Economic Profile

    Heighlights

    Foreign Direct Investments (FDI) has always played a crucial role in the economic development of the Maldives. The Government acknowledges the importance of foreign investment and continues to recognize its importance for economic development and employment creation.

    The Maldives enjoys a stable and transparent legal system, relative political stability and a rate of growth that has averaged 7.5 percent over the past 15 years. The Maldives’ liberal trade environment, dynamic private sector, and development-oriented legal structure all contribute to a climate conducive to trade and investment. Foreign investors are offered a simple policy environment in which foreign investment law guarantees the security of foreign and domestic investments. Efforts are continually being made to make the investment environment more predictable and transparent.

    The vast untapped potential in natural marine resources and the young, energetic and dynamic workforce are additional inducements to invest in the Maldives.

    Capitalizing on the numerous benefits of investing in the Maldives, many reputed international brand names have established their investments in the country. Amongst them are world class resort investments by international hotel chains such as Hilton, Four Seasons, One & Only, Club Med and numerous other regional brands. Other foreign investments in the Maldives are concentrated in the transport and telecoms sectors, water production and distribution, and in the financial sector. Many global brand names, such as Hong Kong Shanghai Banking Corporation (HSBC), Ernst and Young (E&Y), Price Waterhouse Coopers (PWC), KPMG and many reputed insurance providers have established themselves in the Maldives.

     

    Investing in the Maldives

    The Maldives continues to aim to attract foreign investment, particularly investments which are capital intensive, enhance the transfer of technology, introduce new skills, while remaining environmentally friendly.

    Foreign investors, irrespective of their size, are encouraged to enter and operate in the Maldives. Small investors are encouraged to form joint ventures with Maldivian nationals or companies registered in the Maldives, while investors making investments in excess of $5 million (US) face no ownership restrictions and are free to operate as wholly-owned foreign investments if desired.

     

    Investment Incentives

    1. Right to 100% foreign ownership.
    2. Legally backed investment guarantee.
    3. Provision for overseas arbitration of disputes
    4. Long term contractual agreements and long term lease of land
    5. Freedom to use foreign managerial, technical and unskilled workers.
    6. No foreign exchange restrictions.
    7. No restrictions on the repatriations of earnings or profits.

     

    Investment Regulations

     

    Entry Permits and Visa Requirements

    Those intending to invest in the Maldives may visit the Maldives on a free 30-day tourist visa and carry out any work or research relating to making an investment in the Maldives. Once an investment is approved by the Government, all foreign employees recruited for the operations should follow the normal process of obtaining a work permit.

    Further information on entry requirements, other types of visas, and tourist visa extensions is available on the website of the Maldives Department of Immigration and Emigration.

    The Maldives is a nation consisting of approximately 1,190 low-lying coral islands which form a chain that stretches over an area of 90,000 sq kms of the Indian Ocean, and surrounded by an Exclusive Economic Zone (EEZ) covering 859,000sq kms. The nation’s capital Male’, with around 2.5 sq kms of total land area has over a quarter of the entire population of 270,101, while approximately 71 percent of the rest of the 200 inhabited islands have less than 1000 inhabitants according to the 2000 Census information. Maldives has a relatively young population with almost 41 percent under 15 years of age and around 3 percent over 65 years of age. With regard to human development trends, the country ranks high among the Asia-Pacific countries.

    Like several other small island nations, development in Maldives is also constrained by the absence of land based mineral resources, the limited scope for expansion of the agriculture sector, and vulnerability to natural disasters and environmental hazards. This was brought into start contrast by the phenomenal damage wreaked upon the islands by the Asian tsunami of 26 December 2004, which destroyed the nation’s economic and social infrastructure close to around 62 percent of GDP. While the country faces many development constraints similar to other developing nations, the following characteristics are noteworthy.

    The Maldivian economy is heavily dependent on fisheries and tourism, which are the major sources of foreign exchange earnings and government revenue, and which together directly account for about 40 percent of gross domestic product, while indirectly accounting for a much larger proportion of GDP. In terms of employment, these two sectors alone account for more than a third of total employment, according to the results of the 2000 census. The total labour force of the country is estimated at around 50 percent of the working age population, which, coupled with the low level of educated labour, has led to a high proportion of expatriate workforce in the country. Expatriate labour has therefore played a key role in the development of the Maldivian economy, and include teachers, medical personnel and other professionals as well as a large number of lower-skilled workers such as domestic helpers and construction workers.

    The development process of the country has been supported by the Government, the private sector, non-government organizations and foreign donors. While the Government has concentrated on providing basic socio-economic services, the private sector has played a key role in the development of tourism, distribution, trade, transport and fisheries among other activities. External donor assistance has been an important element of the development process. For example, in recent years, about 70 percent of total development expenditure was financed by external resources with the grant component being significantly high. In addition to official bilateral and multilateral aid flows, a number of foreign NGOs have also provided substantial assistance to the Maldives.

