an investment guide to bhutan - the i guides i an investment guide to bhutan – opportunities and...

An investment guide to BhutanOppOrtunities and COnditiOns 2013

ii I An investment guide to bhutAn – opportunities And Conditions 2013

UNCTAD

The United Nations Conference on Trade and Development (UNCTAD) was established in 1964 as a permanent intergovernmental body. Its main goals are to maximize the trade, investment and development opportunities of developing countries, to help them face challenges arising from globalization, and to help them integrate into the world economy on an equitable basis. UNCTAD’s membership comprises 193 States. Its secretariat is located in Geneva, Switzerland, and forms part of the United Nations Secretariat.

ICC

The International Chamber of Commerce (ICC) is the world business organization. It is the only body that speaks with authority on behalf of enterprises from all sectors in every part of the world, grouping together thousands of members, companies and associations from 130 countries. ICC promotes an open international trade and investment system and the market economy in the context of sustainable growth and development. It makes rules that govern the conduct of business across borders. Within a year of the creation of the United Nations it was granted consultative status at the highest level (category A) with the United Nations Economic and Social Council. This is now known as General Category consultative status.

NoTes

The term “country” as used in this study also refers, as appropriate, to territories or areas; the designations employed and the presentation of the material do not imply the expression of any opinion whatsoever on the part of the Secretariat of the United Nations concerning the legal status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries. In addition, the designations of country groups are intended solely for statistical or analytical convenience and do not necessarily express a judgment about the stage of development reached by a particular country or area in the development process.

References to “tons” are to metric tons.

While every reasonable effort has been made to ensure that the information provided in this publication is accurate, no business or other decision should be made by the reader on the basis of this information alone, without a further independent check. Neither UNCTAD nor ICC accepts any responsibility for any such decision or its consequences.

This document has not been formerly edited.

UNCTAD/DIAE/ITI/2013/1 Copyright © United Nations, 2013.

An investment guide to bhutAn – opportunities And Conditions 2013 I iii

Why INvesT IN BhUTAN

• Investment opportunities in high-end ecotourism, information and communication technologies (ICTs), infrastructure, education, power generation, as well as organic farming and agricultural processing.

• Opportunities for public–private partnerships in higher education, infrastructure, property development, hotels and ICTs.

• Provision of industrial infrastructure in special economic zones.

• Free trade agreement with India, providing access to the US$1.7 trillion Indian market, and member of the South Asia Free-trade Agreement.

iv I An investment guide to bhutAn – opportunities And Conditions 2013

ACkNoWleDgemeNTs

A great many individuals and institutions have contributed to this project and to the production of this guide. These include a large number of government officials and company executives who participated in the consultations in Bhutan.

NoTe To The reADerThis document is published as part of the UNCTAD–ICC series of investment guides. The publications in this series are intended for the use of foreign investors who are largely unfamiliar with the countries covered.

They are thus designed to offer overviews of potential locations for investment, rather than constitute exhaustive works of reference or provide detailed practical instruction. They do, however, offer pointers to sources of further information in the private as well as the public sectors.

There are two other features of these publications that the reader will find worth noting. One is that they are third-party documents, intended to offer a balanced and objective account of investment conditions. Their principal advantage in drawing the attention of investors to the countries they cover is credibility. The other feature is that both their general structure and some of their specific content are the result of consultations with the private sector.

ABoUT The “WhAT INvesTors sAy” BoxesIn producing this guide, UNCTAD carried out a large number of individual meetings with investors, firm managers and business association representatives. The results of these consultations are summarized throughout the guide in the “what investors say” boxes, whose content should be seen as no more than indicative of private-sector opinion in Bhutan.

An investment guide to bhutAn – opportunities And Conditions 2013 I v

Supachai Panitchpakdi Secretary-General

UNCTAD

Jean-Guy Carrier Secretary-General

ICC

PrefACe

Foreign direct investment has come to be widely recognized over the past decade as an important contributor to growth and development. It can bring capital, technology, management know-how and access to new markets.

The Investment Guide to Bhutan is the concrete product of a collaborative venture by the United Nations Conference on Trade and Development (UNCTAD) and the International Chamber of Commerce (ICC). The objective of this project is to bring together two parties with complementary interests: companies that seek new opportunities and countries that seek new investors. This is not always a straightforward exercise, for firms are driven by their global strategies as much as lured by specific opportunities, and countries have economic and social objectives that transcend attracting foreign investment.

The UNCTAD–ICC investment guides are thus properly seen as parts of a process, a long-term process at the heart of which is an ongoing dialogue between investors and governments. The guides themselves are the product of a dialogue, including that occurring among and between the representatives of business and government during the workshops that precede the completion of the guides. It is our hope that the guides will in turn contribute to the dialogue, helping to strengthen and sustain it. We are convinced that in the long run it is this alone that will create conditions increasingly conducive to greater flows of investment.

vi I An investment guide to bhutAn – opportunities And Conditions 2013

The UNCTAD–ICC serIes of INvesTmeNT gUIDes

An Investment Guide to Ethiopia, 1999; new edition in new format, 2004

Guide de l’investissement au Mali, 2000; new edition in new format, 2004; revised edition translated into English, 2006

An Investment Guide to Bangladesh, 2000

An Investment Guide to Uganda, 2001; new edition, 2004

An Investment Guide to Mozambique, 2001

An Investment Guide to Nepal, 2003

An Investment Guide to Cambodia, 2003

Guide de l’investissement en Mauritanie, 2004

An Investment Guide to East Africa, 2005

An Investment Guide to Kenya, 2005; new edition, 2012

An Investment Guide to Tanzania, 2005

An Investment Guide to Rwanda, 2006; reprinted, 2008; new edition, 2012

An Investment Guide to Uzbekistan, 2007; revised edition, 2009

An Investment Guide to the Silk Road, 2009

Guide de l’investissement au Bénin, 2010

An Investment Guide to the Lao People’s Democratic Republic, 2010

Guide de l’investissement au Maroc, 2010

Guide de l’investissement aux Comores, 2011

An Investment Guide to Zambia, 2011

Guide de l’investissement dans la région de l’Oriental du Maroc, 2011

Guide de l’investissement au Burkina Faso, 2012

Download all guides and find more information online at www.theiguides.org

NeW IgUIDes

Rwanda: www.theiguides.org/rwanda

Burundi: www.theiguides.org/burundi

An investment guide to bhutAn – opportunities And Conditions 2013 I vii

ABBrevIATIoNs

A

ACC Anti-corruption CommissionASEAN Association of Southeast Asian Nations

B

BCCI Bhutan Chamber of Commerce and IndustryBEA Bhutan Electricity Authority BIMSTEC Bay of Bengal Initiative for Multi-sectoral Technical and Economic CooperationBIS Bureau of Indian StandardsBPC Bhutan Power Corporation

C

CIC community information centreCIT corporate income tax

D

DGPC Druk Green Power CorporationDHI Druk Holding and InvestmentsDHPS Department of Hydropower and Power SystemsDoI Department of IndustryDoT Department of TradeDPR Detailed Project ReportDRE Department of Renewable EnergyDPT Druk Phuensum Tshogpa (Peace and Prosperity Party)

E

EBA Everything But Arms InitiativeESCAP United Nations Economic and Social Commission for Asia and the Pacific

F

FDI foreign direct investmentFDIRC FDI Registration CertificateFYP Five Year Plan

G

G2C Government-to-CitizenGDP gross domestic productGNH Gross National HappinessGSP Generalized System of Preferences

I

IBRD International Bank for Reconstruction and DevelopmentICAO International Civil Aviation OrganizationICC International Chamber of CommerceICSID International Centre for Settlement of Investment DisputesICT information and communications technologyIDA International Development AssociationIFAD International Fund for Agricultural DevelopmentIMF International Monetary FundIT information technologyITES information technology-enabled servicesITU International Telecommunication Union

viii I An investment guide to bhutAn – opportunities And Conditions 2013

L

LDC least developed country

M

MDGs Millennium Development GoalsMFN Most-favoured nationMoEA Ministry of Economic AffairsMoLHR Ministry of Labour and Human ResourcesMW megawatt

N

NEC National Environment CommissionNLC National Land CommissionNPL ratio non-performing loans to total loans ratio

P

PDP People’s Democratic PartyPPP public–private partnershipPUP People’s United Party

R

RICB Royal Insurance Corporation of BhutanRMA Royal Monetary AuthorityRRCO Regional Revenue and Customs OfficeRSEB Royal Securities Exchange of BhutanRUB Royal University of Bhutan

S

SAARC South Asian Association for Regional Cooperation SACEP South Asia Cooperative Environment ProgrammeSAFTA South Asian Free-trade AreaSAPTA South Asian Preferential Trade AgreementSEZ special economic zoneSME small and medium-sized enterpriseSOE State-owned enterprise

T

TCB Tourism Council of BhutanTNC transnational corporationTRAINS Trade Analysis and Information System

U

UNCTAD United Nations Conference on Trade and DevelopmentUNDP United Nations Development ProgrammeUNESCO United Nations Educational, Scientific and Cultural OrganizationUNIDO United Nations Industrial Development OrganizationUNWTO World Tourism OrganizationUPU Universal Postal Union

W

WCO World Customs OrganizationWHO World Health OrganizationWMO World Meteorological OrganizationWTO World Trade Organization

An investment guide to bhutAn – opportunities And Conditions 2013 I ix

TABle of CoNTeNTs

Acknowledgements ivNote to the reader ivPreface vThe UNCTAD–ICC series of investment guides viAbbreviations vii

I. INTRODUCING BHUTAN 1Bhutan at a glance 3Country and people 4History and government 5Market size and access 6Government policy priorities 8Privatization and public–private partnerships 9

II. THE OPERATING ENVIRONMENT 11Economic environment 11Trade and investment 12International trade 12Foreign direct investment 14Infrastructure and utilities 16Information and communications technology 16Energy 17Transport 17Health services 20Education 21Labour 22The financial sector 23The private sector 23

III. THE REGULATORY ENVIRONMENT 25Institutional and regulatory framework 25Entry and exit 26FDI business registration and licensing process 26Employment permits and expatriate employment 27Land acquisition 28Construction permits 28Trade licensing and customs clearance 29Exit 30Rights of investors 31Equal treatment and protection of property 31Intellectual property rights protection 31Dispute resolution 31Repatriation of dividends and capital 31Competition policy 32Tax system 33Double taxation agreements 34Incentives for investors 34Fiscal incentives 34Non-fiscal incentives 35

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IV. AREAS OF OPPORTUNITY 37Tourism 37Power generation 42Infrastructure 43Agriculture and related industries 44Information and communications technology 46Education 47Government priority sectors 48

APPENDICES 49Appendix 1. Priority sectors, restrictions and prohibitions 49Appendix 2. List of approved FDI projects in Bhutan 52Appendix 3. Sources of further information 55Appendix 4. Business hours 57Appendix 5. Major laws and regulations affecting foreign investment 57

BIBLIOGRAPHY 59Government of Bhutan 59Third-party sources 59

Photo credits 60

Artist at the National Institute for Traditional Arts and Crafts, Thimphu, Bhutan.

An investment guide to bhutAn – opportunities And Conditions 2013 I xi

What investors say about Bhutan

Overall, private-sector representatives interviewed by UNCTAD are positive about the business environment in Bhutan. Most importantly, managers and investors consistently cited the Government’s open, flexible, and forthcoming approach throughout all phases of the business establishment process and day-to-day operation. Bhutan is a virgin land in terms of FDI and it was often emphasized that the authorities are working proactively with potential investors to overcome hurdles that might result from the young regulatory framework. The interviewees emphasized the Government’s readiness to entertain innovative ideas that are in line with the country’s development philosophy, giving investors the chance to define and shape entire sectors with numerous opportunities for investment. In this context, many also cited the Government’s capacity and effectiveness, although some processes are still perceived as overly complex, time consuming, or unclear. While the regulatory flexibility was generally appreciated, some interview partners emphasized that the Government’s FDI strategy should be more strongly rules based. In addition to the investment-friendly Government, private-sector representatives consistently cited the high political stability and absence of crime as significant advantages for investing in Bhutan.

Interviewees also cited the young but rapidly developing private sector as a driver for policy change and improved availability of productive resources. Beyond Bhutan’s domestic market, investors emphasized the paramount importance of India as trade partner, market, and abundant source of skilled and unskilled labour. For both Bhutan and its southern neighbour, private-sector representatives were very optimistic about the stable and reliable growth prospects over the medium and longer term. At the same time, there appears to be significant potential for deeper regional integration, not least due to remaining tariff and non-tariff barriers as well as behind-the-border constraints.

While reports about the core areas of the investment climate paint a very favourable picture, remaining challenges were cited in the areas of transport infrastructure, human resources, access to finance, and administrative efficiency.

Source: UNCTAD.

Repair shop for IT hardware, Thimphu, Bhutan.

Buddha statue, Thimphu, Bhutan.

An investment guide to bhutAn – introduCing bhutAn I 1

Introducing Bhutan

Bhutan at a glance

Formal name Kingdom of Bhutan

Political system Constitutional monarchy

Head of State King Jigme Khesar Namgyel Wangchuck (crowned on 6 November, 2008)

Prime Minister Tshering Topgay (elected July 2013 in the country's second democratic election)

Legislature Bicameral parliament: National Council (upper house) with 25 non-partisan seats; 20 members elected by each of the 20 electoral districts (dzongkhags) for five-year terms and 5 members nominated by the King. National Assembly (lower house) with 47 seats; all members elected by direct popular vote for five-year terms.

Borders Landlocked between China (470 kilometre border) and India (605 kilometre border)

Surface Area 38,394 square kilometres

Population 738,000 with an estimated growth rate of 1.71% in 2011 (estimates, based on 2005 census)Urban population share: 33.9%Population aged 0–14 years (% of total): 29.4%Population aged 15–64 years (% of total) 65.8% Population aged 65+ years (% of total): 4.8%Old age dependency ratio: 7.26% of working populationLife expectancy at birth: 63 yearsMedian age: 24 years

Density 19.2 people per square kilometres

Country code BT

Languages Dzongkha (official). English is widely spoken, especially in urban areas, and used as language of instruction in schools

Climate Varies regionally; hot subtropical, humid climate in southern plains; temperate and drier in central valleys; seasonal monsoon in western region; alpine conditions with severe winters and cool summers in Himalayas

Religion 75% Mahayana Buddhist; 25% Hinduism

Time Zone UTC +6

Administration 20 districts (“Dzongkhags”): Bumthang, Chukha, Dagana, Gasa, Haa, Lhuntse, Mongar, Paro, Pema Gatshel, Punakha, Samdrup Jongkhar, Samtse, Sarpang, Thimphu, Trashi gang, Trashi Yangste, Trongsa, Tsirang, Wangdue Phodrang, Zhemgang; some districts have subdistricts

Currency Bhutanese ngultrum = 100 chhetrumPegged at par with Indian rupee, which is also widely accepted

GDP US$1.65 billion at current prices (2011)

GDP per capita US$2,234 at current prices (2011)

Human Development Index Ranked 141 out of 187, Index 0.522, medium high (2011)

Source: UNCTAD secretariat, based on UNCTADStat, United Nations Development Programme (UNDP), World Bank.

2 I An investment guide to bhutAn – opportunities And Conditions 2013

mAP of BhUTAN


Country and people

The Kingdom of Bhutan, called Drukyul or “The Land of the Thunder Dragon” in the national language, is a small Southern Asian country of about 738 thousand people. Landlocked between China and India, the country covers 38,394 square kilometres.

Bhutan is a forested, rugged and mountainous country with the Himalayas in the north and smaller foothills in the southern border region. Several swift rivers, largely unnavigable, cut

through the numerous valleys and make water an abundant resource. The pristine landscape is a natural attraction in itself and the country’s topography has a vast potential for hydroelectric power generation. Ecologically, the country can be divided into different zones with distinct climates: While the southern plains are hot subtropical and humid with seasonal monsoon in the south-west, the central valleys are more temperate and drier. The Himalayan region to the north, rising up to about 7500 metres, is dominated by alpine conditions with severe winters and cool summers.


What investors say: quality of life

The quality of living for expatriate workers was described as high in the capital Thimphu. Workers have access to high quality accommodation and a variety of leisure activities such as golf. The pristine nature allows for a variety of outdoor recreational activities. Private-sector representatives generally felt very positive about Bhutan’s peaceful and stress-free environment. In Bhutan’s more remote areas, life conditions were described as relatively challenging due to the lack of physical infrastructure. Our interview partners appreciated the high level of public safety and very low crime rates throughout the country. They perceived Bhutan as a very secure and trustworthy environment, both in the private as well as the professional sphere.

Source: UNCTAD.

The population, approximately a third of which lives in the few urban areas, is made up of four broad ethnic groups, although their division is becoming more and more blurred. The Ngalop are of Tibetan origin and live mostly in the western and northern districts while the Sharchop are of Assamese/Burmese origin and comprise the biggest ethnic group of the country. Aboriginal and indigenous tribal groups constitute a third group. They mostly embrace the Hindu system. There is also a sizable group of ethnic Nepalese (Lhotshampas), which mostly live in the southern lowlands. The majority of the population (75 per cent) are adherents to Mahayana Buddhism, which is also the State religion. The Bhutanese Buddhism is closely related to Tibetan Buddhism and Bhutan is scattered with monasteries, convents and religious structures. Bhutan’s society is strongly rooted in its traditions. One of the King’s central endeavours is the protection of cultural traditions and religious values.

