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