With a total population of approximately 55,000 people (12,650 in the labor force) spread out over 1,200 small islands and islets across 750,000 square miles of ocean but just 70 square miles of total land mass, the Republic of the Marshall Islands (RMI) has a tiny economy with an annual GDP of around $179 million, per capita GDP of $3,800 and just a 1.6% real growth rate. The remoteness of the RMI from major markets (2,300 miles from Honolulu, 1,900 miles from Guam, and 2,800 miles from Tokyo) severely impacts the economy. The Marshallese economy combines a small subsistence sector in the outer islands with a modest urban sector in Majuro and Kwajalein. The RMI government is the country’s largest employer, employing approximately 46% of the salaried work force. The U.S. Army Garrison – Kwajalein Atoll (USAG-KA) is the second largest employer. A semi-modern service-oriented economy is located in Majuro and in Ebeye, on Kwajalein Atoll, and is largely sustained by government expenditures and by USAG-KA. Primary commercial industries include: wholesale/retail trade, business services, commercial fisheries, construction, and tourism. Fish, coconuts, breadfruit, bananas, taro, and pandanus cultivation constitute the subsistence sector. However, as the land in RMI is not very nutrient rich, the agricultural base is limited. The RMI has a narrow export base and limited production capacity and is therefore vulnerable to external shocks. Primary export products include: frozen fish (tuna), tropical aquarium fish, ornamental clams and corals, coconut oil and copra cake, and handicrafts. The RMI continues to rely heavily on imports and continues to run trade deficits ($80 million in 2014).
The Marshallese economy remains dependent on donor funding. The RMI is part of the former US-administered Trust Territory of the Pacific Islands that gained independence in 1986 and continues to use the U.S. dollar as its currency. Since independence it has operated under a Compact of Free Association with the United States. Since 2004, the U.S. has provided over $800 million in direct assistance, subsidies, and financial support to the Marshall Islands, equivalent to approximately 70% of the country’s total GDP during the same period. The Marshall Islands have received additional aid from Australia, Japan, Taiwan, the United Arab Emirates (UAE), Thailand, the European Union, and organizations such as the Asian Development Bank.
The U.S., China, South Korea, Japan, Germany, and the Philippines are the Marshall Islands’ major trading partners. Top U.S. exports to RMI include food products, prefabricated buildings, recreational boats, excavation machinery, aircraft parts, tobacco, and wood/paper products.
With the end of the Compact’s direct grant assistance approaching in 2023, the Government of the Marshall Islands is increasing its efforts to attract foreign investment and recognizes its important role in growing private sector development. Most local government officials encourage foreign investment, though attitudes may differ from island to island. The government particularly encourages foreign investment in fisheries, aquaculture, deep-sea mining, manufacturing, tourism, renewable energy, and agriculture and provides certain investment incentives for foreign investors.
Foreign investment in the Marshall Islands is complicated, however, by laws that prevent non-Marshallese from purchasing land. There is no public land in the country and no land registry; foreign businesses must lease land from private landowners in order to operate in the country. The high cost of doing business due to the country’s remoteness, its dependence on imported materials and services, and its limited infrastructure, especially transportation links, create additional challenges. Finally, due to RMI’s very low elevation, the potential threats of climate change and sea level rise make attracting FDI to the Marshall Islands even more difficult.
The major foreign direct investments are concentrated in the fisheries sector, including a tuna loining plant and a tuna processing plant along with several fishing purse seiners, the majority of which are owned by investors from China and Taiwan. There has been no significant foreign investment over the past year.
|TI Corruption Perceptions Index||2016||N/A||http://www.transparency.org/
|World Bank’s Doing Business Report “Ease of Doing Business”||2016||143 of 190||doingbusiness.org/rankings|
|Global Innovation Index||2016||N/A||https://www.globalinnovationindex.org/
|U.S. FDI in partner country ($M USD, stock positions)||2015||$2.1 Billion||http://www.bea.gov/
|World Bank GNI per capita||2015||4,770||http://data.worldbank.org/
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
The government of the RMI publicly expresses interest in finding ways to increase foreign investment, but there are many structural impediments to foreign investment and economic progress, such as land rights, which are unlikely to be changed in the foreseeable future.
