MALDIVES - A Plummeting Economy

Written by Tahera Sajid  •  Region  •  December 2012 PDF Print E-mail

The Maldives is constantly in the news for its climate-related problems but concerns regarding business challenges for foreign investors are no less important.

It is not surprising that any perceived threats to foreign investment in a country automatically plummets investor confidence and the economy suffers a heavy blow. The Maldivian economy thrives on tourism mainly, but also relies heavily on foreign investment. Some Indian companies seem to be at loggerheads with the new Maldivian government over contracts awarded by the previous regime. Although the present regime has assured Indian investors of support, recent events seem to point otherwise.

The Maldives is the smallest Asian country located at just 1.5 meters above sea level and suffers from severe effects of global warming. Politically, it has not seen much stability since it gained independence from the British in 1965 and has been ruled by successive authoritarian governments, each bringing a new set of issues like increasing debts etc. The last government of President Mohamed Nasheed faced many challenges, both natural – like the 2004 tsunami – and manmade – such as an unfriendly parliament opposition majority. President Nasheed was forced to resign in February 2012 following countrywide street protests, and his vice president, Mohammed Waheed Hassan, was promptly sworn in as the new President.

Not surprisingly, this long time trend of upheavals has affected the economy adversely, although many countries are lending support to the Maldivian government. According to the U.S. State Department, the Government of Maldives (GoM) “receives help from the US as a beneficiary country under the Generalized System of Preferences program for duty-free exports entry to the United States,” providing ease of access for businesses to the rich American market. Up until 2007, the Maldivian economy sustained a growth rate of 6.6%. However, the recent political changeover and the new regime’s subsequent efforts to dissociate itself from actions of the last one, is not doing any favors to the country’s economic situation.

Recently, two major Indian investment projects conducted by GMR Infrastructure Ltd. and Tata Housing Group have been in the media limelight for facing onslaught of false charges and roadblocks in their efforts to complete their projects by the present regime. Since the contracts with these groups were awarded during former President Nasheed’s regime, popular consensus is that the opposition, by most of the current coalition partners of the new government, is based solely on political motivations.

As widely reported in the media, the Maldivian government has annulled GMR group’s largest private investment in South Asia, the over $500-million Ibrahim Nasir International Airport in Male. According to government sources, the project was terminated because GMR acquired the bid during former President Nasheed’s tenure. Similarly, a realty project co-developed by Tata group subsidiary, Tata Housing, is also facing land-related issues in the country.

With India now out of the picture, the Maldives accorded the project to the state-owned Male Airports Company. Even though the deal has been annulled, allegations of corruption are being leveled against GMR to make a strong case. A GMR spokesperson reportedly denied all allegations and accused the government of going back on its word, strongly condemning “Public statements and press conferences of some government ministers and coalition party leaders” which are “clearly aimed at arousing public sentiments against GMR and creating undue challenges…” The spokesperson clarified that, “GMR was granted required approvals and licenses to operate…made huge investments in the development of an arrival duty free area. However, the government later revoked the license citing that earlier the license was given in error. Similarly, the GoM passed an amendment to Business Registration Bill to restrict any foreigner to carry on Duty Free business, cargo clearance business, and bonded warehouse business at the airport. This step is clearly directed against GMR.”

In the case of the $200 million Apex Realty project of the Tata Group, despite signing a contract, the Maldivian government seeks to take over the site for its own use. Apex Realty was to build 10,000 housing units to resolve housing shortage issues in the Maldives owing to high population density and lack of basic infrastructure. The GoM has offered Apex Realty an alternate site but other problems persist in settling the issue amicably, not to mention discouraging future investment by this first time foreign investing firm.

The Presidential Press Secretary, Masood Imad was quoted in various media sources as saying, “This government will not target any investment, Indian or otherwise, unduly. The assurances given by the President securing foreign investments in Maldives are valid and stand true.” However, actions speak louder than words.

The Maldivian government is projected by some sources to be close to an economic collapse but unable to appreciate the importance of investor confidence. Some media reports have quoted an official asserting that the Maldives badly needs the promised $25 million bailout from India to uphold its various commitments to its own people. It cannot afford to lose major Indian investors it is currently harassing due to politically motivated decisions. Perhaps the saving grace for the Maldivian economy so far has been the flourishing tourism industry. The political situation notwithstanding, most resorts reportedly remain fully booked throughout the tourism season.

For long-term gains, however, the GoM needs to carefully assess its options and resolve disagreements between the corporate and the political sectors to secure a stable investment future. Not just the Indian companies, but other investors may start looking for alternate partners in the region or even relocating existing businesses before long. With the climate crisis looming in the background as it is, Maldives needs all the help it can get. It is time to rise above petty politics and encourage steady progress. 

Tahera Sajid is a freelance journalist and lives in Massachusetts, USA.  She is a community builder and an active advocate for interfaith relations. 

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