Introduction

Nestled in the Himalayas between China and India, Bhutan emerged from self-imposed isolation in the early 1960s. Television and the internet were introduced for the first time in 1999. In 2008, Bhutan’s transition to democracy captured international attention as its form of government changed from an absolute to a constitutional monarchy.

Agriculture and forestry dominate Bhutan’s domestic economy, while hydropower and tourism are major export earners. With its small population of around 738,000, Bhutan’s GDP was a modest US$4.3 billion (PPP terms) in 2011, although GDP per person (PPP terms) is one of the highest in South Asia. Bhutan’s GDP growth for 2012 is estimated to be seven per cent.

India is Bhutan’s main trading partner and the market for over 80 per cent of its exports (mainly hydropower). India has strong links with Bhutan and continues to provide significant financial assistance. Bhutan’s border with China is closed, and trade between those two countries is insignificant.

Bhutan’s development has been rapid, and the country is on track to achieve most of the Millennium Development Goals. Bhutan has consciously pursued its development in a way that preserves its independence and rich cultural traditions.

Government, business and people-to-people links

Australia and Bhutan enjoy a warm relationship There are long standing development cooperation links, which began when Bhutan became an observer to the Colombo Plan in 1962. Formal diplomatic relations were established in 2002. Since then, the Australian High Commissioner to India has been concurrently accredited as Australia’s Ambassador to Bhutan. Bhutan’s non-resident Ambassador to Australia is based in Bangkok.

Former Australian Deputy Prime Minister, Tim Fischer, was appointed the Australian Prime Minister’s Special Envoy to Bhutan in 2008 in recognition of his longstanding personal association with Bhutan. Mr Fischer has been a regular visitor to Bhutan and co-authored a book on the country published in 2009.

The Bhutanese community in Australia numbers around 2,600. It is increasing as education links grow and in line with the Australian Government’s commitment to settle 5,000 Bhutanese refugees of Nepalese ethnicity from camps in Nepal. The refugees are members of the minority Lhotshampa community who left southern Bhutan after ethnic unrest in 1990. In 2008, Australia joined other like-minded countries to resettle them as part of a coordinated international response to the situation.

The main focus of Australian assistance to Bhutan has been on human resource development. In 2012, Australia offered 141 scholarships to Bhutanese students. More than a thousand Bhutanese officials have received education or training in Australia, and many have gone on to hold positions of responsibility within Bhutan. The Australia–Bhutan Friendship Association is active in both Australia and Bhutan and bolsters people-to-people links.

Australia’s assistance to Bhutan has increased significantly from $1 million in 2001-2002 to an estimated $11.4 million in 2012–13. The scholarship program has been complemented by other activities, including agricultural research, training for police officers, electoral assistance, institutional strengthening, assistance to Bhutan’s vocational education sector and forestry planning. Parliamentary links are developing well: there have been two visits to Australia by Bhutanese parliamentary delegations and one return Australian visit to Bhutan since 2009.

In May 2012, the Australian and Bhutanese electoral commissions signed a memorandum of understanding for cooperation in election management. Australia has provided practical training for election supervisors in Bhutan through the Building Resources in Democracy, Governance and Elections (BRIDGE) program, which is now into its second year.

Because Bhutan is a mountainous country, it is highly vulnerable to the effects of climate change. Bhutan has been a vocal campaigner on environmental and climate change issues, especially as they affect small states. It chose climate change as the focus of the South Asian Association for Regional Cooperation summit that it hosted in 2010, which Australia attended as an observer. At Australia’s invitation, Bhutan presented on the challenges of climate change adaptation at the Commonwealth and Developing Small States meeting held in conjunction with the Commonwealth Heads of Government Meeting in Perth in October 2011. Bhutan’s Himalayan geography also makes it vulnerable to earthquakes. Australia contributed $1.3 million for school reconstruction following the earthquake that struck eastern Bhutan in 2009.

Towards 2025

Bhutan aims to phase out its reliance on foreign aid by 2020. The government sees the intervening period as critical to consolidate the transition to democracy. Bhutan is on target to produce 10,000 megawatts of hydropower by 2020, most of which will be exported to India. Bhutan does not currently have formal diplomatic relations with its other neighbour, China (or any other permanent member of the UN Security Council) but formal relations can be expected to develop.

Education will continue to play an important role in the Australia–Bhutan relationship. Australia is the second most popular destination for Bhutanese students, after India. Several Australian tertiary institutions have established formal links with Bhutanese counterparts. For example, the University of Canberra is delivering postgraduate programs in Bhutan in partnership with the Royal Institute of Management. Bhutan’s plan to develop an international education campus may interest private Australian education providers. Partnerships in vocational education and training are growing.

Continued engagement with Bhutan will expand trade and people-to-people links. A volunteer agreement between Australia and Bhutan was signed in May 2012. AusAID aims to have up to eight long-term volunteers placed in Bhutan by June 2013, with a focus on the education and health sectors.

Other opportunities for Australia will arise as Bhutan diversifies its economy. Bhutan intends to expand its tourism industry in line with its low-impact, high-value philosophy. There could be opportunities for Australia to contribute, given our experience in developing sustainable tourism ventures in sensitive environments. Increasing numbers of Australian tourists are likely to visit Bhutan. Other emerging sectors for cooperation include resources, energy, building, infrastructure, and food and beverages.

Bhutan is the only country with a constitutional pledge to maintain 60 per cent of its land as forest, and is committed to remaining carbon neutral. Because of its extensive forest cover and clean energy, Bhutan is a net carbon sink and is interested in earning revenue in the emerging global carbon market. There will be opportunities to supply Australian expertise in carbon markets and for purchases of carbon credits.