Foreign investment is governed through the Foreign Investment Business License (Amendment Act (2000)), which established the Registrar of Foreign Investment and details restrictions on foreign investments. The Ministry of Resources and Development, Trade and Investment Division administers the law in coordination with the Office of the Attorney General.
Land issues and disputes concerning leases are subject to customary law governing land tenure, and proceedings can take a protracted time to resolve. Land cannot be purchased by investors; it can only be leased through customary practices.
Limits on Foreign Control and Right to Private Ownership and Establishment
Although the Marshall Islands generally encourages foreign investment, the Foreign Investment Business License (FIBL) (Amendment) Act established a National Reserved List, which restricts foreign investment in certain small-scale retail and service businesses. However, this law is not consistently enforced, and foreign investors may enter partnership agreements with local Marshallese businesses. Officially, foreign investment is prohibited in the following business ventures:
- Small scale agriculture and marine culture for local markets
- Bakeries and pastry shops
- Motor garages and fuel filling stations
- Land taxi operations, not including airport taxis used by hotels
- Rental of all types of motor vehicles
- Small retail shops with a quarterly turnover of less than USD 1,000 (including mobile retail shops and/or open-air vendors/take-outs)
- Laundromat and dry cleaning, other than service provided by hotels/motels
- Tailor/sewing shops
- Video rental
- Handicraft shops
- Delicatessens, Deli Shops, or Food take-out
Other Investment Policy Reviews
In the past three years the Government of the Marshall Islands has not conducted an investment policy review through any organization or institution.
The government of the Marshall Islands created the Office of Commerce and Investment (OCI) three years ago to assist foreign investors. OCI’s website has helpful information regarding investment and doing business in the Marshall Islands: . The OCI is currently in the process of developing a one-stop-shop online business registration process which they hope to launch next year. However, currently there is no online website for registering a business in the Marshall Islands. This must be done in person. After a foreign investor receives a FIBL, detailed in the Laws and Regulations on FDI, the business owner must complete the following steps:
- Check the uniqueness of the proposed company name with the Registrar of Corporations. This costs $100 US and takes one day.
- Have the company charters notarized. Notarization can be done at the Office of the Attorney General. It takes two days on average and costs $10 US.
- Register the company with the Registrar of Corporations. This takes five days and costs $250 US. Limited Liability Companies need to file a Certificate of Formation and need to have LLC agreements detailing how the LLC will be operated, managed, and distributions divided.
- Obtain an Employer Identification Number from the Marshallese Social Security Administration. This number will also serve as the company’s tax identification number. This process takes two days and costs USD $20.
- Apply for a business license. The business owner needs to submit a company charter along with the business license. Business licenses are usually issued in seven days. Licensing fees vary depending on the type of business. Fees are as follows:
- Retail Business: USD $150
- Banks: USD $5,000
- Professional: USD $3,000
- Hotels: USD $500
The Ministry of Finance segments the business sector for tax purposes using annual gross revenue amounts, not number of employees. There are no other segmentations recognized by the Marshall Islands. There is a Small Business Development Center in Majuro.
The RMI government does not actively promote, incentivize, or restrict outward investment.
2. Bilateral Investment Agreements and Taxation Treaties
The Marshall Islands does not have a bilateral investment treaty with any country.
3. Legal Regime
Transparency of the Regulatory System
Regulatory and accounting systems are generally transparent and consistent with international norms. Bureaucratic procedures are generally transparent, although nepotism and customary hierarchal relationships can play a role in government actions. Proposed laws and regulations are available in draft form for public comment pursuant to the Administrative Procedures Act, Title 6 of the Marshall Islands Revised Code. Generally, tax, labor, environment, health and safety, and other laws and policies do not impede investment. There are no informal regulatory processes managed by nongovernmental organizations or private sector associations.
International Regulatory Considerations
The Marshall Islands is a member of the Pacific Islands Forum (PIF) which has a model regulatory and policy framework focused on competition, access and pricing, fair trading, and consumer protections. The RMI seeks to implement PIF-agreed standards domestically; however, the capacity for enforcement is weak.
