Increasing Agribusiness Growth in Bhutan - befit.bt · Increasing Agribusiness Growth in Bhutan PolIcy Note JANuAry 2017 0000000_Bhutan Agribusiness Policy Note_Cover-final.indd 3

Increasing Agribusiness Growth in Bhutan

PolIcy Note JANuAry 2017

0000000_Bhutan Agribusiness Policy Note_Cover-final.indd 3 1/12/17 1:28 PM

Policy Note

iNcreasiNg agribusiNess growth iN bhutaN

jaNuary 2017

0000000_Bhutan Agribusiness Policy Note.indd 1 1/11/17 1:15 PM

©2016 The World Bank Group 1818 H Street NW Washington, DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org

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Cover photos: Front: Rice field plowing in Punakha Valley, 2014; Back: Rice threshing in Thimphu Valley, 2015. All photos courtesy of © Olivier Jammes (olivierjammes.com)


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iii

Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v

executive summAry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii

Acronyms And AbbreviAtions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi

introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Factor Endowments of Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3Agricultural Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3Agricultural Labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5Agricultural Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Institutions Supporting and Governing Agribusiness . . . . . . . . . . . . . . . . . . . . . . . . . 8Ministry of Agriculture and Forests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Ministry of Economic Affairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9State-Supported Enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9Business Associations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10Development Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

AnAlysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Composition of the Agribusiness Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13Performance of the Agribusiness Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Legal and Regulatory Frameworks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15Subsidies and Incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16Access to Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Trade in Agribusiness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21Trade Outcomes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21Market Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23Trade Logistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Investment in Agribusiness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24Investment Outcomes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24Investment Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25Exploring New Products and New Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

conclusions And recommendAtions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Summary of Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31Specific Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Business Enabling Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35Investment Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35New Products and New Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

CONTENTS


Increasing Agribusiness Growth in Bhutaniv

BiBliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

appendix 1: Spotlight on MuShrooMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

appendix 2: enterpriSe Survey taBleS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

tablesTable 1: Agricultural Production in Bhutan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4Table 2: Producer Price Differentials for Selected Agricultural Products

in Bhutan and Comparator Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

FiguresFigure 1: Share of the Economy by Sector, Bhutan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3Figure 2: Sources of Monetary Income for Farm Households, Bhutan . . . . . . . . . . . . 4Figure 3: Production Versus Imports of Selected Livestock Products, Bhutan . . . . 5Figure 4: Sectoral Value Added, in Constant Local Currency Units (LCUs) . . . . . . . . 5Figure 5: Annual Labor Productivity Growth, Bhutan

and Comparator Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Figure 6: Brand Bhutan Logo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9Figure 7: Distribution of Agribusinesses by Region, Bhutan . . . . . . . . . . . . . . . . . . . . . 14Figure 8: Firm Size in Agribusiness and Other Sectors, Bhutan . . . . . . . . . . . . . . . . . . 14Figure 9: Legal Status of Agribusiness Firms and Firms in Other Sectors,

Bhutan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15Figure 10: Top Business Environment Obstacles as Perceived by Firms

in Bhutan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16Figure 11: Percentage of Firms Directly Exporting at Least 1 Percent

of Sales, Bhutan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21Figure 12: Growth in Bhutan’s Agricultural Exports, 2011–2014 . . . . . . . . . . . . . . . . . 22Figure 13: Correlation of Cost to Export with Agricultural Productivity,

Bhutan and Other Countries, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24Figure 14: Correlation of Time Required to Register a Property and Inflows

of Foreign Direct Investment (FDI), Bhutan and Other Countries, 2014 . . . 26

BoxesBox 1: The Bhutan Enterprise Surveys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2Box 2: Local Businesses Describe Competition from Farm Shops in Bhutan . . . . . . 18Box 3: Bhutan Development Bank Lending Products for Producers

and Agribusinesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19Box 4: The Importance of End-Market Connectivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23Box 5: Mountain Hazelnut Ventures (MHV) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25Box 6: Ethiopia’s Commercial Farm Service Program . . . . . . . . . . . . . . . . . . . . . . . . . . . 33


v

His Majesty King Jigme Khesar Namgyel Wangchuck and the Royal Gov-ernment of Bhutan (RGoB) are to be applauded for the excellent initiatives undertaken to simultaneously grow Bhutan’s economy, protect its natural environment, preserve its cultural heritage, and promote the social well-being of its citizens. Bhutan is an avant-garde model for the world we live in today.

This policy note is part of an advisory program provided by the World Bank Group (WBG) to the Ministry of Economic Affairs (MoEA) on improving the investment climate and the competitiveness of the Bhutanese private sec-tor. The WBG team would like to thank the MoEA for commissioning this study and the Ministry of Agriculture and Forests (MoAF) for providing over-all direction in the analysis and recommendations contained here. The team greatly benefited from the knowledge of Bhutanese agriculture shared by colleagues at the Food and Agriculture Organization of the United Nations (FAO) as well. This note was prepared by Ed Keturakis, with contributions from Winston Dawes, Maria Ruth Jones, Blair Edward Lapres, and Loraine Ronchi, under the supervision of Massimiliano Santini. The note received inputs from Om Bhandari, Roberto Echandi, Christian Eigen-Zucchi, and Yoichiro Ishihara, and it was peer-reviewed by Elliot Wamboka Mghenyi, Chadho Tenzin, and Colin Xu.

The WBG team would like to thank the following for their inputs and insight-ful exchanges during the field visits: Dr. Kuenga Namgay, MoAF, Policy and Planning Division, Deputy Chief Planning Officer; Sonam Norbu, MoAF, Dept. of Agricultural Marketing and Cooperatives, Marketing Specialist; Kencho Thinley, MoAF, Policy and Planning Division, Chief; Sithar Dorji, MoAF, Department of Livestock, Project Director; Sonam Riygel, Bhutan Development Bank Ltd., Deputy Managing Director; Pema Wangdi, Bhu-tan Development Bank Ltd, CEO Corporate Planning; Binai Lama, SNV, Senior Advisor; Phub Tshering, Bhutan Chamber of Commerce and Indus-try, Senior Advisor; Kinley Pelden, BAFRA, Chief; Karma Dema Dorji, National Soil Services Center, Program Director; Karma Nydup, Food Cor-poration of Bhutan Limited, CEO; Bhim Raj Gurung, Food Corporation

ACkNOwLEDgEMENTS


Increasing Agribusiness Growth in Bhutanvi

of Bhutan Limited, Marketing Advisor; Tshering Yeshi, Bhutan Exporters Association, Secretary Gen-eral; Arun Chatrevedi, Nutri-Soy, CEO; Kinley Dorji, Druk Phuentsholing Import Export Group, Manager; Sonam Tobgay, Sonam Thuendrel Export and Import,

Managing Director; Tshering Nidup, Regional Trade and Industry Office—Phuentsholing, Director; Singay Dukpa, Sersang Group, General Manager; and Sean Watson, Mountain Hazelnut Venture Private Limited, Managing Director.


vii

this policy note assesses the current state of bhutan’s agribusi-ness sector and recommends steps the royal government of bhutan (rgob) might consider to increase the sector’s growth . The govern-ment regards agriculture as a priority for achieving the national objectives of diversifying the economy, reducing poverty, and creating more inclu-sive growth, as discussed in its Eleventh Five-Year Plan (2013–2018). This Note focuses on agribusinesses (specifically, nonfarm enterprises) and the business-enabling environment in which they operate. Agribusinesses drive improvements in farm production and productivity by creating demand for the products of commercial agriculture.1 A strong agribusiness sector is a crucial catalyst in the transformation from a primarily agrarian economy to an industrial society, pulling Bhutanese agriculture into global value chains and attracting private investment—all of which can foster inclusive economic growth, an RGoB objective.

the analysis here relies primarily on the results from enterprise sur-veys conducted in bhutan, one in 2009 and the other in 2015 . The World Bank Group (WBG) conducts these surveys using fairly standardized methods in many of its member countries, and using firm-level interviews to systematically capture statistically useful data on how the private sector views the competitive landscape in which it operates.

the insights obtained from the enterprise surveys are supplemented here by extensive literature reviews and by fieldwork conducted in bhutan by wbg agribusiness experts to obtain qualitative data and information from key informants in the private and public sectors . The interviews gathered information from individuals from the Ministry of Agriculture and Forests (MoAF, 2010); business support agencies, such as the Bhutan Exporters Association (BEA) and the Bhutan Chambers of Commerce

1. This report distinguishes agribusiness from agriculture, with the latter defined as on-farm pro-duction and productivity. Most of the discussion here focuses on easily distinguishable forms of agribusiness. The Enterprise Surveys did not include any production-level agribusinesses.

ExECuTIvE SuMMARy


Increasing Agribusiness Growth in Bhutanviii

and Industry (BCCI); the Food Corporation of Bhutan (FCB); and private traders and agribusiness entities.

several overarching conclusions emerge from this comprehensive analysis of agribusiness in bhutan:

» First, consistent with the Economic Development Policy (EDP) plans of the MoEA to promote more private-sector investments in agricultural trade and value addition, the RGoB and public- sector institutions supporting agribusiness have the opportunity to refine their incentive structures for greater impact on the growth and development of Bhutan’s private agribusinesses.

» Second, Bhutan is already endowed with the agro-climatic conditions and technical capacity to produce and market several agricultural prod-ucts, providing the RGoB with the opportunity to increase agribusiness export volumes and value.

» Third, although Bhutan has policies in place to promote both domestic and foreign direct invest-ment (FDI), the RGoB has additional opportuni-ties for spurring greater investment and innovation in agribusiness.

» Finally, while the agribusiness sector has experi-enced significant gains in access to finance, more can be done in the banking sector to support marketing, processing, and exporting agri-food products.

these conclusions lead the team to make a number of specific recommendations:

the rgob has an opportunity to recast its public-sector programs, subsidies, and incentives to bet-ter support the growth of the private sector . Several well-intentioned interventions—for example, the FCB, mega-farms, Farm Shops, and the Agricultural Machin-ery Center (AMC)—may be simultaneously promoting and suppressing private-sector efforts to enter and grow in the agribusiness space. In most cases, this occurs when government programs serve private-sector functions and

appear to replace the private sector. Specific opportuni-ties to clarify this misperception include:

» Overall, the RGoB can realign subsidies to foster, not replace, the private sector.

» The RGoB can support specific value chains by bal-ancing its interventions on each end of the value chain, that is, in production and in marketing/export.

» The Farm Shops program could develop a clear plan to transition away from the current model of quasi-public ownership and operation toward full private ownership and operation.

» A rigorous impact evaluation could be made of the Farm Shops program.

» Separation of FCB public and private functions could improve the performance of both, while encouraging private-sector growth.

establishing and growing domestic agribusinesses require a favorable business environment, and evi-dence from the enterprise surveys reveals ways to improve bhutan’s agribusiness environment . The biggest business-environment obstacles for Bhutanese agribusinesses in 2015 were access to finance, tax rates, and informal competitors. Agribusinesses were signifi-cantly more likely than other businesses to identify tax rates as their most important constraint. They also per-ceived customs delays to be greater in 2015 than in 2009, and management reported spending more time dealing with government regulations in 2015 than in 2009.

» As a first step in addressing these concerns, the RGoB can work closely with the Bhutan Agricul-ture and Food Regulatory Authority (BAFRA), responding to its proposals and assuring adequate funding to better tailor regulatory capacity to reform priority constraints.

Agribusinesses were less banked than businesses in other sectors, although the enterprise surveys reveal recent progress in their increasing access to finance . If agricultural investments and exports are to increase, access to finance must improve. The Bhutanese


Increasing Agribusiness Growth in Bhutan ix

financial sector has several opportunities to improve trade finance. The Bhutan Development Bank Ltd. (BDB), the primary financier of agribusinesses, noted several limita-tions affecting it and the financial sector as a whole (such as the inability to offer letters of credit, provide factoring, or handle foreign exchange transactions).

labor is less available and costlier for agribusi-nesses as compared to firms in other sectors, yet farm mechanization remains low . One approach to overcoming these limitations is for the BDB and other banks to find ways to provide more large loans for capital investments and to explore mechanisms for leasing agri-business machinery and equipment to small entrepreneurs (current arrangements favor leasing to cooperatives).

» The former AMC has been restructured into two agencies: the AMC (focused on training and research and development) and the Farm Machin-ery Corporation Limited (FMCL) (focused on sales and services). The resources of both have been underutilized. Before investing further in these organizations as a means of introducing more effective mechanization, the RGoB should critically examine the reasons for this underuse.

» The BDB should develop a leasing product designed specifically for agricultural machinery and made available to both cooperatives and indi-vidual service providers to demonstrate a viable business model that other private financial institu-tions can adopt.

based on an indicator for innovation constructed from enterprise survey data, the level of innovation in bhutan’s agribusiness firms is low . Innovation and growth in total factor productivity (TFP) go hand-in-hand, yet agribusiness firms in Bhutan are less likely than other businesses to have made innovations in logistics, management, or marketing. Only one in 100 agribusi-nesses has a website, compared to one in six other busi-nesses. Agribusiness firms also invest less in research and development (R&D) than do firms in other sectors. Even

after controlling for workers’ level of education, microen-terprises responding to the 2015 Enterprise Survey were 15 percent less likely to have introduced an innovation within the previous three years.

» The RGoB should consider establishing entrepre-neurship and innovation hubs catering specifically to agribusiness.

interviews with agribusinesses and traders reveal that bhutan’s agribusinesses are not very well net-worked, especially with external markets . Most farmers and traders sell to Bangladeshi or Indian mer-chants operating within Bhutan. This practice limits their exposure to the valuable networking that leads to inno-vation in product types, product quality, marketing, and distribution. The BEA and BCCI should be supported in efforts to help their members reach out to and explore export markets in Kolkata, Dhaka, and beyond, including markets in Singapore, Hong Kong, and Dubai.

» The RGoB should consider a grant to the BEA and the BCCI that will help each institution address the capacity-building needs of their membership base for reaching export markets.

the moeA’s development of the brand bhutan label is an excellent strategic initiative . Bhutan should continually seek to maximize the value of its full range of exportable products by reaching higher-value markets and promoting products under the Brand Bhutan label. To move forward with this strategy, the RGoB can work to create a legal and regulatory framework to properly manage Brand Bhutan.

» The time is ripe for the RGoB to develop and implement a regulatory framework for the man-agement of Brand Bhutan, including the regula-tion of quality and other standards for the brand.

in all sectors, bhutan has very limited foreign direct investment . The agribusiness sector reported virtually no firms with foreign ownership (0.01 percent), and only 2 percent of firms in all sectors had any foreign


Increasing Agribusiness Growth in Bhutanx

ownership. Despite progressively liberalizing FDI policy since 2009 to allow more direct ownership by foreign firms, Bhutan’s success in attracting FDI has been very limited. A more aggressive investment promotion effort could increase the level of investment.

» The RGoB should consider establishing a stand-alone investment promotion agency and an invest-ment promotion strategy to support its investment policy.

» The RGoB should identify high-potential sectors or subsectors and approach investors directly to present and promote these opportunities.

» The BCCI should be closely involved in efforts to promote investment.

production of a number of low-volume, high-value agricultural products in bhutan could grow consid-erably, including fresh wild-collected mushrooms

(matsutakes, morels, chanterelles); retail honey; crated fruit (mandarins and kiwi fruit); aspara-gus; processed hazelnuts; walnuts; black pepper; sichuan pepper; retail-packaged cardamom; and processed ginger products . Although typically pro-duced in low volumes, these items are critically important sources of income for many households in Bhutan.

» Bhutan should explore the expansion of its exports of mushrooms and other high-value niche prod-ucts to increase the volume and unit value of the current export trade.

» Bhutan should consider developing its competitive advantage in seed potato production.

» Public policy on livestock should foster compet-itiveness to exploit opportunities for replacing imported animal protein products with domesti-cally produced products.


xi

aMc Agricultural Machinery Centerbail Bhutan Agro Industries LimitedbaFra Bhutan Agriculture and Food Regulatory

Authoritybcci Bhutan Chamber of Commerce and

IndustrybDb Bhutan Development Bank Ltd.bea Bhutan Exporters AssociationboP balance of paymentsbtN Bhutanese ngultrumcagr compounded annual growth ratecarleP Commercial Agriculture and Resilient

Livelihoods Enhancement ProgrammecNFa Cultivating New Frontiers in AgricultureDaMc Department of Agricultural Marketing and

CooperativesDanida Danish International Development AgencyDb Doing BusinessDcsi Department of Cottage and Small Industrieseba Enabling the Business of Agriculture eDP Economic Development Policyes Enterprise SurveysFao Food and Agriculture Organization of the

United NationsFcb Food Corporation of Bhutan Ltd.FDi foreign direct investmentFMcl Farm Machinery Corporation LimitedFsaPP Food Security and Agriculture Productivity

ProjectFta free trade agreementgDP gross domestic product

ha hectareict information and communication technologyiFaD International Fund for Agricultural

DevelopmentiFc International Finance CorporationiMF International Monetary FundiQF individual quick frozen (technology)kg kilogram lcu local currency unitMhV Mountain Hazelnut VenturesMoaF Ministry of Agriculture and ForestsMoea Ministry of Economic AffairsMsMes Micro, small, and medium enterprisesMt metric tonNgo nongovernmental organization r&D research and developmentreDD reducing emissions from deforestation and

forest degradation rgob Royal Government of BhutanrNr Renewable Natural Resources (sector)rrcDP Remote Rural Communities Development

Projectsaarc South Asia Association for Regional

CooperationsDc Swiss Agency for Development and

CooperationsMes small and medium enterprisessPs sanitary and phytosanitary standardstFP total factor productivityusD United States dollar

ACRONyMS AND ABBREvIATIONS



1

this policy note begins by briefly describing the purpose of this study of agribusiness in bhutan, the data sources for the analysis, and the contextual information essential for interpreting the results of the analysis . The discussion first explains why the agribusiness sector is cru-cial for achieving national objectives, including inclusive economic growth. It then focuses on specific elements of the environment in which Bhutanese agribusinesses operate, describing the factor endowments of agriculture and reviewing the institutions that support and govern agribusiness. The second part of this note focuses on the results of the analysis; the third sets out the conclusions and recommendations.

this policy note was prepared at the request of the ministry of eco-nomic Affairs (moeA) of the royal government of bhutan (rgob) to inform moeA’s economic development policy, the key strategic and planning document for bhutan’s economic growth . The Policy Note was developed in close consultation with the Ministry of Agriculture and Forests (MoAF), bilateral and multilateral development institutions working in Bhu-tan, and Bhutan’s private sector (particularly agribusinesses and the organiza-tions that represent them). The recommendations provided here are intended to support the MoEA’s proposal to transform Bhutan’s agribusiness sector into an engine for economic growth, a tool for poverty reduction, and a focus for greater private-sector investment.

the agricultural sector, considered one of the “five jewels” of bhu-tan’s economy, is a priority for bhutan, given the potential for agri-culture to contribute to the government’s objectives of diversifying the economy, reducing poverty, and fostering more inclusive growth, as discussed in the eleventh Five-year plan (2013–2018) . The sector employs about 56 percent of the population, yet it contributed just 17.7 per-cent to gross domestic product (GDP) in 2014 and has exhibited relatively flat growth (RGoB Eleventh Five-Year Plan).

INTRODuCTION


Increasing Agribusiness Growth in Bhutan2

this policy note focuses on agribusiness because of its central role in catalyzing growth, not only in agriculture but in the wider economy . For that rea-son, the analysis and recommendations focus on non-farm enterprises and the business enabling environment in which they operate. While the agricultural production system is an integral part of the agribusiness sector—indeed, farms are agribusinesses in their own right—this analysis concentrates on enterprises that provide agricul-tural inputs, agro-processing, as well as trade and market-ing services to farmers and producers of processed goods. These nonfarm enterprises are crucial for a number of reasons. They can drive the on-farm improvements in production and productivity that aid in reducing rural poverty. They also drive structural change within the economy, because the development of agribusinesses can impel the structural and inclusive resource shifts that can transform a primarily agrarian economy into an indus-trial society. Agro-processing industries in the food and beverage manufacturing subsector, also included in the study, are a particularly effective conduit for pulling the

agricultural sector into global value chains. This activity creates a further impact on the providers of inputs (such as veterinary services, machinery, fertilizer, seed, and labor) and professional support services (such as financial services, certifications, and logistics) that drive economic growth (da Silva et al. 2009; Austin 1981).

the analysis for this policy note made use of two recent enterprise surveys conducted in bhutan (2009 and 2015), information obtained from inter-views with experts and with other key informants in bhutan’s agribusiness sector, a literature review, and data on the agribusiness sector and wider bhu-tanese economy . The Enterprise Surveys (Box 1) cap-ture the viewpoint of the private sector and indicate how Bhutan’s business-enabling environment, policies, regula-tions, and laws might be reformed to improve the compet-itiveness of the overall economy or of particular sectors. Additional fieldwork and a desk review enabled the World Bank Group team to deepen the analysis broached by the

box 1: the bhutan enterprise surveys

In June 2015, the World Bank Group conducted an Enterprise Survey in Bhutan, executed by the National Statistics Bureau. This rich data set from a representative sample of firms across Bhutan is supplemented by data from the 2009 Enterprise Survey. The sur-veys cover a broad range of business environment topics, including access to finance, infrastructure, crime, corruption, competition, and performance measures.† The surveys were conducted through inter-views at firms selected by stratified random sampling drawn from the four most economically active regions in Bhutan.

The survey respondents were business owners and top managers. The survey teams at times called on company accountants and human resource managers to answer questions in the surveys’ sales and labor sections. Employee Surveys were conducted at 204 of the 367 firms sampled in 2015, and a total of 659 employees were interviewed.

The 2009 and 2015 surveys provide a glimpse into the evolution in recent years of some circumstances pertinent to the private sector. When possible, the same firms were interviewed in both 2009 and 2015 to create a firm-level set of panel data. With the purpose of

this Policy Note in view, the 2015 Enterprise Survey oversampled the agribusiness sector relative to other sectors in the economy to attain a fuller analysis of agribusiness. Of the 367 businesses included in the 2015 survey, 64 were classified as agribusinesses (17.4 percent). Agribusinesses include manufacturers of food, beer, soft drinks, tex-tiles, or paper products; butchers; grocers; wholesalers of agricul-tural products (such as rice and oil); and producers of animal feed.

The 2015 survey in Bhutan included microenterprises (fewer than five employees), whereas the 2009 Enterprise Survey did not, explaining the much larger number of agribusinesses in the 2015 data. Of the firms surveyed in 2009, 28 were classified as agribusi-nesses; of these, only 8 persisted in the 2015 survey round. Of the 222 firms in 2009 not classified as agribusinesses, 104 persisted in 2015. Because of the small size of the 2009 agribusiness sample, the panel data provided few insights. For that reason, the primary focus in this Policy Note is on cross-sectional comparisons, although trends for the panel are noted where significant.

Source: The authors.†See http://www.enterprisesurveys.org/methodology.


Increasing Agribusiness Growth in Bhutan 3

Enterprise Surveys and to make pertinent recommenda-tions to the MoEA and MoAF.

FACTOR ENDOwMENTS OF AgRICuLTuREin many respects, bhutan presents singularly dis-tinctive conditions for agriculture and agribusi-ness . The sections that follow examine the country’s factor endowments for agriculture, paying particular attention to their implications for growth in the agribus-iness sector.

AgRICuLTuRAL CAPITALbhutan’s economy has undergone a significant tran-sition in the past decade as the country has sought greater engagement with the world economy while moving toward growth spurred by industri-alization and services . Bhutan’s natural endowments (hydropower and minerals) have allowed impressive but variable growth. Growth has ranged from 3.6 percent to 12.6 percent per annum over the past 10 years, and the compounded annual growth rate (CAGR) was 6.75 percent (World Bank Group 2016c). The development of “industry”—which grew to comprise 43 percent of GDP in 2014 (see Figure 1)—has catapulted Bhutan into high-value sectors, despite employing only 11 percent of the population.2 In particular, the growth of the metals, mineral products, hydropower, and chemical sectors have come to dominate Bhutan’s export economy.

Although more than half of the population engages in agriculture, bhutan still relies heavily on signifi-cant quantities of imported commodities, such as cereals, fish, and vegetables . Bhutan imported over US$32.5 million of staple cereals in 2014 and over 3,000

2. “Bhutan‘s high economic growth rate of close to 8 percent on average during the past couple of decades should have been enough to absorb the increased labor force. However, with the changing structure of the economy, growth has been relatively capital-intensive rather than labor-absorbing. At the same time, construction, infra-structure building and hydropower projects have tended to rely on foreign labor rather than local labor. Thus, the growing Bhutanese economy has not absorbed the labor force, currently in exodus from the rural farming areas, to the extent one would have expected” (UNDP 2013).

metric tons (MT) of fish (MoAF, 2016b).3 The govern-ment’s Eleventh Five-Year Plan states that yields per hect-are have been declining at a compounded annual rate of 1.84 percent over the last 27 years. This declining pro-ductivity contrasts starkly with trends in the rest of the world, where agricultural productivity increased on aver-age from 0.25 percent to 0.50 percent per year, depending on the region (Wik, Pingali, and Brocai 2008). Many rea-sons help explain Bhutan’s relatively poor performance in agriculture. Public-sector investments in agriculture over the last 20 years seem to have declined in parallel with the decline in productivity growth. A marked reduction in labor availability, a lack of mechanization, low input use, and wildlife depredation have also held back produc-tivity advances. While self-sufficiency in food production is not, and should not, be the goal, Bhutan can gain from increasing agricultural production and productivity and from growing its agribusiness sector. One opportunity lies in diversification and specialization oriented toward higher-value crops.

bhutan’s major agricultural products are maize (and other cereals), rice, potatoes, citrus, milk, eggs, and

3. Please note that, according to some accounts, rice imports have been misreported. This misrepresentation may be due to efforts either to gain a subsidy or to avoid a tax. While the alleged misrep-resentation is unconfirmed, such incentives may be distorting official trade data.

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spices such as cardamom and ginger (Table 1). Recent trends indicate a noticeable split in primary agriculture: A decreasing majority of producers grow cereal crops for subsistence, and an increasing minority grow high-value horticultural crops for export. Despite producing staple crops primarily for their own consumption, Bhu-tanese farmers nevertheless are overall net buyers of staple commodities. The major horticultural exports are citrus (mandarin), potatoes, chilies, areca nuts, cardamom, and ginger, and several niche crops are also produced or gath-ered (mushrooms, honey, asparagus, hazelnuts, black pep-per, and Sichuan pepper). Since 2011, Bhutan has added over three million hazelnut trees to its agricultural capi-tal, and the Mountain Hazelnut Venture (MHV) project intends to establish 10 million trees by 2018.4 This can be compared with another of Bhutan’s significant tree crops, mandarin, which was estimated to consist of 3.3 million trees in 2007 (Joshi and Gurang 2009).

horticultural crops are a major source of monetary income, and many farmers produce them to some degree . Although the biggest source of monetary income for farmers, aside from off-farm activities, is horticulture

4. See http://www.mountainhazelnuts.com/faqs/.

TABLE 1: AgRICuLTuRAL PRODuCTION IN BhuTAN

Commodity Production (MT) Value ($)Rice (paddy) 77,314 47,752,765Maize 66,779 27,497,235Potatoes 52,959 19,470,221Mandarin 38,184 32,007,176Chili 7,312 9,247,529Wheat 5,647 2,574,368Apple 5,410 4,773,529Millet 5,024 1,625,412Areca nut 4,036 2,284,376Mustard 3,578 4,735,588Beans 3,459 2,085,574Barley 2,050 841,103Cardamom 942 14,320,284Mushrooms 9 76,412

Source: Renewable Natural Resources Census 2009, Vol. I, MoAF.

