Professional Documents
Culture Documents
Bhutan Iguides
Bhutan Iguides
guide to Bhutan
Opportunities and Conditions 2013
UNCTAD
The United Nations Conference on Trade and Development (UNCTAD) was established in 1964
as a permanent intergovernmental body. Its main goals are to maximize the trade, investment
and development opportunities of developing countries, to help them face challenges arising from
globalization, and to help them integrate into the world economy on an equitable basis. UNCTADs
membership comprises 193 States. Its secretariat is located in Geneva, Switzerland, and forms
part of the United Nations Secretariat.
ICC
The International Chamber of Commerce (ICC) is the world business organization. It is the only
body that speaks with authority on behalf of enterprises from all sectors in every part of the world,
grouping together thousands of members, companies and associations from 130 countries. ICC
promotes an open international trade and investment system and the market economy in the
context of sustainable growth and development. It makes rules that govern the conduct of business
across borders. Within a year of the creation of the United Nations it was granted consultative
status at the highest level (category A) with the United Nations Economic and Social Council. This
is now known as General Category consultative status.
Notes
The term country as used in this study also refers, as appropriate, to territories or areas; the
designations employed and the presentation of the material do not imply the expression of any
opinion whatsoever on the part of the Secretariat of the United Nations concerning the legal status
of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers
or boundaries. In addition, the designations of country groups are intended solely for statistical or
analytical convenience and do not necessarily express a judgment about the stage of development
reached by a particular country or area in the development process.
While every reasonable effort has been made to ensure that the information provided in this
publication is accurate, no business or other decision should be made by the reader on the basis
of this information alone, without a further independent check. Neither UNCTAD nor ICC accepts
any responsibility for any such decision or its consequences.
UNCTAD/DIAE/ITI/2013/1
Copyright United Nations, 2013.
Free trade agreement with India, providing access to the US$1.7 trillion Indian market, and
member of the South Asia Free-trade Agreement.
They are thus designed to offer overviews of potential locations for investment, rather than constitute
exhaustive works of reference or provide detailed practical instruction. They do, however, offer
pointers to sources of further information in the private as well as the public sectors.
There are two other features of these publications that the reader will find worth noting. One is that
they are third-party documents, intended to offer a balanced and objective account of investment
conditions. Their principal advantage in drawing the attention of investors to the countries they
cover is credibility. The other feature is that both their general structure and some of their specific
content are the result of consultations with the private sector.
The Investment Guide to Bhutan is the concrete product of a collaborative venture by the United
Nations Conference on Trade and Development (UNCTAD) and the International Chamber of
Commerce (ICC). The objective of this project is to bring together two parties with complementary
interests: companies that seek new opportunities and countries that seek new investors. This is
not always a straightforward exercise, for firms are driven by their global strategies as much as
lured by specific opportunities, and countries have economic and social objectives that transcend
attracting foreign investment.
The UNCTADICC investment guides are thus properly seen as parts of a process, a long-term
process at the heart of which is an ongoing dialogue between investors and governments. The
guides themselves are the product of a dialogue, including that occurring among and between the
representatives of business and government during the workshops that precede the completion
of the guides. It is our hope that the guides will in turn contribute to the dialogue, helping to
strengthen and sustain it. We are convinced that in the long run it is this alone that will create
conditions increasingly conducive to greater flows of investment.
New iGuides
Rwanda: www.theiguides.org/rwanda
Burundi: www.theiguides.org/burundi
Acknowledgements iv
Note to the reader iv
Preface v
The UNCTADICC series of investment guides vi
Abbreviations vii
I. INTRODUCING BHUTAN 1
Bhutan at a glance 3
Country and people 4
History and government 5
Market size and access 6
Government policy priorities 8
Privatization and publicprivate partnerships 9
Appendices 49
Appendix 1. Priority sectors, restrictions and prohibitions 49
Appendix 2. List of approved FDI projects in Bhutan 52
Appendix 3. Sources of further information 55
Appendix 4. Business hours 57
Appendix 5. Major laws and regulations affecting foreign investment 57
Bibliography 59
Government of Bhutan 59
Third-party sources 59
Photo credits 60
Artist at the National Institute for Traditional Arts and Crafts, Thimphu, Bhutan.
Interviewees also cited the young but rapidly developing private sector as a driver for policy
change and improved availability of productive resources. Beyond Bhutans domestic
market, investors emphasized the paramount importance of India as trade partner, market,
and abundant source of skilled and unskilled labour. For both Bhutan and its southern
neighbour, private-sector representatives were very optimistic about the stable and reliable
growth prospects over the medium and longer term. At the same time, there appears to
be significant potential for deeper regional integration, not least due to remaining tariff and
non-tariff barriers as well as behind-the-border constraints.
While reports about the core areas of the investment climate paint a very favourable picture,
remaining challenges were cited in the areas of transport infrastructure, human resources,
access to finance, and administrative efficiency.
Source: UNCTAD.
Head of State King Jigme Khesar Namgyel Wangchuck (crowned on 6 November, 2008)
Prime Minister Tshering Topgay (elected July 2013 in the country's second democratic election)
Legislature Bicameral parliament: National Council (upper house) with 25 non-partisan seats; 20 members
elected by each of the 20 electoral districts (dzongkhags) for five-year terms and 5 members
nominated by the King.
National Assembly (lower house) with 47 seats; all members elected by direct popular vote for
five-year terms.
