Bhutan’s Foreign Direct Investment Saw 10 Fold Increase From 2017; Singapore And Thailand Top Investors In The Service Sector
The jump in figure is due to the large number of capital-intensive projects (such as hotels) being approved in 2018.
By Tshering Dorji | Kuensel
In 2018, Bhutan recorded Nu 5.7b worth of Foreign Direct Investment (FDI), a whopping 10-fold increase from 2017.
From seven projects in 2017 worth Nu 597m, the FDI inflow in terms of the number of projects increased to 16 in 2018.
This takes the total number of FDI projects in Bhutan to 73 as of 2018, an increase from 57 in 2017.
The jump in figure, according to the FDI annual report from the Department of Industries is due to the large number of capital-intensive projects (such as hotels) being approved in 2018.
Consequently, the service sector which dominates the FDI inflow, makes up 65 percent of the total number of projects.
Photo: FDI Report 2017
62 percent of the FDI projects that have been approved are located in Thimphu, Paro and Phuentsholing. It is noteworthy that out of the total number of FDI projects, 34 percent of them are based in Thimphu alone.
The report states that Thimphu, the capital city of Bhutan, is the preferred destination for FDI in the service sector such as hotel and IT/ITES.
Where do the FDIs come from and how can they benefit the workforce in Bhutan?
With a young and English-educated workforce, Bhutan continues to receive FDIs mostly from Asian countries.
Of the total FDIs, about 65 percent of the investors are from Asia, 25 percent from Europe, nine percent from America while the rest are from the Oceania region.
Overall, India is the largest investor in the manufacturing sector while the top investments in the service sector came from both Singapore (15 percent) and Thailand (13 percent).
The report also points out that the foreign investors in Bhutan are mostly private companies which take up a share of 72 percent, followed by individual investors with a share of 19 percent.
On the employment front, the FDI companies hired 5,307 local employees, up from 4,895 in 2017. It was also highlighted that for every expat worker, 23 Bhutanese are being employed.
The FDI companies hired a total of 190 foreign workers, which makes up 4.19 percent of the regular employees in the companies. The FDI projects in operation have also paid Nu 1.56b in tax as of December 31, 2017.
Photo: FDI Report 2017
Seven companies employed 63 percent of the total regular employees during the year. These companies include: Mountain Hazelnut Ventures Private Limited, BoBL, BNBL, Bhutan Resorts Private Limited, Bhutan Eco Ventures Private Limited, Scan Cafe Private Limited and Bhutan Ventures Hospitality Private Limited.
A review on the existing investment in both the FDI and domestic arenas, particularly in the medium and large scale sectors, shows that most investments in the manufacturing sector are in the mineral-based sector, followed by the agro-based sector.
However, in the last couple of years, FDI has stimulated more product diversification with investments made in the pharmaceuticals, hydropower service, infra-structure and IT/ITES sectors.
Investment in the burgeoning tourism sector of Bhutan
In the service sector, investments are mostly made in the hotel industry. The exotic Kingdom of Bhutan, sometimes referred to as the ‘Last Paradise’ has been gaining popularity as a tourist destination.
According to the statistical bulletin of the Royal Monetary Authority, Bhutan received 37,994 international tourists as of September 2018, generating a revenue of USD 48.7m.
The Tourism monitor report also states that more than half of the international tourists (54.7 percent) were from Asia-Pacific, followed by Europe (24.8 percent) and North America (18 percent).
Countries such as the USA, Australia, Germany, Japan, UK, Singapore, China and Thailand have remained on the top 10 list over the past one decade.
Tshechus (Festivals) are top tourist attractions in Bhutan.
Photo: Druk Asia
To boost tourism, the former government initiated a levy exemption bill towards the end 2017, allowing a royalty waiver of USD 65 a day per tourist visiting the six eastern dzongkhags of Bhutan.
Bhutan constantly reviews its policy to adapt to its changing economy and investment climate
When foreign investors started venturing into Bhutan with the formal opening of its economy, a policy was adopted in 2002 and implemented in 2005.
The policy was amended in 2010 to re-align with the changing needs of Bhutan’s economy and the global investment environment.
In 2014, this policy was further modified with a few changes geared towards enhancing the investment environment for foreign investors.
The minimum investment level was reduced in most sectors. Institutional foreign investors can now invest in Bhutan with a minimum stake of 10 percent. In some cases, ownership is permitted up to 100 percent in selected sectors.
Some relaxation has also been made on the repatriation of dividend back to the investor’s country in hard currency.
According to the World Bank’s recent policy note on Bhutan, regulatory barriers, skill shortages, and insufficient investment promotion have been identified as factors suppressing FDI inflow.
The hotel industry is growing to cater to the rise in numbers of tourists visiting Bhutan.
Photo: Six Senses Bhutan
The World Bank’s policy note also mentioned that some key aspects of the existing legal framework in Bhutan may not be conducive to FDI, such as: discretion on screening and approval cancellations, equity restrictions in priority sectors, minimum investment levels and limits on visas of skilled workers.
“Despite gradual liberalisation since 2010, entry barriers remain high for foreign investors,” the World Bank’s policy note stated.
FDI inflows still remain small in Bhutan and it is ranked the lowest in South Asia, averaging less than USD 20 million a year.
The factors which suppress FDI inflows have also restricted the access of domestic firms into foreign markets and technologies.
Measures taken to improve the investment climate in Bhutan
During the ‘Better Business Summit’ held on 17-18 May 2018, the Senior Industry Officer of the FDI division, within the Economic Affairs Ministry, Sonam Lhamo said that several reforms have been implemented to boost the investment climate in Bhutan.
For example, the recent revision in FDI policy has taken into account the feedback from the private sector.
In complementing the efforts, she said that e-regulations have been made online and an investors’ guide is also available online in 100 international languages.
In addition, the country’s industrial area is estimated to be increased by six folds with the completion of the industrial estates. Moreover, the supply of reliable power will be realised after the commissioning of hydropower projects in the country.
About 8,000 people will enter the labour market in Bhutan every year, with most of them better educated than the previous generation.
Sonam Lhamo also highlighted the fiscal incentives initiated and the improved ranking on the ‘Ease of Doing Business’ in Bhutan.
The World Bank’s Ease of Doing Business Report 2019, which compares business regulations for domestic firms in 190 economies, placed Bhutan in the 81st position globally.
With a young and well-educated population that is increasingly web-savvy, coupled with its emphasis on development based on the tenets of Gross National Happiness, Bhutan still has a lot of potential waiting to be tapped.
This article first appeared in Kuensel and has been edited for Daily Bhutan.