FDI sector registers slower growth

Two investors pulled out this year

Phub Dem

The country recorded a slight decline in the number of Foreign Direct Investment (FDI) projects coming in with only 12 projects approved as of November.

In 2018, 16 FDI projects were approved.

From seven projects in 2017, FDI inflow in terms of numbers increased to 16 last year. The total number of FDI projects in the country stands at 83 projects as of November this year. Two investors pulled out this year.

The service sector dominates the FDI inflow with five projects each in the hotel and IT sectors. Thimphu is the preferred destination for FDI in the service sector – hotel and IT/ITES.

According to the annual FDI report, 64 percent of FDI projects approved are located in Thimphu, Paro, and Phuentsholing. Of the total, the highest, 38 percent of the projects are based in Thimphu.

Bhutan continues to receive FDIs mostly from Asian countries. From within Asia, more than half of the investors are from India (45percent) followed by Singapore (19 percent) and Thailand (10 percent), the investors increased by a few percents comparing to last year.

The report also points out that foreign investors in Bhutan are mostly private companies. Fifty percent of the projects were promoted by private companies and the other half by individual investors.

According to the World Investment Report 2019, Bhutan is attracting the least FDI among Asia countries. However, last year, Bhutan attracted around Nu 5.7 billion (B) worth of FDI, contributing its larger share to capital-intensive projects especially hotels.

The cash inflow in terms of Indian Rupee increased by 12 times and dollar by 3.4 times, the inflow increased from INR 22.2 million (M) and USD 6.2M in 2017 to INR 267.5M and USD 20.8M last year.

On employment, a total of 5,176 Bhutanese were directly employed by the operating FDI projects as of November. This was an increase of six percent comparing to 5,307 employees last year.

It was also highlighted that for every expat worker, 19 locals were employed– decreasing the ratio by four locals comparing to 2018. FDI companies employed a total of 240 foreign workers, 5.4 percent of regular employees in the companies.

Seven FDI companies employed 63 percent of total regular employees as of December last year. The companies are Mountain Hazelnut Ventures Private Limited, BoBL, BNBL, Bhutan Resorts Private Limited, Bhutan Eco Ventures Private Limited, Scan Cafe Private Limited and Bhutan Ventures Hospitality Private Limited.

The FDI projects have paid Nu 1.748B in tax last year, an increase of 11.7percent from 1.56B in 2017.

It was found that the manufacturing sector contributes significantly to the export basket. Eleven FDI projects under the sector had exported goods worth Nu 4.2B, of which Nu 3.8B was exported to India and remaining to other countries.

The share of FDI manufacturing companies to the overall exports, as per the annual Trade Statistics 2018, reveals that FDI exports to India constitute 17.6 percent of the country’s total export.

FDI development in the country, as per experts, was limited by a controlled system, and an inadequate policy in the areas of the industrial license, trade, work, and finance. The shortage of skilled labour is also a barrier.

Bhutan restricts FDI in certain sectors in order to avoid competition with local traders. Bhutan is ranked 81 out of 190 countries in the World Bank’s Doing Business, 2019, and for a landlocked country, the ranking is considered only satisfactory.

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