The Private sector has received plenty of lip service over the years but little by way of concrete policies and measures on the ground. This has been one of the main reasons why Bhutan’s private sector is so weak and underdeveloped.
In an effort to change all this, the government is bringing about a draft Private Sector Development (PSD) Strategy that at its core has four pillars. These are then backed by cross cutting policy reforms in various sectors and then direct interventions in certain priority private sector areas. The draft PSD was created with consultation with various stakeholders.
The interesting thing to note is that the PSD reforms will ensure synchronized changes in the Economic Development Policy and Foreign Direct Investment. The Government will have to ensure convergence of objectives and targets between the PSD strategy and the five-year planning process with its multi-year budget strategies.
The Four Pillars
The four pillars of the PSD are firstly developing and enhancing the private sector knowledge and institutional competence base of Bhutan, secondly establishing a stable and conducive framework and domestic market conditions fostering the creation and growth of the private sector, thirdly building a core of competitive, sustainable and inclusive private sector clusters and value chains and finally establishing an efficient governance system supporting the other pillars.
For the first pillar knowledge on the development potential of the private sector of Bhutan would be enhanced through extended surveys at national level, development of an efficient decentralized business registration system, development of a national and dzongkhag level information system on private sector dynamics and formulation of sector strategies.
The private Sector institutional framework would be strengthened through improved governance system, ICT systems, enhanced capacity and skills for formulation of strategies and participation to the roll out of the strategy.
In the second pillar easy and transparent access to finance for businesses would be ensured by focusing on needed policy and regulatory frameworks especially for Small and Medium Enterprises (SME).
Establishment of a comprehensive and harmonized framework of policies and strategies in all PSD areas would be done.
There would be expansion of ICT networks and systems throughout the country.
The third pillar would have Establishment of an SME Agency or Business Opportunity Information Centre and Private Sector Support Infrastructures through the adoption of the relevant policies for an Agency system.
The private sector is also expected to benefit through the State Owned Enterprises restructuring.
There would be competitiveness and innovation enhancement.
The Fourth pillar would ensure efficient and effective implementation of the PSD Strategy through the establishment of simple governance structure, the participation of sub-national institutions, including the private sector and the banking system. There would be clear rules and decision making procedures, gradual transfer of management tasks to the private sector and an efficient monitoring and evaluation system.
Cross Cutting Policy Areas and Measures
The cross cutting policy measures are those measures which affects multiple pillars and aspects of the private sector. They are further sub-divide into Key Economic support dealing with economic issues and then Sustainable Development dealing with various social issues.
Key Economic Support
There will be economic reforms for streamlining the overall national reform process, building on the draft legislation developed so far.
Business registration will be there for establishing a modern and decentralized system and contribute, along with incentives, to the gradual transformation of the informal sector.
There will be land reforms, for creating and adopting a National Land Policy aimed at eliminating a series of barriers (for the private sector and more in general for investors), with focus on needed institutional arrangements.
There will be Public Private Partnership policy for establishing the urgently needed policy and legal framework and learning from experiences under way.
The will be focus especially on further streamlining the legislative and regulatory framework, to align Bhutan with international best practices on updating and expanding Bhutan’s investment opportunity.
PDS says the RGoB is committed to reforming the taxation system, ensuring the diversification of taxes and enforcement, not only to improve the competition capacity of the private sector but also to reduce informality and to create a stable and effective source of public revenues. It says this will be achieved by the adoption of the Tax System Reform Road Map and the actual initiation of the taxation system reform process.
The reliability of electricity supply will be further enhanced and water supply systems are to be developed that will ensure continuous supply. The Royal Government will draft a National Energy Strategy as a reference framework for the energy intensive industry.
Specific measures will be undertaken also in the transport and other infrastructures sectors, targeting target not only physical facilities but also processes and services, like cargo handling, customs, trucking sector structure, competition, and regulations.
A national system of policy, legislations and regulations, standardization and infrastructures will be developed to enhance the trade capacities and performance in the country, fostering integration into the regional and multilateral trading system.
According to PSD Labour is a fundamental area for Bhutanese businesses and people with better skills means better productivity. It says support for capacity building of workers will continue and the National HRD Roadmap will take into account recommendations and concerns expressed by international organizations on various matters like elimination of forced labor, children labor, discrimination, right of employers etc.
It says a more balanced system needs to be addressed between national workers and the increasing number of foreign workers. It says improving the supply of quality productive local labour will eventually contribute to reducing dependence of foreign labour.
There will be comprehensive framework to promote gender equality through proper commitments by the private sector and a combination of legal reforms, governmental policies and support programs, and civil society capacity building.
Poverty alleviation will be strengthened through the adoption of a National Strategy for Poverty Reduction with the private sector expected to play a key role.
A National Education Strategy, to address the quality of education and aiming at developing human and institutional resources will be adopted.
Environment protection will be important but reforms will be carried out to reduce the burden of compliance and move to a system of ex-post, monitoring based on risk assessment. Incentives for less polluting businesses will need to be addressed and introduced.
Corporate Social Responsibility (CSR), shall be adopted and promoted, building on the work of the UN Global Compact and relevant commitments for enhancing the role and engagement of the private sector on a voluntary but socially responsible basis.
Direct Support in Key Target Economic Sectors
There will be support in key priority sectors, considered as the drivers of the Bhutanese economy.
One sector is the Industry and Minerals and in particular energy intensive industry, mining with mineral processing and construction materials, mechanical engineering, chemicals, electrical and electronics and solar energy.
Other important sectors are Construction & Housing, Agriculture, food security and food processing, Telecommunications and Information Technology, Tourism and other areas of economic opportunities identified in the Economic Development Policy.
In particular, such support will be provided through specific financial, technical assistance and capacity building measures according to well-defined and transparent eligibility criteria to ensure consistency with the objectives of this strategy.
The four main interventions for these sectors could be establishment and operation of SME Development Support System, support to private businesses for integration with the SOEs system, clusters and value chains for competitiveness enhancement and job creation and partnering with national and international technical and academic institutions.
There would also be a system of financial and fiscal support instruments with adequate “packages of incentives” with an active participation of public and private banks throughout the country.
In particular, this would be the establishment and operation of a system of Competitiveness Enhancement Funds formed by a grant max 30% and soft loan components to finance seed capital for start up businesses, business registration (for the informal sector), training, R&D, IT development, innovation programmes, prototypes, experimentations, and, in general, pilot development projects consistent with the objective of this Strategy.
Each line Ministry will have different funds and sector specific programmes, featured in any case by a series of common and strategic objectives and criteria.
Competitiveness funds for funding initial operations might be matched with commercial bank lending for larger scale initiatives. A more flexible collateralization system as well as fiscal incentives such as tax exemptions will be introduced for job creation and other high impact specific actions, and for the informal sector within clear development projects, especially for smaller businesses.
Eligibility to direct or indirect (through banks and the SME Agency System) RGoB support will be based on strict and transparent criteria, such as consistency with the strategic objectives of the PSD, minimum financial standards, consistency with the policy objectives, clear contribution to job creation, high potential for public-private and strategic partnerships, improved quality, increase of the local contents of products and services and other specific criteria.