Legal System and Judicial Independence
The Republic of the Marshall Islands has a responsive judiciary that consistently upholds the sanctity of contracts. The legal system in the Marshall Islands is patterned on common law proceedings as they exist in the United States. The country has a judicial branch composed of a Supreme Court, a High Court, a Traditional Rights Court, District Courts, and Community Courts. The Supreme Court is made up of one Chief Justice and two Associate Justices. The High Court consists of the Chief Justice and one Associate Justice. The Chief Justices are both U.S. Citizens serving 10-year terms. There are also three Traditional Rights Court judges, two District Court judges, and several Community Court judges serving the Marshall Islands. On certain occasions, as necessary, the Marshall Islands Judicial Service Commission recruits qualified judges on contract from the United States to serve with the Chief Justice on the Supreme Court and to temporarily fill vacancies on the High Court as there are few qualified and independent Marshallese who can fill these positions. The Traditional Rights Court deals with customary law and land disputes.
Laws and Regulations on Foreign Direct Investment
All non-citizens wishing to invest in the Marshall Islands must obtain a Foreign Investment Business License (FIBL). The FIBL is obtained from the Registrar of Foreign Investment in the Ministry of Finance. In coordination with the Investment Promotion Unit at the Ministry of Resources and Development, the Ministry of Finance reviews the application and ensures that the business does not fall under the categories of the National Reserved List listed above. The application process usually takes 7-10 working days. The FIBL grants non-citizens the right to invest in the Marshall Islands, provided the investment remains within the scope of business activity for which the FIBL was granted.
The 2015 amendment to the Foreign Investment Business License Act requires all holders of FIBLs to maintain reliable and complete accounting records and records of ownership, and that all business records must be kept in such a way that they can be converted into written form at the request of an authorized inspector. These records must be retained for a period of five years.
Competition and Anti-Trust Laws
The Marshall Islands does not currently have any anti-trust legislation or agency which reviews transactions for competition-related concerns.
Expropriation and Compensation
All land is privately owned by Marshallese citizens through complex family lineages. Although the Government of the Marshall Islands may legally expropriate property under the country’s constitution, the government has only exercised this right on one occasion and only for a temporary period of time. Given the importance of private land ownership in customary law and practice, it is very unlikely that the government will exercise this right in the foreseeable future.
If a business activity is subsequently added to the reserved List, the Registrar of Foreign Investment may not cancel or revoke an existing Foreign Investment Business License if the investment has already commenced.
ICSID Convention and New York Convention
The Marshall Islands has been a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the 1958 New York Convention) since 2006, but is not a member of the International Center for Settlement of Investment Disputes (ICSID), nor does it have plans to become a member at this time.
Investor-State Dispute Settlement
There are no ongoing investment disputes involving the Government of the Republic of the Marshall Islands and foreign investors. There is a very limited record of foreign investment disputes in the Marshall Islands due to the small size of foreign investment in the country. The most common type of business disputes are with landowners over land use, and land rights issues, and as there is currently no official dispute resolution procedure, these are frequently resolved informally or only after protracted court disputes. Domestic civil society has traditionally not been actively engaged in dispute resolution. The Marshall Islands Courts are generally considered fair, without undue influence or interference. There is no history of extrajudicial action against foreign investors.
International Commercial Arbitration and Foreign Courts
The Republic of the Marshall Islands does not have any alternative dispute resolution (ADR) mechanisms or domestic arbitration bodies available as a means for setting disputes between two private parties. There is no known history of the RMI enforcing foreign commercial arbitral decisions.
There is no legal provision for bankruptcy in the Marshall Islands. It ranks 167 out of 189 for resolving insolvency in World Bank’s 2017 Doing Business Report.
4. Industrial Policies
The Marshall Islands offers tax and duty exemptions for investments in certain private sector industries. These investment incentives apply uniformly to both domestic and foreign investors through submission of a letter to the Minister of Finance. Tax incentives are specified by law, but have been rarely awarded, given the relative lack of large-scale investment.
All imports are subject to import duties, and the only current duty exemptions are for renewable and alternative energy items. Import duties are generally low ad valorem rates on cost, insurance, and freight (CIF), and the number of tariff categories is small to facilitate administration. Goods in transit are exempt from the import tax, and the import tax on re-exported goods is refundable. The Marshall Islands has no taxes on exports.
