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Diplomacy in Action

2013 Investment Climate Statement - Maldives


2013 Investment Climate Statement
Bureau of Economic and Business Affairs
April 2013
Report
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Openness to, and Restrictions Upon, Foreign Investment

Although the Maldives underwent a democratic transformation in 2008 with the free and fair election of a new President and Parliament, the country continues to experience political upheaval. With the resignation of President Nasheed in February 2012, which he termed as a coup, the country continues to experience significant protests and demonstrations. A Commission of National Inquiry (CONI), established by President Waheed, concluded that there was a constitutional transfer of power, need for strengthening democratic institutions, and cases of police misconduct during the unrest in February 2012. Former President Nasheed accepted the CoNI conclusions with reservations. Fresh presidential elections are scheduled to be held in August/September 2013, followed by parliamentary elections in early 2014, but it is unclear if former President Nasheed will be allowed to run, since he is being charged with the unconstitutional abuse of power. This tumultuous political situation has at times paralyzed the government, which struggles with chronic budget deficits, environmental challenges, and an economy based almost entirely on tourism and fishing. Given all the political clashes, and the fact that the Maldives’ fiercely competitive political parties operate on a patronage system, serious redress of the economy’s systemic weaknesses are unlikely to be addressed until after the presidential elections, if at all.

Overall Context and Political Conflict

Maldives is comprised of over 1,190 islands, of which 198 are inhabited and 105 are exclusive resort islands. The land is low-lying, with 80% of the landmass only 2 meters or less above sea level, making Maldives extremely vulnerable to climate change. The native Maldivian population is approximately 350,000, more than 1/3 of whom live on the capital island of Male'. There are an additional 111,579 registered expatriate workers, and an estimated 40,000 unregistered expatriate workers. Maldives has an excellent relationship with the United States. Government officials are fluent in English, as English is the language of business and government, but English is less widely spoken in the inhabited islands.

On October 8, 2008, Maldives held its first multi-party Presidential election. Parliamentary elections were held in May 2009. The country also launched a new constitution in 2008 and a series of new laws subsequently, including the first comprehensive employment act. On February 7, 2013, President Nasheed resigned, following three weeks of opposition protests over the military detention of a criminal court judge. Vice President Waheed was sworn into office as President. After claims by President Nasheed that he was forced to resign, and that the change was brought about by a coup, President Waheed set up a Commission of National Inquiry (CoNI), with international representatives as well as a representative from former President Nasheed’s party, to establish the facts of the transfer of power. The CoNI, on August 30, concluded that the transfer of power was constitutional, noted the need for strengthening democratic institutions, and cited cases of police misconduct during the unrest in February 2012. In July 2012, former President Nasheed was charged with the unlawful detention of a judge, and based on the timing and outcome of that case, may be unable to participate in the presidential elections. For the foreseeable future, the political situation in the Maldives is likely to remain unstable, although most political unrest and demonstrations are in the capital city of Male’ and do not affect the tourist resorts.

Tourism and Fishing Drive Growth

Maldives’ economic growth has been powered mainly by tourism and its spin-offs in the transportation, communication, and construction sector. Fishing also remains an important part of the economy. More than 950,000 tourists visit annually, forming the backbone of the economy. In 2012, GDP totaled around US$2 billion or about US$5,200 per capita (far exceeding the average of about US$2,000 in the rest of South Asia). In the last decade, real GDP growth averaged around 7.5% per year except for 2005, when GDP declined following the Indian Ocean tsunami, and in 2009, when GDP shrank by 3.6% as tourist arrivals declined and capital flows plunged, in the wake of the global financial crisis. According to preliminary information, the Maldivian economy grew by a sluggish 3.4% in 2012, mainly due to low growth in the tourism sector from changing markets dynamics and the political turmoil in the country since February.

Tourism will likely remain the engine of the economy. The Government of the Maldives (GOM) has aggressively promoted building new island resorts, and an additional 14 islands are expected to be leased out in 2013. Depending on demand and financing, as many as forty new resorts could open in the next few years. Three new resorts were opened in 2012. Tourist arrival rates, however, only increased by 2.9% in 2012, and the average duration of stay declined by 0.5%.

While income disparity remains high, particularly between the capital and distant islands, Maldives' growth has yielded considerable social progress. The net enrollment in primary education is close to 100 percent. Literacy rates are about 98 percent. Infant and maternal mortality are declining rapidly. An income and expenditure survey carried out in 2009/2010, however, shows that poverty has increased on Male’, the capital, while it had decreased in the Atolls.

New Fiscal Policies

The Government is still struggling to regain fiscal control. The country has suffered from chronic budget deficits in recent years. The government’s plan to cut expenditure by trimming subsidies and civil service employment has not progressed well, given political parties playing against each other on these issues, with potential votes in mind. In recognition of this impasse, fiscal policy has recently shifted towards a focus on increasing revenue rather than reducing expenditure. The government implemented a Goods and Services Tax (GST) on the tourism sector in January 2011 and on general goods and services in October 2011. A Business Profit Tax (BPT) of 15% on businesses with taxable profits above MVR 500,000 (approximately US$32,450) was implemented from July 2011. An income tax bill is also in Parliament. The budget deficit was reported as 12.6% of GDP in 2012 and is expected to decline to 6.1% of GDP in 2013, mainly as a result of proposed revenue measures. Inflation rose to 5% in 2012 and is expected to further increase to 7% in 2013. Maldives has accumulated a high level of public debt.

Foreign Exchange Shortage

A foreign exchange shortage affecting businesses was reported from 2009 onwards, and since then the Maldives Monetary Authority (MMA) has rationed foreign exchange. The Maldives moved to a managed float in April, 2011, although this does not seem to have alleviated the official foreign exchange shortage. However, local sources confirm that dollar demand is more than adequately met in the black market, albeit at higher premiums.

