Bhutan: Structural change in the economy upsets investment climate

Bhutan: Structural change in the economy upsets investment climate

SAM Staff,

The size of an economy and quality of infrastructure is crucial to improve the investment climate in the country. Bhutan has the advantage of neither.

World Bank’s country director, Qimiao Fan highlighted this during the launch of Bhutan’s investment climate assessment yesterday. However, he said Bhutan is far ahead in terms of the most important aspect of improving the investment climate – political commitment to bring about policy reforms.

“Bhutan being a mountainous country, quality infrastructure is big challenge. You should focus on the softer side, on the regulations and policies,” he said.

He said that it is a quick gain for the country because building infrastructure takes a lot of financing but it takes very little to change policies.

While lauding Bhutan’s economic growth, he pointed out the structural challenges the economy is facing. For instance, state enterprises and public sector are drivers of economic growth. Private sector is relatively small with about 28,000 registered firms, 350 limited liability companies, and a few partnership and joint ventures.

While hydropower is expected to bring in huge chunk of revenue, he said it does not create jobs. While private sector is potentially the job creator, 56 percent of the work force is in the agriculture sector.

The assessment of the investment climate, themed ‘removing constrained to private sector development to enable the creation of more and better job’ highlighted that the country has experienced major structural transformation in the last 15 years.

In 2002, agriculture sector’s GDP share was 44 percent. In the span of 15 years, it decreased to 17 percent. An opposite trend was witnessed in the manufacturing and industry sector.

It was also stated that about 40 percent of the micro, small, medium and large enterprises point to access to finance as one of the challenges for private sector development.

However, the World Bank stated that while interest rates are high, there is limited product development from the firms. Lack of financial literacy was also cited as of the factors contributing to lack of access to finance.