(Figure 2), only 10 percent of farmers accounted for 73 percent of sales of horticultural crops (2008 data; Christensen, Fileccia, and Gulliver 2012).5

despite the varied perceptions within the buddhist religion regarding the slaughter of animals for con-sumption, the bhutanese are fairly significant pro-ducers and consumers of animal products (Figure 3). Bhutan’s cattle population, including yak, was 338,000 in 2014 (MoAF, Dept. of Livestock, 2016a). Although not a large herd in absolute numbers, at 0.45 head per capita, Bhutan’s livestock levels are nearly twice India’s per capita numbers for cattle and buffalo combined (0.25 head per capita). Yet in 2010, 80 percent of Bhutan’s demand for beef, 97 percent of that for fish, and 77 percent of that for pork were still met from imports.6 As in many coun-tries around the world, poultry (chicken) production and consumption are surging in Bhutan (although disease affected output in 2013–14). The very large deficit in domestic pork production (at 0.02 head per capita) ver-sus demand may represent the best opportunity for new growth in livestock. Fish imports overshadow domestic output and will probably continue to do so. Although the

5. “A limited number of farmers is engaged [sic] in market activity, with 10% of farmers accounting for 73% of all crop sales in 2008” (Christensen, Fileccia, and Gulliver 2012).6. Draft Food and Nutrition Security Policy 2014.

% households reporting

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Figure 2: Sources of Monetary Income for Farm Households, BhutanSource: Renewable Natural Resources Census 2009, Vol. I, MoAF.



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Figure 3: Production Versus Imports of Selected Livestock Products, BhutanSource: Renewable Natural Resources Census 2009, Vol. I, MoAF.

Department of Livestock’s National Centre for Aqua-culture encourages domestic fish production, the poten-tial seems to be rather limited. In the 2014–15 season, the National Centre for Aquaculture developed just one acre of new ponds (34 in number), with the potential to increase national production by only 26 MT. As for milk, domestic production is more than double imports. An opportunity for more import replacement may exist, but the unique segmentation of Bhutan’s fresh milk markets should be first taken into account. Most domestic produc-tion is fresh raw milk consumed in the household and/or traded in local markets. Most imports are of whole milk powder, shelf stable and used mainly by industrial producers. To competitively replace whole milk powder with processed, local fresh milk would require efficient large-scale aggregation prior to processing. Bhutan’s nat-ural topographical features, however, present a real con-straint to aggregation.

AgRICuLTuRAL LABORAs in many countries around the world, bhutan’s population is urbanizing faster than the growth in rural areas, which underlies the movement of labor from rural areas to cities . The 2005 census docu-mented 111,770 rural-to-urban migrants (World Bank Group 2016a). At the same time, primary agriculture, traditionally seen as labor-intensive, has witnessed low

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Figure 4: Sectoral Value Added, in Constant Local Currency Units (LCUs)Source: World Bank World Development Indicators.

growth (the CAGR of agricultural value added over 10 years was 1.69 percent), an overall decline in its share of GDP (17.73 percent in 2014) (Figure 4) and a steady decline in productivity, as noted above.

bhutan’s circumstances somewhat resemble a model originally described by harris and todaro (1970), in which the artificially high wages of an urban job market create an expectation of employ-ment at a higher-than-market-clearing wage rate . Ultimately this prospect attracts a greater number of



individuals than employers can absorb, potentially lead-ing to a substantial increase in unemployment. Artificially creating such a dualistic labor market could drain the most talented individuals from productive rural sectors, as they move to try their luck with the higher paying urban jobs.7 Productive resources move from the rural economy to the urban economy where they are underemployed, and meanwhile agricultural productivity falls. This shift in the labor market also has a gender aspect, in that more males appear to move to urban areas than females. In addition, MoAF statistics showed that in 2011 rural areas experienced a gender imbalance of 3.7 percent in favor of females, which rose to 7.5 percent among the primary workforce demographic (ages 15 to 64).

the movement in skilled and unskilled work-ers may not be entirely the result of a welfare- improving structural shift in economic opportuni-ties . It may also reflect distortions in the labor market and a misallocation of human capital resources. Public-sector employment policies may be partly responsible for drawing resources away from primary agriculture and agribusinesses in rural areas.8 In understanding such labor market distortions, two factors are important: the effective compensation rate (wage plus benefits) for civil servants, and the scale of total public/government employment. Bhutan seems to have inflated levels of both factors, split unevenly across the rural-urban divide.

Although panel data with appropriate variables and controls are not available for a definitive study, employment statistics show that public-sector labor policies may have had a significant influence on the labor market . Three wage hikes leading up to 2005 (including a 45 percent increase in wages of civil

7. “Rising youth unemployment calls for bold reforms to promote private sector growth and job creation. While total unemployment remained low at 2.9 percent in 2013, youth unemployment was 9.6 percent and is on the rise. In addition, there is evidence that underemployment is large, especially in rural areas” (World Bank Group 2014b). 8. “These rates are much more pronounced among youth in urban areas compared to rural areas, rising sharply to 20.2 percent and 29.5 percent for male and female youth respectively” (UNDP 2013). High rates of urban youth unemployment combined with high rates of long-term male unemployment in the face of a low national unemployment rate reveal troubles in the labor market.

servants in 2005)9 were followed by a reduction of nearly 85,000 in the agricultural labor force between 2003 and 2005 (in relative terms, a 36.2 point reduction in the share of agricultural employment from 79.8 percent to 43.6 per-cent (World Development Indicators). Similarly, a 35 per-cent increase in civil servant wages in 2009 (IMF 2009b)10 was followed in 2010 by a 13,400 person reduction in the agricultural labor force (in relative terms, a nine-point reduction from 65.4 percent in 2009 to 59.5 percent in 2010).11 Although urban unemployment dropped in this same period (2009–10) and remains moderate (6.8 per-cent in 2014), and the (mostly unskilled) rural migrants appear to have been absorbed into the urban economy, the real impact of the RGoB’s employment policy seems to be on youths and in creating underemployment. Male underemployment increased from 4.2 percent in 2009 to 7.1 percent in 2011,12 and youth unemployment in urban areas is now 22.8 percent.13

Aside from the influence of such distortions on labor market equilibrium, they also have the poten-tial to affect competitiveness . These trends underlie

9. “There have been three major wage hikes for civil servants since 2005. Civil servant pay was raised by 45 percent in 2005, followed by a further average 10 percent increase in 2006. . . . Past pay revisions, while significant and infrequent, were in line with economic growth and inflation. Nominal wage bill for civil servants increased by about 50 percent between 2004/05 and 2007/08” (IMF 2009b).10. “While the average civil service wage does not appear to be very high, it is relatively high as a share of GDP and government current expenditures compared with its peer group. After the 2009 pay raise, average wage income of civil servants is estimated to be about 295 percent of GDP per capita, compared to an average of 300 per-cent in 11 Asian countries and 570 percent in 20 African countries reported in a World Bank Group survey. The pay and allowances of Bhutan’s corporate sector, among which most high-performing com-panies are government-owned entities that have monopoly power, are about 15 percent higher than comparable civil service positions. However, compared to the median level of 53 low-income and lower-middle-income countries, Bhutan spent 1.4 percent of GDP more on wages and salaries during 2000–2008. The recent wage hike is projected to increase public expenditure on wages and salaries by another 1.3 percent of GDP in the next five years” (IMF 2009b).11. See http://data.worldbank.org/indicator/SL.AGR.EMPL.ZS/countries/1W-BT?display=graph. 12. UNDP 2013. Similarly, the persistence of high levels (38.5%) of long-term male unemployment (http://data.worldbank.org/indicator/SL.UEM.LTRM.MA.ZS) suggests that labor markets are characterized more by a “sense of cumulative advantage and low-level traps (Nelson 1966; Merton 1968; Doeringer and Piore 1971; Boudon 1973; Meade 1976) than as being unified in the sense that the next-best employer is essentially indistinguishable from the current one” (Fields 2005).13. See http://www.molhr.gov.bt/blmis/.



a more nuanced movement of the labor force, in which rural “skilled” labor migrates from traditional agricultural activities to formal urban sectors in greater numbers. To gain some insights on this and its potential impact on agribusiness, the team benchmarked annualized labor costs and productivity growth for the Bhutanese economy at large against comparator countries. Labor costs were 45 percent higher in Bhutan than in neighboring India, according to the 2010 Bhutan Investment Climate Assess-ment Report (World Bank 2010).14 Annualized labor pro-ductivity for several comparator countries was calculated using Enterprise Survey data.15 Although growth in labor productivity is driven by more than simple labor market

14. “Labor costs are higher in Bhutan than in neighboring countries, highlighting the need to raise productivity to remain competitive. Average labor costs in Bhutan work out to be almost 45 percent higher than in India. However, costs alone do not determine compet-itiveness: they need to be weighed against labor productivity” (World Bank 2010).15. The Enterprise Surveys measure annualized growth in labor pro-ductivity where labor productivity is real sales (using GDP deflators) divided by full-time permanent workers. Annual labor productivity growth is the change in labor productivity reported in the current fiscal year from a previous period. For most countries the difference between the two fiscal year periods is two years, although for some countries the interval is three years; for that reason, an annualized measure is used. All values for sales are converted to US dollars using the exchange rate in the corresponding fiscal year of the survey. Sales are then deflated to 2009 using the US dollar deflator.

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policies, Bhutan falls well below most regional bench-marks. Public employment policies have important effects on the overall competitiveness of the private sector and potential differential effects on agribusinesses (Figure 5). Agribusinesses arguably rely more on agricultural pro-ductivity and skilled rural labor, both of which appear to be in decline due to the pull of skilled labor into the urban job market, possibly driven largely by public-sector wage hikes.

AgRICuLTuRAL LANDthe same terrain16 that gives bhutan its major export, hydropower-generated energy, creates a unique and challenging environment for agricul-ture . Bhutan is situated in the southern portion of the Eastern Himalayas and has five major rivers, all emp-tying into the Brahmaputra River in India. The rivers of the Eastern Himalayas provide water for over a bil-lion people (UNDP 2013a). Over 30 percent of agricul-tural land is located on slopes of more than 50 degrees (RGoB 2014), and much of Bhutan’s limited agricultural land is being lost to nonagricultural development: The

16. With its mountainous terrain, Bhutan has approximately 95,000 hectares of agricultural land; 70 percent is dry land, 20 percent is wetland, and 10 percent is land dedicated to cash crops/orchards.



MoAF estimates that agricultural land surpassing 2,000 hectares was converted to nonagricultural uses between 1998 and 2009 (RGoB 2014). Bhutan’s admirable policy of maintaining at least 60 percent of land under forest cover presents another challenge for agriculture.17 While everything must be done to encourage and reward Bhu-tan for this contribution to protecting the environment, preserving biodiversity, and mitigating climate change, such environmental conservation efforts, in addition to the challenges posed by the natural landscape itself, limit options to engage in more extensive agriculture.

the nature of the landscape also inhibits farm mechanization, compounding the emerging issues of labor scarcity and low labor productivity . Nor-mally, low labor availability and rising costs of day labor would create a strong push toward mechanization, yet most Bhutanese farmers still use animal traction. Agri-cultural land is 2,400 meters above sea level on average, mostly on steep slopes with narrow terraces that restrict options for farm mechanization. Because the possibilities for using four-wheeled tractors are quite limited, two-wheeled tractors and power tillers are seen as the best bets for mechanizing farm operations, yet even two-wheeled tractors are infrequently used.

these factors constrain bhutan’s competitiveness in agriculture, especially in crops best suited to extensive agricultural production systems, such as maize and rice, and make access to markets more costly . Bhutan’s agricultural landscape is thus better suited to production of higher-value crops, with better margins per hectare of land that enable farmers to absorb the higher costs of transport and distribution.

17. Bhutan’s conscious strategy of maintaining its forests makes it a great candidate to benefit from REDD+, the global initiative focused on reducing emissions from deforestation and forest degradation. Bhutan is engaging in discussions with the UN REDD Program; it is hoped that the country will get credit for its excellent, longstanding conservation efforts (see the Prime Minister’s Ted Talk: https://www .ted.com/talks/tshering_tobgay_this_country_isn_t_just_carbon_neutral_it_s_carbon_negative).

INSTITuTIONS SuPPORTINg AND gOvERNINg AgRIBuSINESSthe institutional landscape is as important to the growth of bhutanese agribusiness as the physical landscape is to agriculture . The sections that follow review the range of public, private, and nongovernmen-tal institutions with a bearing on the prospects for agri-business in Bhutan.

MINISTRy OF AgRICuLTuRE AND FORESTS Agriculture in bhutan is considered, along with for-ests, to be part of the renewable natural resources (rnr) sector . The MoAF oversees the RNR sector, with the dual objective of protecting forests and the environ-ment and of creating a commercial agricultural sector. The MoAF has established several departments, agen-cies, and public-sector programs to support agriculture and agribusiness:

» The Department of Agricultural Market-ing and Cooperatives (DAMC) was created as a key agency for the development of a commercial agricultural sector.

» The Bhutan Agriculture and Food Regu-latory Authority (BAFRA) is responsible for a host of regulatory functions, including food safety, animal health, environmental protection, plant health, quality control for agricultural inputs, and biosafety (including avian influenza and similar biosafety threats).

» The (newly restructured) Agricultural Machin-ery Center (AMC)18 promotes and supports farm mechanization through the procurement and subsidized sale of agricultural machines; farm machinery training and research; and direct service provision. The AMC recently handed its private-sector functions in machinery sales and service provision to a state-owned enterprise,

18. In July 2016, the original AMC was restructured into two sep-arate entities: the revised AMC brief focuses on training, research, and development, while the newly created FMCL focuses on sales and after-service support.



the Farm Mechanization Corporation Limited (FMCL).

» The National Plant Protection Centre pro-cures and distributes pesticides and herbicides for all crops except rice.

» The National Seed Centre is responsible for seed and seedling multiplication and distribution and the procurement and distribution of fertilizer and rice herbicide.

» The Department of Agriculture advises the ministry on agricultural policy. They employ agri-cultural economists to examine the state of agri-business in Bhutan. This unit may be best placed to liaise between agriculture and agribusiness.

MINISTRy OF ECONOMIC AFFAIRSAs noted, the moeA is responsible for developing the new economic development policy, a key stra-tegic planning document for all sectors in bhutan, including agribusiness . The aims of the 2010 Eco-nomic Development Policy include encouraging commer-cial farming by offering a ten-year tax break to farmers or companies and an additional five-year tax break for commercial organic farming.

the moeA supports the department of cottage and small industries (dcsi) . DCSI supports MSMEs through the establishment of a better business enabling environment, the provision of business development

services such as business management training, making business to business linkages and facilitating access to finance. They have also conducted market studies and identified opportunities in key value chains that are most relevant to Bhutan’s MSMEs.

the moeA created the brand bhutan initiative to promote bhutan to the outside world, along with the export of premium goods and services originat-ing in bhutan, including agricultural products .

the moeA supports the department of cottage and small industries (dcsi) . DCSI supports MSMEs through the establishment of a better business enabling environment, the provision of business development ser-vices such as business management training, making busi-ness to business linkages and facilitating access to finance. They have also conducted market studies and identified opportunities in key value chains that are most relevant to Bhutan’s MSMEs.

the moeA states in its draft of the economic devel-opment policy that, once developed, brand bhu-tan will indicate to consumers that the product or service offered embodies the principles of gross national happiness (for example, being sensitive to Bhutanese culture, natural/organic, community-centric, and reflective of Bhutan’s unspoiled environment).

STATE-SuPPORTED ENTERPRISES the rgob has established several state-owned enterprises or quasi-state-owned enterprises to replace rural private-sector initiatives perceived to be lagging . These enterprises include initiatives focused on input provision and processing, marketing, and export-ing agricultural products.

the Food corporation of bhutan ltd . (FCB), estab-lished in 1974 under a Royal Charter, has both public and private functions. One public-sector objective of the FCB is to catalyze growth in the agricultural sector by providing market outlets for Bhutan’s surplus production. The FCB sometimes acts as a trader in the marketplace, buying and selling agricultural products from producers and selling to other traders and processors. The FCB also

Figure 6: Brand Bhutan LogoSource: Dept. of Trade, MoEA.



provides an auction platform for the sale of agricultural products. The corporation’s full set of mandated activities includes procuring and distributing food grains; promot-ing trade in agricultural and horticultural produce; con-structing and operating adequate warehouses; managing and operating auction centers; facilitating the marketing of domestic products; maintaining and servicing national and regional19 food security reserves and distribution; and administering and supervising the functioning of Coop-erative Marketing Societies.20

the Fcb is also responsible for training and staffing Farm shops managers . Farm Shops were established by the DAMC to provide services to farmers in the most remote rural areas by selling subsidized staple goods (such as rice, oil, salt, and soap) to vulnerable and poor rural residents, selling inputs, and purchasing and marketing primary agricultural products.

bhutan Agro industries limited (bAil) is a state-owned fruit and vegetable processing company, established in 1993 with danida funding .21 BAIL’s mandate is to serve as a center of excellence for food processing in Bhutan and to set up demonstrations to improve awareness of the economic feasibility of pro-cessing specific fruit and vegetable products, yet it too operates almost predominantly as a private-sector man-ufacturer of processed food products, such that it is fairly indistinguishable from a private-sector actor.

the bhutan development bank ltd . was given its development bank mandate in 2010. Since then, it has been working to enhance access to financial services for farmers and the rural poor. Among other approaches, it has developed a number of non-collateralized loan prod-ucts serving both individuals and small businesses.

BuSINESS ASSOCIATIONSthe bhutan chamber of commerce and indus-try (bcci) is active in promoting cottage- and

19. The regional reserves of the South Asia Association for Regional Cooperation (SAARC).20. See http://www.fcbl.bt/background.php. 21. Danida is the Danish International Development Agency. For more information on the project, see http://www.btnagro.bt/.

small-industry development and in maintaining trade relations with india . BCCI has hosted several trade fairs within Bhutan, attended by Bhutanese and Indian firms. The BCCI maintains active relations with two of India’s principal business membership organiza-tions, the Federation of Indian Chambers of Commerce and Industry and the Confederation of Indian Industries.

the bhutan exporters Association (beA) oper-ates under the umbrella of the bcci . Its activities and headquarters are centered in Phuentsholing. They mainly serve as a policy and regulatory reform advocacy body representing exporters, but they also provide train-ing to their 150 members on various trade-related topics, including access to and utilization of trade finance.

DEvELOPMENT PARTNERSthe world bank group will start to implement an irrigation and rural livelihoods project in south-western bhutan . The Food Security and Agriculture Productivity Project (FSAPP) supports the government’s efforts to reduce rural poverty, food insecurity, and high levels of malnutrition through climate-smart approaches to improve agricultural productivity, food and nutrition security, and farmers’ access to local and export mar-kets. It addresses the interconnected problems faced by farmers and rural households through a set of integrated, consolidated, area-specific interventions responsive to local constraints, potentials, and priorities. The project has multiple responsibilities, but three of the most central are (1) supporting farmers, as the primary beneficiaries and lead players in food security, nutrition, and com-mercialization of agriculture; (2) improving productiv-ity of food crops (rice, potatoes, vegetables, and pulses) and of high-value crops (vegetables, citrus, and spices, especially largely cardamom and ginger) for greater food security and nutrition; and (3) linking farmers to agri- markets through a value-chain approach. The project will be implemented in Bhutan’s five southwestern districts: Chukha, Dagana, Haa, Samtse, and Sarpang.

the world bank also supports an ongoing agri-culture project, the remote rural communities development project (rrcdp), investing in staple commodities (rice, maize, and potatoes) and rural



infrastructure (irrigation and farm roads) in bhu-tan’s southwestern and south central districts . The RRCDP is designed to improve living conditions and incomes in the country’s poorer and more remote rural areas.22

in eastern bhutan, the international Fund for Agri-cultural development (iFAd) supports efforts to improve rural livelihoods by fostering a transition to commercial agriculture through increased agri-cultural productivity and better market linkages for farmers . The Commercial Agriculture and Resilient Livelihoods Enhancement Programme (CARLEP) seeks to transform the subsistence-based rural agricultural economy into a market-driven productive sector based on the development of sustainable agricultural value chains. Building on current and previous IFAD inter-ventions focused on increased agricultural production, CARLEP makes a basic shift in approach toward market-ing and climate-resilient farming practices, with the goal of sustainably increasing smallholder farmers’ incomes and reducing rural poverty. To that end, it strengthens capacity in communities and local institutions, targeting selected gewogs (groups of villages) in six eastern districts (Lhuntse, Mongar, Pemagatshel, Samdrup Jongkhar,

22. The main objective of the project is to increase agricultural productivity in remote rural areas by improving access to markets, irrigation, agricultural technologies, and community infrastructure. Improvement in market access would be achieved by investments in farm roads and marketing infrastructure. Agricultural productiv-ity and rural incomes would increase through improved irrigation and agronomic practices and rehabilitation of productive assets for key commodities. Community-led investments in the selected area will improve access for the poorest people to critical and missing infrastructure.

Trashiyangtse, and Trashigang) with high production and marketing potential in selected value chains.

the Food and Agriculture organization (FAo) has maintained a presence in bhutan since the mid-1980s . It mostly provides technical assistance to MoAF on policy and strategy development in the agricultural sector.

helvetas and the swiss Agency for development and cooperation became development partners with bhutan in the 1960s . Today, Helvetas Swiss Interoperation provides assistance to Bhutan in rural live-lihood development, governance, and skills development. Under the rubric of rural livelihood development, Helve-tas currently runs programs to help form producer orga-nizations and to improve certain key value chains, such as dairy, vegetables, and non-wood forest products.

snv, a dutch ngo, has worked in bhutan since 1998 . In partnership with the Asian Development Bank and IFAD, SNV implements programs to develop coop-eratives and improve irrigation, farm-to-market roads, and market access for smallholder farmers.

various microfinance projects target rural, agricul-tural households . RENEW, a nonprofit organization founded by Her Majesty the Queen Mother, implements a microfinance project to offer microloans, savings oppor-tunities, credit facilities, and insurance services to rural women. The Bhutan Development Bank recently intro-duced lockboxes to encourage savings in rural areas. The Business Opportunity and Information Center, an auton-omous agency of the Royal Government of Bhutan, offers a revolving fund for cottage industries and nonfor-mal rural activities.


Rice transplantation in Tang Valley, 2014


13

the analysis that follows examines bhutan’s agribusiness sector from several perspectives . Starting with summary data on the sector’s per-formance and composition, the analysis moves into a deeper exploration of the effects of the enabling environment, trade issues, and investment patterns on the sector’s performance and prospects.

COMPOSITION OF ThE AgRIBuSINESS SECTORthe enterprise survey also reaveals that agribusinesses in bhutan are primarily microenterprises operating as sole proprietorships and are geographically concentrated in the thimpu/paro region . In the 2015 Enterprise Survey, 64 of the 367 sampled firms were agribusinesses. Extrap-olating to the full population, agribusinesses make up 20.2 percent of the firms in the Bhutanese economy: 726 of 3,592 firms in the total population. As Figure 7 indicates, the majority of agribusinesses (55 percent) are in the Thimphu/Paro region, 19 percent are in Gelephu/Sarpang, 16 percent are in Phuentsholing, and 10 percent are in Samdrup Jongkhar. The regional distri-bution is similar across other sectors, with one in two firms located in Thim-phu/Paro and one in ten located in Samdrup Jongkhar (Appendix 2, Table 1).

bhutanese agribusinesses are smaller than businesses in other sec-tors . The Enterprise Survey shows that 91 percent of agribusinesses are microenterprises (in other words, they have fewer than five employees) (Fig-ure 8). No agribusiness has more than 100 employees (the definition of a large firm for Bhutan); 6 percent are small enterprises (5–19 employees); and 3 percent are medium enterprises (20–99 employees). Firms outside the agri-business sector are much less likely to be microenterprises: Only 68 percent have fewer than five employees. Significantly more small and medium enter-prises (SMEs) also exist outside of the agribusiness sector (24 percent). Bhutan generally has few large enterprises: Even among non-agribusiness firms, only 1 percent have more than 100 employees (Appendix 2, Table 1).

ANALySIS



sole partnerships are estimated to be 99 .7 percent of agribusinesses (725 firms) . Sole proprietorships are common across all sectors, making up 91 percent of the population of other firms (3,260 of the population of 3,592 firms). Compared to the agribusiness sector, however, firms in other sectors have significantly more firms that are not sole proprietorships: 6 percent are partnerships or limited partnerships and 2.5 percent are privately-held limited liability corporations (Appendix 2, Table 1).

Thimphu/Paro

Phuentsholing

Gelephu/Sarpang

Samdrup Jongkhar

76

399

117

135

Figure 7: Distribution of Agribusinesses by Region, BhutanSource: World Bank Group staff estimates based on Bhutan Enterprise Survey 2015. Labels are population estimates of firm number.

Microenterprise (0–4)

Small (5–19)

Medium (20–99)

Large (100+)

2449

851

258

661

45

21

Agribusinesses All other sectors

34

Figure 8: Firm Size in Agribusiness and Other Sectors, BhutanSource: World Bank Group staff estimates based on Bhutan Enterprise Survey 2015. Labels are population estimates of firm number.

the agribusiness sector as a whole was younger in 2015 compared to 2009 . The average firm age in 2015 was 9.4 years, down from 20.8 years in 2009. The trend is similar in other sectors and appears to be driven by the number of microenterprises. Data on the age of microenterprises are not available for 2009, but in 2015 the average age of micro-agribusinesses was 8.9 years, sig-nificantly younger than the average age of 14.3 years for small and medium agribusinesses (Appendix 2, Tables 1 and 2).

PERFORMANCE OF ThE AgRIBuSINESS SECTORAgribusinesses in bhutan perform at a lower level than do other sectors, based on real annual sales growth and annual labor productivity figures from the 2015 enterprise survey (Appendix 2, table 7) . Real annual sales growth is 4.1 percent for agribusinesses overall, compared to 10 percent for other businesses (Appendix 2, Table 2). These differences disappear after controlling for size of firm, however, indicating that lower performance is correlated with, and may even be driven by, the predominance of very small, young firms.23

23. Often the size of a firm is a significant determinant of outcomes for a range of parameters, and because most agribusinesses are microenterprises (91 percent), sector effects can sometimes be con-flated with size effects. For that reason, this analysis controls for size effects and the results discussion notes when significant differences in certain parameters may be explained by size effects.