Borders Landlocked between China (470 kilometre border) and India (605 kilometre border)
Population 738,000 with an estimated growth rate of 1.71% in 2011 (estimates, based on 2005 census)
Urban population share: 33.9%
Population aged 014 years (% of total): 29.4%
Population aged 1564 years (% of total) 65.8%
Population aged 65+ years (% of total): 4.8%
Old age dependency ratio: 7.26% of working population
Life expectancy at birth: 63 years
Median age: 24 years
Country code BT
Languages Dzongkha (official). English is widely spoken, especially in urban areas, and used as language
of instruction in schools
Climate Varies regionally; hot subtropical, humid climate in southern plains; temperate and drier in
central valleys; seasonal monsoon in western region; alpine conditions with severe winters and
cool summers in Himalayas
Administration 20 districts (Dzongkhags): Bumthang, Chukha, Dagana, Gasa, Haa, Lhuntse, Mongar, Paro,
Pema Gatshel, Punakha, Samdrup Jongkhar, Samtse, Sarpang, Thimphu, Trashi gang, Trashi
Yangste, Trongsa, Tsirang, Wangdue Phodrang, Zhemgang; some districts have subdistricts
Human Development Index Ranked 141 out of 187, Index 0.522, medium high (2011)
Source: UNCTAD secretariat, based on UNCTADStat, United Nations Development Programme (UNDP), World Bank.
Early 2007, in a move to familiarize Bhutans population with a more participatory political system, the King ordered a mock
election to be held in which citizens could choose between four hypothetical parties running on fictional platforms. Shortly
thereafter, real political parties were legalized and started registering for the 20072008 parliamentary elections.
In December 2007, Bhutans citizens directly elected 20 candidates for the parliaments non-partisan 25-seat upper house,
the National Council. The remaining 5 seats were filled by nominations of the King. Subsequently, in March 2008, 79.4 per
cent of registered voters elected representatives from two registered parties, the Bhutan Peace and Prosperity Party (DPT) and
the Peoples Democratic Party (PDP), to the parliaments new 47-seat lower house, the National Assembly. Bhutan's second
parliamentary elections were held five years later in July 2013. The King is the head of State. At the same time, the parliament
can impeach the King by a two-thirds majority. In July 2008 the new parliament adopted the countrys first constitution.
While Bhutan's elections have been described as free, fair, and very well organized by international observers, the country is still
struggling to foster a political culture, including a competitive political opposition. The monarchy remains extremely popular with
the public. The country held its first local-government elections in late June 2011.
While transparency of the political process is still limited in some areas of the Government, corruption and graft remains very low.
Transparency International ranks it as the 36th best of 178 countries globally in terms of perceived corruption.
Sources: Freedom House, Election Commission of Bhutan, Kuensel Newspaper, Economist Intelligence Unit, Transparency International.
Propounded as an alternative development model based on Buddhist spiritual values by the fourth King Jigme Singye Wangchuck
at the beginning of his reign in 1972, GNH has also been enshrined in the countrys constitution as unifying principle of policy
design.
Bhutans current development strategy translates this holistic, multidimensional concept into four pillars: sustainable and equitable
socioeconomic development, environmental conservation, preservation and promotion of culture, and good governance. In an
attempt to operationalize the concept and quantitatively measure development progress to this end, the Government developed
a composite GNH Index. It is based on 33 measurable indicators grouped under nine principal domains: (1) living standard, (2)
education, (3) health, (4) ecological diversity and resilience, (5) good governance, (6) community vitality, (7) cultural diversity and
resilience, (8) psychological well-being, and (9) time use and balance.
Bhutans unique approach of using happiness as a strategic framework for development has generated considerable international
attention in recent years. Governments in an increasing number of advanced economies are starting to measure national well-
being in an attempt to move beyond conventional economic indicators. In late 2010, the United Kingdom of Great Britain and
Northern Ireland was among the first to introduce such measures.
hub in one of the worlds economically most through the Generalized System of Preferences
dynamic regions. The member countries also (GSP) and the European Unions Everything
aim for reciprocal double taxation avoidance But Arms Initiative (EBA), which guarantees
agreements. duty-free trade of a vast variety of products.
Bhutan has also joined the Bay of Bengal Bhutan submitted its application for accession
Initiative for Multi-sectoral Technical and to the World Trade Organization (WTO) in
Economic Cooperation (BIMSTEC). The 1999. A Working Party Report was circulated
Initiative sees itself as a link between SAARC in December 2007. However, the process is
in the West and the Association of Southeast currently dormant. Access barriers, particularly
Asian Nations (ASEAN) in the East. In 2004, to developed markets, are primarily of non-tariff
the members agreed on a Free-trade Area nature and linked to logistical constraints.
Framework and set up a Trade Negotiating
Being landlocked, most merchandise exports
Committee and working groups to help
and imports are transported by road through
negotiate the agreement. The free-trade area is
the Indian port of Kolkata. There are several
expected to come into effect by 2017.
border control and customs points for goods
Thus, potential investors should take into between India and Bhutan, the biggest of which
account these nearby market opportunities, is the southern industrial hub of Phuentsholing.
which are accessible through preferential trade Other bilateral customs points are Samtse,
arrangements, when considering locational Gelephu, and Samdrup Jongkhar. In January
aspects of investments in Bhutan, 2005, Bhutan signed a memorandum of
understanding for the establishment of railway
As regards market access to major developed links to the five border town in Bhutan from the
markets, Bhutan as a least developed country nearest corresponding railheads in India that
(LDC) enjoys preferential treatment for a large would ultimately enable access to the Indian
number of agricultural and industrial products rail network. In addition, the 20072027 Road
An important component under the associations goal to strengthen collective economic self-reliance is SAFTA. It builds on the
South Asian Preferential Trade Agreement (SAPTA), which became operational in 1995 and constituted the regions first step of
institutionalized economic cooperation. In 1996, SAARC member countries took their efforts a step further and decided to start
negotiating the SAFTA. A Framework Treaty on SAFTA was adopted in January 2004 and most negotiations in the areas of tariff
liberalization, rules of origin, and sensitive lists were completed by 2006. Implementation started the same year. The framework
agreement envisages SAFTA to be fully effective for LDC member States such as Bhutan by 2016 (2013 for non-LDCs). In its
current form, the agreement is confined to trade in goods but efforts are ongoing to incorporate trade in services and investment.
Beyond the Free Trade Agreement, SAARC membership improves Bhutans say in regional affairs and makes it a respected
partner in a region that is strongly dominated by the economic power of India. For the first time, the annual SAARC summit was
hosted by Bhutan in 2010 from 28 to 29 April. Among other cooperation efforts, member States signed an agreement to further
the inclusion of services in SAFTA. Another central theme of the summit was regional cooperation in the area of climate change.
