Bhutan is banking on a unique mix of abundant energy, a clean environment, and wellness entrepreneurism to lure foreign investors.
A constitutional monarchy of 800,000 people, Bhutan is nestled in a region that’s home to nearly 3 billion. Bordered by China to the north and India to the east, west and south, the Himalayan nation installed a new government in January under Prime Minister Tshering Tobgay, who returned to office after an earlier five-year stint that ended in 2018.
Tobgay takes over at a time when Bhutan is appealing to foreign investors on the strength of its nearly pristine environment and absence of pollution, a possible pointer to what a global economy could look like free of chemicals and driven by sustainable energy.
The message appears to be getting through. The Asian Development Bank forecasts GDP growth of 4.4% this year for the kingdom, driven mainly by services, and a dramatic acceleration to 7% in 2025, when a major hydroelectric plant is due to come onstream. The International Monetary Fund predicts that growth will accelerate over the medium term, boosted by large hydro projects, higher capital spending, and a slowdown in emigration.
| Vital Statistics |
|---|
| Location: South Asia |
| Neighbors: India, China |
| Capital city: Thimpu |
| Population (2023): 884,546 |
| Official language: English |
| GDP: $10.981 billion (2022 est.), $10.437 billion (2021 est.), $9.995 billion (2020 est.) |
| Inflation (2022): 1.23% (est.) |
| Unemployment rate (Feb. 2023): 0.88% |
| Currency: Bhutanese Ngultrum, Indian rupee |
| Base interest rate: 6.8% |
| Investment promotion agency: Bhutan Chamber of Commerce & Industry |
| Investment incentives: Tax holiday of five to 10 years, sales tax and customs duty exemption on import of plant, machinery, and raw materials, 10-year tax exemption on convertible currency earnings from manufacturing and IT/ITES, 15% tax rebate on environmental uprades, reinvestment allowance. |
| Political risks: China encroachment |
| Security risks: Bhutan generally has cordial relations with China |
| PROS |
|---|
| Constitutional monarchy since 2008 |
| English widely spoken |
| Recent general election: all parties stressing FDI and economic growth |
| Strong relations with India |
| Abundant and cheap hydropower |
| Fiscal incentives for business |
| CONS |
|---|
| Underdeveloped infrastructure, but improving |
| Small labor force |
| Complex approval process |
| Proximity to China |
Sources: CIA Fact Book, BBC, Bhutan CCI, World Bank.
For more information about Bhutan, click here to read Global Finance’s country report page.
Gross National Happiness
“Bhutan is not only focused on economic growth but also on maintaining harmony with nature and its people,” says Aum Phub Zam Bhutan, president of Yarkay Group, a leading diversified Bhutanese company and, earlier, the first woman to serve as president of Bhutan’s Chamber of Commerce (BCCI). In 1972, the kingdom adopted a governing philosophy of “Gross National Happiness” with four pillars: sustainable and equitable socioeconomic development, environmental conservation, preservation and promotion of culture, and good governance. Today, government and leading figures in the private sector see this as a formula for economic development as well.
“Our commitment to Gross National Happiness marries sustainable development, cultural preservation, environmental conservation, and good governance,” says Zam, “making Bhutan a unique investment destination.”
Wellness tourism—vacation travel to destinations that promise to help control stress and promote a healthy lifestyle—is a key focus area. The sector reached an impressive $5.6 trillion worldwide in 2022, according to the 2023 Global Wellness Economy Monitor report, which predicted it will enjoy a compound annual growth rate of 8.6% over the next five years.
“We think Bhutan will emerge as a prime destination for wellness tourism, and our new government now seeks foreign direct investment quite aggressively,” says Zam. “Last week, investors were invited to a gala dinner in Bangkok, Thailand by [software maker] FBX Group in honor of our prime minister, and on October 3 we are holding an investment forum here in Bhutan.” The hotel sector today accounts for 43% of the kingdom’s total active FDI projects, driven by international chains including Aman, Como, Six Sense, and Le Meridian.
“We emphasize green projects and a pollution-free environment,” says Tandy Wangchuk, current president of the Bhutan Chamber of Commerce and Industry. “In our thirteenth five-year plan, we have targeted $6 billion of FDI.”
The government’s FDI policy supports that goal. Bhutan now allows foreign investors to repatriate dividends, and the limit on leases of state land was extended this year from 30 years to 99.
“Depending on the nature of your project, you can establish a foreign-owned entity without a local partner, and we now encourage investors to bring their families to Bhutan,” says Tandy.
Education and high-end hotels are a priority, but industrial parks are also sprouting in the kingdom, especially in the south bordering India, which has plentiful hydroelectric power to support heavy industry.
“Abundant energy enables a variety of industries, including bitcoin mining, IT data science, and call centers as well as cement, steel, and ferrous alloy production,” Tandy notes.
In a sign of increased interest in Bhutan, Singapore President Tharman Shanmugaratnam recently hosted Tobgay, saying, “Bhutan is home to stunning natural landscapes and immense biodiversity, from the subtropical to alpine. Because forests cover 72% of its land, Bhutan is one of the very few countries in the world that absorbs more carbon dioxide than it produces; in other words, it’s carbon negative.” Bhutan is also able to export most of the renewable hydroelectric power it generates from its rivers.
Hazel Nuts, Coffee, No Crime
Sean Philip Watson, CEO and founder of Mountain Hazelnut Company, has been building business in Bhutan for 14 years.
“Bhutan is at the nexus of a triple bottom line—social, environmental, and economic—driven by a unique vision of Gross National Happiness,” he says. Watson has a long history working in emerging markets, notably with H.J. Heinz on the sustainability of its China tomato production, where an industry with millions of growers and 30 factories was automated under his guidance.
“Bhutan is one of the last clean places on the planet: Shangri-La,” he says.
The kingdom’s agriculture sector is now executing a strategic shift toward commercialization; it employs 43.5% of the workforce, accounting for 14.9% of GDP in 2023.
Watson says, “The Bhutan model, properly adopted, may provide the world with a compelling example of how to skip from a medieval past to an ecologically balanced future, while avoiding a polluting industrial age and massive urban migration.”
Fine food could be one component of that formula, he adds, but “we need agricultural investors who believe in this space,” which could include exports like trout, caviar, berries, buckwheat, quinoa, turmeric, ginger, and dairy products.
“As a further incentive, there is no crime, no corruption, rapidly improving infrastructure, abundant clean energy, and English is widely spoken,” Watson notes.
Coffee, Anyone?
David Mathews came to Bhutan five years ago after a career at Jardine Matheson and Robert Fleming that included a long stint in China.
“We have land at 4,000 feet in southern Bhutan to grow coffee at the same altitude it’s grown in Sikkim and India,” he says. “We want our beans to be as pure as possible and a unique Bhutan brand. After coffee, we see opportunities for scents and flavorings grown on the hills. Again, purity is a major selling point.”
The nation is learning from other, fully industrialized countries’ experience, Mathews says, “The Bhutanese have seen the ecological harm caused by industrial development elsewhere. Bhutan is a pristine and unpolluted place. Increasingly, this is attractive to discerning Western investors.”
Time will tell whether Bhutan’s model of Gross National Happiness, including clean and unpolluted food sourcing and zero carbon, will catch on. But Mathews is optimistic.
“We believe that increasingly, consumers will start to see Bhutan as a source of top-quality unpolluted foodstuffs, and our coffee will meet that market,” he predicts. “Worldwide, consumers increasingly want clean food, and Bhutan furnishes a compelling model.”
