Backdrop on Bhutan's Private Sector

Bhutan has a small, new, and relatively under-developed private sector. Prior to opening up the economy in the 1950s the only private sector activity was in agriculture supplemented by some trading activities. Since that date, the transformation of the economy has been dramatic with a rapid growth in urban centers, the establishment of a basic set of infrastructure services, and the development of hydropower sector. Over the years, economic have grown steadily. Overall economic growth has, in turn, fostered private sector development.

Today, Bhutan's private sector is operating in a wide range of activities from power intensive industries such as cement, ferroalloys and calcium carbide; a range of light manufacturing industries in areas such as fruit processing; some mining companies which mine and process locally available products; a group of saw milling and other up-stream processing industries around the wood industry; a group of service industries supporting the tourism sector; and a fast growing construction sector (spurred, in large part, by the construction activities of the Government and the development of additional hydro facilities). The Royal Government recognizes that, while it has long been the main engine of economic growth, this situation must gradually evolve with an increasingly greater reliance upon private sector activities as the engine for development. However, as in all countries, Bhutan has a unique set of challenges with respect to the development of the private sector. These challenges are:

• Bhutan is landlocked;
• Lack of entrepreneurial talent due to the very "new" nature of most private sector activities in Bhutan;
• An extremely small domestic market
• A lack of skilled Bhutanese workers and a seeming unwillingness of Bhutanese workers to undertake menial or unskilled work (although, again, this is more than compensated by a plentiful supply of low cost skilled and un-skilled Non-Bhutanese workers);
• Bhutan's financial system is rudimentary and non-competitive. It only offers very basic financial products and at a fairly high cost; and
• Transportation, particularly in the more remote central and northern parts of the country, poses a considerable cost disadvantage. It is slow and regularly disrupted by monsoons and associated landslides.

Ameliorating the impact of many of these problems will prove difficult - Bhutan, for example, will always remain land locked. Nevertheless, action with respect to the financial sector, a gradual improvement in the transport infrastructure, a gradual increase in the skill levels of Bhutanese workers, setting up channel for dialogue with private sector and an increasing emphasis on external linkages, are all possible policy choices.

Development Scenario

The rapid pace of development brought about a radical shift from the predominant agrarian economy to new economic activities. More of the literate youth migrate to urban centers looking for greener pasture, resulting to an emerging concern over rural to urban migration and draining of potential for local economic development. Rural-urban migration has not yet become a major source of urban unemployment in Bhutan. The vast majority of the rural population, continue to remain in rural areas (although this is also likely to change with time). However, good progress in achieving educational and literacy goals has meant that a growing number of educated and literate Bhutanese are now seeking urban employment opportunities. While the majority of these school leavers have been absorbed into the public sector in the past - and this has indeed been the preferred employer for most Bhutanese - the government has now largely reached saturation point. This saturation of public sector employment opportunities has taken place at a time when the benefits from investment in education are increasingly bearing fruit. It is estimated that over the decade 2001 to 2010 approximately 90,000 school leavers and graduates will be produced by the school system - with exponential increases taking place each year.

In seeking to promote private sector employment, the government seeks to build upon the advantages that exist - while attempting to ameliorate the disadvantages to the maximum extent possible. The task set for the private construction sector is so formidable that it will require all the resources and support available to it if it is to begin to address the problem of growing youth unemployment.