Sector Master Plan provides for the upgrading Diversification of the economic base;
of the domestic road network.
Harnessing and adding value to natural
resources in a sustainable manner;
Increasing and diversifying exports;
Government policy priorities Promoting Bhutan as a global brand;
The long-term vision of Bhutans Government Promoting industries that form the basis for
is articulated in the Vision 2020 plan. Rooted Bhutans brand image;
in the principles and values embodied in the Reducing dependency on fossil fuel especially
concept of GNH (See box 2), it draws the picture in respect to transportation.
of a democratic, internationally recognized,
and socially equitable society. It envisages that The EDP defines areas of economic opportunity
hydropower receipts will be used to develop a with incentives for each sector (see chapter III).
high degree of economic self-reliance, finance It introduces a variety of policy and regulatory
rising social-sector investments, meet the reforms such as a new land use policy and a
growing physical infrastructure development new project approval framework (also see box
requirements, and continue to diversify the 4). Based on the GNH philosophy, the guiding
countrys economy. principle for economic development can be
described as high value, low impact.
Building on this, the Governments medium-
term policy priorities are defined in the national Building on the EDP, the new Foreign Direct
eleventh Five Year Plan (FYP), covering the Investment policy, finalized in May 2010,
years 20132018, whose theme is self- increases the general maximum allowance
reliance and inclusive green socioeconomic foreign investors equity to 74 per cent
development.2 (70 per cent before), earmarks selected sectors
for a 100 per cent equity share allowance, and
The new Economic Development Policy (EDP) introduces a negative list for sectors such as
describes the countrys path to becoming media, mineral mining and general health
a middle income country by the end of this services. At the time of writing, the Government
decade. Released in April 2010, it sets out was finalizing the Mineral Development Policy
strategies to reduce unemployment and that formalizes regulations on sustainable
achieve economic self-reliance, including: mining.
Computer work for the Bhutan Digital Livelihoods Project in the Thimphu TechPark, Thimphu, Bhutan.
Figure 1. Real growth of selected sectors and overall GDP (percentage year-on-year change)
annual % chg.
80%
40%
20%
0%
2001 2002 2003 2004 2005 2006 2007 2008 2009
-20%
In the area of trade and investment particularly, the EDP includes the following policy reform measures, amongst others:
Enactment of a Trade Development Act to improve the countrys trade policy framework;
Improvement of export and market promotion activities, including through economic diplomacy, trade fairs, and trade missions;
Development and promotion of a Brand Bhutan nation branding and product certification scheme, which draws on Bhutans
unique values and GNH development philosophy;
Development of a PPP policy framework;
Revision of Bhutans FDI policy and development of a Bhutan Investment Act;
Accession to international conventions on dispute settlement;
Development of a framework for anti-dumping measures, anti-subsidies and trade safeguards;
Negotiation of mutual recognition agreements and conformity assessment procedures;
Negotiation of transit and transport agreements with neighbouring countries;
Harmonization of customs documentation, procedures, and formalities.
For a list of all areas of economic opportunities, relevant incentives and reforms, see chapter III.
Figure 2. Major exports and imports of Bhutan, 2009 (percentage of total exports)
3% 5%
4%
5% 23% 20%
12% 42%
5%
5% 20%
29% 10%
17%
Source: UNCTAD secretariat calculations, based on Bhutan Department of Revenue and Customs data.
Stock Flows
Stock, current US$ million
160 80
Flows, current US$ million
140 70
120 60
100 50
80 40
60 30
40 20
20 10
0 0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Overall, the Government is pursuing an with academic blocks, residential units, and
ambitious reform programme to make Bhutan recreational facilities between the countrys
an attractive investment destination. It is also international airport Paro and the capital
looking beyond traditional greenfield projects Thimphu. The Thimphu Tech Park project
and seeks to promote investments into PPPs). aims at establishing an IT park and related
To this end, the 2010 Framework for Private infrastructure in proximity to the countrys
Participation in Infrastructure complements the capital. The PPP project is currently being
FDI policy and enables large-scale infrastructure implemented jointly by a property development
projects such as airports, highways, recreational company from Singapore and the DHI. The
facilities, etc. to be developed in a PPP model. first development phase was completed in
Additionally, the Government is currently November 2011 and first tenants started
developing a more comprehensive PPP policy operations in early 2012.
in cooperation with the World Bank.
The Government of Bhutan, through the Minis-
Two landmark PPP projects that are currently try of Economic Affairs also seeks to establish
being developed by DHI are the Education special economic zones (SEZs) through a PPP
City project and the Thimphu Tech Park. The developer. Three potential sites have already
Education City is part of the Governments been identified (Samdrup Jongkhar, Sarpang,
wider efforts to improve secondary and tertiary and Samtse) and the Governments holding
education and aims to develop a 1,000- company DHI is currently planning the project
acre (approximately 404.7 hectares) campus implementation.
The Government continues to promote the Almost all mobile subscribers use prepaid
development of ICT as a platform for sustainable services (97 per cent of subscribers) and the
development and economic diversification vast majority of Internet users access the web
to the benefit of the populations well-being. using mobile broadband services (90 per cent
It aims at delivering ICT infrastructure to all of Internet users), almost exclusively via EDGE/
205 gewogs (village blocks). In early 2011, GPRS (98 per cent of mobile Internet users,
the Government was on track to achieving 3G is available in Thimphu, Phuentsholing
this goal by providing fixed-line and mobile and Paro). This brings the mobile broadband
network access to over 96 per cent and 97 per penetration rate to about 12 per cent of the
cent respectively in all gewog centres. Mobile population, comparable to the average of
teledensity stood in 2011 at 70 per cent of the lower middle income countries. Since fixed-line
population and Internet access at 19.7 per broadband is only available in a limited number
cent. of urban locations, the market for mobile
broadband continues to grow. As of 2010,
The market for ICT services is relatively well Bhutan has a stable international Internet
defined given Bhutans small domestic user bandwidth of 330 megabit per second (Mbit/s).
