Do Business in Maldives

Business Tips

SWOT Analysis for the Maldives as a commercial hub

Strengths

  • Strategic Location: Located 300 miles of the Southern coast of India and 450 miles Southwest of Sri Lanka, this idyllic country, a tourist paradise in the Indian Ocean is strategically significant and located in a maritime silk road.
  • Socio- Political Stability: The Maldives has a small and homogenous population of slightly over 390,000 people, who are Muslims sharing a common history, culture, and language. This inheritance coupled with a responsible leadership that is sensitive to the needs of the public, led to an all-inclusive approach to development at the island and national levels. The social harmony has given the Maldives a unique record of political stability and continuity that is conducive to long term planning.
  • Natural endowments support income levels: the Maldives natural beauty makes it an attractive tourist destination, while its abundant sea fauna provides a solid backbone to the fishery industry. On the back of these pillars, average income levels have risen to relatively high levels compared to South Asian countries.
  • Micro Economic Stability: The revenue from the rapidly growing tourism industry and other sources has been, by developing country standard, well managed in the Maldives. The macro-economic indicators of the country have been sound over the past five years and inflation was moderate during this period. The country’s GDP along with the per capita income increased steadily.
  • Human Development: The country’s revenue earnings have been utilized sensibly to promote investment in human development and infrastructure. The prioritisation of human development has raised Maldives’ Human Development Index (HDI) well above all Least Developing Countries (LDCs). This provides the Maldives with a favorable platform for socio-economic progress.
  • Advantages of small populations: The smallness of the Maldives’ population, which poses problems of its own, renders such issues as human development and poverty eradication much more manageable. The size of the population and the other positive aspects discussed above create a conducive environment for the Maldives, in the long term, to eradicate poverty. This advantage makes it easier to tackle unemployment, and provide adequate social services, and a clean environment, which will enable the local populace to live a life of dignity without want. Such indeed is the Presidential vision 2020. It is the very feasibility of Vision 2020 that lends it credibility and imposes a special responsibility on the Government and the people of the Maldives to ensure its realization.

Opportunities

  • Government driven projects: Government’s economic vision is to become a high income, resilient and inclusive economy. Under this economic vision, there are many government driven projects for foreign investors.
  • Safe and fair business environment
  • Investment Promotion: Incentives, concessions, cross subsidies, leverages and government guarantees.
  • Liberal tax regimes
  • International arbitration in dispute settlement.
  • Full repatriation of earnings and /or profits.
  • Young and dynamic work force.
  • Highest literacy rate in South Asia.
  • Opportunities for Thailand export with regard to the tourism sector. All supplies to the tourism sector -- from building materials and kitchen equipment to speedboats and floatplanes -- are imported.
  • The demand for high-quality consumer goods, including food and electronic equipment, has increased as a result of rising GDP and the opening of new luxury resorts.
  • There is a growing market for small-scale renewable power generation equipment, as residential and resort islands look for cheaper cleaner alternatives to diesel-generated power.
  • There is also growing demand for water purification and waste water management equipment.
  • The government has ambitious plans for infrastructure development: commercial ports, a link bridge; harbor dredging; land reclamation and residential island development; and more domestic airports.
  • Tender procedures are often not fully transparent, and the basis for tender decisions is not always readily accessible or clearly explained.
  • The fisheries sector is also expanding with the entry of private operators.

Weaknesses

  • Narrow economic base: Aside from the tourism and fishery sectors, and sectors that support these industries, the Maldives economy is underdeveloped. This makes the economy vulnerable to external shocks, which mainly impact the all-important tourism industry.
  • Due to its small population and economy, the Maldives will remain a small market.
  • Although, trade and investment have been liberalized, the Maldivian business community is small and close-knit. Therefore, new market entrants may find it difficult to make contacts.
  • The Maldives passed a Copyrights Act in 2010 that came into effect April 2011. The Maldives has not signed international agreements and conventions related to Intellectual Property Right; although, efforts are underway to do so.

Threats

  • Large twin deficits: As the Maldives has to import nearly all capital and consumer goods, the country’s trade deficit is extremely wide (about 50% of GDP). Fiscal deficits are chronic (roughly 5% of GDP in 2013) and have led to an increased public debt level (about 47% of GDP in 2013).
  • Weak institutions: The Maldives political and judicial institutions are very weak, which increases the chance of political turmoil and expropriation risks for foreign investors.

