FDI flow increases in last three years

FDI flow increases in last three years

The value of FDI projects stands at Nu 48.607 billion as of 2023

Bhutan has recorded a consistent increase in foreign direct investment (FDI) projects over the past three years as the country continues to attract more investors. In 2023 alone, 12 FDI projects worth a total of Nu 7.607 billion (B) were approved, marking a steady increase compared to previous years.

The Department of Industry, Ministry of Industry, Commerce and Employment (MoICE), said that over the years, the government has constantly been working towards improving the ease of doing business and implementing interventions specific to FDI. “These interventions include the revision of FDI policy in 2019, streamlining the review process for project proposals, and automating the services.”

“While the number of FDI projects approved depends on the proposals received, the increase in the number of projects approved annually could partially be attributed to the interventions,” the official said.

Further, the official said, “The current policy encourages FDI in areas that contribute to the development of a green and sustainable economy, promotion of socially responsible and ecologically friendly industries, creation of a knowledge economy, and diversification of the economy for exports and import substitution.”

The FDI policy was last revised in 2019. However, according to the department of industry, the FDI policy will be reviewed and revised to make it more conducive to investment, and greater emphasis on promotion of FDI will be required with ambitious targets set for the department in the 13th FYP.

The official also said that the FDI projects have helped diversify the country’s product base. Some FDIs have ventured into vertical diversification of an existing product, while others have ventured into totally new areas, such as the production of pharmaceuticals.

Meanwhile, the majority, about 65% of the FDI projects in the country are from investors based in Asia, with India leading as the major source of investment, accounting for 57% of total FDI. Singapore follows with a 13% share and Thailand with 10%. 17% of the FDI projects are from Europe, 11% from America, and 5% from Oceania, while FDIs from Africa and MNCs remains relatively low.

The FDI projects are mostly located in Thimphu, Paro, and Chhukha districts. Out of the approved projects in 2023, seven are in the service sector, while five are in the manufacturing sector.

In addition, a total of 21 FDI projects were issued with registration certificates in 2023, of which 10 were approved, which included three in the manufacturing sector and seven in the service sector during this year. Other eleven projects-four in the manufacturing sector and seven in the service sector are in various stages of approval.

The hotel sector holds the largest share of FDI with 34.9%, followed by the IT/ITES sector with 21.7%. The other sectors such as financial, dairy, agriculture, and power-intensive shared 6.6%, 8.5%, and 9.4% respectively. While 15.1% of FDI is with other manufacturing sectors and 3.8% of FDI is with other sectors.

The share of the hotel sector in overall FDI is declined from 36% in 2022 to 34.9% in 2023. The share in IT/ITES has also shown a slight decrease, dropping from 22% in 2022 to 21.7% in 2023.

However, power-intensive manufacturing has shown a slight increase, rising from 8% in 2022 to 8.5% in 2023.

Of the approved FDI projects, the private sector dominated overall FDI with 67%, an increase of 1% as compared to 2022. Approximately 78.03% of the approved FDI projects fall under the priority sector of the government, as stated in the FDI policy.

The value of FDI projects stands at Nu 48.607 billion as of 2023. According to the MOICE, an assessment of the scenario of FDI inflow in the country was carried out through a survey of FDI projects and validation of the information through audited accounts submitted to the Ministry.

“While an attempt was made to cover entire FDI projects, information from a few companies could not be collected due to the temporary closure of businesses and non-respondents on the survey. From a total of 95 projects that were approved prior to 2023, only 69 FDI projects responded to the survey.”

In terms of employment, a total of 4,327 Bhutanese were employed by the reported FDI projects as of December 2023, while 47% of the employed are female and 53% of the workforce is male. Financial services are the sector that generated the most jobs for Bhutanese, with a share of 38.8%.

The year also saw a slight increase in employment in the hotel and other manufacturing sectors, while employment in most of the sectors has declined compared to the previous years.

On the taxation front, the reported FDI companies contributed Nu 1.512B for the income year 2023. The contribution has increased by 16% from the contribution recorded for the year 2022, with an income of Nu 1.304B.

As of 2023, the total number of approved projects stands at 108, of which five FDI projects have withdrawn during the years—four projects from service sectors and one from production. One FDI project was converted into domestic projects.

Nidup Lhamo from Thimphu