base. One fixed-line operator, two mobile Given the small number of actual users,
network operators and four Internet service the available capacity of Bhutans network
providers are registered with the countrys infrastructure can be seen as internationally
telecommunications regulator. The State- competitive, particularly when compared with
owned Bhutan Telecom Limited was the first regional and income-based averages.
provider of ICT services and is still the only
operator of fixed-line communications. It is Internet user fees are relatively inexpensive
also the only provider of country-wide Internet compared to the regional average, tele
Bhutans electricity tariffs are among the lowest Bhutans current transport network remains
in the world, making it an ideal investment inadequate, with a limited road network, no
destination for high energy consumption navigable waterways, and no domestic rail
services such as data storage. Under the network. The Government is aware of these
current tariff schedule, the price for one constraints and is undertaking significant
kilowatthour of low-voltage electricity ranges investments to upgrade the infrastructure
from US$0.02 to US$0.04, depending on and improve main and feeder road networks,
the demand. For comparison, the average especially in rural areas. Infrastructure
2008 household price for one kilowatthour development is a central priority in the countrys
was about US$0.113 in the United States of current FYP (see box 4 above). Complementary
America and about US$0.206 in Japan.4 The to the Governments efforts, multilateral and
current and future tariff structure (in ngultrum) bilateral development partners continue to
is presented in table 4. provide technical assistance and funding.
Table 4. C
urrent and future (at the time of writing) domestic electricity tariffs, households and
commercial (in ngultrum per kilowatthour)
Customer Category August 2010 1 July 2011 1 July 2012
to 30 June 2011 to 30 June 2012 to 30 June 2013
0-100 kWh (Nu./kWh) 0,85 0,85 0,85
101-300kWh (Nu./kWh) 1,47 1,54 1,62
LV
300+ kWh (Nu./kWh) 1,94 2,04 2,14
LV bulk (Nu./kWh) 1,94 2,04 2,14
Energy charge (Nu./kWh) 1,63 1,71 1,79
MV
Demand charge (Nu. /kW/month) 95 105 115
Energy charge (Nu./kWh) 1,51 1,54 1,54
HV
Demand charge (Nu./kW/month) 85 105 105
Wheeling (Nu./kWh) 0,111 0,111 0,111
Sources: Bhutan Electricity Authority, Annual Report 2010/2011.
LV, MV, HV: Low, medium, high voltage.
5 I According to the 2005 Road transport and sharp turns, making it inadequate for the
Census.
countrys increasing traffic and the growing
6 I Travel time between In 2010, there were 6,920 kilometres of roads,
number of commercial vehicles. Furthermore,
Phuentsholing and about 40 per cent of which were paved or
Thimphu is about 6 hours severe weather and tectonic activity frequently
otherwise surfaced. The existing network
for about 180 kilometres. cause roadblocks or temporary hazards. As a
connects major villages and provides an
7 I Based on data from the result, traffic usually moves extremely slowly.6
Transport 2040 Integrated increasing amount of farm and access roads in
The incidence of road traffic fatalities, currently
Strategic Vision (draft) rural areas. Still, about 53 per cent of the rural
August 2011. at about 17 per 10,000 vehicles per year, is
population cannot reach an all-weather road
already much higher than in neighbouring
within 20 minutes walking distance and about
countries (Indias is a little above 12 per 10,000
9.7 per cent of the total population still lives
vehicles per year) and slowly increasing.7
more than six hours walking distance away
from the nearest all-weather road.5 Overall, the poor state of the road network
and the countrys difficult geographic situation
Most of the Bhutans personal and commercial
significantly increase the cost of doing
traffic travels along the EastWest national business in Bhutan. This is particularly true in
highway (Lateral Road), which also connects the countrys remote eastern districts, where
the capital Thimphu with the southern industrial transport costs are high.
hub of Phuentsholing and the Indian border.
Nearly all imports go through the Indian port of The 20072027 Road Sector Master Plan sets
Kolkata and are transported to Phuentsholing out how the Government plans to upgrade
by road. Like the majority of roads in Bhutan, and expand the existing network, often with
the Lateral Road is narrow with steep gradients significant support of international partners
Bhutan currently does not have a domestic rail Reliable and flexible air transport is critical for
network, but the Government recognizes the the development of Bhutans tourism sector
significant capacity and efficiency gains that and economic diversification. Currently,
could be realized through a rail link with India. however, Bhutan has only one international
In January 2005, Bhutan and India signed airport, Paro, and one international air operator,
a memorandum of understanding for the the wholly State-owned Druk Air.
establishment of railway links to the five border Paro International Airport is located about
towns in Bhutan from the nearest corresponding 50 kilometres west of the capital Thimphu and
railheads in India that would ultimately enable is certified for narrow-body aircraft up to the
access to the Indian rail network. One of the size of an Airbus A320 or Boeing 737. Given
links includes a 17.5 kilometre track to connect the high-elevation, high-terrain environment
Hasimara (in West Bengal) to Phuentsholing and the lack of an instrument landing system,
in Bhutan. Survey of the five links was carried flight operations are often disrupted by weather
out in 2007/08 and the two Governments are conditions. During the winter season, high
currently working to implement the project. velocity winds can lead to service cancellations
This important infrastructure development or delays, or flight diversions of the incoming
project has the potential to remove one of flights. Cargo facilities remain limited and the
Bhutans most pressing behind-the-border existing terminal infrastructure is inadequate for
constraints by significantly reducing ground peak-season tourist inflows.
transportation costs and improving access to
In addition, the Government plans to introduce With better access to facilities, health outcomes
a domestic helicopter service for search and have improved accordingly. Life expectancy
rescue operations, but not for scheduled op- increased significantly from an estimated
eration. Given Bhutans challenging geography, 54 years in 1990 to about 68 years today, with
the availability of helicopter based emergency only a minor difference between males and
Bhutans labour force, although comparatively Under the provisions of the 2007 Labour and
well educated, cannot fully meet the needs Employment Act the Government set a national
of the evolving private sector. A 2009 survey minimum wage across all industries of Nu
of 250 Bhutanese firms by the World Bank 100 per day or Nu 3,000 per month (US$2.19
finds that 12.6 per cent of firms cite the lack and US$65.57, respectively). Full-time employ
of labour skills as a constraint for the private ees are entitled to a minimum of 9 public
sector.9 Growing rates of youth unemployment holidays per year and 1.5 days of paid leave
At the control desk of Ugen Ferro Alloys Pvt. Ltd., Pasakha Industrial Estate, Phuentsholing, Bhutan.