Under the terms of the Compact of Free Association, as amended, all items grown, made or produced in the Marshall Islands are exempt from U.S. duties with the following exceptions:
- Watches, clocks, and timing apparatus provided for in Chapter 91, excluding heading 9113, of the Harmonized Tariff Schedule of the United States;
- Buttons (whether finished or not finished) provided for in items 9606.21.40 and 9606.29.20 of such schedule;
- Textile and apparel articles which are subject to textile agreements; and
- Footwear, handbags, luggage, flat goods, work gloves, and leather wearing apparel which were not eligible for the generalized system of preferences in the Trade Act of 1974.
Tuna in airtight containers exported to the U.S. is duty-free, provided it does not exceed 10 percent of total U.S. tuna consumption during the previous calendar year. The Compact also stipulates that U.S. products imported to the Marshall Islands receive Most-Favorable Nation status, and the country must consult with the U.S. should they enter into a Free Trade Agreement with another country or customs territory.
Investors who invest a minimum of USD 1 million or provide employment and wages in excess of USD 150,000 annually to Marshallese citizens are exempt from paying gross revenue tax for a five-year period in the following sectors:
- Off-shore or deep sea fishing
- Manufacturing for export, or for both export and local use
- Hotel and resort facilities
Investors in seabed hard mineral mining are exempt from paying all taxes, duties, and other charges (except taxes on wages and salaries, individual income tax, and social security contributions). In return, investors are required to pay the Government of the Marshall Islands a share of net proceeds accruing from the investment in the form of royalties, production charge, or some combination thereof as agreed to between the government and investor.
Foreign Trade Zones/Free Ports/Trade Facilitation
There are no geographic foreign trade zones or free ports in the Marshall Islands.
Performance and Data Localization Requirements
The RMI government requires all investors employing non-resident workers to agree to:
- Cover the cost of repatriating non-resident workers to the place hired,
- Train one or more citizen workers to perform the work for which the non-resident worker is employed,
- Pay a levy of US$ 0.25 per hour for every hour of work performed by non-resident worker, to be paid to the Resident Workers Training Account for the purposes of training citizen workers, and repatriating non-resident workers should the need arise.
This requirement is set and evaluated on a case by case basis, and is usually included as part of a whole package that also includes investment incentives such as favorable taxation statuses.
U.S. Citizens do not require a visa to enter the Marshall Islands, and may be employed in the Marshall Islands without obtaining a work permit or a visa. They must register as an alien with the Department of Immigration on an annual basis. Though use of local products is encouraged, the government does not follow “forced localization.”
The RMI does not currently have laws or regulations on domestic storage or localization requirements.
5. Protection of Property Rights
Land rights are a highly complex and frequently contentious issue in the Marshall Islands. Land ownership is through family lineage and according to social class. Paramount Chiefs (Iroij) have title to entire islands or portions of islands within an atoll, clan elders (alaps) have title to several parcels of land under their Paramount Chiefs, and workers (dri-jerbal) have title to the parcel of land associated with their Paramount Chief on which they live. Each parcel of land is thus owned by at least three separate individual landowners, one each from the classes described above. Non-Marshallese may not purchase land, and land purchases by Marshallese are also very rare. Paramount Chiefs may grant land rights to others, though they retain their share of ownership in all circumstances.
Available land for development is scarce, particularly in the two major urban areas of Majuro and Ebeye. Non-citizen investors must negotiate lease agreements directly with customary groups of landowners. Land may be leased in perpetuity with many leases having a term of 50 years, and options for renewal. The Kwajalein land lease to the U.S. Government runs fifty years (to 2066) with an option to renew for another twenty years, for example. Mortgages against the title of land are not permitted, but commercial lease agreements and land lease payments may be used as collateral. There is limited written documentation of titles to land in the Marshall Islands, although local citizens generally know who controls each parcel of land on their particular atoll. In 2003, the Government of the Marshall Islands established a Land Registration Authority to create a voluntary register of customary land and establish a legal framework for recording documents related to ownership rights.
