Issue 6 Dec 2020 Ver 3

ISSN 2708-4787
MALDIVES
Fazeel Najeeb ECONOMIC
REVIEW
Volume 2, Issue 2, December 2020
Sunlight is the best

disinfectant
Ibrahim Athif Shakoor
also…
Price over privilege
Abdul Haleem Abdul Latheef
Post Covid 19- the road to recovery

Aishath Isra Abdulla
Foreign direct investment: How has Maldives

fared?
Fazeel Najeeb
Institutional Reform: a necessity for

Economic Boom
Ali Khalid
The role of the state in the development of

the fishery industry- todate and beyond
MALDIVES ECONOMIC REVIEW DECEMBER 2020
IN THIS ISSUE EDITORIAL

Sunlight is the best Issue 2, Volume 2 finds ourselves in more
disinfectant familiar territory with articles spanning a variety of
Ibrahim Athif Shakoor issues rather than with a special focus we had
Page 3 used for the last 3 issues.
Price over privilege With vaccines on the horizon, as the world

moves with cautious optimism towards steady
Page 5
economic recovery, our lead article by Athif
Shakoor paints an optimistic picture.
Post Covid 19- the Haleem's article 'Price over Privilege' is another
road to recovery
well researched in-depth look at the interest rate
spread and matters surrounding the issue in the
Page 14
local economy.
Foreign direct Aishath Isra Abdulla- a first time contributor

investment: How has examines the road to recovery in her article 'Post
Maldives fared? Covid-19 - the road to recovery'. We look
Fazeel Najeeb forward to many more contributions from Isra
Page 18 going forward.
Institutional Reform: Fazeel's article 'Foreign direct investment: How

a necessity for has Maldives fared?' presents an overview of
Economic Boom FDI theories and an analysis of FDI policy and
Ali Khalid performance in the Maldives.
Page 26
Ali Khalid, another first time contributor to
The role of the state mer.mv, but by no means a novice writer, writes
in the development of about the importance of Institutional Reform for
the fishery industry- sustained economic growth in the aptly titled
todate and beyond 'Institutional Reform, a necessity for Economic
Growth v
Page 29
Athif's second contribution to this issue 'The role
of the state in the development of the Fishery
industry - to date and beyond' looks at the state
involvement in the development of the Fishery
industry and the rationale for continued state
assistance in the industry
Opinions and views expressed in the Maldives

Economic Review are those of the authors and they do
not necessarily reflect the opinions and views of the
journal.
www.mer.mv 2
Sunlight is the best disinfectant

The Maldivian economy is totally Lockdowns and its’ psychological

dependent on tourism and it is a very eﬀects
unhealthy state of affairs for any economy,
Tourists from China account for 16.7% of
as all manner of commentators, have
arrivals in 2019 and holds poll position as
repeated ad nauseum. It’s been a
the country with the most tourist arrivals.
common refrain from professionals and
However, tourists from western Europe
layman alike. However, as this author has
together with UK accounts for 23% share
said elsewhere, it is a much repeated,
of tourist arrivals and together with other
never acted on refrain, the sound of which
European countries account for 47.6% of
climbs to a deafening crescendo when the
arrivals in 2019.
tourism industry is under threat and
abruptly subsides and merges into Therefore, European and especially
background static much too soon. Western European market is the most
significant market for the Maldivian
Yet, this time round, with the world in
tourism industry, and it has remained so
these particular circumstances, the fact
from the days Europeans in fact, started
that our economy ebbs and flows,
tourism in the Maldives. However, this
responding to the gravitational action of
world, that seeded our tourism and is
the tourism sector, may indeed work to
even today the major market, are being
our advantage in getting our economy
forced into additional and tighter
back on track that much faster. Sooner
lockdowns at the height of Christmas and
than hoped for, and earlier than the
New Year season. UK, Germany, France,
pundits at Fitch ratings and the World
Italy are experiencing record infections
Bank would make us believe. There’s a
and record deaths. They are experiencing
c o n fl u e n c e o f o c c u r r e n c e s , a
tighter restrictions during the very period
convergence of factors, that allow our
that families look forward to getting
economy; the one far too much
together and renew family bonds.
dependent on the Tourism industry, for far
too long, to allow us to recover and set us Enforced lockdowns, feed a desire to flee,
on the road to recovery, this time around. to escape the curbs and the constraints.
As people, especially in western Europe
A convergence of factors
dream of escape while in the midst of
Yes, this time around, under the present deep winter, it is almost inevitable that
confluence of factors that include they dream of sunlight and warmth. To
g e o g r a p h i c , e c o n o m i c , s c i e n t i fi c have a break, a rest on a secluded beach,
knowledge and base human nature, will, it with detachment and privacy.
is believed, allow for our economy and our
In such circumstances, Maldives, is a
people to benefit mightily from the fact
destination that comes naturally to the
that we are a tourism dependent
fore.
economy.
www.mer.mv 3
The impact of Geography vaccinated before end of the year and

100m to be vaccinated by February and
Geography has blessed us with small,
all UK citizens are expected to be
separate islands with large sandy
vaccinated by April.
beaches, crystal clear waters teeming
with life and year-round warmth and Therefore, it is not too optimistic to hope
sunshine. Our geography is the defining that as winter gives way to spring, it is not
feature of our success in tourism. And as only the cold temperatures that will give
fundamentals of our geography remain way firstly to mild then warmer weather,
steady, will surely allow us to bounce but that the population of our major
back. markets in Western Europe will, armed
with vaccines, look forward to travel with
Meanwhile the citizens of our major
greater confidence and ease of mind.
markets, suffered not just binding deep
lockdowns, they had to brave the The above confluence of factors will, it is
lockdowns in deep winter. Sunlight, warm believed, allow our tourism industry to fully
clean sunlight is definitely on their mind. recover by the mid 2021. And the nature
of our economy determines that once
This geography, therefore, has the power
tourism industry revives all manner of
to attract tourists from all countries as
other economic activities will rejuvenate
they emerge from strict lockdowns
and thrive. The total dependency on the
especially for those people who emerge
tourism industry will allow us to get back
from lockdowns in cold and icy weather.
on our feet this time around.
Progress in Science allowing for vaccines
However, single dependency of the
being available
economy on one industry is not a model
Progress in science have offered the that we, or any other country should
opportunity to roll out Covid 19 vaccines depend on, especially when it is tourism
in record time, - authorized one year from industry with so many factors beyond our
the naming of the virus. Two vaccines control. We have said so repeatedly. Let
have been authorized for use and a third us hope that this time around we get to
is just round the corner. Meanwhile the real, difficult, time consuming and
Russian and Chinese are testing their own expensive work of getting our economy
variations. diversified and be better prepared by the
time the next threat to the tourism industry
United Kingdom was the first country, on
emerge, as it will inevitably do.
the 8th of December to start vaccinations
followed closely behind in US. European Meanwhile the sun that shines on our land
countries including Germany, France and is the best disinfectant to cure the ills of
Italy are due to start vaccinations straight this economy and allow to stand up and
after Christmas or just after New Year. reflect on the way forward.
While vaccines are first on offer to the
elderly and front-line workers, US
estimates 20m of its citizens to be
www.mer.mv 4
Price over privilege

