Introduction

Brunei's economy is in the middle of a critical transition from an oil-rich and oil-dependent state to a diversified economy that is dynamic and sustainable. The rich natural endowment of oil resources has enabled Brunei to become one of the richest state in ASEAN and the world. According to IMF (2016a), based on Gross Domestic Product (GDP) (in PPP terms) per capita, Brunei is the fifth wealthiest state in the world and the second wealthiest in ASEAN in 2016, after Singapore which is ranked at number four in the world. The oil wealth, in turn, has enabled the country to depend primarily on oil for its revenue since there is no income nor sales tax for locals. Free education through university and subsidized housing is additionally provided for its citizens. It has also led to a dominant role of the state in terms of its control over the economy as well as employment, as an estimated 70–80 per cent of the Bruneians work for the government or government-linked institutions (Prusak 2016).

Economic diversification, although viewed in terms of a more balanced contribution of manufacturing and services, may in reality entail far more than that. It may necessitate, for example, a reconsideration of the country's fiscal budgeting and its ensuing implications on the extent of public goods provided by the state. The sharp drop in global price of oil in 2014 and after, had a detrimental impact on the state revenue, leading to a fiscal deficit of 16 per cent of its GDP for the fiscal year 2015/16 (Prusak 2016). Economic growth was also affected, with the country's annual growth falling into negative rates from 2013 to 2016. Current forecasts of future oil prices do not seem to indicate that there will be a price recovery to its peak value in 2010 (Knoema n.d.). Hence sustainability will require considering diversifying sources of fiscal revenue, tightening government expenditure and a restructuring of the privileges enjoyed by the citizens. Injecting dynamism into the economy will also require rebalancing the role of the state and the private sector in generating economic growth.

Introduction

Trade in services plays an important role in the economic development of a country. The Asian Development Bank (ADB) in 2012 reported that the services sector of ASEAN member countries contributed around 28.1 per cent to 70.1 per cent to their Gross Domestic Product (GDP) from 2000 to 2007 respectively (Park and Shin 2012, p. 35). Among ASEAN countries, Singapore's services sector accounts for around 70.1 per cent of its GDP — highest in the region, followed by the Philippines (50.3 per cent), Malaysia (50 per cent), Thailand (47.7 per cent), and Vietnam (43.3 per cent). Wholesale and retail business has taken up the highest proportion in terms of value added in the services sector in ASEAN, followed by finance and insurance. Singapore has the highest employment share in the services sector, followed by Malaysia, the Philippines, Indonesia, and Thailand.

According to the ASEAN Economic Community (AEC) Blueprint 2025, ASEAN member states (AMS) are required to cooperate under the ASEAN Framework Agreement on Services (AFAS). AMS need to be compliant with the agreed upon liberalization programmes, procedures, and timeframe. One of the objectives of the AFAS is to decrease and eliminate restrictions to trade in services based on the twelve types of services, as classified in the General Agreement on Trade in Services (GATS). These are business services, communication services, construction services, distribution services, education services, environmental services, financial services, health and social services, transport and tourism services, leisure, cultural and sports services, transportation services, and other services that are not included in the above eleven fields, such as spa and beauty services.

According to the established protocols, if any AMS has any reservations or limitations with regard to any measures, these should be specified in the horizontal commitment table. These commitments are legally binding between members. Logistics and other related services fall mostly within the domain of the transport sector and that complicates matters as logistics is much more than just transport related services. Logistics in ASEAN has been identified as a priority integration sector with its own liberalization roadmap by 1 January 2013 (Tongzon 2011).

Introduction

The use of a foreign direct investment (FDI)-led development strategy in Malaysia started in the early 1970s when the first Free Trade Zone was established to attract FDI for manufacturing development. With this early mover advantage, FDI flowed into labour-intensive manufacturing based on Malaysia's host country advantages at that time such as cheap labour, economic and political stability, relatively good infrastructure and supportive government policies. Malaysia became one of the top ten developing host economies by the early 1990s but its rapid manufacturing development led to the dissipation of its low wage advantage as wages rose swiftly in response to the excess demand for labour after full employment was attained.

In recognition of the loss in competitiveness in low wage manufacturing, the government promoted a manufacturing ++ strategy based on cluster development using services development as a means to move up the value chain in the Second Industrial Master Plan (IMP2) 1996–2005. Despite this, the advent of the Asian Financial Crisis (AFC) in 1997– 98 stalled the implementation of IMP2 by redirecting the focus of government policies from industrial development towards managing the financial crisis and its aftermath. Nevertheless, the focus on service sector development continued to be prioritized in the Third Industrial Master Plan (IMP3) 2006–20, where the services sector was targeted as the next engine of growth. The development of services has shifted from its role as a facilitator for deepening manufacturing development to the development of selected services with the logistics sector as one of the targeted services. Reportedly, the government allocated RM3 billion for the development of this sector under the IMP3 with a target of 36 million TEU or 751 million tonnes of cargo to be handled by Malaysian ports by 2020 (MPC n.d.).

The emphasis on services development continued in the New Economic Model (NEM) that was launched in 2010 for re-energizing economic development. Likewise, it is also the focus of development in the Economic Transformation Plan (2010) and the Tenth Malaysia Plan (10MP) 2011–15, although the logistics sector was not included among the 12 targeted sectors in these plans.

The economic, political, strategic and cultural dynamism in Southeast Asia has gained added relevance in recent years with the spectacular rise of giant economies in East and South Asia. This has drawn greater attention to the region and to the enhanced role it now plays in international relations and global economics.

The sustained effort made by Southeast Asian nations since 1967 towards a peaceful and gradual integration of their economies has had indubitable success, and perhaps as a consequence of this, most of these countries are undergoing deep political and social changes domestically and are constructing innovative solutions to meet new international challenges. Big Power tensions continue to be played out in the neighbourhood despite the tradition of neutrality exercised by the Association of Southeast Asian Nations (ASEAN).

The Trends in Southeast Asia series acts as a platform for serious analyses by selected authors who are experts in their fields. It is aimed at encouraging policy makers and scholars to contemplate the diversity and dynamism of this exciting region.

EXECUTIVE SUMMARY