History and government

Pre-modern Bhutan was politically consolidated in the seventeenth century with the emergence of a theocratic government built on the social and spiritual structures of Buddhism. Following internal conflicts and frictions along the country’s south-western border, Ugyen Wangchuck reunified the country and was chosen to be Bhutan’s first King in 1907,

introducing a hereditary monarchy as form of State. The country remained largely isolated from the outside world and only cautiously started to open up in the 1960s. The Indian Government began to provide funding and technical assistance to Bhutan. In this way, the southern neighbour helped to develop large infrastructural programmes such as one to promote all-weather roads, as well as basic government entities such as the health and educational institutions. Although India continues to be the largest single provider of development aid Bhutan also receives aid through multilateral and bilateral development partners. Bhutan expanded its diplomatic efforts and joined the United Nations in 1971, the International Monetary Fund (IMF) and the World Bank in 1981, and the South Asian Association for Regional Cooperation (SAARC) in 1985.

Over the last decades the Government has embarked on far-reaching economic and political reforms (see box 1). Based on a newly drafted constitution, Bhutan held the first democratic election in 2008 and thereby completed the transformation from absolute to constitutional monarchy. The country’s development strategy is based on what the Government calls “Gross National Happiness” (GNH) – a unique holistic concept combining material well-being with an individual’s spiritual, emotional, and cultural well-being. Guided by this concept, the Government formalized a new economic policy in 2010 and continues


to transform and diversify the traditional economy, which has historically largely been based on subsistence agriculture and animal husbandry. After the successful transition to

democracy, political reform is still ongoing. The Government is continuing its efforts to foster a culture of democracy, build institutions, and improve governance structures.

Box 1. Transition from absolute to constitutional monarchy – democratic reforms in Bhutan

For over a century, Bhutan was an absolute monarchy ruled by the Wangchuck Dynasty. Over the last decade the fourth King, Jigme Singye Wangchuck, and his heir, the current King Jigme Khesar Namgyel Wangchuck, led the country into its gradual transition to democracy.

Early 2007, in a move to familiarize Bhutan’s population with a more participatory political system, the King ordered a mock election to be held in which citizens could choose between four hypothetical parties running on fictional platforms. Shortly thereafter, real political parties were legalized and started registering for the 2007–2008 parliamentary elections.

In December 2007, Bhutan’s citizens directly elected 20 candidates for the parliament’s non-partisan 25-seat upper house, the National Council. The remaining 5 seats were filled by nominations of the King. Subsequently, in March 2008, 79.4 per cent of registered voters elected representatives from two registered parties, the Bhutan Peace and Prosperity Party (DPT) and the People’s Democratic Party (PDP), to the parliament’s new 47-seat lower house, the National Assembly. Bhutan's second parliamentary elections were held five years later in July 2013. The King is the head of State. At the same time, the parliament can impeach the King by a two-thirds majority. In July 2008 the new parliament adopted the country’s first constitution.

While Bhutan's elections have been described as free, fair, and very well organized by international observers, the country is still struggling to foster a political culture, including a competitive political opposition. The monarchy remains extremely popular with the public. The country held its first local-government elections in late June 2011.

While transparency of the political process is still limited in some areas of the Government, corruption and graft remains very low. Transparency International ranks it as the 36th best of 178 countries globally in terms of perceived corruption.

Sources: Freedom House, Election Commission of Bhutan, Kuensel Newspaper, Economist Intelligence Unit, Transparency International.

Box 2. Gross National Happiness and the GNH Index

The all-encompassing guiding principle for policy formulation and the basis for the Government’s long-term development strategy is the aim of maximizing GNH. The spirit and intent of this concept as articulated in the Bhutan Vision 2020 is to “maximize the happiness of all Bhutanese and to enable them to achieve their full and innate potential as human beings”. Bhutan’s current development strategy summarizes that GNH does “not in any way exclude or deny the importance of economic growth but strongly advocates achieving a harmonious balance between the material and non-material dimensions of development”.

Propounded as an alternative development model based on Buddhist spiritual values by the fourth King Jigme Singye Wangchuck at the beginning of his reign in 1972, GNH has also been enshrined in the country’s constitution as unifying principle of policy design.

Bhutan’s current development strategy translates this holistic, multidimensional concept into four pillars: sustainable and equitable socioeconomic development, environmental conservation, preservation and promotion of culture, and good governance. In an attempt to operationalize the concept and quantitatively measure development progress to this end, the Government developed a composite GNH Index. It is based on 33 measurable indicators grouped under nine principal domains: (1) living standard, (2) education, (3) health, (4) ecological diversity and resilience, (5) good governance, (6) community vitality, (7) cultural diversity and resilience, (8) psychological well-being, and (9) time use and balance.

Bhutan’s unique approach of using happiness as a strategic framework for development has generated considerable international attention in recent years. Governments in an increasing number of advanced economies are starting to measure national well-being in an attempt to move beyond conventional economic indicators. In late 2010, the United Kingdom of Great Britain and

Northern Ireland was among the first to introduce such measures.

Sources: Government of Bhutan, Gross National Happiness Commission.


Market size and access

With a population of about 738 thousand people, Bhutan itself has a small domestic market (see table 1 for a regional economic overview). Nonetheless, there are varied opportunities for small and medium-sized investors as well as larger transnational corporations (TNCs), such as in the tourism sector and related up- and downstream services. Construction is booming due to rapid urbanization, particularly around Thimphu, as well as due to hydropower projects, which are the most important driver of economic growth. Public–private partnerships (PPPs) are encouraged for infrastructure projects. Domestic consumption is largely dependent on imports, potentially opening up opportunities in import substitution.

However, contrasting with the small size of the domestic market, in terms of population and purchasing power, is the free-trade agreement between Bhutan and India, which provides investors in Bhutan automatic access to one of the largest and most dynamic markets in the world.1 Under this agreement, trade with India is duty free and transacted in Bhutanese ngultrum and Indian rupees. The agreement also regulates transit rights through India for trade with third countries. Bhutan has also signed an agreement with the Bureau of Indian Standards (BIS) that extends the BIS certification scheme to Bhutan. Through the

scheme, Bhutanese firms can apply for the well-established Standard Mark and use it for exports to India, hence improving credibility with Indian consumers.

The Government has also undertaken efforts to conclude free-trade agreements with other countries. Thus, in March 2010, the Governments of Bhutan and Nepal resumed talks about a preferential trade agreement, based on a draft exchanged a few years ago. Most recently, in May 2011, the two Governments intensified talks about a draft protocol, establishing preliminary lists of products and agreeing on rules of origin.

Trade with Bangladesh is conducted within the framework of a bilateral trade agreement originally signed in 1980. In 2009, the agreement was renewed and its scope expanded to a new trade route in eastern Bhutan and the number of commodities which receive duty-free treatment in both countries.

In addition to bilateral arrangements, Bhutan has been a member of the South Asian Association for Regional Cooperation (SAARC) since 1985. In 2004, the SAARC member States signed a framework agreement on the South Asian Free-trade Area (SAFTA) under which most products should be traded with zero customs duties by the end of 2016 (also see box 3). This would enable duty-free access to a market of more than 1.65 billion people and could establish Bhutan as a business

Table 1. The South Asian MarketComparative Economic IndicatorsBhutan has the second highest GDP per capita in the region

GDPa) GDP per capitaa) Avg. GDP growthb)

Economy billion US$ 2011 US$ 2011 annual 2001-2011

Sri Lanka 59,16 2 810,83 6,18%

Bhutan 1,65 2 233,84 7,90%

India 1 944,07 1 565,91 7,83%

Pakistan 209,32 1 184,27 4,72%

Bangladesh 107,48 714,18 5,94%

Nepal 18,16 595,82 3,79%

Southern Asiad) 2 339,83 1 443,45 7,35%

Source: UNCTAD, based on UN DESA Statistics Division.a) at current pricesb) based on constant 1990 US$d) Developing economies in Southern Asia, excl. Afghanistan, Iran, Maldives

1 I “Agreement on Trade, Commerce and Transit between the Government of the Republic of India and the Royal Government of Bhutan” of 2006.


hub in one of the world’s economically most dynamic regions. The member countries also aim for reciprocal double taxation avoidance agreements.

Bhutan has also joined the Bay of Bengal Initiative for Multi-sectoral Technical and Economic Cooperation (BIMSTEC). The Initiative sees itself as a link between SAARC in the West and the Association of Southeast Asian Nations (ASEAN) in the East. In 2004, the members agreed on a Free-trade Area Framework and set up a Trade Negotiating Committee and working groups to help negotiate the agreement. The free-trade area is expected to come into effect by 2017.

Thus, potential investors should take into account these nearby market opportunities, which are accessible through preferential trade arrangements, when considering locational aspects of investments in Bhutan,

As regards market access to major developed markets, Bhutan as a least developed country (LDC) enjoys preferential treatment for a large number of agricultural and industrial products

through the Generalized System of Preferences (GSP) and the European Union’s Everything But Arms Initiative (EBA), which guarantees duty-free trade of a vast variety of products.

Bhutan submitted its application for accession to the World Trade Organization (WTO) in 1999. A Working Party Report was circulated in December 2007. However, the process is currently dormant. Access barriers, particularly to developed markets, are primarily of non-tariff nature and linked to logistical constraints.

Being landlocked, most merchandise exports and imports are transported by road through the Indian port of Kolkata. There are several border control and customs points for goods between India and Bhutan, the biggest of which is the southern industrial hub of Phuentsholing. Other bilateral customs points are Samtse, Gelephu, and Samdrup Jongkhar. In January 2005, Bhutan signed a memorandum of understanding for the establishment of railway links to the five border town in Bhutan from the nearest corresponding railheads in India that would ultimately enable access to the Indian rail network. In addition, the 2007–2027 Road

Commercial building in the centre of Thimphu, Bhutan.


Sector Master Plan provides for the upgrading of the domestic road network.

Government policy priorities

The long-term vision of Bhutan’s Government is articulated in the Vision 2020 plan. Rooted in the principles and values embodied in the concept of GNH (See box 2), it draws the picture of a democratic, internationally recognized, and socially equitable society. It envisages that hydropower receipts will be used to develop a high degree of economic self-reliance, finance rising social-sector investments, meet the growing physical infrastructure development requirements, and continue to diversify the country’s economy.

Building on this, the Government’s medium-term policy priorities are defined in the national eleventh Five Year Plan (FYP), covering the years 2013–2018, whose theme is “self-reliance and inclusive green socioeconomic development”.2

The new Economic Development Policy (EDP) describes the country’s path to becoming a middle income country by the end of this decade. Released in April 2010, it sets out strategies to reduce unemployment and achieve economic self-reliance, including:

− Diversification of the economic base;

− Harnessing and adding value to natural resources in a sustainable manner;

− Increasing and diversifying exports;

− Promoting Bhutan as a global brand;

− Promoting industries that form the basis for Bhutan’s brand image;

− Reducing dependency on fossil fuel especially in respect to transportation.

The EDP defines areas of economic opportunity with incentives for each sector (see chapter III). It introduces a variety of policy and regulatory reforms such as a new land use policy and a new project approval framework (also see box 4). Based on the GNH philosophy, the guiding principle for economic development can be described as “high value, low impact”.

Building on the EDP, the new Foreign Direct Investment policy, finalized in May 2010, increases the general maximum allowance foreign investor’s equity to 74 per cent (70 per cent before), earmarks selected sectors for a 100 per cent equity share allowance, and introduces a negative list for sectors such as media, mineral mining and general health services. At the time of writing, the Government was finalizing the Mineral Development Policy that formalizes regulations on sustainable mining.

2 I See www.gnhc.gov.bt.

Box 3. SAARC and SAFTA

SAARC was established by Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan, and Sri Lanka in December 1985 to promote economic, social and technical cooperation and development in the region.

An important component under the association’s goal to strengthen collective economic self-reliance is SAFTA. It builds on the South Asian Preferential Trade Agreement (SAPTA), which became operational in 1995 and constituted the region’s first step of institutionalized economic cooperation. In 1996, SAARC member countries took their efforts a step further and decided to start negotiating the SAFTA. A Framework Treaty on SAFTA was adopted in January 2004 and most negotiations in the areas of tariff liberalization, rules of origin, and sensitive lists were completed by 2006. Implementation started the same year. The framework agreement envisages SAFTA to be fully effective for LDC member States such as Bhutan by 2016 (2013 for non-LDCs). In its current form, the agreement is confined to trade in goods but efforts are ongoing to incorporate trade in services and investment.

Beyond the Free Trade Agreement, SAARC membership improves Bhutan’s say in regional affairs and makes it a respected partner in a region that is strongly dominated by the economic power of India. For the first time, the annual SAARC summit was hosted by Bhutan in 2010 from 28 to 29 April. Among other cooperation efforts, member States signed an agreement to further the inclusion of services in SAFTA. Another central theme of the summit was regional cooperation in the area of climate change.

Sources: UNCTAD secretariat, SAARC secretariat, World Bank.


Computer work for the Bhutan Digital Livelihoods Project in the Thimphu TechPark, Thimphu, Bhutan.

3 I More information at www.dhiinfra.bt.Privatization and

public–private partnerships

In November 2007, the Government established Druk Holding and Investments Limited (DHI) as a sovereign holding company to efficiently manage the country’s State-owned enterprises (SOEs). The shares of most entities have been transferred to the company, which now owns 99 per cent of the total Government holdings and is itself owned by the Ministry of Finance. DHI held total assets of 119,233.17 million in 2011 and its net worth was Nu 45,390.41 million in 2011.

The Government’s portfolio of SOEs plays a significant role in the economic development of Bhutan and accounts for a large share of the country’s economy. These enterprises cover a diverse range of businesses, including firms such as Bhutan Agro Industries Limited (a processing company of fruits and vegetables), Bhutan Board Products Limited (a producer of particle boards and wood panels), Bhutan Development Finance Corporation (a development financial institution), Bhutan Broadcasting Service (the national radio and TV station), State Trading Corporation of Bhutan Limited (an importer and retailer of cars), Druk

Air (the national airline), and Druk Green Power Corporation Limited (the owner and operator of Bhutan’s hydropower infrastructure). Druk Green Power remains Bhutan’s largest SOE with net assets worth 38 per cent of total government-held assets.

DHI also manages and oversees Druk Green Power Corporation (DGPC), into which all other hydroelectric power companies have been consolidated. DGPC is the largest source of the Government’s income, contributing Nu 5,847 million (US$128 million) of revenue in 2010.

DHI also acts as a facilitator for PPPs, working with investors and developers. Large-scale developments planned or underway include the Education City project, special economic zones in Dhamdum, Jigmeling and Motanga, the Amochu Land Reclamation and Township Development, an international convention centre in Thimphu, the Chivasom Wellness Centre at Phuakha, the Thimphu TechPark and specific mining and industry projects.3

Care has been taken to equip DHI with a transparent and efficient corporate governance structure that minimizes political decisions and guarantees accountability.

View of Thimphu, Bhutan.

An investment guide to bhutAn – the operAting environment I 11

The operating environment

Figure 1. Real growth of selected sectors and overall GDP (percentage year-on-year change)

Source: UNCTAD secretariat calculations, based on Bhutan Ministry of Finance.

-20%

0%

20%

40%

60%

80%

2001 2002 2003 2004 2005 2006 2007 2008 2009

annual % chg.

Gross Domestic Product Manufacturing Electricity and water Hotels & restaurants

Guided by the concept of GNH and its ambition to be a middle-income economy by 2020, the Government of Bhutan aims to promote economic diversification with a minimal ecological footprint. The attraction of foreign direct investment (FDI) is deemed to play a key role to achieve this vision. The improvement of the investment and operating environment is hence high on the agenda of Bhutan’s Government.

Economic environment

The biggest impetus to economic growth comes from hydropower projects (see figure 1). Large spikes in domestic output are explained by hydropower projects coming on stream, such as Chhuka (1986–1988) and Tala, the largest plant so far (2006–2008). When Tala was commissioned in 2007, overall annual GDP growth jumped to 19.7 per cent. While electricity, water and gas accounted for below 1 per cent of GDP in 1980, the sectoral share increased to around 20 per cent of GDP in recent years.

The Government continues to see hydropower as one of the economy’s central pillars and expects it to further underpin economic growth in the coming years, with more projects being planned and implemented. It also expects hydropower to be the main channel of achieving economic self-reliance and plans to spend revenues from electricity exports to improve the conditions for private-sector development and for the diversification of the country’s economy.

Looking at the origins of GDP over time, the clearest trend can be seen in the agricultural share which more than halved from 46.3 per cent in 1980 to 20.5 per cent in 2009. Agricul-ture historically constituted the most important part of the economy in the form of subsistence farming and animal husbandry. More recently, the sector started a transformation towards the production of more cash crops. The Gov-ernment is working to improve market access, introduce new horticulture crops, and increase overall agricultural productivity.

In line with the Government’s economic policy priorities, the industrial sector has seen a constant increase over the same period,


from 15.3 per cent in 1980 to nearly 40 per cent in 2009. The industrial structure of the manufacturing industry remains mostly small in size and dominated by State-owned enterprises. Measures are put in place to promote the development of a manufacturing cluster in the southern region of Phuentsholing, including the creation of special economic zones, infrastructural improvements, and the development of product certification schemes. The construction industry is strongly driven by infrastructural projects, especially the large-scale hydropower projects.