Market Entry Strategy

  • Identify a suitable and reliable partner with wide government and private sector contacts. Under Maldivian regulations, foreign companies may choose to either set up a wholly foreign-owned company or have a joint venture with Maldivian nationals or companies registered in the Maldives in order to do business.
  • A follow-up visit to evaluate the potential of any prospective partner is recommended. A careful appraisal of the company’s existing business, relationships with other foreign suppliers and commitment to developing market share needs to be determined prior to setting up business in the Maldives.
  • Agents are widely used in the Maldives, as it is too small a market for presence of large international companies. These agents are commonly managed out of Singapore, India, and Sri Lanka. Some Sri Lankan agents are accredited to the Maldives and handle operations in both markets.
  • Contact with clients and agents can often be established and maintained by mobile phone and text messaging, as well as via email.
  • There is an annual trade fair in the Maldives. Thailand companies wishing to explore the market may send in catalogues or set up a booth at this exhibition.

Consumer Behavior

From 2003 to 2015 there have been substantial changes in the household expenditure patterns in the Maldives. During this time period, the spending pattern of Maldives households, food (mostly imported) carries the largest weight in the consumption basket. In particular, among the imported food, processed food (such as liquid milk) are very popular among Maldivian consumers. But the weight given to this food category is lower in comparison with the data before 2003 and the data of June 2004.

The decrease of the household food consumption in 2015 does not necessarily mean that households consumed less amount of food. Rather, they spent larger amount of money on other groups (such as house rent, electricity cost and eater and telephone bills). Nevertheless, it should be noted that, although, the overall weight for the food category in 2015 has gone down compared to the 2004 data, the weight for meat products (frozen meat such as beef, chicken and fish) still remains large as the meat products have become a staple in the Maldivian diet. For Malé and other parts of the country, in 2003, the household expenditure on food dominated the other expenditure groups. In contrast, in 2010, the household in Malé spent more on housing, while in the other parts of the country, and most of the household expenditure was still on food.

Figure:1

Source: Household income and expenditure survey findings-2009/2010:
Department of National Planning, Ministry of Finance and Treasury, Malé, Republic of Maldives


Figure shows the proportion of local household expenditure on various food groups in 2009 and 2010. It demonstrates that the household expenditure was mostly spent on bread and cereals, as well as milk, cheese and eggs. The household food expenditure on the two categories is 20 per cent each. The group of bread and cereals also mainly includes various types of rice, flour, noodles, pasta, and other food items that are high in carbohydrates and fiber. Approximately 85 per cent of milk, cheese and eggs food group also covers other dairy products. The increase in the household food expenditure on the food group of milk, cheese and eggs could be a result of the higher household income, and the hike in the prices of milk and milk products.

The most remarkable change during 2003-2015 was a sharp increase in expenditure on housing, and household operations. The increase in the expenditure on housing is due mainly to the rise in rent prices in Malé as the demand for housing in Malé has been growing, which was fueled by the increase in income.

From 2013-2015, there is a moderate increase in the expenditure on education for both Male and the other parts of the country. This is because most of Maldivian parents attach more importance to education of their children.

Tobacco and chewing products is the only group that shows a decline in the household expenditure during 2003-2015. The expenditure on this group declined by 6 per cent in 2015 compared to the year 2003, and this decline is owing to the higher import duties on those products, which rose over the past years. Another major change was seen in the furnishing and household category. The weight of this category increased to 8.71% in 2015 from 5.30% in 2013.

The expenditure of hotels, cafés and restaurants category also holds its weight around 3.02% in 2015, which increases from 0.77% in 2013. Moreover, the weight for communication expenditure dropped to 4.75% in 2015 from 5.83% 2013 due mainly to the stiff competition between the two service providers, which has dragged down the price of mobile services. Furthermore, in health category, its weight of expenditure remains the same, whereas the weight of transport expenditure slightly rose from 5.07% in 2013 to 5.44% in 2015.

The new generation prefers to experiment with new products, especially imported name-brand fashion products. The younger generation prefers to go for the world famous fashion brands such as Balenciaga, Armani Exchange, Miu Miu, Gucci, Givenchy, Versace, Burberry, Dolce and Gabbana, Chanel DKNY (Donna Karen New York), Calvin Klein and Hugo Boss. In addition, world best technological brands such as Apple, Dell, Hewlett-Packard are also popular among new generation in the Maldives.