Introduction debate, this article begins with an

explanation of structure of Maldives
The interest rate on borrowing is a highly
financial system, exploration of the
talked about issue in the Maldives. While
historical circumstances that lead to the
much of the attention on the interest rate
emergence of the financial system and
is on borrowing, the interest rate earned
concludes with some peculiarities to
on savings is a muted issue. The
ponder for their nature and existence.
difference between these two rates is
called interest rate spread. The interest The Financial System
rate spread is an indication of the
The financial system is the mechanism
efficiency of the financial system and
through which exchange of funds
manifests an inverse relationship.
between savers and borrowers take
The Maldives financial system is a bank- place. The critical components of the
based financial system. Except for financial system are institutions, markets,
commercial bank deposits, there are no payment systems, depository systems for
reliable saving vehicles in the financial the management of property rights and
system. During the period from support services such as brokers, dealers
2009-2019, the banking sector (measured as well as professional services such as
in terms of deposits) grew at a compound accounting and legal service providers.
annual growth rate of over 8%, reaching
The Maldives banking system is
over MVR 32.6 Billion, leasing and
connected to the international financial
mortgage contracts grew over 34% while
system through correspondence banks,
the insurance sector’s growth in terms of
SWIFT system and international payment
policies sold recorded over 18% during
system providers. The need for
the last seven years.
international payment systems grew with
In terms of accessibility to financial the growth of international travellers to the
services, bank accounts registered as of Maldives. Bank of Maldives is the
2019 reached 419,345. This translates exclusive acquirer and issuer of American
into close to 80% of the resident Express cards in Maldives and the only
population having bank accounts, a very principal member in the Maldives for Visa
high per centage compared to and MasterCard.
international averages. Insurance policy
Commercial bank deposits reached over
holders more than doubled during the last
MVR 32.6 Billion by 2019. Although the
seven years to reach to 68,497. Whereas
deposit grew by over 8% on compound
there were only forty-five ATMs in 2010,
basis over the last seven years, close to
the ATM network grew to 149 by 2019.
80% of deposits account for transferable
Yet, the interest rate spread widened in deposits or demand deposits. It is also
the Maldives, raising questions on the interesting to note that foreign currency
fairness of our financial system. In order to deposits account for over 57% of total
shed some light on the interest rate deposits and the rate of growth of foreign
www.mer.mv 5
currency deposit is much faster than that growth in lending for the tourism sector
of the local currency. Banking sector slowed down, albeit the highest exposure.
assets represent over 61% of the total
Agriculture, fisheries and manufacturing
financial sector assets. The total banking
experienced negative growth in lending
sector assets reached over MVR 60 Billion
with highest decline recorded for the
in 20201. The banks in Maldives provides
manufacturing sector. The most significant
term loans, trade finance and bank growth was achieved by the construction
guarantee as well. Bank of Maldives also sector with 23.30%.
engages in development banking services
During the last seven years, the banking
as an administration agent for government
sector overall exposure to private sector
various funds. The banking sector loans to
grew at 9.10% on compound basis while
private sector is in the order of MVR 24
banking sector’s exposure to public sector
Billion, with highest exposure to tourism
grew at 18.29%. The banking sector hold
sector (36.65%) and then to the
MVR12.3 Billion of the total MVR 32.28
construction and real estate sector, which
Billion domestic public sector debt. There
is in the order of 29.18%. The fisheries
is no secondary market for government
sector exposure is only 1.7%. The rate of
securities except when MMA in its
desertion engages in the sale and
1 Adjusted for non-financial assets, MMA stats Oct 2020
www.mer.mv 6
purchase of these securities to manage The First insurance company in Maldives

the money supply. was established in 1985 by the State
Trading Organisation (STO) in the form a
Evolution Of Financial System
subsidiary by the name of Allied Insurance
The Maldives economy started to take a Company of the Maldives. The first
structured form during 1950s. By then the finance company was established in 2001
trade in Maldives was controlled by Vohra in the name of Maldives Finance Leasing
M e rc h a n t s . Vo h r a h c o m m u n i t y i n Company (MFLC). The first specialist
Male’ (most probably) would have their m o r t g a g e fi n a n c e c o m p a n y w a s
roots in Gujarati Muslims who had established in 2004 by the name of
significant business influence in the region Housing Development Finance
and beyond during the 16th and 17th Corporation (HDFC), with backing from
century. In 1940s the Maldives rulers sort International Finance Corporation (IFC),
out a debt dispute with the Vohras to Asian Development Banks and HDFC
ascertain sovereign debt from the private (India).
debt owed to Vohras. The end of Vohra
Capital Market institutions came into the
Merchant’s dominance on trade in Male’
picture during 2006 with the formation of
led to a new era for commence and
Maldives Stock Exchange (MSE) and
industry and emergence of a more
Maldives Securities Depository (MSD), as
expanded merchant class in Maldives.
a subsidiary of MSE. Under the Maldives
During the 1950s gover nment-led Securities Act, licenses were issued to
economic planning started to take shape market intermediaries such as
in the Maldives. The expansion of trade, stockbrokers. Two stock brokerage firms
influx of foreign exchange, remittance from are still active today; Stock Brokers
Addu Atoll to Male’ contributed to the Maldives (SBM) and Ariya Securities, both
formation of private capital as well as received license in 2006.
increase in government revenue. There is
During 2011, Islamic banking was
evidence that the first bank in Maldives
introduced into the Maldives by the
was established in Addu Atoll during
Maldives Islamic Bank (MIB) with the
1960s, most probably for deposits of
backing of the Islamic Corporation for the
salary for those working at Gan Island,
Development of the Private Sector (ICD), a
which was a British Naval Base back
m u l t i l a t e r a l d e v e l o p m e n t fi n a n c i a l
then.
institution forming part of the Islamic
In 1974, with the arrival of the State Bank Development Bank (IsDB) Group.
of India (SBI), the Maldives economy
In 2016, Maldives government securities
become more integrated to the rest of the
received rating from Fitch Rating for the
world. SBI is the origin of the modern
first time. See Appendix1 for further detail
banking services in the Maldives. MMA
on the development of Maldives financial
was formed in 1981 after six years since
system.
the introduction of banking in Maldives. It
should be noted that the circumstances Interest Rates
for the formation of MMA in Maldives is
The payment system developments also
totally different from the historical origins
took place during 2011 with the
of central banking. Central banking has its
i n t ro d u c t i o n o f R e a l T i m e G ro s s
origin with war financing and bank runs.
Settlement System (RTGS) by MMA.
www.mer.mv 7
Structure of Maldives Financial System
Regulators
• Maldives Monetary Authority (acting as the central
bank)
• Capital Market Development Authority (CMDA)
Institutions Financial Intermediaries

• Banks
• Insurance Companies
• Leasing Companies
• Housing Finance Companies
Capital Market
• The Maldives Stock Exchange (MSE is aa
privately held company)
The Money Market

• Interbank Market
Markets
• Government Securities Market
• MMA government security discount market
• MMA facilities (ODF/Lombard Facility)
Forex Market
• Money Exchanges
Maldives Securities Depository (a subsidiary of

Depository systems
MSE)
• BML Payment Gateway
• VISA/MasterCard/Amex
• SWIFT
Payment Systems • RTGS
• ACH
• Money remittance companies
• Mobile Money
Agents/Brokers/Dealers/ Professional Services