Agribusinesses differ in significant ways from businesses in other sectors, and not surprisingly their perceptions about the environment in which they operate tend to differ as well . Data from the Enterprise Survey allows us to explore these perceptions and provide some indications of reasons for the relatively slower growth of agribusiness firms. The critical con-cerns and trends pertain to the legal and regulatory con-text, subsidies and incentives, access to finance, and the capacity for innovation.

LEgAL AND REguLATORy FRAMEwORkScompared to other businesses in bhutan, agri-businesses perceive their operating environment significantly differently . Agribusinesses perceive their biggest obstacles in the business environment to be access to finance, tax rates, and informal competitors (Figure 10). Agribusinesses are twice as likely as other businesses to identify tax rates as the most important con-straint: 22 percent (of 160 agribusinesses surveyed) did so, compared to 11 percent of other businesses (Appen-dix 2, Table 1). This is unexpected, since the agribusi-ness sector receives many tax breaks. For example, farm machinery and agricultural inputs are exempt from sales tax and import duties (RGoB 2014); agricultural outputs and inputs are exempt from internal and export taxes; and agricultural wages are not subject to income tax. BEA members raised the only tax-rate complaint the team considered well-founded: They consider the tax code unfavorable to seasonal businesses, and seasonality is characteristic of many agribusinesses.

Although most of bhutan’s agribusinesses are very small firms and studies of the factors behind sme growth show that regulatory compliance costs fall disproportionately on small businesses (crain and crain 2010), the enterprise survey data did not indicate that bhutan’s agribusinesses were dispro-portionately affected by regulatory burdens . Unlike firms in other sectors, agribusinesses are significantly less likely to identify their primary constraint as labor reg-ulations, transport, licensing and permits, electricity, or crime, theft, and disorder (Appendix 2, Table 1). Agri-businesses likely perceive labor regulations as less con-straining because most are microenterprises, and like microbusinesses in all sectors, they tend to rely little on non-Bhutanese workers.

overall, the rgob provides good support for trade-related procedures, including export permits and sanitary and phytosanitary certification .24 Members of the BEA regarded BAFRA’s cooperation with traders highly favorably, noting that BAFRA staff regularly choose to work overtime to get as many trucks across the border as possible prior to imminent strikes in India or Bangladesh. It is also noteworthy that Enterprise Survey data and the Doing Business Indicators indicate respondents’ perceptions that informal fees requested and corruption are very low at all levels of government.

24. Most agribusiness firms responding to the Bhutan Enterprise Surveys reported needing only one day to clear customs (ques-tion D4). Imports fare a little worse than exports (as confirmed in the question D14), and while the difference is not significant, it is important to note that a number of agribusiness firms in the sample indicated that their operations required imported inputs.

Sole proprietorship Partnership Limited partnership Privately-held LLC Publicly listed

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1

All other sectors

Agribusinesses

Figure 9: Legal Status of Agribusiness Firms and Firms in Other Sectors, BhutanSource: World Bank Group staff estimates based on Bhutan Enterprise Survey 2015.



despite favorable views of border services for trad-ers and agribusinesses’ perception that licensing and permits are not their most important obstacle, senior agribusiness managers interviewed for the enterprise surveys appeared to spend consider-ably more time complying with government regula-tions in 2015 than 2009 . In 2009, regulations took up 7.4 percent of senior managers’ time; by 2015, that activ-ity had increased by more than half, consuming 12.2 per-cent of senior managers’ time. The time commitment indicated in the 2015 survey, however, is actually closer to the reality for firms in other sectors of the economy. In other words, agribusiness managers in 2009 spent signifi-cantly less time dealing with government regulations than did their counterparts in other sectors; by 2015 this dif-ference was no longer detectable (Appendix 2, Tables 1

and 2). The relatively lower performance of agribusi-ness firms noted over this time span cannot therefore be explained by a proportionately greater regulatory bur-den. The question remains: What is causing the relatively slower growth of Bhutan’s agribusiness firms relative to firms in other sectors?

SuBSIDIES AND INCENTIvESgrowth in the agricultural sector is a critical com-ponent of the moeA’s economic development pol-icy, yet government agricultural programs have been underfunded until recently, and the types of support provided may still not be the most effec-tive means of promoting sustainable growth in agriculture . More specifically:

Other businesses Agribusiness

0% 5% 10% 15% 20% 25% 30% 35% 40%

Access to finance

Tax rates

Informal competitors

Labor regulations

Inadequately educated workforce

Customs and trade regulation

Electricity

Access to land

Crime, theft, disorder

Licensing & permits

Transport

Political instability

37%

40%

11%

22%

4%

4%

5%

16%

1%

2%

2%

5%

5%

3%

0%

4%

1%

1%

1%

0%

0%

0%

2%

2%

Figure 10: Top Business Environment Obstacles as Perceived by Firms in BhutanSource: Bhutan Enterprise Survey 2015.



In Bhutan public expenditure on agricultural develop-ment as a percentage of total expenditures has been gradually in decline from the Fifth Plan (1981–86) onward. This figure stood at 9 percent of total expen-ditures in the Fifth Plan, and had decreased to 3.1 per-cent during the Eighth Plan (1997–2002). The share increased to 6.5 percent in the Ninth Plan (2002–2007), but experienced a slight decrease, to 5.5 percent, in the 10th Plan (2008–2013). In parallel, agricultural growth had fallen almost continuously since 2001, from 5 percent, reaching 0.4 percent in 2007 (Kakra and Bhattacharjee 2009, 75).

In the past, the government appears to have grad-ually shifted resources from the RNR sector to other public expenditure items when alternative investments promised quick gains in other sectors. The government responded to this trend by dedicating US$64 million (11 percent of the national budget) to the RNR sector in fiscal 2014 –15, and it has adopted a policy to expand growth in the RNR sector through a strategy that gradually transitions smallholder produc-ers from subsistence agriculture to commercial farm-ing (RGoB 2014). This new direction makes the role of agribusinesses—which provide many of the opportu-nities to add value in agriculture (for example, through input supply, transport, mechanization, trade, and mar-keting services)—ever more important to the RNR sec-tor strategy. The question now is whether this support is maximally effective.

The MoAF directly supports the agricultural sector through various programs and subsidies. Much of the ministry’s investment in agribusiness focuses on sup-porting production rather than activities downstream in the value chain, such as aggregation, distribution, export, and marketing. MoAF’s main activity budget allocates a total of US$9.78 million (65 percent) to road and irri-gation construction. The remainder of the activity bud-get, US$5.25 million, provides fish stock (US$240,000 or 5 percent), parent stock for pork and chicken (US$480,000 or 9 percent), and vegetable seed (US$350,000 or 7 per-cent), and only US$120,000 (2 percent) was channeled to market sheds and collection centers (MoF 2014). Under

the same activity budget, the MoAF also bought and hired out agricultural equipment, ostensibly replacing private-sector purchases, for a total of $954,970, or 18 percent of the remaining activity budget. Finally, they managed several megafarms and demonstration farms, which com-pete with private businesses by selling their products into the same markets (MoF 2014). This raises the concern that MoAF subsidies pursue a production-led strategy rather than a demand-driven, market-led strategy.

The Farm Shops program illustrates how the pub-lic sector can affect the creation and growth of the private sector. To address low input use on small farms, the MoAF established a public-sector network to supply inputs, known initially as One-Stop-Shops and now known as Farm Shops. This program was created under the DAMC, and the FCB is responsible for hiring and training Farm Shops managers and providing market links to and from the Farm Shops. Farm Shops are meant to increase the access to, and use of, inputs by all farmers in Bhutan, to provide an off-take market, and to provide a safety net for vulnerable households by selling subsi-dized staple goods. Currently 16 shops are in operation in eastern Bhutan. Despite plans to expand the shops to all gewogs, the program has come under scrutiny, and it may be eliminated. Many local shop owners complain of unfair competition from the Farm Shops. Ironically, the Farm Shops, meant to support the local rural economy, may instead be threatening the few rural enterprises that have emerged by competing with local shop owners and potential private-sector input suppliers (Box 2).

The MoAF channels much of its support for the marketing and value-addition aspects of agribusi-ness through various public agencies that perform distinctly private-sector functions. These state- supported, or state-initiated, entities were created to address perceived market failures in the agribusiness sector, but their continued existence (in their current form) may be creating distortions in labor and product markets and may be limiting the number and growth of private agribusiness firms. As noted, the Enterprise Sur-veys identified no large agribusiness firms in Bhutan, and only 3 percent could be considered medium sized. On

0000000_Bhutan Agribusiness Policy Note.indd 17 1/13/17 9:17 AM


the other hand, these quasi-public-sector firms could be considered either medium or large sized, thus amplifying their potential to influence the sector.

Examples of public agencies that serve essen-tially private-sector functions are the BAIL, AMC, DAMC, and megafarms. The BAIL is a publicly sup-ported agency that develops, distributes, and markets value-added (processed) agricultural goods just like any private-sector food processor. Other than Druk Brewery, no similarly large, private food processor has emerged in Bhutan. Despite the AMC’s long-term efforts to promote and support farm mechanization by subsidizing sales of machinery and spare parts (and the exemption of farm machinery from sales taxes and import duties),25 FAO reports that only 8 percent of farmers used a power tiller in 2008. The FCB buys and sells agricultural produce, creating a market for products even in remote areas. Although it claims to be privately operated, the FCB also performs functions resembling those of public agencies, and it is certainly supported through public funding to

25. See DAMC (undated); MoAF (2013b) states: “Economic Devel-opment Policy, 2010. In order to encourage commercial farming, the EDP offers 10-year tax breaks to farms or companies and an additional five-year tax break for commercial organic farming. Sales tax and import duties are also exempted for farm machineries and agricultural inputs.”

do so. For example, it manages regional and national food stocks, releasing stocks, sometimes at the govern-ment’s request, to mitigate price swings in the markets. Each of these entities compete with potential private- sector entrants into the agribusiness sector, which are now mostly microenterprises, yet these are relatively large entities that enjoy some form of state support. The ques-tion must be raised whether the RGoB provides a level playing field for potential new private-sector agribusiness entrants.

Furthermore, subsidies are provided to Bhutan’s agribusiness sector in ways that risk diminishing the choices open to farmers and reducing the like-lihood that farmers will innovate or diversify. For example, vegetable and rice farmers are given prepack-aged sets of inputs. Providing crop-specific subsidies dic-tates production choices: Similar support is not available for other commodities, and therefore cash-poor farmers are much more likely to choose to grow the subsidized commodity, suppressing any urge to diversify, innovate, or pursue other market opportunities. The best practice in managing subsidies allows farmers a wider choice of crop type and input vendor. Such subsidies also deter investment by private-sector support services, such as seed companies, fertilizer importers, and distributors. The presence of public-sector-generated subsidies and incentives may mask truly market-based incentives, thereby negatively affecting the growth of private-sector agribusinesses.

Access to FinAnceThe Enterprise Surveys indicated that agribusi-nesses are less banked than businesses in other sectors. Agribusinesses use banks less often to finance either working capital (7 percent of agribusinesses as compared to 22 percent other sector businesses) or invest-ments (2 percent of agribusinesses compared to 5 per-cent of other sector businesses). These results may be driven by the composition of the agribusiness sector. Microenterprises dominate the agribusiness sector across the economy, and microbusinesses use banks to finance investments or working capital at significantly lower rates than do larger businesses. Indeed, microenterprises fall lower on all financial access indicators (Appendix 2,

Box 2: Local Businesses Describe Competition from Farm Shops in Bhutan

The [Sanam Tshongkhag] Farm Shop in Rangjung, Trashigang, was inaugurated on July 15 last year to cater to the farmers of eight gewogs in Trashigang. The 33 shopkeepers of Rangjung had appealed to the dzongkhag [Bhutan’s administrative and judicial district] administration objecting to the sale of basic food essential items. . . . Tashi Dorji, a shopkeeper, said the close proximity of the shop to the town was affecting their business. Consumers were opting for goods from the Farm Shop.

Tshogpa of Rangjung town, Jambay, said the Farm Shop was purchasing essential items from the Food Corporation of Bhutan (FCB) just like the shopkeepers did. “But the Farm Shop sold at a lower rate than ours. Other shopkeepers were running on loss. We simply couldn’t compete,” said Jambay.

Source: Kuensel Online, 5 April 2016.



Table 6). Agribusinesses are also significantly less likely to have their annual financial statements reviewed by an external auditor: only 3 percent of agribusinesses do so, as compared to 19 percent of other businesses. This dif-ference, again, is driven by the prevalence of microenter-prises in the sector: Across the economy, microenterprises are 33 percentage points less likely to have statements reviewed by an external auditor than are their larger counterparts (Appendix 2, Table 15).

even so, since 2009 agribusinesses have increased their access to finance, and their perceptions about access to credit have also improved . In 2009, 45 per-cent of agribusinesses ranked poor access to finance as the top obstacle to their operations, compared to only 19 per-cent of businesses in other sectors. By 2015, the propor-tion of agribusinesses identifying access to finance as their top obstacle had decreased by 11 percent (5 percentage points). The same improvement was not seen in other sectors: Access to finance remained the top obstacle for non-agribusinesses in 2015, and the proportion of firms ranking it first increased from 19 percent to 37 percent (Appendix 2, Tables 1 and 2). Controlling for firm size, agribusinesses with five or more employees are 13 percent-age points less likely than firms in other sectors to report access to finance as their biggest obstacle (Appendix 2, Table 5). In addition, the proportion of firms reporting that they did not need a loan increased dramatically: from 26 percent to 58 percent of firms in the cross-section, and from 15 percent to 68 percent for the panel. This trend is similar for other sectors, suggesting an economy-wide improvement (Appendix 2, Tables 3 and 4).

Agribusinesses report a greater reliance on exter-nal financing than do other sector firms . By 2015, 17 percent of agribusinesses (all with at least five employ-ees) used banks to finance investments, while none had reported doing so in 2009. The share of investments financed internally dropped by more than half, from 93 percent to 44 percent. The trend in other sectors is just the opposite: The proportion of non-agribusinesses using banks to finance investments dropped from 35 percent in 2009 to 16 percent in 2015, and the share of investments financed internally increased from 48 percent to 64 per-cent (Appendix 2, Tables 1 and 2).

Access to bank financing matters if agribusinesses are to grow and innovate . For agribusinesses, using a bank to finance investments or working capital is associated with an increase in real annual sales growth of 0.16 per-centage points and annual labor productivity growth of 0.21 percentage points. When controlled for firm size and access to loans, however, the finding becomes less robust. Furthermore, being “banked” overall is associated with an increase in the proportion of all firms buying fixed assets (by 24 percentage points) and an increase in the likelihood of innovating (by 60 percentage points), even when controlling for firm size, access to loans, and region (Appendix 2, Table 17). The improvements in access to finance should bode well for the future growth of agribus-iness, but room for improvement in the financial sector remains possible, especially in trade finance. The BDB, the primary financier of agribusiness in Bhutan, cannot offer letters of credit, provide factoring, or handle foreign exchange transactions. For additional information on the BDB’s loan products, see Box 3.

current bdb loan products encourage cooperative ownership over—and sometimes to the exclusion of—private individual ownership . For example, the BDB makes group loans under the Group Loan Lending Scheme at a rate of 10 percent, while individual loans are made at 12 percent. Greenhouse subsidies for veg-etable producers favor group ownership over individ-ual ownership, as well; the group subsidy is 40 percent

box 3: bhutan development bank lending products for producers and Agribusinesses

The BDB is the only bank focusing on farmers. Since 2010, it has made substantial efforts to offer credit to agribusinesses, initiating an Industrial Lending program to provide long-term finance and working capital for industrial and agro-based ventures. It has also introduced a Farmers Outreach banking program that sends field officers to visit farmers to disburse loans, collect payments, and make deposits and withdrawals. In providing loans to farmers, the BDB has also made an effort to use land as collateral and has devel-oped some non-collateralized products based on solidarity princi-ples, providing small loans to groups of three to seven farmers and even to groups of three or more small and medium enterprises.

Source: Bhutan Development Bank, Ltd. Key Informant Interview 2016.



of the capital cost, but individual farmers receive only 20 percent. Reducing bias in subsidies and providing balanced incentives to both individual and cooperative owners might support the development of a more diverse and likely larger range of private agribusiness in Bhutan, including especially individual service providers.

InnovatIonBased on an indicator for innovation constructed from a subset of questions/responses from the Enterprise Surveys, agribusiness firms appear to be half as likely to innovate as firms in other sec-tors.26 Only 17 percent of agribusinesses are considered innovative, as compared to 35 percent of other-sector businesses. Micro-agribusinesses are 18 percentage points less likely to have introduced an innovation than are firms in other sectors, even after controlling for region, work-ers’ levels of education, and firms’ access to bank services and credit (Appendix 2, Table 18). Given the prevalence of microenterprises in Bhutanese agribusiness, evidence suggests that catalyzing firm-level learning would assist their growth into progressively larger enterprises, and help them to add more value to what they produce and reduce losses. To improve the degree of such innovation, Bhutan could both promote an effective innovation policy framework and support agribusiness incubators to train firms in specific capacities. Such support at the firm level is necessary to promote industrial upgrading and to allow existing agribusinesses to step into unfilled market niches.

Innovations applied to food handling, processing and distribution, not only add more value to exist-ing production, but help reduce losses and waste

26. A firm is considered innovative if it answers yes to at least one of the following questions from the Enterprise Surveys: (1) During the last three years, has this establishment introduced any new or significantly improved logistics, delivery, or distribution methods for inputs, products, or services? (2) During the last three years, has this establishment introduced any new or significantly improved sup-porting activities for your processes, such as maintenance systems or operations for purchasing, accounting, or computing? (3) During the last three years, has this establishment introduced any new or signifi-cantly improved organizational structures or management practices? (4) During the last three years, has this establishment introduced new or significantly improved marketing methods? (5) During the last three years, did this establishment spend on formal R&D activities, either in-house or contracted with other companies, excluding mar-ket research surveys?

(one of the objectives of Bhutan’s Waste Prevention and Management Act of 2009). According to FAO (FAO 2011), our food systems waste more than 1/3 of the world’s food (more than a billion tons per year). Losses in South Asia are estimated to be some of the highest in the world (greater than 50% along the entire value chain), but evidence indicates that investments in post-harvest handling, processing and distribution can significantly reduce these losses. FAO shows that post-harvest food losses are significantly less for industrialized regions; i.e., 39% of fruits and vegetables that come off the farm in South Asia are lost during post-harvest handling, process-ing and distribution; whereas losses at those points in the value chain are much less in industrialized Asia (17%) and in Europe (16%).

Beyond incubation activities, agribusiness firms serving output organizing functions (for example, as fresh exporters, agro-processors, or wholesal-ers) need to build specific capacities for engaging in the global value chain; in particular they need the ability to sustain marketing contacts abroad. Inter-ventions to support incubation of microenterprises could provide firms an array of training opportunities:

» Sector-specific capacities: An introduction to food-processing technologies and associated meth-ods for ensuring ever higher degrees of food safety would put firms on a path to operating in new market segments.

» Basic business capacities: Training on mar-keting, accounting, logistics, and so on would allow firms to better contract and engage with the broader economy and with specific anchor investors.

» Market linkages: Support in basic marketing skills, identifying and targeting new markets, and networking for market development would help firms to innovate and grow.

» Forming partnerships: Another avenue of support for firm-level innovation and growth would foster linkages between smaller agribusi-nesses and lead firms and potential joint venture partners, both FDI and domestic, thus providing access to new technologies, better logistics, and new markets.



Enterprise Survey data also indicate that agri-businesses in Bhutan make significantly less use of information and communication technologies (ICTs) than do businesses in other sectors. Only one in 100 agribusinesses has a website, compared to one in six in other businesses. Agribusinesses make more use of email than of websites: 16.3 percent (119 firms in the agri-business population) use email to communicate with their clients and suppliers. Note that email use is significantly higher for non-agribusiness firms, however (33.4 percent, or 1,200 firms). ICT deficits are largely explained by the high proportion of microenterprises in the agricultural sector: Microenterprises in all sectors are less likely than larger firms to use these technologies. Yet even after con-trolling for firm size, agribusinesses remain at a significant disadvantage with regard to ICT, particularly in terms of having a website (Appendix 2, Table 15).

Trade in agribusinessThe environment for trade inescapably influ-ences agribusiness. The following analysis looks at recent trade outcomes, access to markets, and the role of logistics in presenting opportunities or barriers for agribusinesses.

Trade OuTcOmesAfter a deteriorating trade balance from 2010 to 2011, a reduction in imports and a slight improve-ment in exports helped reduce the trade deficit in 2012. In that year—the latest for which complete trade data are available—the deficit for tradable goods was US$460 million. For the years since 2012, mirror data from exporting/importing trade partners suggest (although they are too limited to confirm) a further reduc-tion in the trade deficit. For the RNR sector specifically (excluding hydropower), the deficit in 2012 was approx-imately US$140 million. The US$44 million in export trade is significantly smaller than the US$185 million in imports, which typically supplied Bhutan with cereals and wood products. The limited trade data available for 2014 seem to reveal that wood and beverages are the leading agricultural exports. Trade in vegetables, fruits, and nuts now registers on the export balance sheet.27

Relative to comparator countries, Bhutan does not perform strongly in export trade. Taking an economy- wide view, Figure 11 shows the percentage of all

27. Note that these statistics do not reflect the likely more substantial cross-border trade (RGoB 2014). The data provided are also based on mirror data reported by the importing country (most likely India).

0 10 20 30 40 50 60

Bhutan (2015)

Malaysia (2007)

Thailand (2006)

Lao PDR (2012)

Fiji (2009)

Samoa (2009)

Vietnam (2015)

China (2012)

Micronesia (2009)

Philippines (2009)

Indonesia (2015)

3.4

54.7

47.6

18.6

15.6

14.8

12.6

10.8

10.5

7.8

7.1

Figure 11: Percentage of Firms Directly Exporting at Least 1 Percent of Sales, BhutanSource: Bhutan Enterprise Survey 2015.



SMEs—excluding microenterprises—that participate in export markets across a range of comparator countries. Yet such low figures belie the true export competitiveness of Bhutanese firms.

Agribusinesses export less than firms in other sec-tors, according to Enterprise Survey results. In Bhutan, only 3.4 percent of firms export at least 1 per-cent of their sales, and the Enterprise Surveys indicated that only 7 percent of all agribusinesses (20.2 percent of all firms) export at least 1 percent of their sales, even taking into account both indirect (domestic sale to third-party exporter) and direct exports (Appendix 2, Table 1). Exporting closely correlates with firm size: Microen-terprises are less likely to export regardless of sector (Appendix 2, Table 11). Medium-sized agribusinesses are 16 percentage points more likely to export at least 1 percent of their sales as compared to smaller firms.28 Medium-sized Bhutanese firms fall behind in regional benchmarks, however.

Even so, Bhutan has experienced excellent growth in exports of certain high-value horticultural products and processed foods (Christensen, Fileccia, and Gul-liver 2012). From 2011 to 2014, exports of all citrus increased by 66 percent,29 apples by 35 percent, potatoes by 175 percent,30 and betel (areca) nuts by 225 percent (Figure 12). Growth in agricultural GDP over 2013–14 is largely a function of the strong export performance in these products. The emergence of a commercialized agricultural sector catering to high-value export markets

28. Only 9.3 percent of agribusinesses are classified as medium-sized firms, so while they are significantly more likely to export, overall export rates for the sector remain low. 29. Orange greening disease is an emerging crisis in Bhutan’s horticultural subsector. The disease weakens and kills mandarin trees, seriously reducing the productivity of one of Bhutan’s major export crops. Once infected, the trees cannot be saved and must be removed and burned. The BEA reports that between 2015 and early 2016 mandarin exports across the Phuentsholing crossing dropped to approximately 20 percent of 2013 levels. While cyclic fluctuations in the citrus harvest are common (poor harvests typically succeed a year of good harvests), a reduction in exports of this magnitude signals a much larger problem, attributable primarily to orange greening disease. Although devastating, these losses might encourage contin-ued diversification in horticultural exports and increased investment in agricultural R&D. Possibly in response to this problem, the MoAF is exploring the production and export of kiwi fruit. 30. Potato exports from Bhutan have increased significantly over the past several years and are now valued at US$11 million per year.

is encouraging.31 Crucially, horticultural growth has also been driven by the expansion to rural areas of feeder roads (RGoB 2014), providing producers with better access to markets and enabling them to benefit from the climatic conditions preventing similar agricultural pro-duction further south in India during the off-season.

Evidence suggests that annual growth in labor pro-ductivity is significantly stronger among the few Bhutanese agribusinesses that export their prod-ucts. A regression of annual labor productivity growth as an indicator for exporters, controlling for firm size, region, and financial access, shows annual labor productivity growth 0.25 percentage points higher for exporters than for nonexporter agribusinesses (no such trend is observed for other businesses). Mean annual employment growth for agribusinesses is 1.1 percent, so the gain from being an exporter is economically significant as well (Appendix 2, Table 17). Since exporting firms are key to wider economic growth and the bulk of Bhutanese agribusinesses are not exporting, determining how reforms and investment might develop opportunities for trade requires understanding the drivers behind the relatively low level of exports.

31. See http://atlas.media.mit.edu/en/visualize/stacked/hs92/export/btn/all/show/1995.2013/.

2011 2014

RiceW

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ley

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2000

4000

6000

8000

10000

12000

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Figure 12: Growth in Bhutan’s Agricultural Exports, 2011–2014Source: Bhutan RNR Statistics, MoAF, 2016b.



markeT accessLimited access to markets—reported by 60 per-cent of farmers as a primary constraint to their operations in the 2009 Agricultural Census—is exacerbated by information barriers inherent in international trade. Bhutanese farmers are isolated both internally, where gaining access to markets in the next town can be a challenge, and externally, because gaining access to a large number of trading partners is difficult and costly for a landlocked country such as Bhu-tan.32 In these circumstances, Bhutan could benefit from a cluster-based market intelligence unit to facilitate com-munication between buyers and producers, improve coor-dination, and channel demand into production systems.

