Plans are also in place encourage mines, industries and trade
In order to deal with the COVID-19 impact on the economy and enhance economic growth, the Ministry of Economic Affairs (MoEA) will be leading efforts to remove various red tape, regulatory and licensing requirements to make it much faster and easier to do business in Bhutan.
The Minister for MoEA, Lyonpo Loknath Sharma said, “We already have enough policies with us. I feel that the need is to remove regulatory burdens.”
“Right now, we are in a system of aggressive and vigorous checking when an application is made, but once the business starts then monitoring is very low. We need to move to a system of allowing the business first and then to regulate later,” added Lyonpo.
Lyonpo said that currently Cottage and Small Industries have onerous licensing requirements and they need to go through so many locational and other clearances from different sectors.
He said in FDI the aim is to attract foreign investment but there are a lot of rigorous immigration, labour and licensing requirements, access to land and even capital. He said there are also various caps on investment and restrictions.
“We want to do away with regulatory burden specially to do with clearances and other formalities and make it easy to not only set up a business but also wind it up,” said the minister.
Lyonpo said that the MoEA is suggesting that all clearances required to start any business be reduced by 50 percent. He said the idea is also to bring all clearances under one umbrella or one window where it can be processed much faster.
He said that’s several small and cottage industries and other businesses were stuck due to clearance issues.
The minister said that a team had worked on this and various proposals on cutting red tape has been submitted to the government.
Giving an example of red tape, the minister said that if someone wants to set up a Cottage Diary Farm then the person will have to run pillar to post for applications and clearances. Clearances would be required from Gewogs, Dzongkhags and then there would be sectoral clearances required from BAFRA, NEC etc.
Lyonpo said that could take months and a person starting a small venture would not have the capacity to run so much or wait for so long.
Lyonpo said what could happen is the number of multiple clearances could be reduced and brought down to a few simple steps.
The minister said that the aim is to bring down the waiting time to 1 to 2 days using a digital system in the future.
He said that the digital economy is the future and so very big investments will be made in this and a part of this will be digital services that can process and provide services that make it convenient for the people.
The minister emphasized that while the digitalization is the longer term plan the ministry will immediately recommend doing away with multiple clearances and reducing turnaround time.
Lyonpo said that the regulatory reforms will be not only for domestic industries but also for foreign ones wanting to come in through FDI.
He said that some rules around FDI are very rigid and they need to be relaxed. On labour he pointed out immigration rules whereby foreign workers have to leave the country after every three years and have a cooling off period. He said this needs to be changed.
Lyonpo then said there are hurdles to get land on lease for both domestic and foreign companies and here to changes are needed. He said bottle necks for land need to be removed especially for government supported economic plans or small sector industries like agricultural processing.
Lyonpo said a major challenge here is the limited availability of land.
The minister said licensing and permits also needs to be made easier so that investors do not need to run from pillar to post.
The minister said that Bhutan needs to have FDI rules that are investment friendly and open as Bhutan is a landlocked country, but he said at the same time Bhutan is in a place where large markets like India and Bangladesh are nearby.
The minister said to attract FDI, Bhutan should have predictable policies, rules and regulations in place with also predictable taxes, duties and energy rates.
Lyonpo said that the FDI rules had been revised in 2019 and improved, but certain things need to improved and others need to be removed. The minister said under the changes various limits and caps will also be removed like a 74 percent investment cap in many sectors could become 100 percent.
Lyonpo said even in a major area like mining it can take years to get permits and approvals, but the MoEA now wants to reduce that process by around 50 percent.
To do this Lyonpo said that the since the Mining Bill is still in Parliament new changes will be inserted there to reduce the processing time.
Apart from the focus on removing red tape the ministry is also coming up with programs to give the economy a fillip in the time of COVID.
Lyonpo said that among Bhutan’s top 10 exports, minerals take a prominent space as Bhutan has good deposits of dolomite, gypsum, limestone and even boulders.
Lyonpo said one focus could be to ensure that using these minerals if Bhutan can send out finished products more like exporting Gypsum boards instead of raw Gypsum.
Lyonpo said that it may be possible to also have Granite mines and more numbers of Dolomite mines. He said possibilities could also be looked at in terms of tungsten, quartzite and talc.
