FDI policy relaxed to attract investors

Foreign direct investment (FDI) firms earning non-convertible currency and Indian rupee can now repatriate their dividends in convertible currency like US dollar, Euro and Great Britain Pound.

FDI companies involved in service activities in the priority list like hotels, where investment in the project was made in convertible currency and earning non-convertible currencies, are now allowed to purchase convertible currency up to USD 5M per annum from Royal Monetary Authority (RMA).

Again in case of FDI businesses with investment made in convertible currency and earning Indian Rupee, the investor shall be permitted to repatriate dividends in convertible currency with prior approval from the RMA.

This was one of the revisions made in the new FDI policy pertaining to repatriation of dividends.

Land, on the other hand has been another issue restricting the FDI. The new policy allows FDI companies to own or lease land in accordance with the land Act.

Earlier policy mandates that a FDI company holding more than 74 percent of the equity to only lease the land.

The director of Department of Industry, Tandin Tshering said the new policy would further improve the investment climate in the country. “Amendments were made on those clauses which were seen as restrictive after several consultative meetings,” he said.

Another amendment made was on the locking period. Instead of locking the investors, unlike the earlier one, the revised policy now locks the investment. For instance, a foreign investor may transfer his shares to another foreign investor but the investment size should not change. Earlier, the investor cannot get away before completing three years from the date of commencement.

The minimum threshold for equity share holding has also been reduced. In the earlier policy, regardless of the type of investor, the minimum threshold for equity holding was 20 percent of the total project.

This was relaxed to 10 percent in case of institutional investors, which are the foreign companies investing in the country. But in case of individual foreign investors, the earlier provision still continues.

Another relaxation in the policy was concerning the remittance. “We have aligned our rules and regulations in line with the central bank’s rules,” Tandin Tshering said.

The threshold investment in information technology sector has also been reduced because usually in this sector investment mainly circled around purchasing computers and not much around infrastructure.

The earlier policy mandates a minimum investment of Nu 5M inside the IT Park and Nu 25M outside. This was because in IT Park almost all facilities are already in place.

However, the threshold investment in the current policy for the IT sector has been brought down to Nu 3M inside the park and Nu 5M outside.

Meanwhile the policy was revised in July 2014 and the FDI rules and regulations were also amended last week. The rules and regulations specify in detail how investments should be regulated and policy be implemented.

The FDI Outlook

In the last five years (2010-2014), 33 FDI projects worth Nu 24.77B has been approved and 18 new projects are approved in principle so far.

Figures from the international monetary fund (IMF) reveal that Bhutan’s net FDI was about USD 74M in 2007, which dropped to USD 3M and USD 6.5M in following two consecutive years.

In 2010, when the FDI policy was revised and liberalized to an extent, the net FDI increased to USD 18.9M and in 2011 it dropped to around USD 16M.

The Bhutan Chamber of Commerce and Industry’s (BCCI) report on private sector development highlighted that there is marginal presence of FDI in Bhutan and that too was pulled by the tourism sector, particularly for the financing of new hotels and resorts.

It also stated that not many investments were made in agriculture and manufacturing industries, which are prioritised by the government.

“FDI is not the ultimate solution for the country’s economic development but a means for propagating growth,” Tandin Tshering said adding if foreign investments are not aligned to the country’s development priorities, it can also create irreversible social, economic and environmental problems.

For instance, if the country allows FDI in retail trading or in super market, it would kill all the domestic retailers.

He said investment climate in Bhutan is determined by brand Bhutan, good governance, political stability, and low corruption perception index with advantages in electricity prices.

Additionally, the free trade agreement with India gives Bhutan a preferential access to the large Indian market and easy access to skilled and unskilled labour from India.

The director said every country in the region is competing for the same FDI pie and those countries like Philippines are even willing to provide free land just for the sake of providing employment.

Others provide lots of incentives in the form of taxes and tariffs with added benefit of a huge market.

“But our’s is a country that prioritise environment, culture, revenue in line with GNH philosophy,” he said.

“Few quality FDI would have more impact than numbers in our case,” he said. FDI, he said, should fill in the dearth of capital, transfer technology and set better and higher standards for the local industries and support the local small and cottage industries.

A popular myth is that FDI is only attracted to countries that have low wage, weak labour laws and non-existent environmental regulation. But the records from the world bank show that most FDI is attracted to countries with good transportation infrastructure, and a healthy, literate and well-skilled labour force.

Kuensel