Remote Bhutan Aims to Draw Investors to the Himalayas
By PATRICK BARTA
THIMPHU, Bhutan—The government of this remote Himalayan nation, which didn't have television until the late 1990s, has a message for the outside world: Bhutan, once largely closed to foreigners, is open for business.
Among the world's most isolated places, Bhutan was ignored in the rush to emerging markets in recent decades. Tourists weren't allowed until the 1970s and even today, only a few thousand visit each year, with just a handful of major foreign investments to date. There are no traffic lights in the capital of Thimphu, and laws require residents to work in traditional dress, which for men includes multicolored knee-length robes. Top officials often wear swords.
Bhutan's Prime Minister Jigme Thinley says Bhutan has little choice but to accelerate the country's entry into the global economy.
Life still moves at a different pace than the rest of the world. Businessmen often spend large portions of the day competing in archery tournaments and families take picnics in the evenings in their rice fields. While neighboring China and India rack up world-leading growth rates, the government here measures economic progress by a complex local measure known as "gross national happiness."
But change is coming fast since Bhutan's revered monarchy engineered a peaceful transition to parliamentary democracy in 2008. With an economy dominated by agriculture and government work, elected officials are concerned democracy won't survive unless Bhutan's 700,000 people have more high-paying jobs and development. So Bhutan now hopes to join the global mainstream.
Officials are pushing an array of projects, including a new domestic airline, an information-technology park, and a $1 billion-plus "education city" they hope will attract investments from major universities in India and possibly the U.S.
Bhutan will use its own funds and money from investors to fund projects. It also hopes to make Bhutan a convention destination.
Although many parts of the plan—including the education city—are still in early stages of development, the government is dispatching officials for foreign-investment road shows abroad and has retained McKinsey & Co., the consulting firm, to help.
All that is stirring anxiety, especially among residents who believe Bhutan's peace and stability—and its unique culture—will be jeopardized if it opens its gates much further.
"If we go too quickly, I think it will bring problems," says Pema, a 28-year-old tour guide who like many Bhutanese goes by only one name. "We'll become like Nepal," a nearby state plagued by poverty, unrest and unstable governments in recent years, he says.
"The government is going all out with economic growth targets—but how much of that is going to generate jobs?" says Tshering Tobgay, Bhutan's opposition leader. Bhutan is "doomed" if projects like the education city take off, he says, because they'll make impossible demands on Bhutan's labor and infrastructure.
As for McKinsey, he says, the consulting firm "represents the best of corporate America." But when it comes to Bhutan, with its emphasis on happiness over growth, "I don't think McKinsey has a clue what we're talking about." A McKinsey spokesperson declined to comment.
Backers of the development program, including Prime Minister Jigme Thinley, say Bhutan has little choice but to accelerate its entry into the global economy. Some 23% of the population lives below international poverty standards, he says. Many residents are migrating from rural hinterlands to urban areas such as Thimphu, a ramshackle town of rugged buildings with tigers and other animals painted on the walls. Its population has shot to about 100,000 from 45,000 a decade ago; land values have climbed 150% over the past three years.
"In a democracy, I think the government, or the leadership, does not have the luxury of time to meet the needs and aspirations of the people," Mr. Thinley said in a recent interview with The Wall Street Journal, in a government complex near Thimpu's main dzong, or local royal citadel. "What matters to us is that unemployment doesn't become an unmanageable problem. Our economy has to grow."
Mr. Thinley and other officials say they are intent on preserving Bhutan's culture and are only targeting investments that are compatible with the country's unique circumstances.
"If someone comes to us with a plan for cutting timber, we will not be interested," says Damber S. Kharka, executive director of Druk Holding and Investments, set up in 2007 in part to better manage state companies such as the national airline, which has two planes, and make them more competitive in a global economy. "We'll be very selective. We'll not go for the real industrialization that damages the environment." Either way, the "outside world will be a key player" in Bhutan's development, he says.
Bhutan has long struggled to balance outside intrusions with its inward-looking instincts. It fought against Tibetan invaders in past centuries and tussled with the British during colonial times. It retained its independence, and its isolation, in part because of a rugged mountain landscape that makes it hard for outsiders to get in.
It also had a series of kings who made it a priority to preserve Bhutan's Buddhist-oriented culture. The fourth king, Jigme Singye Wangchuck, popularized "gross national happiness" as an alternative to the growth-at-all-costs mindset of other countries. It has used extensive surveys—with questions such as "How stressed are you?"—to provide what Bhutanese officials believe is a more meaningful measure of a society's development over time.
The king also pressed for Bhutan to become more democratic, which he felt would be more sustainable than a monarchy. Although he handed the throne to his son in 2006, the position is now largely ceremonial.
The changes to Bhutan's tourism industry are among the most controversial.
Currently, the country assesses a levy of $200 a visitor, which helps keep tourist numbers low. McKinsey presented options to the government that could have included rethinking the fees and targeting 250,000 visitors per year within five to seven years.
After a testy town hall meeting in February, the government settled on compromises in which the levy would remain—and increase to $250—but officials would press ahead with plans to hit 100,000 arrivals by 2012.
To get there, they're opening remote parts of the country once closed to outsiders and planning three domestic airstrips and a new airline beginning in spring 2011. Officials are weighing proposals from three bidders, including a team with Nepalese investors, to run the carrier.
They're also forcing hoteliers to upgrade facilities to make them more appealing to foreigners and conventioneers, and making arrangements for what officials say will be the country's first credit-card transaction later this year.
The education city, to be built from scratch at a site to be determined, is likewise stirring debate. The idea is to use Bhutan's reputation as a green, relaxing place to attract foreign universities to set up satellite campuses there. Officials say they are organizing a team of international experts, including a board member from Indian conglomerate Tata Group, to help and that the government has held preliminary discussions with several universities with a focus on attracting major schools from India.
They also cite Yale University's School of Forestry & Environmental Studies as a potential target, given Bhutan's well-preserved pine forests. A Yale spokesman said several alumni are active in Bhutan but he is unaware of any new initiatives.
"Until now we haven't really aggressively marketed ourselves," says Kinga Tshering, a former Bank of Bhutan chief executive officer who now is helping head the education city effort. Now, "there is a whole explosion of activities."
Mr. Tobgay, the opposition leader, says he'd rather see the government invest more heavily in the country's own university, and that it doesn't have the infrastructure to support thousands of foreign students.
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Bhutanese businessmen often take part in archery competitions during the day. Above, an archer takes aim at an event in Paro last month.(WSJ)