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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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