Liberalising FDI policy for local construction sector

8 February 2010

The government has finally given a green signal for the Bhutanese construction firms to take part in the hydropower projects. This must be great news for our construction firms as they can not only contribute to nation building, but also gain invaluable experience in the hydropower sector, not to mention the financial benefits that will come to them.

Our Zhabto Lyonpo has mentioned that FDI is the way to bring in money but our local capacity and resources need to be strengthened to retain the money within the country.

While the need to strengthen capacity and resources of local construction sector is acknowledged and expected to happen, I cannot help but wonder whether the objective to learn and gain experience and subsequently achieve transfer of technology through joint ventures will materialize.

For many of our construction projects like highways and bridges, we always have provisions for joint ventures in normal construction contracts but the reality is that our local firms always tie up with a foreign firm just to fulfil the contract formalities not realizing the government’s objective. While the construction sector has to take some blame, the government has also, somewhere along the way, forgotten why the provision for joint ventures was included in our construction contracts in the first place.

While I fully support the Lyonpo’s view that FDI will bring in huge sums of money, as a professional myself, I cannot rule out the possibility that things might repeat again with regard to forming joint ventures for major hydropower contracts.

Furthermore, in most joint venture contracts, contract prices are normally higher and the local firms get only a piece of the share while the bulk of it is taken away by the foreign consulting or construction firm.

However, while liberalizing the FDI policy and allowing joint ventures in construction industry, the government should come up with a “fool-proof mechanism” to ensure that our local construction industry gains the invaluable experience from these hydropower projects and the desired transfer of technology practically takes place in the course of the contract execution. That’s where McKinsey can come in.

The bottom line is that our local firms, after executing one such hydropower project, should have developed adequate experience and should be confident enough to independently execute such projects in the future. Only then would the true objective of liberalizing FDI policy for construction sector be achieved. Only then would we be able to say that “we indeed developed our capacity and resources”. Only then would we be able to market ourselves and move towards self-reliance. Otherwise, we will continue to depend on others.

Simply opening up the country to FDIs for the sake of “bringing in money” will do more harm than good.

By Jigme Tshering

tshering_jigme@yahoo.com

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