In December 2009, the International Monetary Fund approved a US$93 million loan for the country. After the first two disbursements, the IMF withheld subsequent disbursements due to concerns that the budget deficit must be further reduced. The U.S. Government restored the GSP trade preference program to Maldives in December 2009 after the Maldives passed the Employment Act. The United States provides other assistance to defend against climate change, improve the performance of democratic institutions, reinforce the rule of law, professionalize the security forces, and enhance U.S. investment. Maldives became a member of the International Labor Organization in 2009.

Regional Ranking and Assistance Programs

Maldives ranks 95th out of 185 countries in the World Bank's (www.doingbusiness.org) Ease of Doing Business 2013 Index, ahead of its South Asian neighbors, but down 16 places compared to its 2012 rank. Within the index, Maldives ranked 57th in terms of tax burden, while in the past, it ranked first (Maldives previously had no income or sales tax), and 19th in dealing with construction licenses. In other areas, such as registering property, and getting credit, the country ranked lower, at 151 and 167 respectively. The low property ranking stems from the fact that foreigners are not allowed to own property outright. Other rankings are as follows: starting a business (63); protecting investors (82); trading across borders (138); enforcing contracts (92); getting electricity (120); and resolving insolvency (41).

Maldives graduated from Least Developed Country (LDC) status in January 2011. The graduation of Maldives reduced the country's ability to access concessionary trade and finance programs, and could impact the fish export industry and foreign aid. The Maldives sought to delay the curtailment of certain benefits, such as loss of duty free access to the EU under its Everything but Arms scheme. The EU has since approved an extension of benefits until the end of December 2013. The Government hopes to obtain beneficiary status to the Sustainable Development and Good Governance Scheme (GSP+) once the EU extension expires.

The United Nations Development Program (UNDP) (www.mv.undp.org), the World Bank (www.worldbank.org), and other multilateral and bilateral donors are active in Maldives. They support Government efforts to improve education, health and nutrition, housing and social protection, basic infrastructure, environmental protection, and improved governance, and to create employment opportunities.

Openness to Foreign Investment

Maldives began opening up to foreign investment in the late 1980s. Foreign investments in Maldives have primarily involved resort management, but also include telecommunications, accounting, banking, insurance, air transport, courier services, and some manufacturing. The Ministry of Economic Development is tasked with promoting and regulating foreign investments in all sectors, except for the tourism sector. The Ministry of Tourism, Arts, and Culture (www.tourism.gov.mv) is in charge of setting policy and developing the tourism sector, while the Maldives Tourism Promotion Board (www.visitmaldives.com) promotes the Maldives as a destination. The Ministry of Economic Development reviews all proposed investments prior to granting licenses.

Foreign investment in Maldives is governed by Law No. 25/79, governing agreements between the Government and investors. A separate law (No. 4/79) governs business and trading activities by foreign nationals, while the Business Profit Tax Act (No. 5/11) governs taxation. A new Partnership Act was also introduced in 2011. Foreign investments are currently approved for an initial period of one year, with the option to renew. Banking licenses are issued by the Maldives Monetary Authority, and governed under the Banking Act (No. 24/2010), while the tourism sector falls under the Tourism Act (No. 2/99). The Ministry of Economic Development offers "one-stop shop" services to investors and incentives include import duty concessions, 100% foreign ownership, and no restrictions on repatriation of earnings or profits. Foreign investments were earlier required to pay annual royalty fees to the Government at 3% of gross income or 15 percent of profits, whichever is greater, for majority foreign-owned companies. However, with the Business Profit Tax becoming effective from July 18, 2011, foreign investors are now exempt from royalty fees. Maldives currently does not have personal income taxes, although bank profits are taxed. In addition, a goods and services tax on the tourism sector, and a general goods and services tax came into effect in 2011. International arbitration is available for dispute settlement. Foreign investments within the tourism sector – such as resorts – are registered with the Ministry of Tourism, Arts, and Culture.

Privatization

There have been recent moves to privatize several key sectors. The Government privatized the international airport in June 2010 under an agreement leasing the Male International Airport to GMR Malaysia Airport Holdings consortium. (The government cancelled the contract and took back the airport in December 2012, but the airport management contract will be retendered and will ostensibly remain in private hands.) In 2009, the Government leased public primary school Ghiyaasuddin School to Indian Company ShriEducare under a 15-year contract, sold 20 percent of the Maldives Water and Sanitation Company (MWSC) to Japanese Company Hitachi Plant Technology in January, 2010, and did an IPO of telecommunications company Dhiraagu in October 2011. A new Privatization Act was introduced in January 2013, which will govern all future privatization and corporatization efforts by the Government. A Privatization and Corporatization Board is to be established under the Act, tasked with planning, implementing, administering and monitoring the Government’s privatization and corporatization efforts. The Board also establishes the Government’s privatization policy, which has to then be endorsed by the President. The Board is also mandated to prepare and make public a divestiture sequence plan, lending to the transparency of the government’s privatization efforts.

Investment Approval Process

The Investment Registration Unit of the Ministry of Economic Development screens and reviews internally all foreign investment proposals. The process includes standard due diligence efforts such as a local police screening of all investors, determining the financial standing of the proposed shareholders through a bank reference, as well as performing a background check on the investors involved. The opinion of the related sector is also sought. Each case is reviewed based on its merits and other factors such as the number of existing investors in the area, and the employment and technology transfer potential demonstrated. A final decision is made by the Ministry of Economic Development. This has been a fairly transparent process to date.

Maldives does not have a competition law as yet, and hence there is currently no legal mechanism to review transactions for competition-related complaints. There are no laws or regulations in place that limit or prohibit foreign investment, participation, or control.

