Trade (Industry)

Basic Situation

During the 7FYP, development of the industrial sector continued at a steady pace. Considerable investment was made in new industrial ventures as well as in the expansion of existing enterprises.

Wood-based Industries

A conservative policy is followed while promoting wood based industries because of their direct implication son the environment. By June 1995, 151 wood based industries were licensed. Under DANIDA assistance a new project, Wood Crafts Center, was initiated in Thimphu in the 7FYP.

Agro-based Industries

This sector continued to grow during the 7FYP and, by June 1995, a total of 72 licenses had been issued. Also, under a UNDP grant, 20 lemon grass oil processing units were fabricated for distribution.

Mineral-based Industries

Progress in this sector has been promising and, by June 1995, 29 licenses had been issued. BFAL (Bhutan Ferro Alloys Limited), expansion of PCAL (Penden Cement Authority Limited), Lhaki Cement and export of boulders to Bangladesh feature as economically significant projects.

Services

A total of 1506 service licenses which mainly cover repair workshops, hotel/restaurants, and tourism activities have been issued.

Contract and Other Licenses

A total of 921 contract licenses have been issued most of which fall under the fall under the "C" and Petty class categories. There are 33 and 21 registered companies in Class A and B respectively. There are also 51 licenses which do not fall in any specific category mentioned above.

Industrial Infrastructure

Currently there are three industrial estates at Gelephu, Samdrup Jongkhar and Phuntsholing, land a Service Center at Changzamtok, Thimphu. The Gidakiom Industrial estate is being developed with assistance from the Government of India.

Constraints

The significant factors which have contributed to the relatively slow pace of industrial development are a weak entrepreneurial orientation, high transport costs, small domestic market, an under-development infrastructure and lack of a resource inventory. There are also policies which influence the industrial development and the trade-offs between economic growth and environmental concerns regarding the exploitation of natural resources, and access to imported skills and the need to develop the indigenous labour force. The lack of competition between the financial institutions has also restricted access to investment. This and other constraints which adversely affect incentives in industry and promotional services will be addressed during 8FYP.

Institutions

The Industry Division under the overall guidance of the Ministry of Trade and Industry is responsible for all industrial activities in the Kingdom. The Division has a Project Development Section, Entrepreneurship Promotion Center, Industrial Licensing & Monitoring section, Industrial Estate Development Section, Essential Oils Development Unit and four Regional Trade & Industry Offices at Thimphu, Phuntsholing, Gelephu and S/Jongkhar. Besides Governmental support to industrialization, BCCI has a leading role in the promotion of industrial activities.

Objectives of the 7FYP

- Increase revenue generation and the share of the manufacturing sector to GDP from 7% in 1989 to 13% by 1997 (at an average growth rate of 13.4% per year;
- Increase the contribution to GDP from retail land wholesale trade, hotels land restaurants from Nu. 268.8m. in 1989 to Nu. 325m. in 1997;
- Improve the trade balance by increasing exports both to India and third countries;
- Substitute imports through domestic manufacturing, and
- Increase foreign exchange earning through tourism.

Strategies in the 7FYP

The main strategies followed were : reliance on market based mechanisms, provision of support services to industrial development and broadening the base of industrial ownership.

Achievement

Feasibility studies were completed for Glass Bottles, Silicon Carbide, Cement Project and Magnesium Metal, Calcium Carbonate, Construction materials, Tungsten Mining & Benefaction and Agro based Industry in the East.

Under the Entrepreneurship Promotion Center (EPC), the Cottage, Small & Medium scale Industries (CSMI) carried out the annual Comprehensive Entrepreneurship course in cooperation with the four financial institutions. So far, 73 entrepreneurs have been assisted under four such courses under the EDP (Entrepreneurship Development Programme) loan scheme. Another activity of the EPC is the Industrial Extension Services which includes Performance Improvement Programme, Integrated Firm Analysis and Assistance to "walk in clients". The CIDP (Cottage Industry Development Programme) is the third activity of the EPC which provides support in reviving and strengthening Bhutan's cottage industry sector. The main activities under the CIDP include tailoring & designing course, Khoma weaving project land the CIDP showroom in Thimphu. Besides the above activities other projects like vegetable dyeing, traditional bootmaking, broadloom weaving, pottery and ceramics were identified for implementation.

