Do Business in Maldives

Overall

General Information

The Maldives, officially the Republic of Maldives, is an archipelagic state consisting of 26 groups of atolls in the Indian Ocean. As a smallest country in Asia, the Republic of Maldives is located in the Indian Ocean, and in the southwest of India and Sri Lanka. The Maldives is an Islamic state and a sovereign, independent and democratic Republic founded on the principles of Islam. The Maldivian archipelago consists of 1,192 islands, each of which is surrounded by shallow, crystal clear lagoons enclosed within naturally protective coral reefs. With its abundant sea life and sandy beaches, the Maldives is commended by travel companies as a tropical paradise. The climate is tropical, with two monsoons, which keeps the islands unvaryingly warm throughout the year. The rainy southwest monsoon season is from April to October, while the northeast monsoon is from December to March. Average annual rainfall is 1,654 mm. The temperature ranges between 25°C and 30°C, but generally stays around the average 27°C. Gales occur during the monsoon. The Maldives Standard Time is 5 hours ahead of Greenwich Mean Time (GMT+5).

Since 1558, the Maldives was occupied by the Portuguese, Dutch and the British, and in 1965, it gained independence from the British – a last colonial power of the Maldives. In 1968, three years after its independence, the Maldives became a republic. The current President His Excellency Abdulla Yameen Abdul Gayoom, won the presidential election run-off in November 2013, and is serving a term of 5 years between 2013 and 2018.

The capital city of the Maldives is Malé, which is not only the political capital, but also the centre of economy and trade of the country. The Maldives has a population of approximately 394,000 Maldivians, and their language is known as “Dhivehi”. Originally Buddhists, the Maldivians were converted to Sunni Islam in the mid-twelfth century, and now Islam is the official religion.

Today, Maldivian ethnicity is a blend of people of South Indian, Sinhalese and Arab ethnicities. In addition to the local language, English is widely spoken and is the main language of instruction in schools and the primary medium of communication in business.

The Maldives is renowned for its natural geographical beauty, and called as “the tropical paradise”, which combines beautiful islands, each of which is uniquely exotic and has the best scenic beauty, with the incredibly pure and inviting oceanic treasures. Around 111 of the Maldives’ islands have been developed into luxurious resorts, which help generate most of the Maldives’ income. Moreover, the Maldives sits astride busy sea-lanes that connect Asia with the rest of the world, and has become an internationally known destination for providing the best recreational diving experience.



Economy

Foreign direct investment is the fundamental force of the Maldives’ economy, and is high on the Maldivian Government’s economic agenda. The government of Maldives is committed to providing the optimum policy and statutory environment that are conducive for doing business in the Maldives.

Key Economic Indicators
The growth of the Maldives’ economy slowed down to 1.5% in 2015 due mainly to the slower growth in the tourism sector.

International Reserves - US$ 614 million (source: International Monetary Fund: 2015)
Gross Domestic Product - GDP US$ 3.13 billion (source: 2015 Annual Budget Report of the Maldives Government)

2011

2012

2013

2014

2015

 
Output
GDP at current market price
(US $billions)

2.321

2.517

2.789

3.06

3.13

 
Per Capita GDP at market price
(US $)

6,298.09

6,375.47

6,686.13

7,030.10

7,373.24

 
Real Output
Real GPD Growth Rate (%)

8.7

2.5

4.7

6.5

1.5

 
Inflation (Yearly Average)%

2012

2013

2014

2015

2016(f)

 
 

5.09

4.0

2.4

2.12

2.5

 
Sectoral Growth Rate
(% GDP)

2012

2013

2014

2015

2016(f)

 
Tourism

-0.1

9.0

6.8

8.3

6.7

 
Fishing

-0.7

8.2

-6.4

-0.7

0.8

 
Budget Deficit
Surplus % of GDP

-9.2

-4.2

-3.4

-3.0

-3.5

 

*first quarter of the economic year


Social Indicators

Social indicators in the Maldives have shown significant improvement in the past decades. The Maldives has realised five of the eight Millennium Development (MDG) targets ahead of the agreed timeline of 2015 and has been labeled as a “MDG plus “country, showing potential to go beyond the agreed MDG targets.

From 2001 to 2011, life expectancy increased from 70.2 years to 72.8 years for men, and from 70.7 to 74.8 years for women. Child survival improved significantly with the infant mortality rate (IMR), falling from 17 per 1,000 live births in 2001 to 9 per 1,000 live births in 2011. The Maternal Mortality Ratio (MMR) came down from 143 per 100,000 births in 2001 to 56 per 100,000 births in 2011, owing to better obstetric care and antenatal care.

