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Figure 7. Economic Density Across Bhutan (Proxied by Nighttime Lights, VIIRS 2015)

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Figure 7. Economic Density Across Bhutan (Proxied by Nighttime Lights, VIIRS 2015) Bhutan Urban Policy Notes Regional Development and Economic Transformation Contents Public Disclosure Authorized a. Executive Summary ................................................................................................................................... 4 b. Introduction ................................................................................................................................................ 8 c. Bhutan’s Development Trajectory ........................................................................................................... 8 d. Current Institutions and Policy Framework for Regional Development .............................................. 9 e. Spatial Transformation in Global Perspective ...................................................................................... 12 I. Territorial Development Trends in Bhutan ........................................................................................... 13 a. Urbanization: Bhutan’s Leading Cities are Creating Opportunities .................................................. 13 b. Job Creation and Structural Transformation ....................................................................................... 18 c. Regional Markets and Economic Geography ........................................................................................ 19 Public Disclosure Authorized d. Structural transformation and economic geography ............................................................................ 21 e. Spatial Dimensions of Poverty and Service Delivery ............................................................................ 24 f. Access to Services in Municipalities........................................................................................................ 26 II. Trade-Offs in Territorial Development .............................................................................................. 27 III. Policy Options and Way Forward ...................................................................................................... 31 National Level Priorities .................................................................................................................................. 34 Tier I: Leading Cities (Supporting Engines of Growth and Managing Externalities) .............................. 35 Tier II: Secondary Towns (Leveraging Existing Endowments to Unlock Potential) ................................. 37 Public Disclosure Authorized Tier III: Rural Hubs (Investing in People) .................................................................................................... 39 Summary ........................................................................................................................................................... 42 Annex 1: Additional Figures .................................................................................................................................. 43 Figures Figure 1. Poverty Decline Since 2007 (poverty head count rate using the national poverty line, %) ...................... 8 Figure 2. Sectoral Share in GDP since 1981 (constant values, %)........................................................................... 8 Figure 3. Structural Transformation in GDP 1990-2016. (share in constant GDP, %) ............................................ 9 Figure 4. Structural Transformation in Job Market 1990-2016 (share in total employment, %) ............................ 9 Figure 5. Bhutan National Urban System as Proposed in the National Urbanization Strategy 2008. .................... 11 Public Disclosure Authorized Figure 6. A framework for place-sensitive policy .................................................................................................. 12 Figure 7. Economic Density Across Bhutan (Proxied by nighttime lights, VIIRS 2015). ..................................... 14 Figure 8. Bhutan Population Distribution (Landscan 2012) .................................................................................. 14 1 Figure 9. Economic density (nighttime lights) overlaid with topography. ............................................................. 15 Figure 10. Population Distribution in the Region (Landscan 2012) ...................................................................... 19 Figure 11. Location Quotient of Firms in Tourism, Manufacturing and Hydropower for Ten Most Populous Districts, 2017. ....................................................................................................................................................... 22 Figure 12. Location of Planned Industrial Estates, Overlaid with Economic Density (nighttime lights) .............. 23 Figure 13. Multidimensional Poverty Index by District, 2017. .............................................................................. 24 Figure 14. Poverty Reduction Gap in Districts, 2012-2017 ................................................................................... 24 Figure 16. Framework for Regional Development Approaches by Settlement Type. ........................................... 33 Figure 18. Land Suitable for Development Based on Topography ........................................................................ 43 Figure 19. Topography and Location of Settlement ............................................................................................... 43 Figure 20. Access to Primary and Secondary Roads by Geowog .......................................................................... 44 Figure 21. Developed Land for Urban or Agricultural Purposes ........................................................................... 44 Figure 22. Population Density by District, 2017 .................................................................................................... 44 Tables Table 1. Population Characteristics of the Most Populous Four Municipalities .................................................... 14 Table 2. Urban Capital City Primacy in Selected Countries .................................................................................. 16 Table 3. Employment and GDP Contribution of Select Industries ........................................................................ 18 Table 4. Summary of Endowments Along Above Dimensions for Select Districts............................................... 32 Table 5. Summary of Policy and Investment Needs by Settlement Type .............................................................. 42 Table 6. Example ‘Gap Analysis’ for Access to Basic Services and Basic Outcomes, by District and Municipality ................................................................................................................................................................................ 45 Boxes Box 1. Decentralized Authorities in Bhutan .......................................................................................................... 10 Box 2. Geography is Not Destiny (But it is Important): Structural Transformation in Small Isolated Economies 20 Box 3. Long Term Regional Convergence: “Unity, not Uniformity” in South Korea ........................................... 28 Box 4. Misaligned Incentives: Egypt’s Failed Attempts to Disburse Industry ..................................................... 29 Box 5. The Risks of Industrial Policy to Drive Regional Integration: Indonesia’s Empty Special Economic Zones (SEZ) ...................................................................................................................................................................... 30 Box 6. Risks of a Unidimensional Strategy: Spain’s High-Speed Ghost Trains. ................................................... 31 Box 7. The Punakha Valley: A Multisectoral Valley Approach to a More Balanced Spatial Development in Bhutan ................................................................................................................................................................................ 38 Box 8. Chengdu’s coordinated approach to rural poverty and urban migration. ................................................... 39 Box 9. Long Distance Services: disruptive technologies for the hard-to-reach ..................................................... 40 2 Box 10. France’s Scissor Effect for Unity, not Uniformity. .................................................................................. 41 Box 11. Colombia’s National Planning with a Spatial Lens .................................................................................. 41 3 a. Executive Summary 1. Bhutan’s rapid economic growth has been propelled by the hydropower sector, which has effected a structural transformation of the economy from agriculture to industry and services. This has led to a more than ten- fold growth in GDP per capita between 1980-2016. The country has reduced headcount poverty from 31 percent in 2003 to 8 percent in 2017, as well as made significant advancements in human capital outcomes. Yet, as a landlocked and mountainous small country, Bhutanese economy faces unique challenges. Productive employment opportunities are scarce while the lack of diversification has led to economic vulnerability. The workforce is increasingly skilled but there are insufficient number of good private sector jobs. While overall unemployment rate was only 2.1 percent in 2016, youth unemployment was 13 percent overall and 28 percent in urban areas. A critical concern for policy makers is how to strengthen and extend Bhutan’s structural
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