The service sector is identified by the Government’s 2010 Economic Development Policy and the current FYP as a special priority sector. Tourism and hospitality services are seen at the core of the service sector development. The Government targets a 25 per cent share of tourism in total GDP by 2017. In 2009, the hospitality industry accounted for around 2 per cent of all services, though this probably undervalues the contributions of up- and downstream linkages. Other sectors include the financial service industry, which currently sees high growth rates, as well as telecommunications.

Inflationary pressure has risen in the past years and continues to be high at 8.84 per cent year-on-year from 2010 to 2011. Rising food prices

have exacerbated this trend. Core inflation in Bhutan closely follows the Indian economy due to the peg of the ngultrum to the rupee. Over the last years, the rupee experienced volatility as a consequence of large portfolio investment inflows, putting pressure on the peg. At the same time, high Indian inflation continues to reinforce a downward bias on both currencies.

Trade and investment

International trade

The promotion and diversification of trade is a central priority of the Government’s economic development programme. It aims to further simplify administrative procedures and promote deregulation in order to boost investor confidence (see box 4).

Bhutan’s trade regime is strongly determined by its close economic ties to neighbouring India, which absorbs a large share of Bhutanese exports under a free-trade agreement. The economy is strongly import dependent. The Government hence wants to avoid higher costs of imports through trade barriers and aims to further liberalize its trade regime. Bhutan is a member to BIMSTEC and SAFTA, both of which aim to put in place regional free-trade agreements (see chapter I for more details).

Box 4. The 2010 EDP in the area of trade and investment

The 2010 EDP sets out wide-ranging macro- and microeconomic reforms and policy measures, including the definition of eight areas of economic opportunity.

In the area of trade and investment particularly, the EDP includes the following policy reform measures, amongst others:− Enactment of a Trade Development Act to improve the country’s trade policy framework;− Improvement of export and market promotion activities, including through economic diplomacy, trade fairs, and trade missions;− Development and promotion of a “Brand Bhutan” nation branding and product certification scheme, which draws on Bhutan’s

unique values and GNH development philosophy;− Development of a PPP policy framework;− Revision of Bhutan’s FDI policy and development of a Bhutan Investment Act;− Accession to international conventions on dispute settlement;− Development of a framework for anti-dumping measures, anti-subsidies and trade safeguards;− Negotiation of mutual recognition agreements and conformity assessment procedures;− Negotiation of transit and transport agreements with neighbouring countries;− Harmonization of customs documentation, procedures, and formalities.

For a list of all “areas of economic opportunities”, relevant incentives and reforms, see chapter III.

Source: Government of Bhutan, Economic Development Policy, 2010.


In 2011, India was the biggest export market and received 84.7 per cent of Bhutanese exports. It also provided 64.6 per cent of imports to Bhutan. Other important trade partners include Bangladesh, China, Japan, Japan and Republic of Korea (see table 2).

Table 2. Top export and import markets of Bhutan in 2011 (percentage of total)

Export Markets Import Markets

India 84,7% India 64,6%

Bangladesh 8,6% Japan 5,5%

Nepal 1,6% China 5,1%

Japan 1,3% Republic of Korea

4,7%

Nigeria 1,2% Switzerland 3,0%

Other partners 2,6% Other partners 17,1%

Source: UNCTAD.

Overall, Bhutan experienced a relatively steady increase in both exports and imports between 2000 and 2010. At the same time, the trade deficit increased steadily up to fiscal year 2004/05. Bhutan recorded its first trade surplus in 2006/07 in light of strongly increasing exports to India. In the last two years, however, the trade balance deteriorated on the back of a sharp increase in imports

of capital goods (machinery, mechanical/electrical appliances, and transport goods) and a slowing of hydropower exports due to increasing domestic demand. Rising exports of base metals and intermediate goods slightly counterbalanced the decline.

Hydropower produced by the Chhukha, Kurichhu and Tala plants accounts for more than a third of all Bhutanese exports (42 per cent of total merchandise exports in 2009). Base metals such as iron, steel, and copper constitute another important export category, representing 29 per cent of total exports in 2009. Agricultural exports, mostly potatoes and oranges, continue to play a minor role for Bhutan’s trade performance (around 5 per cent in 2009).

The country’s imports of petroleum-based products have risen steadily, mainly due the increase in the number of vehicles and heavy machinery. This trend underlines the country’s rising dependence on fossil fuels and other intermediate commodities, which are mainly used in Bhutan’s construction and manufacturing sectors. The construction boom, driven by the large-scale hydropower projects, also induces an increase in capital goods imports such as construction machinery. In 2009, mineral fuels accounted for a 20 per

Source: UNCTAD secretariat calculations, based on Bhutan Department of Revenue and Customs data.

Figure 2. Major exports and imports of Bhutan, 2009 (percentage of total exports)

Major exports in 2009 Major imports in 2009

23%

5%

5%

10%17%

20%

20%

29%

12%

5%4%

3% 5%

42%

ElectricityBase metals and articles thereofMineral products incl. fuels Vegetables, fruits, nuts, tea and similar itemsChemical productsMachinery, mechanical/electrical equipmentOther

Machinery, mechanical/electrical equipmentMineral products incl. fuels Base metals and articles thereofTransport vehiclesVegetables, fruits, nuts, tea and similar itemsWood and wood pulp productsOther


cent share of all imported commodities. Construction related commodities such as iron and steel, machinery, technology used in the construction of hydropower plants, and transport vehicles are other important imports.

Foreign direct investment

Bhutan has affirmed its clear commitment to fostering private-sector development and attracting FDI through the 2010 Economic Development Policy, the 2010 Foreign Direct Investment Policy, and the 2010 Framework for Private Participation in Infrastructure. In the last three to five years, FDI has come to play an increasing role in Bhutan’s economy and became a cornerstone of economic development, particularly in the growing tourism sector. Guided by the philosophy of GNH, the Government’s efforts to attract FDI follow the approach of “high value, low impact”. Overall, however, Bhutan is still considered virgin territory in terms of FDI.

The country had only limited foreign direct investments until the early 2000s. Initially, FDI inflows were almost exclusively directed towards the hospitality sector. One of the earliest such investors was Aman Resorts in 2001. The hotel group owns and manages

25 upscale hotels and resorts worldwide and has developed five lodges across Bhutan with 72 rooms in total.

In 2002 the Government approved a first formal FDI policy which came into effect in 2005. Subsequently, FDI inflows in tourism, manufacturing, and services (banking and security) further increased. In 2007, FDI inflows spiked at US$72.3 million as a result of hydroelectric investments. Overall, from 2000 to 2010, the country accumulated FDI stocks of about US$155.5 million (see figure 3). A total of 29 FDI projects had been approved at the time of writing. Of this, three projects were approved prior to adoption of the country’s first FDI Policy in 2002 and 26 projects were approved after adoption of the first FDI policy document.

Under the 2010 FDI policy framework, the gen-eral maximum allowance of foreign investor’s equity increased to 74 per cent (70 per cent before), a 100 per cent equity share allowance in selected sectors is permitted, ownership of land by FDI joint venture companies is allowed and a list of prohibited activities (see chapter III and appendix 1 for details) was introduced. The Government is also working on a mineral development policy that would formalize regulations on sustainable mining.

Source: UNCTAD FDI/TNC database – www.unctad.org/fdistatistics.

Figure 3. FDI inflows and stock, 2000 to 2010

Stock Flows

160

140

120

100

80

60

40

20

0

80

70

60

50

40

30

20

10

0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Stock, current US$ million

Flows, current US$ million


Overall, the Government is pursuing an ambitious reform programme to make Bhutan an attractive investment destination. It is also looking beyond traditional greenfield projects and seeks to promote investments into PPPs). To this end, the 2010 Framework for Private Participation in Infrastructure complements the FDI policy and enables large-scale infrastructure projects such as airports, highways, recreational facilities, etc. to be developed in a PPP model. Additionally, the Government is currently developing a more comprehensive PPP policy in cooperation with the World Bank.

Two landmark PPP projects that are currently being developed by DHI are the Education City project and the Thimphu Tech Park. The Education City is part of the Government’s wider efforts to improve secondary and tertiary education and aims to develop a 1,000-acre (approximately 404.7 hectares) campus

with academic blocks, residential units, and recreational facilities between the country’s international airport Paro and the capital Thimphu. The Thimphu Tech Park project aims at establishing an IT park and related infrastructure in proximity to the country’s capital. The PPP project is currently being implemented jointly by a property development company from Singapore and the DHI. The first development phase was completed in November 2011 and first tenants started operations in early 2012.

The Government of Bhutan, through the Minis-try of Economic Affairs also seeks to establish special economic zones (SEZs) through a PPP developer. Three potential sites have already been identified (Samdrup Jongkhar, Sarpang, and Samtse) and the Government’s holding company DHI is currently planning the project implementation.

Main building of the Thimphu TechPark, Thimphu, Bhutan.


Infrastructure and utilities

Information and communications technology

The Government continues to promote the development of ICT as a platform for sustainable development and economic diversification to the benefit of the population’s well-being. It aims at delivering ICT infrastructure to all 205 gewogs (village blocks). In early 2011, the Government was on track to achieving this goal by providing fixed-line and mobile network access to over 96 per cent and 97 per cent respectively in all gewog centres. Mobile teledensity stood in 2011 at 70 per cent of the population and Internet access at 19.7 per cent.

The market for ICT services is relatively well defined given Bhutan’s small domestic user base. One fixed-line operator, two mobile network operators and four Internet service providers are registered with the country’s telecommunications regulator. The State-owned Bhutan Telecom Limited was the first provider of ICT services and is still the only operator of fixed-line communications. It is also the only provider of country-wide Internet

service (dial-up and broadband) and the dominant player in mobile communications (nearly 80 per cent market share in 2010).

Almost all mobile subscribers use prepaid services (97 per cent of subscribers) and the vast majority of Internet users access the web using mobile broadband services (90 per cent of Internet users), almost exclusively via EDGE/GPRS (98 per cent of mobile Internet users, 3G is available in Thimphu, Phuentsholing and Paro). This brings the mobile broadband penetration rate to about 12 per cent of the population, comparable to the average of lower middle income countries. Since fixed-line broadband is only available in a limited number of urban locations, the market for mobile broadband continues to grow. As of 2010, Bhutan has a stable international Internet bandwidth of 330 megabit per second (Mbit/s). Given the small number of actual users, the available capacity of Bhutan’s network infrastructure can be seen as internationally competitive, particularly when compared with regional and income-based averages.

Internet user fees are relatively inexpensive compared to the regional average, tele-

Table 3. Selected information and telecommunications technology indicatorsBhutan Southern Asiaa) Lower-middle

incomea)

2000 2009 2009 2009

Access

Telephone lines (per 100 inhabitants) 2,5 3,8 3,0 12,7

Mobile cellular subscriptions (per 100 inhabitants) 0,0 46,9 45,5 57,8

Fixed Internet subscribers (per 100 inhabitants) 0,1 1,0 1,3 5,5

Personal computers (per 100 inhabitants) 0,9 2,0 3,3 4,5

Quality

Population covered by a mobile network (% of total pop.) - 56,7%b) 61,0% 77,0%

Fixed broadbrand subscribers (% of total subscribers) 0% 9,2% 51,3% 40,1%

Mobile broadband subscribers (% of total subscribers) 0% 89,6% - -

International Internet bandwidth (bits / second / person) 2 222 31 151

Affordability

Residential fixed line tariff (US$ / month) - 3,00 3,00 4,70

Mobile cellular prepaid tariff (US$ / month) - 2,00 1,20 7,10

Fixed broadband Internet access tariff (US$ / month) - 10,00 14,60 30,40

Sources: World Bank ICT At-a-Glance, ITU World Telecommunication/ICT Indicators 2011, Bhutan Ministry of Information and communcations Annual Info-Comm and Transport Statistical Bulletin March 2011. a) Regional averages calculated using weighted average of latest available data point for each country or territory for reference period.b) Figure for 2010.


Table 4. Current and future (at the time of writing) domestic electricity tariffs, households and commercial (in ngultrum per kilowatt–hour)

Customer Category August 2010to 30 June 2011

1 July 2011to 30 June 2012

1 July 2012to 30 June 2013

LV

0-100 kWh (Nu./kWh) 0,85 0,85 0,85

101-300kWh (Nu./kWh) 1,47 1,54 1,62

300+ kWh (Nu./kWh) 1,94 2,04 2,14

LV bulk (Nu./kWh) 1,94 2,04 2,14

MVEnergy charge (Nu./kWh) 1,63 1,71 1,79

Demand charge (Nu. /kW/month) 95 105 115

HVEnergy charge (Nu./kWh) 1,51 1,54 1,54

Demand charge (Nu./kW/month) 85 105 105

Wheeling (Nu./kWh) 0,111 0,111 0,111

Sources: Bhutan Electricity Authority, Annual Report 2010/2011.LV, MV, HV: Low, medium, high voltage.

communications user fees are a little above or at the regional average. Small business rates, on average, range from US$47 to US$57, depending on plan and included bandwidth.

Currently, the Government is working to improve the reach and efficiency of the existing network. It also aims to further mainstream ICT in its development programmes and poverty-alleviation initiatives. These efforts include the connection of further districts to the national broadband network, the development and implementation of eGovernment initiatives and Government-to-Citizen (G2C) services, and the construction of community centres (CICs) in all village blocks to improve last mile access to ICT resources.

Energy

Bhutan’s electricity tariffs are among the lowest in the world, making it an ideal investment destination for high energy consumption services such as data storage. Under the current tariff schedule, the price for one kilowatt–hour of low-voltage electricity ranges from US$0.02 to US$0.04, depending on the demand. For comparison, the average 2008 household price for one kilowatt–hour was about US$0.113 in the United States of America and about US$0.206 in Japan.4 The current and future tariff structure (in ngultrum) is presented in table 4.

As per the Electricity Act 2001, the power tariff is arrived at by taking into account the actual cost of supply and not the market or opportunity cost. The subsidy that is availed from Royalty power is directed to the low voltage consumers, hence the electricity tariff at low voltage is cheap.

Transport

For a landlocked country, an efficient and reliable transport network both within the country as well as within the region plays an especially important role for competitiveness and broad-based socioeconomic development. At the same time, Bhutan’s rugged terrain poses significant technical and economic challenges in the development of an adequate physical infrastructure.

Bhutan’s current transport network remains inadequate, with a limited road network, no navigable waterways, and no domestic rail network. The Government is aware of these constraints and is undertaking significant investments to upgrade the infrastructure and improve main and feeder road networks, especially in rural areas. Infrastructure development is a central priority in the country’s current FYP (see box 4 above). Complementary to the Government’s efforts, multilateral and bilateral development partners continue to provide technical assistance and funding.

4 I Based on data of the United States Energy Information Administration and the International Energy Agency (http://www.eia.gov/emeu/international/elecprih.html).


Road transport

In 2010, there were 6,920 kilometres of roads, about 40 per cent of which were paved or otherwise surfaced. The existing network connects major villages and provides an increasing amount of farm and access roads in rural areas. Still, about 53 per cent of the rural population cannot reach an all-weather road within 20 minutes walking distance and about 9.7 per cent of the total population still lives more than six hours walking distance away from the nearest all-weather road.5

Most of the Bhutan’s personal and commercial traffic travels along the East–West national highway (“Lateral Road”), which also connects the capital Thimphu with the southern industrial hub of Phuentsholing and the Indian border. Nearly all imports go through the Indian port of Kolkata and are transported to Phuentsholing by road. Like the majority of roads in Bhutan, the Lateral Road is narrow with steep gradients

and sharp turns, making it inadequate for the country’s increasing traffic and the growing number of commercial vehicles. Furthermore, severe weather and tectonic activity frequently cause roadblocks or temporary hazards. As a result, traffic usually moves extremely slowly.6 The incidence of road traffic fatalities, currently at about 17 per 10,000 vehicles per year, is already much higher than in neighbouring countries (India’s is a little above 12 per 10,000 vehicles per year) and slowly increasing.7

Overall, the poor state of the road network and the country’s difficult geographic situation significantly increase the cost of doing business in Bhutan. This is particularly true in the country’s remote eastern districts, where transport costs are high.

The 2007–2027 Road Sector Master Plan sets out how the Government plans to upgrade and expand the existing network, often with significant support of international partners

Gate of Bhutan, border crossing with India, Phuentsholing, Bhutan.

5 I According to the 2005 Census.

6 I Travel time between Phuentsholing and Thimphu is about 6 hours for about 180 kilometres.

7 I Based on data from the Transport 2040 Integrated Strategic Vision (draft) August 2011.


Drukair aircraft at Paro International Airport, Paro, Bhutan

such as the Asian Development Bank, the World Bank, the Government of India, and the Government of Japan. Priorities include the expansion of feeder roads, capacity and safety upgrades of existing roads, the construction of more bridges, and the construction of a second East–West highway in the less mountainous south. The Government is also developing a warehousing and distribution facility (dry port) in the border town of Phuentsholing.

Rail transport

Bhutan currently does not have a domestic rail network, but the Government recognizes the significant capacity and efficiency gains that could be realized through a rail link with India. In January 2005, Bhutan and India signed a memorandum of understanding for the establishment of railway links to the five border towns in Bhutan from the nearest corresponding railheads in India that would ultimately enable access to the Indian rail network. One of the links includes a 17.5 kilometre track to connect Hasimara (in West Bengal) to Phuentsholing in Bhutan. Survey of the five links was carried out in 2007/08 and the two Governments are currently working to implement the project.