The Ministry of Economic Development encourages investment projects that: (1) establish and enhance the delivery of basic services required to be provided by the State; (2) promote economic diversification and demonstrate potential to structurally reduce the country’s current dependence on the tourism sector; (3) expand the export base of the economy and support import substitution; (4) enhance the human capital development and employment opportunities for Maldivians on a significant scale; (5) promote innovative product development and new markets for the tourism sector; (6) bring enhanced improvements to the health and education sectors in terms of service delivery, quality, and accessibility; (7) expand and develop sports infrastructure and services in the Maldives; (8) promote the use of renewable energy in Maldives; and (9) promote incremental social and economic benefits from the available natural resources.

Rankings and Indices

Measure

Year

Index/Ranking

TI Corruption Index

2011

2.5/134

Heritage Economic Freedom

2013

49/149

World Bank Doing Business

2013

95

MCC Government Effectiveness

2011

-0.01/48%

MCC Rule of Law

2011

0.25/65%

MCC Control of Corruption

2011

-0.30/32%

MCC Fiscal Policy

2011

-17.8/0%

MCC Trade Policy

2011

43.8/0%

MCC Regulatory Quality

2011

0/52%

MCC Business Start Up

2011

0.988/90%

MCC Land Rights Access

2011

0.396/8%

MCC Natural Resource Mgmt

2011

89.57/72%


Conversion and Transfer Policies

Maldives maintained a fixed peg of 12.85 Maldivian Rufiyaa (MVR) to the dollar since 2001, but moved to a managed float on April 10, 2011. The exchange rate is now set at a 20% range around the previously fixed MVR 12.85 exchange, or between MVR 10.28 and MVR 15.42. The move to a float was essentially a devaluation of the rufiyaa, since the rufiyaa has moved to the top of the range (MVR 15.42). The Maldivian currency is non-convertible, and its true value cannot be determined. The real effective exchange rate has appreciated recently, reflecting high relative prices. The heavy dependence on imports is a constraint for exchange rate management, although historically tourism receipts helped maintain hard currency liquidity.

A foreign exchange shortage affecting businesses was reported in 2009-2012. Due to the shortage, the Maldives Monetary Authority (MMA) started rationing foreign exchange supplied to the banking system in 2009. This has led to restrictions on foreign exchange, and some current international transactions are conducted on the black market. Repatriation of funds and profits is allowed after local debts are settled. Local sources, however, confirm that dollar demand is met in the black market, although at higher premiums (5-7%).

Major international currencies can be bought and sold at banks and authorized moneychangers. Hotels and banks accept major credit cards and travelers' checks. Foreign currency accounts are available through banks. The U.S. dollar is the most widely-used foreign currency and is accepted by small shops and taxi drivers in Male'.

Gross foreign reserves at the end of November 2012 were approximately US$356 million, compared with US$326 million in 2011, and were sufficient to finance 2.7 months of imports. At year end, reserves were down to US$304 million as a result of the Government dipping into reserves to pay a US$50 million loan installment to India.

The Government initiated a new public accounting system in 2009, part of which has now been successfully implemented. A new Public Finance Law, an Audit Law, and a Civil Service Law came into force in 2006-2007, and the Maldives Financial Transactions Reporting regulation came into effect in July 2011. Existing legislation in Maldives does not criminalize money laundering, apart from a small provision in the Drugs Act. Maldives has established a small financial intelligence unit to combat money laundering and terrorist financing.

Expropriation and Compensation

According to the Law on Foreign Investment (No. 25/79), the Government may, with or without notice, suspend an investment, either where the investor indulges in an act detrimental to the security of the country or where temporary closure is necessary for national security. If, after due investigation, it cannot be concluded within 60 days of the temporary closure that the foreign investor had indulged in an activity detrimental to the security of Maldives, then the Government will pay compensation. Capital belonging to an investment that is closed for these reasons may be taken out of the country in a mutually agreed manner. The Act also requires Maldivian nationals to be employed, except in cases where the employment of foreigners is a necessity. This, however, is not enforced strictly in practice.

The Ministry of Economic Development recently announced that foreign investments are no longer approved in the areas of general retail trade, agriculture, and in the collection, processing, and exporting of skip jack tuna.

In December 2012, the Maldivian government took over operation of the Male’ International Airport from GMR, an Indian-based company, after the Maldivian government repudiated the contract. While a Singaporean Court allowed the takeover, subject to adequate compensation to GMR per the contract, many business contacts consider the government’s move tantamount to expropriation. (see discussion in Repudiation of Contracts)

Dispute Settlement

The sources of law in Maldives are its constitution, Islamic Sharia law, regulations, Presidential decrees, international law, and English common law, with the latter being more influential in commercial matters. The Judicial Services Commission (JSC) is responsible for nominating, dismissing, and examining the conduct of all judges.

Lack of Judicial Qualification and Training

A Supreme Court was established for the first time in 2008 under the new Maldives Constitution. The Supreme Court is the highest judicial authority in Maldives. In addition to the Supreme Court, there are six courts in Male': a High Court; civil court; criminal court; family court; juvenile court; and a drug court. There are approximately 200 magistrate courts, one in each inhabited island. The Supreme Court and the High Court serve as courts of appeal. There are no jury trials. Though legal procedures are adequate, the judicial process is slow and deemed corrupt. In August 2010, the Judicial Service Commission (JSC) reappointed – and confirmed for life – 191 of the 200 existing judges. Many of these judges held only a certificate in sharia, not a law degree. Most magistrate judges could not interpret common law or sharia because they lacked adequate English or Arabic language skills. An estimated quarter of the judges who were confirmed for life had criminal records, and two of the judges had been previously convicted of sexual assault charges. The media and NGO community criticized the JSC for the appointment of unqualified judges, stating the move seriously compromised the integrity and effectiveness of the justice system. However, court rulings are now made available to the public through the relevant court’s website, increasing the transparency of the judicial system.