After the environmental and all relevant sectoral Bhutans 2010 FDI Policy includes provisions on
clearances have been issued, if the proposed three aspects of employment: (a) Employment
activity falls under the non-priority lists, the of (skilled) expatriate workers, (b) employment
Project Approval Committee decides (based on of unskilled or semi-skilled workers, and (c)
evaluation criteria) about the ultimate approval requirements on the employment of Bhutanese
of the project. The proposed businesses nationals.
falling under the priority list of activities are not
subject to assessment against the evaluation (a) Any FDI business that has successfully
criteria and are approved by the Department applied for an FDIRC (see above) is entitled to a
of Industry upon receipt of required clearances. minimum of five work permits for professional,
Finally, the business must obtain an industrial managerial and technical expatriate staff during
licence at the Regional Trade and Industrial the business establishment phase. The permits
Office under the MoEA. are allocated to the business entity and are
annually renewable. Multiple-entry visas (that
In addition to the formal registration process, is, visas exempt from the international tourist
companies are required to apply for a taxpayer tariff) are issued to the foreign investor, the
identification number and register for income board of directors, all expatriate staff, and
tax, acquire a company seal within a year of their immediate family members. In addition,
incorporation, and open a bank account under the MoLHR can approve additional expatriate
the name of the company.14 workers if the business cannot meet its
labour market needs by recruiting Bhutanese
Employment permits and expatriate professionals. The MoLHR will also approve
employment additional short-term permits for professionals,
technicians and consultants at request of the
Bhutans Department of Labour/ Ministry of business.
Labour and Human Resources (MoLHR) is the
coordinating agency for labour market needs (b) During the establishment phase of the FDI
of foreign investors. In addition, Bhutans project investors can recruit an unrestricted
Department of Immigration as well as the number of unskilled and semi-skilled expatriate
Ministry of Foreign Affairs are relevant points of workers. During the business operation phase,
contact for the employment of foreign nationals. the number of unskilled and semi-skilled
has been obtained, investors can request and documentation (for example, businesses in the
receive pre-construction and construction tourism industry might need approval from the
work inspections, and will ultimately be issued Tourism Council of Bhutan). Bhutan does not
an occupancy permit by the local authorities. maintain official quota restrictions on imports
from India or third countries.
Trade licensing and customs clearance
Most goods arrive at the southern industrial
Bhutans trade policy, regulation and monitoring
agglomeration of Phuentsholing, which is the
is organized under the Department of Trade
countrys busiest border check point. There
at the MoEA. The Department of Revenue
are six official entry/exit points for goods from/
and Customs under the Ministry of Finance is
to third countries, which, with the exception
in charge of customs clearance. Any goods
of air transport, require a transit through India
imported from countries other than India
(see table 8). Bhutan continues to improve the
require an official import licence, which can
efficiency and capacity of its customs clearance
be obtained from the Department of Trade by
point, especially in Phuentsholing.
registered retail/industrial licence holders and
any company registered in Bhutan. In addition Procedural requirements and associated
to the standardized application form, specific time and costs for trading across borders to
industries might need to provide additional and from Bhutan are roughly in line with or
Table 8. Official entry/exit points for movement of goods from/to third countries
Bhutanese Side Indian side Mode of transport
Phuentsholing Jaigaon, West Bengal
Samtse Chamurchi, West Bengal
Gelephu Hathisar, Assam Land
Sarpang Ulta Pani, Assam
Samdrup Jongkha Darranga, Assam
Paro All destinations by air Air
Source: Bhutan Ministry of Finance.
controls are not applicable to the Indian rupee, Constitution: The State shall encourage and
which circulates freely in Bhutan. For investors, foster private-sector development through fair
the 2010 FDI Policy includes relevant provisions market competition and prevent the growth
on the repatriation of dividends and capital. of commercial monopolies. Two laws (1995
Rules and Regulations for Establishment and
Registered foreign investors to Bhutan are Operation of Commercial Ventures and 2006
entitled to a foreign currency account with one Micro, Retail and Wholesale Trade Regulation)
of Bhutans commercial banks. Investors are govern domestic commerce, but do not contain
generally allowed to repatriate any invested concrete provisions on competition policy. To
capital as well as capital gains in the original remedy to this, the Government with assistance
currency of investment. Subject to the relevant from UNCTAD has prepared a competition
taxes, net earnings can be repatriated in their policy paper which, when adopted by the
respective currency. For dividends earned cabinet, will be applied by all line Ministries and
in ngultrum through investment ventures in sector regulators so as to ensure coherence
the priority service sectors (see appendix 1), between the various economic policies and the
investors can purchase up to US$5 million per development of a well functioning market.
year from Bhutans Royal Monetary Authority
for the first ten years of operations. In this regards, issues of bid rigging and public
procurement have been handled by the ACC,
created in 2006 under the Anti-corruption Act
Competition policy
of Bhutan. The ACC established a committee
Given the countrys small industrial base, Bhutan comprising all relevant stakeholders to put in
currently does not have a comprehensive place guidelines for public procurement policies
legislative framework for competition policy that will ensure transparency, prevent bid
or formalized antitrust regulations. The riggings or illegal practices. In order to prevent
basis for government anti-trust interventions corruption in the construction sector, the ACC,
derives from Article 9 paragraph 10 of the in conjunction with the Royal Audit Authority
Fiscal administration and calendar Custom duty and sales tax exemption for
import of machinery (except spare parts)
The tax year in Bhutan runs from 1 January to
directly related to the manufacturing of
31 December. Firms must file their tax returns
a product or utilized in the provision of a
(using form CIT-2 for entities incorporated
licensed service valid for manufacturing and
under the Companies Act) to their regional
service industries until the end of 2019.
revenue and customs office on or before
31 March following the tax year. A unique Sales tax exemption on import of permissible
taxpayer number, which is allocated at the time raw materials and primary packaging
of company registration, must be quoted in all materials valid for manufacturing industries
tax filings. until the end of 2019.