Support Services
Firms
www.mer.mv 8
During 2017 MMA introduced electronic government, the interest rate on CDs
clearing system with the launch of would be the proxy risk-free interest rate.
Automatic Clearing House (ACH) The interest rate on CDs remained at 8%
until 2003. The interest rate on CDs was
The interest rates observed in the
revised down to 6% in 2003 and to 4% in
Maldives quite peculiar. The risk-free
2004 and remained at that level until
interest rate is several basis points above
2006.
the saving rates from banks. The central
bank intervened interest rate correction is The OLF rate remined high to discourage
not possible because of high level of the commercial bank’s reliance on central
dollarization and currency substitution. bank for the management of short-term
liquidity. With the introduction of Treasury
The interest rate structure observed in the
Bills, MMA introduced repurchase facility
Maldives can be grouped into three broad
(repos) in place of the OLF. Under this
categories: The MMA rates to the banking
facility, MMA was able to engage in open
sector, Government Treasury Bill rates,
market operations to manage the money
Bank local currency Rates, and Bank
supply. The repo rates started at 12% and
foreign currency rates. Within the bank
was raised upwards to 13% subsequently.
rates there are two segments: Public non-
finance corporation, Private sector The repo facility was suspended and OLF
was reintroduced at an interest rate of
MMA Interest Rates
16% in 2010 and remained at that level
MMA is the authority responsible for the
until 2013. OLF rate was further reduced
implementation of monetary policy and
to 10% in 2015 and is currently prevailing
financial stability. Until 2006 MMA used
at that rate. MMA also reintroduced ODF
two policy instruments to manage the
and reverse repurchase facilities as well in
money supply in the economy. Certificate
2015. The reverse repurchase facility has
of Deposits (CDs) is a saving instrument
been suspended in 2015. The ODF rate
for banks, while the Lombard facility (OLF)
and OLF rate prevailing currently is 1.5%
provides financing for the bank when
and 10% respectively. This effectively
faced with short term liquidity issues. Prior
means banks will earn 1.5% (on annual
to the introduction of treasury bills by the
www.mer.mv 9
basis) by investing cash with the central Authority (MMA) acts as an agent for issue
bank and in case banks resort to MMA to of government securities. The government
borrow money, banks would pay 10% (on securities market was available to financial
annual basis) for borrowing. corporations and SOEs until September
2012. This condition was relaxed in 2012
with the first sale of government securities
Government Securities Interest Rates in October 2012 to a private sector entity
(MVR 139.1 Million). Ministry of Finance
Government introduced two series of has extended the participation to
treasury bills in 2006; 28-days bills and Investment Funds and Private Companies.
91-days bills. Treasury bills were issued on Individual citizens are also allowed to
11th Sep, 2006 replacing CDs. The invest in government securities on private
government introduced 182-days bills as placement basis. Government securities
the Pension Fund started investing in are issued in 100,000 lots (10 bills of MVR
government securities and also 10,000 each.
introduced the 364-day bills 2013 to
Treasury bills are sold on discount basis
provide a longer-term saving instrument.
where investors will buy the bills at a
Since 27th December 2009 the rate discount to the face value, representing
represents the weighted average interest the purchase price. The face value is the
rate accepted by the government.
Treasury bills reverted
to a TAP system from Tenure Rate Face Value Purchase Profit
an auction system in Price
28 3.50% 1,000,000.00 997,322.26 2,677.74
2014. The rates were
revised in 2015 due 91 3.87% 1,000,000.00 989,716.17 10,283.83
to a change in
182 4.23% 1,000,000.00 979,343.63 20,656.37
government policy.
364 4.60% 1,000,000.00 956,138.14 43,861.86
Maldives Monetary
www.mer.mv 10
value stated on the bill that will be years attracts interest rate of 4.72%. The
received by the investor on maturity of the rates averaged 3.79% for this tenure.
bill. The difference between the face value
The saving rates for foreign currency
and the purchase price is the return
declined overall. The highest return is
earned on these bills. Currently treasury
attracted to 3-to-6-month products which
bills yield interest as follows; 28 days
average 3.29%. The saving decline in
(3.5%), 98 days (3.87%), 182 days
saving rates for foreign currency is a result
(4.23%) and 364 days (4.6%)
of increase in dollar deposits as seen in
The current term structure of interest rate the currency composition of deposits.
is such that longer holding periods result
Experimentation with different policy
in higher returns. The following shows the
instruments to affect the money supply
profit earned by investing MVR 1 Million in
has not resulted in any meaningful change
treasury bills of varying maturities.
on the interest rates in the Maldives.
Banking Sector Saving Rates Overall, the saving rates declined as result
Interest rates on local currency saving of growth in dividends while the lending
products show that long tenures attract rates hardly changed. The interest rate
higher rates. Saving products for 2-3 spread improved the banking sector
profitably and bank’s shareholder equity.
www.mer.mv 11
The opportunity to
patriciate in the
treasury bill market
should be made
more transparent
and affordable. The
government debt
market should be
further developed
with different
maturity structures.
The peculiarity of
The lending rates
treasury bill interest rate being above that
The lending rates in local currency of deposit rates may be to address
averaged 9.5% and 10.83% for public specific concerns of the banking sector.
sector and private sector respectively. The However, the long-term consequences of
private sector risk premium average 130 such distortions would result arbitrage,
basis points. unequal wealth distribution and also
outflow of savings from the country to
Is cost of borrowing high?
abroad. This peculiarity needs to be
I wish I know the answer to the question. addressed.
What I know is that even with the In Maldives public sale of securities and
expansion of the financial system, the trading are only permitted through the
nature of our financial system remained Maldives Stock Exchange, a privately held
boutique; each institution serving a entity. This limitation is needless because
segment which makes sense in terms of the choice of an exchange should be left
risk, reward and stability. What need to to the issuer of the security. Regulator
change is the design of our financial imposed restrictions on public choice in
system with public interest in mind. Higher favour of a particular private entity is a
borrowing cost is not a bank problem, it’s hinders to the development of the market
a problem of the system as a whole. for securities and thereby widening
Unless we prioritise price over privilege, choices for investors.
the system will remain unchanged. The monetary policy led intervention to
Certainly, there are several reforms that affect interest rates in the Maldivian
would result in narrowing the interest rate context should be secondary to price
spread and make the financial system stability as perused by MMA as a policy
fairer for most people. The financial choice.
system comprises of several components Note:
and they all should work in unison to
make the system efficient and effective. Data for this article is from
The current dual regulator model brings in
• MMA Stats
more harm than good in reforming the
• IYYE Magazine
financial system and making it fairer. A
• Various Regulations
unified regulatory framework would
• Company websites and from public
promote holistic view, reduce regulatory
domain
compliance burden and save costs to the
state.
www.mer.mv 12
Appendix1: Timeline of Maldives Financial System
www.mer.mv 13
Post Covid 19- the road to recovery

On March 7th, 2020, the Maldivian management, health, social welfare, trade
government announced the first case of and commerce have a tremendous role to
COVID-19 pandemic n the Maldives as play to contain the situation. As such, they
the worst slump since the great must continue to manage, monitor and
depression synchronised around the impose controls to reboot our economy.
world.
Due to the pandemic, crisis management
Due to the small size of the economy and and crisis communication have now
significant reliance on tourism, we were become buzz words of the Maldivian
already facing a unique set of challenges. government. At the same time, from office
At the same time, IMF, World bank and workers to resort workers to taxi drivers,
other economic authorities stated that the pay checks are reducing in the still ‘caged
Maldives would be among the worst hit in situation’. Regardless of whatever looms
the world and our GDP is forecast to in the horizon, the biggest challenge
shrink by 19.5% in 2020. would be to continue to save lives and
crawl towards sustenance for our fragile
This premonition followed the
economy.
implementation of pandemic and
emergency guidelines, closing of The total cost of COVID-19 for the
educational institutions, activating Maldives is estimated to be MVR 2.6
measures of immigration and border billion as of 26th November 2020. MVR
control and imposing national disaster 1.3 billion on health and social spending,
recovery plans on all fronts. Additionally, and a further MVR 1.3 billion on economic
special health care and economic stimulus response spending. Additionally,
packages were announced, and the expenditure on subsidies and financial
Maldives Monetary Authority and other assistance reached MVR 4.3 billion in
administrative authorities geared up to 2020, a 15% increase compared to 2019.
provide financial assistance to both public
In this bleak situation and the dire
and private sector institutions.
economic conditions, the government
However, much has changed since the announced an economic stimulus
first few months. We have gone from a package worth MVR 2.5 billion. As of 30th
complete lockdown to a partial lockdown, November 2020, a total of USD 519.8
and the curfew was eased just a few million has been received from various
weeks ago. countries and agencies which constitutes
a major potion of the incentive package.
On the institutional front we are continuing
work from home, deploying IT resources With all these conundrums, optimistically
and initiating contingency plans. The thinking COVID-19 means change, and it
situation is still evolving, though many of has brought a lot of opportunities for the
us believe the worst is over. However, I Maldives to reform our policies and
believe all government and regulatory embrace the shift towards the betterment
authorities related to national disaster of our economy. I believe COVID-19
www.mer.mv 14
opened doors for new opportunities and and individuals. Due to COVID-19 the
innovations and put our disaster response poverty rate has increased by 5.6% in
to the test. 2020 and is expected to decline very
slowly in the coming years.
According to Faris. H. Hadad-Zervos, the
World Bank Country Director for Maldives, • Pass a national budget that is geared
Sri Lanka and Nepal, “The Maldives story to grow the economy to recovery. A
has always been one of resilience. Time budget that facilitates increased
and again, we have seen the Maldives development should be passed as a
confront its vulnerabilities and external reduction in economic growth will
shocks, only to emerge stronger,”. affect the credit rating of the country
which may create more extensive
I do hope the positive expectations of the
p ro b l e m s i n t e r m s o f i n v e s t o r
World Bank and other donor agencies will
confidence and cost of financing later.
be achieved post COVID-19. In this
moment of reckoning my view is that we • Implement smarter regulations to
still have a, long way to go and we need facilitate the growth of the private
to take strong measures for better, s e c t o r. F o r t h e u n e m p l o y m e n t
inclusive and sustainable economic challenge to be met, besides giving
growth in the long run. We must learn to direct incentives the government will
make use of all resources effectively. need to address workplace reform to
support employers, particularly small
I do see opportunities for sustainable
business and build skills or introduce a
recovery if all stakeholders work together
tertiary education system that can fill
towards leadership for a profoundly better
skills gaps and assist the unemployed.
future. How resilient we come out of the
crisis depends largely on the choices that • Introduce reforms in independent
the government, businesses and institutions and ensure that all
individuals make over the following decisions made regarding the stimulus
months and years. package given by donors is above
board and carefully monitored. (The
To mention a few things that we can do in
donor assistance comes with many
a ‘daring’ mindset to reboot:
conditions for reform on fiscal and
• Publicly disclose and keep the monetary fronts and may include
government accountable on spending recommendations for prudential
assistance from international measures)
institutions. The IMF provided about
• Pave the way for maximum
US$28.9 million dollars in assistance
involvement of the youth in our
and it should be used to its optimum.
national development, especially since
• Although donor funding has played an approximately 54% of the labour force
integral part in our recovery, it is not is aged 18-34. (We have experienced
wise to become too reliant on it as it a high level of unemployment,
allows foreign parties to dictate how especially youth unemployment during
our economy is run. the pandemic).
• Reduce expenditures, redirect funds to • Make plans to revive the tourism