The industrial service center at Thimphu was established and work on the Gidakom industrial estate is ongoing to cater to the needs of the manufacturing industries in the Western region. Infrastructural work on the 42 acres of land at Gidakom was largely completed by the end of 7FYP. The industrial service center was competed with 37 sheds available for allocation. Sites for industrial estates for the central, eastern and Phuntsholing regions were also identified and the feasibility studies completed.

Two buffer stock POL depots were established under the MTI in Dechenchholing and Deothang in order to ensure an uninterrupted supply of petroleum products during the monsoon when supplies are frequently disrupted. Both depots were fully operational by the latter part of 7FYP.

A network was established on industrial safety and health regulations to facilitate the exchange of information between the ILO and the Industries division.

A preliminary survey was carried out by a mission from the Bureau of Indian Standards on the feasibility of setting up a Bhutan Standards Institute.

The development of the essential oils industry was further promoted. This has had a significant impact on the incomes of the large number of participants in the eastern region. With the assurance of guaranteed market, preliminary studies for commercial exploitation of other indigenous essential oil species are promising.

The financial packaging for the Dungsum Cement Project (DCP) was successfully finalized and agreement was signed with the Government of India in March, 1996. The DCP located in Samdrup Jongkhar district will have an annual turnover of 0.5 million tones per annum.

Other Activities

Shumar Gypsum Mines, the Penden Drukpa Coal Company in Samdrup Jongkhar and the Sha Slate mines were auctioned or leased for a ten year period to private parties. The Agro Industries was further strengthened with the addition of a Fruit Processing and the Salt Iodization plant at Phuntsholing was sold to a private individual. Further, monitoring of the Government workshops leased to the private sector was undertaken by the Industries division. Many other industrial ventures in different Dzongkhags were also assisted to acquire land for their industrial activities in coordination with the Forestry service division and the Home Ministry.

Objectives

- Increase the contribution of industry to the GDP, and to government revenue, on a sustainable and environmentally friendly basis;
- Increase the profitability of indigenous industries;
- Promote industrial development through private enterprise; and
- Broaden employment opportunities and skills development to increase opportunities for women in industrial activity.

Strategies

- Continuation of private sector support and privatization;
- Provision of industrial incentives;
- Making optimal use of indigenous raw materials;
- Creation of an enabling environment, industrial estates and infrastructure;
- Strengthening of service and promotional activities of the Industry division
- Promotion of cottage and small industrial enterprises;
- Preparation of feasibility studies for medium and large industries;
- Development and implementation of an appropriate HRD programme.

Promotion will include provision for RGOB investment to initiate large and medium scale industries with sound prospects, until such time as the private sector is able to make the necessary commitments.

Small Industries Development Programme

The ministry of Trade and Industries will continue to promote private sector entrepreneurship through the Small Industries Development programme. The programme will assist in starting new projects, conduct training courses for existing entrepreneurs to improve their business management skills. The programme will also provide support for entrepreneurs seeking support for skills acquisition, upgrade the market value of vocational training by offering relevant work oriented training and institution development support to the BCCI.

Industrial Development Programmes

- Feasibility Study of Medium & Large Projects to assist the private sector in identification and promotion of viable industrial projects.
- Study of Projects on Waste Recycling to promote an environmentally friendly industrial development through the productive utilization of waste materials, minimization of pollution and the treatment of toxic waste.
- Preparation of Industrial Master Plan to assess the project development programme, which will provide long term industrial plan for future planning and industrialization thereby providing an overall frame work for industrial development.

Industrial Monitoring Programme

- Bhutan Standards Institute, will be established to monitor quality standards of Bhutanese industrial products and to prevent the export and import of sub-standard goods, protect the right of the consumers and also enable Bhutanese exporters to introduce their products in respectable international markets.
- Occupational Safety and Health Network Center, will help in achieving the adoption of safety and health measures in all the industries and work places to protect employees and improve working conditions.