The Maldives achieved a major milestone in education sector in 2000, the goal universal primary education. Also, the Maldives graduated to becoming a middle-income country in 2011 and it achieved some of the highest economic, social and health indicators in South Asia. With a narrow economic base that largely depends on tourism, the economy remains vulnerable to external shocks and there are pockets of poverty in remote atolls.

With the strong economic growth performance and regional development policy, the Maldives’ efforts to equitably develop infrastructure across the country have helped reduce poverty in the country. Despite the 2004 tsunami and global financial crisis, which resulted in significant loss of assets and decline in per capita income, the country was able to bring the national poverty incidence down from an estimated 21% in 2003 to 15% in 2010.

The 2014 Human Development Report classifies the Maldives as having medium human development (UNDP 2014) with a human development index of 0.706 and the Maldives ranks 104 of 188 countries.


Transportation and Infrastructure

The geophysical setting of the Maldives involves an important role of transport and infrastructure development in the country. The main port of entry to the Maldives is through Ibrahim Nasir International Airport at Hulhulé, an island adjacent to Malé. There are three additional international airports, one in Hanimaadhoo located in the Northern tip of the Maldives, the second in the southernmost Gan Island and the third in Maamigili.

There are six domestic airports within the Maldives. A large fleet of seaplanes service is also available daily, which can be used to easily access 112 resort islands across the country. The other modes of domestic transport that is widely used on a daily basis are ferries and speedboats.

The Malé port and harbour lie on the Western side of the capital, and receive the bulk of imports into the country. The majority of international shipments arrive through the commercial port at Malé Commercial Harbor (MCH). The other two regional seaports - one in Kulhudhuffushi in the North (Haa-Dhaal Atoll) and the other in Hithadhoo (Seenu Atoll) in the South have been commissioned for international service from 2005. MCH has a 10.5 meter draft, and can accommodate ships up to 15,000 gross tons (GT), and handled throughput of about 54,000 twenty-foot equivalent units (TEU) in 2012. About 97% of the freight volume is contributed by imports, and the remaining 3% is the exports. It is worth noting that the Maldivian Government has set import duties for renewable energy related imports at 0%. Moreover, the Maldives has the largest seaplane fleet in the world, and establishes a trans-shipment port in the North. The ongoing construction of Malé-Hulhule bridge will also help improve the connectivity and mobility of the population of the greater Malé region.


Foreign Investment

The Maldivian economy predominantly thrives on tourism and fishing, and these are therefore the main foreign exchange earners. In relation to this, Foreign Direct Investments (FDI) has played a crucial role in the economic development of the Maldives. The Maldives Government acknowledges the importance of foreign investment and recognises its contribution to economic development and employment creation. In the late 1980s, the Maldives began to open up to foreign investment. The FDI in the Maldives has primarily involved resort management, telecommunications, accounting, banking, insurance, air transport, courier services, and some manufacturing. In April 2014, the Government held an investment forum in Singapore and invited foreign investors to invest in five large infrastructure development projects, including an integrated atoll, expansion of the airport in capital Malé, reclaimed city, new port, and oil and gas exploration. It is worth noting that tourism sector still attracts most FDI, followed by the transportation and telecommunications sectors. India is one of the country’s main investor.

Furthermore, the Maldivian Government is actively encouraging foreign investors by enhancing the Maldives economy with their liberal economic policies and political stability. Incentives for investors include import duty concessions, foreign ownership and no restrictions on repatriation of earnings and profits.

Despite the fact that the Maldives economy has grown tremendously in the past years, limitations on natural resources and technical know-how pose challenges to its sustainable progress. In fact, the economy, including tourism, is largely driven by service industries such as construction, shipping, telecommunication, aviation and banking. Hence, foreign collaboration along with potential foreign resources, capital investment and expertise, are necessary to make the optimum use of the available local resources to transform and boost the economic strength of the country.

Foreign Direct Investment

2012

2013

2014

FDI Inward Flow (million USD)

228

361

363

FDI Stock (million USD) 1,765.7 2,126.5 2,489.7
Number of Greenfield Investments***

4.0

1.0

2.0

FDI Inwards (in % of GFCF****)

45.0

66.8

63.7

(Source: UNCTAD: 2014)

The Law on Foreign Investment in the Republic of Maldives (Law 25/79) governs foreign investment in the country. The foreign investment in tourism sector is registered with the Ministry of Tourism, whereas non-tourism foreign investment is registered with the Ministry of Economic Development.