Pursuant to the new Constitution, a Prosecutor General was appointed in September 2008. The Prosecutor General is tasked with the prosecution of criminal offences. The Attorney General acts as the legal advisor to the Government and represents the Government in all courts except on criminal proceedings represented by the Prosecutor General.

Legal Framework

The law on foreign investments guarantees the security of investments. Maldives has no laws pertaining to arbitration, but one was debated in Parliament in April 2012. It is expected to be enacted in 2013. The draft bill, subject to revision, incorporates United Nations Commission on International Trade Law (UNCITRAL) rules. Judgments of foreign courts are generally accepted and enforced by local courts. Maldives is not a member of the International Center for the Settlement of Investment Disputes (ICSID).

The former Government of President Nasheed initiated a broad program of economic reform, recognizing the underdeveloped legal and commercial framework. Under the program, the Government proposed legislation on new taxes, sole proprietorships, business registration, partnerships, mortgages, a mercantile court, and amendments to the Companies Act. The existing Foreign Investments Act was to be abolished, and aspects of foreign investments incorporated into the Companies Act. The Partnership Act was ratified in December 2011, and the taxation bills were passed and ratified into law in 2011 and 2012. All other bills have been pending in Parliament since the transfer of power in February 2012.

Repudiation of Contracts

Following the February 2012 transfer of power, contracts signed by the Nasheed Administration have been under intense pressure from both the current government as well as other domestic interest groups, leading to two contracts being cancelled on allegations of corruption and national security, and one being renegotiated. Local contacts argue that some of the contracts were cancelled purely for political reasons and to benefit competing behind-the-scenes business interests.

GMR: The Nasheed Administration awarded the build-and-operate contract for the Ibrahim Nasir International Airport (INIA) to GMR Malaysia Airport Holdings consortium (GMR) in July 2010. The International Finance Corporation (IFC) supervised the bidding process for the whole contract. Political opponents in 2011 successfully contested the airport development charge (ADC) included in the contract, although the Government then allowed the consortium to deduct the ADC from concession fees. The contract was terminated by the Waheed Administration through a cabinet decision with 7 days’ notice, amid political protests and maneuvering, citing national interest concerns and bidding irregularities. A Singapore appellate court upheld the Government action after the GMR requested an injunction on the 7-day notice, pending an arbitration decision. Compensation is to be determined after arbitration. Both the Government and the GMR have appointed their arbitrators and have agreed on a third arbitrator. The Government has announced that the whole process may take well in excess of a year.

NexBiz: In another case, the Nasheed Administration signed a US$39 million border control system project agreement with Malaysia-based NexBiz Pvt. Ltd. in 2010. Under the agreement, the Government has to pay NexBiz US$2 for every foreigner processed through the system, and US$15 for each work permit issued, over the project’s 20-year lifespan. Approximately 950,000 tourists visit the country each year, and there are 100,000 registered migrant workers.

The Anti-Corruption Commission (ACC) of the Maldives, after an investigation into corruption allegations in awarding the contract to NexBiz, requested the Prosecutor General’s Office, in December 2011, to press charges against the then-Controller of Immigration and Emigration, and brother-in-law of current President Waheed, for abusing his authority for undue financial gain. Charges had not been filed by the end of 2012. The ACC also filed for an injunction on project implementation in November 2011, which has gone through a series of legal wranglings. The Civil Court’s first ruled that such an injunction could not be issued, but the High Court overturned that ruling in April 2012. The Supreme Court then ruled unanimously that the ACC did not have the authority to issue injunctions on projects, although the ACC did have the authority to investigate allegations of corruption. The system was operational by September 2012.

In December 2012, however, the Parliament, as part of the 2013 budget deliberations, voted 74 to 3 to cancel the agreement. Subsequently, the Government has also announced its intention to cancel the project. NexBiz has filed for an injunction on the Parliament decision. A ruling on the case was not available at the end of January.

Tatva: The current Government is also renegotiating a Male’ waste management project signed between the Nasheed Government and India-based Tatva Global Renewable Energy in May 2011. This is being done amidst claims from the Male’ City Council, which is mandated with waste management on Male’ under the Decentralization Act, of political motivations being behind the renegotiation.

Right to Private Ownership and Establishment

There is little private ownership of land, and foreign investors cannot own land. The Nasheed Administration drafted new legislation on land reform that could result in more trade and private ownership of property, but the bill is pending in Parliament.

An amendment to the Tourism Act passed in 2010 allows investors to lease an island for 50 years in general, and 99 years if: 1) the company is registered in Maldives; 2) floats at least 55% of the company's shares on the Maldives stock market; and 3) has development of tourist resorts listed as an objective in the company registration. Leases can be renewed at the end of their terms, but the formula for assessing compensation value of a resort at the end of a lease has not yet been developed. All other land may be leased for maximum periods ranging from 10 to 15 years, depending on the purpose for which the land was initially allocated.

Currently there are no property and real estate laws or a mechanism to allow foreign persons to hold title to land. As a result, Maldives ranks 151 on ease of registering property in the World Bank’s 2013 Ease of Doing Business Report. Locals, however, can hold title to land.

Protection of Property Rights

The Parliament passed a copyright law in October 2010 that came into effect in April 2011. The GOM recently established an IPR unit within the Ministry of Economic Development, but has not yet signed international agreements or conventions on intellectual property rights (IPR).

Maldives benefits from the World Trade Organization (WTO) decision to extend the transition period for least-developed countries (LDC) to provide protection for intellectual property under the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement until July 1, 2013. An industrial property bill is expected to be tabled at Parliament in 2013.

