Brunei’s top-tier marks for business regulation—second globally with an 8.8 out of 10—sit awkwardly alongside its overall ranking of 59th out of 165 economies. That gap tells a story about the forces shaping the tiny, oil-rich sultanate on Borneo’s north coast.
The Fraser Institute’s 2022 Economic Freedom Index, based on 2020 data, placed Brunei second in regulation worldwide. It also ranked fourth in labor market regulation and eighth in business regulation, scoring 8.2. These are strong numbers. They reflect a government that keeps rules predictable and bureaucracy relatively light for companies operating inside its borders.
But the overall ranking dropped seven places from 2019. That decline came from weak scores in freedom to trade internationally. For a country whose economy floats on oil and gas exports—accounting for the vast majority of government revenue—that matters. Trade restrictions, whether tariffs or non-tariff barriers, pinch a small, export-dependent economy harder than they hit diversified giants.
The index scores five areas: size of government, legal system and property rights, sound money, freedom to trade internationally, and regulation. Brunei improved on sound money and legal system and property rights compared to 2019. Those gains were not enough to offset the trade freedom drag.
What this means for Brunei going forward is a mixed picture. The high regulation scores signal a stable, low-hassle environment for domestic business. That could attract foreign firms looking for a predictable base in Southeast Asia—though Singapore, ranked second globally overall, already dominates that niche. Brunei’s labor market flexibility, fourth in the world, is a specific draw. Companies can hire and fire with fewer obstacles than in most countries.
Yet the trade freedom weakness points to a structural problem. Brunei is a rentier state, built on hydrocarbon wealth. The government has tried to diversify—tourism, halal products, finance—but progress has been slow. Tight controls on imports and foreign investment, often justified as protecting local industries or Islamic values, actually choke the diversification the country needs. The drop in ranking is a warning: the regulatory house is in order, but the doors to the global market are not fully open.
Regionally, the contrast is sharp. Singapore sits at number two globally. Malaysia ranks 49th. Brunei at 59th trails both, despite its stellar regulation scores. Cambodia, the Philippines, Thailand, Vietnam, and Myanmar all rank lower. That suggests Brunei’s regulatory efficiency is not translating into broader economic freedom or growth.
The Fraser Institute report, produced by the Canadian conservative think tank, uses 2020 data—meaning it captures the early pandemic period. Fred McMahon, a researcher at the institute, noted that Hong Kong remains the most economically free jurisdiction, based on that same data. For Brunei, the pandemic year likely worsened trade disruptions, but the underlying issue predates COVID-19.
Brunei’s path forward depends on whether it can leverage its regulatory strengths to push for trade liberalization. The sound money score—likely reflecting a stable currency pegged to the Singapore dollar—and strong property rights give it a foundation. But without freer trade, the economy stays tethered to volatile oil prices. The ranking drop is not a crisis. It is a signal. The question is whether the government in Bandar Seri Begawan will read it.
