BIG BUSINESS IS ROYAL BUSINESS IN BRUNEI

C O N F I D E N T I A L SECTION 01 OF 04 BANDAR SERI BEGAWAN 0214

E.O. 12356: DECL: OADR
TAGS: ECON BX KPRP
SUBJ: BIG BUSINESS IS ROYAL BUSINESS IN BRUNEI

1. C - ENTIRE TEXT.

2. SUMMARY: BEGINNING A FEW YEARS BEFORE INDEPENDENCE,
SIGNIFICANT GROWTH HAD OCCURRED IN THE SHARE OF BRUNEI'S
PRIVATE ECONOMY OWNED BY ETHNIC MALAY CITIZENS, "BUMIPUTRA"
BUSINESS, AS IT IS CALLED. WHILE THIS HAS ENRICHED A NUMBER
OF BUMIPUTRA BUSINESSMEN, THE EXTENT TO WHICH THE WEALTH HAS
BEEN SHARED HAS NOT SATISFIED EVERYONE. CONTACTS WITH THE
LOCAL MALAY CHAMBER OF COMMERCE HAVE ELICITED SEVERAL
EXPRESSIONS OF DISSATISFACTION WITH THE EXTENT TO WHICH
BUMIPUTRA BUSINESS GROWTH HAS BEEN DOMINATED BY TWO COMPANIES,
QAF AND JASRA, PARTICULARLY THE FORMER. THESE TWO COMPANIES
ARE OWNED BY THE SULTAN'S BROTHERS, AND THEIR RAPID GROWTH
TO BECOME THE LARGEST PRIVATE EMPLOYERS IN PGUNAI ASIDE FROM
BRUNEI SHELL IN JUST A FEW YEARS HAS CAUSEX RESENTMENT.
END SUMMARY

3. THE MALAY CHAMBER HAS AMONG ITS LEADERSHIP -- INCLUDING
ITS PRESIDENT -- MEN WHO WERE PROMINENT IN THE OPPOSITION
PARTY THAT DIED WITH ELECTORAL POLITICS IN THE MID-SIXTIES
AND, ACCORDING TO ONE CHAMBER OFFICIAL WHO WAS NOT A MEMBER
OF THAT PARTY, THE ORGANIZATION CARRIES A BURDEN IN STILL
BEING IDENTIFIED WITH IT. THE CHAIRMAN OF THE CHAMBER,
HOWEVER, IS A FORMER MENTERI BESAR -- A CHIEF MINISTER --
AND IS ALSO CHAIRMAN OF QAF. THE CHAMBER, DESPITE ITS "BURDEN",
MANAGES TO SERVE AS A CHANNEL OF COMMUNICATION TO THE GOVERNMENT
IN ELICITING POLICIES FAVORABLE TO ITS MEMBERS. AN EXAMPLE
IS THE CURRENT RUMOR THAT BRUNEI WILL ESTABLISH A NATIONAL
BANK: CHAMBER OFFICIALS CLAIM THAT THIS IS THEIR SUGGESTION
SINCE THEY ARE UNABLE TO OBTAIN ADEQUATE FINANCING FROM
EXISTING BANKS TO SUPPORT THEIR BUSINESS GROWTH. INTERESTINGLY,
THEY DO NOT BLAME THE BANKS, OF WHICH ONLY TWO ARE HEADQUARTERED
HERE AND EVEN THOSE TWO ARE MAJORITY-OWNED BY FOREIGNERS,
FOR THIS LACK OF SUPPORT. THEY UNDERSTAND, THEY SAY, THAT
THE BANKS MUST HAVE COLLATERAL FOR A LOAN, BUT MOST BUMIPUTRA
BUSINESSMEN HAVE LAND AS THEIR CHIEF ASSET AND THEY CANNOT
PLEDGE THEIR LAND AS COLLATERAL BECAUSE THE BANKS COULD NOT
SIMPLY FORECLOSE AND GAIN POSSESSION OF THE LAND IN THE EVENT
OF DEFAULT. ALL LAND TRANSFERS ARE SUBJECT TO THE APPROVAL
OF THE SULTAN AND LAND CANNOT BE OWNED BY NON-CITIZENS.
(THEORY AND PRACTICE DIVERGES SOMEWHAT ON THE QUESTION OF LAND
OWNERSHIP IN BRUNEI. IN THEORY, CITIZENS DO NOT OWN LAND
EITHER, IN THE SENSE OF HAVING CLEAR TITLE, BUT MERELY
HOLD LAND AT THE SUFFERANCE OF THE SULTAN; IN THEORY THE SULTAN
COULD REPOSSESS LAND, E.G., AGRICULTURAL LAND ALWOWED TO LIE
IDLE FOR TWO YEARS, BUT IN PRACTICE HE DOES NOT.) THE LAW
THAT PROVIDES FOR THESE LIMITATIONS IS BLAMED BY THE CHAMBER
OFFICIALS FOR THEIR FINANCING DIFFICULTIES, AND THE REQUIREMENT
THAT THE SULTAN APPROVE LAND TRANSFERS IS REGARDED AS AN
UNWARRANTED LIMITATION OF THEIR BUSINESS OPPORTUNITIES.
CHAMBER MEMBERS HAVE SAID THAT INADEQUATE FULFILLMENT OF
PROMISES TO FAVOR BUMIPUTRA BUSINESSES IN AWARDING GOVERNMENT
CONTRACTS IS A FAVORITE THEME OF THE GOB - CHAMBER MEETINGS.