Secured interests in property, movable and real, are recognized and enforced under the 2002 Land Act, and registries are maintained by the councils on each island.

Efficient Capital Markets and Portfolio Management

The Maldives financial sector is narrow and dominated by the banking sector. The banking sector consists of one publicly-owned commercial bank – the Bank of Maldives – and branches of four foreign-owned commercial banks. The Maldives Islamic Bank, established through a partnership between the GOM and the Islamic Corporation for the Development of the Private Sector (ICD), commenced operations in March 2011, offering Islamic Sharia-compliant products. HSBC, the only global bank present, set up operations in 2002. The banking sector’s total assets were slightly in excess of US$2 billion at the end of 2012. Non-bank financial institutions in the country consist of two insurance companies, a pension fund, and a finance leasing company.

Financial Sector Supervision

All financial institutions currently operate under the supervision of the Maldives Monetary Authority, the central bank. The Maldives Monetary Authority Act was amended in 2007 to ensure independence of the Authority. Banking supervision has recently been upgraded, moving toward international best practices. A comprehensive banking act was enacted in December 2010 covering financial, prudential, supervisory matters, conservatorship, liquidation, and receivership.

Lending Sources

Most lending usually comes through the parent banks of international commercial banks, and most foreign currency loans are made to foreign currency-earning tourist enterprises. Local sources of finance are limited in scope due to the small size of the capital market and the lack of instruments that are available in more developed nations. The Government commenced Treasury bill auctions in 2006. In a bid to fund large fiscal gaps, the Government also opened up the sale of Treasury bills to the private sector in August 2012. Local sources confirm that the bills during that auction were bought by a prominent businessman in the tourism sector, signaling the deep influence of that sector in all aspects of the Maldivian economy. No other financial instruments are offered to the public. The commercial banks provide short- and long-term credit to the private sector. No specialized financial institution exists to meet the investment needs of tourism, agriculture, and fisheries.

Foreign Exchange Shortage Leading To Black Market Transactions

Due to the foreign exchange shortage, the Maldives Monetary Authority started rationing foreign exchange supplied to the banking system in 2009. As a result, a black market has emerged with a premium over the official exchange rates.

Maldives Stock Exchange

The Maldives Stock Exchange (MSE), which first opened in 2002 as a small securities trading floor, was licensed as a private stock exchange in 2008. The legislature passed a Securities Act in January 2006, and the Government created a Capital Market Development Authority (CMDA) to regulate the capital market. The MSE functions under the CMDA. At present, the only investment opportunity available to the public is a limited number of shares in the Bank of Maldives, four state-owned public companies, and a foreign insurance company. The market capitalization of all companies listed on the exchange was MVR 7.5 billion (US$480 million) at the end of 2012.

A leasing company, Maldives Finance Leasing Company (Pvt) Ltd (MFLC), was established in May 2002 as a collaborative venture between five domestic public and private sector entities and two international parties, including the World Bank's International Finance Corporation (IFC). The MFLC aims to address the demand for long-term equipment financing from all sectors of the economy.

The Housing Development Finance Corporation is a Government company designed to provide housing loans with long repayment terms at favorable interest rates.

Competition from State-Owned Enterprises

At the end of 2012, 69 companies were either fully or partly Government-owned. Major operational companies within the 69 include the State Trading Organization, Dhiraagu (a telecom provider), and Maldives Water and Sewerage Company. Although the prevalence of SOEs in many sectors of the economy has traditionally crowded out the private sector, the GOM announced that 22 of these companies would be abolished during 2013. There are no laws that ensure a primary role for SOEs in any specific sectors.

SOEs operate under the Companies Act with little Government influence. The Government appoints the board members of SOEs in proportion to the GOM ownership in the SOEs, and hence political affiliation has mattered in certain cases. However, these Boards and SOEs do not report to line ministers. All companies with capital over Rf.1 million, whether public or private, must submit to an independent audit. The larger SOEs make their audit reports available to the public.

Currently, Maldives does not have a sovereign wealth fund. Given its fiscal situation, it is unlikely that such a fund will be established in the near-term.

Corporate Social Responsibility (CSR)

There is limited but growing awareness of corporate social responsibility among the business elite. There are no non-governmental organizations that promote or monitor CSR in the country. The Nasheed Administration, in 2010, made attempts through the National Planning Council (NPC) to include compulsory CSR components in leasing islands for tourism and other developments. The Waheed Administration, however, has since abolished the NPC.

Political Violence and Religious Extremism

Maldives has a homogeneous society of one culture, one religion (Sunni Islam), and one language (Dhivehi). In 2008, Maldives held its first multi-party Presidential elections, following a multi-year effort for constitutional reforms. President Nasheed took office in November 2008, and the transition to the new Government was peaceful. However, Nasheed resigned in February 2012, amidst growing opposition and a mutiny by the police and military. Although the country went through violent demonstrations the week after Nasheed’s resignation, subsequent demonstrations have been relatively peaceful, although frequent.

On October 1, 2012, Afrasheem Ali, a member of Parliament and vocal supporter of moderate Islam, was found stabbed to death in the stairwell of his apartment building. This was the first murder of a Maldivian official in recent history, although police investigations have not yet confirmed a political or religious motive behind the murder.

Religious extremism, involving espousal of fundamentalist views incompatible with Maldives' generally moderate Islamic practices, is a growing trend. In September 2007, Maldives experienced its first-ever terrorist attack when a bomb exploded in the capital of Male', injuring twelve tourists who appeared to be the target of the attack. A few Maldivians have reportedly traveled to Pakistan to fight for extremist organizations.