Indications show that some producers gain better access to markets than others. To facilitate sales of fruits and vegetables, FCB operates five auctions. The auc-tions trade potatoes, ginger, areca nut, peas, cauliflower, cabbage, carrots, beetroot, and chilies, with annual vol-umes of 24,000–30,000 MT (Christensen, Fileccia, and Gulliver 2012). While export linkages facilitated by the FCB give an increasingly large group of farmers access to markets,33 the number of Indian and Bangladeshi trad-ers interacting with the Phuentsholing market has also increased (RGoB 2014).34

32. Bhutan enjoys open and dynamic trade relations with its very populous neighbors, India and Bangladesh, which provide an imme-diate market outlet for its surplus agricultural production. Bhutan even has some significant—albeit fluctuating—trade with Hong Kong, although probably not in agricultural commodities.33. To a lesser—but still notable—degree, foreign direct investments also enable exports.34. Christensen, Fileccia, and Gulliver (2012) note that “the market-ing chains for export crops are somewhat better developed. Whole-sale markets exist, on or close to border crossing points into India, particularly for potatoes, although the buyers are largely foreign. An assembly process exists for citrus, but it is also driven by foreign buyers who advance seasonal credit as a means to secure supply, then buy the crop on the tree and pick and grade it themselves. Bhutanese market agents are conspicuously absent in these activities.” In the same study, Christensen, Fileccia, and Gulliver (2012) comment fur-ther that “these trends indicate that the current focus on investment in rural roads as the key to sector growth has probably had much higher returns for commercial crops than for cereal crops. Increased connectivity has few advantages for crops that are consumed on the farm. Indeed, the expansion of farm roads may ultimately become a disincentive to raise cereal production, as lower priced Indian rice imports will become more readily available in rural areas.”

Most cross-border trade with India and Bangladesh occurs within Bhutan at border markets rather than at the end market in the destination coun-tries. For the most part, therefore, Bhutanese traders (and by extrapolation, producers), are relatively out of touch with the demands of their end markets and may not be capturing all the value possible. According to BEA, many of its member traders are not knowledgeable about end markets, terms of trade, or even standard business practices and skills, such as the use of trade finance.35 In theory, closer connections with end markets will catalyze these sorts of developments. A similar understanding of quality and other requirements demanded in such mar-kets will be critical to giving any export sector a compet-itive edge (Box 4).

Trade LOgisTicsThe transport picture is changing owing to efforts by the government and development partners to increase the rural road network. Agribusinesses in 2015 no longer considered transport problems as primary obstacles to their operations. None of the agribusinesses listed transport as the most important obstacle in 2015, whereas 12 percent did so in 2009 (Appendix 2, Tables 1 and 2). Infrastructural challenges have improved overall:

35. The reality that agribusinesses make much less use of the internet and email than do businesses in other sectors also contributes to their lack of knowledge in/of the market.

Box 4: The Importance of End-Market Connectivity

Nepalese traders of cardamom discovered that the end markets in Siliguri and Calcutta paid a premium for “pink” cardamom, which results from specific production and post-harvesting practices. In response, they focused on developing those practices for a new variety of cardamom to meet the requirements of those high-value end markets. In 2014, Nepal accounted for about 48 percent of pink cardamom production, India 41 percent, and Bhutan 11 per-cent. This order reflects a recent reversal of dominance, since prior to 2014 India was one of the leading exporters, with nearly 54 per-cent of the market share.

Source: Karki, Dewald, Polo, Strengthening Cardamom and Ginger Value Chains in Eastern Nepal, Mercy Corps.



Agribusinesses report fewer and briefer shortages of water and power in 2015; however, micro-agribusinesses still face significant challenges (Appendix 2, Table 9). A similar trend is apparent for non-agribusinesses.

Inescapably, however, Bhutan’s remote loca-tion adds significant international transport costs, which erode its export competitiveness. At US$2,577 per container, Bhutan’s freight forwarding costs for export are among the highest in the world and presumably limit agricultural competitiveness. Domestic market connectivity is another important area to address, and the RGoB should seek investments from logistics inno-vators. Even with better, wider roads, Bhutan’s connec-tivity issues will never completely disappear. The terrain itself will always dictate lower speeds and greater expense in its transport system than those of most other countries. Figure 13 shows the correlation of cost to export with agricultural productivity for Bhutan and other countries.

The RGoB has maintained excellent trade and diplomatic relations with India and Bangladesh.36

36. “Bhutan is a very small, very open economy, which faces unre-stricted trade for almost all agricultural commodities due to the free trade agreements (FTAs) that govern trade with India and Bangla-desh. While these FTAs create numerous attractive opportunities for agricultural exports, they also mean unfettered competition from imports—including ‘strategic’ food commodities such as rice. The lower wages, higher agricultural productivity and larger scale econo-mies of agro-processing in these countries also mean that Bhutanese

Maintaining the historical affinity for free trade across borders will be key to enabling growth, particularly since Bhutan’s remote location makes it highly dependent on access to a limited number of export destinations,37 but negotiations should not remain static and should con-tinue to advocate fair trading relationships.

One weakness to address is that Bhutanese trucks entering India must return to Bhutan empty, greatly increasing the cost for Bhutanese firms using Bhu-tanese trucks for exports. Indian trucker syndicates “unofficially” impede Bhutanese-plated trucks from pick-ing up goods on their return from Indian markets (in Cal-cutta, for example), so Bhutanese truckers tend to focus on domestic transport, and few cross into India or Ban-gladesh, whereas Indian truckers readily cross into Bhu-tan. This unfortunate development in Bhutanese trade has virtually extinguished the Bhutanese export trucking industry, partly explaining why transport features so little as a constraint in the Enterprise Surveys.

invesTmenT in agribusinessThe sections that follow examine investment out-comes, investment policy, and market opportu-nities. This information assists in understanding the prospects for Bhutan to attract greater private investment in agribusiness, produce new products, and reach new markets.

invesTmenT OuTcOmesThe Enterprise Survey reveals that virtually all agribusinesses were fully domestically owned in 2015. A 2009 law enables foreign agribusinesses to invest directly in Bhutan, and the Land Act allows for long-term

agro-processing (for export or domestic markets) will need to be highly competitive in order to succeed” (Christensen, Fileccia, and Gulliver 2012).37. At the same time, it is important to note that agribusinesses in the Enterprise Surveys faced greater delays at customs in 2015 than they had in 2009: 5.6 days to clear imports in 2015, up from 2 days in 2009. In this instance, agribusiness appears to be catching up with the rest of the economy; non-agribusiness firms experienced no increase between 2009 and 2015, but they already faced average delays of 6 days in 2009.

$100,000

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DB cost to export: deflated US$ per container

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All countriesNepalLinear (all countries)

BhutanAfghanistan

LesothoMongoliax x

Figure 13: Correlation of Cost to Export with Agricultural Productivity, Bhutan and Other Countries, 2014Source: World Bank World Development Indicators and Doing Business Data.Note: DB is Doing Business.



(30-year-plus) leases, but only one of the agribusinesses responding to the Enterprise Surveys reported any for-eign ownership, compared to 2 percent of firms in other sectors (approximately 73 firms in total). Clearly, although foreign ownership in Bhutanese businesses is limited overall, the share of private foreign ownership is signifi-cantly lower for agribusinesses (Appendix 2, Tables 1 and 12). Note, however, that the largest agribusiness firm in Bhutan, Mountain Hazelnut Ventures (MHV), is foreign owned.

Bhutan currently lacks some characteristics that would make it more attractive as a foreign invest-ment destination. Bhutan has none of the three basic types of FDI—natural resource seeking, domestic market seeking (for consumer goods and services), and efficiency seeking—and is thus unlikely to attract FDI investors, except possibly those seeking low-cost electricity. FDI in Bhutan will therefore likely be limited to investors seeking opportunities unique to Bhutan. Tourism is an obvious example, and Bhutan’s wholesome image, as embodied by Brand Bhutan, could help attract food and agribusi-ness investors.

invesTmenT POLicyForeign Direct Investment (FDI) can offer local pro-ducers access to global value chains.38 A World Bank Group flagship study on agribusiness competitiveness39 highlights the significant role that lead firms have played throughout South Asia in linking countries with global value chains. This experience from other parts of South Asia, along with experience from elsewhere around the world, shows that firms in developing countries, rather than developing comprehensive value chains, can special-ize in those portions of the production process in which they have comparative advantages, while foreign off-tak-ers organize further value-chain actions. MHV serves as a good example of a lead firm in Bhutan (Box 5). Such

38. Foreign firms can effectively upgrade domestic capacities and facilitate the transfer of technology, knowledge, and skills, particu-larly for more knowledge-intensive crops and processes. 39. World Bank Group, forthcoming 2016c.

specialization allows local industry to produce at the scale necessary to be competitive globally.

FDI can also provide a platform for transfers of technology and knowledge that spur growth. A cross- sectional study of 66 developing countries found FDI to be a significant contributor to advancing economic growth and trade (Makki and Somwaru, undated). The effects of FDI on growth have been found to be stronger when the host country has higher levels of human capital and greater financial development (Alfaro, Chanda, Kalemli- Ozcan, and Sayek 2006). These considerations validate Bhutan’s investments in education and reinforce the ben-efits of developing the financial sector.

Certain dimensions of the underlying business environment help facilitate FDI, and correspond-ingly, their absence helps explain low rates of for-eign ownership. The World Bank Group’s yearly Doing Business (DB) assessment quantifies elements of the business environment in countries throughout the world. Given the land intensities of Bhutan’s agribusiness sector, particularly for corporate farms, the DB indicator Regis-tering a Property is particularly important for understanding the sector’s capacity to attract FDI. The ease of register-ing property relates as well to gaining access to credit—a known constraint in Bhutan’s agribusiness—given that

Box 5: Mountain Hazelnut Ventures (MHV)

Lead firm investors such as Mountain Hazelnut Ventures (MHV) connect Bhutan’s smallholders to distant, high-value markets. MHV is a private, social enterprise partnered with Bhutan’s smallholder farmers to grow and export Bhutanese hazelnuts in commercial quantities. The company’s ultimate goal is to plant hazelnuts on 22,000 ha, working with a similar number of farmers, and to export 33,000 MT of hazelnuts. As of end of 2015, MHV has partnered with nearly 6,000 farmers to establish plantations on over 6,000 ha and is currently Bhutan’s single largest private-sector employer. MHV processes and exports hazelnuts to a Chinese pro-cessor, but it intends to diversify this market over time to include European confectioners.

Source: Interview with Sean Watson, Managing Director, MHV.



98 percent of agribusiness firms in the 2015 Enterprise Survey reported needing collateral for loans.40

Transferring a property title in Bhutan takes on average 77 days.41 Key informants cite this long delay as a major constraint. The average number of days required for Bhutanese nationals (buyers and sellers) to transfer a property title also figures in the property regis-tration indicator. A correlation between the two emerges when cross-country data is used to plot Bhutanese per-formance on the DB property indicator against FDI (Fig-ure 14). For foreign investors, the administrative hurdles could be even higher, possibly deterring prospective for-eign investors, especially those interested in property- intensive agribusinesses. Few foreign agribusiness firms have the wherewithal to establish operations in Bhutan, given these administrative barriers and the high cost of traveling to Bhutan to push the process along.

40. “Ensuring formal property rights is fundamental. Effective administration of land is part of that. If formal property transfer is too costly or complicated, formal titles might go informal again. And where property is informal or poorly administered, it has little chance of being accepted as collateral for loans—limiting access to finance” (World Bank Group 2016b).41. World Bank Group (2016b).

exPLOring new PrOducTs and new markeTsInternationally comparable FAO statistics make it possible to assess potential new markets for Bhu-tan by benchmarking Bhutanese producer prices for a suite of crops produced in Bhutan against prices in countries likely to compete in the same markets. Subtracting the producer prices42 of the com-parator countries from the producer prices in Bhutan yields the producer price differential between the coun-tries. This analysis can reveal where Bhutanese producers hold a cost advantage or disadvantage.43 Bhutan appears to be a competitive producer of several commodities with no regional competition: asparagus, lemons/limes, mush-rooms (with the exclusion of China, which competes at the low-value end of the market), and walnuts (Table 2). Notably, producers in Bangladesh—Bhutan’s second- largest trading partner for agricultural goods—outcompete

42. A five-year average was taken for crop prices for each country for which data were available. Note that no producer price data are available for India.43. While this analytical lens assumes that the quality and variety of the produce is uniform and that producer prices are not affected by associated shifts in economies of scale, the result helps confirm find-ings from fieldwork on crops with export potential, such as asparagus.

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Figure 14: Correlation of Time Required to Register a Property and Inflows of Foreign Direct Investment (FDI), Bhutan and Other Countries, 2014Source: World Bank, Doing Business 2016.Note: BoP is balance of payments; DB is Doing Business.


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TAB

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: CO

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28



Bhutanese producers on the cost of all crops produced in both countries except for areca nuts. Bhutan also does not appear to be particularly competitive in citrus. While negative values do not necessarily bar Bhutanese produc-ers of the crops and livestock products shown in the table from participating in global markets, the analysis suggests that Bhutanese producers have smaller margins than those of their international competitors or compete in different seasons/segments. To compete more sustainably on a cost basis on the global market, Bhutanese producers of these products will need to reduce their production cost structures, most likely through reforms or interventions in specific input markets and through increased efficiencies in aggregation, processing, and export.

For products of comparator countries for which Bhutan maintains positive producer price differentials—and where the value advantage is large enough to offset the costs of trade, includ-ing logistics and tariffs—Bhutanese producers could potentially compete in the same markets as the comparator country producers.44 The per-sistence of positive producer price differentials (without

44. The challenge for Bhutan will be to find export markets in which it can overcome the barriers presented by sanitary and phytosanitary standards.

corresponding trade volumes recorded for raw or associ-ated products) suggests that market failures or constraints prohibit output organizers from responding to foreign price signals. Such constraints often include information and coordination barriers, trade and logistics barriers, the inability to meet sanitary and phytosanitary standards, and quality standards.

As noted, Bhutan’s potato exports have increased significantly over the past several years and are now valued at $11 million per year. Potatoes from Bhutan have a reputation for good flavor, but they are used mostly by farmers in India and Bangladesh as seed potatoes.45 Bhutan is surrounded by the world’s largest potato-producing countries: India, Bangladesh, and China. Poor quality seed is recognized as the single most important factor hindering potato production in Asia (Naik and Karihaloo 2007). Bhutan, much like Himachal Pradesh, where India produces most of its seed potatoes, has natural advantages conducive to seed-potato produc-tion: a cool climate with a lengthy period from April to October experiencing low aphid pressure. Bhutan’s seed potato production and export constitute a high-potential value chain for Bhutan.

45. Interview with the BEA (key informant), 2016.


View of Laya village, 2015


31

SuMMARy OF CONCLuSIONSbhutan needs greater investment and private-sector participation in its agribusiness sector . The sector includes very few medium and large agribusiness firms, and across the spectrum of Bhutanese agribusinesses, innovation and technological advancement are relatively low.

A major conclusion of this analysis is that the rgob and public insti-tutions that govern and support agribusiness need to reexamine their incentive structures to exert a more positive influence on the growth and development of private agribusinesses in bhutan . Currently the RGoB’s impact on the labor market, as well as the MoAF’s interventions in agricultural product markets, may be absorbing much of the human capital and market opportunities required for development of a dynamic set of pri-vate agribusinesses. The public sector should redirect some of its investments toward activities that grow, rather than subtly replace, the private sector.

second, the moeA can grow its private agribusiness sector by cap-italizing on several relatively untapped opportunities to add value and improve export markets, which in turn will catalyze growth in agricultural production and productivity . Taking advantage of these opportunities will require not only greater capital investment (to replicate established technologies) but also, to a large degree, increases in total factor productivity (TFP) (to raise productivity through innovation and investments in knowledge).

third, although bhutan has policies in place to allow Fdi, the moeA should make a focused investment promotion effort . FDI is crucial not only to draw needed capital into the country but to help introduce innova-tion and unique management processes that increase total factor productivity (TFP).

CONCLuSIONS AND RECOMMENDATIONS



Finally, while the agribusiness sector has experi-enced significant gains in access to finance, more needs to be done in the banking sector to support agribusinesses that market, process, and export agri-food products. These enterprises will require greater access to larger sums of long-term capital for investments and better trade finance options.

Important lessons can also be drawn from similar small, geographically isolated countries. In their book Some Small Countries Do It Better, former World Bank Group economists Shahid Yusuf and Kaoru Nabeshima take a close look at how Finland, Singapore, and Ire-land (the Sifre countries) were able to initiate significant economic growth during 1985–2005.46 Bhutan can take away several lessons from this analysis. Sifre’s experience illustrates that neither small size nor geographic isolation necessarily impedes growth, provided a credible develop-ment plan is in place and adhered to rigorously. Some elements of growth in Sifre were (1) establishment of lead development and planning agencies and development of mechanisms for interagency coordination to implement economic policies (Bhutan’s Economic Development Pol-icy is a step on that path); (2) commitment to boosting secondary and tertiary education (Bhutan already does this well); (3) investment by multinational corporations to bring small, isolated economies into global value chains (MHV provides an example in Bhutan, but more are needed); and (4) creation of vibrant knowledge and inno-vation hubs, typically in urban areas (Bhutan must bridge this gap in agribusiness innovation).

Specific RecommendationSA number of specific recommendations emerge from this analysis. Foremost are actions to improve the business enabling environment, facilitate trade, encour-age investment, and explore Bhutan’s options for new products and markets.

46. Yusuf and Nabeshima (2012).

BuSineSS enaBling enviRonmentSubsidies and incentives. Realign subsidies to foster, rather than replace, the private sector. In designing programs to provide subsidies or other incen-tives, governments should adhere to certain guiding prin-ciples found to increase effectiveness. The World Bank Group developed the following guiding principles while examining government-led fertilizer subsidy programs,47 but they apply to all kinds of incentive and subsidy pro-grams. The RGoB, by adhering to these principles, would help to ensure success in its efforts to promote a more competitive agribusiness sector.

» Favor market-based solutions. Interventions designed to promote increased use of fertilizer should be designed to support market develop-ment, not to undermine incentives for private- sector investment.

» Promote competition. Competition in fertilizer markets is needed to ensure good performance. Barriers to entry into fertilizer distribution should be reduced (except possibly in the very short run), and markets should be competitive to ensure the lowest cost and best quality service.

» Pay attention to demand. Farmers’ effective demand, shaped by the financial profitability of fertilizer use, should be the ultimate driving force of input supply systems.

» Insist on economic efficiency. Interventions designed to promote increased use of fertilizer should be carried out only where fertilizer use is, on average, economically efficient.

» Empower farmers. Farmers should be in the driver’s seat. Interventions designed to promote increased use of fertilizer should empower farmers to make their own decisions on the most appropri-ate way forward.

» Devise an exit strategy. Public-sector interven-tions designed to promote increased use of fertil-izer should be designed with a clear exit strategy, except for a few long-run public-good functions, such as market regulation, infrastructural develop-ment, and R&D on natural resource management.

47. Morris, Ronchi, and Rohrbach (2011).



» Ensure sustainability. Solutions must be designed for the long term. Interventions designed to promote increased use of fertilizer should be economically, institutionally, and environmentally sustainable.

The RGoB should balance and coordinate support to specific value chains by working strategically on both ends of those chains. Currently, support from MoAF emphasizes the supply (production or “push”) side of the value chain, and little support goes toward marketing (“pull”). Assisting production in the absence of markets willing to absorb the surplus may not work and could even discourage future investment and risk taking. As noted in the analysis, the MoAF should allow farmers greater choice in deciding which crops to grow and where to buy inputs. In other words, the ministry should not offer crop-specific subsidies but should consider estab-lishing a voucher system or something similar to India’s Kisan Credit Card.48 The vouchers or funds could then be spent at any private-sector input provider (including the Farm Shops) for any product.

The Farm Shops program should develop a clear plan to transition away from the current model of quasi-public ownership and operation and toward full private ownership and operation. Bhutan should retain the Farm Shops program, but with modifications. Useful adaptations can be studied in comparable oper-ations elsewhere in the world. Ethiopia’s Commercial Farm Service Program may provide a model for Bhutan to develop its Farm Shop network (Box 6).

The Farm Shop model should also be the subject of a well-designed impact evaluation. This evaluation should examine the positive effects on farmers’ produc-tivity and asset acquisition in relation to their operational costs. Negative impacts on the local economy should be considered as well, such as the potential to crowd out the private sector. The Food Shops’ retail sales of subsidized

48. The Kisan Credit Card, introduced in India in 1998/99, pro-vides short-term credit to all farmers, small and large, as a revolving fund based on the land area the farmer wants to mortgage. Borrow-ers get a paper passbook or an electronic card that they can take to a local bank [to receive a non-specific cash advance, much like an overdraft facility] (Keturakis et. al. 2011).

food staples should be reexamined and possibly altered to integrate vouchers and allow private-sector operators to flourish in conjunction with them.

Separate the public and private roles of the FCB. The FCB maintains the national (Bhutan) and regional (SAARC) food reserves. At the same time, the FCB acts privately in the market, trading in agricultural produce procured in rural areas to generate its profit margins. Because the price and timing of reserve grain sales can significantly affect market activity, an entity such as FCB, which also buys and sells in private-sector mar-kets, cannot always disentangle its public and private services. While managing food reserves is very important for regional food security, to avoid conflicts of interest, FCB’s terms of operation should clarify how that activ-ity is funded and how decisions are made. Similar poten-tial conflicts of interest exist for the other commodities traded by FCB. To resolve these issues, FCB’s public and private functions should, at the very least, have separate

Box 6: Ethiopia’s Commercial Farm Service Program

With the help of Cultivating New Frontiers in Agriculture (CNFA, a development partner), Ethiopia recently initiated its Commercial Farm Service Program. Program implementation relied on a pro-cess for evaluating competitive business plans to select Ethiopian entrepreneurs and enterprises to receive matching grant funding averaging US$40,000, with a minimum matching requirement of 1:1. The selected entrepreneurs would establish a Farm Ser-vice Center in their communities. The Farm Service Centers offer “one-stop shops” with a range of inputs, services, information, and output marketing linkages to smallholders that support farmers transitioning from subsistence to commercial agriculture.

A broad outreach campaign publicized the program and explained the application, evaluation, and selection processes to interested entrepreneurs. CNFA selected its six grantees through a process scoring applicants on the following criteria: corporate capability, business strategy, and potential impact. In evaluating the business plans developed by prospective grantees, CNFA conducted an independent market analysis of proposed locations to verify local demand and appropriately tailor the design of the Farm Service Center. The six business partners selected to establish the service centers included one woman-owned enterprise, two cooperative unions, and three private entrepreneurs.

Source: Adapted from http://www.cnfa.org/program/commercial- farm-service-program/.



accounting, reporting, and management systems. Ideally, however, the RGoB would explore complete separation of FCB’s public and private functions, fully supporting its public functions with funds from the national budget.

MoAF should work closely with BAFRA to respond to its proposals for restructuring and to assure adequate funding. Given that BAFRA will be respon-sible for managing many enforcement issues for Brand Bhutan, the importance of establishing correct structure, function, and funding arrangements for this agency can-not be overstated. RGoB should consider thoroughly the BAFRA design proposals and should ensure that BAFRA has the resources it needs to fulfill all of its mandated responsibilities. Among the structural solutions proposed, for example, BAFRA seeks to hand over the management of the Centenary Farmers Market to another entity, cre-ate common border checkpoints under the Ministry of Health and Cultural Affairs, and create separate agen-cies under its umbrella for drug regulation and organic certification.

BAFRA must continually work to streamline its regulations and inspections and to purge outdated processes and requirements as newer, more mod-ern ones come online. BAFRA should closely investi-gate the concerns revealed by agribusinesses to determine where and how to reduce the time and costs of compli-ance with government regulations. To some degree, a survey conducted by the Enabling the Business of Agri-culture (EBA) team can reveal specific areas within the agribusiness sector requiring improvement. To this end, an EBA survey should be conducted in Bhutan as an initial means to diagnose causes underlying agribusiness concerns.

Critical examination should further investment in the AMC, to determine the reasons for its under-performance and improve the effectiveness of mechanization. The FAO, in its agriculture sector review of Bhutan, states that the AMC’s farm mech-anization effort has met with limited success, yet more funding is currently being put into providing power til-lers to small cooperatives formed for that purpose. The AMC suggests that mechanization is more successful

when individual firms own the equipment and offer pri-vate-hire services, and the WBG Team agrees with this suggestion. For this reason, the government should con-sider developing policies to encourage the BDB and other private financial institutions to develop a leasing mecha-nism for its agribusiness lenders. The Farm Machinery Corporation Limited (FCML), created with substantial government support, risks displacing any individual pri-vate-sector service providers.

Access to finance. The BDB and other private financial institutions should develop a product for leasing agricultural machinery. The key informant interviews indicated that the Bhutanese prefer individual ownership models over cooperative ownership, yet the government incentivizes the establishment of coopera-tives over the individual ownership models. Such incen-tives perpetuate a business model unsuited to maximizing the productivity of such capital. Individual ownership models place responsibility for maintenance and income generation strategies in the hands of one person, which tends to facilitate decision making and innovation. Leas-ing provides the rural poor, who lack collateral and assets, with one of the best opportunities for obtaining equip-ment, and in some cases it can provide a more effective option than cooperative ownership.

Innovation. Establishing an entrepreneurship and innovation hub could address unemployment and the lack of small and medium agribusinesses, as seen in the Sifre countries. Innovation is synonymous with growth in TFP49 (Yusuf and Nabeshima 2012; Jor-genson, Ho, and Samuels 2012), which will be the source of much of Bhutan’s future growth. TFP growth will depend heavily on technology and innovation in pro-duction, logistics, processing, waste reduction, and mar-keting. A growth and innovation hub for SMEs, specific to agro-processing and marketing, would be an ideal way to meet this need. The RGoB should consider the

49. The successful introduction of new products and new or altered processes, organizational structures, systems, and business models generates growth in output that exceeds the growth of capital and labor input.



establishment of such an entity, possibly similar to the WBG’s Agricultural Entrepreneurship Program.50

tRadeMarket access. The MoEA and/or MoAF should con-sider grants to the BEA and the BCCI that begin by diagnosing members’ real issues and lack of capacity and that incorporate programs address-ing observed weaknesses in the organizations’ membership bases. The BEA and the BCCI have solid private-sector memberships and are thus excellent con-duits for supporting off-farm segments of the agribusiness sector. Public policy should support these actors in their efforts to facilitate linkages with international markets, where Bhutanese producers currently have less exposure.

The MoEA must formally launch Brand Bhutan and create a framework for its management. Brand Bhu-tan is the right intervention at the right time. Currently the MoEA holds overall responsibility for the brand, but BAFRA and the Bhutan Standards Bureau certainly have a role to play. The RGoB should develop a Brand Bhutan Policy and/or brand management strategy to (1) estab-lish standards for all potential categories of products to be sold under Brand Bhutan; (2) outline procedures for the private sector to access and use the brand; (3) estab-lish and publish sanctions and penalties for misuse of the brand; and (4) create systems for controlling the quality of products sold under the brand.