4. THE TWO BIG BUMIPUTRA BUSINESSES, HOWEVER, HAVE SUFFERED
FROM NO SUCH PROBLEMS. QAF IS MAINLY OWNED BY PRINCE MOHAMED,
ONE OF THREE YOUNGER BROTHERS OF THE SULTAN OF BRUNEI (AND
MINISTER OF FOREIGN AFFAIRS) AND ITS RAPID EXPANSION TO A
COMPANY WITH 1,500 EMPLOYEES AND SIGNIFICANT ASSETS IN BOTH
BRUNEI AND SINGAPORE IN THE SHORT TIME SINCE 1982 IS ACCOUNTED
FOR MAINLY BY ITS ABILITY TO DRAW ON HUGE FINANCIAL RESERVES
TO BUY EXISTING BUSINESSES AND THEN ASSURE THEIR SUCCESS
THROUGH A NETWORK OF GOOD CONNECTIONS. QAF'S SINGAPORE
ASSETS INCLUDE BEN AND CO., THROUGH WHICH QAF STOCK WILL BE
TRADED ON THE SINGAPORE STOCK EXCHANGE, AND NATIONAL COLD
STORAGE, A WELL-KNOWN FOOD WHOLESALER AND RETAILER THERE, IN
ADDITION TO STAKES IN SEVERAL TRADING AND REAL ESTATE
COMPANIES. QAF RECENTLY MADE NEWS IN THE BUSINESS PAPERS IN
SINGAPORE WHEN IT SOLD ITS PIZZA HUT FRANCHISE. IN BRUNEI,
QAF'S INFLUENCE IS BROAD, RANGING FROM CONTROLLING INTEREST
IN THE ONE NEWSPAPER PUBLISHED HERE THROUGH FOOD RETAILING TO
REAL ESTATE DEVELOPMENT. A PARTIAL LIST OF QAF'S LOCAL
HOLDINGS INCLUDE OWNERSHIP OF QAF PLAZA, BRUNEI'S NEWEST (AND
LEAST CONVENIENTLY LOCATED) SHOPPING AND OFFICE COMPLEX:
20 PERCENT OF THE ISLAND DEVELOPMENT BANK, ONE OF TWO
LOCALLY-CHARTERED BANKS AND A RECENT ACQUISITION (THE ROYAL
FAMILY REPORTEDLY OWNS 30 PERCENT OF THE OTHER LOCAL BANK --
NATIONAL BANK OF BRUNEI -- AND PRINCE SUFRI IS PRESIDENT OF THE
BANK); 75 PERCENT OF BRUNEI PRESS, WHICH PUBLISHES THE BORNEO
BULLETIN; 50 PERCENT OF LOCAL DAIRY FARM OPERATIONS, WHICH OWNS THE
BEST LOCAL SUPERMARKETS AND WESTERN RESTAURANT, IN ADDITION TO
CATERING SERVICES (INCLUDING FOR ROYAL BRUNEI AIRLINES) AND
WHOLESALE FOOD DISTRIBUTION; 49 PERCENT OF Q-CARRIER, WHICH
MARKETS AND SERVICES AIR CONDITIONERS; 50 PERCENT OF AN INDUSTRIAL
GAS COMPANY, SUPPLIER TO BRUNEI SHELL, AND 100 PERCENT OF FOUR
OR FIVE OTHER COMPANIES THAT SUPPLY PRODUCTS OR SERVICES TO
BRUNEI SHELL; PLUS VARYING PERCENTAGES OF COMPANIES THAT ARE
AGENTS FOR SUCH FOREIGN COMPANIES AS MERCEDES-BENZ, NISSAN,
SUZUKI, BEECHAMS, CADBURY SCHWEPPES, PROCTOR & GAMBLE, AND
INTERNATIONAL PAINTS. IN ADDITION, RUMORS HAVE CONNECTED
QAF WITH THE PLANNED CONSTRUCTION OF A NEW INTERNATIONAL-
STANDARD HOTEL, TO BE CALLED THE PRINCE HOTEL.

