, oil-producing countries such as Oman should do fine; the past few years of high oil prices were simply a bonus.

Our own industries have not been as exposed to the crisis, and so the impact on Oman has so far been limited. Certainly, the stock market has declined by about 30%, but the Government’s efforts in developing and growing the economy remain unchanged. The Central Bank of Oman is able to provide banks with credit and liquidity if necessary, but so far it has not been necessary.

Some sectors across the region have been more directly affected, such as construction and real estate. You see this especially in Dubai, where economic growth has been led by construction and property development. But Dubai is still able to provide a $20-billion stimulus package.

SEKWAKWA: Botswana is about the size of France but with a small population, so the cost of providing services is high. We are among the largest producers of diamonds in the world. When the crisis hit, the demand for diamonds fell; since the mineral sector contributes to 40% of our GDP and 50% of our government revenue, we were badly affected. A second major source of revenue is tourism, which has also been badly affected by the crisis.

Nevertheless, revenue accumulated in the past is helping to cushion the effects of the downturn, and if the turnaround comes in two to three years’ time, we should be fine.

But what we are concerned about now is the global economic picture once the turnaround arrives. Will things be the same? Will people be buying diamonds as they were before? We think it may not be so, and adjustments will have to be made. As public servants, we are now occupied with thinking through how best to reform the economy and find new ways to drive it forward after the crisis.

So the good years of the recent past have allowed you to build up resources that can now be used to deal with the current crisis. What are your priorities in deploying these resources?

SEKWAKWA: We want to develop an economy that isn’t just focused on dealing with the crisis; we need to emerge stronger than before after the downturn is over. So we are investing in infrastructure and in people, building capacity so that when the turnaround comes, we are better placed. In doing so, we also address the immediate concern of keeping people employed. In Botswana’s case, we are able to directly generate and maintain employment levels, since most sectors are dependent on the government.

SABIR: The challenge all around the world is indeed to be ready for the upswing and to come back stronger after a decline.

In Oman, we embarked, quite some time back, on a policy of economic diversification, in order to move away from dependence on oil towards income generation in other sectors such as tourism, fisheries, gas and petrochemicals. In recent years, oil has been declining as a proportion of our GDP.

A special ministry was established a few years ago to develop the tourism sector. The government is also trying to attract foreign investment, particularly for tourism and other industries. These new industries will stimulate the economy, open up markets and bring in new technology and expertise, which will in turn stimulate our business sector.

SA BALI: Brunei is focusing on developing the business sector. We are also opening up areas for industrial development, such as Sungai Liang Industrial Park,¹ where we support potential investors and facilitate business startups.

The public service is also looking into streamlining its processes and procedures to make it easier for people to start businesses in Brunei. While it is well known that the private sector is the main engine of economic growth, the major employer in Brunei is the government: there are 44,000 public servants and the government sector is quite saturated. Unless we speed up the development of the private sector, we will not be able to generate much more employment.

The crisis has renewed attention in the role of governments—as regulators and as rescuers. Have you seen a change in public expectations of governments since the onset of the crisis?

SABIR: One of the things I discovered in the crisis is that the regulatory framework in Oman, especially in the financial sector, is very strong. Banks are still in a very strong position and have not been badly hit at all. In fact, we are hoping that the flow of foreign investments will grow; we foresee that investments may be diverted away from Europe and the US—where trust has been declining—to countries where regulations have been more robust. The consensus is that the government will have to respond quickly according to changing global circumstances and how they affect the private sector.

SEKWAKWA: I think this crisis is an opportunity to clean up the economy. Our banks are more tightly regulated compared to some European countries; we don’t really have a financial crisis. What happened in the US should really not have happened and, going forward, we will see a move towards tighter regulation and supervision of their financial sector.

The impact in Botswana is more because of the decline in export sales. Before this global financial crisis, we had a food crisis: the prices of commodities were going up, and the government had to step in with assistance. This time, we could not do as much. People appreciate that given the current situation, we have to tighten our spending and be more prudent.

SA BALI: To me, the issue is not so much a lack of governance as there is a lack of adherence to governance. You can have all the laws, procedures and processes, but if the players are not really observing these rules, then things start to happen. Look at these toxic assets in the US: the people don’t want to buy them, and the US government is not ready to let them go at a greatly reduced price because the banks will incur more losses. It should really be the responsibility of the main corporate players.

In Brunei, the focus is on a prudent operating budget for government. We will also make the public service more efficient, to make every dollar that we spend, count. Of course, we do not stop investing in human capacity-building and in developmental projects where resources have already been allocated.

Is there anything that you observed in Singapore during your time at the Leaders in Governance Programme that you have found useful to consider?

SABIR: I think the Singapore Government’s budgetary response to the crisis is exemplary, because it will not only help businesses but also employment, and at the same time reinvest in human resources.

The other remarkable thing is that the Government plans 30 to 40 years ahead, and not only plans but documents everything, so you can look at past results and learn from them.

The strength of Singapore’s institutions is that they have a clear sense of vision, mission and tasks. Everyone knows what is happening; there is good interaction between politicians, policymakers, operational staff, and the public. It is as if they are all working in a small office: everybody speaks the same language.

SA BALI: Indeed, there seems to be good communication between public sector leaders and the political leadership. This mutual respect is important; they might not always agree with each other but they are able to work together for the better of the country.

It was rewarding to learn not only about the successes of Singapore but also areas which needed adjustment, such as population policies: how you have moved from a two-child policy in the past to now having to bring in people from elsewhere, because of your low fertility rate.

Also, I found it laudable that you spend a hefty proportion of your GDP in research and development—perhaps the only country in Asia other than Japan to do so.

SEKWAKWA: I see some red lights: for instance, bringing in immigrants may slow down population decline, but if not managed properly, it will have negative effects. The other challenge that I think Singapore needs to be mindful of, is that when you are at the top, you have no one ahead to pace yourself with, so you have to run faster and outdo yourself or risk becoming complacent. Other countries are catching up, and even as you develop, people’s expectations will change. So you cannot depend on your past success to determine future growth.

When looking at policy issues, you need to have a broad enough mind to see from design through to implementation. It is one thing to come up with a good policy but quite another to execute it. In that respect, I have been impressed with the level of professionalism of your political leadership.

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The ETHOS Roundtable was conducted by ETHOS Editor Alvin Pang in March 2009. Mr Sa Bali, Mr Sabir and Mr Sekwakwa were participants in the 2nd Leaders in Governance Programme (LGP), organised by the Singapore Civil Service College from 16 to 24 March 2009. Drawing from Singapore’s development experience, the LGP offered practical insights into the fundamentals of good governance effective policy implementation for sustainable development and social cohesion. Over the seven-day programme, participants interacted with senior government officials and thought leaders, and visited key government agencies to understand their operating philosophies and systems.

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NOTES

1. Developed by the Brunei Economic Development Board, the 271-hectare site is positioned to be a world class petrochemical hub, drawing an estimated US$1.3 billion in investment and creating up to 1,065 permanent jobs. For more details, see http://www.bedb.com.bn/bisop\_spark.htm