IFC to open investment portfolio in Bhutan
The World Bank member seeks to invest in banking, tourism, infrastructure and small enterprises
World Bank The international finance corporation (IFC), a member of the World Bank, is looking to invest in banking, tourism, infrastructure and small enterprises in Bhutan.
The executive vice president and chief executive officer of IFC, Lars Thunell, who was in the capital yesterday, said that IFC will be looking at increasing its association with the Bhutanese private sector.
The corporation has already shown interest to buy 19.99 percent stake in the Bhutan national bank. This is being done so that the IFC can bring in not only capital, but knowledge and best practices, which will help the bank build its capacity, Thunell said.
Today, local financial institutions have rarely carried out business with small and medium enterprises because of the high risks of default. “IFC, with its expertise, will help the bank develop relevant products that can be sold to small businesses,” Thunell said. “We’ll be looking at opportunities of bank’s investing in small hydropower plants that do not necessarily need government investments.”
Similarly, the corporation will also be providing other value addition to the bank in terms of risk management, corporate governance and information system.
“In principle, we’ll also be buying stakes in other banks,” he said. “But since the economy as such is relatively small, investment in a few banks should suffice.”
In terms of bigger projects, IFC will be financing directly to the private sector without the need of any sovereign guarantees. However, it should not be a public private partnership project. In terms of PPP, IFC will only be providing advisory support and not financial support to the private partner.
A sticky issue during the recent meeting between the government and private sector representative was that, while the government allowed external commercial borrowing, it did not provide any sovereign guarantees for borrowings by the private sector.
The corporation will also be investing in renewable energy projects. Bhutan recently formulated the renewable energy development policy. The need to have a policy was felt, because of the government’s aim to shift to other alternative sources of energy, and diversify the risks arising out of over dependence on one resource.
However, investment in renewable energy, especially wind and solar, has been found expensive, since both require a lot of technological maturity, and huge areas of land to set up solar panels and windmills.
The government has said the best way to establish these energy resources would be to provide subsidies to the companies venturing in to them, and to tie up with foreign joint venture partners.
Thunell said that IFC has been very keen in investing in renewable energy. Globally, IFC’s direct investment in renewable energy increased from USD 440M in between 2005-07 to USD 2B in between 2008-10, according to Thunell.
IFC will also help small businesses by providing them advisory support, such as preparing business plans, strategies and carrying out feasibility studies.
Tourism, he said, had a lot of areas of improving further, with the same concept of high value low impact. There is a huge demand for wellness tourism across the world, as there are more older people in the west than younger ones, who seek retreats, traditional healing, natural therapies and treatments and Bhutan has everything to offer. It is therefore important to improve the country’s air service.
Ongoing initiatives of the IFC in Bhutan include developing an urban transport system in the two commercial centres of Thimphu and Phuentsholing, simplifying business licensing procedures, investing in hotels, and providing advisory and technical support to private sector.
Earlier, Thunell also met with the prime minister and other senior government officials.