All incentives related to exports of goods or As described above, the 2010 FDI Policy also
services are only applicable if the share of value entitles investors to employment permits for a
added is at least 40 per cent. minimum of five expatriates.
Arrivals are subject to strong seasonal variation Currently, most of Bhutans hotel capacities
driven by weather and the occurrence of are located in the western circuit around
cultural festivities, with the majority of tourists Paro, Thimphu, and Punakha. The region is
Woman in traditional dress turning prayer mills at the Chimi monastery, Lobesa, Bhutan.
8%
60%
North America
3% 7%
3%
4% 5%
4% 5%
40%
Source: UNCTAD secretariat calculations, based on Tourism Council of Bhutan last supplied figures.
Note: Figures only include international tourists paying in convertible currency.
home to several cultural festivals (Tsechus) Hospitality in cooperation with the University of
and numerous religious sites, including the Applied Sciences of Salzburg in Austria. The
prominent Tigers Nest temple complex. institute offers a two-year diploma programme
It is also the region that is easiest to access in tourism and hotel management and aims
for international tourists. In addition, there at improving vocational training for tourism
are several hiking and cross-country cycling related services.
trails. Accordingly, international luxury hotel
chains have successfully established high- Across all of its sectoral development initiatives
end properties in this region (see box 6 for an the Government sees foreign investors at
investor story about Amanresorts). All in all, of the heart of Bhutans tourism industry and
the 119 hotel properties registered with the promotes investments into four- and five-star
TCB in 2010, eight were rated as five-star and hotels and resorts throughout the country. The
five were rated as four-star accommodations. Government aims to broaden Bhutans tourism
Guest relations and logistics were handled by portfolio not only to include new regions and
676 licenced domestic tour operators. seasons, but also to diversify tourist activities.
Investors are particularly encouraged to
Realizing the great potential of tourism as a focus on nature-based activities, including
driver for socioeconomic development, the adventure tourism (rafting, trekking, mountain
Government pursues an ambitious and com- biking, ballooning) and safari-like ecotourism
prehensive development strategy. The strategy (camping, wildlife, bird and butterfly watching).
aims to further develop the destination Bhutan Based on the countrys strong Buddhist
as a well-recognized brand, create a supply of heritage, the TCB also promotes spiritual
high-end hotels, and provide necessary ame- wellness and spa offerings. Moreover, there is
nities and infrastructure, particularly aviation. scope for development of hospitality services
A cross-cutting development project for the for meetings, incentives, conferencing, and
tourism sector is the Accelerating Bhutans exhibitions.
Socioeconomic Development initiative (see
box 7). To improve the supply of skilled labour In terms of regions, the Government aims to
for the tourism sector, the Government has promote a more diversified tourist offering in
established the Royal Institute of Tourism and Bhutans central, south and eastern regions.
Box 5. Bhutans rich natural and cultural heritage as an attraction for tourists
Despite being a small country, Bhutan boasts a diverse and rich cultural heritage rooted in Buddhist values and traditions.
Buddhism is vibrant and alive in Bhutan, with religious sites such as monasteries, prayer wheels, and stupas dotting the country.
Paro Taktsang, an elaborate temple complex commonly known as Tigers Nest, is probably the best recognized temple in Bhutan
and has to some extent become a cultural icon for the country.
Tourists can experience Bhutans well-preserved traditions through numerous festivals and rites taking place throughout the
year. Many villages have unique multi-day celebrations for various occasions, most of which include colourful mask dances or
other performances. The most widely known of these festivals is Tshechu, which not only constitutes an important religious
celebration, but also serves as yearly social gathering for villagers.
Bhutans ubiquitous Dzong architecture and traditional clothing are equally proof of the countrys living traditions. After gradually
and carefully opening to the outside world, the preservation and promotion of Bhutans heritage remains one of the central
endeavours of the King. Given the countrys long isolation and well-preserved traditions, it is sometimes described as a mythical
Shangri-La.
The Kingdoms natural heritage is equally impressive, with dramatic valleys and vast woodlands. Bhutans biodiversity, including
its complex forest ecosystems, various streams, and marshlands, is preserved through numerous parks and reserves. In addition
to its unique flora, Bhutans fauna boasts a wide range of species including leopards, Bengal tigers, pandas, langurs, bears and
a variety of deer. Bhutan is also host to 16 bird species that are endangered worldwide, including the white-bellied heron and
the Pallass fish eagle.
Established in 2001 with a US$10 million participation of the International Finance Corporation, the US$26 million venture
now employs about 400 Bhutanese across its five lodges. Its business model capitalizes on the unique value proposition of
Bhutans tourism sector: nature, culture, and wellness. Instead of just visiting a specific lodge, guests are invited to embark on
an individually tailored journey that will visit all of Amankoras properties across Bhutan. Amankora was the first foreign company
allowed to open a series of properties in Bhutan. Based on this network of lodges, guests can tour the numerous cultural or
religious sites, go on treks throughout the country, or visit one of the local communities. The properties also feature wellness,
meditation, and spa facilities influenced by Bhutans spiritual heritage.
Consistent with Bhutans tourism approach of high value, low impact and mandated by the International Finance Corporations
environmental standards, Amankora lodges are built in an ecofriendly manner, tours are designed to minimize the environmental
impact, and hotel operations aim to integrate with the local economy and community.
