Vision 2020: Private Sector: Twenty years ago, Bhutan’s private sector was at an “embryonic stage.” It had to change to help the government diversify the economy base and help create jobs.
If the private sector should be the engine, impediments to its development and making the sector attractive to youth as a source of employment had to be removed.
The private sector has come a long way in terms of the overall growth and expansion over the last 20 years. But private players say that the sector is far from being a real engine of growth despite partial achievements in some of the goals.
The idea of transforming the private sector into the engine of growth involved ensuring that the private sector became a more active partner in the nation’s development.
But the domination of the economy by state-owned enterprises (SOEs) is a major impediment to the growth of the private sector. Private sector players feel that the expansion of the SOEs has shrunk the scope for the private sectors.
The government in the 11th Plan established six SOEs including the Royal Bhutan Helicopter Service, Royal Bhutan Lottery Ltd., Bhutan Duty Free Ltd., Agriculture Machinery Centre, Rural Enterprise Development Corporation and Green Bhutan Corporation among others.
The Construction Development Corporation Ltd. and the National Housing Development Corporation are among the biggest state-owned players competing with the private sector.
Owner of Rigsum Institute and former vice president of Bhutan Chamber of Commerce and Industry (BCCI), Chen Chen Dorji, said that private sector players supported the idea of the sector being the engine of growth. But he said that lack of adequate policy support from the government has impeded the realisation of the vision.
“For instance, government-sponsored trainings are outsourced to India and other countries despite having local capacity. “We are far from becoming the engine of growth,” he said.
Private sector officials said that the sector could become the engine of growth only when the state’s dominance in the business sector ends.
To realise the vision in the private sector, the highest priority was supposed to be given to the simplification of licensing arrangements and the introduction of unambiguous commercial law.
The country’s ease of doing business ranking improved from 126th in 2009 to 89th in 2019. The best ranking Bhutan achieved was 70th in 2014, but what may be a worrying sign is that the ranking has continuously dropped since.
Executive committee member of BCCI, Sonam Wangchuk, said that rules and regulations have improved during the last 20 years. But he adds that ad hock decisions from the government is impeding realisation of the private sector vision.
He said that the frequent changes in rules and regulations created uncertainty for investors. “We need conducive rules that do not change frequently.”
Chen Chen Dorji said one of the challenges was the lack of prompt decisions from relevant ministries. “They talk about one-window service. In realty, we need to visit about 20 windows to avail a service,” he said.
One of the parameters to measure the growth of the private sector is its ability to attract youth as a source of employment. The document envisions that the private sector should be the “magnet of employment”.
The employment of thousands expatriate workers in the Bhutanese private sector is an indication that the private sector has grown significantly. But the sector’s inability to attract Bhutanese youth remains an obstacle to solving the unemployment problem.
Sonam Wangchuk said the mentality towards the sector needed to change to absorb Bhutanese jobseekers.
He said that the sector’s ability to create jobs depends on its health. “The private sector needs a lot of support from the government in terms of policy, not freebees and monetary support to grow as a major player in nation building and provide jobs.”
The overall unemployment and youth unemployment rate stand at 3.4 per cent and 15.7 percent respectively, as per the labour force survey of 2018.
Lack of implementation of the Labour Act, which requires private sector to provide provident fund and other social security schemes to private employees, has been a major discouraging factor against the private sector’s ability to attract youth. The labour ministry in March last year made it compulsory for private firms to provide provident fund (PF) to their employees, but many firms, especially small ones, have dragged their legs out.
Some private firm official say that smaller firms were not financially sound to provide social securities to employees.
One of the areas of achievements is the Foreign Direct Investment (FDI). Bhutan received a total of 83 FDIs during the last eight years, according to the FDI report 2019.
The vision was to improve the access of local private sector firms to capital, technology and know how and formation of joint ventures with foreign enterprises, which generally have been achieved.
According to the Ministry of Economic Affairs, Hotel, IT and IT-enabled services were the most attractive sectors for FDI in 2019. Of the 12 projects approved, five each are in these two sectors and the remaining in technical education and manufacturing.
However, the challenges remain about distributing them among all regions. About 64 percent of FDI projects approved are located in Thimphu, Paro and Chukha with highest number (38 percent) being in Thimphu.
According to the vision document, FDIs would be encouraged in projects that will have 80 percent export potential of its production and also earn in hard currency, which means that the production-based industries were expected.
In total, 11 FDI projects in the manufacturing sector have exported goods worth Nu 4.2 billion (B) of which Nu 3.8B is to India and the remaining to other countries.
Another vision in the private sector was to create opportunities for small businesses to flourish. But the issues have been that mostly large-scale firms including hotels enjoy the fiscal incentives.
An economic analyst said that on the whole the private economy had grown significantly in size. He cited the increase the number of star-rated hotels in the country.
However, he added that the sector lacked a locomotive to take off to be the engine of growth. “This is one area where the government failed miserably.”