fight the pandemic and arrange interim sector as the pandemic has inflicted
relief for the most exposed businesses significant damage to the tourism
www.mer.mv 15
sector, which is the mainstay of our Having said all the dos and don’ts, the
economy. Due to this our GDP growth, questions I want to pose are: What are
the balance of payments and our the prospects for recovery in 2021 and
overall fiscal position has weakened beyond? What is the best economic
dramatically. development route for the Maldives? My
answer is that whatever path the
• Urge the Maldives Monetary Authority
government chooses at this juncture,
to continue providing targeted liquidity
more than ever before the government
backing to banks and avoiding a credit
needs deeper involvement and
freeze, through short-term and
intervention; such as ensuring that the
targeted financial and prudential
Maldives gets the COVID-19 vaccines as
easing.
soon as possible and set up effective
• Ensure that a plan for retiring guidelines for its distribution starting from
government debt is in place. The the most vulnerable. It is up to the
natural decision of many foreign government to decide what is more
investors would be to exit the host critical. Whether it be a watchdog or
country when faced with economic reformer, the role the government plays
hardships. The Maldives is no will be the key to our future success as we
exception. A debt hangover situation is enter a new era.
looming over us as Maldives credit
ratings downgrade, investor
confidence drops, and the foreign
investors begin exiting. The situation
will worsen as high levels of
government funding will be needed to
support public services which will
result in debt servicing ratios going up.
• Support a shift to e-commerce and e-
services. Workplace flexibility is a new
norm which the government must
support. In terms of regulatory and
incentive mechanisms, the About the author
government should prepare to be
Ms. Aishath Isra Abdulla (holds a bachelor’s
receptive in its adoption of new degree, double major in banking and finance and
technological innovations by international business) is the Research Officer for
businesses and the public. Maldives Capacity Development and Governance
Institute (MCDGI), and an intern at Maldives Islamic
• Prioritise and implement vocational Bank. Ms. Aishath has exposure to the insurance
training as the Maldives needs to and banking sector through her research and
internships and her passion for the banking drives
reskill its existing workforce as we face
her to read and understand about the banking and
a fundamental shift in the skills finance sector in the Maldives. Ms. Aishath is an
required post-pandemic. Enhanced advocate for Human rights, Gender and Youth and
digitisation combined with remote is an active member of the Women & Democracy
NGO.
ways of working means reskilling and
upskilling is needed.
www.mer.mv 16
Bibliography • World Bank. 2020. The World Bank In
• Finance.gov.mv. 2020. COVID-19 Financial

Maldives. Retrieved from: <https://
Assistance. Retrieved from: <https://

www.worldbank.org/en/country/maldives/
www.finance.gov.mv/covid-19/government-
overview> [Accessed 15 December 2020].
finances/financial-assistance> [Accessed 15
• 2020. Weekly COVID-19 Spending Report.
December 2020].
[ebook] Ministry of Finance. Retrieved from:
• imf.org. 2020. IMF Executive Board Approves

< h t t p s : / / w w w. fi n a n c e . g o v. m v / p u b l i c /
A US$28.9 Million Disbursement To The

a t t a c h m e n t s /
Republic Of Maldives To Address The

mD6JOyvqzPGX9u78jP94mqPSzBfQ2RUme
COVID-19 Pandemic. Retrieved from:

QgGhxf6.pdf>.
<https://www.imf.org/en/News/Articles/
• World Bank. 2020. World Bank Discusses
2020/04/22/pr20185-maldives-imf-executive-
Opportunities For Maldives To Build Back
board-approves-disbursement-to-address-
Better From COVID-19. Retrieved from:
covid-19#:~:text=AddThis%20Sharing%20But
<https://www.worldbank.org/en/news/press-
tons-,IMF%20Executive%20Board%20Approv
release/2020/12/09/world-bank-discusses-
es%20a%20US%2428.9%20Million%20Disbu
opportunities-for-maldives-to-build-back-
rsement%20to,Address%20the%20COVID%2
better-from-covid19>.
D19%20Pandemic&text=The%20government
• UNFPA Maldives. 2018. Youth In Maldives.

%20of%20the%20Maldives,for%20its%20crisi
Retrieved from: <https://maldives.unfpa.org/

s%20response%20plan.>.
en/publications/youth-maldives>.
• Ministry of Finance. 2020. MVR 2.5 Billion
Economic Recovery Plan. Retrieved from:
<https://www.finance.gov.mv/media/news/
mvr-25-million-economic-recovery-plan>.
www.mer.mv 17
Foreign direct investment: How has Maldives fared?

Fazeel Najeeb
Introduction Definition
Developing countries, except some that The System of National Accounts (SNA) of
export oil, often experience chronic the United Nations (UN) defines FDI as
balance of payments deficits, dwindling follows: “Foreign direct investment is the
foreign exchange reserves and declining category of international investment that
national incomes. In turn their ability to reflects the objective of a resident entity in
finance development efforts is adversely one economy to obtain a lasting interest in
affected. To fill such gaps, countries turn an enterprise resident in another
to international financial resources. economy” (UN, 2009). SNA is a statistical
framework that provides a
The flow of inter national financial
comprehensive, consistent and flexible set
resources takes two main forms: public
of macroeconomic accounts for
development assistance, alternatively
policymaking, analysis and research
known as foreign aid; and, private foreign
purposes. It is produced and released
i n v e s t m e n t , m o s t l y f o re i g n d i re c t
under the auspices of the UN, the
investment (FDI) undertaken mainly by
European Commission, the Organisation
multinational corporations (MNCs, also
for Economic Co-operation and
sometimes referred to as MNEs
Development, the International Monetary
(multinational enterprises), TNCs
Fund and the World Bank Group.
(transnational corporations) or TNEs
(transnational enterprises)). According to The SNA clarifies that for the balance of
SNA, “Conglomerates that include payments purposes, all corporations with
corporations resident in different countries foreign holdings of 10 per cent or more
are usually described as multinational are described as foreign direct investment
corporations” (UN, 2009). enterprises and special treatment of their
earnings is applied; and, while all foreign
But FDI is viewed as both bad and good.
controlled corporations are foreign direct
It is presented in some discussions as
investment enterprises, the reverse is not
“tantamount to postcolonial exploitation of
true, for example even a publicly
raw materials and cheap labour” (Moran,
controlled corporation may be a foreign
Görg, Seric, & Krieger-Boden, 2017), and
direct investment enterprise if, in addition
in some others from macroeconomic
to government controlling half of the
perspectives as generators of
equity, a further 10 per cent is owned by a
e m p l o y m e n t , h i g h p r o d u c t i v i t y,
non-resident.
competitiveness, and technology spill-
overs (Denisia, 2010, p. 53). The SNA definition of FDI is based on the
OECD’s Benchmark Definition of Foreign
This article presents an overview
Direct Investment “which sets the world
discussion of FDI theories and empirical
standard for FDI statistics” (OECD, 2008).
evidence cited in literature, followed by an
analysis of the FDI policy and performance
of the Maldives.
www.mer.mv 18
Theories
FDI does not flow in automatically. Table 1: FDI theories
One could assert that the ability of a
country to attract FDI largely
depends on that country’s structural
Market imperfections are
competitiveness in the world structural and come from
marketplace, and that the desired the deviations from the
level of competitiveness is perfect competition on the
determined not only by relative market of the final product,
Market as a consequence of an
prices and the productivity of factors imperfectio exclusivist and permanent
Hymer
, 1970
of production but also by that ns theory control on the rights of
country’s ability to gain access to property on technology,
and use effectively a range of MNC- access to resources, scale
economies, distribution
related products and services system and product
involving t e c h n o l o g y, differentiation.
telecommunication services,
managerial and accounting
methods, banking services, etc.
International production theories:
There have been a number of
theories (explanations) on why Demand
structure - Investment direction
entrepreneurs invest their money in a theory shows a higher attraction
country other than their own. to the countries with a
similar demand structure to Hicks,
Williams posits that literature on FDI
that in the country of origin, 1939
has traditionally focussed on two in relation to countries with
questions: (a) why firms invest in a different demand
foreign markets; and (b) which structure.
foreign markets to invest in. Location
(Williams, 2016). - What economic activity Phillips
theory
, 1958
needs to be located, where Weber
While the origins of FDI theory has and why? , 1929
roots in the works of Smith (Smith,
Eclectic
1776) and Ricardo (Ricardo, 1817), theory - The reasons for
more explanatory theories have been localisation are linked to
Dunni
developed in the last century. several advantages
ng,
generated by ownership, 1980
Table 1 presents a snapshot of some firm’s location and the
main FDI theories, including the international environment.
m a r k e t i m p e r f e c t i o n s t h e o r y, Internalisat Ronal
international production theories ion theory The development of
d
Coase
(among which are demand structure - transnational companies , 1937
theory, location theory, and electic Transaction allows the manipulation of Buckl
theory), and internationalisation costs the transactions within the ey and
theory firm, so as to minimise Casso
theory – the transaction costs theory. losses. n,
1976,
According to the market 1985
imperfections theory, multinational

