Brunei’s defense expenditure is expected to increase at a CAGR of 6.7% during the forecast period

Thursday 7 June 2012, Amsterdam

Brunei’s military spending, which stood at US$0.44 bn in 2012, increased at a CAGR of 5.79% during the review period and is projected to register a CAGR of 6.7% during the forecast period, to reach US$0.57 bn by 2016. Owing to the global financial crisis and a subsequent fall in oil and gas prices, 2009 witnessed a drop in the country’s defense spending. However, high macroeconomic stability and conservative economic policies insulated it from the aftereffects of the economic crisis, and defense spending recovered in 2010 (reference see graph).

A lack of transparency and a small budget hampers the entry of foreign investors into Brunei’s defense sector. Military procurement is a closed process with no clear criteria to be met to secure an order. In addition, with virtually no participation from the private sector, the country’s defense sector lacks the enterprise for rapid development. Moreover, Brunei’s defense budget is small compared to its neighbors and other leading defense spenders, failing to attract significant interest from foreign investors.

Brunei does not export any arms to foreign countries as the domestic defense industry is still in its nascent stages. It currently only imports arms from Germany and France but is in talks with other countries such as China, Ukraine, Russia, Indonesia, and the US, for military procurement. Domestic participation in the defense sector is restricted to the semi-government-owned military procurement firm Royal Brunei Technical Services, which manages the acquisition of systems, equipment, and related material and services.

Brunei is not a signatory to the WTO agreement on government procurements, which are conducted by ministries and the State Tender Board of the Ministry of Finance. Foreign investors seeking to enter Brunei’s defense market are selectively invited by the government to bid on procurements, with no open tenders being published. The award process often lacks transparency, with tenders sometimes not being awarded or being re-tendered for reasons not made public.