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EDP 2017 comes with game changing reforms for Bhutan’s Economy

The 2010 Economic Development Policy (EDP) had a lot of grand aims but except for a few areas it failed to achieve most of its targets.

The 2017 EDP document learning from the failures of the 2010 EDP has come up with a number of game changing and bold reforms in various sectors.

The policy’s main focus are in the five jewels of Hydropower, Cottage and Small Industries, Mining, Tourism and Agriculture with reforms in other areas including cutting down red tape and other restrictions. The policy was recently approved by the cabinet.

 

Land

 

One of the key resources for business is land. Under the land related reforms local governments in collaboration with the National Land Commission (NLC) shall identify industrial areas by 2017.

The allotment of State Reserve Forest (SRF) land will be prioritised on strategic business activities such as large stand alone projects with cluster effects and public utility services. The NLC will prepare a national land use plan (Zoning) for SRF land which will outline use of land for optimal use by 2018.

 

Ease of doing business

 

The government will aim to improve the ease of doing business and scale up its position within the top 50.

The government shall adopt a ‘One Government’ principle whereby all government agencies shall function as one Government and shall not seek repetitive documents. The required documentation submitted by a citizen or business to one government office shall suffice for all other government agencies for the project concerned.

Private sector investment shall be allowed in all areas except those listed in the Prohibited List which have to do with national security, tobacco, pornography, health etc.

Apart from IT and e-services, one stop shop shall be introduced through the use of IT among government agencies responsible for providing clearances.

Any foreign service provider wishing to participate in major works must engage local firms for transfer of technology and skills. A framework specifying the level of local participation shall be developed by 2018.

There shall be a review of the regulations relating to the possession of assets and properties outside Bhutan by Bhutanese citizens to promote investments abroad.

The growth of domestic industries will be supported through preferential public procurement.

The government will establish a dedicated institution which could be an existing institution with adequate funds by 2017 to promote and support Research and Development (R&D).

Trade representatives will be appointed in all Embassies and Missions with clear terms of reference by 2017.

In order to promote confidence to investors, the Royal Government may consider acceding to relevant international and UN conventions but this does not mean the World Trade Organization yet, on which a decision is still pending.

An autonomous Entrepreneurship Development Institute to promote entrepreneurship would be established by 2018.

 

Energy

 

The hydropower target has been revised to achieve a realistic minimum power generation of 5000 MW by 2022.

In order to ensure national energy security through increased firm power capacity, the development of storage or reservoir hydroelectric projects shall be accorded priority. The government shall also encourage R&D in respect of energy storage technology.

In accordance with the Domestic Electricity Tariff Policy 2016, the government shall promote micro, small and medium industries through provision of subsidies.

Part of the hydropower royalty shall be ploughed back to conserve the catchment area, support alternative renewable energy and energy efficiency initiatives and also to meet any payment for environmental services.

While implementing hydropower projects, mechanisms shall be built in the contract documents to ensure maximum benefits to local suppliers of construction materials, transporters, contractors, manufacturers, and other service providers.

It shall be mandatory for the foreign contractors and firms wishing to participate in construction of hydropower projects to engage local contractors and firms for skills and technology transfer. For such arrangement, the hydropower projects shall make special provision in the tender documents defining the role of parties and also specific conditions to ensure transfer of technology and skills and engagement of local employees in the project execution. Women shall also be encouraged to participate as technicians, professionals and managers.

The government will promote the development of hydropower related activities such as consultancy and construction services, manufacture, repair and maintenance of hydropower components. Linkages shall be developed between the energy sector employers and tertiary and vocational institutes to build local capacities.

The government will give priority to develop solar and wind power and its integration with the national grid. The Ministry of Economic Affairs (MoEA) shall adopt a Feed-in-Tariff Policy to support the development of alternative renewable energy by 2018.

Energy Efficiency Building Codes and Guidelines will be developed by 2018 to facilitate the concerned agencies to incorporate in the Bhutan Schedule of Rates and their building designs.

 

Industry

 

Industries shall be developed with a cluster approach in order to benefit from the close geographical proximity among industries that are linked by commonalities and complementarities.