In the World Bank’s Doing Business 2017 report, the Marshall Islands rank 187th out of 189 countries for registering property.
Intellectual Property Rights
The Marshall Islands is not a member of the World Trade Organization, the World Intellectual Property Organization (WIPO), or any other international agreement on intellectual property rights. There is inadequate protection for intellectual property, patents, copyrights, and trademarks. The only intellectual property-related legislation relates to locally produced music recordings, and it has never been enforced. The Marshall Islands are not listed on the USTR’s Special 301 Report, nor are they listed in the Notorious Markets Report. Pirated DVDs and CDs imported from off-island are readily available.
6. Financial Sector
Capital Markets and Portfolio Investment
There are no stock exchanges or financial regulatory institutions in the country.
Money and Banking System
There are currently two banks with branches in the Marshall Islands. The Bank of Guam is a publicly owned U.S. company with its headquarters in Guam. It complies with all U.S. regulations and is FDIC-insured. The Bank of the Marshall Islands is a privately-owned Marshallese company with headquarters in Majuro.
Foreign Exchange and Remittances
The government does not impose any restrictions on converting or transferring funds associated with an investment. The Marshall Islands uses the U.S. dollar as its official currency, and there is no central bank. There are no official remittance policies and no restrictions on foreign exchange transactions. There have been no reported difficulties in obtaining foreign exchange as the vast majority of funds are denominated in U.S. dollars.
While the government encourages reinvestment of profits locally, there are no laws restricting repatriation of profits, dividends, or other investment capital acquired in the Marshall Islands. To comply with international money laundering commitments, cash transactions and transfers exceeding USD 10,000 are reported by the banks to the Banking Commission, which monitors this information and has the authority to investigate financial records when necessary. To date, however, the country has not successfully prosecuted any money laundering cases.
Sovereign Wealth Funds
The Marshall Islands has no sovereign wealth fund (SWF) or asset management bureau (AMB), but the Compact of Free Association established a Trust Fund for the Marshall Islands that is independently overseen by a committee composed of the United States, Taiwan, and Marshall Islands representatives.
7. State-Owned Enterprises
Nearly all major industries are controlled by state-owned enterprises (SOEs). The SOE sector, comprising 11 public enterprises, continues to underperform and to impose significant risks and burden on the fiscal system and economy. In the Republic of the Marshall Islands Single Audit for FY2014, the government recognized the need for continued reforms at SOEs. Air Marshall Islands, Marshall Islands Resort, Marshall Islands National Communications Agency, and Tobolar all have negative cash flows and require subsidies each year. The Marshall Islands Marina Resource Authority (MIMRA) is the only SOE to be a net revenue provider for the Marshall Islands, but the audit cautioned that the long-term future support from the fisheries sector cannot be taken for granted.
In 2015 the Marshallese parliament passed the State-Owned Enterprises Act which set standards for the formation and operation of SOEs. The Act changed the way the boards of directors of SOEs are structured and set minimum reporting requirements for the 11 SOEs. Boards must consist of at least three but no more than seven directors, only one of which can be a public official and that public official may not hold a term longer than three years after the Act goes into effect. A public official may not be selected as Chairman of the Board.
All SOEs are required to have their books independently audited as part of the government’s overall audit.
There is no formal privatization program in the RMI. Currently, foreign investors are allowed to purchase shares only in the National Telecommunications Agency, but foreign investors may not own a majority of shares. Bidding criteria are not readily available, and the process remains largely controlled by the national government.
8. Responsible Business Conduct
The Marshall Islands has some basic worker protection laws, including a minimum wage and protections for foreign workers. With the exception of a few retail businesses, the banking sector, and the ship registry, there is little general awareness of corporate social responsibility or responsible business conduct among producers or consumers. Firms that pursue these objectives are viewed neither favorably nor unfavorably.
There are credible allegations and periodic prosecutions for misuse of government funds and abuse of public office for private gain. Government procurement and transfers appear most vulnerable to corruption, and personal relationships sometimes play a role in government decisions. Government officials at all levels are permitted to invest in and own private businesses without regard for conflict-of-interest considerations. Foreign aid has been abused and past audits report a number of financial irregularities connected to donor-funded activities. Bribery is a second-degree felony, whether to a domestic or foreign official. The Marshall Islands acceded to the UN Convention against Corruption in September 2011.