Trade logistics. To foster effective trade ties, the RGoB should address at least two trade-related issues with the Government of India: (1) better access to the Calcutta port, and (2) a reciprocal

50. The Agribusiness Entrepreneurship Program aims to help catalyze inclusive and sustainable growth of a value-adding agribus-iness industry. It contributes to achieving this objective by deriving new solutions that (1) connect innovative, high growth potential agro‐processing entrepreneurs with the knowledge, capital, and markets they need to grow their enterprises; (2) showcase business models linking entrepreneurs with farmers, industry, suppliers, and financiers; (3) create a demonstration effect that inspires latent entrepreneurs and agribusiness stakeholders to take action; and (4) can be scaled up through the programming of the World Bank Group and its development partners (see http://www.infodev.org/agribusiness-entrepreneurship).

transport agreement enforced with the Indian trucking syndicate to allow Bhutanese trucks to backhaul from Assam and West Bengal. Bhutanese trade negotiators should attempt to assure more recipro-cal and fair trading practices by asking the Indian govern-ment to halt inference with the Bhutanese trucking and trading industries. The extensive work RGoB has done to maintain the roads and border infrastructure for its major export corridors needs to continue, and the pro-posed expansion of the infrastructure for the Phuentshol-ing border crossing should be completed.

inveStment policyThe MoEA and/or the MoAF should do more to develop an FDI strategy that focuses not on Bhu-tan’s resource or location opportunities but on the country’s unique value proposition: Bhutan is car-bon neutral, peaceful, stable, and culturally unique. Investment promotion should go beyond providing a single window for investment. The FDI Division should work with other relevant ministries, including the MoAF, to identify high-potential sectors or subsectors around which to develop an FDI promotion strategy. Targeted investment promotion should then present and promote those opportunities directly to potential investors. Only after the strategy is defined, however, should Bhutan con-sider establishing a stand-alone investment promotion agency to conduct this outreach. Bangladesh and the Indian state of Orissa have excellent experience in pro-moting agribusiness investment and could provide good models for Bhutan’s investment promotion efforts. The World Bank Group’s Agribusiness Investor Targeting Toolkit (World Bank Group 2014c) also provides a useful step-by-step guide in the design and conduct of outreach campaigns aimed at investors, along with many practi-cal tools for project teams to use in developing outreach plans. The BCCI is the natural entity to engage in any investment promotion effort, including housing the inde-pendent export promotion agency, with support from the RGoB, when it is formed.

Lead firm investors, such as Mountain Hazelnut Ventures (MHV), represent a unique opportu-nity to connect Bhutan’s smallholders to distant,



high-value markets . Although it is difficult to repro-duce such initiatives, lead firms with creative ideas and access to technology, knowledge, and markets can be excellent drivers for sector productivity and economic growth. Pitching Bhutan as an agribusiness investment destination can catalyze this type of investment (again, the experiences of Orissa and Bangladesh may be useful to consider).

with the brand bhutan label, backed by bhutan’s unique and very positive image, bhutanese export-ers should target the highest-value markets possi-ble and make the most of the limited volumes they produce . In most cases, Bhutan’s agricultural exports have a reputation for superior quality, but they may not receive the full quality premium in the markets of India, Bangladesh, and other traditional export partners. Pol-icies should facilitate exploration by BCCI members of more distant markets, which may be more likely to pro-vide a higher quality premium while offsetting increased transport costs. Singapore, Hong Kong, and Dubai are potential hubs for these higher value markets.

the rgob should reduce the time required to reg-ister a property . This action will create a more positive enabling environment for prospective investors, who may otherwise be deterred from vertically integrating into production/processing operations that require sufficient land to produce high volumes of output delivered on a pre-determined schedule.

public-sector wages should not be increased until they are competitive with the natural market-clearing wage . Similarly, the public sector should not increase the scale of employment, as it will divert human resources from the private sector.

NEw PRODuCTS AND NEw MARkETSAside from the products currently included in its export statistics, bhutan has several potential niche crops—noncommoditized products with low volumes of international trade—that could command high value in export markets like bang-kok, singapore, and dubai . These products are not

produced in volumes comparable to commodities such as grains, for instance, but their potential is significant. The price analysis described previously indicates that Bhutan already has a potential competitive advantage in produc-ing asparagus, lemons/limes, and mushrooms. With good branding, packaging, and the right market linkages, Bhu-tan could realize greater value addition in such products as fresh wild-collected mushrooms (matsutakes, morels, chanterelles), retail honey, crated fruit (mandarins and kiwi fruit), processed hazelnuts, walnuts, black pepper, Sichuan pepper, retail-packaged cardamom, and pro-cessed ginger products. Ginger, areca nut, and cardamom are also suited for commodity markets in India, but their production is still limited.

bhutan should explore the expansion of its mush-room exports . Some Bhutanese households reportedly obtain as much as 70 percent of their annual cash income from mushrooms (MoAF 2013a). This value chain has many segments, and each holds potential for Bhutan’s producers, collectors, processors, and exporters. Bhutan already has some commercial producers of cultivated mushrooms, like shiitake. And, owing to the extensive forest cover, the collection of wild-growing mushrooms is a very common livelihood in rural Bhutan. It is recom-mended that the BEA make a special effort to consult with traders and brokers in the European Union, Canada, and Japan to explore whether it is feasible for Bhutan to gain a share of these markets. (Appendix 1 discusses the poten-tial for Bhutanese mushroom exports in greater detail.)

bhutan should consider developing its compet-itive advantage in seed potato production . This effort would require investments in good laboratories and development of inspection protocols for field-propagated seed potatoes, but the effort presents a clear opportu-nity. Research into new varieties and the development of micro-tuber production would be a great investment for Bhutan. Seed potato production fields must be rotated with other crops (such as maize or onions), to keep dis-eases in check, so this specialized effort would require development of a viable set of alternative crops.

For bhutan to develop exports of multi-ple high-value niche products to more distant



markets, a government policy promoting innova-tions in domestic storage and logistics will be cru-cial. Indeed, the EDP mentions plans to promote trade among the dzongkhags (Bhutanese administrative and judicial districts) to enhance domestic marketing of agri-cultural produce. Increasing the ease of trade domesti-cally is a priority initiative. To achieve this objective, the RGoB should identify potential logistics innovators both inside and outside Bhutan and invite them to work with the government and the World Bank Group in the search for solutions. A program to promote innovations in stor-age and logistics should furthermore be directly linked to and integrated with the RGoB’s export promotion policy and the Brand Bhutan initiative.

The RGoB should also examine the feasibility of an export terminal at the Paro airport, perhaps man-aged in partnership with a private-sector investor. To enable this type of trade, this facility would require cold storage, customs, and loading facilities. The facility at the Lahore Airport in Pakistan, from which the famous Kinnow mandarin is exported, could serve as a bench-mark for such a facility.

Selective deregulation in the airline and tourism sectors can also help improve the potential for multimodal, ground-to-air logistics. Such regulatory enhancements would make it more feasible for Bhutan to connect to high-value export markets beyond India and Bangladesh. The RGoB might, for example, consider lib-eralizing the airline sector through privatization or through fairer competition policies. Currently government- imposed regulations appear to limit airline opera-tions in the country, including how flights are booked and which pilots are allowed to fly Bhutanese routes. Deregulation would increase competition and encour-age more efficient private-sector operators to develop air

linkages to higher-value routes and to service the freight- forwarding industry more efficiently (thus helping export-ers of high-value agricultural items).

The increasing demand for livestock products in Bhutan represents an excellent expansion opportu-nity for domestic farmers and agribusinesses,51 and public policy on livestock should encourage greater replacement of imported animal protein products. Domestic markets for milk, beef, pork, poultry, and honey have room to grow. Much of the Department of Live-stock’s budget is spent on the developing and managing model farms for all types of livestock rearing, processing, and marketing, yet these efforts risk suppressing private initiatives in their zone of influence. The MoAF plan, as described in the EDP, includes support to establish commercial-scale animal feed plants to alleviate that major constraint in Bhutan’s domestic livestock subsec-tor. Government support to the livestock subsector should also emphasize linking smaller domestic market hubs and establishing market infrastructure in Bhutan’s second-ary cities. Creating separate livestock product markets in major urban areas and hub cities would better serve this subsector. Livestock trading, specifically, live animal mar-kets and abattoir inspections (a unique issue for Bhutan given its relationship with religious leaders), requires par-ticular attention. Bhutan should work now to encourage investments in abattoirs and to create the proper regula-tory framework, including Bhutan’s unique guidelines on animal welfare, to support growth of the post-harvest and marketing aspects of the livestock subsector.

51. Prior to 2009, Bhutan imported most of its eggs and poultry meat. The alarm over avian influenza in 2009 led to the shutdown of poultry and egg imports. Bhutan’s private sector rose to the challenge, and even in the absence of model farms or subsidies now produces about 60 million eggs annually, making Bhutan nearly self-sufficient in egg production.


Woman preparing a rice field with organic fertilizer, Tang Valley, 2014


39

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43

Bhutan’s vast forest reserves, mountainous terrain, and cultural tradition of mushroom collection, consumption, and export indicate its potential to become a notable exporter of mushroom products. Bhutan already cultivates shiitake mushrooms commercially and has developed export markets for shi-itake, matsutake, and a few other varieties of wild mushrooms. It presently exports only 1–4 MT of mushrooms per year, but the average value per ton is about US$40,000. With a reasonable increase in volume, mushrooms could quickly become a significant agricultural export. In parallel with continued development of the cultivated mushroom market and the niche market for matsutakes, Bhutan can also explore expanding its presence in other mush-room market segments: fresh wild mushrooms such as chanterelles, morels (Morchella spp.), coral, oyster, porcini (Boletus spp.), and others; fresh cultivated mushrooms (shiitake as well as any other cultivated types, such as Aspergillus spp.); frozen wild mushrooms (chanterelles and porcini); and dried wild mush-rooms of many varieties (morels, black trumpet, porcini, matsutake, and others).

Each of these segments has its particular requirements. For example, fresh mushroom exports rely on cold-chain technology and excellent logistics. Due to the expense of transport, only certain varieties are suitable for this trade (for example, morels and matsutakes). Frozen mushrooms require IQF (individual quick frozen) processing and, of course, a reliable frozen goods cold chain. Because these mushrooms are likely to be exported by container, they must be produced in sufficient volumes to warrant such transport. Only high-volume mushrooms, such as chanterelles and porcini, fit into this segment.

Appendix 1 SPOTLIghT ON MuShROOMS



Dried mushrooms, because they are a shelf-stable, high-value product, have great potential for reaching exter-nal high-value markets and suit a variety of distribution modes (Figure A1.1). A kilogram of dried morels can retail for up to 500 euros, but even lesser-valued dried mushrooms such as porcini and trumpet mushrooms have excellent market potential. Bhutan has many more varieties of mushroom than are mentioned here that war-rant investigation for their market potential.

Figure A1.1: Turkish Retail Packaging for Dried MushroomsSource: With permission of Niobe Foods, LLC.


45

Appendix 2 ENTERPRISE SuRvEy TABLES

TABLE 1: DESCRIPTIvE STATISTICS, 2015 ENTERPRISE SuRvEy

Variable LabelAgribusinesses Other business t-test

Mean SE N Mean SE N Diff P-value Sig.bus2 Days to obtain operating

license1.00 0.00 54 1.87 0.50 275 –0.87 0.08 *

bus5 % firms identifying business licensing/permits as major constraint

0.02 0.01 64 0.07 0.02 303 –0.05 0.05 *

car1 age of firm 9.42 2.38 64 10.37 0.95 301 –0.95 0.71car2 % private domestic

ownership in firm99.92 0.06 63 97.66 0.98 302 2.26 0.02 **

car3 % private foreign ownership in firm

0.04 0.04 63 1.69 0.93 302 –1.65 0.08 *

car4 % govt/state ownership in firm

0.00 0.00 63 0.28 0.22 303 –0.28 0.19

car5 % other ownership in firm 0.04 0.04 63 0.36 0.19 302 –0.32 0.10 *corr1 % firms expect to give gifts

in mtgs w tax officials0.00 0.00 59 0.00 0.00 241 0.00 0.76

corr10 % firms expect to give gifts for operating license

0.00 0.00 54 0.00 0.00 276 0.00

corr11 % firms identifying corruption as major constraint

0.02 0.02 64 0.02 0.01 303 0.00 0.88

corr12 % firms believe court system fair, impartial, uncorrupted

0.77 0.10 64 0.68 0.05 303 0.08 0.46

corr2 % firms who have secured or attempted govt contract

0.09 0.05 64 0.13 0.02 303 –0.04 0.47

corr4 % total sales firms expect to give as gifts to public officials

0.00 0.00 63 0.01 0.01 301 –0.01 0.32

crime1 % firms paying for security 0.10 0.06 64 0.18 0.04 303 –0.08 0.23crime10 % firms experiencing loss

due to theft/vandalism0.12 0.07 64 0.20 0.04 302 –0.07 0.35

(continued)




Mean SE N Mean SE N Diff P-value Sig.crime2 Security costs (% annual

sales)0.00 0.00 64 0.13 0.05 299 –0.13 0.02 **

crime8 % firms identifying crime, theft & disorder as major constraint

0.10 0.06 64 0.09 0.03 303 0.00 0.98

crime9 % firms identifying courts as major constraint

0.01 0.01 64 0.02 0.01 303 –0.02 0.24

ent_size_1 micro, 1–4 employees 0.91 0.03 64 0.68 0.04 303 0.23 0.00 ***ent_size_2 small, 5–19 employees 0.06 0.03 64 0.24 0.04 303 –0.17 0.00 ***ent_size_3 medium, 20–99 employees 0.03 0.01 64 0.07 0.01 303 –0.04 0.03 **ent_size_4 large, 100+ employees 0.00 0.00 64 0.01 0.00 303 –0.01 0.00 ***fin12 % firms using banks to

finance investments0.02 0.01 64 0.05 0.01 303 –0.03 0.02 **

fin13 % firms using banks to finance working capital

0.07 0.03 64 0.22 0.04 303 –0.15 0.00 ***

fin14 % firms with a bank loan/credit line

0.18 0.07 64 0.30 0.05 300 –0.12 0.13

fin15 % firms with checking or savings acct

0.72 0.09 64 0.73 0.05 302 –0.01 0.92

fin16 % firms identifying access to finance as major constraint

0.16 0.07 64 0.21 0.04 303 –0.06 0.49

fin18 % sales sold on credit 19.84 3.58 64 18.73 2.68 299 1.10 0.81fin19 % working capital financed

by external sources5.44 2.50 64 16.86 2.73 301 –11.43 0.00 ***

fin20 % firms not needing a loan 0.56 0.10 64 0.53 0.05 303 0.03 0.81fin21 % firms whose recent loan

application was rejected0.00 0.00 64 0.01 0.01 303 –0.01 0.17

fin6 % working capital financed by internal funds

94.56 2.50 64 83.14 2.73 301 11.43 0.00 ***

fin7 % working capital financed by banks

5.16 2.47 64 13.63 2.52 301 –8.47 0.02 **

fin8 % working capital financed by supplier credit

0.07 0.05 64 0.40 0.13 301 –0.33 0.02 **

fin9 % working capital financed by other sources

0.21 0.19 64 2.84 1.20 301 –2.63 0.03 **

gend1 % firms with female participation in ownership

0.57 0.11 64 0.59 0.05 303 –0.02 0.88

gend2 % permanent full-time workers that are female

0.38 0.11 32 0.19 0.04 83 0.19 0.12

gend3 % permanent full-time non-production workers that are female

0.20 0.09 30 0.36 0.09 78 –0.16 0.23

gend4 % firms with female top manager

0.46 0.10 64 0.51 0.05 303 –0.05 0.67

TABLE 1: CONTINuED




Mean SE N Mean SE N Diff P-value Sig.gend5 % permanent full-time

production workers that are female

0.40 0.11 32 0.10 0.03 80 0.30 0.01 ***

gend6 % firms with majority female ownership

57.18 10.65 64 55.97 4.96 302 1.20 0.92

graft3 bribery incidence (% firms experiencing >=1 bribe payment request)

0.00 0.00 64 0.00 0.00 303 –0.00 0.45

inf10 % electricity from generator 0.04 0.03 64 0.57 0.22 301 –0.53 0.01 **inf11 % firms identifying transport

as major constraint0.03 0.03 64 0.10 0.03 303 –0.07 0.08 *

inf12 % firms identifying electricity as major constraint

0.06 0.05 64 0.09 0.02 303 –0.02 0.65

inf14 % product lost to breakage/spoilage during domestic shipping

1.77 0.77 42 1.12 0.31 238 0.66 0.43

inf15 Average total time of power outages per month (hours)

0.00 0.00 17 0.00 0.00 78 0.00

inf2 Number electrical outages in typical month

0.36 0.24 61 0.30 0.13 291 0.07 0.80

inf3 Duration of typical electrical outage (hours)

0.00 0.00 17 0.00 0.00 78 0.00

inf4 losses due to electrical outages (% annual sales)

1.28 0.86 23 2.36 0.54 119 –1.08 0.29

inf6 number water shortages in typical month

0.72 0.37 29 1.53 0.89 72 –0.80 0.41

inf9 % firms own/share generator

0.01 0.01 64 0.05 0.01 303 –0.04 0.01 **

infor1 % firms competing against unregistered/informal firms

0.05 0.03 64 0.12 0.03 300 –0.07 0.13

infor2 % firms identifying practices of informal competitors as major constraint

0.09 0.05 64 0.11 0.03 303 –0.02 0.72

infor4 % firms formally registered when started operations in country

0.95 0.05 64 0.98 0.01 302 –0.03 0.51

infor5 Number years operated without formal registration

7.16 0.96 62 9.87 0.84 290 –2.71 0.03 **

lform1 % firms with legal status of publicly listed company

0.00 0.00 64 0.01 0.00 303 –0.01 0.03 **

lform2 % firms with legal status of privately held LLC

0.00 0.00 64 0.02 0.01 303 –0.02 0.02 **

lform3 % firms with legal status of sole proprietorship

0.99 0.00 64 0.90 0.02 303 0.09 0.00 ***

(continued)




Mean SE N Mean SE N Diff P-value Sig.lform4 % firms with legal status of

partnership0.00 0.00 64 0.04 0.02 303 –0.04 0.03 **

lform5 % firms with legal status of limited partnership

0.00 0.00 64 0.02 0.01 303 –0.02 0.00 ***

loc_size_1 capital city 0.00 0.00 64 0.00 0.00 303 0.00loc_size_2 city with 1 million +, not

capital0.00 0.00 64 0.00 0.00 303 0.00

loc_size_3 city with 250,000–1 million 0.00 0.00 64 0.00 0.00 303 0.00loc_size_4 city with 50,000–250,000 0.55 0.11 64 0.58 0.05 303 –0.04 0.76loc_size_5 city with <50,000 0.45 0.11 64 0.42 0.05 303 0.04 0.76obst1 biggest obstacle is access to

finance0.40 0.10 64 0.37 0.05 303 0.03 0.83

obst10 biggest obstacle is labor regulations

0.04 0.02 64 0.16 0.04 303 –0.13 0.00 ***

obst11 biggest obstacle is political instability

0.00 0.00 64 0.02 0.01 303 –0.02 0.14

obst12 biggest obstacle is informal competitors

0.05 0.03 64 0.04 0.02 303 0.01 0.84

obst13 biggest obstacle is tax administration

0.00 0.00 64 0.00 0.00 303 –0.00 0.10 *

obst14 biggest obstacle is tax rates 0.22 0.08 64 0.11 0.03 303 0.11 0.23obst15 biggest obstacle is transport 0.00 0.00 64 0.03 0.01 303 –0.03 0.01 ***obst2 biggest obstacle is access to

land0.01 0.00 64 0.02 0.01 303 –0.02 0.24

obst3 biggest obstacle is licensing & permits

0.00 0.00 64 0.02 0.01 303 –0.02 0.09 *

obst4 biggest obstacle is corruption 0.00 0.00 64 0.00 0.00 303 –0.00 0.62obst5 biggest obstacle is courts 0.00 0.00 64 0.00 0.00 303 –0.00 0.32obst6 biggest obstacle is crime,

theft, disorder0.00 0.00 64 0.04 0.02 303 –0.04 0.05 *

obst7 biggest obstacle is customs and trade regulation

0.01 0.01 64 0.05 0.02 303 –0.04 0.10

obst8 biggest obstacle is electricity 0.01 0.01 64 0.05 0.02 303 –0.04 0.09 *obst9 biggest obstacle is

inadequately educated workforce

0.02 0.02 64 0.01 0.01 303 0.01 0.75

perf1 real annual sales growth 0.04 0.02 52 0.10 0.02 256 –0.06 0.04 **perf2 annual employment growth 0.07 0.04 55 0.06 0.02 272 0.01 0.87perf3 annual labor productivity

growth0.01 0.04 50 0.09 0.02 245 –0.07 0.09 *

perf4 % firms buying fixed assets 0.12 0.06 64 0.16 0.03 303 –0.04 0.56reg1 Senior mgmt time spent

dealing with govt regulation12.21 5.22 64 23.05 4.21 303 –10.84 0.11

TABLE 1: CONTINuED




Mean SE N Mean SE N Diff P-value Sig.reg2 Avg number mtgs or visits

with tax officials1.25 0.18 59 1.22 0.14 245 0.03 0.88

reg4 % of firms identifying tax rates as major constraint

0.09 0.05 64 0.16 0.03 303 –0.06 0.32

reg5 % firms identifying tax admin as major constraint

0.03 0.03 64 0.06 0.02 303 –0.03 0.45

region_1 a2==Thimphu/Paro 0.55 0.11 64 0.58 0.05 303 –0.04 0.76region_2 a2==Phuentsholing 0.16 0.10 64 0.20 0.05 303 –0.04 0.74region_3 a2==Gelephu/Sarpang 0.19 0.08 64 0.13 0.03 303 0.06 0.49region_4 a2==Samdrup Jongkhar 0.11 0.05 64 0.09 0.02 303 0.01 0.80t1 % firms with internationally-

recognized quality certificate0.00 0.00 64 0.01 0.00 298 –0.01 0.02 **

t2 % firms with annual financial stmt reviewed by external auditor

0.03 0.02 64 0.19 0.04 303 –0.15 0.00 ***

t3 capacity utilization (%) 69.61 5.25 30 67.90 3.70 78 1.70 0.79t4 % firms using tech licensed

from foreign companies0.03 0.02 32 0.09 0.04 83 –0.06 0.14

t5 % firms with own website 0.01 0.00 64 0.16 0.04 302 –0.15 0.00 ***t6 % firms using email for

client/supplier comm0.16 0.06 64 0.33 0.04 303 –0.17 0.03 **

tr10 direct + indirect exports as % of total sales

0.74 0.32 64 5.69 1.82 298 –4.95 0.01 ***

tr14 days of inventory of main input

31.03 12.84 32 81.41 19.65 82 –50.38 0.03 **

tr15 % firms exporting >=1% of sales

0.01 0.00 64 0.02 0.01 303 –0.02 0.20

tr4 domestic sales as % of total sales

99.26 0.32 64 94.27 1.82 299 5.00 0.01 ***

tr5 direct exports as % of total sales

0.33 0.18 64 0.89 0.24 298 –0.56 0.07 *

tr6 indirect exports as % of total sales

0.41 0.24 64 4.79 1.79 298 –4.39 0.02 **

tr7 % total inputs of domestic origin

60.99 14.80 32 60.04 7.61 83 0.95 0.95

tr8 % total inputs of foreign origin

39.01 14.80 32 39.96 7.61 83 –0.95 0.95

tr9 % firms identifying customs and trade regs as major constraint

0.06 0.04 64 0.08 0.03 303 –0.02 0.69

wk1 % firms offering formal training programs for permanent, full-time employees

0.05 0.02 64 0.16 0.03 302 –0.11 0.01 ***

(continued)




Mean SE N Mean SE N Diff P-value Sig.wk10 % firms identifying an

inadequately educated workforce as a major constraint

0.01 0.01 64 0.08 0.03 303 –0.07 0.01 ***

wk11 Average number of temporary workers

0.60 0.21 64 8.88 3.89 303 –8.28 0.03 **

wk12 Number of permanent full-time workers

3.70 0.87 64 8.07 0.91 303 –4.37 0.00 ***

wk13 % unskilled workers (out of all production workers)

0.32 0.15 32 0.30 0.08 81 0.02 0.90

wk3 Average number of skilled production workers

3.33 1.12 32 9.24 2.23 84 –5.91 0.02 **

wk4 Average number of unskilled production workers

1.57 0.58 32 2.67 0.74 84 –1.10 0.24

wk6 Number of permanent production workers

4.89 1.20 32 11.91 2.78 84 –7.01 0.02 **

wk7 Number of permanent non-production workers

2.45 0.71 32 6.16 1.46 83 –3.71 0.02 **

wk8 Years of the top manager’s experience working in the firm’s sector

8.06 1.47 64 8.90 0.69 303 –0.84 0.60

wk9 % firms identifying labor regulations as a major constraint

0.13 0.06 64 0.11 0.03 303 0.02 0.81

wk_educ Indicator for completed higher secondary school or above

0.05 0.02 64 0.17 0.04 303 –0.12 0.01 ***

wk_male Indicator for male employee 0.73 0.16 30 0.55 0.07 174 0.18 0.30wk_migrant

Indicator for non-Bhutanese worker

0.12 0.10 64 0.05 0.03 303 0.07 0.52

wk_salary_usd

Annual Salary USD 210.51 148.70 26 717.07 145.47 140 –506.56 0.02 **

TABLE 1: CONTINuED



TABLE 2: DESCRIPTIvE STATISTICS, 2009 ENTERPRISE SuRvEy

Variable LabelAgribusinesses Other businesses t-test

Mean SE N Mean SE N Diff P-value Sig.bus5 % firms identifying business

licensing/permits as major constraint

0.04 0.03 28 0.10 0.03 222 –0.06 0.11

car1 age of firm 20.90 3.08 28 20.54 0.93 222 0.35 0.91car2 % private domestic

ownership in firm83.37 8.71 28 94.38 1.67 222 –11.00 0.22


16.63 8.71 28 5.06 1.64 222 11.57 0.19


0.00 0.00 28 0.33 0.19 222 –0.33 0.09 *

car5 % other ownership in firm 0.00 0.00 28 0.24 0.24 222 –0.24 0.32corr1 % firms expect to give gifts

in mtgs w tax officials0.00 0.00 22 0.03 0.01 166 –0.03 0.03 **


0.00 0.00 28 0.07 0.03 222 –0.07 0.01 ***


0.81 0.08 28 0.71 0.04 222 0.10 0.28


0.00 0.00 28 0.47 0.05 221 –0.47 0.00 ***


1.02 0.84 28 0.29 0.12 211 0.73 0.39

crime1 % firms paying for security 0.19 0.07 28 0.35 0.04 221 –0.16 0.07 *crime10 % firms experiencing loss

due to theft/vandalism0.18 0.08 28 0.16 0.04 222 0.02 0.82

crime2 Security costs (% annual sales)