This important infrastructure development project has the potential to remove one of Bhutan’s most pressing “behind-the-border” constraints by significantly reducing ground transportation costs and improving access to

the Phuentsholing industrial hub. The rail link will promote private-sector development in the border region and allow for varied investment opportunities.

The Government is also planning to establish a dry port at the terminus of the rail link. As of June 2011, it has identified Toribari within the Phuentsholing municipality as optimal location for such a facility.

Air transport

Reliable and flexible air transport is critical for the development of Bhutan’s tourism sector and economic diversification. Currently, however, Bhutan has only one international airport, Paro, and one international air operator, the wholly State-owned Druk Air.

Paro International Airport is located about 50 kilometres west of the capital Thimphu and is certified for narrow-body aircraft up to the size of an Airbus A320 or Boeing 737. Given the high-elevation, high-terrain environment and the lack of an instrument landing system, flight operations are often disrupted by weather conditions. During the winter season, high velocity winds can lead to service cancellations or delays, or flight diversions of the incoming flights. Cargo facilities remain limited and the existing terminal infrastructure is inadequate for peak-season tourist inflows.


Druk Air, which started operations in 1983, currently operates direct connections to destinations in Bangladesh, India, Nepal, Singapore and Thailand using Airbus A319 aircraft. Paro–Bangkok and Paro–Delhi are the most popular routes. In 2010, Druk Air transported a total of 132,615 passengers, compared to 42,900 in 2002 and just about 2,800 in 1983.

The Government is aware of the pressing need to improve its air transport network and is currently seeking domestic air service operators to improve access to the country’s eastern region and the central Bumthang district, cutting travel times from several days to a few hours. This could help unlock the Bhutan’s vast tourism potential in the more remote regions and make non-tourism ventures much more accessible to firm managers, using both commercial as well as general aviation. In the longer term, the Government may also upgrade Gelephu airport for international operations. This would not only free up capacities in Paro, but also allow for a much safer and reliable approach due to better geographical conditions, potentially even using bigger airplanes. Most importantly, it would also help private-sector development around the southern hub of Gelephu.

In addition, the Government plans to introduce a domestic helicopter service for search and rescue operations, but not for scheduled op-eration. Given Bhutan’s challenging geography, the availability of helicopter based emergency

assistance could, amongst other benefits, also allow for safer conduct of a wider array of out-door tourism activities.

Health services

Bhutan’s Government has made consistent and substantial progress in the provision of public health services, bringing the country well on track to achieving the relevant Millennium Development Goals (MDGs), a set of development targets defined by the United Nations. Human and physical resources have been expanded at an impressive speed. However, some fundamental challenges remain, particularly in rural areas.

Primary health care coverage currently stands at about 90 per cent of the population. In 2007, on average, an urban dweller lived 19 minutes away from the next basic health unit, while a rural dweller walked about 84 minutes. In 2005, about 90 per cent of all households were estimated to have visited a health facility at least once a year. Advanced emergency treatment is available at Thimphu’s Jigme Dorji Wangchuck National Referral Hospital.

With better access to facilities, health outcomes have improved accordingly. Life expectancy increased significantly from an estimated 54 years in 1990 to about 68 years today, with only a minor difference between males and

What investors say: infrastructure

First and foremost, interview partners highlighted Bhutan’s extremely competitive electricity prices. Electricity is easily availability in all urbanized regions and power outages are not an issue, which stands in stark contrast to other countries of the region. Investors and firm managers were also positive about the country’s telecommunications network, although shortages were reported in the area of broadband Internet connectivity.

The country’s transportation infrastructure, however, is a major concern for the private sector. Concerns were raised about the country’s insufficient road network and the associated high costs for ground transportation. The road between Thimphu and Phuntsholing was cited as a particular concern. Interview partners greatly welcomed the opening of Bhutan’s domestic air service and described it as a major improvement of the overall business climate. Many also welcomed the on-going improvement and development of the country’s road network.

Source: UNCTAD.


females. Under-five mortality declined from 139 per 1000 live births in 1990 to 56 per 1000 live births in 2010. Child immunization is nearly universal.

The Government’s current development priorities include the training of more qualified health workers, particularly doctors, and the expansion of physical infrastructure. The Government is also carefully monitoring the incidence of HIV/AIDS. While the number of reported cases is still very low, the number of new infections has been increasing sharply over the last years.

Education

Substantial progress has also been made in the improvement of Bhutan’s education system.8 Basic education consists of seven years of primary schooling and four years of lower and middle secondary schooling. This can be followed by two years of higher secondary education as well as tertiary education. Language of instruction is English and education is free up to the tenth grade. The general level of English language proficiency is very high.

Literacy rates, estimated based on data from the 2007 Bhutan Living Standard Survey, still show strong rural–urban as well as gender and generational divides. The overall literacy rate stood at about 55.5 per cent. Disaggregated indicators are significantly biased towards male, urban populations, with disparities increasing sharply for older age groups. Gender gaps are nearly absent for the younger generations, in which about 75.8 per cent are literate.

Table 5. Key health indicators1990 2000 2010a)

Millennium Development Goal 4.1Children under five mortality rate (per 1,000 live births) 139 89 56

Millennium Development Goal 4.31 year-old children immunized against measles (% proportion) 93% 78% 98%

Millennium Development Goal 6.1People living with HIV, 15-49 years old (% of population) <0.1% <0.1% 0,20%

Life expectancy at birth (years) 54,19 63,148 68,021

Per capita government health expenditure (US$, avg ex rate) - 42 80

Sources: World Health Organization Global Health Observatory Data Repository, World Bank WDI, United Nations Statistics Division.a) 2010 estimates where available, otherwise 2009 is used

8 I Data in this section is based on Bhutan’s 2011 National Human Development Report and the Ministry of Education Annual Education Statistics 2010 and 2011.

Headquarters of the Royal University of Bhutan, Thimphu, Bhutan.

Tertiary education is organized under the umbrella of the decentralized Royal University of Bhutan (RUB), which was established in 2003 and currently includes ten constituent public colleges and one private college. In 2010, 6,245 students were enrolled in a tertiary education course under the RUB. Additionally, another 4,083 students were enrolled in a tertiary education course abroad, mostly in India. Gross enrolment at the national tertiary level is about 11 per cent, compared to about 15.5 per cent in lower middle-income countries and 11.4 per cent in South Asia.

The Government is working to expand and diversify the tertiary education system and eliminate gaps in infrastructure, access, and efficiency. The current system induced a mismatch between student skills and knowledge on the one hand and labour market needs on


the other hand. To this end, the Government’s priorities include a comprehensive overhaul of its technical and vocational education and training programmes, including an improved link between university and vocational training courses. More on opportunities in the education sector can be found in chapter IV.

Labour

About 68.6 per cent of Bhutan’s 726 thousand people were participating in the labour force in 2010. The overall participation rate of women was slightly lower than that of men (63.9 per cent versus 73.6 per cent), which compares very favourably to the South Asian average of 37 per cent versus 82 per cent. About 3.3 per cent of the total labour force was unemployed in 2010, down from 4 per cent in 2009. Youth unemployment, currently at 9.2 per cent, is a concern. Overall, the biggest source of employment with about 60 per cent is the agricultural sector, where almost everyone works in self- or family-employment arrangements.

Bhutan’s labour force, although comparatively well educated, cannot fully meet the needs of the evolving private sector. A 2009 survey of 250 Bhutanese firms by the World Bank finds that 12.6 per cent of firms cite the lack of labour skills as a constraint for the private sector.9 Growing rates of youth unemployment

support the view that there is a widening skills/knowledge gap. At the same time, the World Bank study also finds that competitiveness as measured by labour productivity is high, particularly in the service sector. While average labour costs per worker are higher than in other countries of the region (about 45 per cent higher than in India), unit labour costs are amongst the lowest in the region (almost half of Bangladesh’s unit labour costs).

Bhutan’s labour regulations are mainly contained in the 2007 Labour and Employment Act, which is the country’s first comprehensive labour market legislation. It includes provisions on employment conditions including minimum age, terms and enforcement of contracts, employee compensation, working hours, holidays, dispute resolution, and worker’s representation, among others. Additionally, some regulations pertaining to employee compensation and the recruitment of foreign workers still derive from the 1994 Wage Rate, Recruitment Agencies and Workmen’s Compensation Act. The new framework has successfully improved labour market efficiency by reducing legal uncertainty, improving workers rights, and ensuring flexibility.

Under the provisions of the 2007 Labour and Employment Act the Government set a national minimum wage across all industries of Nu 100 per day or Nu 3,000 per month (US$2.19 and US$65.57, respectively). Full-time employ-ees are entitled to a minimum of 9 public holidays per year and 1.5 days of paid leave

What investors say: human resources and labour

While some firm managers reported high productivity of the existing labour force, a key concern is the lack of skilled labour throughout all sectors. Interviewees generally confirmed that there is a strong mismatch between a well-educated and English-speaking population on the one hand and a lack of relevant job-market qualifications on the other hand. As a result, there are few well-trained workers. Some private-sector representatives described that the apparent attractiveness of government jobs vis-à-vis private-sector jobs makes it hard to find employees with a strong entrepreneurial spirit. At the same time, it was pointed out that workers generally learn quickly and seem receptive to on-the-job training.

In addition to domestic labour shortages, interview partners reported difficulties in the recruitment of Indian workers due to complex procedures and quantitative caps. Some private-sector representatives also described immigration and visa rules for expatriate workers as relatively restrictive.

Source: UNCTAD.

9 I The World Bank / International Finance Corporation, Enterprise Survey Bhutan. Available online at www.enterprisesurveys.org (accessed 26 June 2013).


per month. Standard working hours must not exceed eight hours per day or 48 hours per week. Employers must grant a minimum maternity leave of eight weeks and minimum paternity leave of five days, each with full pay.

The financial sector

With a rapidly evolving real economy backed by sound macroeconomic fundamentals, Bhutan’s financial sector has seen significant growth in recent years. The country’s financial system consists of four commercial banks, one development bank, two insurance companies, one pension fund, and one securities exchange.10 All bank and non-bank financial institutions are regulated by the country’s central bank, the Royal Monetary Authority (RMA). The legal and regulatory framework of the central bank was significantly strengthened with the enactment of a new RMA Act in 2010. This, together with the new 2011 Financial Services Act, gave the RMA a large degree of autonomy and a robust mandate to supervise the growing financial sector. The RMA has recently reiterated that it does not plan to grant new commercial banking licences until the end of 2013.

Insurance sectorTwo insurance companies are currently operating in Bhutan, the Royal Insurance Corporation of Bhutan Limited (RICB) and Bhutan Insurance Limited. The partially State-owned RICB was the first provider of insurance in the country and offers general insurances as well as a variety of credit and financial products. RICB also provides the vast majority of housing loans and is the sole provider of life insurance in Bhutan. Its competitor Bhutan Insurance Limited only offers general insurance products. The superior market position of RICB vis-à-vis Bhutan Insurance Limited is reflected in the firms’ financial positions with a total asset value of US$130 million versus US$6.33 million in March 2011. Unlike the commercial banking sector, the insurance sector is open for new market participants to foster competition.

Stock exchangeIn 1993, the Royal Monetary Authority supported by the Asian Development Bank

initiated the development of a capital market and a stock exchange in Bhutan. The Royal Securities Exchange of Bhutan (RSEB) was established in late 1993 with a total of four listed companies and an overall market capitalization of about US$8.6 million. As of 2010, a total of 20 companies were listed with an overall market capitalization of about US$218.95 million. Although the number of trades slowly increased over the years, the exchange still only opens for trading twice a week. In 2010, the overall traded value of securities was about US$13.94 million. The RSEB is regulated by the Royal Monetary Authority.

The private sector

The umbrella organization that represents the private sector in various national, regional and international policy forums is the Bhutan Chamber of Commerce and Industry (BCCI), which is itself part of the regional SAARC Chamber of Commerce. The BCCI currently has 41 members representing various sectors and subsectors of the country’s small but growing business community. In addition to its headquarters in Thimphu, the chamber also has four regional offices across the country. Including through the BCCI, the Government has intensified its dialogue with the private sector in recent years.

To improve communication and cooperation between the various arms of government and the private sector, the Ministry for Economic Affairs has reconstituted the Private Sector Development Committee in 2009. The committee consists of 25 members, 14 of which are from the private sector and 11 of which are government officials, and is chaired by the Minister for Economic Affairs. In July 2011 the committee was upgraded with a secretariat to further institutionalize the dialogue and act as focal point for private-sector development.

Beyond the various regulatory reforms outlined in earlier chapters, the GNH Commission secretariat has worked to promote public sector delivery and private-sector development. The “Accelerating Bhutan’s Socioeconomic Development” initiative has defined performance targets for the various branches of government and sectors.11

10 I As of the second quarter of 2011, these were the Bhutan National Bank, the Bank of Bhutan Ltd., Druk PNB Bank Ltd., T-Bank Ltd., Bhutan Development Finance Corporation Ltd., Royal Insurance Corporation of Bhutan Ltd., Bhutan Insurance Ltd., National Pension & Provident Fudent, and the Royal Securities Exchange of Bhutan Ltd. For publicly listed companies the abbreviations correspond to the stock symbol. The government holds shares in Bhutan National Bank, Royal Insurance Corporation of Bhutan (both minority), Bank of Bhutan, and Bhutan Development Finance Corporation (both majority).

11 I Comprehensive information about the project background, scope, and progress can be found online at http://www.gnhc.gov.bt/absd (accessed 27 June 2013).


Terraced rice plots in a rural area near Phunaka, Bhutan.

An investment guide to bhutAn – the reguLAtorY environment I 25

The regulatory environmentBhutan has embarked on ambitious regula-tory reform and private-sector development programmes in recent years. The current FDI and economic policy framework represents a major step towards a more liberalized investment regime and more conducive business regulations. However, while macro-economic and longer-term aspects such as political stability, good governance, and access to electricity compare very favourably to other investment destinations in the region, several regulatory constraints remain. The World Bank’s Doing Business project particularly identifies a lack of procedures to resolve insolvency, complex regulations for trading across borders, and cumbersome procedures to get a construction permit. Nevertheless, the Government has made significant progress in its efforts to provide an enabling environment for investors.

This chapter presents the legal aspects of the investment environment together with the administrative procedures for doing business in Bhutan.

Institutional and regulatory framework

Foreign direct investment in Bhutan are coordinated and monitored by the DoI at the Ministry of Economic Affairs (MoEA). The Ministry acts as the country’s investment promotion agency and focal point for investors.

In addition, Bhutan’s State-owned holding company, DHI, acts as the lead developer and venture partner, including in PPPs, for larger infrastructure development projects such as the Thimphu Tech Park or the Education City Project. Regulation and supervision of all projects, however, remains with the DoI/MoEA.

In 2010 the legislature passed a comprehen-sive overhaul of Bhutan’s economic develop-ment strategy and regulatory environment, consolidating the most relevant provisions for foreign investors in the Economic Development Policy and the complementary Foreign Direct Investment Policy. With the streamlined regulations, investors face a three-tier structure of foreign ownership that is applicable to both new as well as to existing entities (see table 6).

Except for some specific provisions and incentives set out in the 2010 FDI Policy, foreign investment projects are subject to the same laws, rules, and regulations that are applicable to domestic firms. This right to equal treatment is formalized in the FDI Registration Certificate (FDIRC), which is issued by the Ministry of Economic Affairs upon application by foreign investors (see below).

International investment treaties

Bhutan is not a member of the Multilateral In-vestment Guarantee Agency or the International Centre for Settlement of Investment Disputes (ICSID). To date, it has also not yet signed bilateral investment treaties or double taxation treaties with international partners. Relevant

Table 6. Foreign ownership restrictionsDegree of foreign ownership allowed Sectors

100 per cent Education services (except technical and vocational institutions), health, five-star hotels, infrastructure,research and development, head office services, IT and IT-enabled services inside SEZs.

Up to 74 per cent Agro-based production, forest-based production, water-based products, manufacturing, IT and IT-enabled services outside SEZs, construction services, waste and water supply management, four-star hotels, technical and vocational institutions, transport and related services, consultancy services.

Up to 51 per cent Financial services

No foreign ownership Negative list sectors including media and broadcasting, hotels rated three starts and below, arms and tobacco.

See appendix 1 for full details and minimum capital requirements.


provisions for double taxation avoidance and investment protection are, however, part of the SAARC treaties (compare with section on taxation below).

Entry and exit

FDI business registration and licensing process

The anchor point for establishing an FDI business in Bhutan is the FDI Division at the DoI/MoEA. The MoEA also chairs the FDI Facilitation Committee, which is a multi-agency body that facilitates and promotes FDI.

Prospective investors need to go through the following business registration and licensing process:12

To start the business licensing process, investors first need to apply for an FDIRC. To initiate the process, investors are invited to submit a formal FDI Registration Application,13 including a more detailed summary of the venture, a description of the investor, past audited accounts, and CVs of local shareholders. Based on the formal application the DoI/MoEA then issues the FDIRC, which will convey the right to be treated equally to

a comparable domestic firm. The issuance of the FDIRC does not, however, constitute a full approval of the project.

