Mahrukh Farooq

Moving Towards Self-Reliance Bhutan’s recent announcement of its first Economic Development Policy (EDP) in seven years has many people hopeful for a better and stronger economy By Mahrukh Farooq Early this April, amidst numerous media personnel, Prime Minister Tshering Tobgay launched the country’s much-awaited Economic Development Policy (EDP) for 2017. The policy in question contains a roadmap towards creating economic strength, mainly through self-sufficiency. According to a press release from the Ministry of Economic Affairs, major reforms are expected to be introduced in leading revenue-generating sectors, also known as ‘the five jewels’; these include hydropower, cottage and small industries, mining, tourism and agriculture. The press release also stated that the policy would “enhance public service delivery and reduce administrative burden for businesses, diversify exports, improve productivity and progress towards a knowledge-based and self-reliant society.” Finally, it emphasized that the policy “continues to be guided by the overarching philosophy of Gross National Happiness (GNP) which is based upon the pillars of sustainable economic development; preservation and promotion of cultures and tradition, the conservation of the environment and good governance.” The government’s decision to implement the policy is but one of many such measures designed to improve the economic standing of Bhutan. In the past year-and-a-half alone, Bhutan has made incredible progress in terms of economic growth and is expected to perform exceptionally well in the upcoming financial year. For example, in 2017, according to statistics gathered by the Asian Development Bank, Bhutan is projected to experience an accelerated growth rate of 8.2% which is then forecast to surge to 9.9% by 2018. Statistics also show Bhutan’s above average performance for the financial year of 2016; higher construction and investment were two of the main sectors to experience rapid growth, inflation fell to a new low and foreign exchange reserves were strengthened. In terms of GDP, Bhutan grew by 6.4% in 2016 as compared to 6.1% in 2015. In the same vein, Bhutan’s Economic Development Policy for 2017 aims to reinforce its biggest and most profitable sectors; one of which is hydropower, its mainstay. A largely land-locked country with a small geographical area, the industries of hydropower, agriculture and forestry provide livelihood to more than half of its population. Its largest export happens to be hydropower to India, one which can potentially provide sustainable growth in the future provided Bhutan can eradicate delays in construction. According to the 2017 CIA World Factbook, Bhutan currently only taps about 5% of its 30,000-megawatt hydropower potential and is already behind schedule in building 12 new hydropower dams that aim to provide a combined capacity of 10,000-megawatts by 2020 as per a 2008 deal signed with India. For this purpose, the country’s hydropower target has been revised to a minimum power generation of 5000 MW by 2022. According to the policy, “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.” With regard to the implementation of hydropower projects, the policy further states, “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.” One of the other areas in which the government of Bhutan wishes to see improvement is foreign investment. Thanks to complicated controls and uncertain policies in areas such as industrial licensing, trade, labor and finance, the overall level of foreign investment has decreased in recent years. Through reforms in trade as well as in other areas related to business, Bhutan aims to tip the scales in their favor. According to the policy, Bhutan will adopt a ‘One Government’ principle whereby “all government agencies shall function as one government and shall not seek repetitive documents.” The goal of introducing such a move is to provide ease of business to aspiring local and foreign business owners and entrepreneurs looking to capitalize on the market potential. In addition, as a way of further enabling the confidence of foreign investors, the Royal Government of Bhutan may consider acceding to relevant international and UN conventions. Finally, the policy states, “To foster recognition of industrial products, national standards will be developed and enforced. Furthermore, mutual recognition agreements shall be pursued with foreign standards agencies by relevant national agencies. Business infrastructure shall [also] be developed to encourage investment.” The crux of Bhutan’s plan to become self-reliant comes from its provisions for trade. According to the policy, “while free trade agreements [will be] preferred, varying degrees of preferences will be negotiated with different countries.” It further adds, “Existing trading agreements at bilateral, regional and multilateral levels will be further negotiated to foster market access for Bhutanese products. Nation branding by leveraging the positive attributes of the country will be a key instrument harnessed for creating ‘Brand Bhutan’ in export markets.” Much of these measures are a way of countering Bhutan’s excessive dependency on imports, which is the major cause for the country’s imbalance of trade. According to statistics gathered by the 2017 CIA World Factbook, the 2016 estimate for Bhutan’s imports amounts to $1.1 billion whereas its exports stand at a mere $500 million. Most of Bhutan’s imports consist of fuel and lubricants, passenger cars, machinery and parts, fabrics and rice. A major portion of its imports comes from India (nearly 72.3%). Other reforms include those for cottage and small industries (preferential lending, the introduction of three incubation centres by 2020, training and outsourcing), mining (promotion of broad-based participation and allocation of mines), agriculture (promotion of commercial farming and organic farming, development and maintenance of irrigation and water management systems), construction (capacity building, mechanization and technical training institutes), ICT (increased penetration of internet, software development, market-oriented ICT courses) and financial services (legal framework for promotion of lending, promotion of debt and capital markets and the institution of a cash-less payment system). One of the many criticisms of the Economic Development Policy, however, is its lack of foresight in considering the possible challenges that could potentially hinder the achievement of sustainable growth for the country. One of these challenges is the fact that Bhutan’s economic growth is largely supplied by foreign aid. This is substantiated by statistics of the country’s external debt which amount to nearly $2.261 billion as of 31 December 2016. A few of the other challenges that have been outlined by the policy’s critics include small domestic markets, narrow export product base and markets, inadequate infrastructure, high transportation costs, difficult access to finance, inconsistent policies/lack of coordination, a lack of management skills, shortage of professionals, low productivity of labor, absence of research and development capability along with low access to land. Fortunately for the policy’s supporters, a major portion of the challenges highlighted have already been addressed by the plan. In addition, Bhutan actually has a lot going for itself which may result in a somewhat smooth implementation process of the policy. These include political stability, security, a vibrant culture, a pristine environment, strategic geo-economic location with access to regional markets, reliable and competitively priced energy. In spite of its shortcomings, the plan is being touted as perhaps the biggest economic measure implemented by the government, one that adequately takes into account the economic interests of its people whilst simultaneously creating a platform for the effective promotion of locally produced products. This way, not only is Bhutan able to provide for its people’s business needs but also help build the brand image of its local industry.