Targets include:
Development of two to three additional tourist circuits including the development of new products (see box 5 above);
Establishing a domestic aviation network with airports in Yonphula in the very east of the country, Bumthang in the centre,
and Gelephu in the south;
Identification of around 500 acres (approximately 202.3 hectares) of land in the new tourist circuits. Various models of creating
quality supply are planned, for example, partnerships between communities and private sector. International investors are
envisaged to play a key role in the development of high-end supply;
Expanded tourist amenities like road permit waivers and electronic payment systems;
Review of current tourist accommodation including the introduction of a star-based rating system. As of January 2012, only
accommodations rated 3 stars or above will be allowed to host tourists;
Improved price transparency and flexibility;
Streamlined tourism governance, including through an improved mandate and legal standing of the TCB as the countrys
foremost tourism development body. The reinforced TCB will subsequently develop a comprehensive National Tourism Strategy.
Recent successfully implemented reforms include the launch of credit card facilities, simplified visa processing, the launch of a
new cultural tourism product in the east, and a newly implemented star rating system.
Sources: TCB, the GNH Commission secretariat, Accelerating Bhutans Socioeconomic Development initiative website at www.gnhc.gov.
bt/absd (last accessed December 2011).
Exemption of customs duty and sales tax ares) of earmarked land for tourism develop-
on imports of outdoor equipment, kitchen ment, available for a renewable lease period
equipment, hotel furniture, fixtures and of up to 30 years;
selected goods;
F
ast-tracked, single-window clearance
Full repatriation of dividends in the currency process for tourism-related projects through
of earnings; the Tourism Council of Bhutan, including for
Up to 500 acres (approximately 202.3 hect- the leasing of new land.
Figure 5. Government hydropower revenue, by generation source (left axis) and market
(right axis, percentage of total hydropower revenue)
16000 100
Ngultrum million, current
14000
% share of export revenue (right axis)
12000 90
10000
6000
4000 70
2000
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: UNCTAD secretariat calculations, based on Royal Monetary Authority of Bhutan Annual Reports 2006/2007 and 2010/2011.
Of which
Potato 56.2%
Chili 8.6%
Of which Vegetables, Ginger 5.2%
spices, oilseeds Other 30.0%
Paddy 49,9% 27%
Maize 40.1% Cereals
Wheat 3.4% 48%
Other 6.6%
Of which
Fruits
25% Mandarin orange 72.2%
Apple 10.1%
Areca nut 10.0%
Other 7.7%
Source: UNCTAD secretariat calculations, based on data from Bhutan Ministry of Agriculture and Forests/Food and Agriculture Organization
CountrySTAT database.
organic farming, biotech, poultry and dairy (mainly mandarin oranges and apples) and
farming, floriculture, apiculture, and horticulture. potatoes. Figure 6 provides an overview of
While the countrys physical infrastructure agricultural commodities produced in 2010.
and a lack of skilled labour are still concerns
for larger-scale commercial operations, a The commercialization of agriculture is one
significant number of farmers already engage of Bhutans primary development goals and
in the production of cash crops such as fruits investors can expect the Government to be very
The true value of the project, however, lies beyond its commercial operations. The venture, which is managed by a team of less
than a dozen expatriates and Bhutanese nationals, is aligned with Bhutans development priorities and might eventually benefit
between 10,000 and 15,000 households in the countrys most remote areas. The Venture works closely with rural communities
to plant the hazelnut trees. It also trains and supports local farmers in tending and harvesting the steep slopes. The Venture
then buys back the nuts at a guaranteed price and transports them to a central processing facility, which will be set up in one
of Bhutans industrial hubs.
Overall, the Government of Bhutan and the Mountain Hazelnut Ventures chairman and founder Daniel Spitzer, an American social
entrepreneur, hope to address the issue of ruralurban migration by enabling farmers to generate a reliable and sustainable
income without having to leave their traditional communities. The project also hopes to reduce soil degradation and improve
rural market access, both in terms of infrastructure as well as financing. In addition, the Venture pledged to contribute 20 per
cent of net earnings to a Bhutanese trust fund.
The Mountain Hazelnut Venture is an example for an innovative investment project that builds on Bhutans natural environment,
which is climatically favourable for the cultivation of hazelnuts, abundant labour, and very supportive Government.
Source: UNCTAD secretariat interviews, Forbes Asia Magazine.
IT training at the Rigsum Institute of Information Technology and Management (RIIT&M), Thimphu, Bhutan.
Education City and to establish themselves specific fiscal and non-fiscal incentives,
independently. In India, demand for high-quality including a tax holiday of 10 to 15 years from
higher education strongly outstrips supply, the actual date of operation for institutions
drawing a significant number of Indian college established until 31 December 2015, an
graduates abroad while attracting international exemption of customs duty and sales tax for
universities to set up shop in the region. Bhutan educational materials such as textbooks and
is currently soliciting expressions of interest teaching aids, a simplified visa regime for
from leading universities as well as international developers and prospective students, and a
tertiary education and vocational institutions. one-stop shop for project development.
Targeted thematic areas of studies include
biodiversity and environmental science, climate
change, sustainable development, health and
nursing, hospitality and tourism, hydropower
Government priority sectors
and energy, religious studies including Buddhist
A full listing of the priority sectors is provided in
philosophy, politics and democracy, and the
appendix 1.
study of the GNH.
Priority sectors
Production and manufacturing
Sector Minimum Maximum Other
investment (US$) foreign equity requirements
Agro-based production:
i. Organic farming
ii. Agro processing
iii. Biotechnology
iv. Poultry
v. Fisheries 364,000 74% None
vi. Floriculture
vii. Health food
viii. Animal feed
ix. Apiculture
x. Horticulture
xi. Dairy
Forest-based production 910,000 74% None
Energy: Based on Sustainable Hydropower Policy (2008)
i. Hydropower
ii. Solar and wind
Based on Renewable Energy Policy (draft)
iii. Other renewables
Manufacturing of water-based products 910,000 74% None
Other manufacturing:
i. Electronics
ii. Electricals 910,000 74% None
iii. Computer hardware
iv. Building materials
Young woman at a traditional loom in the National Institute for Traditional Arts and Crafts Zorig Chusum, Thimphu, Bhutan.