0.00 0.00 28 1.36 0.41 217 –1.35 0.00 ***


0.02 0.02 28 0.05 0.02 222 –0.03 0.29


0.02 0.02 28 0.08 0.03 222 –0.06 0.11

ent_size_2 small, 5–19 employees 0.81 0.06 28 0.74 0.03 222 0.08 0.25ent_size_3 medium, 20–99 employees 0.15 0.05 28 0.20 0.02 222 –0.05 0.42ent_size_4 large, 100+ employees 0.04 0.03 28 0.07 0.01 222 –0.03 0.30fin10 Value of collateral (% of

loan amount)7.14 4.11 10 8.42 2.17 104 –1.28 0.78

fin11 % loans requiring collateral 1.00 0.00 10 0.97 0.03 120 0.03 0.31fin12 % firms using banks to

finance investments0.00 0.00 28 0.35 0.05 222 –0.35 0.00 ***


0.43 0.10 28 0.61 0.05 222 –0.18 0.11


0.23 0.08 28 0.62 0.05 219 –0.39 0.00 ***

(continued)




Mean SE N Mean SE N Diff P-value Sig.fin15 % firms with checking or

savings acct0.94 0.05 28 0.92 0.02 221 0.01 0.80


0.23 0.09 28 0.30 0.05 222 –0.07 0.47

fin18 % sales sold on credit 53.72 6.82 28 50.04 4.43 219 3.68 0.65fin19 % working capital financed

by external sources28.01 6.97 28 49.55 3.24 222 –21.53 0.01 ***

fin20 % firms not needing a loan 0.26 0.09 28 0.28 0.04 222 –0.02 0.87fin5 % investments financed by

other sources7.19 6.94 7 4.14 1.76 114 3.05 0.67


71.99 6.97 28 50.45 3.24 222 21.53 0.01 ***


17.24 5.63 28 33.64 3.35 222 –16.40 0.01 **


5.09 2.80 28 6.92 1.50 222 –1.83 0.57


5.68 4.32 28 8.98 1.86 222 –3.30 0.48


0.34 0.10 28 0.31 0.04 222 0.03 0.80


0.12 0.03 28 0.15 0.02 220 –0.03 0.32

graft3 bribery incidence (% firms experiencing >=1 bribe payment request)

0.00 0.00 28 0.06 0.03 222 –0.06 0.03 **

inf1 Delay in obtaining electrical cxn (days after app)

9.40 2.09 3 19.74 6.91 43 –10.34 0.16

inf10 % electricity from generator 0.57 0.27 27 1.10 0.48 218 –0.53 0.34inf11 % firms identifying transport

as major constraint0.08 0.04 28 0.18 0.04 222 –0.10 0.09 *


0.02 0.02 28 0.06 0.02 222 –0.04 0.11

inf2 Number electrical outages in typical month

0.48 0.23 27 0.65 0.15 214 –0.17 0.55


3.91 1.40 28 2.52 0.54 214 1.38 0.36

inf7 average duration water shortages in typical month

55.89 28.79 27 21.13 4.88 212 34.75 0.24

inf8 delay in obtaining telephone cxn (days after app)

2.86 1.25 4 6.19 1.88 66 –3.33 0.14


0.22 0.08 28 0.17 0.03 222 0.05 0.60


0.27 0.09 28 0.19 0.04 220 0.07 0.45

TABLE 2: CONTINuED




Mean SE N Mean SE N Diff P-value Sig.infor2 % firms identifying informal

competitors as major constraint

0.02 0.02 28 0.12 0.04 222 –0.11 0.01 **


0.92 0.06 28 1.00 0.00 220 –0.08 0.21


18.90 2.66 26 20.38 0.93 219 –1.48 0.60


0.02 0.02 28 0.02 0.01 222 –0.00 0.95


0.04 0.03 28 0.02 0.01 222 0.01 0.63


0.93 0.04 28 0.90 0.02 222 0.02 0.61

lform4 % firms with legal status of partnership

0.00 0.00 28 0.01 0.00 222 –0.01 0.16


0.02 0.02 28 0.04 0.02 222 –0.02 0.34

loc_size_1 capital city 0.06 0.04 28 0.45 0.05 222 –0.39 0.00 ***loc_size_2 city with 1 million +, not

capital0.00 0.00 28 0.00 0.00 222 0.00

loc_size_3 city with 250,000–1 million 0.00 0.00 28 0.00 0.00 222 0.00loc_size_4 city with 50,000–250,000 0.51 0.11 28 0.18 0.02 222 0.33 0.00 ***loc_size_5 city with <50,000 0.43 0.11 28 0.37 0.05 222 0.07 0.58obst1 biggest obstacle is access to

finance0.45 0.11 28 0.19 0.04 222 0.26 0.02 **

obst2 biggest obstacle is access to land

0.00 0.00 28 0.03 0.02 222 –0.03 0.10


0.06 0.06 28 0.07 0.02 222 –0.01 0.85

obst4 biggest obstacle is corruption 0.00 0.00 28 0.04 0.02 222 –0.04 0.05 **obst5 biggest obstacle is courts 0.00 0.00 28 0.02 0.02 222 –0.02 0.26obst6 biggest obstacle is crime,

theft, disorder0.00 0.00 28 0.04 0.02 222 –0.04 0.10 *


0.02 0.02 28 0.03 0.02 222 –0.02 0.55

obst8 biggest obstacle is electricity 0.02 0.02 28 0.00 0.00 222 0.01 0.47obst9 biggest obstacle is


0.04 0.03 28 0.11 0.03 222 –0.07 0.05 *


0.06 0.06 28 0.10 0.03 222 –0.04 0.56

obst11 biggest obstacle is political instability

0.00 0.00 28 0.00 0.00 222 –0.00 0.32

(continued)




Mean SE N Mean SE N Diff P-value Sig.obst12 biggest obstacle is informal

competitors0.10 0.06 28 0.06 0.03 222 0.04 0.56


0.04 0.04 28 0.07 0.03 222 –0.03 0.57

obst14 biggest obstacle is tax rates 0.08 0.05 28 0.13 0.03 222 –0.05 0.44obst15 biggest obstacle is transport 0.12 0.07 28 0.09 0.03 222 0.04 0.61perf1 real annual sales growth 0.14 0.06 25 0.14 0.02 201 0.00 0.99perf2 annual employment growth 0.08 0.02 26 0.09 0.02 209 –0.01 0.68perf3 annual labor productivity

growth0.02 0.12 24 0.01 0.04 196 0.01 0.95

perf4 % firms buying fixed assets 0.15 0.06 28 0.55 0.05 222 –0.40 0.00 ***reg1 Senior mgmt time spent

dealing with govt regulation7.39 2.05 28 18.03 2.12 216 –10.64 0.00 ***

reg2 Avg number mtgs or visits with tax officials

2.60 0.53 22 2.44 0.35 164 0.16 0.80


0.11 0.06 28 0.17 0.04 222 –0.06 0.34


0.10 0.06 28 0.13 0.04 222 –0.02 0.73

region_1 a2==Thimphu/Paro 0.06 0.04 28 0.58 0.04 222 –0.52 0.00 ***region_2 a2==Phuentsholing 0.51 0.11 28 0.19 0.03 222 0.32 0.00 ***region_3 a2==Gelephu/Sarpang 0.00 0.00 28 0.04 0.01 222 –0.04 0.00 ***region_4 a2==Samdrup Jongkhar 0.43 0.11 28 0.19 0.03 222 0.24 0.04 **t1 % firms with internationally-

recognized quality certificate0.06 0.03 27 0.05 0.02 217 0.00 0.94


0.40 0.10 28 0.51 0.05 222 –0.11 0.32

t4 % firms using tech licensed from foreign companies

0.05 0.03 28 0.07 0.02 220 –0.02 0.69

t5 % firms with own website 0.04 0.04 28 0.33 0.05 222 –0.29 0.00 ***t6 % firms using email for

client/supplier comm0.32 0.09 28 0.61 0.05 222 –0.30 0.00 ***


11.38 5.15 28 5.62 1.08 222 5.76 0.27

tr12 direct export products lost due to theft (% total value)

0.88 0.85 7 1.64 1.15 35 –0.77 0.59


0.15 0.06 28 0.07 0.01 222 0.08 0.19

tr2 days to clear imports from customs

1.99 0.46 18 5.88 0.89 143 –3.90 0.00 ***


88.62 5.15 28 94.38 1.08 222 –5.76 0.27

TABLE 2: CONTINuED




Mean SE N Mean SE N Diff P-value Sig.tr5 direct exports as % of total

sales10.13 5.04 28 5.07 1.02 222 5.05 0.33


1.26 0.91 28 0.55 0.30 222 0.71 0.46


27.79 7.65 28 37.73 3.68 221 –9.94 0.24


72.21 7.65 28 62.27 3.68 221 9.94 0.24


0.04 0.03 28 0.10 0.03 222 –0.06 0.13

TABLE 3: DESCRIPTIvE STATISTICS, AgRIBuSINESS PANEL 2009–2015


Mean SE N Mean SE N Diff P-value Sig.bus1 Days to obtain import license 7.00 0.00 1 5.86 1.52 2 1.14 0.53bus5 % firms identifying business


0.00 0.00 14 0.08 0.08 9 –0.08 0.33


ownership in firm100.00 0.00 14 83.83 14.95 9 16.17 0.29


0.00 0.00 14 16.17 14.95 9 –16.17 0.29


0.21 0.13 14 0.00 0.00 9 0.21 0.11


0.00 0.00 14 0.67 0.69 9 –0.67 0.34


due to theft/vandalism0.13 0.12 14 0.00 0.00 9 0.13 0.29


0.00 0.00 14 0.01 0.01 9 –0.01 0.31

ent_size_2 small, 5–19 employees 0.40 0.14 14 0.71 0.15 9 –0.32 0.13ent_size_3 medium, 20–99 employees 0.08 0.06 14 0.29 0.15 9 –0.20 0.21fin10 Value of collateral (% of

loan amount)14.59 8.73 5 12.14 6.86 5 2.45 0.83

fin11 % loans requiring collateral 0.72 0.24 6 1.00 0.00 5 –0.28 0.26fin12 % firms using banks to

finance investments0.05 0.05 14 0.00 0.00 9 0.05 0.34

(continued)




Mean SE N Mean SE N Diff P-value Sig.fin13 % firms using banks to

finance working capital0.37 0.14 14 0.47 0.19 9 –0.09 0.70


0.39 0.14 14 0.44 0.19 9 –0.06 0.81


0.24 0.14 14 0.24 0.20 9 0.00 1.00

fin18 % sales sold on credit 31.17 9.35 14 36.35 10.09 9 –5.18 0.71fin19 % working capital financed

by external sources33.45 10.42 14 23.39 9.58 9 10.06 0.48

fin20 % firms not needing a loan 0.68 0.15 14 0.15 0.11 9 0.52 0.01 ***fin6 % working capital financed

by internal funds66.55 10.42 14 76.61 9.58 9 –10.06 0.48


28.00 10.43 14 9.64 3.92 9 18.36 0.11


0.00 0.00 14 13.75 9.18 9 –13.75 0.15


0.36 0.15 14 0.37 0.18 9 –0.01 0.97


0.23 0.11 7 0.06 0.03 9 0.18 0.15


0.08 0.06 14 0.07 0.07 9 0.02 0.86


0.14 0.13 7 1.19 1.00 9 –1.05 0.32


2.00 0.00 1 28.54 24.54 9 –26.54 0.31


0.00 0.00 14 0.15 0.11 9 –0.15 0.18


0.13 0.12 14 0.39 0.18 9 –0.26 0.25

infor2 % firms identifying informal competitors as major constraint

0.04 0.04 14 0.08 0.08 9 –0.03 0.71


0.95 0.05 14 0.93 0.07 9 0.02 0.81


22.74 4.89 13 22.58 4.66 8 0.16 0.98

loc_size_1 capital city 0.00 0.00 14 0.13 0.10 9 –0.13 0.18loc_size_4 city with 50,000–250,000 0.09 0.06 14 0.63 0.19 9 –0.54 0.01 **loc_size_5 city with <50,000 0.91 0.06 14 0.24 0.20 9 0.68 0.00 ***obst1 biggest obstacle is access to

finance0.34 0.14 14 0.70 0.15 9 –0.36 0.09 *

TABLE 3: CONTINuED




Mean SE N Mean SE N Diff P-value Sig.obst12 biggest obstacle is informal

competitors0.04 0.04 14 0.08 0.08 9 –0.03 0.71

obst14 biggest obstacle is tax rates 0.11 0.10 14 0.08 0.08 9 0.03 0.84obst2 biggest obstacle is access to

land0.13 0.12 14 0.00 0.00 9 0.13 0.29

obst4 biggest obstacle is corruption 0.05 0.05 14 0.00 0.00 9 0.05 0.34obst8 biggest obstacle is electricity 0.08 0.06 14 0.07 0.07 9 0.02 0.86obst9 biggest obstacle is


0.00 0.00 14 0.07 0.07 9 –0.07 0.34

perf1 real annual sales growth 0.17 0.08 14 0.16 0.14 9 0.02 0.92perf2 annual employment growth 0.03 0.03 13 0.10 0.04 9 –0.07 0.17perf3 annual labor productivity

growth0.13 0.12 13 0.02 0.17 9 0.10 0.63


dealing with govt regulation29.87 10.48 14 5.17 2.35 9 24.71 0.03 **


5.99 4.38 13 1.82 0.33 7 4.17 0.35


0.04 0.04 14 0.08 0.08 9 –0.04 0.67


0.00 0.00 14 0.08 0.08 9 –0.08 0.34

region_1 a2==Thimphu/Paro 0.09 0.06 14 0.13 0.10 9 –0.05 0.67region_2 a2==Phuentsholing 0.41 0.14 14 0.63 0.19 9 –0.21 0.39region_3 a2==Gelephu/Sarpang 0.05 0.05 14 0.00 0.00 9 0.05 0.34region_4 a2==Samdrup Jongkhar 0.46 0.15 14 0.24 0.20 9 0.22 0.39t2 % firms with annual

financial stmt reviewed by external auditor

0.32 0.13 14 0.45 0.19 9 –0.13 0.57

t6 % firms using email for client/supplier comm

0.44 0.15 14 0.36 0.16 9 0.07 0.74

tr1 days to clear direct exports through customs

2.36 1.23 3 2.50 0.40 2 –0.14 0.92


8.44 4.78 14 4.04 3.53 9 4.40 0.47


0.13 0.07 14 0.13 0.10 9 –0.01 0.94


5.38 2.03 3 1.64 0.61 7 3.74 0.11


91.56 4.78 14 95.96 3.53 9 –4.40 0.47


4.60 3.19 14 2.02 1.55 9 2.58 0.47

(continued)




Mean SE N Mean SE N Diff P-value Sig.tr6 indirect exports as % of total

sales3.84 2.93 14 2.02 2.07 9 1.82 0.62


64.28 15.51 7 27.07 16.06 9 37.21 0.12


35.72 15.51 7 72.93 16.06 9 –37.21 0.12

TABLE 3: CONTINuED

TABLE 4: DESCRIPTIvE STATISTICS, OThER BuSINESSES PANEL 2009–2015


Mean SE N Mean SE N Diff P-value Sig.bus1 Days to obtain import license 10.19 1.88 22 13.23 2.84 23 –3.04 0.38bus5 % firms identifying business


0.07 0.03 99 0.12 0.04 104 –0.05 0.29


ownership in firm97.67 1.42 98 95.04 2.26 104 2.64 0.32


1.13 1.13 98 4.79 2.25 104 –3.66 0.15


0.73 0.51 99 0.17 0.17 104 0.56 0.30

corr1 % firms expect to give gifts in mtgs w tax officials

0.00 0.00 72 0.02 0.02 75 –0.02 0.20


0.03 0.02 99 0.03 0.01 104 –0.01 0.71


0.70 0.05 99 0.77 0.06 104 –0.07 0.37


0.36 0.05 99 0.40 0.07 103 –0.04 0.64


0.19 0.19 99 0.10 0.06 99 0.09 0.64


due to theft/vandalism0.11 0.04 98 0.14 0.05 104 –0.02 0.70


0.53 0.29 97 1.95 0.72 103 –1.43 0.07 *


0.04 0.02 99 0.01 0.01 104 0.03 0.12


0.01 0.01 99 0.04 0.03 104 –0.03 0.45




Mean SE N Mean SE N Diff P-value Sig.ent_size_1 micro, 1–4 employees 0.26 0.05 99 0.00 0.00 104 0.26 0.00 ***ent_size_2 small, 5–19 employees 0.43 0.05 99 0.79 0.04 104 –0.36 0.00 ***ent_size_3 medium, 20–99 employees 0.28 0.05 99 0.18 0.03 104 0.10 0.08 *ent_size_4 large, 100+ employees 0.04 0.02 99 0.04 0.01 104 0.00 0.99fin1 % investments financed by

internal funds68.62 6.08 35 48.02 8.67 42 20.61 0.06 *

fin10 Value of collateral (% of loan amount)

6.07 2.16 36 5.14 1.48 44 0.93 0.72

fin12 % firms using banks to finance investments

0.12 0.03 99 0.24 0.06 104 –0.11 0.13


0.47 0.05 99 0.60 0.07 104 –0.13 0.12


0.47 0.05 99 0.59 0.07 102 –0.12 0.17

fin15 % firms with checking or savings acct

0.96 0.02 99 0.93 0.04 103 0.04 0.38


0.09 0.03 99 0.30 0.07 104 –0.21 0.01 ***

fin18 % sales sold on credit 36.07 3.47 99 51.20 6.54 103 –15.14 0.04 **fin19 % working capital financed

by external sources32.94 4.04 99 49.20 5.23 104 –16.26 0.01 **

fin2 % investments financed by banks

23.16 6.27 35 38.89 9.28 42 –15.73 0.16

fin20 % firms not needing a loan 0.70 0.05 99 0.38 0.07 104 0.31 0.00 ***fin21 % firms whose recent loan

application was rejected0.01 0.01 99 0.00 0.00 104 0.01 0.32

fin3 % investments financed by supplier credit

0.00 0.00 35 2.68 2.24 42 –2.68 0.24

fin4 % investments financed by equity/stock sales

3.13 1.80 35 3.08 1.87 42 0.05 0.98

fin5 % investments financed by other sources

5.09 3.43 35 7.34 3.97 42 –2.25 0.67


67.06 4.04 99 50.80 5.23 104 16.26 0.01 **


29.31 3.91 99 34.25 5.50 104 –4.94 0.46


1.61 0.87 99 4.73 1.86 104 –3.12 0.13


2.02 0.92 99 10.21 2.89 104 –8.20 0.01 ***


0.41 0.05 99 0.33 0.07 104 0.08 0.37


0.14 0.03 35 0.13 0.02 104 0.01 0.82

(continued)




Mean SE N Mean SE N Diff P-value Sig.graft3 bribery incidence (% firms

experiencing >=1 bribe request)

0.01 0.01 99 0.05 0.03 104 –0.04 0.25

inf11 % firms identifying transport as major constraint

0.09 0.03 99 0.17 0.05 104 –0.07 0.23


0.09 0.03 99 0.03 0.01 104 0.06 0.05 *


0.89 0.54 33 2.34 0.76 102 –1.45 0.12


80.14 49.01 7 16.94 5.40 101 63.21 0.20


0.16 0.04 99 0.12 0.04 104 0.04 0.47


0.12 0.04 99 0.20 0.06 102 –0.08 0.26

infor2 % firms identifying informal competitors as major constraint

0.09 0.03 99 0.13 0.05 104 –0.04 0.55


21.45 1.69 94 18.84 1.29 103 2.61 0.22


0.03 0.02 99 0.01 0.01 104 0.02 0.27


0.06 0.03 99 0.02 0.01 104 0.05 0.08 *


0.77 0.04 99 0.92 0.03 104 –0.15 0.01 ***

lform4 % firms with legal status of partnership

0.05 0.02 99 0.00 0.00 104 0.05 0.02 **


0.08 0.03 99 0.06 0.03 104 0.02 0.65

loc_size_1 capital city 0.00 0.00 99 0.54 0.07 104 –0.54 0.00 ***loc_size_4 city with 50,000–250,000 0.44 0.05 99 0.13 0.03 104 0.31 0.00 ***loc_size_5 city with <50,000 0.56 0.05 99 0.33 0.06 104 0.23 0.01 ***obst1 biggest obstacle is access to

finance0.18 0.04 99 0.21 0.06 104 –0.03 0.71


0.23 0.05 99 0.08 0.04 104 0.15 0.01 **

obst12 biggest obstacle is informal competitors

0.08 0.03 99 0.09 0.05 104 –0.01 0.83


0.02 0.01 99 0.12 0.05 104 –0.11 0.06 *

obst14 biggest obstacle is tax rates 0.09 0.03 99 0.11 0.05 104 –0.02 0.71obst15 biggest obstacle is transport 0.10 0.03 99 0.09 0.04 104 0.01 0.82

TABLE 4: CONTINuED




Mean SE N Mean SE N Diff P-value Sig.obst2 biggest obstacle is access to

land0.02 0.01 99 0.01 0.01 104 0.01 0.51


0.03 0.02 99 0.08 0.03 104 –0.05 0.15

obst4 biggest obstacle is corruption 0.02 0.01 99 0.01 0.01 104 0.00 0.79obst6 biggest obstacle is crime,

theft, disorder0.02 0.01 99 0.03 0.03 104 –0.02 0.61


0.04 0.02 99 0.06 0.03 104 –0.02 0.69

obst8 biggest obstacle is electricity 0.03 0.02 99 0.00 0.00 104 0.03 0.20obst9 biggest obstacle is


0.03 0.02 99 0.10 0.04 104 –0.07 0.07 *

perf1 real annual sales growth 0.05 0.02 87 0.16 0.03 95 –0.11 0.01 **perf2 annual employment growth 0.05 0.02 94 0.08 0.02 98 –0.03 0.34perf3 annual labor productivity

growth0.03 0.02 84 0.04 0.05 93 –0.02 0.77


dealing with govt regulation26.37 3.62 99 16.95 3.19 102 9.42 0.05 *


5.02 3.68 72 2.38 0.52 75 2.65 0.48


0.14 0.04 99 0.14 0.05 104 0.01 0.93


0.08 0.03 99 0.13 0.05 104 –0.06 0.36

region_1 a2==Thimphu/Paro 0.44 0.05 99 0.66 0.06 104 –0.22 0.00 ***region_2 a2==Phuentsholing 0.27 0.05 99 0.14 0.03 104 0.13 0.02 **region_3 a2==Gelephu/Sarpang 0.07 0.02 99 0.03 0.01 104 0.04 0.16region_4 a2==Samdrup Jongkhar 0.22 0.05 99 0.17 0.04 104 0.05 0.44t1 % firms with internationally-

recognized quality certificate0.08 0.03 97 0.06 0.03 103 0.01 0.74


0.43 0.05 99 0.55 0.07 104 –0.12 0.18

t4 % firms using tech licensed from foreign companies

0.05 0.04 35 0.07 0.03 104 –0.02 0.75

t5 % firms with own website 0.32 0.05 99 0.32 0.07 104 0.01 0.94t6 % firms using email for

client/supplier comm0.71 0.05 99 0.55 0.07 104 0.16 0.07 *

tr1 days to clear direct exports through customs

35.49 23.84 4 2.73 0.82 13 32.77 0.19


9.04 2.76 98 3.44 1.12 104 5.60 0.06 *

(continued)




Mean SE N Mean SE N Diff P-value Sig.tr13 direct export products lost

due to breakage/spoilage (% total val)

0.00 0.00 4 0.66 0.40 14 –0.66 0.11


0.06 0.02 99 0.05 0.02 104 0.01 0.77


18.31 8.41 15 5.71 1.50 64 12.60 0.14


90.96 2.76 98 96.56 1.12 104 –5.60 0.06 *


4.11 1.85 98 3.11 1.06 104 1.01 0.64


4.93 2.03 98 0.33 0.27 104 4.60 0.03 **


61.72 7.81 35 39.73 6.25 103 21.99 0.03 **


38.28 7.81 35 60.27 6.25 103 –21.99 0.03 **


0.07 0.03 99 0.06 0.03 104 0.01 0.82

TABLE 4: CONTINuED



TAB

LE 5

: BIg

gES

T O

BST

AC

LES

est_

obst

1es

t_ob

st2

est_

obst

3es

t_ob

st4

est_

obst

5

Acc

ess

to fi

nanc

eA

cces

s to

land

Lice

nsin

g &

pe

rmit

sC

orru

ptio

nC

ourt

sb/

seb/

seb/

seb/

seb/

seb/

seb/

seb/

seb/

seb/

seA

grib

usin

ess

–0.1

3*–0

.06

0.03

0.03

–0.0

1*–0

.02

0.01

0.01

00

0.08

0.09

0.05

0.05

0.01

0.01

0.02

0.02

00

Mic

robu

sines

s0.

20**

0.25

***

–0.0

2–0

.02

0.01

0.01

–0.0

1–0

.01

00

0.09

0.09

0.02

0.02

0.02

0.02

0.01

0.01

00

Agr

ibus

ines

s * M

icro

busin

ess

0.12

0.07

–0.0

4–0

.04

–0.0

1–0

.01

–0.0

1–0

.01

00

0.15

0.16

0.05

0.06

0.02

0.02

0.02

0.02

00

Thi

mpu

/Pha

ro0.

36**

*0.

01–0

.01

00

0.08

0.02

0.01

00

Phue

ntsh

olin

g0.

51**

*0

–0.0

20

00.

150.

020.

010

0G

elep

hu/S

arpa

ng0.

050

0.06

0.01

00.

110.

020.

070.

010

_con

s0.

24**

*–0

.11

0.03

**0.

03*

0.01

*0.

020.

010.

010

00.

060.

080.

010.

020.

010.

010.

010.

010

0N

367

367

367

367

367

367

367

367

367

367

R-sq

uare

d0.

040.

150.

010.

010.

010.

030.

010.

020

0

Notes

: Reg

ress

ion

estim

ates

con

trol f

or su

rvey

des

ign

effe

cts,

usin

g w

med

ian

as th

e sa

mpl

ing

wei

ght.

Mic

robu

sines

ses a

re d

efin

ed to

hav

e fe

wer

than

5 e

mpl

oyee

s. T

he o

mitt

ed re

gion

is

Sam

drup

/Jon

gkha

r.(co

ntin

ued)



TAB

LE 5

: CO

NTI

Nu

EDes

t_ob

st6

est_

obst

7es

t_ob

st8

est_

obst

9es

t_ob

st10

Cri

me,

thef

t, di

sord

erC

usto

ms

and

trad

e re

gula

tion

Elec

tric

ity

Inad

equa

tely

ed

ucat

ed

wor

kfor

ceLa

bor

regu

lati

ons

b/se

b/se

b/se

b/se

b/se

b/se

b/se

b/se

b/se

b/se

Agr

ibus

ines

s–0

.08

–0.0

8–0

.02*

*–0

.03*

0.06

0.08

–0.0

3***

–0.0

2**

0.06

0.02

0.05

0.05

0.01

0.02

0.06

0.06

0.01

0.01

0.17

0.15

Mic

robu

sines

s–0

.06

–0.0

60.