He said that Bhutan has minerals like limestone which are used in the cement industries.
The minister said that Bhutan’s mineral exports are being expanded to Bangladesh too.
Lyonpo said that in the case of Bangladesh more quarries could be opened up to export stones there.
Lyonpo said that in terms of new ideas Bhutan should invest more in the solar sector.
On the hydropower front the aim is to fast track the approved Kholongchu project where the only problem is a worker shortage that is also impacting the larger construction sector and also industries.
Lyonpo said that it is not that there are no Bhutanese workers, but they need to be skilled and re-skilled. He said that a lot of work is physical work in very harsh conditions and so it is not just about skills but also the ability to work in such conditions. He said that even in the Ferro Silicone sector certain skills are required.
The minister said that in terms of the industrial estates too workers are needed to complete the infrastructure, and FDI projects are also not able to bring in workers, but the government is facilitating to bring in certain skilled experts.
He admitted that the quarantine and testing costs per worker was burdensome for the construction sector and industries but he said that cost of 1,000 per day for quarantine also cannot be reduced. He said that while approvals are being given to bring in essential foreign labour, local Bhutanese needs to fill in the gap and this is where the Ministry of Labour and Human Resources is providing skilling, reskilling and on the job training.
Import substitution and Industries
Lyonpo said a major focus area is import substitution and that applies mainly to agricultural products. He said that everything from chips to napkins to wipes, oil and sugar are imported but they can be substituted. He said substitutions can also happen for cheese, butter and other dairy products once the technology is there so that Bhutanese dairy products can also last much longer.
He said that Bhutan’s Ferro Silicone industries import Nu 2 bn worth of charcoal every year but this can be substituted using Bhutan’s forests.
Lyonpo, however, pointed out that import substitution will not work simply by trying to replace imported products but the aim should also be to export.
To encourage exports, the MoEA has proposed that raw materials that are being imported to make finished goods for export should be tax exempt.
An issue that the MoEA has looked into is that while Bhutan has many small and medium industries making fruit juices, chips etc. they are not able to scale up. There will be recommendations on this front too.
Lyonpo said that a separate team has worked on industries and come up with recommendations to improve them.
The minister said that in terms of trade Bhutan and Bangladesh have finalized a Preferential Trade Agreement which will be signed next month and this will help Bhutanese exports to increase to Bangladesh.
Bangladesh is the only country with which Bhutan has a trading surplus.
Earlier Bhutan had 18 products which could be exported to Bangladesh duty free and Bangladesh had 90 products that could be exported duty free to Bhutan. Even with this Bhutan enjoyed a trade surplus.
Now under PFTA this list of Bhutanese duty free exports has been increased by 16 and made into 34 in return for 100 products from Bangladesh. Lyonpo said the earlier products from Bhutan were mostly agricultural but now the new added ones are mostly minerals like dolomite, gypsum etc.
In a major fillip to boulder exporters even boulders are in the list which means they will not be charged duties on entering Bangladesh thus also making them competitive.
Trade routes have also been identified with Bangladesh.
Lyonpo said that trade relations with Nepal also needs to be expanded and Bhutan’s trade in general should be expanded.
Electricity for Industries
The minister said that an inherent advantage that industries in Bhutan have is the cheap rate of power which he said is the lowest in the region.
Lyonpo said this is why Bhutan has Ferro Silicone companies and Steel companies which use vast amounts of power.
The minister said that the effort is now to make power rates consistent for a longer period to attract industries and investments.
Currently the Bhutan Electricity Authority (BEA) revises the power rates every three years and it is anyone’s guess what the power rates will be for industries.
He said they are looking into long term power purchase agreement for industries where the rates are predictable and consistent for five to 10 years.
Lyonpo pointed out that another issue is how demand charges to book power can make power more expensive for medium and small industries and this also needs to be looked into.
Apart from the above, Lyonpo said that access to finance and liquidity is important. He said that the government is launching a credit guarantee scheme that will see the government guaranteeing collateral free loans (see story on pg 1).
He said that the RMA has worked on monetary measures to allow for more liquidity and lending and the MoF is coming up with fiscal measures (see stories on pg 3 and 4).
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