The country recorded Nu 5.7B worth of Foreign Direct Investment (FDI) projects in 2018 alone, recording a 10-fold increase from 2017.
From seven projects in 2017 worth Nu 597M, FDI inflow in terms of the number of projects increased to 16 in 2018. This takes the total number of FDI projects in country to 73 as of 2018, an increase from 57 in 2017.
This according to FDI annual report of the Department of Industries is owing to huge capital-intensive projects such as hotels being approved in 2018.
However, 62 percent of FDI projects approved are located in Thimphu, Paro and Phuentsholing. Of the total, 34 percent of the projects are based in Thimphu.
The report states that Thimphu is the preferred destination for FDI in service sector namely hotel and IT/ITES. Consequently, the service sector dominates the FDI inflow with 65 percent of the total projects.
Bhutan continues to receive FDIs mostly from Asian countries. From within Asia, more than half of the investors are from India followed by Singapore (15 percent) and Thailand (13 percent).
The report also points out that foreign investors in Bhutan are mostly private companies with a share of 72 percent followed by individual investors with 19 percent share.
On employment, FDI companies employed 5,307 employees, up from 4,895 in 2017. It was also highlighted that for every expat worker, 23 Bhutanese are being employed. FDI companies employed a total of 190 foreign workers, 4.19 percent of regular employees in the companies.
Seven companies employed 63 percent of total regular employees during the year. Companies include 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 in operation have paid Nu 1.56B in tax as of December 31, 2017.
However, a review on the existing investment in both FDI and domestic particularly in the medium and large scale shows that most investments in the manufacturing sector is made in the mineral based sector followed by agro based sector. In the service sector, investments are mostly made in hotel services.
In the last couple of years, FDI has stimulated product diversification with investments being made in pharmaceuticals, hydropower service, infrastructure and IT/ITES.
While FDI began in the country with the formal opening of the economy, a policy was adopted in 2002 and implemented in 2005. The policy was amended in 2010 to re-align to changing needs of the economy and changes in global investment environment. In 2014, this policy was further amended with few changes geared towards enabling the environment for investors.
Institutional foreign investors can now invest in Bhutan with a minimum stake of 10 percent and the ownership is permitted up to 100 percent in select sectors. Minimum investment levels have been reduced in most sectors. However, the annual report of 2017, stated that repatriation of dividend needs to be liberalised.
Regulatory barriers, skill shortages, and insufficient investment promotion are also identified as factors suppressing FDI inflow, according to the World Bank’s recent policy note on Bhutan. These factors, it stated are also restricting the access of domestic firms to foreign markets and technologies.
“Despite gradual liberalisation since 2010, entry barriers remain high for foreign investors,” the World Bank’s policy note stated. FDI inflows remain small and the lowest in South Asia, averaging less than USD 20 million a year.
The World Bank also stated that the policy is based on national development objectives of green economy, culturally sensitive industries, services investments and brand Bhutan, and knowledge economies. However, it states that some key aspects of the existing legal framework may not be conducive to FDI. For instance, there are discretion on screening and approval cancellations, equity restrictions in priority sectors, minimum investment levels and limits on visas of skilled workers.