FDI Annual Report 2023 of Bhutan

image
image
image
image
image
FDI Annual Report 2023 of Bhutan

FDI Annual Report 2023 of Bhutan

Foreign Direct Investment (FDI) plays a critical role in the economic development of Bhutan. The 2023 FDI Annual Report by the Invest Bhutan Division, under the Department of Industry in the Ministry of Industry, Commerce, and Employment, provides a comprehensive overview of the current trends, sectoral distribution, capital inflows, employment impact, and geographical distribution of FDI in Bhutan. This report will delve into the details of these aspects, providing an elaborate analysis of Bhutan's FDI landscape in 2023.

Overview of FDI Projects Approved in 2023

In 2023, Bhutan approved a total of 12 FDI projects valued at Nu. 7,606.95 million. These projects span across the service and manufacturing sectors, with seven projects in the service sector and five in the manufacturing sector. This approval increased the total number of active FDI projects in Bhutan to 108, despite five projects withdrawing during the year​​

The geographical distribution of these projects shows a concentration in key regions like Thimphu, Paro, and Chukha Dzongkhags, indicating a regional preference for FDI within the country. This clustering suggests a focus on areas with better infrastructure and more significant economic activities.

Sectoral Distribution and Trends

The sectoral distribution of FDI projects highlights the dominance of the service sector, which constituted 67% of the total FDI projects in 2023, an increase from the previous year. The hotel sector remains the largest recipient within the service sector, although its share has slightly declined from 36% in 2022 to 34.9% in 2023. The IT/ITES sector also saw a marginal decrease from 22% to 21.7%​​.

Conversely, power-intensive manufacturing experienced a slight increase from 8% to 8.5%. This shift indicates a growing interest in sectors that can leverage Bhutan’s abundant hydroelectric resources, providing a comparative advantage for energy-intensive industries.

Origin of Foreign Investors

The majority of FDI in Bhutan originates from Asia, accounting for 65% of the total projects. India leads this category with a 57% share, followed by Singapore (13%) and Thailand (10%). European investors contributed 17%, while American investors accounted for 11%​​. This regional distribution underscores Bhutan's strong economic ties with neighboring countries and its strategic efforts to attract investment from Asian markets.

Capital Inflow Analysis

The total capital inflows in 2023 were Nu. 577 million, marking a 15% decrease from Nu. 680 million in 2022. Capital inflows in convertible currency amounted to US$ 1.39 million, while those in Indian Rupees (INR) stood at INR 262.778 million​​. This decline reflects broader global trends, as global FDI flows fell by 12% in 2022 due to overlapping crises such as the war in Ukraine, high food and energy prices, and soaring public debt​​.

Despite these challenges, Bhutan managed to maintain a steady flow of investment, particularly from developing countries, which saw a 4% growth globally. This resilience highlights Bhutan’s strategic attractiveness and the effectiveness of its investment policies.

Employment Impact

FDI projects have had a significant impact on employment in Bhutan. As of December 2023, FDI projects directly employed 4,327 Bhutanese, with the number rising to 4,577 when including projects that have not yet commenced commercial operations and expatriate employees​​. The service sector, particularly financial services, was the largest employer, accounting for 38.8% of the total jobs created by FDI projects.

A sectoral analysis reveals that the service sector employs an average of 53 Bhutanese per project, compared to 30 in the manufacturing sector. This discrepancy underscores the higher labor intensity of the service sector relative to manufacturing​​.

Gender Distribution in Employment

The gender distribution among Bhutanese employees in FDI projects shows a near-equal split, with women slightly outnumbering men. This gender balance reflects the inclusiveness of the employment opportunities generated by FDI projects, contributing to broader social equity in the workforce.

Expatriate Employment

FDI companies in Bhutan employed a total of 143 expatriate workers in 2023. The ratio of expatriates to Bhutanese employees varies significantly by sector, with the financial sector having the highest ratio of local employees to expatriates at 250:1. In contrast, the manufacturing sector has a ratio of 13:1, indicating a higher reliance on expatriate expertise in this sector​​.

Tax Contributions

FDI companies contributed Nu. 1,512.97 million in taxes for the income year 2022, reflecting a 16% increase from the previous year. This increase underscores the growing economic contribution of FDI projects to the national exchequer, including various taxes such as salary tax, customs duties, and corporate tax​​.

Key Challenges and Future Outlook

Despite the positive trends, Bhutan's FDI landscape faces several challenges. The global decline in FDI, driven by geopolitical tensions, economic uncertainties, and rising costs, poses a significant risk. However, Bhutan's strategic location, political stability, and proactive investment policies provide a strong foundation for attracting and retaining foreign investment.

Looking ahead, Bhutan aims to diversify its FDI sources and sectors, focusing on high-value and sustainable investments. The government's emphasis on improving the investment climate, enhancing infrastructure, and promoting regulatory reforms will be crucial in achieving these goals.

Conclusion


The 2023 FDI Annual Report highlights the dynamic and evolving nature of foreign investment in Bhutan. With a robust framework for attracting FDI, the country has managed to sustain a steady flow of investments despite global challenges. The service sector remains a key driver of FDI, contributing significantly to employment and economic growth. As Bhutan continues to enhance its investment climate and diversify its economic base, FDI will play an increasingly vital role in its development trajectory. The strategic focus on sustainable and inclusive investments will ensure that FDI contributes to the broader socio-economic goals of the country, fostering long-term growth and prosperity.

Partner with Basnet Attorneys & Law Today to Set Up Your FDI/Business in Bhutan

We specialize in facilitating seamless Foreign Direct Investment (FDI) setups and international business ventures in Bhutan. Our team is dedicated to simplifying complex landscape of Bhutan's business regulations, cultural nuances, and economic opportunities. You may write to us below to get in touch with us. 

Contact us now to schedule a consultation with our team.