Source: (Dima, 2010)
firms establish production facilities in
www.mer.mv 19
foreign coutries to capitalise on their & Katsikeas, 1997). This gap, according
competitive advantages over competitors to Morgan and Katsikeas, is addressed
due to market imperfections for products initially by Dunning (1980) who addressed
and factors of production (Hymer, 1970). this issue in their international production
theory (table 2).
The market imperfections theory though,
does not explain why foreign production is According to the international production
considered the most desirable means of theory a firm locates a production facility
harnessing the firm’s advantage (Morgan in a foreign country due to specific
Table 2: Determinants of international production

Illustration of
Types of
Ownership Location Internationalisatio types of
international
advantages advantages n advantages activity which
production
favour MNEs
Oil, copper, tin,
Capital, To ensure stability
zinc, bauxite,
1. Resource- technology, Possession of of supply at right
bananas,
based access to resources price. Control of
pineapples,
markets markets
cocoa, tea
Capital,
Material and
technology,
labour costs,
management
markets, Wish to exploit
and Computers,
2. Import government technology
organisational pharmaceutical
substitution policy (with advantages, high
skills; surplus r s, motor
manufacturi respect to transaction or
& d, and other vehicles,
ng barrier to information costs,
capacity, cigarettes
imports, buyer certainty, etc.
economies of
investment
scale; trade
incentives, etc.)
marks
Low labour
costs, Consumer
3. Export
As above, but incentives to electronics,
platform Economies of
also access to local textiles,
manufacturi vertical integration
markets production by clothing,
ng
host cameras, etc.
governments
Local markets. A variety of
Need to be Need to ensure goods –
4. Trade and Products to near sales outlets and to particularly
distribution distribute customers. protect company’s those requiring
After-sales name close consumer
servicing, etc. contact
Access to
Insurance,
markets (in
5. Ancillary banking and
case of other Markets Broadly as for 2/4
services consulting
foreign
services
investors)
Various kinds
(a) portfolio
Variety – but
investment –
includes
properties
6.Miscellaneo geographical Various (see
Markets (b) where
us diversification above)
(airlines and spatial linkages
hotels) essential
(airlines and
hotels)
Source: (Dunning, 1980)
attractions there compared with resource employment … They have addressed the
implications and advantages of locating in issue of how best to pursue domestic
another country. While the theory holds policies to maximise the benefits of foreign
that resource differentials and the presence in the domestic
advantages of the firm play a part in economy” (OECD, 2002).
determining overseas investment
Empirical research abounds with evidence
activities, foreign government policy
of FDI in countries. They come each
including incentives may also significantly
f o c u s s e d o n d e fi n e d a re a s , w i t h
influence foreign investors’ attraction.
comparisons across sectors or countries
The internalisation theory (Table 1 again) and otherwise. For example, a work that
first developed by Coase (Coase, 1937) provided a discussion on the theoretical
and later investigated by Buckley (1982, underpinnings of the FDI-tourism nexus
1988) and Buckley and Casson (1976, concluded that empirical findings
1985) holds that firms develop their suggested that FDI positively impacted on
internal markets in situations where destinations and that the relationship
transaction costs are lower within the firm. between FDI and tourism is also of a bi-
Internalization therefore is a form of directional nature (Nunkoo & Seetanah,
“vertical integration bringing new 2018)
operations and activities, formerly carried
In an empirical research on the impact of
out by intermediate markets, under the
FDI and remittance inflows in developing
ownership and governance of the
Asia found that real effective exchange
firm” (Morgan & Katsikeas, 1997).
rate and economic growth were positively
While discussions and analyses on the influenced by both types of inflows (i.e.,
theory of FDI continues particularly among FDI and remittances) in developing
academic communities the world over, countries of Asia, but that the degree of
there are varying assertions on the matter impact of remittances were found to be
among which that “there is still no greater than FDI inflows; these findings
consensus on any superior or general supported the hypothesis that remittance
theory of FDI (Makoni, 2015). inflows were relatively more stable as
widely documented in other studies
Empirical evidence
(Sinha, Tirtosuharto, & Sengupta, 2019).
Whether there is (or is not) consensus that
In a cross-country sample of 68 countries
FDI does indeed brings net gains to a
over the period 1984-2004, Lautier and
country, governments of an indefinite
Moreaub found that evidence that that
number of countries successively develop
lagged domestic investment has a strong
their own or follow their predecessors’
influence on FDI inflows in the host
policies to attract foreign investment,
economy, which they believed implies that
liberalising FDI policies combined with
domestic investment is a strong catalyst
other policies to attract inward investment.
for FDI in developing countries and that
Indeed, for the OECD, “developing
MNCs do follow economic development.
countries, emerging economies and
This result, they believed, suggests that
countries in transition have come
investment promotion policies directed
increasingly to see FDI as a source of
towards domestic firms will be efficient to
economic development and
attract foreign investors as well (Lautier &
modernisation, income growth and
Moreaub, 2012).
www.mer.mv 21
In a 2008 work, Phillips and Ahmadi- 3. To u r G u i d i n g a n d To u r

Esfahani cited Blonigen (Blonigen, 2005), Operating facilities
that the empirical work was “not as rich as
4. Tourist Vessels (with less than
the theoretical work in this area.” They
40 beds and 20 cabins)
concluded that as FDI evolved, more and
better data should become available, 4. Operating bonded warehouses in
opening up the possibility that more customs areas
satisfactory progress could be made
5. Fishing within the Exclusive Economic
(Phillips & Ahmadi-Esfahani, 2008).
Zone (EEZ) of Maldives
FDI in Maldives
6. Purchasing, processing and export of
Law and policy Skipjack Tuna
Foreign investment is governed in the 7. Wholesale and retail trade of mobile
Maldives by the Foreign Investment Act phones and related accessories
(25/79). Section 17 of the Act defines
foreign investment as “goods, money and 8. Event management, entertainment and
services imported into the Maldives by production and the below listed
gover nments of foreign countries, subsectors;
organisations, companies and foreigners 1. L e a s i n g A u d i o - v i s u a l
to produce an economic activity in the equipment
Maldives, except business conducted in
Maldives by foreigners under Law 2. Leasing and selling of musical
4/79” (Law 4/79 is the Conduct of instrument(s) and equipment(s)
Business in Maldives by Foreigners Act). 3. W o r k s r e l a t e d t o t h e
Currently, there are two regimes available installation, and maintenance
for foreign investors to establish their stated in the first two points
business in the Maldives: (i) normal regime 4. Event management
governed under the Foreign Investment
Act; and, (ii) Special Economic Zone (SEZ) FDI is also allowed into “passenger
regime governed under the Special transfer service”, and “water sports and
Economic Zones Act (Law 24/2014). related activities” provided that 51pc of
Market access for FDI is allowed “in all the “foreign investment company” is
major sectors of the economy” (MED, owned by a Maldivian individual or “legal
2019). The following areas, however, are entity”.
reserved for domestic investors: Performance
1. Photography and related activities In the mid to late 1970s, the Maldives
2. Retail trade benefitted from FDI in the fisheries
3. O w n e r s h i p , o p e r a t i o n a n d ( re s o u rc e - b a s e d e x p l a n a t i o n ) a n d
management of: telecommunication (technology-based).
1. Travel Agencies From the 1980s to 1990s the Maldives
“benefitted” from FDI in the apparel
2. Guest-houses
(garment) industry when a handful of
www.mer.mv 22
foreign firms were allowed to

establish production facilities
Table 1: FDI flows in SIDS, 2014-2019, USD millions
in the country. The rationale
2014 2015 2016 2017 2018 2019
for this was solely to gain
Bahamas 3,551 865 1,260 901 947 637
access to markets of Western
Fiji 380 205 390 386 471 321
European and U.S. markets
Jamaica 582 925 928 888 775 665
under the erstwhile Multifibre
Arrangement (MFA) quota Maldives 333 298 457 458 539 565
system. While these Mauritius 456 216 379 480 372 472
establishments employed
some locals, employed more
imported labour from
neighbouring countries. Thus,
a k e y b e n e fi t t h a t i s
elsewhere attributed to FDI—
creation of jobs to employ
locals—did not appear to
have held entirely true in that
experiment.
Source: compiled by the author
For a comparative analysis, table 1, chart based on UNCTAD, 2020.
1 show FDI inflows to small island

