External market factors affect local industries: DoI

The department recommends flexibility in electricity pricing

Industry: External market factors like economic conditions, change in market demand, change in government policy and the labour market, raw materials sourcing, foreign currency problem and change in the price of the electricity affected almost all local industries in the country.

This was one of the findings of a study conducted by the Department of Industry (DoI) on productivity enhancement of existing medium and large industries.

Those industries not affected either by internal or external factors were industries with international affiliation where excellent management and leadership teams exist and latest technologies are used.

The study also found that there is the necessity of maintaining a close and proper communication between the DoI and firms throughout the country.

The financial records from 2008 to 2014 clearly indicate an upward trend for all industries in Bhutan.

For alloy industries, the study found that the market for ferrosilicon, manganese alloys, and other metals has been passing through a difficult phase of the business since 2008.

“Erratic price fluctuations of energy in the global market have shaken the alloy industry around the globe (Industry, 1999-2013),” it is stated. A report from the World Steel Association also reveals that the demand for steel globally has been on a downward trend till 2015.

However, as per the financial statements of the last eight years, the alloy industry in Bhutan was enjoying the best profitability, with average profit of each alloy company coming to between 297 percent and 300 percent per annum.

The study also reveals that the downward trend in steel is temporarily aggravated by the global economic crisis, regional competition and oversupply of steel products in the market. Steel utilisation ratio is on an upward trend since February 2016 which will positively impact the alloys industry, the report states.

But the transportation costs and the costs of raw materials are cited as major challenges in the alloy industry. “Erratic change of high voltage power tariff rate has disturbed the alloy industry in the country.” Except for electricity, all the high consuming raw materials like charcoal, LAMC and bamboo chips are imported from India.

Currently, as per the study, the alloy Industry is looking at means to minimise the operational as well as production costs to compete in the regular market in the region.

The agro and food-based industry, including alcohol and beverages are seen to be improving regionally. Investors are in a positive mood, the study says, adding that Bhutan should create opportunities for FDI in food processing industries.

However, this sector is also affected by external market factors like lack of raw material sources, constant increase in raw material prices, high transportation costs, coupled with policy restrictions on employment of foreign workers in the country and limits on release of foreign currency.

The most important factor deterring the growth and development of the agro, alcohol, beverages and food industry, as per the findings is the unavailability of ready-made raw materials within the country, because of which raw materials like corn, wheat, barley, mustard cake, and fruit pulp, has to be imported.

In the short run, agro-based industries are earning a decent profit but in long run, the study reports that it will be risky to depend on other countries to supply the core raw materials.

DoI has also studied the profitability and productivity of the forest and wood-based industry where short supply of raw materials, human resources, poor market conditions and import of furniture from neighbouring countries were cited as some of the factors deterring and threatening the industry.

It is found that only one government owned ply board and furniture making unit is exporting its wood products in a neighbouring country, while the rest are not able to compete with the Indian wood and furniture manufacturing industry.

“The paradox is when Bhutanese wood-based industry are complaining about market, raw materials, labour and competition from the neighbouring countries like China and India, a Vietnamese company like Adruka Pvt Ltd has come into Bhutan and created and captured the high end market in Bhutan and is running successfully,” the report states.

The wood-based FDI company has pointed out that they do not have any issues either in market, labour, productivity or finances. The DoI study reveals that FDIs have good leadership and entrepreneurship practices

It is also revealed that on an average 79 percent of the forest and wood-based industry maintains its productivity level to make their products more competitive and sustainable in the market. But the profitability trend for last eight years is declining, the report adds.

Sourcing the raw materials and constant increase of electricity tariff is again seen as the biggest challenge to the mineral based industry, particularly to the cement industry.

The department has recommended the government to assist the industries by establishing a Business Development Centre in each embassy to inform industries of potential markets so that road shows can be held.

In an acute emergency situation, the department also suggests the government to keep the electricity tariff flexible as per demand and supply.

“If the industry needs more energy at a lesser price for the certain period of time, it may be allowed at the constant price, but the difference could be paid back to the BPC at the later date with agreed interest rate,” one of the recommendations states. This, according to the department will help the industry to play around with seasonal price fluctuations.

The study also recommends to develop “Business Flood Warning Systems” as a platform where the government, financial institutions, Association of the Bhutanese Industry and Bhutan Chamber  of  Commerce and Industry  can  meet  to  share  relevant  and  monitored information to act proactively towards any kind of emergencies linked to business and industry.

It is also “highly recommended” that a separate study focused on baseline survey on Industry Productivity may be carried out with immediate effect.

Tshering Dorji

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