On June 4, unknown assailants attacked local reporter and journalist Ismail Hilath Rasheed and slashed his throat. Rasheed survived and has since fled the country. Previously, he had been attacked in December 2011 by ten unknown men after he had organized a peaceful demonstration in support of religious tolerance in Male. He suffered a fractured skull in that incident. No arrests were made after either attack, which Rasheed alleges were arranged by religious extremists. The Ministry of Islamic Affairs, since November 2011, also continues to ban Rasheed’s blog. The blog was known for promoting religious tolerance as well as for discussing the blogger’s homosexuality.

Corruption

The World Bank's Control of Corruption Index for Maldives showed a steady increase in corruption in recent years, from +0.09 in 2003 to -0.60 in 2008, -0.70 in 2009, and to -0.63 in 2011. Transparency International's Corruption Perception Index surveyed Maldives for the first time in 2007, ranking the country 84th out of 180, with a score of 3.3 out of a possible 10. Since then, Maldives’ ranking has deteriorated from 115th in 2008 to 130th in 2009, and 134th in 2011 with a score of 2.5. This may, however, have been due in part to the fact that corruption is now openly talked about in the media, and the Anti-Corruption Commission established in 2008 can independently investigate corruption cases. Maldives, however, failed to be included in the 2012 Index due to the failure of the Asian Development Bank, one of the three sources from which data are compiled, to provide the required data. A local chapter of Transparency International – Transparency Maldives – is active in the country.

Legal Framework and the Anti-Corruption Commission

The law on prevention and punishment of corruption (2000) defines bribery and improper pecuniary advantage and prescribes punishments. The law also outlines procedures for the confiscation of property and funds obtained through commission of the included offenses. Penalties range from 6 months to 10 years banishment, or jail terms. The Maldives acceded to the United Nations Convention against Corruption in March 2007, and under the new 2008 Constitution, an independent Anti-Corruption Commission was established in December 2008. The responsibilities of the Commission include inquiring into and investigating all allegations of corruption; recommending further inquiries and investigations by other investigatory bodies; and recommending prosecution of alleged offenses to the Prosecutor General, where warranted. The Anti-Corruption Commission is empowered to handle cases of corruption of members of parliament. It cannot, however, investigate corruption in the private sector. The Commission also cites limitations in the 2000 Anti-Corruption Act that restrict its investigative and enforcement powers. Corruption is seen to be most prevalent in government procurement.

Corruption Allegations in the Tourism Industry

Tourism is the largest industry in the Maldives, and local contacts confirm that resort owners and tourism operators control all aspects of the Maldivian economy. All the government treasury bills, when opened to the private sector in August 2012, were purchased by one prominent resort owner; transportation networks between the widely-scattered islands are controlled by two groups of resort owners; and a resort owner and wealthy businessman also sits on the Judicial Service Commission, which appoints and overseas the appointment of judges. A number of prominent resort owners are in the Parliament, and a few have served as Ministers in all administrations. Nepotism and cronyism are also hallmarks in all areas, from the Judiciary, and the Executive to the private sector.

Costs of Corruption

Corruption, including bribery, raises the costs and risks of doing business. Corruption has a corrosive impact on both market opportunities overseas for U.S. companies and the broader business climate. It also deters international investment, stifles economic growth and development, distorts prices, and undermines the rule of law.

It is important for U.S. companies, irrespective of their size, to assess the business climate in the relevant market in which they will be operating or investing, and to have an effective compliance program or measures to prevent and detect corruption, including foreign bribery. U.S. individuals and firms operating or investing in foreign markets should take the time to become familiar with the relevant anti-corruption laws of both the foreign country and the United States in order to properly comply with them, and where appropriate, they should seek the advice of legal counsel.

The U.S. Government seeks to level the global playing field for U.S. businesses by encouraging other countries to take steps to criminalize their own companies’ acts of corruption, including bribery of foreign public officials, by requiring them to uphold their obligations under relevant international conventions. A U. S. firm that believes a competitor is seeking to use bribery of a foreign public official to secure a contract should bring this to the attention of appropriate U.S. agencies, as noted below.

U.S. Foreign Corrupt Practices Act

In 1977, the United States enacted the Foreign Corrupt Practices Act (FCPA), which makes it unlawful for a U.S. person, and certain foreign issuers of securities, to make a corrupt payment to foreign public officials for the purpose of obtaining or retaining business for or with, or directing business to, any person. The FCPA also applies to foreign firms and persons who take any act in furtherance of such a corrupt payment while in the United States. For more detailed information on the FCPA, see the FCPA Lay-Person’s Guide at: http://www.justice.gov/criminal/fraud/docs/dojdocb.html.

Other Instruments

It is U.S. Government policy to promote good governance, including host country implementation and enforcement of anti-corruption laws and policies pursuant to their obligations under international agreements. Since enactment of the FCPA, the United States has been instrumental to the expansion of the international framework to fight corruption. Several significant components of this framework are the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (OECD Antibribery Convention), the United Nations Convention against Corruption (UN Convention), the Inter-American Convention against Corruption (OAS Convention), the Council of Europe Criminal and Civil Law Conventions, and a growing list of U.S. free trade agreements. The Maldives is party to the UN Convention, but generally all countries prohibit the bribery and solicitation of their public officials.

OECD Antibribery Convention

The OECD Antibribery Convention entered into force in February 1999. As of December 2009, there are 38 parties to the Convention including the United States (see http://www.oecd.org/dataoecd/59/13/40272933.pdf). Major exporters China, India, and Russia are not parties, although the U.S. Government strongly endorses their eventual accession to the Convention. The Convention obligates the Parties to criminalize bribery of foreign public officials in the conduct of international business. The United States meets its international obligations under the OECD Antibribery Convention through the U.S. FCPA. The Maldives is not a party to the OECD Convention.