5. JASRA HAS ONLY ABOUT ONE-THIRD THE NUMBER OF EMPLOYEES
AS QAF, BUT IN AN ECONOMY THE SIZE OF BRUNEI'S, THE GROWTH TO
THAT LEVEL OVER ONLY SIX YEARS PUTS JASRA INTO THE SAME VERY
VISIBLE CATEGORY. JASRA IS MAINLY OWNED BY PRINCE JEFRI, ALSO
DEPUTY MINISTER FOR FINANCE AND CHAIRMAN OF THE GOVERNMENT
TENDER COMMITTEE, AND HAS GROWN THROUGH EXPANSION OF ITS SUPPLY
AND SERVICE CONTRACTS TO BRUNEI SHELL. NOW THAT ITS
CONSTRUCTION ACTIVITIES HAVE BEEN CURTAILED, THE MAIN BUSINESS
OF THE COMPANY IS OIL. JASRA IS A PARTNER IN THE ONLY ACTIVE
OIL EXPLORATION EFFORT IN BRUNEI IN RECENT YEARS OUTSIDE BRUNEI
ASMELL, UNDERTAKEN BY JASRA JACKSON, A JOINT VENTURE OF JASRA
AND THE AMERICAN JACKSON OIL CO. IF JASRA JACKSON WERE TO
STRIKE OIL IN SIGNIFICANT QUANTITIES, IT WOULD BE AN INTERESTING
COMPLICATION IN THE ROYAL FAMILY'S BUSINESS AFFAIRS, AS PRINCE
JEFRI IS ALSO REPORTEDLY PART-OWNER WITH OTHER MEMBERS OF THE
ROYAL FAMILY OF A COMPANY THAT EITHER BUYS OIL FROM BRUNEI
SHELL OR RECEIVES A QUANTITY AS A PAYMENT IN KIND AND THEN
RESELLS IT THROUGH SHELL OIL'S MARKETING ORGANIZATION. THIS
PAPER TRANSACTION, OF UNKNOWN VALUE, IS WHERE THE ROYAL FAMILY
RECEIVES MUCH OF ITS PRIVATE FLOW OF WEALTH FROM BRUNEI'S OIL.
JASRA ALSO OWNS THE LARGEST CAR RENTAL AGENCY IN BRUNEI AND,
AS WITH NEARLY ALL BUMIPUTRA BUSINESS, IS ACTIVE IN REAL
ESTATE DEVELOPMENT. A RECENT MAJOR MOVE WAS THE ACQUISITION
OF 50 PERCENT OF THE LOCAL OFFICE OF THE VENERABLE HARRISONS
AND CROSFIELD TRADING COMPANY, A MAJOR SUPPLIER OF IMPORTED
GOODS TO THE PRIVATE ECONOMY, HENCEFORTH TO BE KNOWN IN BRUNEI
AS JASRA HARRISONS. JASRA ITSELF HAS ALWAYS BEEN AN IMPORTER
AND SUPPLIER TO THE GOVERNMENT AND BRUNEI SHELL.

