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Maldives: Market Profile

Picture: Maldives factsheet
Picture: Maldives factsheet

1. Overview

Maldives is an upper-middle income country with a population of about 400,000 people dispersed over 188 of its 1,190 islands. Maldives' economy is mainly based on tourism, construction and fisheries. Construction became the main driver of growth in 2015-2017 due, in part, to the government's efforts to encourage people to move from smaller islands to the Greater Malé region to promote more efficient public expenditure.

Sources: World Bank, Asian Development Bank, Fitch Solutions

2. Major Economic/Political Events and Upcoming Elections

August 2016
Parliament passed a new defamation bill.

June 2017
The government announced that it had cut diplomatic ties with Qatar, but its business links with Qatar will remain intact.

February 2018
President Abdulla Yameen declared a state of emergency after the Supreme Court overturned convictions of political opponents.

March 2018
President Abdulla Yameen lifted the 45-day state of emergency.

September 2018
Opposition leader Ibrahim Mohamed won presidential election, beating (former) President Abdulla Yameen.

April 2019
Parliamentary elections are scheduled.

Sources: BBC Country Profile – Timeline, Fitch Solutions

3. Major Economic Indicators

Graph: Maldives real GDP and inflation
Graph: Maldives real GDP and inflation
Graph: Maldives GDP by sector (2017)
Graph: Maldives GDP by sector (2017)
Graph: Maldives unemployment rate
Note: No data from IMF
Graph: Maldives unemployment rate
Note: No data from IMF
Graph: Maldives current account balance
Graph: Maldives current account balance

e = estimate, f = forecast
Sources: International Monetary Fund, World Bank, Fitch Solutions
Date last reviewed: March 17, 2019

4. External Trade

4.1 Merchandise Trade

Graph: Maldives merchandise trade
Graph: Maldives merchandise trade

Source: WTO
Date last reviewed: March 17, 2019

Graph: Maldives major export commodities (2017)
Graph: Maldives major export commodities (2017)
 
Graph: Maldives major export markets (2017)
Graph: Maldives major export markets (2017)
Graph: Maldives major import commodities (2017)
Graph: Maldives major import commodities (2017)
Graph: Maldives major import markets (2017)
Graph: Maldives major import markets (2017)

Sources: Trade Map, Fitch Solutions
Date last reviewed: March 17, 2019

4.2 Trade in Services

Graph: Maldives trade in services
Graph: Maldives trade in services

Source: WTO
Date last reviewed: March 17, 2019

5. Trade Policies

  • Maldives has been a member of the World Trade Organization (WTO) since May 1995 and a member of the General Agreement on Tariffs and Trade (GATT) since April 1983.

  • Maldives is a member of the South Asian Association for Regional Cooperation (SAARC). Other members are Afghanistan, Bangladesh, Bhutan, India, Nepal, Pakistan and Sri Lanka. SAARC was established on December 8, 1985 to accelerate economic growth in South Asia, to promote and strengthen collective self-reliance and to strengthen cooperation among member states in international forums on matters of common interests.

  • In 2012, Maldives embarked on a unilateral Most Favoured Nation (MFN) tariff liberalisation initiative, eliminating tariffs on approximately 31.5% of tariff lines. The average applied MFN tariff rate decreased from 21.4% in 2008 to 13.9% in 2015. Agricultural products face lower tariff rates (averaging 11.3%) than non-agricultural items (14.3%).

  • While average tariff protection for agricultural products was reduced, tariffs on tobacco and alcohol products were increased for health, religious and revenue purposes. Staple foods, such as ordinary rice, flour and sugar, continue to be imported mainly through the majority state-owned enterprise State Trading Organization and are sold at government-controlled prices involving subsidies.

  • The high degree of openness of the Maldivian economy to international trade, and its integration into the world economy, continue to be reflected in the high exports of goods and services as a percentage of GDP, which rose to an estimated 125.5% in 2018.

Sources: WTO – Trade Policy Review, Fitch Solutions

6. Trade Agreement

6.1 Trade Updates

Maldives signed a free trade agreement (FTA) with mainland China in December 2017. It is Maldives' first FTA with a single country. The new Maldivian administration has threatened to withdraw from the FTA.

6.2 Multinational Trade Agreements

Active

  • South Asian FTA (SAFTA): SAFTA is a plurilateral FTA between the eight members of the SAARC: Afghanistan, Bhutan Bangladesh, India, Maldives, Nepal, Pakistan and Sri Lanka. The agreement covers trade in goods and entered into force in January 2006. Afghanistan only joined the FTA in August 2011. SAFTA covers approximately 2.0 billion people and aims to eliminate customs on all traded goods within the free trade area. SAARC is an important trade partner for Maldives, accounting for 20.4% of Maldives imports and purchasing 21.2% of its exports.