UN Convention

The UN Anticorruption Convention entered into force on December 14, 2005, and there are 143 parties to it as of December 2009 (see http://www.unodc.org/unodc/en/treaties/CAC/signatories.html). The UN Convention is the first global comprehensive international anticorruption agreement. The UN Convention requires countries to establish criminal and other offences to cover a wide range of acts of corruption. The UN Convention goes beyond previous anti-corruption instruments, covering a broad range of issues ranging from basic forms of corruption such as bribery and solicitation, embezzlement, trading in influence to the concealment and laundering of the proceeds of corruption. The Convention contains transnational business bribery provisions that are functionally similar to those in the OECD Antibribery Convention and contains provisions on private sector auditing and books and records requirements. Other provisions address matters such as prevention, international cooperation, and asset recovery. The Maldives is a party to the UN Convention.

Local Laws

U.S. firms should familiarize themselves with local anti-corruption laws, and, where appropriate, seek legal counsel. While the U.S. Department of Commerce cannot provide legal advice on local laws, the Department’s U.S. and Foreign Commercial Service can provide assistance with navigating the host country’s legal system and obtaining a list of local legal counsel.

Assistance for U.S. Businesses

The U.S. Department of Commerce offers several services to aid U.S. businesses seeking to address business-related corruption issues. For example, the U.S. and Foreign Commercial Service can provide services that may assist U.S. companies in conducting their due diligence as part of the company’s overarching compliance program when choosing business partners or agents overseas. The U.S. Foreign and Commercial Service can be reached directly through its offices in every major U.S. and foreign city, or through its Website at www.trade.gov/cs.

The Departments of Commerce and State provide worldwide support for qualified U.S. companies bidding on foreign government contracts through the Commerce Department’s Advocacy Center and State’s Office of Commercial and Business Affairs. Problems, including alleged corruption by foreign governments or competitors, encountered by U.S. companies in seeking such foreign business opportunities can be brought to the attention of appropriate U.S. government officials, including local embassy personnel and through the Department of Commerce Trade Compliance Center “Report a Trade Barrier” Website at tcc.export.gov/Report_a_Barrier/index.asp.

Guidance on the U.S. FCPA

The Department of Justice’s (DOJ) FCPA Opinion Procedure enables U.S. firms and individuals to request a statement of the Justice Department’s present enforcement intentions under the antibribery provisions of the FCPA regarding any proposed business conduct. The details of the opinion procedure are available on DOJ’s Fraud Section Website at www.justice.gov/criminal/fraud/fcpa. Although the Department of Commerce has no enforcement role with respect to the FCPA, it supplies general guidance to U.S. exporters who have questions about the FCPA and about international developments concerning the FCPA. For further information, see the Office of the Chief Counsel for International Counsel, U.S. Department of Commerce, Website, at http://www.ogc.doc.gov/trans_anti_bribery.html. More general information on the FCPA is available at the Websites listed below.

Anti-Corruption Resources

Some useful resources for individuals and companies regarding combating corruption in global markets include the following:

Information about the U.S. Foreign Corrupt Practices Act (FCPA), including a “Lay-Person’s Guide to the FCPA” is available at the U.S. Department of Justice’s Website at: http://www.justice.gov/criminal/fraud/fcpa.

Information about the OECD Antibribery Convention including links to national implementing legislation and country monitoring reports is available at: http://www.oecd.org/department/0,3355,en_2649_34859_1_1_1_1_1,00.html. See also new Antibribery Recommendation and Good Practice Guidance Annex for companies: http://www.oecd.org/dataoecd/ 11/40/44176910.pdf

General information about anticorruption initiatives, such as the OECD Convention and the FCPA, including translations of the statute into several languages, is available at the Department of Commerce Office of the Chief Counsel for International Commerce Website: http://www.ogc.doc.gov/trans_anti_bribery.html.

Transparency International (TI) publishes an annual Corruption Perceptions Index (CPI). The CPI measures the perceived level of public-sector corruption in 180 countries and territories around the world. The CPI is available at: http://www.transparency.org/policy_research/surveys_indices/cpi/2009. TI also publishes an annual Global Corruption Report which provides a systematic evaluation of the state of corruption around the world. It includes an in-depth analysis of a focal theme, a series of country reports that document major corruption related events and developments from all continents and an overview of the latest research findings on anti-corruption diagnostics and tools. See http://www.transparency.org/ publications/gcr.

The World Bank Institute publishes Worldwide Governance Indicators (WGI). These indicators assess six dimensions of governance in 212 countries, including Voice and Accountability, Political Stability and Absence of Violence, Government Effectiveness, Regulatory Quality, Rule of Law and Control of Corruption. See http://info.worldbank.org/governance/wgi/sc_country.asp. The World Bank Business Environment and Enterprise Performance Surveys may also be of interest and are available at: http://go.worldbank.org/RQQXYJ6210.

The World Economic Forum publishes the Global Enabling Trade Report, which presents the rankings of the Enabling Trade Index, and includes an assessment of the transparency of border administration (focused on bribe payments and corruption) and a separate segment on corruption and the regulatory environment. See http://www.weforum.org/en/initiatives/gcp/GlobalEnablingTradeReport/index.htm.

Additional country information related to corruption can be found in the U.S. State Department’s annual Human Rights Report available at http://www.state.gov/g/drl/rls/hrrpt/.

Global Integrity, a nonprofit organization, publishes its annual Global Integrity Report, which provides indicators for 92 countries with respect to governance and anti-corruption. The report highlights the strengths and weaknesses of national level anti-corruption systems. The report is available at: http://report.globalintegrity.org/.

OPIC and Other Investment Insurance Programs

The Overseas Private Investment Corporation (OPIC) began operations in Maldives in 2011, but no projects have yet been identified. Maldives became the 165th member of the Multilateral Investment Guarantee Agency of the World Bank Group, on May 20, 2005.

