Failure of Govt’s Green Economy

As one looks back at the four years of the government one of the biggest failures has been the Green Economy policies symbolized in the Economic Development Policy 2010 and the Foreign Direct Investment Policy 2010.

Gross National Happiness as a core developmental philosophy is supported by the majority in Bhutan but the government has done a disastrous job in linking it with economic policies.

EDP is Bhutan’s umbrella economic policy formulated by the current ruling government, and is heavily influenced by the GNH philosophy. This was part of the government’s efforts to build a green economy which encourages green economy activities like hydropower, sustainable tourism, services and other environmentally friendly businesses. EDP had incentives for green businesses in form of tax rebates, custom duties etc.

The core idea of the EDP was to build a Brand Bhutan’ of an ‘organic, environment friendly and sustainable’ economic products and services. These included making Bhutan a health care hub, financial services hub, education hub, expand high end tourism and exporting organic agricultural products.

Even Bhutan’s liberalized 2010 FDI policy encourages this green economy. The prime minister personally pushed to integrate the GNH philosophy into FDI. Businesses not in tune with GNH ideals like weaponry, porn, plastics, polluting and toxic industries, and fast food chains like McDonalds were not allowed in Bhutan under the FDI Policy.

GNH indicators were the touchstone for any foreign investment in the country. Service sectors (education, health services, tourism etc.) perceived to be clean and green would get priority and fast track clearance. Non-priority sectors like mining and industries would have to wait for licenses will be cleared on a case by case basis depending on its GNH merit.

In line with this GNH Economy Bhutan recently also declared itself as a carbon neutral country meaning that it would never produce more carbon than its forests can consume.

Recently Bhutan introduced the GNH screening test whereby all major policies have to go through a GNH screening test.


So how is Bhutan’s Green Economy doing?

The verdict so far is not satisfactory chiefly because the goals were too ambitious in the beginning and are constrained by fundamental structural weakness in the Bhutanese Economy. These roadblocks, are red tape, limited infrastructure, economic growth dependant mainly on external aid, lack of capital, skilled labor shortage, weak balance of payment, small market, high fiscal deficit, high debts,

Many of the EDP’s aim of Brand Bhutan are yet to take off. Bhutan’s education city project to make Bhutan an education hub has garnered lukewarm response at the best with many questioning its viability, far from being a health hub Bhutan’s health system is struggling to cope with its own patients, we have given up on being a financial hub on GNH concerns of money laundering. Organic Agriculture is at an early stage with the priority now being on producing enough to feed the nation and reduce food imports.

One example of a white elephant has been MoIC’s IT Park which has got little or no investments.

Tourism numbers have increased but the increase again is not big enough and there is some controversy on how high end tourists are counted.

On the FDI front the response has been disappointing with investors staying away from Bhutan. Since the endorsement of the new FDI policy in 2010, only 26 projects have been approved worth more than Rs 9 bn. Compare this to the completion cost of just one mega project the Punatsangchu 1 , 1200 MW project expected to cost Rs 85 to 90 bn.

After failing to attract enough investors and the subsequent decrease in Foreign Direct Investment (FDI) inflow for the second time in a row, the economic affairs minister, Lyonpo Khandu Wangchuk in a recent interview with the local media admitted that Bhutan is unable to attract enough investments.

The strict GNH based restrictions have not helped in attracting FDI as there are more than 100 investment proposals which is either not in the FDI list or are prohibited by GNH.

There are also considerable questions on the negative impact of the government’s GNH initiatives on the growth of the economy by the private sector.

Bhutan declaring itself as carbon neutral country according to industrialists will limit industrial growth and make it difficult for Bhutan to fully exploit the energy surplus of cheap electricity from the mega projects.

Another GNH linked initiative that has come under fire from the private sector and ordinary citizens is the Pedestrian Day initiative introduced on June 5th, 2012 or the World Environment Day whereby every Tuesday people are not allowed to use vehicles with only highly limited vehicle movement allowed. The business sector says that this would result in the loss of 52 working days in a year affecting economic growth.

There is also a lot of debate in Bhutan on adopting a complex GNH policy accounting measure to approve or disapprove policies and projects. Naysayers have criticized the screening test for being too long, bureaucratic and conservative leading to delays in policies like the long delayed Mining policy.

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  1. An article again to defame the govt. The paper trying to do what it is supposed to do

  2. Good article! I am working on a FDI project in Bhutan on sustainable tourism. Its an impact investing project: a for profit eco hotel in Bumthang and a non profit vocational insitute next to it. I am doing fundraising for both and it is extremely difficult. Firstly Bhutan is a frontier market in tourism, you need a investor with a vision and who wants to do good in Bhutan ( there are not that many!) secondly because of GNH people in the west think Bhutan is a rich country, fundraising for the non profit part is extremely difficult. Although because of all these challenges I am managing to get the project off the ground with lots of work, dedication and love. But I did not get paid the last 2 years!

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