6. THE RAPID GROWTH OF THE COMPANIES OWNED BY THE ROYAL
BROTHERS LEADS TO THE QUESTION OF WHETHER THERE IS SOME PLANNED
OBJECTIVE FOR THE ROYAL FAMILY IN BECOMING SO ACTIVE SO FAST
IN THE DOMESTIC ECONOMY, AND WHETHER THERE IS ANY COORDINATION
OF THE FAMILY'S BUSINESS ACTIVITIES. SPECULATION ON MOTIVE
WAS MERELY FUELED BY AN ANNOUNCEMENT PUBLISHED IN NOVEMBER 1984 TO
THE EFFECT THAT THE SULTAN OFFICIALLY DENIED THAT THE GOVERNMENT
OF BRUNEI HAD ANY INTENTION TO BUY ANY COMMERCIAL COMPANY
"FOR EXAMPLE, QAF LIMITED". THE ANNOUNCEMENT, IN BRUNEI'S
OFFICIAL NEWSPAPER, PELITA BRUNEI, WENT ON TO SAY THAT "THIS
STRONG DENIAL WAS MADE TODAY IN A STATEMENT ISSUED BY THE
MINISTRY OF FINANCE WHICH WENT ON TO SAY THAT ANY INVOLVEMENT
BY MEMBERS OF THE BRUNEI ROYAL FAMILY IN ANY COMMERCIAL
COMPANY WHETHER INSIDE OR OUTSIDE THE COUNTRY IS THEIR OWN
PERSONAL MATTER AND HAS NO CONNECTION WHATSOEVER WITH HIS
MAJESTY'S GOVERNMENT." THE ANNOUNCEMENT ALSO CAUSED SOME
SPECULATION THAT IT MIGHT BE EVIDENCE OF A FAILURE TO COORDINATE
THE ROYAL FAMILY'S BUSINESS ACTIVITIES, THAT, IN FACT, THE
SULTAN MIGHT BE ANNOUNCING HIS DISAPPROVAL OF QAF'S -- AND
BROTHER MOHAMED'S -- ACTIVITIES.

7. THREE POSSIBLE MOTIVES HAVE BEEN SERIOUSLY DISCUSSED BY
EXPATRIATE OBSERVERS WHO HAVE BEEN AWARE OF THE ACCOMPANYING
GROWTH IN DISSATISFACTION FROM OTHER BUMIPUTRA BUSINESSMEN
AS WELL AS FROM THE CHINESE BUSINESS COMMUNITY. (IT IS
UNDERSTOOD THAT PARTICULARLY CHINESE BUSINESS IN THE SERIA/
KUALA BELAIT AREA HAS BEEN AFFECTED, WHERE THE CHINESE WHO LONG
SERVED AS LOCAL CONTRACTORS TO BRUNEI SHELL HAVE BEEN
SQUEEZED.) THERE ARE: (1) THAT THE BUSINESS INTERESTS ARE
INTENDED TO ACHIEVE THE SAME THING AS ANY OTHER BUSINESS, MAKE
A PROFIT AND ENRICH, IN THIS CASE, FURTHER ENRICH THE OWNERS; (2)
THAT THE ROYAL FAMILY OBSERVED THAT EXISTING BUMIPUTRA
BUSINESS WAS NOT ADEQUATELY SKILLED OR SUFFICIENTLY FINANCED
TO EXPAND INTO AREAS THAT NATIONAL POLICY WANTED TO SEE TAKEN
OVER FROM FOREIGNERS (OR THAT THEY WERE DISMAYED BY THE
TENDENCY FOR BUMIPUTRA BUSINESSES TO BE "ALI BABA" COMPANIES,
ONES WHICH HAVE BUMIPUTRA EQUITY PARTICIPATION, AND A MALAY
NAME, BUT WHICH ARE ACTUALLY ONLY CONTINUATIONS OF WELL-
ESTABLISHED CHINESE FIRMS WHERE THE MANAGEMENT, LABOR AND
MOST OF THE EQUITY REMAINS CHINESE),SO THEY DECIDED TO DO IT
THEMSELVES, OR (3) THAT THE ROYAL FAMILY, ALREADY ASSURED OF A
MONOPOLY ON POLITICAL POWER, WANTED TO ASSURE THAT LEAVING THE
HIGH POINTS OF THE ECONOMY IN THE HANDS OF OTHERS, EVEN IF THEY
WERE BUMIPUTRAS, DID NOT LEAD TO THE DEVELOPMENT OF ALTERNATIVE
POWER CENTERS IN THE SOCIETY.