contributed to more than half of the total
developing states (SIDS) from 2014-2019.
of new investment announced in SIDS,
In 2019 the Maldives was the third top FDI
compared with 16 per cent in the
recipient having received USD 565 million.
preceding five-year period (UNCTAD,
In 2014 Maldives received USD 333 mn
2020). The recipients of these projects
(fifth place among the selected SIDs that
were predominantly the larger SIDS
year), USD 298 mn (third) in 2015, USD
economies: Jamaica (35 per cent of the
457 mn (third) in 2016, USD 458 mn
announced value of all tourism-related
(fourth) in 2017, and USD 539 mn (third) in
projects); the Maldives (15 per cent); and
2018 (UNCTAD, 2020).
Fiji (10 per cent). In the Maldives, the
Source: compiled by the author based on share of announced greenfield projects in
UNCTAD, 2020. FDI inflows exceeded 80 per cent.
According to UNCTAD, greenfield FDI Chart 2 provides a historical account of

data for 2015–2019 showed that travel, FDI inflows into the Maldives (World Bank,
tourism and hospitality projects 2020). Inflows have trended sharply
www.mer.mv 23
upward since the turn of the millennium. Academic and policy debate on FDI
However, there was negative growth of continues to thrive. While no one theory
FDI in 2009 (-12.9pc; global financial could capture all FDI across all sectors,
crisis), 2012 (-46.2pc; political instability), these theories do explain to a large
2014 and 2015 (-7.6pc and -10.6pc degree why and where to investors take
their money for production and sale of
respectively; political uncertainties).
goods and services in foreign countries.
The variation between the numbers
The conclusion of numerous empirical
corresponding to the Maldives in charts 1 studies on the relationship between FDI
and 2 may be due to methodological and economic development is that the
differences in compilation of data between effects of FDI are complex. Some others
the two sources, UNCTAD and World conclude that for developing countries in
Bank. particular, the inflow of foreign capital
contributes to improvements in balance of
The recent exponential growth of FDI in payments, leads to transfer of skills and
Maldives may be attributable to technology and creation of employment.
investment in the tourism industry. Here
The experience of the Maldives in FDI has
again, the issue of domestic employment
been short and mixed. Focussed efforts
stands out: more expatriates are
by the government since late 1980s to
employed in the industry than domestic attract foreign investors appear to bear
workers, somewhat negating an important some fruit, particularly in the tourism
benefit of FDI that generally holds true in industry. Whether this can be sustained
countries where foreign workers are far and if FDI can also be attracted to other
fewer than domestic workers. Due to an sectors of the economy remains to be
absence or paucity of data, it is difficult to seen.
ascertain that this is indeed the case in References
the Maldives.
Conclusion
www.mer.mv 24
• Blonigen, B. (2005). A review of empirical tourism (pp. 556-568). London: SAGE

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(Contradictions) of Multinational Corporations. • Sinha, M., Tirtosuharto, D., & Sengupta, P. P.
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Changes, Profitability and Direct Foreign Papers, 38(4), 311–328.
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Causes of the Wealth of Nations. London: W.
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Development, 37(3), 1-23. York: United Nations.
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www.mer.mv 25
Institutional Reform: a necessity for Economic Boom

Ali Khalid
The COVID-19 pandemic has been one of As households became their own
the worst disasters we have had to face. It protective bubbles tutors could no longer
has, in many ways, left a devastating mark tutor at homes — but some adapted;
on us. We were blindsided with no starting home based businesses
contingency plans to fall back on to producing delicacies or homemade food
adequately address the challenges that to order. While divers may have been hit
were unfolding day by day. hard by the lack of clients, they too
endured — life hacking their skills to catch
However, the human spirit continues to
lobster and other delicacies.
prevail. In a situation deemed as dire,
inescapable and near hopeless as this, In the last 10 months, despite economic
humankind has again seized the silver hardships, we have been witnessing to an
lining and mined it to the greater unprecedented increase in driven,
advantage. Undeterred individuals have individual, entrepreneurs and small,
faced the challenges head on; albeit with dynamic, businesses. It appears the job
face masks donned and personal market refuses to be shot down.
sanitizer's at hand, because it is largely
As to the quality of the services we have
not in our nature to sit back and let mere
seen from home food businesses alone;
circumstance dictate our lives.
they have been phenomenal, especially
With the onset of COVID-19, and given the circumstances. Products are
subsequent closing of borders, came the hygienically prepared, are mostly of
lockdown — and with it we witnessed exceptional quality and offer even greater
record job loss. Businesses shuttered. choice. They are authentic and Maldivian
Entire sectors, and industries, were in — something that we have been
clear need of almost immediate i n c re a s i n g l y d e n i e d i n c a f é s a n d
government bail-outs — lead restaurants due to operational costs and
breadwinners of families were suddenly, kitchen staff who lack local expertise in
and without warning, left out in the cold. the preparation of local food served to
Maldivian tastes. Also, dining
Many tutors, divers, chefs, instructors,
establishments had previously relied on
and other professionals had to adapt —
the same old menus they deemed were
they had to carve out their own space to
most popular, casting aside the more
survive. Many turned to the skills they had
“niche” products that home grown
seen initially as hobbies or, while carrying
businesses seem to thrive on.
on with their “day job”, took the
opportunity to try their hand at other Variety and quality doesn’t stop with the
things. food alone. Operators have also
embraced attractive, creative and, most
www.mer.mv 26
importantly, hygiene packaging. Throwing have a keener eye for business and are
a real-world example into the mix; the ever ready to to try their hand at trading.
sour varieties tray (Majaa) we enjoy at the
In our case, we now have in place most of
carts around Malé’s outer periphery have
the elements required for small
now been creatively repackaged and are
businesses to thrive. However, we need
served by home-based entrepreneurs —
encouragement and information so that
these delicacies are not only an
more and more new, and varied, ideas
experience to devour but also an
enter the market. It’s time to enculture an
experience to unravel.
educated, informed and conscientious
The prices? They are definitely on par with environment of entrepreneurship where
what they offer, since products are both everyone can benefit and where no one is
authentic and better packaged. Most of left behind or penalised due to lack of
the products are cheaper than their knowledge or opportunity.
restaurant equivalent. Payment is mostly
Statistics show that small and medium
contactless — through bank transfers.
enterprises constitute the largest
The distribution, logistics and marketing is employment pool in any economy and
another masterstroke that had been with the millennials now set to take the
hiding in plain sight even before the economy by storm the trend is to start
pandemic took hold; direct to the their own business early and make their
customer, marketed, at negligible costs, own way.
via social media — businesses post their
This is an opportune time. A time to come
products as frequently as they want or
up with a plan to engage and uplift small
need to until their limited supply for the
businesses and help them establish a
day is all sold out. This requires, at the
strong foothold.
most, engaging two bodies to track
orders and movement. But to encourage more start-ups within
our business eco system we need, goal
The dynamism of people who ventured
oriented, institutional reforms.
into the “unknown” with their own
businesses, and their entrepreneurial spirit We need to examine regulations, and
is testament that we should encourage policies, through a prism of enabling
and enable more to repeat the same. growth and transformation. While current
To badly* paraphrase, if it is fixing itself
regulations and policies might seem to be
then help it fix more.
“working” for us in this moment we need
It was in the 1980s that Malaysian Prime
to look ahead. In recent years meaningful
Minister, Dr Mahathir, encouraged and
change has been made in business
helped Malaysians to start their own
businesses. The PM fostered a climate of registration — you could register to
ideas, created awareness and deployed operate business easily as a sole
capital. Four decades later Malaysians proprietor or, if you have a friend or
investor, you could register as a
www.mer.mv 27
partnership. This process, which used to reducing regulations which impede the
take three days, can now be completed in entry, growth and restructuring of new
just a day. Going forward we need to look companies. All things aside, India’s
at ways we can further streamline approach to supercharging start-ups and
processes such as incorporations, businesses is definitely an approach we
bankruptcy, liquidations and other can re-engineer in order to meet our own
processes in a manner that maintains unique requirements, on our own terms.
fluidity and speed — we need to learn
This is the moment to harness our primed
from our past, hold on to the things that
human capital; to significantly move the
work, let go of the stuff that does not and
needle on commerce, and industry, as has
introduce concepts that focus on
never been seen before.
efficiency and forward momentum.
This is an opportunity we cannot pass up.
Currently there is no way to revive a
business once bankruptcy has been
declared. The owners have to wait for the
authorities to decide on the fate of their
company and there is no defined path.
Clearly each and every business will not
flourish and as such there must be a clear
path for investors to exit the business in a About the author
short time. Under the present process it Ali Khalid is the current Managing Director of the
could take at least two weeks for a state broadcaster, Public Service Media (PSM).
Previously, Ali has served State Media Television,
company to be liquidated. as the Chief Operating officer, it was during this
time the organization came in to contact with
I strongly believe institutional reform, modern management practices.
specially in the area of the swift
Later Ali served as the Chief Communications
restructuring of companies, will help start- Officer at the President’s Office Among his many
significant achievements is authoring the book
ups to more easily and efficiently partner
“Vazeefa ah Nukunna Iru”; a young person’s
with capital investors — which will drive initiation guide to joining the workforce. Ali has
spent a decade in media, with the same amount of
growth and in turn create increased
time spent in establishing and running his business
opportunity. interests. Ali has also served the Maldives
Industrial Fisheries Company Ltd and The
One of India’s biggest recent successes is Wataniya Maldives in Leading positions in the area
of Sales and Marketing. Ali holds an MBA and
the nation’s proactiveness when it comes
ambitiously pursue long distance running for
to improving its start-up ecosystem. One fitness and hobby.
of the biggest economies in the world,
India has systematically addressed
www.mer.mv 28
The role of the state in the development of the fishery

