Foreign direct investment in small & medium enterprises to be allowed soon.

Should the draft foreign Direct Investment (FDI) policy 2019 come through, small-scale production and manufacturing activities would be allowed to explore foreign partners and investors with its approval and clearances fast tracked.

This is one of the major changes in the proposed draft FDI policy, which is with the Gross National Happiness Commission (GNHC) for comments.

However, the requirement that FDI in manufacturing and service sectors with maximum foreign investors’ equity of 74 percent and minimum project cost of Nu 50M and Nu 25M for manufacturing and services respectively except for those in the Negative List, is still intact.

The draft policy states that the government shall allow FDI in select small-scale production and manufacturing activities to foster induction of new technology and skills and enhance market access. The minimum project cost of these projects shall be Nu 5M and the maximum foreign investors’ shareholding shall be 49 percent.

While investors from India are allowed to invest in INR, exception is made for the small-scale activities. In addition to the two schedules of priority list stipulated in the existing FDI policy, another schedule is added to the priority list to accommodate small-scale activities.

As for the visa, the draft FDI policy only permits multiple entry visas and route permits to foreign investors, board of directors and expatriate workers. In the existing policy, multiple entry visas, route permits and exemption of international tourist tariff is extended to foreign students enrolled in Bhutanese schools and institutes, patients and escorts visiting Bhutan for treatment in addition to the above.

The new policy also mandates the FDI division to function as an investment promotion agency and to provide single window services to FDI businesses in the country.

“The department shall approve/reject proposals falling under the Priority Sector Activities and Small-Scale Activities whereas for the Other Activities, the authority shall rest with the Project Approval Committee constituted within the Ministry,” the draft policy states.

The existing policy also prescribes the basis for approval and denial of proposed FDI activities, which is now removed from the draft. The criterion in the existing policy is based on GNH principles, employment, revenue contribution, foreign exchange earnings, value addition and innovation.

The draft policy has removed foreign investment in hydropower. In the existing policy, FDIs in the hydropower are based on the sustainable hydropower policy. Currently FDI in small and micro hydro power plants are permitted. 

However, the draft FDI policy allows foreign investment in other renewable energy but the size of investment is based on Alternative Renewable Energy Policy 2013.

In education, the new policy requires a minimum of Nu 300M investment and 74 percent foreign ownership in contrast to the Nu 200M investment and 100 percent ownership in the existing policy.

On infrastructure facilities, the existing policy allows investment based on PPP. However the new policy allows 100 percent investment.

For instance, FDI in waste management facilities, as per the existing policy, should be returned to government on expiry of term. This clause is removed in the draft FDI policy.

The new schedule in the priority list comprises of value-added agro-based products like dairy based processing, fruits, vegetable, food and confectionery processing, herbal and medical products and honey-based products.

Another section in the new schedule includes forest-based production like value-added hand-made paper products, integrated wood and bamboo products and cosmetics. Another section on souvenir and ceramic products has also been added to attract FDI.

The negative and prohibited list remains unchanged.

Source: kuensel