Under Negotiation

  • Hong Kong-Maldives FTA: The FTA proposed in May 2016 and has been under negotiation since May 2017. Hong Kong is Maldives' 14th largest import source, accounting for 1.4% of total imports. Hong Kong is also an important export destination for Maldives, with fish and fish products as the most valuable export.

Signed But Not in Effect

  • Trade Preferential System of the Organisation of the Islamic Conference (TPS-OIC): The agreement between 41 countries was signed in January 2014, but is not yet in effect. The main features of the agreement include the MFN principle, equal treatment of member countries and special treatment for least developed member countries. The preferences include tariffs, para-tariffs and non-tariff concessions. The TPS-OIC aims to promote trade between OIC members. As a trading bloc, the OIC is an important trading partner for Maldives, accounting for 26.6% of total trade, and is the source of 30% of total imports.

  • Mainland China-Maldives FTA: The FTA with mainland China was signed on December 8, 2017. In addition, a Memorandum of Understanding was also signed, bringing Maldives into the Maritime Silk Road, a component of the Belt and Road Initiative. Under the FTA, tariffs on over 95% of goods will be reduced to zero. Mainland China is Maldives' fourth largest source of imports, accounting for 11.9% of all goods imported into Maldives. The new Maldivian administration has threatened to withdraw from the FTA.

Sources: WTO Regional Trade Agreements database, Government websites, Fitch Solutions

7. Investment Policy

7.1 Foreign Direct Investment

Graph: Maldives FDI stock
Graph: Maldives FDI stock
Graph: Maldives FDI flow
Graph: Maldives FDI flow

Note: No data available for Outward FDI Stock
Source: UNCTAD
Date last reviewed: March 17, 2019

7.2 Foreign Direct Investment Policy

  1. Invest Maldives is the country's investment promotion agency and falls under the Ministry of Economic Development. It is responsible for promoting, regulating and licensing foreign investments in the country. The objective of the agency is to provide a one-stop service for all investors wishing to invest in Maldives. The Ministry of Tourism is tasked with facilitating investments into the tourism sector.

  2. Foreign investment in Maldives is governed by the Foreign Investment Law, which covers agreements between the government and investors.

  3. The Special Economic Zones (SEZs) Law covers all investments within Maldives' SEZs. SEZs aim to facilitate strategic development projects. The SEZ board has the powers to freeze potential investors' local assets if the permit is terminated and the investor has any outstanding debt. Investments within SEZs have to align with the strategic priorities of the government. Investors in these zones are granted specific incentives.

  4. The Ministry of Economic Development screens and internally reviews all foreign investment proposals. The process includes standard due diligence efforts and a background check, as well as seeking the opinions of other participants in the sector. The Ministry of Economic Development makes the final decision in a fairly transparent process.

  5. An amendment to the Tourism Act passed in 2010 lends permission to investors to lease an island for 50 years. In April 2014, Parliament approved a law to grant the extension of resort leases up to 99 years for a payment of USD5 million. The amendments aim to incentivise investors, make it easier to obtain financing from international institutions, and increase revenue for the government. Leases can be renewed at the end of their terms, but the formula for assessing compensation value of a resort at the end of a lease has not yet been developed. All other land may be leased for maximum periods ranging from 10-15 years, depending on the purpose for which the land was initially allocated.

  6. A prohibition on foreign ownership of any land ended in July 2015 when parliament passed and the president ratified a constitutional amendment allowing foreigners who invest at least USD1 billion to own land and islands, provided at least 70% of the land is reclaimed.

  7. There are no country-specific restrictions on foreign investment and Maldives allows foreign investment in all major sectors apart from the following areas, which are restricted for locals only: wholesaling of goods; photography and related activities; souvenir trading and related business (wholesale and retail trade); inter-island passenger transfer services by sea (foreign investors can engage in this area with 51% local shareholding); water sports and related activities (foreign investors can engage in this area with 51% local shareholding); operation of bonded warehouses in the customs area; fishing within the Exclusive Economic Zone (EEZ) of the Maldives; and the purchasing, processing and export of Skipjack Tuna.

  8. Foreign investments in Maldives have primarily involved resort management, but now also include sectors, such as telecommunications, courier services and manufacturing. In October 2015, the government of Maldives held the second annual investor forum in Beijing, China and invited foreign investors to also invest in the Maldivian banking and financial sector, renewable energy, real estate, logistics, transport, healthcare, education and construction.