industry- todate and beyond
The Maldives is an island nation of While historic records dating to 1500 BC

fisherfolk, all of whom grow up by the show that Maldives had been famous for
sea. The bounty of the seas feed our the export of cowrie shells (cypraea
people and have been the main source of moneta) to be used as money in the Far-
foreign currency earnings from our very east, Middle-east and in Africa, by the
early beginnings. The proximity and beginning of the 20th century the main
therefore the affinity to the sea, marine export of the country was the sale of
landings being our main source of protein, Maldive dry fish to the Sri Lankan market.
and fishery being the main primary The report issued by UNDP in 1967 at the
industry of the country, will not change in behest of the of the newly independent
our geography. Therefore, it is not country of Maldives is perhaps the first
surprising or unbecoming. that the state professional report of its kind on the
have been, continue to be, and will be economy and the people of the Maldives.
involved in the development of the fishery This report stated that by that time 90%
industry. of export earnings were derived from the
sale of Maldive Fish ‘umbalhakada’ to Sri.
A journey into the past
Lanka. Maldive Fish exports were mainly
Geography has ensured that Maldives will channeled through the Maldivian National
always be a nation of fisherfolk, Small Trading Corporation Ltd. incorporated in
islands together with the nature of the Sri Lanka and sold mainly to the Sri
coastline allowing for deep seas close to Lankan state company Corporate
shore, have meant that Maldivians from Wholesale Establishment (CWE). The
time past, grew up with a tinge of salt proceeds from the sale were then used to
mixed in their blood. The lagoons and the purchase basic necessities including
near shore fishery fed and nourished staples, medicine and other items from
locals and even today the single most the Sri Lanka.
important source of nutrition for
Maldivians is derived from fishery.
During the 1970’s under the premiership
From the days of sailing boats travelling
of the first female prime minister of the
with thatched palm sails, to today’s 150 ft
world, Sri Lankan Prime Minister Mrs
twin engine fishing boats, Maldivians have
Bandaranaike implemented a national
fed their family and earned their livelihood
development policy of ‘import
from the bounty of the sea. It is recorded
substitution’; curtailing imports and
that Maldive fish found favor in the royal
fostering local production- a policy that
households of China and Japan in the
was globally much in flavor in the 60’s and
13th century.
70s. As part of the larger policy and
because of foreign currency pressures,
the Sri Lankan government informed the
www.mer.mv 29
Maldivian government that Sri Lanka Complex in L. Maandhoo and the Koodoo
would start reducing import of Maldives Fisheries Complex at G.A Koodoo were
fish from 1972 to be totally eliminated in 7 opened during the period 1992 – 1994.
years during which period they would The opening of the Koodoo complex
create and foster their own local dry fish marked the end of the many fisheries
production and would no longer have to
projects implemented by the Government
buy ‘umbalhakada’ from Maldives.
to develop the capacity of the fishery
Export of Maldive fish being the single sector.
foreign currency earner in 1971- tourism
was still a year in the future, the The fish purchase, processing and fishery
government rightly hustled to find development activities of the state were
alternatives. As a result of frantic effort, in undertaken by different state actors at
1972 vessels from Japanese Hoko and different times. These include the Maldives
Marubeni corporation started to buy fish Fisheries Corporation formed in June
directly from fisherfolk and Nippon 1979, the Dhekunuge Mas Ganna Project
Corporation built a small 8 MT cannery in (DMP) under STO, the Export Department
Felivaru in 1977.
of STO, and the Fisheries Projects
In 1982, the world market for tuna Implementation Department of STO. The
crashed prompting the foreign companies Maldives Industrial Fisheries Company
to inform the state that they could no (MIFCO), since 1st November 1993 is the
longer afford to buy the harvest of the l a t e s t g u i s e u n d e r w h i c h fi s h e r y
fisherfolk at the prices the government
development effort were undertaken. All
required. With no successful conclusion,
these different guises, under different
they decided to cease their purchasing
and processing operation and leave the names at different times are but the single
country. The decision of the government manifestation of the state’s decision to
in 1982 was to invest to develop the fishery industry and
to create means to continue to buy and
purchase the assets of the foreign
process the harvest of the fisherfolk.
companies and continue purchasing and
processing fish from the fisherfolk. Impact of the many development
During the same year, in 1982, several projects
government-initiated projects came alive The fishery development projects
to help develop the fishery industry. These propelled the fishery industry onwards and
include the Maldives Fish Wealth helped to grow the harvesting capacity to
Exploitation Project (MFWEP) to build 65 almost 3 times from an average of 50,000
dhonis to be given under long term lease tons in the 80’s to an average of 148,000
to fisherfolk, 3 freezer vessels to transport tons in the first decade of the new
fish, 3 ice plants and 3 fuel tanks. Another millennium. Record harvests were
project to upgrade Felivaru cannery from 8 received in 2006 at 184,000 tons after
to MT to 50 MT which included amongst which fishing had plateaued around
its components an alongside jetty and 120,000 thousand tons annually.
expanded the cold storage capacity was
also begun. The Maandhoo Fisheries
www.mer.mv 30
Data: Bureau of National Statistics
The confidence of fisherfolk were boosted assigned to Horizon Fisheries in 2003 as

by the many state initiated developmental part of this effort. While some od the
efforts leading to private investment to private investors had made considerable
enhance fishing capacity. These private investments in the industry, it is only fair to
efforts resulted in an increase from the say, that their effort too, have not been
average length of the fishing vessels- able to bridge the gap.
dhonis, from 50 ft to 100 plus and some
Development of Yellow Fin fishery
being equipped with twin engines. In fact,
just one fishing vessel overwhelmed the As the fishery sector developed around
increased capacity of 50 mts of the newly investments into skipjack processing, it
designed larger collector vessel that were was always understood that the country
designed for the newest fishery complex also had a respectable yellow fin potential.
at Koodoo in its first year of operation. Even from before, Yellow fin caught in the
process of skipjack fishery were frozen
As the new millennium dawned and
and fetched a marginally higher price from
because of steadily improving harvests,
canneries. It was known that if caught,
realization dawned that the infrastructure
kept and exported fresh, Yellow fin would
in place were inadequate to cater to the
fetch a premium price in the far east and
increased landing capacity of the
western markets.
fisherfolk.
Yellow Fin fishery as a specific and
An initiative to allow for private
targeted activity was initiated in 1990 by
investments for skipjack processing
Mifco at the Kandu-oiy-giri processing
started in 2002/3 as a result of which, the
plant set up to receive, hold, process and
country was divided into 4 geogrpahic
export fresh yellow fin. Soon fisherfolk
zones with 2 zones given for private
were attracted by the higher price on offer
parties to invest in. The Maandhoo
and slowly brought changes to the fishery
Fisheries Complex in Laamu Atoll was
industry. The export and earnings of
removed from the books of Mifco and was
Yellow Fin as a separate line item was first
www.mer.mv 31
reported in official statistics at 2.5m Mrf of Statistics, the entry came in at just 16.8
earnings and listed as Fresh or Chilled mts at a value of 2.5m Mrf, of export
Tuna in 1995. earnings; a modest 0.43% of total
merchandise export earnings for that year.
A s M a l d i v i a n fi s h e r f o l k a n d l o c a l From such modest beginnings, earning