Labor

Skilled and unskilled labor is scarce, and expatriate labor is allowed into Maldives to meet shortages. The Department of Immigration and Emigration (DIE) reported 111,579 registered expatriate workers in the country, mostly in tourism, construction, and personal services. There were also a reported 40,000 to 50,000 unregistered expatriate migrant workers. Expatriate labor is of equal cost or more expensive than local labor. Even when salaries are set lower, travel and other benefits typically make it more expensive overall to hire expatriates. However expatriate labor is still necessary; Young Maldivians from higher income families often travel abroad for education and expect higher salaries when they return to the Maldives.

Notwithstanding the labor shortage, unemployment in the Maldives is also high, as many youth leaving lower secondary school have few in-country avenues to pursue higher secondary education. The net enrollment rate for lower secondary education is 83.6% while the net enrolment rate for higher secondary is at 17%, leaving a large contingent of youth idle. Although resorts may offer employment opportunities, locals are less likely to take advantage of these jobs as the Maldivian resort structure requires employees to live and work on the island for long stretches of time, away from family. Religious and cultural reasons may also prevent youths from seeking employment on islands where alcohol is served and tourists are dressed in non-Muslim attire.

Legal Framework

The laws covering labor were overhauled in 2008 with the enactment of the 2008 Maldives Constitution, the new Employment Act, and a subsequent amendment to the Employment Act. For the first time, the Constitution recognizes workers’ right to strike and establish trade unions. Maldives plans to enact a separate trade union law providing rules for formation of trade unions and collective bargaining. Maldives also needs to enact regulations further defining the right to association.

The Employment Act provides for the establishment of a minimum wage, maximum hours of work, overtime, annual and sick leave, maternity leave, and work place safety. The Employment Act created a 48-hour/week with a compulsory 24-hour break after six days of continuous work. Resort workers may accumulate the weekly rest day. Overtime is available. Workers in tourist resorts may work an additional two hours a day and are paid a higher overtime rate. Employees are usually authorized 30 days of annual leave, 30 days of medical leave, 65 days of maternity leave, and 10 days of special annual leave to "attend important obligations.” Either parent of a newborn child is entitled to one year’s unpaid annual leave after the expiry of the maternity leave period. Employers are also required to provide a safe workplace. The law provides for agreements between the employer and the employee to guarantee the rights specified in the law.

In August 2011, Maldives published a strike regulation under the Employment Act. The regulation requires employees to negotiate with the employer first, and if this is unsuccessful, then the employees must file advance notice prior to a strike. There are six employees’ associations, and collective bargaining involving employees' associations in the tourism sector began within days of the new constitution taking effect. Labor disputes arose in some resorts when employees' associations presented demands for wage increases and improvements in the conditions of work and stopped work.

Traditionally, wages in the private sector have been set by a contract between employers and employees and were based on rates for similar work in the public sector. The new employment law established a Pay Advisory Board to advise the Minister of Human Resources, Youth, and Employment on setting a minimum wage for the country.

The Employment Act granted workers the right to compensation if fired without cause. The Government has established a Labor Relations Authority to implement the new employment law. The law requires the Ministry of Human Resources to issue specific rules for employment of foreign workers. The Labor Relations Authority has also been established to check for workplace safety and health compliance. The Employment Act also makes provision for an Employment Tribunal, with the mandate of adjudicating employment matters.

The Employment Act does not cover emergency workers, air and sea crews, executive staff of any company and persons on on-call duty.

Membership in International Labor Organizations and Adherence to Labor Conventions

In December 2008, following the enactment of the new Employment Act, Maldives became a member of the International Labor Organization. In December 2009, the United States restored tariff preferences under the U.S. Generalized System of Preferences (GSP). The GSP facility to the Maldives was suspended in 1995 because Maldives did not have a mechanism to afford internationally recognized worker rights. Maldives is also eligible for Overseas Private Investment Credits (OPIC).

On January 6, 2013, the Maldives ratified the following core ILO Conventions: Convention 29 – Forced Labor (1930); Convention 87 – Freedom of Association and Protection of the Right to Organized Convention (1948); Convention 98 – Right to Organize and Collective Bargaining (1949); Convention 100 – Equal Remuneration (1951); Convention 105 – Abolition of Forced Labor (1957); Convention 111 – Discrimination (Employment and Occupation) (1958); Convention 138 – Minimum Age (1973); and Convention 182 – Worst Forms of Child Labor (1999).

Foreign Investment Statistics

Foreign direct investment (FDI) statistics are not readily available. Most of the FDI is in tourism, telecommunications, and banking. The Ministry of Economic Development reports that in 2012, 18 FDI agreements were signed, with a total initial capital/shareholding value of US$61.5 million.

U.S. firms represented in Maldives include Western Union, FedEx, UPS, Hewlett Packard (HP), Dell, Compaq, Coca-Cola, American Express, Hilton Resorts, Sheraton, SeaTec, Ernst and Young, PricewaterhouseCoopers, Marriott, ACE Hardware, and KPMG. In January 2013, the Blackstone Group acquired TransMaldivian Airways (TMA) and Maldivian Air Taxi (MAT), both operators of sea planes in the country.

Web Resources

International Monetary Fund: www.imf.org

World Bank: www.worldbank.org

Department of National Planning: www.planning.gov.mv

Maldives Monetary Authority: www.mma.gov.mv

Maldives Stock Market: www.maldivesstockexchange.com.mv

United Nations Development Program: www.mv.undp.org

Ministry of Tourism, Arts, and Culture: http://www.tourism.gov.mv/

Ministry of Economic Development: http://www.trade.gov.mv/?lid=44



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