The success of foreign investment in the Maldives can be attributable to its open and liberal economic environment, political stability and consistent growth of the economy, which has contributed to an average annual growth rate of 7.5% over the last 15 years.

At present, there are many reputable international brand names, which have been established in the Maldives. For example, there are world class resorts, which were built by international hotel chains such as Hilton, Four Seasons, One & Only, and Club Med. Apart from tourism investment, other foreign investment in the Maldives can be seen in the sectors of transport and telecoms, water production and distribution. In financial sector, many global name-brand companies, such as Hong Kong Shanghai Banking Corporation (HSBC), Ernst and Young (E&Y), Price Waterhouse Coopers (PWC), and KPMG have firmly established themselves in the Maldives.

Main Products and Industries

Tourism & Hospitality

Tourism is the largest sector of the Maldives’ economy, as it plays an important role in earning foreign exchange revenues and generating employment in the country. The main reasons that tourists come to the Maldives are for leisure, honeymoon and diving.

Many Maldives resort owners assign management contracts with foreign companies and some of these resorts are managed and owned by such companies. The industry is now very much regulated by the Maldives Government. Tourism is now developed and managed according to country wide policy based on a master plan. This task is carried out by the Ministry of Tourism.

In the Maldives, the resorts are self-contained island communities with all the amenities on the island. The Government leases these islands to private parties to develop as tourist resorts. Bidding to rent islands is regulated under Maldives Tourism Act 1999. Under this Act, any island which is to be developed as a resort shall go on public bid. The bid document is issued by the Ministry of Tourism and it has to be submitted to the Ministry before allocated time for each bidding process. The winning bidder is decided based on certain criteria they have set.

During 2010-2014, the tourist arrivals in the Maldives increased at an average rate of 13% annually, which increased from 700,000 in 2010 to 1.2 million by 2014. While the growth rates of 2010, 2011 and 2013 were above the five year average (13%), the weakest performance was seen in 2012, which resulted in 2.9% growth. The one million tourists target was reached in 2013. Although, the growth rate for the year 2014 was below the five year average, the year also ended as a successful year for the Maldives tourism with achieved targets in terms of arrival numbers. Tourist arrivals were up by 7%, reaching a total of 1.2 million at the end of the year 2014. The year 2016 is the Visit Maldives’ year. As of March 2016, total bed nights increased by 6% in annual terms due to the increase in average duration of stay from 5.8 to 6.0 days. Reflecting the increase in bed nights, the occupancy rate of the industry rose to 78% in March 2016 from 76% in March 2015.

Fisheries

Fisheries sector is the second largest industry in the Maldives. It has an indirect link to tourism as resorts demand a constant supply of fish for their guests and employees. Fish processing and exporting to other countries are a vital part and require large investment. Until 2000, the Maldivian Government imposed a strict control on the fisheries sector. Only Maldives Industrial Fisheries Company Limited (MIFCO) - the state-owned company - was allowed to invest in fish processing and buying fresh fish at large scale for export.

After the Maldivian Government allowed private investment in fisheries, few companies have started investing in this sector. Ministry of Fisheries, Agriculture and Marine Resources has separated the country into four different fishing zones. Ten year licenses were issued to the companies which invested in this sector. At present, investment in fisheries is mostly owned by local companies.

Yellow fin tuna fishery in exclusive economic zone of the country is open to foreign companies. Many foreign vessels under license fish in the Maldivian water. Fisheries industry is a potential sector which can be explored for business venture.

The Fisheries Act 1987

The Fisheries Act is called the “The Fisheries Law of Maldives”. This Act is the basis for formulation of fisheries regulations and fisheries management and development in the Maldives.

Agriculture

Due to the lack of sufficient land for cultivation, poor soil condition and the shortage of fresh water for irrigation, agricultural development is relatively limited in the Maldives. Therefore, these limit agriculture to a few subsistence crops such as coconut, banana, breadfruit, papayas, mangoes, taro, eggplant, watermelon, pineapple and chilies. Except coconut and fresh tuna, 90 per cent of all food items are imported. Heavy import dependency, limited storage facilities and ad hoc distribution pose severe food security risks. About half of the agricultural land is in the form of “agriculture islands,” which are leased to private entrepreneurs for agriculture development.

Manufacturing

Manufacturing sector of the Maldives provides less than 7% of its GDP. Traditional industries consists of boat building and handicrafts, while modern industries are limited to a few tuna canneries, a bottling plant, and a few enterprises in the capital producing PVC pipe, soap, furniture and food products. In addition, the garment sector is growing, which aims to export to developed countries.