entrepreneurs started to explore the from Yellow-Fin have grown to 56.21% of
premium chilled market for yellow-fin, with total export earnings in 2015 beating
its higher prices, yellow-fin became an earning from skipjack exports by a 472m
attractive fishery. Landing statistics show Mrf for the year. During the 5-year period
that the catch of yellow-fin as a % of the 2013-2017, earnings of yellow-fin exports
larger effort was at an average of 11.73% accounted to an average of 51.9% of total
of the total landings between 1971 to export earnings.
1995, with percentages varying from
Today’s reality
2.74% in 1974 to peaks of 16.1% in
1983. From such modest beginnings Mifco had opened a fishery complex in
yellow fin landings have steadily increased Addu with a 1,500 mt storage and a 50mt
with an average of 19% of harvest during freezing capacity in 2018 and other
post 1990 with a high of 40 and 41% of modest investments in ice plants and
landings in 2015 and 2016 respectively. similar projects have taken place.
However, it is appropriate to say that after
While fishery was mainly a day fishery until
the conclusion of the investment that
then, with the advent of multi-day yellow
started in 1982 with MFWEP and ended
fin fishery, the nature of the fishery effort
with the official opening of Koodoo in
too, have changed with fisherfolk often
2004, there had not been planned
leaving on multi-day trips prepared to
sustained investment to further diversify
harvest yellow fin or skipjack depending
and develop the fishery industry.
on the nature of the bait available and the
type of fish school encountered. Meanwhile, the degree of politics allowed
into the decision-making process of the
In 1995 when ‘Fresh or Chilled Tuna’ was
state fishery company; Mifco have left the
added as a separate item in the Export
www.mer.mv 32
company’s assets in bad repair, incapable losing GDP share. Similarly, in Australia
to keep pace with private investments and and the US too, the primary industry is
unable to meet the expectations of the able to exert influence and attract subsidy
fisherfolk resulting in much discontent that may not be explained by their
evident in the fishery industry. economic significance.
The importance of the primary sector in all And the best way to explain this strength
economies of the primary industry is to examine their
voting power. The strength of their
Countries tend to protect their primary
collective vote in deciding who gets
industries for a variety of reasons. The
elected to decision making bodies
favorite and perennially touted reasons
including the national parliament,
around food security have always been a
especially from rural, farming and coastal
common theme. Covid 19 have laid bare
areas. As long as this power remain, the
the importance of our primary industries
interests of primary industries will be the
while presently accounting for less than
most important issues for members
5% in GDP share. As lockdowns gripped
representing such districts and
the country and borders were closed
consequently onto the larger state
around the world, much of the population
agenda.
were dependent on landings from
fisherfolk and modest harvest of local Therefore, apart from well-meant, and
farmers for nutritional needs. Countries often quickly forgotten statements around
with richer primary industries were able to food security, it is almost inevitable that
offer greater comfort to their people and the fishery industry of this island nation will
were able to endure stricter lockdowns. continue to play a significant role in the
Therefore, the importance of nurturing and national agenda.
growing the primary sector, which of
Whither Mifco?
course in the local context is largely the
fishery industry, has become of additional As stated above, Mifco is only the present
national significance reincarnation of state involvement to
develop the fishery sector and ensure that
Additionally, throughout the world, farmers
the landings of the fisherfolk are
and fisherfolk, are often able to punch
purchased and processed for export. It
above their economic weight when it
had been evident from the dawn of the
comes to political power. While the fishery
new millennium that investments by
industry in UK account for only 0.1% of
fisherfolk had overtaken the infrastructure
GDP, much of the argument about Brexit
that had been developed by the state.
and much of the unhappiness in post
Brexit UK arises from the terms agreed Because fishery is the main primary
regarding the access to UK’s seas. Farm industry of the country and the
subsidies are the largest line item in the importance of the fishery sector as the
EU budget even while agriculture account essential source of food security has been
for only a 1.1% share of GDP. The rice recently highlighted, it is evident that the
farmers in Japan receive ever increasing state will continue to be involved in the
state budgetary support even while their development of the fishery sector. As also
numbers continue to decline all the while discussed above because all Maldivians
www.mer.mv 33
grow up by the sea and are essentially This is evident with what has happened to
fisherfolk, their clout and importance will the yellowfin fishery. It was started much
not diminish in the political sphere. All as an experiment effort by Mifco in 1990.
governments, regardless of their political Today Mifco exports of fresh yellow fin has
leanings, attempt to keep fisherfolk in their plummeted to negligible volumes and
favor.
private sector dominates the fishery
resulting in private earnings being well
Maldives have been blessed with close to above stated earning for domestic exports
a million cubic kilometers of EEZ with a for the past 5 years.
variety of marine wealth. We are all aware Conclusion
of a variety of other marine species that
can be profitably and sustainably The importance of the fishery industry for
harvested including mahi-mahi, deep sea reasons of food security, the essential
crabs and lobsters. Cuttlefish too, are primary industry, and because of their
regular visitors to our harbors and sea political influence will never cease. The
trials of Diamondback squid has been state will always play an influential role in
s u c c e s s f u l . M a r i c u l t u re , t a r g e t i n g
determining the dynamics of the fishery
snappers and groupers, which have been
industry. Presently much of this effort is
in commercial production in many
countries for more than a decade, are only managed through Mifco.
now being trialed here in the Maldives. Mifco is only the present corporate identity
The wealth of the larger Indian Ocean is of the states’ effort to assist fisherfolk and
also presently not being explored by us.
develop of the industry. The state, might
There’s no doubting that our fishery decide to convert and manage that effort
industry needs to be diversified and that through some other agency and the name
there’s much scope and potential yet to Mifco might be stricken off the corporate
be explored. Yet, understandably private register of the country. Yet, there is no
companies shy away from experimental
doubting that the state will always engage
effort and can only invest in activities that
in the effort to sustain and develop fishery
would assure net returns to their
shareholders. When they are confident of of this country, this island nation of
the returns, they will invest and do it better Maldives.
that their state-run counterparts.

www.mer.mv
Copyright (c) 2020. Maldives Economic Review

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ISSN 2708-4787

Sunlight is the best

Post Covid 19- the road to recovery

Foreign direct investment: How has Maldives

Institutional Reform: a necessity for

The role of the state in the development of

IN THIS ISSUE EDITORIAL

Price over privilege With vaccines on the horizon, as the world

Foreign direct Aishath Isra Abdulla- a first time contributor

Institutional Reform: Fazeel's article 'Foreign direct investment: How

Opinions and views expressed in the Maldives

Sunlight is the best disinfectant

The Maldivian economy is totally Lockdowns and its’ psychological

The impact of Geography vaccinated before end of the year and

Price over privilege

Introduction debate, this article begins with an

1 Adjusted for non-financial assets, MMA stats Oct 2020

purchase of these securities to manage The First insurance company in Maldives

Structure of Maldives Financial System

Institutions Financial Intermediaries

The Money Market

• MMA government security discount market

• MMA facilities (ODF/Lombard Facility)

Maldives Securities Depository (a subsidiary of

• BML Payment Gateway

Payment Systems • RTGS

• Money remittance companies

Agents/Brokers/Dealers/ Professional Services

Appendix1: Timeline of Maldives Financial System

Post Covid 19- the road to recovery

• Reduce expenditures, redirect funds to • Make plans to revive the tourism

Bibliography • World Bank. 2020. The World Bank In

• Finance.gov.mv. 2020. COVID-19 Financial

Assistance. Retrieved from: <https://

• imf.org. 2020. IMF Executive Board Approves

A US$28.9 Million Disbursement To The

Republic Of Maldives To Address The

COVID-19 Pandemic. Retrieved from:

• UNFPA Maldives. 2018. Youth In Maldives.

Retrieved from: <https://maldives.unfpa.org/

Economic Recovery Plan. Retrieved from:

Foreign direct investment: How has Maldives fared?

imperfections theory, multinational

Table 2: Determinants of international production

In a 2008 work, Phillips and Ahmadi- 3. To u r G u i d i n g a n d To u r

foreign firms were allowed to

1 show FDI inflows to small island

According to UNCTAD, greenfield FDI Chart 2 provides a historical account of

• Blonigen, B. (2005). A review of empirical tourism (pp. 556-568). London: SAGE

• Makoni, P. L. (2015). An Extensive Exploration of • UNCTAD. (2020). World Investment Report

• Nunkoo, R., & Seetanah, B. (2018). Foreign

Institutional Reform: a necessity for Economic Boom

The role of the state in the development of the fishery

The Maldives is an island nation of While historic records dating to 1500 BC

Data: Bureau of National Statistics

The confidence of fisherfolk were boosted assigned to Horizon Fisheries in 2003 as

Data: Bureau of National Statistics

A s M a l d i v i a n fi s h e r f o l k a n d l o c a l From such modest beginnings, earning

Data: Bureau of National Statistics

Copyright (c) 2020. Maldives Economic Review

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