     

    The Public Sector

    The public sector consists of the government and state owned enterprises (SOEs), which have historically played a key role in the economy. Over the years, operations of SOEs have covered a wide range of activities including banking activities, air and sea transport, international shipping, communications and the provision of electricity, fisheries operations, tourism and importing and distributing a large share of essential food and oil products. However, in recent years there has been a move towards privatization and cutting back on the provision of services by SOEs that could more efficiently be undertaken by the private sector. Fiscal revenues constitute about 48 percent of taxes and the balance largely of profit transfers from public enterprises. As there are no taxes on personal income, capital gains, business profits (other than a bank profit tax) wealth, or real estate, the bulk of the tax revenue comprises of import duties (64 percent) and tourism tax (28 percent). On the expenditure side, social services account for around 41 percent of total expenditure whereas payments on economic services account for roughly 16 percent.

     

    The Financial Sector

    The financial sector of Maldives is very narrow and dominated by the banking sector, which consists of one locally owned commercial bank, branches of three, South Asian partly state-owned commercial banks and a branch of an international bank, the HSBC. Non-banking financial institutions in the country include players in the general insurance market, a finance leasing company, a specialized housing finance institution and money services businesses. While MMA is the primary source of domestic financing for the Government’s fiscal operations, at present the commercial banks are the principal institutions for mobilizing savings and for providing credit and foreign exchange to the private sector. Total deposits of the commercial banks stood at around 48 percent of GDP at the end of 2001, while the stock of credit extended by the banks reflected approximately 31 percent. Currently work is underway to establish a Stock Exchange and a functioning market for raising capital required by the economy. Trading arrangement facilities is conducted through the activities of the Capital Market Development Authority. There is some secondary market trading of the limited number of shares in the Bank of Maldives (BML), and two other state owned public companies - the Maldives Transport and Contracting Company (MTCC) and the State Trading Organization (STO, which are the only publicly available equity stock at present. The recently passed Securities Act paves the way for the establishment of a formal capital market and the requisite administrative arrangements are currently being finalised.

     

    Imports/Exports

    Maldives has an open economy, with a narrow export base but high dependence on imports for most of its economic activities. Consequently, foreign merchandise trade normally records a large deficit; imports have averaged around 61 percent of GDP in the last 5 years, while domestic exports, consisting primarily of fish and fish products have ranged between 11-15 percent of GDP. Services and transfers have shown a net surplus that has averaged around 34 percent of GDP in recent years, with service receipts being dominated by tourism and related activities. Nevertheless, there is usually so a significant outflow of transfers from the economy owing to the large expatriate work force that is resident in the country. Official medium and long-term debt flows and inflows of capital for direct investments dominate the capital account of the balance of payments. External debt stock of the public sector and the banking system has averaged around 38 percent of GDP during 1997-2000, with a large portion of official debt being received on highly concessional terms. Statistics on the level of indebtedness of the private sector at a given point in time are not readily available.

    There is no exchange control legislation in Maldives. Both residents and non-residents may freely import and export capital through the foreign exchange market. Residents do not require permission to maintain foreign currency accounts either at home or abroad and there is no distinction made between foreign national or non-residents accounts held with the banks operating in Maldives. As regards foreign direct investment in the country, investments require prior approval of the Government and are currently charged an annual royalty, the amount of which is negotiated between the Government and the investor. There are no restrictions on transferring of profits.

    Maldives uses import duties as its main source of tax revenue. At present, ad valorem tariffs are levied on the c.i.f. value of imports; export duty is levied only on ambergris, on which 50 percent is imposed. However, in light of various trade negotiations, in particular the SAFTA, it is likely that the import duty structure will be further rationalized and the Government has announced plans to introduce a corporate profit tax in the next few years.

     

    Future Challenges

    Maldives has experienced rapid economic growth and development in recent years, supported by a dynamic tourism sector. However, the susceptibility of the economy to factors beyond its control was augmented in the wake of the devastation wrought by the December 2004 tsunami and the decline in tourism following the September 11 terrorist attacks in USA. Each such incident underscores the fact that the country needs to diversify its economic base, rationalise its development objectives and further enhance the role of the private sector in the developmental process in order to reduce the vulnerabilities on the external accounts and maintain a sustainable level of economic growth.

    For further information on the economy of the Maldives please visit The Maldives Monetary Authority.

     

    Economic Statistics

    The Maldives Monetary Authority regularly release statistics and publications on the Maldivian economy:

    The fortunes of the Maldives – a country strategically situated in the middle of the Indian Ocean along key east-west trade routes – have always been closely intertwined with international commerce. The first documented contact between the Maldives and the outside world occurred in the mid-10th Century when Arab and Persian traders began visiting the islands, attracted by the abundance of pearls, spices, coconuts, dried fish and, in particular, cowry shells (which were accepted currency from Africa to China until the sixteenth Century).

     

    In modern times, trade has lost none of its importance to the Maldives. The country continues to be an important port-of-call for ships transporting goods between Europe, the Middle East and the Far East, and commerce continues to drive the economy, with tourism (the tourism sector consistently contributes over 33% of national GDP) and trade in marine products (the fisheries sector is the largest export sector in the Maldives and the biggest single source of employment) leading the way.

     

    As part of strengthening relations and commercial links between the Maldives and the United Kingdom, the Embassy of Maldives in the United Kingdom plays an important role in promoting trade between the two countries.

     

    Businesses and investors in Europe who are considering investing in the Maldives are welcome to contact the Embassy to seek information on areas of trade cooperation or commercial contacts in the Maldives. If you have any enquiry about doing business in the Maldives, please contact us.

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