Access to finance, market and skilled labor; bottlenecks to investment climate

The 2017 Investment Climate Assessment by World Bank revealed

Access to finance, market and skilled workforce are the major factors affecting the investment climate in the country, according to a new World Bank study released yesterday.

The 2017 Investment Climate Assessment (ICA), which surveyed 13,000 Bhutanese firms, reveals that reforms that encourage Bhutanese firms to enter new markets and develop premium products can accelerate economic development.

While the report notes the success of recent reforms in improving Bhutan’s investment climate, it states that firms have limited access to finance and the lack of skilled labor undermines efforts to increase productivity and attract investment.

It also says that the access of firms to domestic and international markets is further limited by deficiencies in transport, logistics, customs procedures, marketing, and policies to encourage competition.

World Bank Country Director for Bangladesh, Bhutan and Nepal, Qimiao Fan, at the launch said that Bhutan has maintained high economic growth but the Bhutanese economy is dominated by state enterprises and the public sector.

He also said that hydropower projects dominate the economy but though it generates revenue it has failed to create enough employment. Employment remains concentrated in agriculture and the public sector, and many firms are struggling to grow due to obstacles that hinder investment, productivity, and international trade.

Speaking at the launch, economic affairs minister Lekey Dorji said that the 2017 ICA provides a strong basis to undertake the next level of reforms to further strengthen the competitiveness of the private sector.

“Almost every other socioeconomic indicator has shown marked improvements. However, a strong and resilient economy is only possible if the private sector is equally strong, resilient and robust,” said Lyonpo Lekey Dorji.

Sector-specific recommendations were made for tourism, ICT and agriculture businesses as these sectors are potential areas for economic diversification.

“Bhutan has achieved rapid economic growth and poverty reduction through sound macroeconomic policies and investments in hydropower,” said Qimiao Fan. He added though that youth unemployment remains high, especially in urban areas.

“To create jobs, the Royal Government of Bhutan, with support from its development partners, can help the private sector take advantage of opportunities to develop new products and services,” said Fan.

The ICA concludes that export of services and marketing of specialized products can play an important role in Bhutan, given that it is a landlocked country with a small domestic market.

“Bhutan’s fledgling ICT industry is one example of a sector that is starting to attract investors and has potential to create high-value exports and high-wage employment. Agribusiness is another sector with untapped potential where producers could benefit from Bhutan’s unique reputation to command a premium in high-value export markets,” states the report.

The ICA recommends modifications to financial sector regulations to improve access to credit, relaxation of barriers to high-skilled migration, reducing the compensation gap between the private and public sectors, coupled with improvements to border processing, transport infrastructure, while encouraging Foreign Direct Investment and scaling up “Brand Bhutan” promotions.

An economist with World Bank, Massimiliano Santini said a systematic approach to reforms with emphasis on sector-specific and cost-cutting reforms is the way forward and will pave the way for enhancing much needed competitiveness of the private sector and its growth.

World Bank collaborated with the Royal government and the Ministry of Economic Affairs on the third series of the Investment Climate Report.

Chencho Dema from Thimphu