ECONOMYNEXT – The landlocked mountainous Kingdom of Bhutan is on the cusp of being upgraded from Least Developed status to Middle-income status after successfully clearing two recent United Nations Reviews.
The upgrade is due in 2023 and as the nation prepares for the change of status, it also needs a boost from the private sector to sustain the momentum.
However, the nation which prides itself on a high rating in the Gross National Happiness Index may have to revisit some of its trade and sustainable development policies if it is to be more attractive to youth, entice more tourists and attract international investment.
These challenges and opportunities were discussed at a web talk titled “Revival of the Bhutanese Private
Sector” organised by the Friedrich Naumann Foundation South Asia, on November 23 .
Moderated by Sunil Raisally, Private Sector Analyst and Advisor to the BCCI and Managing Partner of Metho Dawa Consultancy Services, the panel included Chencho Tshering, Managing Director, Wangchuck Group of Companies Pvt. Ltd., Sonam Chophel, CEO, CSI Markets and Consultant, and Singye Namgyal, President, SAARC Youth Entrepreneurs Forum and Joint MD, RSA Pvt. Ltd.
Of Bhutan’s 779,000 population around 55 per cent are in the 22-60 years productive age group, says
Raisally, adding that 70 thousand youth are expected to join the work force within the next five years.
This means that Bhutan must create around 13,500 jobs yearly, a figure that the government and
affiliated entities cannot meet alone. As he points out, the state sector creates between 500 to 1000
jobs yearly, and the onus falls on the private sector to pick up the rest.
According to the panelists, Bhutanese youth are looking for greener pastures in developed countries. If
Bhutan is to buck this trend says Tshering, skilled workers must be paid more and though the private
sector will not be happy, it is the “only way to manage the situation.”
The cost of the wage increase should be transferred to the customer, and she says it is time the private
sector moved away from traditional marketing practices and adopts innovative methods for pricing and
marketing. Furthermore, the new policies make it a level playing ground, where the role of the travel
agent or middle man is no longer necessary, making it possible for the hospitality industry to go direct to
the customer.
Bhutan is just opening up to tourists after a two-year lock down caused by the 2019 Covid pandemic
which severely impacted tourism, a major income source. According to the Annual Report of the
Tourism Council of Bhutan (TCB), arrivals had “dropped by 91 percent from 315,599 visitors in 2019 to
29,812 visitors in 2020.”
When Bhutan first allowed tourists into the country in 1974 it was with safeguards that discouraged
mass tourism to keep its environment and ecology is safe.
In September this year, the industry came out with a new motto ‘Believe’ and also increased the Sustainable Development Fee (SDF) from US$ 65 per night per person to US $ 200 per night per person. It’s a rate that must be revisited says Tshering who points out that October arrivals, usually a peak time, was just 12 per cent of the volume seen for
the corresponding month of 2019. Based on that, the projected arrivals for the coming year would be
about 37,000. Not good news when there is an over-supply of hotel rooms, which Tshering says is at 1.2
million, not counting those under construction and those uncertified. Tshering would like to see some
controls, similar to Singapore, introduced to rationalise the industry and measures that would draw
more tourists to Bhutan.
While Bhutan’s King had implemented many relief measures during the pandemic, the hotel industry is
heavily in debt and the two-year deferment granted by banks isn’t enough time to recover, she explains.
Nor are the lending rates pertaining to the hotel industry good enough, given the SDF tourists must pay
to enter Bhutan.
Though training courses are available through both the government and the private sector, Tshering
believes there is a mismatch between what is available and what youth want. Pointing out that those in
the trade need to improve their skills, she says that providing free training is not the best way to go.
“There must be buy-in from the youth.”
The manufacturing sector plays an integral role in generating employment opportunities in a short time,
says Namgyal. However, in Bhutan this sector which has remained stagnant for 25 years, accounts for
less than 7 per cent of the GDP. India, Bhutan’s main trading partner, now requires less hydro-electricity
as it has improved its own generating capacity. While it negatively impacts Bhutan’s foreign earnings,
Namgyal explains that domestic businesses should use the situation to their advantage as the power
generated by Bhutan is cheap.
There must be a quantum leap in the manufacturing sector if it hopes to contribute more to the GDP.
As it stands, of around the 463 units in the manufacturing sector, only 23 are considered large scale, he
adds. Close to 80 per cent are considered cottage industries.
The lack of skilled workers and access to a convertible currency to import raw materials and less than
satisfactory infrastructure resulting in high logistical costs are some of the challenges faced by the
manufacturing sector.
But those can be overcome, he points out if the sector leverages more on the available resources such
as the abundance of water, and ‘cheap and clean renewable energy. Bhutan also enjoys preferential or
free access to regional markets, with India and Bangladesh being the top exporters.
Namgyal emphasises that the ‘overarching regulatory framework or what is called the eco system’ must
be reformed to support competitiveness and diversification of the sector, and a change in mindset
against blue collar work. Further, he suggests a tax holiday for industries exporting to India, long-term
projections of electricity tariffs ensuring a definite price for manufacturers, cash flow-based financing for
projects, relaxing value-added requirements on imported raw materials, inviting Foreign Direct
Investments, developing the dry ports so containers entering Bhutan do not return empty, and
establishing special industrial zones, to boost the manufacturing sector. Currently Bhutan does not
permit the export of timber, even those rotting in forests he says. However, with a forest cover that
exceeds the constitutionally mandated 60 per cent, Bhutan should consider harvesting the forests in a
climate friendly manner and one that follows Buddhistic precepts of the “middle path.”
Though the backbone of Bhutan’s economy, the cottage and small industry (CSI) sector is disorganised
says Chophel, who adds that while between 40 to 60 percent of the businesses are women led, most are
operated on a sole ownership basis or has just two or three employees.
CSI is mostly limited to contract and service work, he says, adding that the sector is plagued by supply
chain challenges, difficulty accessing financing, Bhutan’s preference for imported goods and the low use
of technology. Though the pandemic impacted CSIs, Druksell, an e-commerce platform launched in
2012 and available in over 30 countries provided marketing opportunities to start-ups and small
businesses.
Druksell, scheduled to be available on-line in Australia, India, and the United States soon, already has a
retail outlet in Thimphu, and will be opening a second in another Bhutanese city, Chophel added.
Private enterprises are critical for the growth of CSIs says Chophel, adding that a start- up requires an
investment of less than 10million Ngultrum (about 120 US $). Though the government has provided
many opportunities for CSIs, Chophel states that constant and consistent upskilling and reskilling will
prepare Bhutan for the “21 st Century workforce”, while more investment in infrastructure will improve
rural connectivity. As well, it is important, he says, to look at reducing non-tariff barriers, and better use
of resources to scale up operations.
To attract a younger workforce, and international interest, he suggests the public and private sector
should work together, and consider strategic regulatory reforms. The private sector, he adds, has the
capacity to open up to the international market.
The keynote address was delivered by Reinhard Wolf, President of the German Bhutan Himalayas
Society.