Therefore, investors need to understand the above mentioned consumer patterns and buying trends of the modern era and adapt their marketing strategies accordingly.


Business Culture

Meeting and Greeting

Clothing

The modesty of your clothing is important in the Maldives – for women and men.

Men: A suit and tie is appropriate. Darker colors are viewed as more professional. However, it is also common to see men in the capital wearing only shirt and tie.

Women: It is not necessary for non-Muslim women to wear the hijab, or headscarf, unless you plan to visit a religious site during your business trip. Be mindful not to wear revealing clothes (including open-toed shoes) and to cover your shoulders, arms and legs.

Note: You may be approached by locals (such as security guards, colleagues, etc.) if they deem your clothing choices inappropriate. If this happens to you, stay calm, politely apologize, and head back to your hotel to change into something more modest. Keep in mind – it’s best to err on the safe side and pack your most conservative clothing options.


Greetings

Acknowledge and greet the most senior person in the room first – doing so is a sign of respect in the Muslim culture. When exchanging business cards, its best to give and receive cards with your right hand.

Bonus tip: Have the other side of your business card translated into Arabic – this will help make a great first impression.

Men: When greeting a man in a professional setting, handshakes are always used. Be sure to only use the right hand as Muslims reserve the left hand for bodily hygiene and consider it unclean. Don’t be surprised if a colleague holds your hand while leading you to a meeting room – holding hands is common among men and does not carry the same connotations as it does in the West. It’s in your best interest not to approach a female Muslim colleague with a handshake or any other form of a physical greeting – there is little to no touching between men and women during greetings in public.

Women: If you’re being introduced to a Muslim man, wait to see if he extends his hand. If not, refrain from initiating a handshake. If you’re meeting another woman, wait for her to greet you – often times, a kiss on the left cheek is acceptable.


Conversation

Initial meetings are all about relationship-building and developing trust. It’s important to get to know the individual with whom you’re doing business. In conversation, it is always good to ask about the health and well-being of a counterpart’s family (being careful not to directly ask a question about a wife or daughter). Appropriate questions include “How many children do you have?” and “Where do they study?”

Status is important and must be acknowledged by using the correct title when addressing someone It is customary to use terms such as: Sheikh (chief) (or Sheikha for a woman), Sayed (Mr.), Sayeda (Mrs.), etc. Keep in mind that Muslims generally address people by their first names.


Dining

Observant Muslims do not drink alcohol. In the Maldives, alcohol is served in most hotels but may not be available in local restaurants. If alcohol is not offered, it is better not to ask for it. You should also never refuse food or an additional helping during dinner as it is considered bad manner.

A few additional rules to remember:

  • Do not ask for pork or pork products. Muslim tradition frowns on consuming pork.
  • When finished eating, leave your utensils facing upward in the middle of your plate.
  • Lefties, take note: eat with your right hand only.

If you’re invited to dinner at a Muslim colleague’s home, be sure to remove your shoes at an appropriate spot and set them aside in an orderly fashion prior to entering. (Of course, unless your host asks you to keep them on.) Remember – Islam is a religion of cleanliness and courtesy, and wearing shoes is often seen as dirty and a sign of disrespect within the walls of a home.


Gifts

It is appropriate, although not expected, to give a small token or gift to your host upon introduction. Suitable gifts include an enjoyable book or a company memento. Keep in mind; something personal can be a very meaningful touch – therefore, a gift related to your host’s background or hobbies is an even better idea. Gift should not have pictures or drawings of animals.

Meetings & Negotiations

The Maldivians often have a relaxed attitude when it comes to business meetings and may arrive late. It’s important not to follow suit as punctuality is expected of Westerners. Refreshments such as coffee and pastries are commonly served at meetings – remember, it is proper etiquette to accept what you’re offered and to compliment your host on the food and his hospitality. Other notable tips:

  • Though it may seem like an odd rule of thumb, be careful not to show the bottom of your shoes when sitting in a meeting. This is a sign of great disrespect and is a common mistake by Westerners.
  • Meetings can be chaotic, so always be prepared to exercise patience. Cell phone calls and or text messages are often taken during meetings and people may enter the meeting room unannounced and proceed to discuss their own agenda.
  • Decision-making can be slow and bureaucratic formalities tend to add to delay – keep this in mind throughout your business transactions.