Happiness and trade make an ideal match – lessons from Bhutan
Kudzai Makombe and Hang T.T. Tran
- Institutional coordination and capacity-building: The Enhanced Integrated Framework (EIF) is a major partner providing trade-related technical assistance in Bhutan. It has identified the sectors most in need of trade to develop core human resources. The EIF has supported institutional capacity-building and coordination on trade development and the formulation of trade policies and discussions – including the development of Bhutan’s competition policy and trade strategy. The EIF National Implementation Unit (NIU) is an integral part of the Trade Department and plays an instrumental role in inter-ministerial coordination and Aid for Trade (AfT) implementation.
- Fostering partnership and resource mobilization: Based on capacity built, the NIU and the Trade Department developed bankable projects and mobilized support from development partners, such as the Japanese International Cooperation Agency, the European Union (EU), the International Trade Centre (ITC), the UN Development Programme (UNDP) and UN Economic and Social Commission for Asia and the Pacific. The EIF’s engagement in Bhutan was essential in enabling the country to gain much of this additional trade-related funding and technical assistance. In addition, the NIU has extensively engaged local partners, from both the public and the private sectors, to implement AfT projects, ensuring local ownership, impactful results at the grassroots level and sustainability.
- The EIF provided seed money to strategic priority areas, which has created momentum for the development of small- and medium-sized enterprises (SMEs), improved the country’s competitiveness and exports as well as triggered reforms and helped amplify impacts. The Government of Bhutan has developed an e-infrastructure for trade in services, such as the people data hub, the trade and investment portal and an online commodity auction.
Happiness is for many people readily associated with the small mountain Kingdom of Bhutan. National happiness is Bhutan’s goal, its philosophy and its brand, embedded in its national development strategy. Gross national happiness (GNH), declared in 1972, strives for balance between national economic progress as defined by the gross domestic product and sustainability measured by the preservation of its culture and environment. It is integral to Bhutan’s trade agenda, which focuses on sustainable and inclusive growth.
The partnership between Bhutan and the EIF stretches back to 2009. Directly contributing to several UN Sustainable Development Goals (SDGs), particularly SDG 8 on decent work and economic growth, the EIF facility was well aligned to work within the context of Bhutan’s development philosophy. The EIF supported the development of Bhutan’s trade agenda roadmap, improving policies supporting pro-poor trade and strengthening institutional coordination, including human capacity for trade and development. Beyond this, the EIF contributed to building the productive capacity of farmers SMEs and facilitated the country’s ability to leverage additional funding through catalytic project support.
Bhutan’s policies, actions and partnerships have led to significant poverty reduction over time. According to the World Bank, Bhutan’s poverty rate, based on the USD 3.65 per day poverty threshold, dropped from 27% in 2007 to 8.8% in 2021.
A PRO-POOR TRADE ROADMAP
Improving trade integration policies formed the initial engagement, with the EIF supporting country-owned evidence-based research and analysis to identify Bhutan’s trade agenda priorities, constraints to trade integration and key action areas.
Among the priorities were investments into institutional development in the form of an NIU to manage trade mainstreaming under the AfT agenda. Digital trade, investment facilitation, branding and women’s economic empowerment were identified as constraints and opportunities in the 2010 Diagnostic Trade Integration Study (DTIS) and its update in 2020. The DTIS laid the foundation and served as a blueprint for the Government, the private sector and development partners to work together to boost Bhutan’s trade development. It is critical to provide the necessary evidence to develop sound policies, while also serving as a reference point to mobilize resources from donors and the private sector.
The DTIS led to the updated regulatory framework and policy for trade and investment in line with the country’s 12th five-year development plan. The National Export Strategy (2022), developed with support from the EIF and UNDP, identifies factors constraining export growth and provides recommendations to address structural issues facing export, such as the institutional, legal and regulatory environment; trade and business infrastructure; standards and certification; the building of productive capacities; and export promotion.
In this context, the Department of Trade partnered with, and leveraged the work of, the Bhutan Chamber of Commerce and Industry and its regional offices in the country as a way to advance trade integration nationwide.
A DIGITAL SOCIETY
Bhutan has long recognized the importance and potential of harnessing information and communications technology to build a knowledge-based society. Among many initiatives undertaken by the Government is Digital Drukyul, a recent flagship programme that enables the sharing and exchange of people, land, vehicles and business information for support services and institutions. In 2017, the EIF and the Government of Bhutan pooled funds for e-infrastructure development, which has enabled public services to go online and provide a one-stop information centre for businesses and Government entities, leading to improved efficiency and reduced duplication.
The EIF further supported the Department of Trade’s development of guidelines on e‑commerce and an e-commerce policy framework. The policy guides the creation of a dynamic e-commerce system, facilitates cross-border e-commerce and enhances business opportunities.