To foster recognition of industrial products, national standards will be developed and enforced. Further, mutual recognition agreements shall be pursued with foreign standards agencies by relevant national agencies.

Business infrastructure shall be developed to encourage investments and exports and private investments in business infrastructure will be encouraged. To this effect, a Business Infrastructure Policy shall be adopted by 2018.

The MoEA will promote the development of assembly line production systems in order to promote manufacturing in the country.

 

Cottage and Small Industries

 

Cottage and Small Industries (CSI) constitute more than 96 percent of the total number of industries with 16,548 operational activities accounting for employment of over 66,000 as of April 2016.

The MoEA in collaboration with the Royal Monetary Authority (RMA) will identify, test and introduce new financial products that are suitable for CSIs in the market by 2018.

The RMA will require the financial institutions to reserve at least 20% of their total lending portfolio for CSIs.

The government will designate CSI start ups, technology up-gradation and diversification as priority sector for preferential lending under the Economic Stimulus Plan.

The government will develop and adopt the business incubation guidelines by 2017 and establish at least three incubation centres at different locations by 2020.

Schemes such as the rural enterprise development schemes will be implemented to promote promising new industries particularly in the rural areas.

Critical skill training needs will be identified and free of cost training will be given to potential entrepreneurs on a regular basis, with particular focus to encourage women entrepreneurship.

National Resource Inventories will be updated periodically beginning from 2018 and made available to prospective entrepreneurs to enable identification of areas of opportunities for investment.

The MoEA shall identify scope of subcontracting and outsourcing opportunities by large and medium industries to small and cottage industries and initiate such business linkages and partnerships by 2018.

 

Mining

 

There are currently 24 active mines and 40 quarries in the country covering 3,319.86 acres.

The first come first serve rule will be discontinued and criteria for allocation of mines will be established by 2018. All allocation of mines will be based on the criteria.

Priority allotment of captive mines for raw material will be provided to manufacturing industries that add value to the resource on selective basis as may be established.

The government will encourage and promote broad based participation in mining. The MoEA will determine the framework for mining companies that need to have broad based ownership by 2018.

The government will  define and classify strategic minerals on a periodic basis and allocation of mines thereof. The MoEA will adopt an allocation framework by 2018.

 

Agriculture

 

Private sector and community participation in the development and maintenance of irrigation and water management systems will  be promoted apart from government investments.

Suitable commodities for commercial farming in each Gewog will be identified and promoted by conducting field research on farm lands.

Commercial farming will be extensively promoted by expediting the leasing process for SRF land as per relevant laws.

The Ministry of Agriculture and Forests (MoAF) will  proactively promote organic farming in terms of production, certification and export

Prime agriculture land will be identified and protected for sustained food production through incentives.

The government will establish a commodities exchange with storage facilities in different parts of the country.

The MoAF will review the current timber allocation policy with particular focus to rationalise timber subsidy to ensure optimal utilization of the timber resources.

Integrated wood industry development will be accorded priority and outdated sawmilling operations phased out by 2018.

The MoAF will identify suitable agriculture land for commercial cultivation in different parts of the country with comprehensive profile of farm produce for cultivation by 2017.

The government will provide affordable crop and livestock insurance schemes by 2018.

 

Construction

 

Government appropriations reveal that about 60% of the total budget is allocated for procurement and of this, about 80% accounts for procurement of construction works excluding hydropower.

Contractors will  be encouraged to specialize in specific areas of construction namely roads, tunnels, dams, bridges, buildings etc.

The Ministry of Works and Human Settlement (MoWHS) in collaboration with Ministry of Labour and Human Resources, Ministry of Economic Affairs and the Construction Association of Bhutan will  develop a strategic plan for capacity building of the construction industry.

This plan will also include recommendations on participation of Bhutanese contractors in construction of hydropower projects. Such a plan shall be in place by 2018.

Mechanisation of the construction industry will be promoted and made mandatory in a phased manner and wherever feasible.

The government will  encourage FDI in construction industry.

The government will establish and promote construction service centres through the Technical Training Institutes (TTIs) and promote the apprenticeship programme for onthe-job training in collaboration with the construction companies.

