FDI in IT/ITES witnesses a jump

FDI in IT/ITES witnesses a jump

FDI in Bhutan sees a shift from the traditional hotel industry

Bhutan opened doors to Foreign Direct Investment (FDI) in 2002 after which it witnessed FDI in the services sector dominate constantly, with FDI in the hotel industry ranking top of the charts.

However, the latest FDI report shows that FDI in the Information Technology/Information Technology Enabled Service has increased.

According to the annual FDI report (2022), the share of IT/ITES increased from 19 % in 2019 to 22 % in 2022.

Although the country began taking in FDI only in 2002, it wasn’t until 2018 that it started taking FDI in the IT/ITES sectors. Further, FDI in this sector did not witness a steady rise over the years. As per the annual FDI report of 2018, the IT/ITES constituted 15% of the overall project in the country.

In 2019, it covered 19% but in 2020, the IT/ITES sector fell by 8% and it comprised only 11% of the overall projects.

However, the latest report shows that the FDI trend in IT/ITES increased last year and reached 22%, which is one of the highest till now. The percentage increase in IT/ITES could have been even higher than 22%, but two IT/ITES projects withdrew during the year along with one hotel project.

According to experts, Information and Communication Technology (ICT) goods and services contribute to the economy’s added value, it also increases output and productivity through the use of ICT capital as an input in the creation of all commodities and services that promote economic growth. 

“Therefore it is a good sign that the country is divulging more into IT, given the fact that FDI in IT/ITES sector is increasing,” an IT expert who did not want to be named said.

Meanwhile, the FDI Report 2022, shows that the Department of Industry has approved a total of eight FDI projects worth Nu. 356.29 mn in 2022. From this, six of the projects are in the service sector and two in the manufacturing sector.

The number of FDI projects approved in 2022 has increased to eight from six in 2021, but the project size has declined from Nu. 713.23 mn in 2021, to Nu. 356.29 mn in 2012.

The country attracted FDIs in diverse sectors last year, moving away from the hotel industry.

The report states that the “Share of Hotel sector to overall FDI declined from 42 % in 2019 to 36 % in 2022. This is an indication of the receiving FDIs in a diversified sector- a shift from hotels to other sectors,” it underlines

Meanwhile, DrukSmart, a Thimphu-based IT FDI company, has an Indian investor which provides a variety of services such as Enterprise Applications, (SAP/open source Enterprise Resource Planning (ERPS), Data services (Migration, transformation, Governance, Analytics,) Management consulting & Business process re-engineering, Building  future ready Technology roadmaps, Implementing solutions in systems and applications space, Collaborated Partner’s product/services (Health, Education, Emerging tech, manpower augmentation ).

One of the focal persons from DrukSmart said that most FDI IT companies in the country provide services such as ERP, Software development and content creation, and social media management under digital marketing.                                                                                                     

 Additionally, a total of nine FDI projects were issued FDI Registration Certificates in 2022 of which seven projects are in the manufacturing sector and the remaining 2 in the service sector. The projects are in various stages of approval.

As per the report, from within Asia, India remains the major source of investment in Bhutan with a 51 % share followed by Singapore (15 %) and Thailand (10 %).

About 16 % of FDI have investors from Europe followed by 10 % from America.

Meanwhile, a report by UNCTAD in 2022 said that developed economies saw the biggest rise by far, with FDI reaching an estimated $777 billion in 2021 – three times the exceptionally low level in 2020.

In Europe, more than 80% of the increase in flows was due to large swings in conduit economies. Inflows in the United States more than doubled, with the increase entirely accounted for by a surge in cross-border mergers and acquisitions (M&As).

FDI flows in developing economies increased by 30% to nearly $870 billion, with a growth acceleration in East and South-East Asia (+20%), a recovery to near pre-pandemic levels in Latin America and the Caribbean, and an uptick in West Asia.

Inflows in Africa also rose. Most recipients across the continent saw a moderate rise in FDI; the total for the region more than doubled, inflated by a single intra-firm financial transaction in South Africa in the second half of 2021.

Of the total increase in global FDI flows in 2021 ($718 billion), more than $500 billion, or almost three quarters, was recorded in developed economies. Developing economies, especially least developed countries (LDCs), saw more modest recovery growth.

The report said investor confidence is strong in infrastructure sectors (see the above figure), supported by favourable long-term financing conditions, recovery stimulus packages and overseas investment programmes.

International project finance deals were up 53% in number and 91% in value, with sizeable increases in most high-income regions and in Asia and Latin America and the Caribbean.

In contrast, investor confidence in industry and global value chains remains weak. Greenfield investment project announcements were practically flat (-1% in number, +7% in value). The number of new projects in global value chains (GVCs)-intensive industries such as electronics fell further.

In other sectoral trends, greenfield investment activity remains 30% below pre-pandemic levels on average across industrial sectors. Only the information and communication (digital) sector has fully recovered.

Project finance in infrastructure now exceeds pre-pandemic levels across most sectors. Project numbers are up most in renewable energy and industrial real estate.

The boom in cross-border mergers and acquisitions (M&As) is most pronounced in services. The number of deals in information and communication increased by more than 50% to a quarter of the total.

Tshering Pelden from Thimphu