In a next step, investors submit a business plan to the DoI/MoEA. Investors shall submit three copies of the business plan, one of which will be forwarded to the National Environment Commission (NEC), if applicable. The NEC is a statutory body mandated to develop, implement and monitor the Government’s environmental policies and standards. Since environmental conservation is a central pillar of Bhutan’s philosophy of GNH, all projects (except those in the exempted/delegated list) must undergo screening by the NEC, which then issues an environment clearance for the venture. Simultaneously, the prospective investor registers/incorporates the FDI business with the Registrar of Companies (see table 7 for fees).

Table 7. Company registration incorporation feesIncorporation Fee, by authorized share capital

Share capital not exceeding Nu 1 million Nu 1,000

Share capital between Nu 1 million and 2 million

Nu 1,500

Share capital exceeding Nu 2 million Nu 2,000

Source: Schedule IV, Companies Act of of Bhutan, 2000.

12 I Note that this summary reflects the requirements of the licensing scheme that was in place at the time of writing, particularly the provisions of the 2005 FDI Rules and Regulations, the 2010 FDI Policy, and the 2010 Economic Development Policy. This process may change as a result of the revision of FDI rules and an ongoing simplification project in cooperation with the International Finance Corporation.

13 I The relevant FDI Registration Application Form can be found in schedule III of the 2005 FDI Rules and Regulations, available online at http://oag.gov.bt/wp-content/uploads/2011/02/Foreign-Direct-Investment-Rules-and-Regulation-2005-English.pdf (last accessed December 2011).

At the control desk of Ugen Ferro Alloys Pvt. Ltd., Pasakha Industrial Estate, Phuentsholing, Bhutan.


After the environmental and all relevant sectoral clearances have been issued, if the proposed activity falls under the non-priority lists, the Project Approval Committee decides (based on evaluation criteria) about the ultimate approval of the project. The proposed businesses falling under the priority list of activities are not subject to assessment against the evaluation criteria and are approved by the Department of Industry upon receipt of required clearances. Finally, the business must obtain an industrial licence at the Regional Trade and Industrial Office under the MoEA.

In addition to the formal registration process, companies are required to apply for a taxpayer identification number and register for income tax, acquire a company seal within a year of incorporation, and open a bank account under the name of the company.14

Employment permits and expatriate employment

Bhutan’s Department of Labour/ Ministry of Labour and Human Resources (MoLHR) is the coordinating agency for labour market needs of foreign investors. In addition, Bhutan’s Department of Immigration as well as the Ministry of Foreign Affairs are relevant points of contact for the employment of foreign nationals.

Bhutan’s 2010 FDI Policy includes provisions on three aspects of employment: (a) Employment of (skilled) expatriate workers, (b) employment of unskilled or semi-skilled workers, and (c) requirements on the employment of Bhutanese nationals.

(a) Any FDI business that has successfully applied for an FDIRC (see above) is entitled to a minimum of five work permits for professional, managerial and technical expatriate staff during the business establishment phase. The permits are allocated to the business entity and are annually renewable. Multiple-entry visas (that is, visas exempt from the international tourist tariff) are issued to the foreign investor, the board of directors, all expatriate staff, and their immediate family members. In addition, the MoLHR can approve additional expatriate workers if the business cannot meet its labour market needs by recruiting Bhutanese professionals. The MoLHR will also approve additional short-term permits for professionals, technicians and consultants at request of the business.

(b) During the establishment phase of the FDI project investors can recruit an unrestricted number of unskilled and semi-skilled expatriate workers. During the business operation phase, the number of unskilled and semi-skilled

What investors say: governance and administrative efficiency

Interview partners strongly appreciated the high degree of political stability and absence of corruption. Many said that the Government is exemplary in its commitment to principles of good governance and sound financial management. Optimism was also expressed about the establishment of an Anti-corruption Commission (ACC), which was seen to be very vigilant and effective. The Government’s development plans were perceived as credible and constructive.

While private-sector representatives generally described the Government as a reliable partner, some cited the Government’s inexperience with FDI and lack of technical understanding as an issue. Interview partners cited delays in some approval processes due to lack of government capacity. At the same time, the Government was characterized as keen to understand investor’s concerns. Access to high-ranking Government officials and line ministers does not appear to be a challenge.

Source: UNCTAD.

14 I Also compare World Bank Doing Business 2012 – Economy Profile Bhutan.


expatriate workers will be regulated more closely by the MoLHR.

(c) FDI businesses are required to progressively train and employ Bhutanese workers and professionals after the venture has been established in order to attain a ratio of 1:5, that is, one expatriate permit for every five Bhutanese workers, by the fifth year of commercial operation. Exceptions, however, might be granted for specific sectors such as research and development, health or education or for specific labour market requirements.

The overall procedure to recruit foreign workers, based on the 2007 Immigration Act and the 2007 Labour and Employment Act, can be complex. The DoI/MoEA in its function as anchor point for FDI as well as the MoLHR can assist prospective investors. A brief summary is provided here.

Companies will first need to apply for an approval to recruit foreign workers with the MoLHR through its online platform LabourNet.15 Applications are supposed to be approved within approximately one week. For workers with Indian citizenship, businesses are required to sign an agreement with their respective Regional Immigration Office. Other foreign workers need to apply for a visa with Bhutan’s Department of Immigration. The Department will then issue a clearance that can be used to enter the country and apply to the nearest Regional Immigration Office for a full work permit within seven days of arrival.

Land acquisition

FDI companies in Bhutan can own or lease land based on the provisions of the 2007 Land Act of Bhutan. In the acquisition process, FDI ventures registered under the Companies Act are treated like any domestic legal person. The responsible statutory body dealing with land allotment is the National Land Commission (NLC) and its secretariat, which manages cadastral surveys and keeps the national land record called Thram.

While the NLC secretariat processes land transfers and coordinates between different government bodies, potential investors will need to work through the local government

or municipal authorities to apply for the transaction. In case of land acquisitions around Thimphu, this would be the Thimphu Thromde, formerly the Thimphu City Corporation.

To initiate the transfer, investors need to complete the land transfer form that is available through the local authorities.16 The local authority verifies the submission and transmits it to the NLC or Ministry of Agriculture for decision. The transfer is processed by the local authority of the Ministry of Agriculture as appropriate.

The lease, or Lag Thram, grants full ownership and flexibility to the FDI Company. Subject to the relevant laws and provisions of the Land Act, the owner can freely transact the acquired land title.

Construction permits

Investors applying for a construction permit need to work with local government or municipal authorities to obtain the necessary documentation. In case of building projects around Thimphu, the responsible implementing authority would be the Thimphu Thromde. At the national level, the Department of Urban Development and Engineering Services at Bhutan’s Ministry of Works and Human Settlement is responsible for overall coordination and technical backstopping. The required procedures, fees, and permits, as well as general provisions on architectural requirements are formalized in the 2002 Bhutan Building Rules. The Traditional Architecture Guidelines, also available from the Ministry, provide further details on what the Government sees as appropriate building design principles.17

In a first step, investors need to request an official site plan and, if needed, a plot demarcation. This can be done by submitting a simple form together with the relevant land ownership certificate (Lag Thram, see above) to the responsible local authorities.18 Investors can then apply for a building permit by submitting the relevant form along with architectural drawings and plans to the local authorities. As noted above, building plans must be in line with Bhutan’s Traditional Architecture Guidelines as well as the general structural and safety requirements. After the building permit

15 I Available online at www.molhr.gov.bt (follow link "Labour Net").

16 I For the Thimphu Thromde, this form can be found online at www.tcc.gov.bt.

17 I Both regulations are readily available on the website of the Department of Urban Development and Engineering Services at www.dudh.gov.bt (last accessed January 2012).

18 I For the Thimphu District Municipality, this form can be found online at www.tcc.gov.bt/forms/siteplan.pdf (last accessed January 2012).


has been obtained, investors can request and receive pre-construction and construction work inspections, and will ultimately be issued an occupancy permit by the local authorities.

Trade licensing and customs clearance

Bhutan’s trade policy, regulation and monitoring is organized under the Department of Trade at the MoEA. The Department of Revenue and Customs under the Ministry of Finance is in charge of customs clearance. Any goods imported from countries other than India require an official import licence, which can be obtained from the Department of Trade by registered retail/industrial licence holders and any company registered in Bhutan. In addition to the standardized application form, specific industries might need to provide additional

documentation (for example, businesses in the tourism industry might need approval from the Tourism Council of Bhutan). Bhutan does not maintain official quota restrictions on imports from India or third countries.

Most goods arrive at the southern industrial agglomeration of Phuentsholing, which is the country’s busiest border check point. There are six official entry/exit points for goods from/to third countries, which, with the exception of air transport, require a transit through India (see table 8). Bhutan continues to improve the efficiency and capacity of its customs clearance point, especially in Phuentsholing.

Procedural requirements and associated time and costs for trading across borders to and from Bhutan are roughly in line with or

Worker sorting pieces of ferrosilicon, Pasakha Industrial Estate, Phuentsholing, Bhutan.

Table 8. Official entry/exit points for movement of goods from/to third countriesBhutanese Side Indian side Mode of transport

Phuentsholing Jaigaon, West Bengal

Land

Samtse Chamurchi, West Bengal

Gelephu Hathisar, Assam

Sarpang Ulta Pani, Assam

Samdrup Jongkha Darranga, Assam

Paro All destinations by air Air

Source: Bhutan Ministry of Finance.


19 I Sources include UNCTAD Trade Analysis and Information System (TRAINS) and World Bank, 2010, Bhutan Trade Brief, World Trade Indicators 2009/10: Country Trade Briefs, Washington, DC., World Bank (available at http://www.worldbank.org/wti) and information from the Government of Bhutan information.

slightly more cumbersome than the regional averages, according to the World Bank’s 2012 Doing Business report. table 9 lists required documents for a hypothetical trade transac-tion.

Tariff structure

Goods imported from India under the bilateral free-trade agreement are not subject to customs duty. For goods imported from third countries Bhutan applies ad valorem duty on a cost, insurance and freight basis, calculated at entry point. Weighing the most favoured nation tariff rate by a trade partner’s share in total

imports, Bhutan levies duties on its imports of 57.8 per cent for agricultural goods and 13.7 per cent for non-agricultural goods, compared to a South Asian regional weighted average of 13.4 per cent.19

Levies and charges

Bhutan levies excise duties based on ad-valorem rates on alcoholic beverages only and the rates of duty range from 30 to 75 per cent. Bhutan sales tax is collected at the point of entry (valued based on “freight-on-board” price) or at the point of sale (valued based on sales price).

What investors say: licensing and approval

While managers and investors did not report encountering significant difficulties with the general business licensing procedure, some interview partners described the process of applying for sector clearances as time consuming and not fully transparent. Given Bhutan’s strong record of conservation, a comprehensive environmental clearance is required for those investment projects which are not exempted. It appears that applications for environmental clearances can be complex and require detailed documentation for sophisticated and complex projects. Interviewees have reported significant delays in the investment approval process due to these requirements. Some rules and regulations were described as unclear or not comprehensive enough, such as the current regime for the settlement of investment disputes.

Private sector representatives described the tax system and the procedures for paying taxes as no impediment to doing business, but rather found the current system to be transparent. In the area of customs and trade approval, interview partners saw general procedures as efficient, but noted that substantial tariff and non-tariff barriers were remaining. The continued reform efforts of the Government to provide an enabling regulatory environment were consistently rated as very constructive.

Source: UNCTAD.

Table 9. Documents required for trading Import documents Export documents

1. Bill of lading2. Certificate of origin3. Commercial invoice4. Customs import declaration5. Import licence6. Insurance certificate7. Letter of guarantee (for transit through India)8. Packing list

1. Bill of lading2. Certificate of origin3. Commercial invoice4. Customs export declaration5. Insurance certificate6. Packing list

Source: World Bank Doing Business 2012 – Economy Profile Bhutan; Government information.Note: Based on a hypothetical, domestically owned firm with no foreign ownership and the shipment of a 20-foot dry-cargo container filled with

10 tons of traded goods. Costs reflect all official fees, but do not include customs tariffs and duties or costs related to ocean transport. For more information see www.doingbusiness.org/methodology/trading-across-borders (last accessed December 2011).


Exit

The investor is free to exit from a venture in accordance with the Bhutanese law. There are no limitations posed on disinvestment. Investors have the right to fully repatriate their invested capital and any capital gains secured.

Rights of investors

Equal treatment and protection of property

Foreign investments registered under Bhutan’s 2010 FDI Policy are subject to the same laws, rules, and regulations as any domestic venture.

Regarding nationalisation, expropriation or any other measure taken which has the effect of nationalization and expropriation or otherwise curtailing the rights of the foreign investor, the 2010 FDI Policy guarantees that the Government will carry out such measures only in a non-discriminatory manner. The law also provides that in such cases the compensation paid will be prompt, adequate, effective and fair.

Intellectual property rights protection

Intellectual property rights legislation in Bhutan covers copyrights, patents, industrial designs, trademarks, traditional knowledge and plant variety protection.

Copyrights are governed by the 2001 Copyright Act, which sets out the conditions to receive domestic copyright protection. Patents, industrial designs and trademarks are governed by the 2001 Industrial Property Act. The Intellectual Property Division of the Ministry of Economic Affairs is responsible for the implementation of the Copyright Act and the Industrial Property Act, and efforts are underway to ensure that these laws are operationalized. In this regard, registries now exist for copyrights, trademarks and industrial designs. Plant variety protection and traditional knowledge related to biological resources are governed by the 2003 Biodiversity Act, which is administered by the Ministry of Agriculture. A gene bank has been established and efforts are currently underway to establish a national access and benefit sharing policy under which traditional knowledge will be documented in

order to implement the provisions of the 1992 Convention on Biological Diversity, to which Bhutan is a party.

Bhutan is a member of the World Intellectual Property Organization and has signed the 1883 Paris Convention for the Protection of Industrial Property, the 2000 Madrid Agreement concerning the International Registration of Marks, and the 1886 Berne Convention for the Protection of Literary and Artistic Works.

Dispute resolution

Bhutan is actively working with international partners to implement global best practices in dispute resolution. At present, it has not yet signed the 1966 International Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID or Washington Convention) or the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention). Bhutan has not yet incorporated the provisions of the United Nations Commission on International Trade Law, Model Law on International Commercial Arbitration into its national domestic legislation. Bhutan has signed and ratified the 2005 Agreement on the Establishment of SAARC Arbitration Council, which is currently being implemented by the SAARC member States and will provide a reliable instrument at the regional level.

As a result, the current framework does not yet allow access to an international arbitration procedure with legally binding and enforceable arbitral awards. However, the 2010 FDI Policy provides that investors have the option of ad-hoc dispute settlement using good office, mediation, conciliation and arbitration, or as per the mutually agreed framework between the parties. The policy also provides that parties also have the option to adjudicate their dispute before the Royal Court of Justice of Bhutan. It is not clear, however, to what extent arbitral awards can be enforced in this framework.

Repatriation of dividends and capital

Bhutan’s capital account is not fully liberalized. The Government maintains a strict foreign exchange regulation scheme. Exchange


controls are not applicable to the Indian rupee, which circulates freely in Bhutan. For investors, the 2010 FDI Policy includes relevant provisions on the repatriation of dividends and capital.

Registered foreign investors to Bhutan are entitled to a foreign currency account with one of Bhutan’s commercial banks. Investors are generally allowed to repatriate any invested capital as well as capital gains in the original currency of investment. Subject to the relevant taxes, net earnings can be repatriated in their respective currency. For dividends earned in ngultrum through investment ventures in the priority service sectors (see appendix 1), investors can purchase up to US$5 million per year from Bhutan’s Royal Monetary Authority for the first ten years of operations.

Competition policy

Given the country’s small industrial base, Bhutan currently does not have a comprehensive legislative framework for competition policy or formalized antitrust regulations. The basis for government anti-trust interventions derives from Article 9 paragraph 10 of the

Constitution: “The State shall encourage and foster private-sector development through fair market competition and prevent the growth of commercial monopolies”. Two laws (1995 Rules and Regulations for Establishment and Operation of Commercial Ventures and 2006 Micro, Retail and Wholesale Trade Regulation) govern domestic commerce, but do not contain concrete provisions on competition policy. To remedy to this, the Government with assistance from UNCTAD has prepared a competition policy paper which, when adopted by the cabinet, will be applied by all line Ministries and sector regulators so as to ensure coherence between the various economic policies and the development of a well functioning market.

In this regards, issues of bid rigging and public procurement have been handled by the ACC, created in 2006 under the Anti-corruption Act of Bhutan. The ACC established a committee comprising all relevant stakeholders to put in place guidelines for public procurement policies that will ensure transparency, prevent bid riggings or illegal practices. In order to prevent corruption in the construction sector, the ACC, in conjunction with the Royal Audit Authority

Safety instructions at a joint venture site of the SKW Metallurgie Group in the industrial zone Pasakha, Phuentsholing, Bhutan.


and the Ministry of Finance, revised the procurement manual and bidding documents.

Bhutan’s Department of Trade has in the past taken small-scale, ad-hoc steps to increase competition and protect Bhutanese consumer interests. Additionally, Bhutan has several sectoral regulatory agencies, most importantly in ICT (Bhutan InfoComm and Media Authority) and electricity (Bhutan Electricity Authority).