Industrial Estate Development

- Development of Industrial Estates and Service Centers, is aimed at enhancing income and employment through a regionally balanced development and by grouping industries so that ecological damage can be reduced and pollution control measures can be effectively implemented. The programme includes the Development of I) Gidakom Industrial Estate in Thimphu, ii) Gedu Industrial Estate in Chukha, and iii) Upgradation of the Samdup Jongkhar Service Centre.

Development of Essential Oil Industry

The production and distillation of plants for essential oils has been identified as a significant potential area for providing income for low income for low income farmers since it is a high value, low volume product produced by small farmers in remote areas. This project is a continuation of the 7FYP project which has carried out grass-roots level studies to improve the commercial exploitation of these resources, established appropriate distillation technology, improved yield and quality of the oil, and also developed the national capacity to run an essential oil industry. The continuation of this project in the 8FYP will focus on diversification, establishment of a processing unit and also look into the possibilities of expanding the project area to a few other dzongkhags.

Fire Fighting System for POL Depots

During the 8FYP, fire-fighting services will be provided at the Government POL Buffer stock depots where large volume of highly inflammable substances are stores.

Project summary :

1. Sector : Industry

2. Location : Thimpu

3. Executing Agency : Ministry of Trade & Industries (MTI)

3. Implementing Agency : Division of Industry

4. Estimated cost:

Recurrent : Nu. 6.135 m

Capital: Nu. 32.229 m

Total: Nu 38.364 m

5. Funds Secured : Nil

6. Financing Gap: Nu. 32.229 m

7. External finance reqd.: Nu. 32.229 m

8. Status : Continuation

9. Documents available: None

Project Objectives

- Provide sponsorships for entrepreneurs seeking support for skills acquisition:
- Upgrade the market value of vocational training offered by offering relevant work oriented training to those likely to apply them in the private sector; and
- Institution development support for BCCI

Project Description

Helvetas has been a significant developing partner actively involved in Small and Medium Enterprise Development in Bhutan for 14 years, primarily in Bumthang, The industries that have evolved from a careful process of assisting the privatisation of "Production units" which were originally established as support components of a diverse array of development projects. Collectively, these industries now compromise must of the "industrial base" in the Bhumthang valley. Helvetas has demonstrated a keenness to expand on this experience and has committed an annual budget of approximately 1,50,000 Swiss Francs to fund the Small Enterprise Development Project which will commence in 1996. Activities under this project will continue during the 8FYP. The components of this project include;

- Training sponsorships
- Market-based Skills Training using Technical land Vocational Training for Small Enterprise Development
- Institutional development support for BCCI
- Feasibility Studies
- Technical Assistance and Back-stopping

A Training sponsorships

This component will provide sponsorships for entrepreneurs seeking support for skills acquisition. These sponsorships will be relatively modest in individual increments; requiring an element of cost sharing on the part of those who benefit; and will be directed to addressing specific technical, managerial or marketing problems that enterprises encounter. The sponsorships will pertain to training within the SAARC region and will be frequently applied to training Bhutanese owners and employees in India. Some of the funds under this component will be used, when appropriate, to support staff development of MTI personnel involved in enterprise development.

b. Market-based Skills Training using Technical and Vocational Training for Small Enterprise Development

Bhutan is in a paradoxical position of having a market demand for specific productive, technical and managerial skills in the private sector, a growing number of school leavers with general education who are unemployed. The key to making much needed Bhutanese technical skills available to enterprises, and thereby giving them the ability to offer the jobs that only increased productivity can produce, is to upgrade the "market value" of the training offered. And the key to upgrading the market value of training is to offer relevant work-oriented training to those most likely to apply these skills in the private sector.

c. Institutional Development Support for BCCI

Today, the burden of representing the entire enterprise sector falls on BCCI. I is at present the sole formal organization in this important category. Since the BCCI has been mandated to carry out this crucial role along, there is a need for institutional development assistance to enable it to do so.

Institutional development support for BCCI would concentrate in three areas:
- decentralization (to make BCCI more member responsive)
- strengthening capacity in the areas of policy dialogue (opportunity creating)
- strengthening capacity to provide access to assistance for small enterprises (opportunity realizing).

