Financial services … for who?

A joint sitting of the Parliament passed the Financial Services Bill. 66 members voted for the Bill. Only one member voted against it. That solitary member was me.

I voted against the Bill because it is discriminatory – it favors foreign investors over our own people.

Section 50 of the Bill specifies that a Bhutanese individual cannot own more than 20% of a financial institution’s shares; and that a Bhutanese company cannot own more than 30% of a financial institution’s shares.

But the Bill does not specify the amount of shares a foreign company can own in a financial institution. That has been left up to the Foreign Direct Investment policy. And the present FDI policy allows foreign companies to own as much as 51% of a financial institution.

So basically, the maximum amount of shares Bhutanese individuals and companies can own in a financial institution are clearly defined by law. But the amount of shares that foreign companies can own is not defined by law – instead, it’s left up to a government policy. Today’s policy allows foreign companies to own a lot more shares in a financial institution than what our own companies can own. And tomorrow’s policy could allow foreign companies to own even more shares.

It’s important to specify – clearly specify – the maximum amount of shares that a Bhutanese individual or a company can own in a financial institution. And it’s even more important to clearly specify the maximum amount of shares that a foreign company can own.

Our laws should favour Bhutanese companies over foreign ones. But if, for whatever reason, that’s not possible, both of them – Bhutanese and foreign companies – should be treated equally. Foreign companies should never receive preferential treatment over our own companies.

But that’s exactly what the Financial Services Bill allows.

Foreign investors already have more money, have more expertise, and have more experience. Now with more ownership of our banks, they will, in time, dominate and control our financial sector. That cannot bode well for the security of our economy.

Here’s Section 50 of the Financial Services Bill:

No person shall hold more than the following percentage of interest in shares of a financial institution:

(a)     in case of a Bhutanese individual, 20 percent,

(b)     in case of a Bhutanese company not being a financial institution, 30 percent.

(c)     in case of a Bhutanese company being a financial institution, as per the limit provided under section 53 below, and

(d)     in case of a foreign financial institution, as per the RMA regulations in line with the Foreign Direct Investment Policy.

Favouring foreigners over locals

The National Assembly passed the Financial Services Bill last week. I voted against it. I did so because the Bill seems to favour foreign investors over our own people and companies.

Section 50, on restrictions on ownership of financial institution and investments by financial institutions, reads:

No person shall hold more than the following percentage of interest in shares of a financial institution:

(a) in case of an individual, 10 percent,

(b) in the case of a company not being a financial institution, 20 percent

(c) in the case of a company being a financial institution, as per the limit provided under section 53 below, and

(d) in case of a foreign financial institution, as per the RMA regulations in line with the foreign direct investment policy

According to Section 53:

No financial institution can have ownership in another financial institution exceeding 5 percent of the other financial institutions’ paid up capital.

And RMA regulations currently allow foreign financial institutions to own 51 percent of a financial institution’s paid up capital.

So, here’s what I took exception to:

Our people cannot own more than 10%, and our companies cannot own more than 20% of a financial institution. But a foreign company can own 51%.

Our financial institutions cannot own more than 5% of another financial institution. But a foreign financial institution can own 51%.

The Bill favours foreign companies over our own companies. And how did the government respond when they realized this bias? They protected government owned companies by inserting a new subsection under Section 50, one that reads:

(e)   in the case of Ministry of Finance, RGoB, 75%.

Public policies

Several multinational companies, like Tata, Airtel, Lafarge, and Infinity, have shown interest in investing in Bhutan. And others, like Mountain Hazelnut Venture, have already started doing business in our country. So it’s time the government finalized its foreign direct investment policy.

But before finalizing the policy, the government should hold thorough consultations with all stakeholders, particularly the private sector, to ensure that they understand the policy and, more importantly, that they commit to supporting it.

And once the FDI policy is finalized, it should be made public.

Incidentally, the cabinet approved the Economic Development Policy last year. But it is still not available to the public. Instead, just last month the prime minster informed a potential investor that:

Bhutan was finalizing the Economic Development Policy which would spell out the kind of environment in which they can operate.

Transparency is important. And it is especially important where there’s money to be made.

Up for adoption?

That Ratan Tata has said that he is interested in investing in Bhutan may or may not be good for us. That will depend on how the Government eventually finalizes its foreign direct investment policy.

But the Prime Minister, it appears, has already decided that Tata will be good for us. In fact, he’d gone so far as to tell the Chairman of the Tata Group that: “A country like Bhutan would be happy to be adopted by Tata”.

And to make certain that Ratan Tata did not miss the Government’s invitation for adoption, all our major newspapers – Kuensel and Bhutan Today and Bhutan Observer and Bhutan Times and Business Bhutan – carried the PM’s tempting offer, word for word.

FDI? Maybe.

Adoption? No!

Investing in Bhutan

During Question Hour today, I asked the Minister for Economic Affairs:

Newspapers recently reported that 100% foreign ownership of hotels is allowed for foreign direct investments above US$ 200,000. Please explain why the minimum is fixed at US$ 200,000.

I was basically concerned that the minimum investment required to qualify for 100% foreign ownership of hotels was too low. I reported that many Bhutanese have already demonstrated that they can build and operate hotels that cost many times more than US$ 200,000. And that, while foreign investors should be encouraged, policies should ensure that opportunities are not taken away from Bhutanese investors.

Lyonpo Khandu Wangchuk’s reply was long. He talked the House through the history of FDI in Bhutan, economic growth, economic policies, employment, tourism, foreign currency, domestic airports, helicopter services, seasonal tourists, conference centers, infrastructure, credit cards, TAB, tourist visas, and hotels. He even mentioned McKinsey and Brazil!

It turns out that I was wrong. The minimum investment proposed for 100% FDI ownership is Nu 20 million, not US$ 200,000.

And it turns out that Lyonpo Khandu may not have known that I was wrong either. He didn’t correct me. Nor did he mention the figure Nu 20 million!