The Maldives needs little introduction to tourists – it is well known worldwide as a veritable paradise and a dream vacation spot for honeymooners. Those who have visited recount its white sands and pristine waters; those who have not wish they could. But faced with pressing development needs, international scrutiny over its human rights record, and neighbouring powers jostling for regional influence, the Maldives itself has little time to relax.
The Maldivian government is currently the subject of growing attention over its FDI strategy. With a tiny population of 300,000 and an economy based on tourism and fishing, the country's importance stems primarily from its location along major Indian Ocean shipping routes. Historically a close trade partner and ally of India, the country, comprised of 1200 islands, is now being eyed by China as a key location within its quickly expanding Maritime Silk Road project, a strategic initiative to increase investment across much of Asia, Africa and the Middle East. China’s growing influence in the Indian Ocean is proving to be a concern for India.
Indian officials are increasingly making reference to a 'string of pearls' emerging in their backyard; a network of Chinese commercial and military establishments along the sea lines of communication they claim is aimed at weakening India’s power. China states that the construction of port facilities in the region is purely for economic purposes with benefits to the host countries. The Indian Ocean also carries 80% of China's petroleum imports.
The Maldivian government, meanwhile, is trying to pacify India’s concerns. President Yameen Abdul Gayoom has stated that his government’s policy toward China in no way threatens its “special relationship” with India, stressing that “India is our closest partner in terms of diplomatic and political relations”. India and the Maldives also work closely in matters of regional security; India has radar stations on several of the Maldives' atolls.
Yet the construction of several Chinese infrastructure and property projects is keeping Indian policymakers on their toes. One is the China-Maldives Friendship Bridge, a $280m investment Mr Yameen calls “essential” in developing a "youth city" in the Hulhumalé suburb of capital city Malé, a pledge of his presidential campaign. Connecting the islands with this bridge is “not just transport; it’s a road to economic viability”, says the Maldives’ minister of fisheries Mahamed Shainee. “It will create job opportunities and give young people access to work, as well as more opportunities for housing to be built.”
Other investments include large-scale housing projects and the expansion of the Ibrahim Nasir international airport, financed by a $373m loan from the Export-Import Bank of China. Estimates predict that the Maldives will see up to 500,000 Chinese tourists in 2016, with visitors from China making up 30% of the country’s tourist arrivals each year.
“Developments from India are always welcome,” says Mr Shainee. “But China is an emerging economy with a lot of opportunity to invest, and therefore the Maldives is always open for investment. Economic development is one of the key pillars of Mr Yameen’s pledges, the Chinese and Middle Eastern markets have money to invest, so why not open up to those markets? We are open to any country.”
In response to China's increasing presence in the Maldives, India is already looking to cement further its relationship with the Maldives, embarking on a renewed wave of official visits and collaboration efforts to revive its strategic sway in a country whose geographic position makes it such a vital asset.
Areas of opportunity
A recent law passed by the Maldivian government allows foreigners to own land in the country if they invest $1bn or more and reclaim 70% of the land from the sea. Its aim is to attract FDI, which policymakers in the country hope will decrease its reliance on tourism.
“We are a small developing country – the economic base is very narrow, essentially fisheries and tourism,” says Mr Shainee. “But if we want the economy to be diverse we need more industries to come to the Maldives. So we have to offer concessions for the establishment of light industries such as packing, service industries and other areas.”
"Our special economic zone [SEZ] law was put in place to offer concessional land tax for these kinds of investments and help companies establish themselves in the country,” he adds. “We offer 100% foreign ownership depending on the sector, and investments of more than $150m can be recognised as SEZs. The SEZ law has enabled us to demonstrate that the Maldives is open for investments.”
"Tourism is a blessing for all the other industries,” the minister continues. “Fisheries and agriculture also rely on tourism to grow; we can supply these products directly to our tourism industry. So the key words here are import substitution.”
One of the government’s pledges is to increase domestic production, and to focus on adding value to products and raw materials, according to Mr Shainee. “One of the policies of the fisheries [industry] is within five years to stop all raw materials leaving the country and to instead process them in the country. This means job creation and adding value to products,” he says.
“Last year we signed the largest agricultural investment in the history of the Maldives – a $10m UK agricultural development project. Something of this size in this sector was unheard of in the Maldives. The perception before was that agriculture cannot be done in the Maldives because the country is too small, but this government has been working to get the message out: we are small but we have the opportunity to diversify, grow, and produce. I think that has been realised, and now I am increasingly getting agricultural investments from Thailand, China and Europe.”
Further potential for economic diversification lies in the service industries, including ports, transhipment, medical tourism, renewable energy, real estate and integrated development, according to Mr Shainee. Much of this is related to and supported by tourism. “We are a small island with little opportunity and a very narrow economic base, but still, we have found formulas to achieve economic growth,” he says.
The Asian Development Bank has projected that, for the Maldives, “a revival in tourism and sustained construction and infrastructure spending at a pace higher than expected will likely extend the 2015 growth rate of 6.3% into 2016”. However, high public debt and high volatility of tourism revenue are major challenges for the government.
Chinese investment is not something the Maldives can turn down – diversifying and increasing its FDI inflows is directly in line with the government’s stated aim of pursuing economic development and improved living conditions for Maldivians. The Maritime Silk Road projects and increased competition between China and India in vying for Maldivian ventures could ultimately bring the country palpable benefits in a range of sectors, particularly infrastructure, housing, healthcare, education and security.