Third FDI policy revision to diversify and redistribute investments

Currently, a majority of FDI projects is concentrated in the hotel sector. The current government hopes to attract investments in small and medium industries by lowering the investment threshold.

The government is currently in the process of revising the Foreign Direct Investment (FDI) Policy 2010 to make investment climate in the country more conducive and investor-friendly.

With this, the FDI policy will be revised for the third time now. The Druk Phuensum Tshogpa government revised the policy in 2010 followed by People’s Democratic Party government in 2014. The earlier amendments to the policy were made to realign the FDI regime to the changing needs of the economy and to attract more foreign investments to drive growth.

Speaking to Business Bhutan, Economic Affairs Minister Loknath Sharma said the FDI policy is being revised to address existing issues and challenges faced by FDI companies in Bhutan and potential foreign investors.

“The current FDI policy is not attractive enough as there are few areas which we need to relook,” said Lyonpo. “There are several limitations in the present policy. We need to revise and relook into certain sectors where there are no investments.”

The revision of FDI policy will look into issues of remittance, immigration permits pertaining to the duration of stay for foreign workers in the country, challenges with exchange of convertible currencies, and procedures to register a FDI company, among others.

The revision also intends to attract FDI in small sectors. To this end, the new policy would look into lowering the investment threshold to encourage investments in small, cottage and medium industries.

 “We need to attract FDI in our small sector because we are terribly in shortage of financing and local banks are not able to do it. We also lack in technology, knowledge and skills. FDI companies would help with technology and knowledge transfer,” said the Economic Affairs Minister.

The policy revision will also look into streamlining services related to FDI through a single window that will house all key FDI service providers.

In 2018, 16 new FDI projects were approved, taking the total FDI projects in the country to 73. The total capital inflow from foreign investors stood at Nu 22.2mn and US$ 6.2 million in 2017 alone. As of 31 December 2017, operating FDI companies in the country contributed Nu 1.56bn in tax revenue.

The FDI companies currently employ 5,307 employees, of which only 190 are foreign workers – that is 23 Bhutanese for every foreign worker.

A majority of FDI projects (42%) is in the hotel sector followed by Information Technology and Information Technology Enabled Services (15%). A staggering 64% of FDI projects approved are located in Paro, Thimphu and Phuentsholing, with the highest concentration (34%) in the capital.

 “Most of the FDI companies are in the hotel sector today therefore it is important for us to diversify the FDI attractions from hotel industry to other sectors such as education, health and agriculture including small industries,” said the Economic Affairs Minister.

In terms of FDI projects by investor type, 72% are private companies, 19% individual investors and 9% institutional and state owned enterprises. Around 64% of investors are from Asia alone. India is the major source of investments with 51% followed by Singapore  (15%) and Thailand (13%).

According to the Economic Affairs Minister, FDI would be instrumental in the diversification of the economy and the revision of the policy would lead to redistribution of investments in other sectors.

“We want to make the FDI policy convenient and conducive for foreigner investors,” said Lyonpo Loknath Sharma. “FDI is one way to expose the Bhutanese economy to the outside world and create employment as well train and develop the country’s human resources.”

Lyonpo added that since Bhutan will be graduating from the Least Developed Country category, the 12th Five Year Plan focuses on diversification of the economy. “We have high economic vulnerabilities and we need to make our economic base strong to address these vulnerabilities. That is why diversification has become a priority but without foreign investors, it would be very difficult because we have limited internal resources,” the Lyonpo said. 

Chencho Dema from Thimphu