040.

030.

030.

03–0

.02

–0.0

2–0

.09

–0.1

10.

050.

050.

030.

030.

030.

030.

010.

010.

070.

07A

grib

usin

ess *

Mic

robu

sines

s0.

060.

07–0

.03

–0.0

2–0

.12*

–0.1

3*0.

040.

04–0

.18

–0.1

40.

050.

050.

030.

040.

070.

070.

020.

020.

170.

16T

him

pu/P

haro

–0.0

4–0

.03

0.06

*0.

01–0

.31*

**0.

050.

060.

030.

010.

1Ph

uent

shol

ing

0–0

.05

–0.0

10

–0.2

5*0.

080.

050.

010.

010.

14G

elep

hu/S

arpa

ng–0

.05

0.04

–0.0

1–0

.01

–0.2

0.05

0.09

0.01

0.01

0.12

_con

s0.

080.

11*

0.02

**0.

050.

03**

–0.0

10.

03**

*0.

020.

23**

*0.

49**

*0.

050.

060.

010.

050.

010.

030.

010.

010.

050.

1N

367

367

367

367

367

367

367

367

367

367

R-sq

uare

d0.

030.

050.

010.

030.

010.

040

0.01

0.05

0.11



est_

obst

11es

t_ob

st12

est_

obst

13es

t_ob

st14

est_

obst

15

Polit

ical

inst

abili

tyIn

form

al

com

peti

tors

Tax

adm

inis

trat

ion

Tax

rate

sTr

ansp

ort

b/se

b/se

b/se

b/se

b/se

b/se

b/se

b/se

b/se

b/se

Agr

ibus

ines

s–0

.01

–0.0

10.

170.

16–0

.01*

–0.0

1*0.

120.

14–0

.08*

**–0

.08*

**0.

010.

010.

130.

130.

010.

010.

120.

110.

030.

03M

icro

busin

ess

0.01

0.01

–0.0

1–0

.01

–0.0

1*–0

.01*

0.03

0.02

–0.0

8**

–0.0

8**

0.02

0.02

0.03

0.03

0.01

0.01

0.05

0.05

0.03

0.03

Agr

ibus

ines

s * M

icro

busin

ess

–0.0

1–0

.01

–0.1

7–0

.17

0.01

*0.

01*

–0.0

2–0

.05

0.08

**0.

07**

0.02

0.02

0.13

0.14

0.01

0.01

0.15

0.14

0.03

0.03

Thi

mpu

/Pha

ro0

–0.0

20

0.18

***

0.01

0.03

0.06

00.

050.

01Ph

uent

shol

ing

–0.0

2–0

.04

00

–0.0

20.

020.

050

0.02

0.01

Gel

ephu

/Sar

pang

–0.0

20.

030

0.13

–0.0

10.

020.

090

0.09

0.01

_con

s0.

010.

020.

05**

0.06

0.01

*0.

01*

0.09

***

–0.0

30.

08**

*0.

08**

*0.

010.

020.

020.

060.

010.

010.

030.

040.

030.

03N

367

367

367

367

367

367

367

367

367

367

R-sq

uare

d0

0.01

0.01

0.02

0.01

0.01

0.02

0.07

0.05

0.06

Notes

: Reg

ress

ion

estim

ates

con

trol f

or su

rvey

des

ign

effe

cts,

usin

g w

med

ian

as th

e sa

mpl

ing

wei

ght.

Mic

robu

sines

ses a

re d

efin

ed to

hav

e fe

wer

than

5 e

mpl

oyee

s. T

he o

mitt

ed re

gion

is

Sam

drup

/Jon

gkha

r.



TAB

LE 6

: FIN

AN

CE

est_

fin6

est_

fin7

est_

fin8

est_

fin9

est_

fin12

est_

fin13

% W

orki

ng

capi

tal f

inan

ced

by in

tern

al

fund

s

% W

orki

ng

capi

tal f

inan

ced

by b

anks

% W

orki

ng

capi

tal f

inan

ced

by s

uppl

ier

cred

it

% W

orki

ng

capi

tal

finan

ced

by

othe

r so

urce

s

% F

irm

s us

ing

bank

s to

fina

nce

inve

stm

ents

% F

irm

s us

ing

bank

s to

fina

nce

wor

king

cap

ital

b/se

b/se

b/se

b/se

b/se

b/se

b/se

b/se

b/se

b/se

b/se

b/se

Agr

ibus

ines

s–1

.69

–2.6

95.

165.

39–0

.49

–0.4

3–2

.98

–2.2

70.

010.

020

011

.39

11.3

311

.23

11.1

0.7

0.69

2.04

1.94

0.1

0.09

0.16

0.16

Mic

robu

sines

s19

.54*

**19

.86*

**–1

7.64

***

–17.

96**

*–1

.25*

**–1

.24*

**–0

.65

–0.6

6–0

.15*

**–0

.16*

**–0

.30*

**–0

.31*

**5.

525.

325.

225.

030.

40.

42.

52.

50.

040.

040.

070.

07A

grib

usin

ess *

Mic

robu

sines

s9.

5610

.42

–10.

6–1

0.75

0.49

0.44

0.54

–0.1

–0.0

1–0

.02

–0.0

9–0

.09

12.0

212

.08

11.7

911

.76

0.7

0.69

2.53

2.63

0.1

0.09

0.16

0.16

Thi

mpu

/Pha

ro–0

.23

–3.1

40.

34**

3.02

*0.

05**

*–0

.03

7.29

7.1

0.15

1.68

0.02

0.1

Phue

ntsh

olin

g7.

89–7

.56

0.19

–0.5

2–0

.01

–0.0

97.

797.

70.

230.

730.

020.

11G

elep

hu/S

arpa

ng7.

33–6

.96

0.09

–0.4

60.

02–0

.08

7.75

7.66

0.11

0.57

0.02

0.12

_con

s69

.80*

**67

.23*

**25

.67*

**30

.09*

**1.

25**

*0.

99**

*3.

281.

680.

16**

*0.

13**

*0.

43**

*0.

48**

*4.

67.

644.

417.

430.

40.

342.

011.

940.

040.

030.

060.

1N

365

365

365

365

365

365

365

365

367

367

367

367

R-sq

uare

d0.

120.

140.

110.

120.

020.

030.

010.

030.

120.

130.

140.

15


est_

fin14

est_

fin15

est_

fin16

est_

fin18

est_

fin19

est_

fin20

est_

fin21

% F

irm

s w

ith

a

bank

loan

/ cr

edit

line

% F

irm

s w

ith

chec

king

or

savi

ngs

acct

% F

irm

s id

enti

fyin

g ac

cess

to

finan

ce

as m

ajor

co

nstr

aint

% S

ales

sol

d

on c

redi

t

% W

orki

ng

capi

tal f

inan

ced

by e

xter

nal

sour

ces

% F

irm

s no

t ne

edin

g a

loan

% F

irm

s w

hose

re

cent

loan

ap

plic

atio

n w

as r

ejec

ted

b/se

b/se

b/se

b/se

b/se

b/se

b/se

b/se

b/se

b/se

b/se

b/se

b/se

b/se

Agr

ibus

ines

s–0

.09

–0.0

80.

030.

040.

020.

0611

.64

9.92

1.69

2.69

–0.0

5–0

.08

–0.0

1–0

.01

0.16

0.15

0.08

0.08

0.09

0.08

10.5

310

.56

11.3

911

.33

0.15

0.16

0.03

0.03

Mic

robu

sines

s–0

.33*

**–0

.33*

**–0

.26*

**–0

.26*

**0.

16**

0.15

**–1

2.24

**–1

3.13

**–1

9.54

***

–19.

86**

*–0

.14

–0.1

3–0

.04*

–0.0

4*0.

080.

090.

080.

080.

070.

065.

255.

455.

525.

320.

090.

090.

020.

02A

grib

usin

ess *

M

icro

busin

ess

0.04

0.04

0.02

0.01

–0.1

2–0

.16

–8.5

5–6

.92

–9.5

6–1

0.42

0.12

0.15

0.01

0.01

0.18

0.18

0.14

0.14

0.13

0.13

11.7

11.6

412

.02

12.0

80.

20.

210.

030.

03T

him

pu/P

haro

–0.0

90.

050.

16–1

5.66

***

0.23

–0.2

5**

0.01

0.11

0.11

0.1

5.57

7.29

0.11

0.01

Phue

ntsh

olin

g–0

.15

0.11

–0.1

4*–1

6.48

*–7

.89

–0.0

10

0.15

0.16

0.08

9.15

7.79

0.16

0.01

Gel

ephu

/Sa

rpan

g–0

.19

0.04

–0.1

1–1

2.50

*–7

.33

–0.2

20.

03

0.12

0.15

0.09

7.39

7.75

0.16

0.02

_con

s0.

53**

*0.

64**

*0.

91**

*0.

84**

*0.

10**

*0.

0627

.10*

**41

.71*

**30

.20*

**32

.77*

**0.

63**

*0.

79**

*0.

04*

0.03

*0.

060.

110.

050.

110.

030.

093.

956.

494.

67.

640.

050.

110.

020.

02N

364

364

366

366

367

367

363

363

365

365

367

367

367.

00*

367

R-sq

uare

d0.

110.

120.

070.

070.

030.

140.

050.

080.

120.

140.

010.

060.

030.

04

Notes

: Reg

ress

ion

estim

ates

con

trol f

or su

rvey

des

ign

effe

cts,

usin

g w

med

ian

as th

e sa

mpl

ing

wei

ght.

Mic

robu

sines

ses a

re d

efin

ed to

hav

e fe

wer

than

5 e

mpl

oyee

s. T

he o

mitt

ed re

gion

is

Sam

drup

/Jon

gkha

r.

67



TAB

LE 7

: Bu

SIN

ESS

& P

ERFO

RM

AN

CE

CO

NST

RA

INTS

est_

bus2

est_

bus5

est_

perf

1es

t_pe

rf2

est_

perf

3es

t_pe

rf4

Day

s to

obt

ain

oper

atin

g lic

ense

% F

irm

s id

enti

fyin

g bu

sine

ss

licen

sing

/pe

rmit

s as

m

ajor

con

stra

int

Rea

l ann

ual

sale

s gr

owth

Ann

ual

empl

oym

ent

grow

th

Ann

ual l

abor

pr

oduc

tivi

ty

grow

th%

Fir

ms

buyi

ng

fixed

ass

ets

b/se

b/se

b/se

b/se

b/se

b/se

b/se

b/se

b/se

b/se

b/se

b/se

Agr

ibus

ines

s–2

.51

–2.4

10.

120.

11–0

.03

–0.0

30.

020.

03–0

.06

–0.0

6–0

.1–0

.09

1.67

1.57

0.11

0.11

0.08

0.08

0.03

0.03

0.1

0.1

0.11

0.11

Mic

robu

sines

s–2

.4–2

.35

0.01

0–0

.06

–0.0

6*–0

.02

–0.0

20.

030.

03–0

.23*

**–0

.24*

**1.

671.

650.

040.

040.

040.

030.

040.

030.

040.

040.

060.

06A

grib

usin

ess *

M

icro

busin

ess

2.35

2.28

–0.1

9–0

.19*

–0.0

2–0

.02

–0.0

1–0

.02

–0.0

2–0

.02

0.13

0.12

1.67

1.6

0.12

0.11

0.09

0.09

0.06

0.06

0.11

0.11

0.13

0.13

Thi

mpu

/Pha

ro0.

61–0

.08

0.01

0.05

0.02

0.02

0.56

0.08

0.03

0.04

0.04

0.06

Phue

ntsh

olin

g0.

88–0

.14*

0.02

0.01

0.04

–0.1

1*0.

670.

070.

030.

030.

040.

06G

elep

hu/S

arpa

ng0.

06–0

.06

0.07

0.05

0.01

–0.0

20.

220.

10.

060.

060.

050.

08_c

ons

3.57

**3.

00**

0.06

**0.

15*

0.14

***

0.12

***

0.07

***

0.04

–0.0

7**

0.04

0.31

***

0.33

***

1.67

1.34

0.02

0.08

0.03

0.04

0.02

0.03

0.03

0.04

0.05

0.07

N32

932

936

736

730

830

832

732

729

529

536

736

7R

-squa

red

0.01

0.01

0.02

0.04

0.04

0.05

00.

020.

020.

030.

080.

1

Notes

: Reg

ress

ion

estim

ates

con

trol f

or su

rvey

des

ign

effe

cts,

usin

g w

med

ian

as th

e sa

mpl

ing

wei

ght.

Mic

robu

sines

ses a

re d

efin

ed to

hav

e fe

wer

than

5 e

mpl

oyee

s. T

he o

mitt

ed re

gion

is

Sam

drup

/Jon

gkha

r.



TAB

LE 8

: CO

RR

uPT

ION

est_

corr

1es

t_co

rr2

est_

corr

4es

t_co

rr11

est_

corr

12es

t_gr

aft3

% F

irm

s ex

pect

to

giv

e gi

fts

in m

tgs

w ta

x of

ficia

ls

% F

irm

s w

ho h

ave

secu

red

or

att

empt

ed

govt

con

trac

t

% T

otal

sal

es

firm

s ex

pect

to

giv

e as

gi

fts

to p

ublic

of

ficia

ls

% F

irm

s id

enti

fyin

g co

rrup

tion

as

maj

or c

onst

rain

t

% F

irm

s be

lieve

co

urt s

yste

m

fair,

impa

rtia

l, un

corr

upte

d

Brib

ery

inci

denc

e (%

firm

s ex

peri

enci

ng >

=1

brib

e re

ques

t)b/

seb/

seb/

seb/

seb/

seb/

seb/

seb/

seb/

seb/

seb/

seb/

seA

grib

usin

ess

00

–0.2

5***

–0.2

7***

–0.0

3–0

.03

–0.0

2**

–0.0

3*0.

090.

07–0

.01*

–0.0

1*0

00.

070.

080.

030.

040.

010.

020.

150.

150.

010.

01M

icro

busin

ess

00

–0.2

9***

–0.3

1***

–0.0

3–0

.03

–0.0

1–0

.01

0.18

**0.

16*

–0.0

1*–0

.01*

00

0.05

0.05

0.03

0.03

0.01

0.01

0.08

0.09

0.01

0.01

Agr

ibus

ines

s *

Mic

robu

sines

s0.

00*

0.00

*0.

30**

*0.

32**

*0.

030.

040.

030.

04–0

.05

–0.0

40.

01**

0.01

**

00

0.1

0.1

0.03

0.04

0.03

0.03

0.19

0.2

0.01

0.01

Thi

mpu

/Pha

ro–0

.01

–0.0

5–0

.08

–0.0

9–0

.11

–0.0

10.

010.

060.

080.

060.

090.

01Ph

uent

shol

ing

–0.0

1–0

.15*

*–0

.08

–0.1

0*–0

.19

–0.0

10.

010.

070.

080.

060.

170.

01G

elep

hu/S

arpa

ng–0

.01

0.13

–0.0

8–0

.10*

–0.0

7–0

.01

0.01

0.11

0.08

0.06

0.12

0.01

_con

s0

0.01

0.33

***

0.38

***

0.03

0.1

0.02

**0.

11*

0.56

***

0.69

***

0.01

*0.

02**

00.

010.

050.

070.

030.

10.

010.

060.

060.

10.

010.

01N

300

300

367

367

364

364

367

367

367

367

367

367

R-sq

uare

d0

0.01

0.14

0.2

00

00.

050.

030.

040.

010.

01

Notes

: Reg

ress

ion

estim

ates

con

trol f

or su

rvey

des

ign

effe

cts,

usin

g w

med

ian

as th

e sa

mpl

ing

wei

ght.

Mic

robu

sines

ses a

re d

efin

ed to

hav

e fe

wer

than

5 e

mpl

oyee

s. T

he o

mitt

ed re

gion

is

Sam

drup

/Jon

gkha

r.



TAB

LE 9

: IN

FRA

STR

uC

TuR

Ees

t_in

f2es

t_in

f4es

t_in

f6es

t_in

f9N

umbe

r el

ectr

ical

ou

tage

s in

typi

cal m

onth

Loss

es d

ue to

ele

ctri

cal

outa

ges

(% a

nnua

l sal

es)

Num

ber

wat

er s

hort

ages

in

typi

cal m

onth

% F

irm

s ow

n/sh

are

gene

rato

rb/

seb/

seb/

seb/

seb/

seb/

seb/

seb/

seA

grib

usin

ess

0.47

0.41

–5.4

9***

–5.0

0***

–2.3

9*–2

.27*

–0.0

3–0

.04

0.43

0.47

1.31

1.35

1.44

1.36

0.07

0.07

Mic

robu

sines

s0.

090.

04–4

.70*

**–4

.70*

**–2

.16

–2.5

2–0

.09*

**–0

.10*

**0.

20.

161.

371.

371.

461.

620.

030.

03A

grib

usin

ess *

M

icro

busin

ess

–0.4

6–0

.44

5.76

***

5.64

***

3.27

**4.

33**

0.02

0.02

0.54

0.54

1.69

1.71

1.56

1.99

0.07

0.07

Thi

mpu

/Pha

ro0.

040.

420.

810

0.2

2.05

1.04

0.02

Phue

ntsh

olin

g–0

.21

–1.7

7–1

.03

–0.0

30.

182.

050.

980.

02G

elep

hu/S

arpa

ng0.

52–0

.7–1

.89*

*0.

070.

732.

090.

930.

07_c

ons

0.23

***

0.23

5.80

***

5.63

**2.

44*

2.38

**0.

11**

*0.

11**

*0.

060.

191.

262.

21.

441.

190.

030.

03N

352

352

142

142

101

101

367

367

R-sq

uare

d0

0.03

0.1

0.12

0.04

0.07

0.05

0.07



est_

inf1

0es

t_in

f11

est_

inf1

2es

t_in

f14

% E

lect

rici

ty

from

gen

erat

or

% F

irm

s id

enti

fyin

g tr

ansp

ort a

s m

ajor

co

nstr

aint

% F

irm

s id

enti

fyin

g el

ectr

icit

y as

maj

or

cons

trai

nt

% P

rodu

ct lo

st

to b

reak

age/

spoi

lage

du

ring

dom

esti

c sh

ippi

ngb/

seb/

seb/

seb/

seb/

seb/

seb/

seb/

seA

grib

usin

ess

–0.8

2–0

.95*

–0.0

3–0

.01

–0.0

3–0

.06

–0.3

8–0

.22

0.51

0.56

0.06

0.06

0.07

0.08

1.48

1.44

Mic

robu

sines

s–0

.98*

*–1

.09*

*0.

020.

01–0

.05

–0.0

7–2

.35*

*–2

.60*

**0.

470.

440.

040.

040.

050.

040.

920.

95A

grib

usin

ess *

M

icro

busin

ess

0.56

0.66

–0.0

5–0

.06

0.02

0.04

1.66

1.49

0.58

0.58

0.08

0.08

0.09

0.1

1.71

1.67

Thi

mpu

/Pha

ro–0

.36

0–0

.19*

*–0

.59

0.35

0.08

0.09

0.69

Phue

ntsh

olin

g–0

.69*

–0.1

2–0

.23*

*–3

.43*

**0.

370.

070.

090.

89G

elep

hu/S

arpa

ng0.

57–0

.09

–0.0

7–0

.25

1.04

0.08

0.13

0.93

_con

s1.

24**

*1.

59**

*0.

09**

*0.

13*

0.12

***

0.30

***

2.78

***

3.48

***

0.39

0.52

0.02

0.08

0.03

0.1

0.91

0.98

N36

536

536

736

736

736

728

028

0R

-squa

red

0.01

0.02

0.01

0.04

0.01

0.07

0.06

0.08

Notes

: Reg

ress

ion

estim

ates

con

trol f

or su

rvey

des

ign

effe

cts,

usin

g w

med

ian

as th

e sa

mpl

ing

wei

ght.

Mic

robu

sines

ses a

re d

efin

ed to

hav

e fe

wer

than

5 e

mpl

oyee

s. T

he o

mitt

ed re

gion

is

Sam

drup

/Jon

gkha

r.



TAB

LE 1

0: R

Egu

LATI

ON

AN

D C

RIM

Ees

t_re

g1es

t_re

g2es

t_re

g4es

t_re

g5Se

nior

mgm

t tim

e sp

ent d

ealin

g w

ith

govt

re

gula

tion

Avg

num

ber

mtg

s or

vi

sits

wit

h ta

x of

ficia

ls

% o

f fir

ms

iden

tify

ing

tax

rate

s as

maj

or

cons

trai

nt

% F

irm

s id

enti

fyin

g ta

x ad

min

as

maj

or

cons

trai

ntb/

seb/

seb/

seb/

seb/

seb/

seb/

seb/

seA

grib

usin

ess

–7.9

9–6

.12

1.51

1.53

0.01

0.03

–0.0

2–0

.02

9.41

11.5

82.

081.

990.

090.

090.

060.

06M

icro

busin

ess

–10

–3.4

9–0

.59

–0.6

40.

020.

01–0

.04

–0.0

47.

185.

880.

470.

520.

060.

060.

040.

04A

grib

usin

ess *

Mic

robu

sines

s–0

.63

–1.3

1–1

.46

–1.4

7–0

.08

–0.1

0.01

0.01

12.5

512

.48

2.08

1.99

0.12

0.12

0.08

0.08

Thi

mpu

/Pha

ro12

.26*

**–1

.74

0.06

–0.0

63.

121.

20.

090.

08Ph

uent

shol

ing

62.5

8***

–1.6

6–0

.12

–0.1

4*7.

811.

280.

080.

07G

elep

hu/S

arpa

ng0.

17–1

.66

–0.0

3–0

.12*

1.11

1.19

0.1

0.07

_con

s29

.87*

**5.

861.

64**

*3.

21**

0.14

***

0.14

*0.

08**

*0.

17**

3.95

4.48

0.47

1.57

0.03

0.08

0.03

0.07

N36

736

730

430

436

736

736

736

7R

-squa

red

0.03

0.44

00.

010.

010.

040.

010.

04



est_

crim

e1es

t_cr

ime2

est_

crim

e9es

t_cr

ime8

est_

crim

e10

% F

irm

s pa

ying

fo

r se

curi

tySe

curi

ty c

osts

(%

ann

ual s

ales

)

% F

irm

s id

enti

fyin

g co

urts

as

maj

or

cons

trai

nt

% F

irm

s id

enti

fyin

g cr

ime,

thef

t &

diso

rder

as

maj

or

cons

trai

nt

% F

irm

s ex

peri

enci

ng

loss

due

to th

eft/

vand

alis

mb/

seb/

seb/

seb/

seb/

seb/

seb/

seb/

seb/

seb/

seA

grib

usin

ess

0.02

0.03

–0.3

9**

–0.3

7**

0.05

0.05

0.04

0.07

–0.0

5–0

.03

0.13

0.12

0.17

0.16

0.06

0.06

0.06

0.06

0.09

0.08

Mic

robu

sines

s–0

.07

–0.0

5–0

.39*

*–0

.39*

*0.

010.

010.

11**

0.11

***

0.05

0.05

0.07

0.08

0.17

0.17

0.02

0.02

0.04

0.04

0.07

0.08

Agr

ibus

ines

s * M

icro

busin

ess

–0.0

9–0

.11

0.39

**0.

37**

–0.0

7–0

.07

–0.0

7–0

.09

–0.0

3–0

.05

0.16

0.15

0.17

0.16

0.06

0.06

0.1

0.1

0.13

0.12

Thi

mpu

/Pha

ro0.

14**

*0.

11*

–0.0

40.

040.

080.

040.

060.

060.

080.

09Ph

uent

shol

ing

0.28

**0.

06–0

.06

–0.0

9–0

.04

0.14

0.11

0.05

0.07

0.13

Gel

ephu

/Sar

pang

0.08

0.02

–0.0

6–0

.12

–0.0

60.

070.

030.

050.

070.

1_c

ons

0.23

***

0.06

0.40

**0.

32**

0.01

0.05

0.02

**0.

030.

16**

*0.

130.

040.

060.

170.

140.

010.

050.

010.

070.

040.

09N

367

367

363

363

367

367

367

367

366

366

R-sq

uare

d0.

020.

060.

020.

020.

010.

020.

030.

070.

010.

03

Notes

: Reg

ress

ion

estim

ates

con

trol f

or su

rvey

des

ign

effe

cts,

usin

g w

med

ian

as th

e sa

mpl

ing

wei

ght.

Mic

robu

sines

ses a

re d

efin

ed to

hav

e fe

wer

than

5 e

mpl

oyee

s. T

he o

mitt

ed re

gion

is

Sam

drup

/Jon

gkha

r.



TAB

LE 1

1: TR

AD

Ees

t_tr

4es

t_tr

5es

t_tr

6es

t_tr

7es

t_tr

8D

omes

tic

sale

s as

%

of

tota

l sal

esD

irec

t exp

orts

as

%

of to

tal s

ales

Indi

rect

exp

orts

as

% o

f to

tal s

ales

% T

otal

inpu

ts o

f do

mes

tic

orig

in%

Tot

al in

puts

of

fore

ign

orig

inb/

seb/

seb/

seb/

seb/

seb/

seb/

seb/

seb/

seb/

seA

grib

usin

ess

6.12

4.9

1.01

1–6

.98*

*–5

.77*

7.65

16.5

2–7

.65

–16.

524

3.84

2.18

2.16

3.18

313

.86

11.3

113

.86

11.3

1M

icro

busin

ess

7.94

**7.

94**

–2.5

5***

–2.5

1***

–5.2

4–5

.29

–9.7

5–1

7.78

9.75

17.7

83.

83.

750.

760.

763.

713.

6816

.43

15.3

116

.43

15.3

1A

grib

usin

ess *

Mic

robu

sines

s–3

.2–2

.1–1

.09

–1.0

64.

153.

03–5

.79

–4.4

5.79

4.4

4.58

4.66

2.18

2.16

3.88

428

.24

29.4

228

.24

29.4

2T

him

pu/P

haro

–5.0

4**

–0.6

5.59

**–3

0.74

**30

.74*

*2.

550.

682.

4415

.09

15.0

9Ph

uent

shol

ing

0.79

–0.2

3–0

.54

–51.

93**

*51

.93*

**1.

470.

821.

0615

.34

15.3

4G

elep

hu/S

arpa

ng0.

95–1

.07*

0.12

–32.

5932

.59

0.99

0.63

0.65

28.4

128

.41

_con

s88

.84*

**91

.52*

**2.

64**

*3.

14**

*8.

38**

*5.

23*

64.1

7***

96.1

0***

35.8

3***

3.9

3.09

3.03

0.75

1.01

2.98

2.83

7.53

14.3

27.