In 2012, the Consumer Protection Bill was adopted in parliament. This law is comprehensive and covers the rights and responsibilities of consumers, misleading advertising and false representations, safety standards for goods and services and guarantees with respect to title, quality and matters such as manufacturers’ guarantees. The law also set up an institutional framework for enforcement at the national and the local levels (Dzongkhag).

In the absence of a formalized competition policy it can be assumed that the Government

scrutinizes potential investment projects in terms of their impact on domestic competition during the formal FDI approval procedure.

Tax system

Foreign investment ventures are taxed under the same rules and rates as any domestic company. The legislative framework for Bhutan’s tax system is provided by the Income Tax Act of 2001 and its amendments as well as the Sales Tax, Customs and Excise Act of 2000 and its corresponding rules. The principal taxes include a business/corporate income tax, a personal income tax, a property transfer tax, the Bhutan Sales Tax, and a municipal tax.20

Corporate income tax (CIT)

All FDI ventures incorporated under the Companies Act of Bhutan are subject to Bhutan’s CIT. Bhutan levies a 30 per cent tax across all sectors and income classifications.

Table 10. Summary of tax rates

Statutory rate Tax base

Business income tax 30% Net profit

CIT 30% Net profit

Property transfer 5% Sale value of the property

Rural land tax 0.2% to 2.5% Land value

Personal income tax

below Nu 100,000 0% Income

Nu 100,001–250,000 10% of amount by which net taxable income exceeds Nu 100,000 Income

Nu 250,001–500,000 Nu 15,000 plus 15% of amount by which net taxable income exceeds Nu 250,000 Income

Nu 500,001–1,000,000 Nu 52,500 plus 20% of amount by which net taxable income exceeds Nu 250,000 Income

Nu 1,000,001 and above Nu 152,500 plus 25% of amount by which net taxable income exceeds Nu 1,000,000. Income

Bhutan sales tax on domestic goods and services

Hotel services 10% Selling price of goods or services

Cable TV/cinema 30% Selling price of goods or services

Beer 100% Undiscounted price of goods or services

Cement 5% Selling price of goods or services

Aerated Water 30% Selling price of goods or services

Source: Bhutan Ministry of Finance.

20 I Note that economy-wide and sector-specific fiscal incentives, including tax holidays, are discussed below.


Personal income tax

Personal income tax rates for citizens and residents are at a progressive rate ranging between 0 per cent and 25 per cent (see table 10). Taxable income includes:

(a) Salary income including non-licensed con-sultant fees;

(b) income from real property;(c) dividend income;(d) interest income from fixed deposits;(e) income from cash crop;(f) income from other sources.

Expatriate employees are fully liable to Bhutan’s income tax.

Bhutan sales tax

Sales tax is collected by a sales tax collecting agent at the point of sale for selected goods/services and at the point of entry of most goods. Tax rates range from 5 to 100 per cent (see table 10), although some goods and services are zero rated or exempt from taxation.

Fiscal administration and calendar

The tax year in Bhutan runs from 1 January to 31 December. Firms must file their tax returns (using form CIT-2 for entities incorporated under the Companies Act) to their regional revenue and customs office on or before 31 March following the tax year. A unique taxpayer number, which is allocated at the time of company registration, must be quoted in all tax filings.

Double taxation agreements

Bhutan does not yet have any double taxation avoidance agreement. It is a signatory of the SAARC Agreement on Avoidance of Double Taxation and Mutual Administrative Assistance on Tax Matters. Since ratification in 2006, the Government is actively working to implement its provisions. To this end, Bhutan has held three successful rounds of negotiation with India.

Incentives for investors

Fiscal incentives

Any FDI venture incorporated in Bhutan is entitled to the same incentives that apply to any domestic business. Specifically, the 2010 Economic Development policy differentiates between general incentives and sector-specific incentives that are applicable to the priority sectors listed below and in appendix 1.

General fiscal incentives for all investors include:

• Custom duty and sales tax exemption for import of machinery (except spare parts) directly related to the manufacturing of a product or utilized in the provision of a licensed service – valid for manufacturing and service industries until the end of 2019.

• Sales tax exemption on import of permissible raw materials and primary packaging materials – valid for manufacturing industries until the end of 2019.

Vegetable vendor at the green market in Lobesa, Bhutan.


• Corporate or business income tax exemption for export earnings in convertible currency by manufacturing units – valid for businesses established until end of 2015 for a period of ten years, not valid for ventures in the tourism sector.

• Reinvestment allowance as tax deductible expense for up to 25 per cent of total reinvestment – valid for all new investments undertaken until end of 2015.

• Research and Development expenditures are fully tax deductible.

Companies undertaking capital investments to over-comply with environmental standards are allowed an income tax rebate of 15 per cent of upgrade expenditures.

All incentives related to exports of goods or services are only applicable if the share of value added is at least 40 per cent.

Non-fiscal incentives

Other than the tax incentives, the 2010 FDI Policy aims to provide facilitation services and administrative simplifications for prospective investors. All sectors and activities prioritized by the Government are fast tracked for approval and clearance procedures. For prospective investors in the areas of tourism and ICT, a single window clearance scheme has been established at the Tourism Council of Bhutan and the Department of Information Technology and Telecom, respectively. Additionally, the Government designated FDI focal points across all agencies relevant to foreign investors. The Government is currently assessing the need to formalize its investment promotion activities in a statutory investment promotion agency.

As described above, the 2010 FDI Policy also entitles investors to employment permits for a minimum of five expatriates.

Indian Oil petrol station, Bhutan.

Colourful painting of a Bhuddist theme as wall decoration in a building, Bhutan.

An investment guide to bhutAn – AreAs of opportunitY I 37

Areas of opportunity

Bhutan is welcoming private-sector invest-ments and PPPs in a number of sectors including infrastructure, tourism, information and communications technology, education, and agribusiness. Tourism has been one of the main drivers in the development of a vibrant private sector and one of the Government’s foremost priorities. In addition, Bhutan’s authorities are open to other innovative project proposals given they are in line with the country’s GNH development philosophy. One such example from the agricultural sector is the Bhutan Mountain Hazelnut Venture described in box 8.

The following sections provide a description of some of Bhutan’s most attractive sectors for investment. A full listing of the priority sectors is provided in appendix 1.

Tourism

Bhutan’s tourism potential lies in its unique value propositions of pristine and untouched nature, rich and living culture, and mental and spiritual wellness (also see box 5). The country’s all-embracing GNH philosophy is a tourist attraction in itself and the guiding principle for the Government’s “high value, low impact” tourism strategy, which positions Bhutan as an exclusive destination while preserving the country’s natural and cultural heritage. A central feature of this approach is a price floor that requires every tourist to pay a minimum daily all-inclusive package rate of US$250 per day per person. (Package cost includes: accommodation in a minimum three star category accommodation, meals,

Taktsang Palphug Monastery, also known as The Tiger's Nest, Bhutan.


transport, guides and equipment for trekking.) All aspects of tourism policy and regulation are coordinated by the country’s central tourism authority, the Tourism Council of Bhutan (TCB).

The number of visitor arrivals climbed to a total of some 64,000 visitors in 2011of which non-regional tourist arrivals accounted for about 37,000. Under its “Accelerating Bhutan’s Socioeconomic Development” project, Bhutan aims for a strong increase from tourists in the Asia region, for which new flights are being put in place. In line with a constantly growing number of arrivals, revenues from international tourists have increased accordingly from just about US$2 million in the late 1980s to about US$48 million in 2011. In 2009, hotels and restaurants contributed about 2.21 per cent to Bhutan’s GDP. Considering the industry’s strong forward and backward linkages, this figure likely understates the true economic benefit and job-creation potential of the country’s sustainable tourism strategy. Overall, fast growth of the tourism sector gives rise to numerous other opportunities in complementary services such as transport, telecommunications, banking, insurance and other business services.

Arrivals are subject to strong seasonal variation driven by weather and the occurrence of cultural festivities, with the majority of tourists

arriving in spring (March to May) and autumn (September to November). More than 40 per cent of tourists came from Europe, about a third from the Asia Pacific region, and some 23 per cent from North America. The number of tourist arrivals from the Asia Pacific region has increased recently and is expected to further grow with the launch in 2012 of direct flights connecting Bhutan with Singapore and Mumbai. In terms of single countries, visitors from the United States still form the largest group of arrivals, followed by Japan, the United Kingdom, Germany, and France (see figure 4).

In addition to the more traditional offerings in the area of cultural tourism, which include guided tours to Bhutan’s numerous monasteries and temples as well as visits to cultural festivals, the TCB is developing new products and investment opportunities in the areas of niche adventure tourism, safari-like ecotourism and wellness. In 2009, about 90 per cent of tourists came mainly for cultural or recreational holidays, and about 10 per cent came mainly for trekking. Tourists spend an average of US$330 per person per day and stay for an average of eight days.

Currently, most of Bhutan’s hotel capacities are located in the western circuit around Paro, Thimphu, and Punakha. The region is

Woman in traditional dress turning prayer mills at the Chimi monastery, Lobesa, Bhutan.


home to several cultural festivals (Tsechus) and numerous religious sites, including the prominent “Tiger’s Nest” temple complex. It is also the region that is easiest to access for international tourists. In addition, there are several hiking and cross-country cycling trails. Accordingly, international luxury hotel chains have successfully established high-end properties in this region (see box 6 for an investor story about Amanresorts). All in all, of the 119 hotel properties registered with the TCB in 2010, eight were rated as five-star and five were rated as four-star accommodations. Guest relations and logistics were handled by 676 licenced domestic tour operators.

Realizing the great potential of tourism as a driver for socioeconomic development, the Government pursues an ambitious and com-prehensive development strategy. The strategy aims to further develop the destination Bhutan as a well-recognized brand, create a supply of high-end hotels, and provide necessary ame-nities and infrastructure, particularly aviation. A cross-cutting development project for the tourism sector is the “Accelerating Bhutan’s Socioeconomic Development” initiative (see box 7). To improve the supply of skilled labour for the tourism sector, the Government has established the Royal Institute of Tourism and

Hospitality in cooperation with the University of Applied Sciences of Salzburg in Austria. The institute offers a two-year diploma programme in tourism and hotel management and aims at improving vocational training for tourism related services.

Across all of its sectoral development initiatives the Government sees foreign investors at the heart of Bhutan’s tourism industry and promotes investments into four- and five-star hotels and resorts throughout the country. The Government aims to broaden Bhutan’s tourism portfolio not only to include new regions and seasons, but also to diversify tourist activities. Investors are particularly encouraged to focus on nature-based activities, including adventure tourism (rafting, trekking, mountain biking, ballooning) and safari-like ecotourism (camping, wildlife, bird and butterfly watching). Based on the country’s strong Buddhist heritage, the TCB also promotes spiritual wellness and spa offerings. Moreover, there is scope for development of hospitality services for meetings, incentives, conferencing, and exhibitions.

In terms of regions, the Government aims to promote a more diversified tourist offering in Bhutan’s central, south and eastern regions.

Source: UNCTAD secretariat calculations, based on Tourism Council of Bhutan last supplied figures.Note: Figures only include international tourists paying in convertible currency.

Figure 4. Tourist nationalities by region over time and by country in 2009

Tourist nationalities by region over time

Europe

North America

Other

Top 10 tourist nationalities in 2009

United StatesJapanUnited KigdomGermanyFranceChina

ThailandAustraliaNetherlandsAustraliaNetherlands

100%

80%

60%

40%

20%

0% 2001 2000 2002 2003 2004 2005 2006 2007 2008 2009

Asia and Paci�c

21%

13%

8%

7%

5%5%4%4%

3%3%

27%


While the current tourist hub of Paro/Thimphu/Punakha offers a mix of all products throughout the year, the TCB aims to develop three more circuits with differentiated appeal. It envisages to establish Bumthang and Trongsa as Bhutan’s cultural heartland with numerous cultural festivals (Tsechus), the ancient Nabji pilgrim site and community-based trekking in the Jigme Singye Wangchuck National Park, several mountain biking trails, the Jambey and Kurjey Lhakhang temples, and the Duer hot spring. The Bumthang region can be accessed via the newly constructed Bumthang Domestic Airport (“Bathpalathang airport”), located close to the village of Chamkhar.

South of the Bumthang/Trongsa region lies the Royal Manas National Park, the oldest and most important protected reserve in Bhutan. Managed under a comprehensive conservation plan, the 1,057 square kilometre park is home to tigers, leopards, rhinos, and elephants as well as a wide variety of bird species. In this region, the TCB would like to promote tourism products with a focus on safari-like ecotourism, complemented with bird watching and outdoor activities like river rafting. In addition to the impressive ecosystem, the region offers hot springs and a variety of hiking, cycling, and rafting trails.

Bhutan’s remote eastern region in Trashigang and Trashiyangtse can be visited throughout the year and could serve as an unexplored hub for community-based tourism offerings and as untouched retreat for meditation and wellness. The region is home to the remote twin villages of Merak and Sakten, where the semi-nomadic brokpa people herd yaks on the open pasture. In addition, there are a variety of hiking trails as well as bird and wildlife viewing opportunities. Access to this region is possible via the Yongphula Domestic Airport.

Bhutan’s current FDI policy allows up to 100 per cent ownership of projects establishing luxury hotels and resorts (five stars and above) and up to 74 per cent ownership of projects establishing four-star hotels. The Government also allows full foreign ownership for the development of outdoor sports and recreational facilities.21

Beyond the general provisions for foreign investors, the Government provides sector-specific fiscal and non-fiscal incentives, including:

• Ten-year income tax holiday for high-end hotels and resorts established until December 2015;

Box 5. Bhutan’s rich natural and cultural heritage as an attraction for tourists

Despite being a small country, Bhutan boasts a diverse and rich cultural heritage rooted in Buddhist values and traditions. Buddhism is vibrant and alive in Bhutan, with religious sites such as monasteries, prayer wheels, and stupas dotting the country. Paro Taktsang, an elaborate temple complex commonly known as Tiger’s Nest, is probably the best recognized temple in Bhutan and has to some extent become a cultural icon for the country.

Tourists can experience Bhutan’s well-preserved traditions through numerous festivals and rites taking place throughout the year. Many villages have unique multi-day celebrations for various occasions, most of which include colourful mask dances or other performances. The most widely known of these festivals is Tshechu, which not only constitutes an important religious celebration, but also serves as yearly social gathering for villagers.

Bhutan’s ubiquitous Dzong architecture and traditional clothing are equally proof of the country’s living traditions. After gradually and carefully opening to the outside world, the preservation and promotion of Bhutan’s heritage remains one of the central endeavours of the King. Given the country’s long isolation and well-preserved traditions, it is sometimes described as a mythical Shangri-La.

The Kingdom’s natural heritage is equally impressive, with dramatic valleys and vast woodlands. Bhutan’s biodiversity, including its complex forest ecosystems, various streams, and marshlands, is preserved through numerous parks and reserves. In addition to its unique flora, Bhutan’s fauna boasts a wide range of species including leopards, Bengal tigers, pandas, langurs, bears and a variety of deer. Bhutan is also host to 16 bird species that are endangered worldwide, including the white-bellied heron and the Pallas’s fish eagle.

Sources: UNCTAD secretariat, Tourism Council of Bhutan.

21 I The development of five-star hotels with full ownership requires a minimum investment of Nu 200 million; the development of four-star hotels requires a minimum investment of Nu 25 million and a maximum of 74 per cent of foreign equity ownership. See 2010 FDI policy, schedule II for details.


Box 6. Investor story: Amanresorts – Amankora luxury lodges across Bhutan

Amankora Resorts represents a success story for Bhutan’s high-end tourist industry. Amankora, which derives its name from “aman” – Sanskrit for peace – and “kora” – Dzongkha for circular pilgrimage – operates five lodges throughout Bhutan’s western and central valleys. The venture is part of Amanresorts, a chain operating 25 exclusive boutique hotels around the world in often remote, natural settings. Most of Amankora’s roughly 2,000 annual guests hail from the United States and Europe. In addition to Amankora’s wholesale operations, local tour companies bring in an additional 20 to 25 per cent of guests.

Established in 2001 with a US$10 million participation of the International Finance Corporation, the US$26 million venture now employs about 400 Bhutanese across its five lodges. Its business model capitalizes on the unique value proposition of Bhutan’s tourism sector: nature, culture, and wellness. Instead of just visiting a specific lodge, guests are invited to embark on an individually tailored journey that will visit all of Amankora’s properties across Bhutan. Amankora was the first foreign company allowed to open a series of properties in Bhutan. Based on this network of lodges, guests can tour the numerous cultural or religious sites, go on treks throughout the country, or visit one of the local communities. The properties also feature wellness, meditation, and spa facilities influenced by Bhutan’s spiritual heritage.

Consistent with Bhutan’s tourism approach of “high value, low impact” and mandated by the International Finance Corporation’s environmental standards, Amankora lodges are built in an ecofriendly manner, tours are designed to minimize the environmental impact, and hotel operations aim to integrate with the local economy and community.

Source: UNCTAD secretariat interviews, Amanresorts.

• Exemption of customs duty and sales tax on imports of outdoor equipment, kitchen equipment, hotel furniture, fixtures and selected goods;

• Full repatriation of dividends in the currency of earnings;

• Up to 500 acres (approximately 202.3 hect-

ares) of earmarked land for tourism develop-ment, available for a renewable lease period of up to 30 years;

• Fast-tracked, single-window clearance process for tourism-related projects through the Tourism Council of Bhutan, including for the leasing of new land.

