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Country Commercial Guides for FY 2000: Maldives Report prepared by U.S. Embassy Colombo, Sri Lanka, released July 1999   Note*

CHAPTER VI

INVESTMENT CLIMATE

In the recent decades since tourism was introduced, the Maldives has welcomed foreign investment. However, the lack of codified law and of a predictable investment framework has over time dampened investor interest. To address investor concerns, the government of the Maldives introduced a Foreign Investment Services Bureau within the Ministry of Trade, Industries and Labour. The FISB offers "one-stop shop" service to investors and incentives such as allowing 100 percent foreign ownership, duty exemptions, and no exchange controls or restrictions. At present, personal income taxes are not imposed, though banks' profits are taxed and a corporate profits tax is under consideration.

The FISB is encouraging investment projects which: (1) are capital intensive; (2) enhance technology transfer; (3) introduce new skills and offer training to local employees; and, (4) are environmentally friendly.

The FISB has identified several industries which offer potential for investors, which are summarized below.

Fisheries--particularly value-adding enterprises such as marine product development, aquaculture including tropical fish farming and cultivation of seaweed, lobster, shrimp, reef fish and crab.

Financial--banking, accounting and management consultancy.

Transport and other services--development of air and sea transport including inter-atoll transport services, bunkering, transshipment, passenger cruises.

Infrastructure development--harbors and tourist resorts, also the development of Other services include developing residential islands for foreigners, health resorts and development of time sharing schemes.

Other sectors with potential include: petroleum exploration; marine and land-based agriculture; handicrafts; export-oriented manufacturing, and computer technology ventures.

Recognizing that the existing legal and commercial framework is underdeveloped and not always fully transparent or predictable, government ministries are also in the process of promoting administrative reforms and formulating regulations dealing with labor, the environment and industry.

There is little private ownership of land, and land reform currently under consideration might result in more free trade and private ownership of property. Foreign investors are not allowed to own land, and in the past lease terms were severely limited; however, under a new tourism law, foreign resort owners will be granted long term lease rights ranging from 21 to 35 years, depending on the value of the investment.

The Maldives lacks specific legislation to protect intellectual property rights (IPR) and has not signed on to international agreements and conventions. The Government is seeking assistance from the World Intellectual Property Organization (WIPO) to develop IPR laws and regulations. Consumers of computer software reportedly appreciate the value of genuine products, as pirated software programs often contain bugs and viruses.

Trained as well as unskilled labor is often scarce and expatriate labor is allowed to meet shortages. However, in late 1998 the FISB reportedly decided not to offer registration to factories that plan to employ expatriate labor, in a move to encourage investors to employ more local labor. As an incentive, the government slashed by 50 percent the 3 percent royalty paid by foreign factory owners.

Wages in the private sector are usually set by contract between employer and employee and are usually based on rates for similar work in the public sector. Employment contracts usually specify work hours on a weekly or monthly basis. Employees are usually authorized 20 days of annual leave, 30 days of medical leave, 45 days' maternity leave, and 10 days of special annual leave for "extraordinary circumstances." There are no laws governing health and safety conditions; however, there are regulatory requirements that employers provide a safe working environment and ensure the observance of safety measures.

Although unions are not expressly prohibited, the Government does not recognize the right to form unions, nor the right to strike. Hence, labor actions and disputes are rare. The U.S. Government in 1995 suspended the Maldives' eligibility for tariff preferences under the U.S. Generalized System of Preferences because the Government failed to take steps to afford internationally recognized worker rights to Maldivian workers. The Government--with assistance from the International Labor Organization--has drafted proposed new labor laws dealing with rights of association, the right to organize, and acceptable conditions of work; these drafts are now under consideration.

The financial services sector in the Maldives is not particularly well-developed or sophisticated. There is no stock market, although some public sector corporations from time to time issue shares. The Government is hoping to develop a secondary market or trading shares. There are no exchange controls or restrictions on currency movements. Thus, repatriation of funds and profits is freely allowed, after local debts are settled.

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

The rate of exchange is pegged to a trade-weighted basket of other currencies. The local currency is the rufiyaa (Mrf), which enjoys a very stable rate of exchange in the range of Mrf 11 to 12 : US $1.