Bridging the divide

I’ve been spending the past few weeks in meetings and reading up on Bhutan’s current and future investments. The situation here a little different than other countries for a few reasons, including the high amount of hydroelectric electricity sales to India, low growth in job-creating sectors and complicated FDI policies (despite ambitions and delusions of openness). This post captures a few initial reactions to what I’ve been learning.

Building on the country’s specific needs, any future investment should be assessed in terms of four E’s: Economy, Energy, Employment and Environment. While the first two, Economy and Energy are already fairly well mapped out, the latter two require increased attention. How many jobs can be created by? What is the potential environmental benefit or damage? How can leading practice mitigate potential risks?

• ECONOMY – The economic benefit of Bhutan’s energy sales is much more complex than just cash in for energy out. Specifically, new investments should be assessed for their impact on the balance of trade. Looking critically at the current rupee crisis, its roots can be traced back to the commissioning of the Tala hydro plant in 2007. The cash inflow to the country and subsequent salary increases from the windfall poured huge amounts of money into the economy. From what I have been led to understand, by 2009 this drove up costs across the country, first of labour then of inflating consumer goods. First consumption increased, then construction, and encouraged by the low barriers to getting loans, the volume of borrowing skyrocketed. By investing in industries that bring more than just cash to the economy, but also domestic jobs and materials that the population needs, a more balanced economy can be encouraged.

Future source of power in the new Punasangchhu hydro plant

• ENERGY – By 2017, Bhutan is expected to have an increase of 600Mw of year-round power (called firm power) as new hydro projects come online. The summer (monsoon season) power produced will be much greater, much of which will be sold to India. By using the firm power in Bhutan rather than selling it to India, energy produced will increase economic and social value added domestically. Options to use this power include increasing existing mining operations, aluminum smelting, or explorations into pulp and paper and other energy intensive industries. Each of these must be assessed from a systems view to balance the impacts of energy use and value-add supply with social and environmental factors.

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  EMPLOYMENT– Currently Bhutan’s largest economic contributor is one of its lowest employers. While sales of electricity account for 40% of GDP, I understand that the sector employs less than 1% of the population. Without having revenues pinned to jobs, the money that comes into the country does not necessarily get into the pockets of a broad enough swathe of the population. Therefore, there is need for future selection of industries which will not only use energy, but also employ the skilled and semi-skilled youth that Bhutan’s school system is churning out. Similarly, there needs to be a conscious effort by the government to ensure that the concentration of employment is not only in the capital region, but across the country as well.

• ENVIRONMENT– Bhutan’s leadership should be commended in managing the extensive natural resources possessed by the country. By paying careful attention to how resources are used, including water, forests and minerals, good environmental and economic governance makes it possible to avoid the “resource curse” which has plagued many developing countries, especially in Africa. By mandating 60% forest cover through the constitution, Bhutan assures that such precious resources are not lost for generations to come. Though these precautions are necessary on one hand, they also preclude economic growth and employment to a certain extent – and this is coming from a pretty hard core environmentalist! For example, Bhutan should be managing its forests to supply all the timber, pulp and paper needs for the country, and through proper forestry and silviculture, could be adding many more jobs through these industries. With respect to the severe trade imbalances and extensive domestic natural resources, Bhutan should certainly not allow more precious cash to be going across the border to India for imports.

Each of these four E’s would need to be refined and improved through specific and targeted efforts – in fact, all these issues are highlighted in their current (10th) five year plan. However, shifting from a master plan to implementation is the greatest challenge. Each of these factors does not operate independently of the others, and a dynamic approach is needed when it comes to implementation; one designed to self correct when necessary and learn along the way. It will be important that the vast energy produced be linked with employment through addition of energy intensive industries that add jobs to the economy, and that environment be linked with the economy, as Bhutan’s natural resources can be a long-term benefit to the economy, rather than a regulatory thorn that restricts economic growth.

Hopefully I’ll be able to have a positive impact on these issues over the coming year. Bhutan is fortunate to be a resource rich country, with a government that has been strong in promoting education and energy development. Along with these, it needs to create the jobs to match, and ensure that the work force coming out of the education system is the one that industry will be looking for in the future, but that will need to wait till next time!