During the middle of this year, individuals from the private sector, wishing to venture in Foreign Direct Investment (FDI) businesses, requested the Ministry of Economic Affairs (MoEA) to make the FDI policy a bit soft.
As per the submissions made, obtaining government approval, monetary policies and bureaucratic delays, were pointed out as two of the biggest obstacles facing FDI ventures today.
The submission made stated that FDI must be more palatable and friendly for both investors and local partners. As per the annual FDI report 2021, a total of 96 FDI projects with new six approved as of 2021 are there in Bhutan.
Additionally, Prime Minister Dr. Lotay Tshering in the State of the Nation Address on December 8, 2022, said eight FDI projects worth Nu 356.29mn have been approved and seven projects worth Nu 3.64bn have been given in-principle approval in 2022.
Speaking about it and other related FDI issues, Economic Minister Loknath Sharma said that though there are no current intentions or studies done to change the Foreign Direct Investment (FDI) Policy 2019, the MoEA “continues to create a conducive environment for investments be it FDI or domestic investment.”
Further, in line with the objectives and vision of FDI Policy 2019, the Ministry ensures that necessary support is provided and facilitated to encourage more FDI and domestic investment in the country.
Lyonpo said relevant stakeholders are working towards loosening the restrictions on FDI investment.
He added that as it involves multiple stakeholders, such as the Department of Industry, Department of Immigration, Royal Monetary Award, Ministry of Finance and others, the concerned agencies involved in it are taking a holistic approach to ensure the key hindrances or challenges are removed or loosened towards creating a conducive FDI investment environment.
“If the MoEA is doing this, it is very good,” a financial expert who did not want to be named said.
According to him, there are several restrictions and “laws that make no sense in this global and technologically advanced world.”
“From immigration to the Royal Monetary Authority (RMA), changes need to be made,” he said. .
“If your goods are to be exported to India, you get ngultrums and not dollars. So even if a firm needs dollars to import materials etc from Europe or other places, you cannot get dollars.”
According to him, this is one area requiring further study. “I have friends abroad and what they say is that it is very easy to put money in Bhutan, but very difficult to get it out,” he added.
A former business journalist said another reason is the un-stability of policies. “While Bhutan ranks very high on political stability, it falls on policy stability as different governments tend to come up with different policies,” he said.
Another issue that concerns people and also affects venturing into FDI is the policy’s negative list approach.
For instance, according to the negative list approach of FDI policy 2019, three-star hotels and below will not be approved for tourist stay.
According to the FDI report 2021, the Hotel sector remains the sector with the highest number of FDI received till date (38 %) followed by IT/ITES with 22%.
On this aspect, Lyonpo Lokhnath said FDI in hotels is allowed only in 4 stars and above as per the FDI Policy. “This is a policy decision taken by the Government to keep foreign investors out of 3-star hotels for domestic people. Due to this reason, FDI in hotels with 3 stars or less is not permitted,” Lyonpo said.
He further said that the huge number of Bhutanese operating hotels below 3 stars is huge. Thus, there is a need for this provision.
When asked about the diversity of FDI in Bhutan, the minister said “it is true that FDI has been mostly dominated by the service sector particularly the hotels and IT/ITES sector.”
“This is not necessarily as a result of the Ministry’s concerted effort solely in these two sectors. The Ministry encourages and promotes a wide range of sectors that will bring in the larger economic benefit, create employment opportunities, substitute import and increase export and create income earning platforms for our people,” Lyonpo said, adding that the intent of the Ministry as one can see from the Policy is “to promote FDI in a range of sectors to enable diversification of the economy.”
For giving priorities to certain sectors, Lyonpo said “experience has taught the government and country that prioritization has its weaknesses”
“While there may be certain benefits by specializing or focusing on certain sectors to attract more FDI, it may not be advisable to make a priority sector as that which may not be attractive right now will be of huge potential and scope in the future. Therefore, it is important to keep this open and accord equal importance to all different sectors,” Lyonpo said.
Meanwhile, the government has also been giving fiscal incentives to the FDIs. Lyonpo Loknath Sharma brushed aside words doing the round that the incentives given to the FDIs will be discontinued.
“The fiscal Incentives Act does not differentiate whether the business is an FDI or a domestic business. So long as the activity falls in the high priority list and meets the economic conditions, the business will be eligible for fiscal incentives such as tax holiday, investment allowance etc,” Lyonpo said.
He also said that no such indication was made to the Ministry that the incentives to businesses or FDI in particular would be phased off. In fact, the MoEA has increased their advocacy programs on such fiscal incentives.
Bhutan opened its door to FDIs in 2002, and the FDI policy was updated in 2010 with a significant switch from a positive list to a negative list.
Approach. Additionally, in 2014, a new series of revisions were made with the goal of liberalizing the investment regime. Since then, the policy has been in effect for almost five years and was last revised in 2019.
Tshering Pelden from Thimphu