The use of local construction materials shall be incentivised.

Major public procurement works will have a minimum defect liability period of three years and an inbuilt system of repair and maintenance thereafter to ensure the quality and sustainability of public infrastructure.

Targeted modules and institutionalization of mandatory training for the contractors will be introduced to develop professional capacity of the contractors in consultation with stakeholders.

A review will be undertaken to provide incentives to contractors that deliver high quality infrastructure.

The government in pursuit of national strategic goals of domestic capacity development, will directly award works in specialized constructions to facilitate professionalizing of national contractors in specialized disciplines. The MoWHS will formulate the implementation guidelines by 2017.

The MoWHS shall explore strategic options for road maintenance. Towards this, the Ministry will  pilot the establishment of Road Maintenance Centers along the 500 km Northern East-West highway.

 

ICT

 

Licensing for mobile service providers, Internet Service Providers (ISPs)  and cable operators will be liberalized to encourage and increase penetration of internet use and accessibility by 2018.

Software development, Animation, R&D and data processing centres will  be promoted as priority activities in ICT sector.

The government will review and integrate market oriented ICT courses in colleges and educational institutions to develop the required skills.

The cost of connectivity will be benchmarked to costs within the region and the government while ensuring universal connectivity will endeavor to bring down costs.

To encourage and promote innovation in the development of the film, media and creative art sector, foreign investments will be allowed in the sector. However, media shall not include news media in all its forms.

 

Financial Services

 

In order to enhance the domestic productive capacity, the RMA will  formulate a legal framework for the promotion of lending to priority sectors indentified by the government.

The Ministry of Finance in collaboration with RMA will review the External Commercial Borrowing guidelines by 2017 with focus on easing access to external funding.

The RMA, MoEA and MoF will formulate appropriate strategies to promote debt and capital markets by 2018.

The RMA will establish necessary infrastructure for use of all major international credit and debit cards in the country by 2018.

The government will mandate businesses and citizens to move towards a more cash less payment system in a progressive manner starting in 2017. The government will  ensure that fiscal and monetary policy reinforces each other so that imbalances in the economy are avoided. The Department of Macroeconomic Affairs will ensure fulfilment of this mandate and a consultation protocol shall be formulated for the process.

 

Trade

 

A Trade Development Act will be enacted to promote trade. It shall enable adoption of regulations in all aspects of trade such as anti-dumping measures, safeguards, conformity assessment procedures, mutual recognition agreements amongst others. The legislation will be benchmarked to international best practices.

There will be a Competition Act by 2018 to regulate anti competitive and restrictive trade practises by firms.

The Consumer Protection Act will be implemented to safeguard consumer rights including the establishment of dispute settlement mechanism in all major 31 population centres.

Transit rights for traffic in transit to facilitate international trade will be secured. Transport agreements with neighbouring countries to avoid transhipment at the border shall be negotiated.

While free trade arrangements are preferred, varying degrees of preferences will be negotiated with different countries. Existing trading arrangements at bilateral, regional and multilateral levels will  be further negotiated to foster market access for Bhutanese products. Efforts will be made to complete negotiations with Nepal, Thailand and BIMSTEC while continuing active engagement with the WTO.

The government will use all tools of export and market promotion, including diplomacy, market studies, market information, branding, advertisements, product launches, trade fairs, expositions and trade missions to assist the private sector to establish markets for their products. Nation branding by leveraging the positive attributes of the country will  be a key instrument harnessed for creating Brand Bhutan in export markets.

Any individual or firm with a valid business license will be allowed to undertake exports; no separate export license shall be required for goods allowed for exports.

To promote the country as a trading nation, re-exports will be allowed within existing agreements. When re-exported without any value addition, the government shall retain a percentage of the foreign currency earned. Trading of goods for international markets without physically entering the country will be allowed with appropriate documentation and provided they are routed through banking channels. The MoEA, Ministry of Finance (MoF) and RMA shall jointly develop a framework for implementation of the above provisions by end of 2018.

The GNH Commission (GNHC) will take responsibility to review the implementation of the Policy, monitor performance, make projections about the future and recommend appropriate policy measures.

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