Box 7. Accelerating Bhutan’s socioeconomic development tourism projects

Bhutan’s Gross National Happiness Commission secretariat targeted tourism as one of six key sectors to stimulate economic growth and generate jobs, with a sector-specific goal of attracting 100,000 tourists and generating 25,000 direct and indirect jobs.

Targets include:• Development of two to three additional tourist circuits including the development of new products (see box 5 above);• Establishing a domestic aviation network with airports in Yonphula in the very east of the country, Bumthang in the centre,

and Gelephu in the south;• Identification of around 500 acres (approximately 202.3 hectares) of land in the new tourist circuits. Various models of creating

quality supply are planned, for example, partnerships between communities and private sector. International investors are envisaged to play a key role in the development of high-end supply;

• Expanded tourist amenities like road permit waivers and electronic payment systems;• Review of current tourist accommodation including the introduction of a star-based rating system. As of January 2012, only

accommodations rated 3 stars or above will be allowed to host tourists; • Improved price transparency and flexibility;• Streamlined tourism governance, including through an improved mandate and legal standing of the TCB as the country’s

foremost tourism development body. The reinforced TCB will subsequently develop a comprehensive National Tourism Strategy.

Recent successfully implemented reforms include the launch of credit card facilities, simplified visa processing, the launch of a new cultural tourism product in the east, and a newly implemented star rating system.

Sources: TCB, the GNH Commission secretariat, Accelerating Bhutan’s Socioeconomic Development initiative website at www.gnhc.gov.bt/absd (last accessed December 2011).


Power generation

The country has a vast capacity for hydropower generation. With its deep valleys and swift rivers, the country’s topography lends itself to the development of run-of-the-river type hydropower projects. Since 1974, when the first major project was undertaken in cooperation with the Government of India, hydropower has become the primary source of energy for meeting domestic energy demand. Most importantly, export revenues from water-generated electricity have become the main engine of growth for Bhutan’s economy and the platform for broad socioeconomic development. As per the National Revenue Report of 2010–11, the hydropower sector has contributed about 19.3 per cent of the total revenue. Hydropower continues to be dominated by Bhutan’s close ties with India, which acts as a financier, provides technical assistance, and imports a vast share of the produced electricity.

The installed capacity of the existing four hydropower plants stands at 1,480 megawatts, which accounts for about 5 per cent of the total hydropower potential of the country. Actual generation, however, is strongly dependent on seasonal water flows. In Bhutan’s dry winter season from November to February, when river flows decrease sharply, generation capacity drops to about 288 megawatts, while domestic demand has reached up to 274.24 mega-watts in February 2012. Given that the increase in domestic demand is expected to exceed generation very shortly, short-term government measures to address the issue of winter peak time shortages are currently being discussed and include imports from India, the temporary diversion of streams, the construction of reservoirs and improved load balancing. Further, due to construction of mega hydroelectric power plants, which require construction power, the government is finalizing import of power from India during the lean season through energy banking arrangement with a neighbouring Indian utility.

Expansion of generation capacity will help to redress peak time shortages and continue to drive economic growth and development. The Royal Government of Bhutan has embarked on

the initiative to develop an additional capacity of 10,000 megawatts by 2020. Ten projects will be built through an intergovernmental loan/grant scheme and through joint ventures with Indian Public Sector Undertakings, under the programme to add 10,000 megawatts of capacity by 2020. Surplus power from these power plants, that is, after meeting the country’s internal demand, will be exported to India. Additionally, Bhutan’s State-owned hydropower company DGPC is also involved in construction of 126 megawatts Dagachhu Hydroelectric plant which is being build under the PPP model. (see table 11 for hydropower projects that are installed and planned for construction by 2020).

Since Bhutan has abundant hydropower potential and is not endowed with fossil fuels, electricity generation by diesel or other non-renewable sources is negligible. For non-electric applications, firewood has traditionally been the main source of energy, with about 1 million to 1.2 million tons being consumed for cooking and heating every year. Additionally, liquefied petroleum gas and kerosene are imported for cooking, heating and lighting.22 The country’s transport sector is solely driven by imported petrol and diesel. In context of its rural electrification programme, the Government currently explores other renewable energy sources such as solar, wind, and biomass.

Household access rates to electricity remain low, making electrification programmes an important development priority for the Government. As of 2008, only 54 per cent of rural households had access to electricity. In mid 2011, the Government provided access to 73 per cent of all households and is on track to achieve full rural electrification by 2013.

Electricity also accounts for a significant share of government revenues under the existing intergovernmental agreement with neighbouring India. After the first turbine of the Tala plant was commissioned in 2006, government hydropower revenue has roughly doubled and the share of revenue generated by exports to India has stabilized at over 90 per cent. Future hydropower projects will continue to underpin this significant revenue stream (see figure 5).

22 I Asian Development Bank 2010, "Preparing the rural renewable energy development project", appendix A, paragraph 10.


Table 11. Hydropower generation capacity – installed and planned

Project Installed/projected capacity Status Completion/construction schedule

Chhukha 336 installed 1998

Basochhu 64 installed 2004

Kurichhu 60 installed 2002

Tala 1020 installed 2006

Puna-I 1200 under construction 2008–2016

Puna-II 1020 under construction 2010–2017

Mangdechhu 720 under construction 2010–2018

Sankosh 2560 projected 2012–2021

Amochhu 540 projected 2012–2019

Kuri-Gongri 3400 projected 2014–2023

Chamkharchhu-I 770 projected 2012–2021

Bunakha 180 projected 2012–2018

Wangchhu 570 projected 2012–2020

Kholongchhu 600 projected 2012–2019

Source: Bhutan Royal Monetary Authority, Annual Report 2009–2010; Government information.

Source: UNCTAD secretariat calculations, based on Royal Monetary Authority of Bhutan Annual Reports 2006/2007 and 2010/2011.

Figure 5. Government hydropower revenue, by generation source (left axis) and market (right axis, percentage of total hydropower revenue)

% share of export revenue (right axis)

Ngul

trum

mill

ion,

cur

rent

0

2’000

4’000

6’000

8’000

10’000

12’000

14’000

16’000

70

80

90

100

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Chukha plantBasochu plant

Kurichhu plantTala plant

Infrastructure

Bhutan’s rapid socioeconomic development and urbanization in recent years put pressure on the country’s physical infrastructure, requiring expansion and upgrading of the country’s transport network and the construction

of numerous industrial facilities as well as residential and non-residential buildings. The construction sector represented about 12 per cent of overall economic activity in 2009 and construction related commodities continue to account for a significant share of Bhutan’s trade balance.


Given the lack of both technical capacity as well as skilled labour in domestic construction companies, numerous opportunities open up for foreign investors in the design, construction and operation of large-scale infrastructure and general building projects. Significant demand exists for projects in the areas of airport infrastructure, highways, bridges, viaducts, elevated highways, tunnels, ropeways/cable cars, logistics facilities such as dry ports, land reclamation, geotechnical and hydraulic engineering, sewerage infrastructure, water management, residential buildings, and recreational facilities. Bhutan’s rugged topography, widespread surface erosion, and extreme weather conditions pose significant construction challenges and open opportunities for specialized international contractors.

In 2010, the Government formalized a framework for the implementation of infra-structure projects through PPP models. The framework provides for a transparent and competitive procurement process following internationally accepted practice. In addition, the framework allows the Government to choose PPP investors as strategic partners without selection process for ventures with

up to 26 per cent foreign ownership. It also prescribes that government-owned companies such as DHI, the sovereign development and holding company, have to follow fair and transparent bidding procedures similar to the provisions set out in the framework. The framework provides flexibility with regards to the contractual design and partnership model (including but not limited to build-operate-transfer, build-own-operate-transfer, build-operate-lease-transfer). The Government is also working on development of PPP Policy with the World Bank’s support.

Irrespective of the specific contractual arrangements, all fiscal and non-fiscal incentives granted to investors under the provisions of the 2010 Economic Development Policy and the 2010 FDI Policy are fully applicable.

Agriculture and related industries

There is scope for a variety of foreign direct investments in the commercial agricultural sector and related industries, including in

Landscape with paddy rice fields in the Paro valley, Bhutan.


organic farming, biotech, poultry and dairy farming, floriculture, apiculture, and horticulture. While the country’s physical infrastructure and a lack of skilled labour are still concerns for larger-scale commercial operations, a significant number of farmers already engage in the production of cash crops such as fruits

(mainly mandarin oranges and apples) and potatoes. Figure 6 provides an overview of agricultural commodities produced in 2010.

The commercialization of agriculture is one of Bhutan’s primary development goals and investors can expect the Government to be very

Box 8. The Mountain Hazelnut Venture – a large-scale agricultural FDI project

The Mountain Hazelnut Venture, incorporated in July 2010, imports hazelnut plantlets from neighbouring China in order to produce and process a large number of high-quality hazelnuts for export. The Venture aims to invest about US$30 million for planting around 10 million hazelnut trees in an area of 20,000 acres (8093.7 hectares) in Bhutan’s remote eastern districts. When the project reaches maturity in six to eight years it could produce and export between 20,000 to 40,000 tons of hazelnuts annually. This would represent between 3 to 5 per cent of the global market, which produced about 726,400 tons of hazelnuts in 2010/2011 and is currently dominated by Turkey and Italy. By 2020, hazelnuts could account for a significant share of Bhutan’s exports.

The true value of the project, however, lies beyond its commercial operations. The venture, which is managed by a team of less than a dozen expatriates and Bhutanese nationals, is aligned with Bhutan’s development priorities and might eventually benefit between 10,000 and 15,000 households in the country’s most remote areas. The Venture works closely with rural communities to plant the hazelnut trees. It also trains and supports local farmers in tending and harvesting the steep slopes. The Venture then buys back the nuts at a guaranteed price and transports them to a central processing facility, which will be set up in one of Bhutan’s industrial hubs.

Overall, the Government of Bhutan and the Mountain Hazelnut Venture’s chairman and founder Daniel Spitzer, an American social entrepreneur, hope to address the issue of rural–urban migration by enabling farmers to generate a reliable and sustainable income without having to leave their traditional communities. The project also hopes to reduce soil degradation and improve rural market access, both in terms of infrastructure as well as financing. In addition, the Venture pledged to contribute 20 per cent of net earnings to a Bhutanese trust fund.

The Mountain Hazelnut Venture is an example for an innovative investment project that builds on Bhutan’s natural environment, which is climatically favourable for the cultivation of hazelnuts, abundant labour, and very supportive Government.

Source: UNCTAD secretariat interviews, Forbes Asia Magazine.

Source: UNCTAD secretariat calculations, based on data from Bhutan Ministry of Agriculture and Forests/Food and Agriculture Organization CountrySTAT database.

Figure 6. National agricultural production in 2010, by commodity

Of which

Potato 56.2%Chili 8.6%Ginger 5.2%Other 30.0%

Of which

Paddy 49,9%Maize 40.1%Wheat 3.4%Other 6.6%

Of which

Mandarin orange 72.2%Apple 10.1%Areca nut 10.0%Other 7.7%

Vegetables,spices, oilseeds

27%

Fruits25%

Cereals48%


supportive of relevant FDI project proposals. An example is the Mountain Hazelnut Venture described in box 8. The Government is also undertaking institutional reforms to facilitate investments, including an improved framework for agricultural financing and a comprehensive overhaul of the country’s land use policy that would enable investors to gain easier access to large parcels of arable land.

As one of the Government’s priority sectors, investments in the agricultural sector are eligible for sector-specific fiscal incentives. These include an exemption from sales tax and import duties for all farm machinery and any other agricultural inputs as well as a 10-year income tax holiday for commercial farming and related processing of its products units established until end 2015. FDI projects engaging in commercial farming of organic crops are eligible for a 15-year tax holiday.

Information and communications technology

In addition to mainstreaming ICT as a tool to improve public service delivery and governance, IT and IT-enabled services (IT/

ITES) feature prominently in the Government’s private-sector development initiatives. The sector can effectively capitalize on Bhutan’s strengths of high political stability, abundant and sustainable electricity, low unit labour costs and an English-speaking population.

Opportunities for investors include outsourcing of data centres, software development, business process outsourcing in the areas of back office operations, transaction processing, content development, design and animation, geographic information system services, and related sectors, both for export as well as for domestic consumption. Further opportunities might arise in up- or downstream services.

As part of the Government’s efforts to create a favourable environment for foreign IT investors, the Thimphu TechPark has been developed as a flagship ICT project near the country’s capital. The project was designed and financed in cooperation with the World Bank and is currently being implemented as a PPP between the Government’s holding company DHI and a property development firm from Singapore. The first development phase, providing 50,000 square feet of office and data centre space across a five-acre campus, was completed in November 2011. The complex

IT training at the Rigsum Institute of Information Technology and Management (RIIT&M), Thimphu, Bhutan.


is precertified with a Leadership in Energy and Environmental Design platinum rating. Later stages aim to provide 250,000 square feet spread over 18 acres. The park’s infrastructure includes fully serviced offices and warm shell space with power and mains redundancy, by lease or by licence, and a variety of business facilities such as a shared conference centre, videoconferencing facilities, and a centralized online platform for printing, postal and transport services. To support smooth operation of the tech park, the Government continues to improve the country’s general telecommunication infrastructure, including through the opening of a second international telecom gateway in the South of the country. In the longer term, the Government considers to set up further technology parks.

Parallel to the development of physical ICT infrastructure, the Government seeks to build a strong local talent base. It aims to increase IT literacy across schools by mainstreaming ICT-related elements into secondary and tertiary curricula, training teachers, and setting up computer labs in schools. Under the auspices of the Royal University of Bhutan, efforts are under way to set up an IT Entrepreneurship Development Programme as well as a distance learning system for IT skills. Additional training arrangements already exist with the private sector, including with global technology firm Infosys, which trains Bhutanese software engineers at their corporate university in Mysore, India. In total, about 1,200 Bhutanese have received professional education or training in IT skills.

The Government has fast tracked the business licensing process and put in place numerous incentives to attract international investors. IT/ITES ventures established in context of the tech park are granted full foreign ownership, ventures outside the park are granted a maximum foreign ownership of 74 per cent. A single window clearance process for investors has been established with Bhutan’s Department of Information Technology and Telecom. Beyond the general incentives granted to foreign investors under the provisions of the 2010 Economic Development Policy and the 2010 FDI Policy, the Government provides sector-specific fiscal and non-fiscal incentives for ICT, including:

• Ten-year tax holiday for the operation of IT/ITES businesses within the tech park and exporting 80 per cent of their products or services;

• Exemption of customs duty and sales tax on imports of computers, related hardware and software;

• Repatriation of dividends in the currency of earnings.

The Government also aims to further improve the regulatory regime for IT/ITES businesses, particularly in the areas of data security, privacy and intellectual property. The Government is working with the relevant international organizations to revise its intellectual property law (see previous chapter). In addition, efforts are under way to strengthen the role of the main industry body, the International Technology Association of Bhutan, with a view to improve the dialogue between the private sector and the Government. At the time of writing, 72 domestic IT/ITES firms were represented through the Association.

Education

With its political stability, central location in South Asia, close ties to India, English-speaking population, and natural and cultural attractions, Bhutan is positioning itself as a knowledge hub and an academic centre for the region. Prominent in these efforts is the Education City Project, a 1,000-acre (approximately 404.7 hectares) campus designated to host secondary and tertiary academic infrastructure, residential units, cultural and recreational facilities, and a sports complex. The campus will be strategically located in Wang Sisina, about 30 minutes away from both Thimphu and Paro. DHI Infra, the Government’s infrastructure development company, is in charge of the project, which will be developed in cooperation with an international investor through a design-build-finance-operate-own-transfer PPP model.

The Government hopes to cater to national and international demand for higher education and hence aims to attract both domestic as well as international investors both as tenants for the


Education City and to establish themselves independently. In India, demand for high-quality higher education strongly outstrips supply, drawing a significant number of Indian college graduates abroad while attracting international universities to set up shop in the region. Bhutan is currently soliciting expressions of interest from leading universities as well as international tertiary education and vocational institutions. Targeted thematic areas of studies include biodiversity and environmental science, climate change, sustainable development, health and nursing, hospitality and tourism, hydropower and energy, religious studies including Buddhist philosophy, politics and democracy, and the study of the GNH.

In addition to the incentives granted to foreign investors under the provisions of the 2010 Economic Development Policy and the 2010 FDI Policy, the Government grants sector-

specific fiscal and non-fiscal incentives, including a tax holiday of 10 to 15 years from the actual date of operation for institutions established until 31 December 2015, an exemption of customs duty and sales tax for educational materials such as textbooks and teaching aids, a simplified visa regime for developers and prospective students, and a one-stop shop for project development.

Government priority sectors

A full listing of the priority sectors is provided in appendix 1.

Headquarters of the Royal University of Bhutan, Thimphu, Bhutan.