The EIF also played a critical role in the development of an e-regulations portal. Implemented by the Ministry of Economic Affairs in collaboration with the EIF partner UN Conference on Trade and Development, the portal provides a step-by-step guide on investment procedures in more than 100 languages and is accessible from the Ministry and Bhutan’s embassies, missions and consulates websites. It has improved the speed, transparency and efficiency of administrative procedures, and the Ministry has received substantial foreign direct investment (FDI) inquiries. Since its launch in 2020, 14 FDI projects worth USD 14.5 million (BTN 1.2 billion) and 90 domestic investment projects worth USD 350 million (BTN 29 billion) have been approved.
A National Tourism Statistics Framework was also developed and implemented with an improved design for its visitor exit survey and data collection on inbound tourism. Its purpose is to improve this feedback mechanism, which can be used as input for further development of the tourism industry.
FACILITATING TRADE THROUGH ONLINE PLATFORMS
Potatoes are one of Bhutan’s main exports, with neighbouring India and Bangladesh as the main buyers. However, long travel distances to markets, quality and packaging constraints and limited information on pricing needed to be overcome for farmers to access these regional markets. In 2017, an EIF-supported project implemented by the NIU and local partners, including the Royal Securities Exchange of Bhutan (RSEBL) and the Food Corporation of Bhutan, sought to transition the country’s traditional local potato auctions to an electronic trading system, which would make pricing more transparent and reduce transaction costs.
The online potato auction allows farmers to access market information and sell their product more efficiently. Further EIF support was provided for training – in partnership with farm aggregators, the RSEBL and the state-owned Food Corporation of Bhutan – on how to use the online platform. In 2019, the facility was used by more than 3,000 farmers, 61% of them women, helping them to increase their profits. The system has cut processing time from four days to one day and provided for better price comparison. Recognizing that not all farmers have internet access, the farm aggregators also provide walk-in information and inquiries support at their potato auction facilities located across the country, including in the most remote areas.
Based on the success of the pilot initiative, the Government injected further funds for the purchase of more equipment and extended the online auctions to other commodities, such as cardamon, and towards improved packaging.
MAKING ITS MARK
As a small and landlocked country, Bhutan struggles in terms of exporting its niche products. A Government priority was to increase the competitiveness of Bhutanese products through branding and by targeting high-end international markets. The EIF‑supported Bhutan Seal of Excellence award provided an entry point in this regard. According to NIU Coordinator, Pema Thinley:
Brand Bhutan was an opportunity to enhance our exports as well as to build the quality of the products.
There are currently 71 high-value products on the market that fall under the lines “Made in Bhutan”, which covers textile and handicrafts, originally supported by the EU and EIF partner ITC, and under “Grown in Bhutan”, for products such as cardamon, pineapple juice and herbal tea. The products employ eco-friendly production techniques and fetch good prices in international markets. The EIF supported the participation of approved SMEs in international trade fairs to boost brand awareness, generating more than USD 24,000 in sales. As part of this effort, ITC provides capacity-building on packaging and labelling, including one-on-one coaching on branding and online marketing and labelling.
Twelve enterprises, half of them women-led, have so far benefitted from the support and are sourcing their raw materials from others, such as the 248 weavers supported by the EIF through the Agency for Promotion of Indigenous Crafts. The financing enabled the establishment of raw material banks in six areas in eastern Bhutan and the construction of a common facility centre in the cotton-growing region of Thongsa, providing farmers and weavers with a location for processing yarns. The Thongsa Kamathama (cotton) group members, largely made up of women, have seen their incomes grow and more young people taking an interest in the work as a result.
INCLUSIVE TRADE DEVELOPMENT
Bhutan’s pursuit of the GNH requires that no one is left behind. The Bhutan Association of Women Enterprises (BAOWE) works with the most marginalized communities to make sure this happens. With over 4,000 members, the BAOWE received EIF support to promote savings and encourage self-reliance and self-sufficiency through microfinance and basic finance literacy training. The EIF financed the procurement of 15 portable microfinance automatic teller machines in 13 districts where communities have no access to banks. According to Damchae Dem, founder and Chief Executive Officer of BAOWE, the project has greatly contributed to the empowerment of Bhutan’s most marginalized people, particularly women.
LONG-TERM PERSPECTIVE REAPS REWARDS
The EIF’s engagement with Bhutan has contributed to supporting the country’s trade growth and its path towards graduation from the LDC status in 2023. Its continued partnership with Bhutan demonstrates its long-term perspective; commitment to local ownership of the process of trade integration; and the facility for the LDCs to pilot investments into their priority sectors.
For Bhutan, the most impactful and sustainable outcomes have resulted from EIF support in developing core human resources and the formulation of trade-related policies, as well as capacity-building for both the public and the private sectors that has enabled Bhutan to effectively integrate into the global economy. The EIF catalytic support in building e‑infrastructure for trade and services and branding ”happy products” made or grown in Bhutan has also created momentum for SME development and increased export earnings to improve indigenous peoples’ living conditions. It has also triggered reforms in strategic priority areas and demonstrated AfT impact for uptake and upscale by other development partners.