Education:
i. Primary
3.64 million 100% High end
ii. General secondary
iii. Higher
Health:
i. Specialized medical services
ii. Specialized dental services
3.64 million 100% None
iii. Specialized medical laboratory services
iv. Specialized diagnostic-imaging services
v. Specialized traditional medical services
Internationally known
Hotels/resorts five stars and above 3.64 million 100%
hotel chains
Infrastructure facilities:
i. Multi-dwelling residential buildings
ii. Non-residential buildings
iii. Outdoor sports and recreation facilities
such as golf courses, botanical gardens
and others
iv. Highways, bridges, tunnels and roads
v. Airfield runways/airports PPP Model wherein
vi. Industrial estates, industrial parks facility returns to
3.64 million 100%
vii. SEZs, agricultural economic zones Government on expiry
viii. IT parks of term
ix. Economic cities
x. Knowledge cities
xi. Sport cities
xii. Health/wellness centres
xiii. Dryports
xiv. Land reclamation
xv. Other similar activities
Established firms
Research and development 182,000 100% employing minimum of
5 experts
Established firms
Consultancy services 182,000 74% employing minimum of
5 experts
As per Financial
Services Act.
All sectors and activities not listed are generally open for foreign investments with a maximum foreign
equity share of 74 per cent and a minimum project investment of US$910,000 for manufacturing
and US$455,000 for services. No foreign ownership is permitted in the following sectors:
Prohibitions
Sector
Hotels rated three stars and below (based on criteria of the Ministry of Tourism)
Activities that have harmful effects on public health, environment and Bhutanese morals and culture
As of November 2012
Company name Activity Contact address
G4S Security Services Private security G4S Security Services (Bhutan) Pvt. Ltd.
(Bhutan) Pvt. Ltd. services P.O. Box: 740
Lower Chhubachu
Thimphu
Tel-333444; Fax-324837
Saint Gobain Ceramic Silicon carbide Saint Gobain Ceramic Materials Bhutan Pvt. Ltd.
Materials Bhutan Pvt. Ltd. Point of contact: Mr. Avijit Sarkar (Finance Manager)
P.O. Box: 275
Plot No. L-14
Pasakha Industrial Estate
Pasakha
Tel-261166/261212; Fax-261339
SKWTashi Metal and Alloys Calcium Silicon SKWTashi Metal and Alloys Pvt. Ltd.
Pvt. Ltd. Point of contact: Mr. S.N. Golder
TCC Complex
P.O. Box: 382
Phuentsholing
Tel-25296; Fax-25296
Met Trade Bhutan Ltd. Aluminium Met Trade Bhutan Ltd.
and tin Point of contact: Mr. Sukesh Kumar Jain (CEO)
P.O. Box: 358
Phuentsholing
Tel-254001; Fax-254009
East West Company Pvt. Ltd. Hotel East West Company Pvt. Ltd.
Point of contact: Mr. Ugyen D. Dorji (Director)
P.O. Box: 1376
Thimphu
Tel-17139999; Email: udorji@gmail.com
Haven Resorts Pvt. Ltd. Hotel Haven Resorts Pvt. Ltd.
Points of contact: Mr. Varim Srimachota and Mr. Rangsee Tuengpant
Thachukha
Dop Shari
Paro
Tel-270999; Fax-270888
Bhutan Eco Ventures (P) Ltd. Hotel Bhutan Eco Ventures (P) Ltd.
Points of contact: Dasho. Topgyal Dorji / Mr. S.K. Giri
P.O. Box: 222
Paro
Tel-271597; Fax-271513 (Tel-252650; Fax-252282)
Ugen Ferro Alloys Pvt. Ltd. Ferro silicon Ugen Ferro Alloys Pvt. Ltd.
Point of contact: Mr. Rishi Prasad Agarwal
P.O. Box: 126
Dekilingka Apartment, 1st Floor, Room No. 202, Pelkhil Lam
Phuentsholing
Tel-253971/251698; Fax-253970; email: ufal@druknet.bt
Quality Gases Pvt. Ltd. Oxygen and Quality Gases Pvt. Ltd.
nitrogen Point of contact: Mr. Jamyan Loden (Managing Director)
Plot No. U-II, Upper Terrace,
P.O. Box: 197
Pasakha Industrial Estate, Pasakha
Tel-261254; Fax-261256
Foreign Direct Investment Policy (2010) Current economic and FDI policy framework,
Economic Development Policy (2010) including most important provisions for investors
Foreign Direct Investment Rules and Regulations (2012)
Companies Act (2000) Law under which FDI projects would be incorporated
Sales Tax, Customs and Excise Act (2000) Relevant provisions on taxation
Rules on the Sales Tax, Customs and Excise Act (2000)
Income Tax Act (2001)
Labour and Employment Act (2007) Relevant labour laws, including provisions on
Occupational Health and Safety Rules (2006) minimum wage.
Third-party sources
Asian Development Bank (2010). Asian Development Outlook 2010: Macroeconomic Management Beyond the Crisis.
Manila, Asian Development Bank.
Asian Development Bank (2011). Asian Development Outlook 2011: SouthSouth Economic Links.
Manila, Asian Development Bank.
Economist Intelligence Unit (2011). Bhutan 4th Quarter 2011 Main Report and August 2011 Main Report.
London, The Economist Intelligence Unit.
International Monetary Fund (2010). Bhutan Assessment Letter for the World Bank. (September 2010).
Washington DC, International Monetary Fund.
International Monetary Fund (2010). Bhutan: Poverty Reduction Strategy Paper Joint Staff Advisory Note.
IMF Country Report No. 10/181 (June 2010). Washington DC, International Monetary Fund.
Photo credits
UNCTAD
Page 58: Stephen Shephard