An investment guide to bhutAn – AppendiCes I 49

Appendices

PRIORITy SECTORSProduction and manufacturing

APPENDIx 1. PRIORITy SECTORS, RESTRICTIONS AND PROHIBITIONS

Sector Minimum investment (US$)

Maximum foreign equity

Other requirements

Agro-based production: i. Organic farming ii. Agro processing iii. Biotechnology iv. Poultry v. Fisheries vi. Floriculture vii. Health food viii. Animal feed ix. Apiculture x. Horticulture xi. Dairy

364,000 74% None

Forest-based production 910,000 74% None

Energy: i. Hydropower ii. Solar and wind iii. Other renewables

Based on Sustainable Hydropower Policy (2008)

Based on Renewable Energy Policy (draft)

Manufacturing of water-based products 910,000 74% None

Other manufacturing: i. Electronics ii. Electricals iii. Computer hardware iv. Building materials

910,000 74% None

Young woman at a traditional loom in the National Institute for Traditional Arts and Crafts Zorig Chusum, Thimphu, Bhutan.


Services

Sector Minimum investment (Nu)


Other requirements

Education: i. Primary ii. General secondary iii. Higher

3.64 million 100% High end

Technical and vocational institution 455,000 74% None

Health: i. Specialized medical services ii. Specialized dental services iii. Specialized medical laboratory services iv. Specialized diagnostic-imaging services v. Specialized traditional medical services

3.64 million 100% None

Hotels/resorts five stars and above 3.64 million 100%Internationally known hotel chains

Four-star hotels 455,000 74% None

Infrastructure facilities: i. Multi-dwelling residential buildings ii. Non-residential buildings iii. Outdoor sports and recreation facilities

such as golf courses, botanical gardens and others

iv. Highways, bridges, tunnels and roads v. Airfield runways/airports vi. Industrial estates, industrial parks vii. SEZs, agricultural economic zones viii. IT parks ix. Economic cities x. Knowledge cities xi. Sport cities xii. Health/wellness centres xiii. Dryports xiv. Land reclamation xv. Other similar activities

3.64 million 100%

PPP Model wherein facility returns to Government on expiry of term

Research and development 182,000 100%Established firms employing minimum of 5 experts

Head office services 91,000 100% None

IT and IT-enabled services: i. IT/ITES inside IT Parks and SEZs ii. IT/ITES outside IT parks and SEZs

91,000 100% None

455,000 74% None

Consultancy services 182,000 74%Established firms employing minimum of 5 experts

Financial services 455,000 51%

As per Financial Services Act.

Note: RMA does not plan to grant new commercial banking licences until 2013


Sector Minimum investment (Nu)


Other requirements

Construction services 1.82 million 74% None

Waste management: i. Recycling of domestic waste ii. Waste management services

455,000 74%

PPP model wherein facility returns to Government on expiry of term

Water supply and management, urban water treatment and supply

455,000 74%


Transportation and related services: i. Green and non-fossil fuel-based

transportation ii. Mass transportation iii. Railways, ropeways, cable cars

455,000 74%


All sectors and activities not listed are generally open for foreign investments with a maximum foreign equity share of 74 per cent and a minimum project investment of US$910,000 for manufacturing and US$455,000 for services. No foreign ownership is permitted in the following sectors:

Prohibitions

Sector

Media and broadcasting

Distribution services including wholesale, retail and micro trade

Mining for sale of minerals in primary or raw form

Hotels rated three stars and below (based on criteria of the Ministry of Tourism)

General health services

Industries that do not meet the Rules of Origin requirements

Activities that violate any relevant laws of Bhutan

Activities that threaten national security and public order

Activities that have harmful effects on public health, environment and Bhutanese morals and culture

Arms, ammunitions and explosives

Production of hazardous chemicals (defined by the National Environmental Commission)

Activities based on imported waste

Production, display and sale of pornographic materials

Gambling and betting

Tobacco and tobacco-based products

Services (cont.)


APPENDIx 2. LIST OF APPROVED FDI PROJECTS IN BHUTAN

AS OF NOVEMBER 2012

Company name Activity Contact address

G4S Security Services (Bhutan) Pvt. Ltd.

Private security services

G4S Security Services (Bhutan) Pvt. Ltd.P.O. Box: 740Lower Chhubachu ThimphuTel-333444; Fax-324837

Saint Gobain Ceramic Materials Bhutan Pvt. Ltd.

Silicon carbide Saint Gobain Ceramic Materials Bhutan Pvt. Ltd.Point of contact: Mr. Avijit Sarkar (Finance Manager)P.O. Box: 275 Plot No. L-14Pasakha Industrial EstatePasakhaTel-261166/261212; Fax-261339

SKW–Tashi Metal and Alloys Pvt. Ltd.

Calcium Silicon SKW–Tashi Metal and Alloys Pvt. Ltd.Point of contact: Mr. S.N. GolderTCC ComplexP.O. Box: 382PhuentsholingTel-25296; Fax-25296

Met Trade Bhutan Ltd.

Aluminium and tin

Met Trade Bhutan Ltd.Point of contact: Mr. Sukesh Kumar Jain (CEO)P.O. Box: 358PhuentsholingTel-254001; Fax-254009

East West Company Pvt. Ltd. Hotel East West Company Pvt. Ltd.Point of contact: Mr. Ugyen D. Dorji (Director)P.O. Box: 1376ThimphuTel-17139999; Email: [email protected]

Haven Resorts Pvt. Ltd. Hotel Haven Resorts Pvt. Ltd.Points of contact: Mr. Varim Srimachota and Mr. Rangsee TuengpantThachukhaDop ShariParoTel-270999; Fax-270888

Bhutan Eco Ventures (P) Ltd. Hotel Bhutan Eco Ventures (P) Ltd.Points of contact: Dasho. Topgyal Dorji / Mr. S.K. GiriP.O. Box: 222ParoTel-271597; Fax-271513 (Tel-252650; Fax-252282)

Ugen Ferro Alloys Pvt. Ltd. Ferro silicon Ugen Ferro Alloys Pvt. Ltd.Point of contact: Mr. Rishi Prasad AgarwalP.O. Box: 126Dekilingka Apartment, 1st Floor, Room No. 202, Pelkhil LamPhuentsholingTel-253971/251698; Fax-253970; email: [email protected]

Quality Gases Pvt. Ltd. Oxygen and nitrogen

Quality Gases Pvt. Ltd. Point of contact: Mr. Jamyan Loden (Managing Director)Plot No. U-II, Upper Terrace,P.O. Box: 197Pasakha Industrial Estate, PasakhaTel-261254; Fax-261256



Bhutan Resorts Pvt. Ltd. Hotel Bhutan Resorts Pvt. Ltd.Point of contact: Mr. John E. Reed (General Manager)P.O. Box: 831ThimphuTel-331333; Fax-331999

Dralha G.G. Steel Pvt. Ltd. Steel Dralha G.G. Steel Pvt. Ltd. Point of contact: Ashi Deki Choden (Chairman)P.O. Box: 105Industrial EstatePhuentsholingTel-252284/253809; Fax-252696

Samden Tech Pvt. Ltd. Internet services

Samden Tech Pvt. Ltd. P.O. Box: 1342Chang LamThimphuTel-333333/333335; Fax-333331

Druk PNB Bank Ltd. Banking Druk PNB Bank Ltd.Norzin Lam near Main TrafficThimphuTel-324497/325936; Fax-333156; email: [email protected]

Thimphu TechPark Pvt. Ltd. IT park Thimphu TechPark Pvt. Ltd.Point of contact: Mike Holland (CEO)P.O. Box: 633ThimphuTel-17959699; email: [email protected]

Nak-Sel Boutique Hotel and Spa Pvt. Ltd.

Hotel Nak-Sel Boutique Hotel and Spa Pvt. Ltd.Point of contact: Sonam Wangmo (CEO)P.O. Box: 641Langang GeogParoTel-323270/322965; Fax-322960; email: [email protected]

Druk Presidency Pvt. Ltd. Plaster of Paris Druk Presidency Pvt. Ltd.6 KM NorbulingSamdrup JongkharTel-251164; Fax-251074; email: [email protected]

Zimdra Foods Pvt. Ltd. Dairy products Zimdra Foods Pvt. Ltd.Point of contact: Mr. Satyen Parekh (Managing Director)P.O. Box: 336PhuentsholingTel-252188/251245; Fax-253002Email id: [email protected]

Lhaki Steels and Rolling Pvt. Ltd.

Steel Lhaki Steels and Rolling Pvt. Ltd. Apartment No. 1, Maysel ApartmentPhuentsholingTel-251640/17608566/17647105; Fax: 252909Email id: [email protected]

Himalayan Safari Lodges Pvt. Ltd.

Hotel Himalayan Safari Lodges Pvt. Ltd.P.O. Box: 1213ThimphuTel-336319/17617360 17111222; Fax-327392Email id: [email protected]

Bhutan Hotels Pvt. Ltd. Hotel Bhutan Hotels Pvt. Ltd.Point of contact: Ms. Yeshey Tshogay (Managing Director)P.O. Box: 1570ThimphuTel-337200; 17113008

AS OF NOVEMBER 2012 (cont.)



Manidheepa–Mohsin Hotels and Resorts Pvt Ltd

Hotel Manidheepa–Mohsin Hotels and ResortsPoint of contact: Ms. Rinzin PemC/o Managing Director, Bhutan National Bank, Thimphu

Dagachhu Hydro Power Corporation Ltd.

Hydropower Dagachhu Hydro Power Corporation Ltd., Dagana.

Bhutan Concast Pvt. Ltd. Billets/Ingots Bhutan Concast Pvt. Ltd.P.O.Box: 261Samdrup LamPhuentsholing

Bhutan H2O Pvt. Ltd. Water bottling Bhutan H2O Pvt. Ltd.Susuna, Naja GeogParo.

Neethsel Pvt. Ltd. Pharmaceutical Neethsel Pvt. Ltd.ToribariChhukha.

Koufuku International Pvt. Ltd.

Dairy Mr. Kinzang Tobgay Associate DirectorDruk Holding and InvestmentP.O. Box No. 1127Thimphu

Shaun Communication Bhutan Pvt. Ltd.

BPO/KPO Mr. Sunny JaiswalShaun Communication Bhutan Pvt. Ltd.Thimphu TechPark Pvt. Ltd.P.O. Box:Thimphu

AdrukA Pvt. Ltd. Furniture and interior fill-outs

Mr. Ugyen DhendupChangaydhaphuPost Box No.: 105/1648 (GPO)Thimphu

Source: Ministry of Economic Affairs / Department of Industry.

Grocery in Paro, Bhutan.

AS OF NOVEMBER 2012 (cont.)


APPENDIx 3. SOURCES OF FURTHER INFORMATION

Ministry of Economic AffairsDepartment of IndustryForeign Direct Investment DivisionP.O. Box 141Thimphu, BhutanPhone: +975-2-321733Website: www.moea.gov.bt

GOVERNMENT AGENCIES

Ministry of Finance P.O. Box 117Thimphu, BhutanPhone: +975-2-322223/322514/322271Fax: +975-2-323154Website: www.mof.gov.bt

tourism Council of Bhutan Post Box 126Thimphu, BhutanPhone: +975-2-323251Fax: +975-2-323695 Email: [email protected] Website: www.tourism.gov.bt

royal Monetary authority of BhutanP.O. Box 154Thimphu, BhutanPhone: +975-2-323111Fax: +975-2-322847Website: www.rma.org.bt

Ministry of educationP.O. Box 112Thimphu, BhutanPhone: +975-2-325325Fax: +975-2-325183 Website: www.education.gov.bt

Ministry of information and Communications P.O. Box: 278Thimphu, BhutanPhone: +975-2-322144/322567/323017/324439Fax: +972-2-329207/326180 Website: www.moic.gov.bt

department of information technology and telecomP.O. Box 482 Thimphu, BhutanPhone: +975-02-323215/322925Fax: +975-02-328440Email: [email protected]: www.dit.gov.bt

Ministry of Foreign affairsP.O. Box 103Gyalyong TshokhangThimphu, BhutanWebsite: www.mfa.gov.bt

Ministry of Labour and Human resourcesP.O. Box 1036 Thonsel Lam, Lower Motithang Thimphu, BhutanPhone: +975-2-333867Fax: +975-2-326731Website: www.molhr.gov.bt

druk Holding and investmentsP.O. Box 1127Thimphu, BhutanPhone: +975-02-336257/336258Fax: +975-02-336259Email: [email protected]: www.dhi.bt

national environment Commission P.O. Box 466Thimphu, BhutanPhone: +972-2-323384/324323/326386Fax: +975-2-323385Email: [email protected]: www.nec.gov.bt

Gross national Happiness Commissionsecretariat P.O. Box 127Thimphu, BhutanPhone: + 975-02-325192/325850/321053Fax: +975-02-326779Email: [email protected]: www.gnhc.gov.bt

national Land CommissionSecretariatP.O. Box 142Thimphu, BhutanPhone: +975-02-321743 / 321745Fax: +975-02-321746Website: www.land.gov.bt


BUSINESS ASSOCIATIONS

Bhutan Chamber of Commerce and industry (BCCi)P.O. Box 147, Doebum LamThimphu, Bhutan.Phone: +975 2 322742 / 324254Fax: +975 2 323936Email: [email protected] Website: www.bcci.org.bt

Bhutan association of tour OperatorsDoebum Lam, Post Box 938Thimphu, BhutanWebsite: www.abto.org.bt

Hotel association of BhutanMr. Ugyen Wangchuck, Sectretary Phone: +975 177113344

association of Bhutanese industriesP.O. Box 54PhuentsholingBhutanPhone: +975 5 251340Fax: +975 5 251341Email: [email protected]: www.abibhutan.com

it association of BhutanPhone: +97 02 335668Phone: [email protected] Website: www.itab.bt

CONSULTING AND LAW FIRMS

pricewaterhouseCoopers pvt. Ltd. indiaSucheta Bhawan11 A Vishnu Dighambar MargNew Delhi –110 002IndiaPhone: +91 11 2323-2916/2321-0891-99/ 41150000Fax: +91 11 2321-0594/96

uC associates Law FirmLhaki BuildingPost Box No. 249Thimphu, Bhutan

deloitte india7th Floor, Building 10 Tower BDLF Cyber City Complex, DLF City Phase IIGurgaon 122002, IndiaPhone : +91 (0124) 679 2000

SELECTED DEVELOPMENT PARTNERS

united nations system in BhutanUnited Nations House P.O. Box 162Thimphu, BhutanPhone: +975-2-334570Fax: +975-2-328526Email: [email protected]: http://www.unct.org.bt

snV netherlands development Organization P.O. Box 815 LangjophakaThimphu, BhutanTel: +975 2 322900 Fax: +975 2 322649 Email: [email protected] Website:http://www.snvworld.org/en/ countries/bhutan/Pages/default.aspx

HeLVetas swiss intercooperation and swiss agency for Development and CooperationP.O. Box 157Dungkar Lam, Lower MothithangThimphu, BhutanPhone: +975-2-322870Fax: +975-2-323210Email: [email protected]

Japan international Cooperation agency (JiCa)P.O. Box 217Thimphu, BhutanPhone: +975-2-322030Fax: +975-2-323089

useful websitesGovernment Information Portal www.bhutan.gov.bt

Ministry of economic affairswww.moea.gov.bt

Ministry of Financewww.mof.gov.bt

national statistics Bureauwww.nsb.gov.bt

tourism Council of Bhutanwww.tourism.gov.bt

Gross national Happiness Commissionwww.gnhc.gov.bt

uensel newspaper Onlinewww.kuenselonline.com

Bhutan Chamber of Commerce and industrywww.bcci.org.bt


APPENDIx 5. MAJOR LAWS AND REGULATIONS AFFECTING FOREIGN INVESTMENT

Name/title (of the law) (year) Description of coverage of the law

• Foreign Direct Investment Policy (2010)• Economic Development Policy (2010)• Foreign Direct Investment Rules and Regulations (2012)

Current economic and FDI policy framework, including most important provisions for investors

• 2010 Framework for Private Participation in InfrastructureEnables large-scale infrastructure projects to be developed in a PPP model

• Companies Act (2000) Law under which FDI projects would be incorporated

• Sales Tax, Customs and Excise Act (2000)• Rules on the Sales Tax, Customs and Excise Act (2000)• Income Tax Act (2001)

Relevant provisions on taxation

• Labour and Employment Act (2007)• Occupational Health and Safety Rules (2006)

Relevant labour laws, including provisions on minimum wage.

• Environmental Assessment Act (2000)• Regulation for Environmental Clearance of Projects (2002)• Regulation on Strategic Environmental Assessment (2002)• Natural Environment Protection Act (2007)• Waste Prevention and Management Act (2009)

Environmental standards

• Land Act (2007)• Building Rules (2002)

Relevant regulations on land acquisition and construction activities.

• Copyright Act (2001)• Industrial Property Act (2001)

Intellectual Property laws.

• Foreign Exchange Regulations (1997)• Bankruptcy Act (1999)• Anti-corruption Act of Bhutan (2006)• Bhutan Information Communications and Media Act (2006)• Immigration Act (2007)

Other provisions that might be relevant in the operation of an FDI venture.

Source: UNCTAD secretariat, based on various Government resources.

APPENDIx 4. BUSINESS HOURS

General business hours

summer timing (March–October): 9 a.m. to 5 p.m. Winter timing (November–February): 9 a.m. to 4 p.m.

Memorial Chorten, Thimphu, Bhutan.

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THIRD-PARTy SOURCES

Asian Development Bank (2010). Asian Development Outlook 2010: Macroeconomic Management Beyond the Crisis. Manila, Asian Development Bank.

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Photo credits© UNCTADPage 58: © Stephen Shephard