Fears of foreign land ownership

Source: kuenselonline.com

NC points out dire consequences of such a policy

Foreign Direct Investment 25 June, 2010 - National council members yesterday unanimously agreed that land ownership in the country by foreign direct investment (FDI) companies should be disallowed.
The members were discussing issues and raising concerns, following some of its members’ review of the country’s recent FDI policy, zooming in particularly on the implications of allowing foreign land ownership in the country.

Members felt the provision in FDI policy, which states that land or space for establishing FDI business should be available, either on lease or ownership, based on the provision of the country’s 2007 land act, should be revoked.

They said the provision was ambiguous, as it failed to specify whether the land would be given to a FDI company on lease, or if they would have the choice of owning a space on Bhutanese land.

The committee, which reviewed the policy, pointed out several consequences should foreign investors be allowed to own land in the country.

Since FDI businesses were often legally binding, the draft review said that one of the ramifications of allowing foreign investors ownership of land, would be the possibility of the country losing legal cases with foreign businesses on control over the land in future.

The committee also feared that foreign land ownership would disadvantage local businesses in the long run.

The review report stated that FDI businesses would have access to huge capital to occupy prime land in the country, pushing local businesses to the peripheries, thus constraining their growth.

For similar reasons, members said that Bhutanese would be induced to sell their lands, an asset that secures their future wellbeing, the long-term implications of which was poverty and increasing intergenerational inequity.

An immediate implication of allowing foreign land ownership, members believe, would be inflation on land costs, house rents and other commodities, meaning an undesirable inflationary impact on the cost of living.

Foreign land ownership would also cause land prices to escalate, further depriving Bhutanese from owning land on which to build their own homes, the review report said.

National council members also argued that, if the government was drawing up such policies, based on the notion that its failure to attract FDI so far was determined by ownership restrictions, then it should reconsider that belief.

The council’s review on the policy said land ownership for foreign investors was not a critical consideration for FDI, as long as the country had a strong law allowing foreign companies to operate their businesses on leased land.

Drawing the experience of Vietnam and China, it said land ownership was not a critical factor to attract FDI.

The report further stated that FDI companies only wished to own land to establish capital intensive investment in heavy industries, which the country was not seeking to promote.

“It is clear that Bhutan seeks to promote FDI in the services sector, for which land ownership is not critical to attract FDI,” the report said. “Aman and Uma hotels and the IT park are also built on leased land.”

Clarifying on the issue, economic affairs secretary Dasho Sonam Tshering said the government allowed 100 percent FDI only in certain fields, for which foreign investors would have to establish their companies on leased land.

He said 100 percent FDI was permitted for building a five star resort, in which case, the government would identify an appropriate space and lease it out to a foreign company on a long term basis.

In a joint venture, Dasho Sonam Tshering said, local partners, who did not have the required capital, could use their land as equity, while their foreign investors could chip in the money.

“The land in that case will be registered in the company’s name, and the company in turn will be registered under the company’s act,” he said. “Foreigners can’t own land.”

Similarly, if a Bhutanese individual sells land for a FDI business, he said, the individual would not be allowed to own the land, but it would have to be registered with the company, which eventually had to be registered under the company’s act.

“Land act allows companies to hold land,” Dasho Sonam Tshering said, adding that the country’s FDI policy was comparatively more restrictive, and the government was selective in opening 100 percent to FDI.

By Samten Wangchuk