Govt. yet to discuss points submitted by BCCI

BCCI optimistic about government’s support

Proposes for the inclusion of sweat equity in FDI policy

In order to further attract foreign investors to Bhutan, the Bhutan Chamber of Commerce and Industry (BCCI) has interacted with the government and put up several propositions, which the BCCI says have been received positively by the government.

One innovative and new proposition submitted by BCCI includes sweat equity. The term sweat equity refers to a person or company’s contribution toward a business venture or other project. Sweat equity is generally not monetary and, in most cases, comes in the form of physical labor, mental effort, and time. Sweat equity originally referred to the value-enhancing improvements generated from the sweat of one’s brow. So when people say they use sweat equity, they mean their physical labor, mental capacity, and time to boost the value of a specific project or venture.

According to Tandy Wangchuk, President, BCCI, there are people who come up with very innovative ideas which would benefit the country. However, such person (s) may neither, have the required capital to start business on his/her own or connections to establish links with outside investors. “In such cases, BCCI and the government can help the person by connecting him to an angel investor, with whom discussions can be held and money made,” Tandy said.

For instance, imagine that the founder of a tech startup values the effort put into developing the company at USD 200,000. If an angel investor wants to invest, the founder might sell a 25% ownership stake for USD1,000,000. This transaction values the company at USD4,000,000. After selling the 25% stake, the founder retains USD3,000,000. Subtracting the initial USD200,000 contribution, the founder enjoys USD 2,800,000 sweat equity.

A financial expert said sweat equity serves as a valuable alternative to cash investment, enabling companies to raise funds without increasing debt burdens. “Startups often struggle to secure capital, and excessive debt can hinder their growth. By offering ownership stakes to investors in exchange for their contributions, startups can access ‘free money.’ For instance, a founder might value their efforts in company growth at USD100,000, yet sell a 25% stake for USD1,000,000, valuing the company at USD4,000,000 and securing USD 3,000,000 in funds without incurring debt.

Meanwhile, there are also sweat equity shares, which are stocks granted to employees or directors as a reward for their dedication or value-added services. They’re typically offered at a discount or in exchange for non-cash contributions, acting as a motivational tool and acknowledgment of their significant contributions to the company. Thus, apart from the above concept of sweat equity, the BCCI could bring in investors and pay the one who has the business idea sweat equity shares.

The need to harmonize laws is another tenet that BCCI President spoke about. He cited the example of renewable energies as priority areas under production and manufacturing as per the Foreign Direct Investment Policy 2019. “However, the policy states everything should be “based on Alternative Renewable Energy Policy (AREP), 2013.”

The AREP, 2013 says that private agencies or individual shall be allowed and encouraged to identify and prepare studies up to DPR for Micro, Mini and Small hydropower projects to a maximum of 5 MW and DPP for other RE projects, following the guidelines prescribed by the Nodal Agency. “There are other restrictions,” Tandy said. According to him, Bhutan has started to buy power from India during the lean season at very high costs. Rather than imposing restrictions, assistance should be provided so that people can come up with different types of power generators, including hydropower. “The government should make it mandatory that power generated should be supplied to the domestic market and the excess exported, especially during the lean seasons.”

Speaking along the lines of BCCI’s President, a local entrepreneur said that the ease of doing business in Bhutan is hit mainly because of the number of laws and provisions. “One priority is Pharmaceutical products and the conditions say ‘as per sector policy.’ We do not know which sector is being talked about as the making of these products will require raw materials that fall under the ministry of agriculture and forestry. Then, we have the health ministry. Why can’t the government harmonize everything?”

Elaborating further, he said it is hard to think how the FDI Policy of 2019, mentions about policies and Acts made a long time back. “The world has changed and policies should b dynamic.”

Tandy Wangchuk also spoke about the need for the government to permit FDI in the sale of minerals. Currently, “Mining for sale of minerals in primary or raw form” falls under the negative list. “The government can come with a provision stating that there should be value addition when natural resources are exported. If this is done, hard currency can be generated.”

Meanwhile in March 2023, the former Druk Nyamrup Tshogpa (DNT) government decided to grant an “investment allowance” to any investment made in projects for the promotion and development of 14 high-priority sectors, for research and development, improving energy efficiency, and developing and improving digital services. The 14 high-priority sectors are agriculture and renewable natural resources, business infrastructure development, construction, cooperatives, creative industry, cottage and small industries, education, energy excluding hydroelectric projects, health,   ICT excluding telecommunications, manufacturing, mining, tourism, transport, and waste management and recycling industries.

The above was one of the last policy interventions made by the government. “We are waiting to see how this government takes its economic policies forward. Just like the BCCI President said, during interactions with the private sector representatives, the government said our views, concerns and recommendations have vale and would be looked into,” a contractor said.

Meanwhile, the PM, during his interactions with the Bhutanese media yesterday (April 26th, 2024) said that the government would relook the FDI policy in order to attract more investors.

By Ugyen Tenzin, Thimphu