Sources: WTO – Trade Policy Review, ITA, US Department of Commerce, Invest Maldives, Ministry of Economic Development, Fitch Solutions

7.3 Free Trade Zones and Investment Incentives

Free Trade Zone/Incentive ProgrammeMain Incentives Available
The SEZ Act was passed in 2014. The SEZ Act allows for proposals from the private sector to develop and operate the SEZs. Plans are underway to begin SEZ developments across a number of sectors. Strategic areas considered for SEZ development include:

- Export processing activities
- Trans-shipment port, international logistics, ports, airports, bulk breaking, bunkering, docking services
- Universities, tertiary hospitals, super specialty hospitals, and research and development facilities
- Information communication technology parks and related facilities
- International financial services
- Oil and gas exploration
- Initiatives that introduce new technologies to the Maldives
- Exemption from business profit tax
- Exemption from goods and services tax
- Exemption from import duties for materials imported for development, management and operation of the zone
- Exemption from withholding tax
- Flexible procedures in foreign employment
- Exemption from taxes on sale and purchase of land
- There is an option of acquiring freehold land by registered companies in Maldives with at least 50% local shareholding
- The SEZs Act allows foreign ownership of land for a period of 99 years and provisions on residency to foreign nationals within the SEZ
- The specific durations for tax exemption will depend on the business area of proposed investment and the scale of the investment

Sources: US Department of Commerce, Ministry of Economic Development, Fitch Solutions

8. Taxation – 2018

  • Value Added Tax: Varies: 6%-12%
  • Corporate Income Tax: 0%

Source: Maldives Inland Revenue Authority

8.1 Important Updates to Taxation Information

Maldives introduced a broad-based tax system following the establishment of the Maldives Inland Revenue Authority (MIRA) in August 2010. During the past eight years, effective taxation policies have allowed the country to invest in its social development.

8.2 Business Taxes

Type of TaxTax Rate and Base
Business Profit TaxAlthough a tax specifically applicable to corporate profits does not currently apply, a tax of 15% is imposed on the business profits of any 'person' deemed to be carrying on a business. A 'person' includes, but is not limited to, corporations, partnerships and individuals. The taxable profits or losses of a partnership for a year are computed as if it were a body corporate.

Resident and nonresident banks are subject to a tax of 25% on taxable profits.
Capital Gains Tax15%
Value Added Tax
General goods and services: 6%
Tourism goods and services: 12%
Bank Profit Tax25%
Green TaxFlat rate of USD6 per day of stay - levied on tourists
Withholding Tax10% of gross amount of payment made to a non-resident

Source: Maldives Inland Revenue Authority
Date last reviewed: March 17, 2019

9. Foreign Worker Requirements

9.1 Foreign worker permits

Foreigners intending to work in Maldives are required to obtain a work permit from their employer. Employers need to obtain a foreign worker quota from Maldives Immigration, after which an Employment Approval (EA) needs to be obtained for each individual worker. Employers are required to pay a security deposit to Maldives Immigration to employ each foreign worker. Security deposits are refunded once the foreign worker departs the country. A temporary Business Visa can be issued to foreign workers for a maximum of 90 days.

9.2 Corporate Resident (CR) Visa

Significant long-term investors in the Maldives are eligible for the Corporate Resident Maldives Visa Scheme and can enter, reside and exit the country without having to undergo frequent visa applications or renewals. Various requirements need to be met, depending on the category of the Corporate Resident Visa.

9.3 Visa/Travel Restrictions

Maldives grants visa-free or visa-on-arrival status to citizens of most countries for up to 30 days.

Sources: Government websites, Fitch Solutions

10. Risks

10.1 Sovereign Credit Ratings


Rating (Outlook)Rating Date
Moody's
B2 (Negative)25/07/2018
Standard & Poor'sNot ratedN/A
Fitch Ratings
B+ (Stable)15/05/2018

Sources: Moody's, Standard & Poor's, Fitch Ratings

10.2 Competitiveness and Efficiency Indicators


World Ranking
201720182019
Ease of Doing Business Index
135/190136/190139/190
Ease of Paying Taxes Index
134/190118/190117/190
Logistics Performance Index
N/A86/160
N/A
Corruption Perception Index
112/180124/180N/A
IMD World CompetitivenessN/AN/AN/A

Sources: World Bank, IMD, Transparency International, Fitch Solutions

10.3 Fitch Solutions Risk Indices


World Ranking
201720182019
Economic Risk Index Rank N/A167/202161/202
Short-Term Economic Risk Score
41.7
4545.4
Long-Term Economic Risk Score3939.641.6
Political Risk Index Rank N/A121/202120/202
Short-Term Political Risk Score63.361.361.3
Long-Term Political Risk Score57.8
57.857.8
Operational Risk Index Rank N/A104/201100/201
Operational Risk Score49.448.248.8

Source: Fitch Solutions
Date last reviewed: March 17, 2019

10.4 Fitch Solutions Risk Summary

ECONOMIC RISK
The Maldivian government has initiated a number of infrastructure projects to enable its citizens to move from smaller islands to Greater Malé, and construction has overtaken tourism as the main driver of growth. In the medium term, with the emphasis on construction, large current account deficits will likely be financed by investment and infrastructure loans.