Domestic and international firms as well as NGOs have repeatedly identified corruption as a problem in the business environment and a major detractor for international firms exploring investment or business activities in the local market.
Resources to Report Corruption
Acting Attorney General
RMI Attorney General Office
PO Box 890
Majuro, Republic of the Marshall Islands 96960
Tel: +692 625 3244
Fax: +692 625 5218
No international, regional, or local watchdog organizations operate in the country.
10. Political and Security Environment
There have been no reported incidents involving politically motivated damage to projects or installations.
11. Labor Policies and Practices
The RMI workforce is estimated at 12,657 based on the most recent census (2011), of which 45 percent work in the public sector. Results from the 2011 Marshall Islands census indicate the country has a 31 percent unemployment rate, and a significant portion of the population remains underemployed as well. Unemployment rates among youth and young adults could be as high as 50–60 percent. Official reported unemployment is 4.7 percent however, by including all household production such as fishing or making handicrafts for personal consumption.
Under the Compact of Free Association, Marshallese citizens are entitled to live, attend school, and work in the United States visa-free as “nonimmigrant residents.” Accordingly, many skilled and professional workers migrate to the U.S. for its higher wages and standards of living. Professional, medical, management, and other special labor skills are in high demand in the Marshall Islands.
Given the scarcity of resident qualified workers, the Marshall Islands allows investors to employ non-resident workers provided they agree to cover the cost of repatriation, that they hire and train at least one citizen to perform the same work, and pay a levy of USD 0.25 per hour for every hour of work performed by non-resident worker, to be paid to the Resident Workers Training Account for the purposes of training citizen workers, and repatriating non-resident workers should the need arise. Non-citizen investors issued with a foreign investment business license are exempted from obtaining a work permit for themselves. Also, citizens of the United States, Federated States of Micronesia and Palau do not require work permits to work in the Marshall Islands. Investors and nationals of these countries, however, are required to register with the Labor Office. The RMI government may also issue investors work permit exemptions if investors can demonstrate that their investments will provide substantial economic benefits to the country. Such exemptions are limited to export-oriented investments. Applications for such exemptions should be submitted to the Chief of Labor.
Foreign workers are generally hired on a contract basis with opportunities for annual renewals. The National Training Council provides training resources for Marshallese workers. While many consider the law discriminatory against foreign workers, employers are willing to pay the fee in order to hire skilled labor, which is not widely available in the country. Some companies, particularly in fisheries, seeking to expand business and hire additional workers are limited by other infrastructure constraints, such as the lack of available land, water, and power.
There are no laws that require employers to pay a severance package when an employee is released from service, either due to firing or lay-offs. Arrangements for severance payments are generally made at the time of hire through terms in the hiring instrument. There is no employment insurance or any other social safety net programs for unemployed individuals.
There is no legislation concerning collective bargaining or trade union organization. The country has a very limited history or culture of organized labor. The only union ever created in the country, the Teachers’ Union, was formed several years ago and is inactive. The Marshall Islands has been a member of the International Labor Organization (ILO) since 2007.
12. OPIC and Other Investment Insurance Programs
The U.S. Overseas Private Investment Corporation (OPIC) provides investment insurance, financing, and loan guarantees in the Marshall Islands for qualified investors. Because the Marshall Islands uses the U.S. dollar as its national currency, there are no convertibility risks. The Marshall Islands are not a member of the Multilateral Investment Guarantee Agency.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
*Local GDP statistics from the Economic Policy, Planning and Statistics Office (EPPSO) serves as an economic advisor to the Government of the Republic of the Marshall Islands. It is responsible for Policy & Strategy Development, Statistics & Analysis, and Performance Monitoring, Evaluation & Aid Co-ordination. EPPSO is directly responsible to the Office of the President.
Table 3: Sources and Destination of FDI
IMF Coordinated Direct Investment Survey data is not available for the Marshall Islands.
Table 4: Sources of Portfolio Investment
IMF Coordinated Direct Investment Survey data is not available for the Marshall Islands.