8. THE THIRD POSSIBILITY PROBABLY CAN BE DISMISSED FAIRLY
QUICKLY BECAUSE NOT VERY MUCH ECONOMIC ACTIVITY GOES ON IN
BRUNEI THAT IS NOT DEPENDENT ON EITHER THE GOVERNMENT OR BRUNEI
SHELL, BOTH OF WHICH CAN BE CONTROLLED BY THE ROYAL POLITICAL
MONOPOLY. MOST BUSINESSES HERE OF ANY SIZE COULD BE QUICKLY
RUINED IF CUT OFF FROM CONTRACTS FROM THOSE TWO SOURCES. AN
ANNOUNCED SCHEME TO SELL QAF STOCK TO BRUNEI CITIZENS, WITH
LIMITATIONS ON THEIR ABILITY TO RESELL IT, MAY BE INTENDED TO
ALLOW PARTICIPATION IN PRIVATE ECONOMIC GROWTH BY A WIDER GROUP
WITHOUT ACTUALLY LOSING CONTROL OF A KEY ECONOMIC SECTOR TO
ANYONE. THE PLAN WOULD HAVE 30 PERCENT OF THE QAF STOCK
SOLD AT A SPECIAL PRICE TO QUALIFIED BUYERS.

9. SEVERAL OBSERVERS PUT THE DOMESTIC ROYAL BUSINESS
ACTIVITIES DOWN TO A SIMPLE DESIRE TO GET RICHER, WHICH MAY
SEEM UNNECESSARY, ALL THINGS CONSIDERED, BUT NOT UNUSUAL
CERTAINLY IN THE SOUTHEAST ASIAN CONTEXT. THIS MAY WELL
HAVE BEEN THE INITIAL MOTIVATION, BUT THE BUSINESS
PRACTICES OF THE TWO COMPANIES SEEM TO BE ALLOWING FOR THE
SECOND POSSIBILITY TO BE AT LEAST A CONSIDERATION. OFFICIALS
OF BOTH COMPANIES AT THE MANAGING DIRECTOR OR FINANCIAL
CONTROLLER LEVEL HAVE DECLARED TO EMBOFF THAT THEY NO LONGER BID
FOR THE BASIC CATERING, SUPPLY AND MAINTENANCE CONTRACTS OF
BRUNEI SHELL AND THE GOVERNMENT THAT THEY ONCE DID. THESE ARE
CONSCIOUSLY LEFT TO SMALLER BUMIPUTRA COMPANIES. QAF AND
JASRA HAVE MOVED "UPMARKET", DOING MORE TECHNICAL OR MORE
CAPITAL INTENSIVE THINGS AS THEY SEE OTHER BUMIPUTRA
COMPANIES ABLE TO DO THE SIMPLER THINGS. TO THE EXTENT THIS
IS NOT A BUSINESS DECISION, BUT INSTEAD A MATTER OF POLICY
AIMED AT ACHIEVING A GIVEN STRUCTURE IN THE BUMIPUTRA COMMUNITY,
THEN HIGHER MOTIVES CAN BE ASCRIBED TO THE ROYAL BUSINESS
ACTIVITIES. HOWEVER, TO SOME EXTENT AT LEAST, IT IS A BUSINESS
JECISION, AS A JASRA MANAGER ADMITTED TO EMBOFF. THE LOWER
END OF THE RANGE OF CONTRACTS HAS BECOME MORE COMPETITIVE, WITH
PROFIT MARGINS THINNER AND PRICING TOUGHER, SO THE MANAGERS OF
THE ROYAL COMPANIES MAY SIMPLY BE MOVING ON TO WHERE THE
CREAM IS THICKER.

