India largest FDI investor in Bhutan

Foreign Direct Investment (FDI) to Bhutan is predominantly from Asian countries, which constitutes 67%, followed by 16% from Europe. 51% of the projects have FDIs from India followed by Singapore at 15 % and Thailand at 10%.

A total of eight FDI projects worth Nu 356.3mn were approved in the year 2022 indicating a decline by Nu 357 million. As of December 2022, the country saw a total of 101 FDI projects worth Nu 4362mn. The country has not been able to attract FDI projects at par or above the pre-pandemic level, according to the FDI annual report 2022.

The FDI report also states that the country received the highest FDI in 2018 with 16 FDIs worth Nu 6781mn in 2018. 12 projects worth Nu 1.17B and 10 projects worth Nu 2.1B were approved in 2020. Of the eight projects approved in 2022, six were in the service sector and two in the manufacturing sector. However, during the same year, three projects withdrew from the country including 2 in the information technology-enabled service sector (ITES) and 1 in hotel sector.

However, during 2022, the hospitality sector constituted 36% of the FDI projects followed by IT/ITES at 22%. The FDI companies in Bhutan employed a total number of 4,601 Bhutanese as of December 2022. The service sector employed 65% of the employees while the manufacturing sector employed 35%. 

Meanwhile, tax contribution by the FDI companies increased by 63% to Nu 1,304mn in the income year 2021 against Nu 760mn in 2020. However, tax contribution is yet to reach the pre-pandemic level from the operating FDI companies, according to the report.

However, there are hurdles and challenges of FDI Company in the country. Pema Tshering, the founder of DrukSmart shared that one of the problems is the inconvenience of financial services in the country. “For instance, Avinash, partner and chairman of the company has his banking accounts linked to his work permit, which is only valid for one year. As he has to constantly travel internationally for business, timely renewal of his permit has always been an issue, leading to malfunctioning of his banking accounts,” Pema said.

He also highlighted that as DrukSmart has to regularly hire international consultants for export businesses, getting their payments processed through Bhutan has always been an issue, as they won’t get a work permit and so a bank account in Bhutan.

“We have not been able to send many Bhutanese consultants internationally because of the limitations on releasing the payments. An individual is limited to only USD 3000 in a year which is not sufficient for those travelling to international locations for project implementation,” he said.

He also mentioned that FDIs in the countries are eligible for fiscal incentives. However, he said that they have processed for some fiscal incentives with figures of export business and local employment provided by DrukSmart. “We were recently informed that there are no such incentives available as the Fiscal Incentives (FI) 2017 was repealed,” he added.

Another shared that the approval process remains complex though there are concern focal persons. He spoke about equity restrictions, especially in manufacturing that make it hard for foreign companies to come and be able to find a joint venture with a local partner. 

Meanwhile, according to the department of industry, ministry of industry, commerce and employment (MoICE), the ministry promotes Bhutan as an investment destination for FDI by functioning as an Investment Promotion Agency (in line with the FDI Policy 2019).

The department also stated that they are creating an enabling environment for FDI, and also developing and implementing investment promotion strategies and action plans.

Further, the department also facilitates investment and establishment of FDI projects, provides post-establishment services, and policy recommendations for FDI, and the department also provides advice related to FDI treaties and other international agreements, amongst others. Meanwhile, about 87% of the 101 FDI projects are in the government’s priority sector and most of the projects are located in Thimphu, Paro, and Chukha.

Sherab Dorji from Thimphu