5314

.32

N36

336

336

236

236

236

211

511

511

511

5R

-squa

red

0.04

0.06

0.02

0.02

0.02

0.05

0.02

0.1

0.02

0.1



est_

tr9

est_

tr10

est_

tr14

est_

tr15

est_

expo

rter

est_

expo

rter

_c%

Fir

ms

iden

tify

ing

cust

oms

and

trad

e re

gs a

s m

ajor

con

stra

int

Dir

ect +

indi

rect

ex

port

s as

%

of to

tal s

ales

Day

s of

inve

ntor

y of

mai

n in

put

% F

irm

s ex

port

ing

>=1%

of

sale

s%

of

firm

s ex

port

ing

b/se

b/se

b/se

b/se

b/se

b/se

b/se

b/se

b/se

b/se

Agr

ibus

ines

s0.

050.

05–5

.97

–4.7

7–1

0.43

–5.7

50.

040.

04–0

.04

–0.0

30.

090.

094

3.84

9.28

10.9

80.

040.

040.

050.

05M

icro

busin

ess

0.01

0–7

.80*

*–7

.79*

*10

1.19

***

95.9

4**

–0.0

2–0

.02

–0.0

8*–0

.08*

0.04

0.04

3.8

3.76

36.9

640

.72

0.02

0.02

0.04

0.04

Agr

ibus

ines

s * M

icro

busin

ess

–0.0

8–0

.08

3.06

1.97

–96.

75**

–89.

90*

–0.0

6–0

.06

0.02

00.

110.

14.

584.

6641

.55

45.4

10.

040.

040.

070.

07T

him

pu/P

haro

0.02

4.99

*–5

.73

0.01

0.08

**0.

062.

5537

.20.

020.

03Ph

uent

shol

ing

–0.0

5–0

.76

–25.

210.

010

0.06

1.46

33.5

60.

010.

02G

elep

hu/S

arpa

ng0.

02–0

.95

–32.

64–0

.01

–0.0

10.

090.

9935

.70.

010.

01_c

ons

0.07

***

0.07

11.0

2***

8.37

***

38.3

6***

48.6

60.

03**

*0.

03*

0.14

***

0.09

***

0.03

0.06

3.09

3.03

6.98

34.2

50.

010.

020.

030.

03N

367

367

362

362

114

114

367

367

367

367

R-sq

uare

d0

0.01

0.04

0.06

0.29

0.3

0.01

0.01

0.02

0.05

Notes

: Reg

ress

ion

estim

ates

con

trol f

or su

rvey

des

ign

effe

cts,

usin

g w

med

ian

as th

e sa

mpl

ing

wei

ght.

Mic

robu

sines

ses a

re d

efin

ed to

hav

e fe

wer

than

5 e

mpl

oyee

s. T

he o

mitt

ed re

gion

is

Sam

drup

/Jon

gkha

r.



TAB

LE 1

2: F

IRM

Ch

AR

AC

TER

ISTI

CS

est_

car1

est_

car2

est_

car3

est_

car4

est_

car5

Age

of

firm

% P

riva

te d

omes

tic

owne

rshi

p in

firm

% P

riva

te fo

reig

n ow

ners

hip

in

firm

% G

ovt/s

tate

ow

ners

hip

in

firm

% O

ther

ow

ners

hip

in fi

rmb/

seb/

seb/

seb/

seb/

seb/

seb/

seb/

seb/

seb/

seA

grib

usin

ess

–0.3

5–2

.27

4.37

*4.

80**

–2.8

1–3

.18

–0.8

9–0

.9–0

.68

–0.7

22.

793.

352.

322.

352.

082.

110.

680.

70.

760.

78M

icro

busin

ess

–6.2

8***

–7.0

2***

4.34

*4.

47*

–2.3

1–2

.49

–0.8

9–0

.8–1

.14*

–1.1

9*1.

951.

712.

422.

362.

242.

190.

680.

610.

590.

62A

grib

usin

ess *

Mic

robu

sines

s0.

92.

43–3

.41

–3.8

61.

852.

250.

890.

910.

680.

73.

964.

082.

512.

382.

292.

140.

680.

720.

760.

77T

him

pu/P

haro

–5.6

3**

5.23

–5.2

9–0

.02

0.08

2.73

5.41

5.39

0.08

0.23

Phue

ntsh

olin

g–2

.94

4.95

–5.7

10.

92–0

.16

3.21

5.42

5.33

0.83

0.24

Gel

ephu

/Sar

pang

6.35

5.46

–60.

030.

54.

755.

45.

350.

070.

61_c

ons

14.6

6***

18.2

4***

94.7

0***

89.8

9***

3.27

8.37

0.89

0.65

1.14

*1.

09**

1.64

2.92

2.22

5.34

2.03

5.27

0.68

0.5

0.59

0.54

N36

536

536

536

536

536

536

636

636

536

5R

-squa

red

0.06

0.21

0.03

0.04

0.01

0.03

0.01

0.02

0.02

0.02



est_

info

r1es

t_in

for2

est_

info

r4es

t_in

for5

% F

irm

s co

mpe

ting

ag

ains

t unr

egis

tere

d/in

form

al fi

rms

% F

irm

s id

enti

fyin

g pr

acti

ces

of in

form

al

com

peti

tors

as

maj

or

cons

trai

nt

% F

irm

s fo

rmal

ly

regi

ster

ed w

hen

star

ted

oper

atio

ns in

cou

ntry

Num

ber

year

s

oper

ated

wit

hout

fo

rmal

reg

istr

atio

nb/

seb/

seb/

seb/

seb/

seb/

seb/

seb/

seA

grib

usin

ess

0.24

*0.

24*

0.13

0.16

00.

02–0

.55

–1.9

20.

140.

140.

130.

130.

020.

032.

82.

92M

icro

busin

ess

0.10

*0.

09*

0.07

0.06

00.

01–6

.86*

**–7

.20*

**0.

050.

050.

050.

050.

020.

021.

851.

68A

grib

usin

ess *

Mic

robu

sines

s–0

.36*

*–0

.36*

*–0

.19

–0.2

1–0

.03

–0.0

5–0

.68

0.64

0.15

0.15

0.14

0.15

0.06

0.06

3.08

3.08

Thi

mpu

/Pha

ro–0

.04

0.05

0–5

.60*

*0.

090.

090.

012.

72Ph

uent

shol

ing

–0.1

4*–0

.10

–3.0

20.

080.

070.

013.

2G

elep

hu/S

arpa

ng–0

.08

–0.1

2–0

.16*

1.31

0.11

0.07

0.09

3.58

_con

s0.

05**

0.12

0.07

**0.

070.

98**

*0.

99**

*14

.55*

**18

.58*

**0.

020.

080.

030.

080.

010.

011.

672.

92N

364

364

367

367

366

366

352

352

R-sq

uare

d0.

040.

060.

010.

060.

010.

130.

120.

2

Notes

: Reg

ress

ion

estim

ates

con

trol f

or su

rvey

des

ign

effe

cts,

usin

g w

med

ian

as th

e sa

mpl

ing

wei

ght.

Mic

robu

sines

ses a

re d

efin

ed to

hav

e fe

wer

than

5 e

mpl

oyee

s. T

he o

mitt

ed re

gion

is

Sam

drup

/Jon

gkha

r.



TAB

LE 1

3: g

END

ERes

t_ge

nd1

est_

gend

2es

t_ge

nd3

est_

gend

4es

t_ge

nd5

est_

gend

6

% F

irm

s w

ith

fem

ale

part

icip

atio

n in

ow

ners

hip

% P

erm

anen

t fu

ll-ti

me

wor

kers

th

at a

re fe

mal

e

% P

erm

anen

t fu

ll-ti

me

no

n-pr

oduc

tion

w

orke

rs th

at a

re

fem

ale

% F

irm

s w

ith

fem

ale

top

man

ager

% P

erm

anen

t fu

ll-ti

me

prod

ucti

on

wor

kers

that

ar

e fe

mal

e

% F

irm

s w

ith

maj

orit

y fe

mal

e ow

ners

hip

b/se

b/se

b/se

b/se

b/se

b/se

b/se

b/se

b/se

b/se

b/se

b/se

Agr

ibus

ines

s–0

.07

–0.0

50.

210.

26**

0.06

0.1

–0.0

10.

030.

25*

0.29

**1.

032.

940.

160.

170.

140.

120.

180.

190.

160.

170.

150.

1316

.43

16.9

1M

icro

busin

ess

0.23

***

0.24

***

–0.0

6–0

.13*

0.33

0.26

0.34

***

0.34

***

–0.1

4***

–0.1

9***

32.5

7***

32.8

6***

0.09

0.09

0.09

0.07

0.22

0.22

0.09

0.09

0.04

0.05

8.54

8.85

Agr

ibus

ines

s *

Mic

robu

sines

s0

–0.0

20

0.08

–0.5

2*–0

.48

–0.1

2–0

.16

0.12

0.2

–7.9

4–9

.62

0.21

0.21

0.22

0.21

0.29

0.29

0.21

0.21

0.21

0.19

21.1

721

.39

Thi

mpu

/Pha

ro0.

11–0

.13

–0.1

70.

20*

0.05

8.73

0.11

0.12

0.2

0.11

0.05

11.6

1Ph

uent

shol

ing

0.03

–0.3

3***

–0.2

50.

06–0

.16*

*2.

410.

170.

120.

180.

170.

0717

.54

Gel

ephu

/Sar

pang

–0.0

1–0

.42*

**–0

.20.

03–0

.27*

*–0

.62

0.16

0.16

0.22

0.15

0.13

16.0

4_c

ons

0.43

***

0.36

***

0.22

***

0.39

***

0.26

***

0.44

**0.

28**

*0.

150.

17**

*0.

19**

*33

.76*

**28

.05*

*0.

060.

120.

040.

110.

060.

180.

060.

110.

040.

065.

5912

.29

N36

736

711

511

510

810

836

736

711

211

236

636

6R

-squa

red

0.04

0.05

0.09

0.23

0.14

0.17

0.08

0.11

0.23

0.35

0.08

0.09

Notes

: Reg

ress

ion

estim

ates

con

trol f

or su

rvey

des

ign

effe

cts,

usin

g w

med

ian

as th

e sa

mpl

ing

wei

ght.

Mic

robu

sines

ses a

re d

efin

ed to

hav

e fe

wer

than

5 e

mpl

oyee

s. T

he o

mitt

ed re

gion

is

Sam

drup

/Jon

gkha

r.



TAB

LE 1

4: L

EgA

L ST

Ru

CTu

RE

est_

lform

1es

t_lfo

rm2

est_

lform

3es

t_lfo

rm4

est_

lform

5%

Fir

ms

wit

h le

gal

stat

us o

f pu

blic

ly

liste

d co

mpa

ny

% F

irm

s w

ith

lega

l st

atus

of

priv

atel

y he

ld L

LC

% F

irm

s w

ith

lega

l sta

tus

of s

ole

prop

riet

orsh

ip

% F

irm

s w

ith

lega

l sta

tus

of

part

ners

hip

% F

irm

s w

ith

lega

l st

atus

of

limit

ed

part

ners

hip

b/se

b/se

b/se

b/se

b/se

b/se

b/se

b/se

b/se

b/se

Agr

ibus

ines

s–0

.02*

*–0

.02*

*–0

.06*

–0.0

6*0.

16**

*0.

15**

*–0

.04*

*–0

.03

–0.0

5***

–0.0

5***

0.01

0.01

0.03

0.03

0.05

0.05

0.01

0.02

0.02

0.02

Mic

robu

sines

s–0

.02*

*–0

.02*

*–0

.08*

**–0

.08*

**0.

16**

*0.

16**

*0.

010.

01–0

.05*

**–0

.05*

**0.

010.

010.

030.

030.

050.

050.

030.

030.

020.

02A

grib

usin

ess *

Mic

robu

sines

s0.

02**

0.02

**0.

06*

0.06

*–0

.11*

*–0

.10*

–0.0

1–0

.01

0.05

***

0.05

***

0.01

0.01

0.03

0.03

0.05

0.06

0.03

0.03

0.02

0.02

Thi

mpu

/Pha

ro–0

.01

0.03

**–0

.05

0.04

–0.0

10.

010.

010.

040.

030.

02Ph

uent

shol

ing

–0.0

1–0

.01

0.02

0–0

.02

0.01

0.01

0.03

0.01

0.02

Gel

ephu

/Sar

pang

00

0.03

–0.0

1–0

.02

0.01

0.01

0.03

0.01

0.02

_con

s0.

02**

0.03

***

0.08

***

0.06

**0.

79**

*0.

82**

*0.

04**

0.01

0.05

***

0.07

***

0.01

0.01

0.03

0.02

0.04

0.04

0.01

0.02

0.02

0.02

N36

736

736

736

736

736

736

736

736

736

7R

-squa

red

0.02

0.02

0.06

0.07

0.08

0.09

0.01

0.02

0.03

0.04

Notes

: Reg

ress

ion

estim

ates

con

trol f

or su

rvey

des

ign

effe

cts,

usin

g w

med

ian

as th

e sa

mpl

ing

wei

ght.

Mic

robu

sines

ses a

re d

efin

ed to

hav

e fe

wer

than

5 e

mpl

oyee

s. T

he o

mitt

ed re

gion

is

Sam

drup

/Jon

gkha

r.



TAB

LE 1

5: T

ECh

NO

LOg

yes

t_t1

est_

t2es

t_t3

est_

t4%

Fir

ms

wit

h in

tern

atio

nally

-re

cogn

ized

qua

lity

cert

ifica

te

% F

irm

s w

ith

annu

al

finan

cial

stm

t rev

iew

ed

by e

xter

nal a

udit

orC

apac

ity

utili

zati

on (%

)

% F

irm

s us

ing

tech

lic

ense

d fr

om fo

reig

n co

mpa

nies

b/se

b/se

b/se

b/se

b/se

b/se

b/se

b/se

Agr

ibus

ines

s–0

.01

–0.0

1–0

.11

–0.0

92.

843.

55–0

.07

–0.0

80.

030.

030.

140.

127.

525.

460.

090.

08M

icro

busin

ess

–0.0

4***

–0.0

4***

–0.3

3***

–0.3

0***

–10.

16–1

1.11

*–0

.16*

**–0

.16*

*0.

010.

010.

080.

087.

226.

320.

060.

06A

grib

usin

ess *

Mic

robu

sines

s0.

010.

010.

030.

022.

368.

090.

070.

10.

030.

030.

150.

1311

.72

8.9

0.09

0.09

Thi

mpu

/Pha

ro0.

010.

08**

*17

.85*

**–0

.03

0.01

0.03

6.67

0.05

Phue

ntsh

olin

g0

0.34

**1.

740.

030.

010.

156.

980.

07G

elep

hu/S

arpa

ng0.

010.

01–1

0.27

–0.1

0*0.

010.

038.

920.

06_c

ons

0.04

***

0.04

***

0.42

***

0.28

***

72.3

8***

60.5

4***

0.16

***

0.18

***

0.01

0.01

0.06

0.07

4.15

6.84

0.06

0.07

N36

236

236

736

710

810

811

511

5R

-squa

red

0.03

0.03

0.19

0.28

0.05

0.25

0.08

0.09



est_

t5es

t_t6

est_

inno

vate

est_

inno

vate

_c

% F

irm

s w

ith

own

web

site

% F

irm

s us

ing

emai

l for

cl

ient

/sup

plie

r co

mm

% o

f fir

ms

that

intr

oduc

ed

any

inno

vati

on in

pas

t 3 y

ears

b/se

b/se

b/se

b/se

b/se

b/se

Agr

ibus

ines

s–0

.20*

**–0

.18*

**–0

.1–0

.06

0.05

0.08

0.06

0.06

0.17

0.15

0.16

0.15

Mic

robu

sines

s–0

.18*

**–0

.17*

*–0

.50*

**–0

.50*

**–0

.20*

*–0

.19*

*0.

070.

070.

080.

080.

090.

09A

grib

usin

ess *

Mic

robu

sines

s0.

10.

090.

050.

01–0

.2–0

.22

0.08

0.08

0.19

0.17

0.19

0.18

Thi

mpu

/Pha

ro0.

08*

0.13

00.

040.

080.

1Ph

uent

shol

ing

0.09

–0.0

4–0

.03

0.11

0.14

0.17

Gel

ephu

/Sar

pang

–0.0

2–0

.1–0

.19

0.03

0.07

0.12

_con

s00

0.28

***

0.21

***

0.68

***

0.62

***

0.48

***

0.50

***

0.05

0.06

0.06

0.09

0.06

0.11

N36

636

636

736

736

736

7R

-squa

red

0.09

0.1

0.25

0.29

0.07

0.09

Notes

: Reg

ress

ion

estim

ates

con

trol f

or su

rvey

des

ign

effe

cts,

usin

g w

med

ian

as th

e sa

mpl

ing

wei

ght.

Mic

robu

sines

ses a

re d

efin

ed to

hav

e fe

wer

than

5 e

mpl

oyee

s. T

he o

mitt

ed re

gion

is

Sam

drup

/Jon

gkha

r.



TABLE 16: EMPLOyEE SuRvEyest_wk1 est_wk3 est_wk4 est_wk6

% Firms offering formal training programs for

permanent, full-time employees

Average number of skilled

production workers

Average number of unskilled production

workers

Number of permanent production

workersb/se b/se b/se b/se b/se b/se b/se b/se

Agribusiness 0.23 0.22 –6.48 –11.82** –1.41 –2.95 –7.89 –14.77**0.16 0.15 3.92 5.68 1.88 2.25 4.98 6.86

Microbusiness –0.13** –0.15** –14.34*** –12.65*** –3.68*** –3.21*** –18.03*** –15.86***0.06 0.06 3.29 2.72 1.18 0.91 4.1 3.32

Agribusiness * Microbusiness –0.34** –0.33** 6.49 9.62* 1.9 2.99 8.39* 12.62*0.16 0.16 3.94 5.4 1.99 2.17 5 6.58

Thimpu/Pharo 0 –3.52 –0.45 –3.980.08 2.71 1.03 3.37

Phuentsholing –0.11 14.63* 4.42 19.05*0.07 7.65 3.34 9.85

Gelephu/Sarpang 0.1 –3.56 –1.39 –4.940.11 4.07 1.45 5.16

_cons 0.25*** 0.27*** 15.28*** 15.53*** 4.22*** 3.90*** 19.50*** 19.43***0.04 0.08 3.28 3.37 1.16 1.27 4.09 4.18

N 366 366 116 116 116 116 116 116R-squared 0.07 0.1 0.12 0.22 0.05 0.09 0.11 0.21

Notes: Regression estimates control for survey design effects, using wmedian as the sampling weight. Microbusinesses are defined to have fewer than 5 employees. The omitted region is Samdrup/Jongkhar. Employee survey analysis uses the average employee response by firm.



TABLE 16: CONTINuEDest_wk7 est_wk8 est_wk9 est_wk10

Number of permanent

non-production workers

Years of the top manager’s

experience working in the firm’s sector

% Firms identifying labor regulations as a

major constraint

% Firms identifying

an inadequately educated workforce

as a major constraintb/se b/se b/se b/se b/se b/se b/se b/se

–4.7 –7.41** –0.64 –1.79 0.16 0.13 0.02 0.022.98 3.22 2.62 2.66 0.16 0.15 0.1 0.09

–9.66*** –8.75*** –5.90*** –6.24*** –0.04 –0.06 –0.01 –0.012.11 1.82 1.51 1.37 0.05 0.05 0.04 0.045.13* 7.01** 1.25 2.23 –0.15 –0.12 –0.1 –0.13 3.08 3.13 3.03 0.18 0.16 0.11 0.09

–0.84 –4.83*** –0.28*** –0.121.38 1.71 0.11 0.087.92* –2.43 –0.35*** –0.19**4.5 2.31 0.1 0.08

–2.41 1.27 –0.23* –0.18**2.27 2.61 0.13 0.08

10.31*** 9.70*** 12.93*** 16.30*** 0.14*** 0.42*** 0.09*** 0.22***2.1 1.83 1.37 1.98 0.03 0.1 0.03 0.08

115 115 367 367 367 367 367 3670.11 0.17 0.11 0.19 0.01 0.09 0.02 0.06

(continued)



TABLE 16: CONTINuEDest_wk11 est_wk12 est_wk13 est_wk_educ

Average number of temporary

workers

Number of permanent full time workers

% Unskilled workers (out of all production

workers)

Indicator for completed higher secondary school

or aboveb/se b/se b/se b/se b/se b/se b/se b/se

Agribusiness –22.15* –22.48* 0.03 0.23 –0.04 –0.04 –0.08 –0.0612.22 12.23 7.39 7.27 0.11 0.13 0.14 0.13

Microbusiness –24.45** –25.49** –18.81*** –18.66*** 0.12 0.12 –0.28*** –0.26***12.15 12.6 2.5 2.46 0.17 0.16 0.07 0.08

Agribusiness * Microbusiness 21.37* 21.69* –0.14 –0.31 0.04 0.1 0.02 0.0112.23 12.33 7.4 7.28 0.28 0.29 0.15 0.14

Thimpu/Pharo –8.91 1.37 0.35*** 0.0615.29 1.16 0.13 0.05

Phuentsholing –17.59 1.81 0.17 0.1115.74 2.24 0.12 0.13

Gelephu/Sarpang –11.59 0.6 0.02 –0.0514.2 1.6 0.18 0.04

_cons 25.55** 36.40* 20.89*** 19.56*** 0.24*** –0.02 0.36*** 0.29***12.14 21.15 2.5 2.32 0.06 0.12 0.05 0.08

N 367 367 367 367 113 113 367 367R-squared 0.01 0.01 0.18 0.18 0.03 0.16 0.14 0.15

Notes: Regression estimates control for survey design effects, using wmedian as the sampling weight. Microbusinesses are defined to have fewer than 5 employees. The omitted region is Samdrup/Jongkhar. Employee survey analysis uses the average employee response by firm.



TABLE 16: CONTINuEDest_wk_male est_wk_migrant est_wk_salary_usd

Indicator for male employee

Indicator for non–Bhutanese worker Annual salary USD

b/se b/se b/se b/se b/se b/se–0.04 –0.07 –0.07 –0.07 142.14 182.030.13 0.11 0.05 0.06 395.46 396.390.17 0.03 –0.04 –0.01 38.41 68.170.15 0.13 0.06 0.06 342.87 358.670.23 0.18 0.16 0.17* –885.34* –939.76*0.24 0.17 0.13 0.1 498.34 498.62

0.16 0 474.29**0.16 0.01 226.710.59*** 0.34** 530.560.17 0.14 326.310.65*** 0 5944.54***0.19 0.02 1303.63

0.49*** 0.17 0.08 –0.01 704.80*** 166.440.07 0.14 0.05 0.05 160.03 174.68

204 204 367 367 166 1660.08 0.32 0.02 0.31 0.04 0.21



TAB

LE 1

7: D

ETER

MIN

AN

TS O

F PE

RFO

RM

AN

CE

(Ag

RIB

uS

INES

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) es

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perf

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t_pe

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Rea

l ann

ual s

ales

gro

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ual e

mpl

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row

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nnua

l lab

or p

rodu

ctiv

ity

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seb/

seb/

seb/

seb/

seb/

seb/

seb/

seb/

seb/

seb/

seb/

seM

icro

busin

ess

–0.0

3–0

.06

–0.0

8–0

.06

–0.0

4–0

.04

–0.0

4–0

.04

0.07

0.02

0.01

0.02

0.07

0.07

0.08

0.07

0.04

0.05

0.05

0.05

0.09

0.09

0.11

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Use

s ban

k to

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ital

0.16

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130.

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21*

0.03

0

0.07

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Has

ban

k lo

an o

r cre

dit l

ine

–0.0

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.06

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port

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0.07

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0.1

0.12

N35

535

535

535

535

835

835

835

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335

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j_r2

0.1

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0.07

0.29

0.02

0.19

0.01

0.21

0.05

0.24

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est_

perf

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% F

irm

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ms

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ed

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ears

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120.

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180.

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ses b

ank

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ents

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apita

l0.

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0.36

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*

0.13

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0.14

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Has

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ine

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port

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east

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f sa

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0.63

***

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mpu

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ro0.

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uent

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ephu

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pang

0.39

0.37

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270.

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367

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adj_

r20.

040.

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130.

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33 (cont

inue

d)



TAB

LE 1

7: D

ETER

MIN

AN

TS O

F PE

RFO

RM

AN

CE

(OTh

ER B

uS

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SES

) es

t_pe

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perf

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l ann

ual s

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gro

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ual e

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ent g

row

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nnua

l lab

or p

rodu

ctiv

ity

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seb/

seb/

seb/

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icro

busin

ess

–0.0

5–0

.06

–0.0

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0.03

0.03

0.02

0.03

0.04

0.03

0.04

0.04

0.03

0.03

0.04

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0.04

0.04

0.04

0.04

Use

s ban

k to

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nce

inve

stmen

ts or

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king

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ital

0.02

0.01

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3–0

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0.04

0.04

0.04

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k lo

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port

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east

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les

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ephu

/Sar

pang

0.16

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0.08

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319

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perf

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te

% F

irm

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that

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oduc

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any

inno

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on in

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t 3 y

ears

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b/se

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Mic

robu

sines

s–0

.18*

**–0

.19*

**–0

.22*

**–0

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**–0

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–0.1

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.18*

*–0

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0.06

0.06

0.06

0.06

0.09

0.1

0.09

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Use

s ban

k to

fina

nce

inve

stmen

ts or

wor

king

cap

ital

0.14

0.13

0.13

0.14

0.14

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0.09

0.09

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0.11

0.11

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Has

ban

k lo

an o

r cre

dit l

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0.02

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port

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east

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f sa

les

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0.15

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/Sar

pang

–0.1

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0.07

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s0.

24**

*0.

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12N

364

364

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364

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367

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adj_

r20.

120.

140.

10.

150.

050.

10.

050.

11



TABLE 18: DETERMINANTS OF INNOvATIONest_innovate

% of firms that introduced any innovation in past 3 years

b/se b/se b/se b/seAgribusiness 0.05 0.08 0.08 0.09

0.16 0.14 0.14 0.13Microbusiness –0.20** –0.09 –0.07 –0.07

0.09 0.09 0.09 0.09Agribusiness * Microbusiness –0.2 –0.21 –0.19 –0.21

0.19 0.16 0.16 0.16Average worker education level 0.40*** 0.39*** 0.38***

0.11 0.11 0.12Uses bank to finance investments or working capital 0.15 0.14

0.11 0.1Has bank loan or credit line –0.1 –0.11

0.08 0.08Thimpu/Pharo –0.03

0.09Phuentsholing –0.08

0.14Gelephu/Sarpang –0.19*

0.11_cons 000.48*** 0.34*** 0.32*** 0.38***

0.06 0.07 0.08 0.1N 367 367 364 364adj_r2 0.07 0.15 0.16 0.17c_micro_agribiz –0.35 –0.21 –0.18 –0.18s_micro_agribiz 0.09 0.09 0.1 0.1

0 0.03 0.07 0.07


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