10. AN INTERESTING QUESTION IS WHAT THE FOURTH BROTHER, PRINCE
SUFRI, WILL BE ALLOWED AS HIS SHARE. HE APPEARS TO BE
BELATEDLY MAKING HIS MOVE INTO THE BRUNEI BUSINESS WORLD,
(ASIDE FROM REAL ESTATE DEVELOPMENT, IN WHICH HE HAS HAD
INTERESTS FOR SEVERAL YEARS)
WITH THE VEHICLE BEING SINARAN, A COMPANY THAT HAS EXISTED
SINCE 1974, BUT INACTIVE UNTIL VERY RECENTLY. SINARAN, REGISTERED
AS A TRADING AND CONSTRUCTION COMPANY, MAY BE THE RECIPIENT, IN
PARTNERSHIP WITH AN AMERICAN FIRM, OF SOME OF THE LARGE
CONTRACTS THAT ARE RUMORED AS AVAILABLE OVER THE NEXT YEAR,
INCLUDING A NEW AIR BASE, SEVERAL MORE PIECES OF BRUNEI'S
COASTAL HIGHWAY, A MAJOR BRIDGE ACROSS THE BRUNEI RIVER AND
PERHAPS A RE-TENDERING OF THE CONTRACT TO BUILD A COGENERATION
PLANT. CERTAINLY THE AMERICAN FIRM HAS INDICATED IT BELIEVES
IT HAS A GOOD CHANCE AT THESE, BECAUSE OF ITS CONNECTION WITH
SINARAN. IF ALL THREE YOUNGER BROTHERS SET OUT TO BUILD
LARGE BUSINESSES WITHIN BRUNEI, THE OPPORTUNITIES FOR OTHER
BUMIPUTRA BUSINESSMEN WILL BE ACCORDINGLY LIMITED. THIS IS
EVEN MORE TRUE WHEN THE ACTIVITIES OF SISTERS AND OTHER
ASSORTED IN-LAWS ARE ADDED. SEVERAL SECOND-RANKING TRADING
AND CONSTRUCTION FIRMS COUNT ROYALTY AMONG THEIR OWNERS.

11. THE CONCLUSION IS THAT, FOR WHATEVER REASON, THE ROYAL
FAMILY DOMINATES THE MALAY BUSINESS COMMUNITY TO AN EXTENT THAT
PROBABLY IS CAUSING GREATER DISSATISFACTION THAN THE EXTENT TO
WHICH THEY DOMINATE THE NATION'S POLITICS. MOTIVES MAY BE
TRADITIONAL BUSINESS REASONS, AND THE ECONOMIC DOMINANCE
INADVERTENT, MERELY THE NATURAL RESULT OF BETTER FINANCING AND
GOOD CONNECTIONS, BUT THE RESENTMENT BEARS WATCHING. OFFICIALS
OF THE TWO BIG COMPANIES THEMSELVES ARE AWARE OF IT, BUT THE
EXTENT TO WHICH THE ROYAL FAMILY BELIEVES IT SOMETHING TO
BE CONCERNED ABOUT IS UNKNOWN. PRINCE SUFRI'S BUSINESS
PROSPECTS MAY BE BOTH DEPENDENT ON AND AN INDICATION OF THE
EXISTENCE OF SUCH CONCERN.


KING