Regional chambers of commerce, based in and responsible to regional membership, and affiliated to the national BCCI, should be created in up to three geographic centers outside Thimpu. Though the executives of these chambers would be voluntary, support would be given for establishment of modest regional "Secretariats" comprised of 1 or2 clerical staff in modest rented offices with basic communication equipment.

An anticipated component of this project is a "twinning" arrangement between BCCI and an appropriate Chamber of Commerce and Industry in Switzerland.

d. Feasibility Studies

The project also included the component of feasibility studies. These studies would be broadly defined to cover project assessments, credit need determinations, training need determination and problem solving. Particular emphasis will be given to disadvantaged entrepreneurs and non traditional areas of enterprise. Feasibility studies would be used in response to entrepreneur identified problems and opportunities, not in anticipation of them.

e. Technical Assistance and Backstopping

Technical assistance will be provided for;
- project design (short term) in training for self employment and enterprise based training.
- Project design (short term) in small business membership organization development
- Project backstopping (long term, part time) to twin the BCCI with an appropriate chamber of commerce in Switzerland, and via this linkage to provide on-going organization development support BCCI
- Periodic project evaluation (short term)

Project Management

The Project will be managed by the Entrepreneurship Promotion Centre, MTI. Overall aspect of the project will be managed by a National Project Manager assisted by the project officers.

Project summary :

1. Sector : Industry

2. Location : Nationwide

3. Executing Agency : Ministry of Trade & Industries (MTI)

4. Implementing Agency : Division of Industry

5. Estimated cost:
Recurrent : Nu. 0.950 m
Capital: Nu. 35.000 m
Total: Nu 35.950 m

6. Funds Secured : Nil

7. Financing Gap: Nu. 35.000 m

8. External finance reqd.: Nu. 35.000 m

9. Status : Continuation

10. Documents available:

Project Objectives

- Study existing / potential industrial resources in the country and identify potential resource based / projects with comparative advantage for establishment;
- Channel limited industrial investment in sound projects by carrying out feasibility studies of projects;
- Assist private sector in identification and promotion of viable industrial projects; and
- Promote industrialization and private sector development

Project Description

The project is a continuation of 7FYP project on "Preparation of Feasibility Studies" but on a broader scale. The Ministry will identify potential industrial projects on the basis of existing/new resources identified, new opportunities as a consequence of development activities in other sectors, market and other project parameters and carry out feasibility study of the selected projects to determine project potential. A total of four projects each fiscal year is proposed covering only medium and large scale industrial projects.

Projects Impact

The project is expected to provide options for private sector investors to arrive at sound investment decisions and thereby channel industrial investment in viable projects. A proper study would provide an investor with the opportunity to assess and consciously invest as against investment on prima facie speculation. As a result, development of industries in line with resource availability, sustainability, overall Government policy, sound market and definite comparative advantages (in case of export oriented projects) is expected.

Project Management

Project Development Section, Industry Division, MTI will implement and manage the project under the overall supervision and guidance of the Ministry.

Financing Detail

It is proposed to undertake feasibility studies of four projects in a year on the basis of the experience the implementing agency had during the 7FYP. It has further been estimated that for a proper feasibility study, using the services of regional consultants through global tendering, each study will cost on an average US$50,000. The services of Consulting Firms from developed countries are expected to cost about US$ 100,000 per study. Subject to the preference of funding agency and requirement of expertise in the selected field, use of consultancy services from developed countries is foreseen. As such, funding requirement is projected on the basis of average or a mix of regional and consulting firms from developed countries at US$ 75,000 per study.

The recurrent component of financing requirement would be the salary and allowances for one officer, secretary and driver and maintenance of above equipment and office supplies. The preliminary estimate for the project is about Nu. 1.10 m.

Manpower Requirement

The Project Development Section has one full time officer for implementation of the above project. Additional support of 1 officer, 1 secretary and 1 driver is required.

Equipment

To assist the coordination and visit of officers and consultants to various project sites in different parts of the country the project requires the provision of transport facility in the form of a vehicle and one computer with laser printer.