OPERATIONAL RISK
The immediate outlook for the country's business environment remains uncertain due to the impact of the February-March 2018 state of emergency on the tourism and non-tourism sector as well as the newly elected government. Due to the lack of major industries outside the tourism sector, risks for businesses operating in tourism and key related sectors may rise in the short term due to political volatility. The labour market also remains small; therefore, options for labour-intensive sectors remain limited.

Source: Fitch Solutions
Date last reviewed: March 15, 2019

10.5 Fitch Solutions Political and Economic Risk Indices

Graph: Maldives short term political risk index
Graph: Maldives short term political risk index
Graph: Maldives long term political risk index
Graph: Maldives long term political risk index
Graph: Maldives short term economic risk index
Graph: Maldives short term economic risk index
Graph: Maldives long term economic risk index
Graph: Maldives long term economic risk index

100 = Lowest risk, 0 = Highest risk
Source: Fitch Solutions Political and Economic Risk Indices
Date last reviewed: March 17, 2019

10.6 Fitch Solutions Operational Risk Index


Operational RiskLabour Market RiskTrade and Investment RiskLogistics RiskCrime and Security Risk
Maldives Score48.850.345.639.559.9
South Asia Average41.943.740.2
43.440.5
South Asia Position (out of 8)413
52
Asia Average48.750.648.246.050.1
Asia Position (out of 35)1816182011
Global Average49.649.749.949.049.8
Global Position (out of 201)10010011912868

100 = Lowest risk, 0 = Highest risk
Source: Fitch Solutions Operational Risk Index

Graph: Maldives vs global and regional averages
Graph: Maldives vs global and regional averages
Country
Operational Risk IndexLabour Market Risk Index
Trade and Investment Risk IndexLogistics Risk Index
Crime and Security Risk Index
India50.744.653.761.842.8
Bhutan50.644.544.6
51.0
62.5
Sri Lanka50.145.049.0
58.2
48.4
Maldives48.850.345.639.559.9
Bangladesh38.450.1
28.9
39.0
35.5
Nepal37.540.9
33.3
34.941.1
Pakistan34.936.938.343.121.4
Afghanistan24.537.328.519.712.3
Regional Averages41.943.740.243.440.5
Emerging Markets Averages46.748.145.547.446.0
Global Markets Averages49.649.749.949.049.8

100 = Lowest risk, 0 = Highest risk
Source: Fitch Solutions Operational Risk Index
Date last reviewed: March 17, 2019

11. Hong Kong Connection

11.1 Hong Kong’s Trade with Maldives

Graph: Major export commodities to Maldives (2018)
Graph: Major export commodities to Maldives (2018)
Graph: Major import commodities from Maldives (2018)
Graph: Major import commodities from Maldives (2018)

Note: Graph shows the main Hong Kong exports to/imports from Maldives (by consignment)

Graph: Merchandise exports to Maldives
Graph: Merchandise exports to Maldives
Graph: Merchandise imports from Maldives
Graph: Merchandise imports from Maldives

Note: Graph shows Hong Kong exports to/imports from Maldives (by consignment)
Exchange Rate HK$/US$, average
7.75 (2014)
7.75 (2015)
7.76 (2016)
7.79 (2017)
7.83 (2018)
Sources: Hong Kong Trade Statistics, Census & Statistics Department
Date last reviewed: March 17, 2019


2017
Growth rate (%)
Number of Maldivian residents visiting Hong Kong1,096-27.2

Sources: Hong Kong Tourism Board, Fitch Solutions


2017Growth rate (%)
Number of Asia Pacific residents visiting Hong Kong54,482,538
3.5
Number of South Asians residing in Hong Kong36,680
1.6

Sources: Hong Kong Tourism Board, Fitch Solutions
Date last reviewed: March 17, 2019

11.2 Commercial Presence in Hong Kong


2016
Growth rate (%)
Number of Maldivian companies in Hong KongN/AN/A
- Regional headquarters
- Regional offices
- Local offices

Source: Hong Kong Census and Statistics Department

11.3 Chamber of Commerce (or Related Organisations) in Hong Kong

Honorary Consulate-General of the Republic of Maldives in the Hong Kong SAR
Address: Rooms 201-205, Kowloon Centre, 29-39 Ashley Road, Kowloon, Hong Kong
Email: info@maldivesconsulhk.com
Tel: (852) 2376 2114
Fax: (852) 2376 2366

Source: Honorary Consulate-General of the Republic of Maldives in the Hong Kong SAR

11.4 Visa Requirements for Hong Kong Residents

Hong Kong residents receive a 30-day tourist visa-on-arrival in the Maldives.

Source: Honorary Consulate-General of the Republic of Maldives in the Hong Kong SAR
Date last reviewed: March 17, 2019

Content provided by Picture: Fitch Solutions – BMI Research
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