Supporting private sector growth for our economic well-being

A country’s economic well-being is strongly tied to its private sector. It plays an important role in its development by creating jobs and providing income security to families and individuals, bringing new and innovative solutions to the market and, most importantly supplementing the national income. As a country develops, the private sector’s contribution to the economy should increase.

Our private sector has, at best, been peripheral in recent years. Bhutan has always maintained that the private sector is the ‘engine of growth’. We have made good progress in improving the environment for doing business – ranked 89 now (and in 2016 ranked as high as 71), up from 126 a decade ago, in the World Bank’s Ease of Doing Business index.

According to the 2018-19 Economic Census, published by the National Statistical Bureau, there are ~14,000 establishments employing ~74,000 people. Over 97 percent of these establishments are shed vendors, single proprietors or partnerships, and over 80 percent operate in the retail and wholesale trade, repair of vehicles and the hospitality sectors. Figures on license issuance and enterprises show that the number of companies in the private sector has increased gradually since 2016.

However, we are yet to see sustained meaningful benefits. Our imports comprising of commodities and basic necessities, continue to increase year on year. Meanwhile, growth of our exports (excluding hydroelectricity) largely composed of minerals, lag behind that of our imports. We have failed to see major creation of jobs. This is borne by our persistent unemployment problem. More than 50 percent of our firms employ a single individual. 30 percent employ only two or three individuals. Less than 80 firms employ more than 100 individuals.

The sector is beset with multiple challenges. These needs addressing, and it is more urgent as we face imminent dislocations in our economy due to Covid-19 pandemic. It is imperative to view the private sector as a partner in our economic recovery and growth. We have to be open to exploring all avenues to encourage its development. Nothing should be off bounds at a critical juncture like now, where we are confronted with a certain recession, sustained unemployment for a number of years and uncertainty around aid and grant from our development partners.

A primary challenge is the lack of and access to markets for our goods and services. Investments into developing new and existing markets have been less than optimal. Our economic dependence on a few sectors (hydroelectricity, agriculture and tourism) and the composition of firms (retail, food and accommodation services) bear this out. The government, in partnership with the BCCI and the overall private sector, should consider developing markets, both within and outside Bhutan, as a priority. Market development and improving market access, reduces risks and demonstrates our commitment to the private sector, thus encouraging entrepreneurs and owners, often with limited resources, to invest into, start or grow their businesses.

Enabling the participation of the private sector in our development activities would be a good start for developing our internal markets. The government has an annual budget ranging between Nu 50B and Nu 60B. It would be an excellent boost and a positive message, if the government were to commit a proportion for securing services from the private sector. An example could be the development and management of IT and software services as we embark on our digital journey.

Understandably, the quality and effectiveness of delivery are genuine concerns but these are manageable using proper governance and contractual mechanisms. The private sector will also develop skills, management capabilities and expertise as they work together with the government. Most countries that have a thriving private sector have often been enabled in their initial stages through government and public sector support.

Closely related to developing internal markets, are the roles of our state-owned and the DHI owned and controlled enterprises (collectively called as the SoEs). Many, rightfully, ask whether the SoEs are crowding out the private sector players and, in some cases, competing directly with them. There are no doubts that state involvement is important in sectors strategic to the country. Our SoEs operate across a range of sectors such as importing and distributing products, processing dairy, construction, wood craft, manufacturing, information technology, and generation and distribution of electricity.

Are all these sectors truly strategic enough to deserve significant government oversight and effort? Are there opportunities for the SoEs to allow space for the private sector to grow in some of these sectors? Should DHI, having matured over a decade, use their skills and expertise in crafting a path for Bhutanese companies and entrepreneurs to access markets outside and build ‘Brand Bhutan’, thus providing the diversification that our economy urgently requires? These questions require assessing in the overall context of roles of the SoEs as the guardians of our wealth and as enablers and catalysts for our economic development.

It in inevitable that we have to explore markets beyond our borders. We have been fairly successful with tourism. Can we replicate the success in other sectors? Should we position ourselves as producers of organic food? How about becoming a hub for biosciences, forestry and environmental services and products? Could we use our abundant and supposedly cheap electricity to refine / develop and (re) export value added products? Should we become a financial services centre for the region? There are many possibilities and the answer will be a combination of a number of these. The ongoing economic planning initiatives will likely answer these important questions. Over the long term, being able to access these markets successfully should also improve our balance of trade and payments situation.

Private sector growth will only be possible if we invest in our people. A country that doesn’t invest in its human capital over a long period of time stagnate as a low skilled economy and lose its more capable and enterprising people to underemployment or to other economies. Limited supply of skilled individuals is regularly cited as a huge impediment by companies in Bhutan. Long term investments by local companies and FDIs, depend on the availability of skilled individuals in the market and a good pipeline of talent through our education and training institutes. There is no substitute for good talent, and this means our education and training system will require significant improvements.

We also have to focus on mitigating the common obstacles that our businesses face. Access to finance continues to be a perennial problem. The emergence of new platforms and organisations that provide funding to start-ups are helpful but more sustainable funding options, particularly from the government, would be required in the short to medium term. It is ironic that our businesses see access to electricity and water as the other major obstacles. These should not be the case. There are also opportunities for the government to regularly re-visit our policies (e.g. existing economic development plans, fiscal incentives, taxations and rules) that relate to businesses, review their effectiveness, and continuously improve the business environment.

Bhutan’s development has been pioneered and delivered by the public sector successfully until recently. We should all be proud of what we have achieved in a short period of time. Our public sector is pushing its limits in terms of size (employs 12 percent of economically active individuals), wage bill (20 percent government spending, 2019) and spending (35 percent of GDP, 2018). There is little room for the public sector to drive substantial additional growth to our economy. The alternative is to recognise that the private sector should be the cornerstone of our economic prosperity and self-sufficiency. We have to accord it the rightful status and the support it deserves.

Contributed by 

Dorji Wangchuk

dorji.wangchuk@outlook.com

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