Maldives: A Trade and Investment Pathway for Post-Graduation

Maldives, a country of over 1,190 islands in the Indian Ocean, of which only 188 are inhabitable to a population of approximately 350,000 people, has unique challenges due to its recent graduation from Least Developed Country (LDC) status (2011) and the resulting loss of trade preferences that it had been accorded as an LDC.

 

To build long-term sustainability, Maldives has adopted a consistent policy approach for economic diversification, improving ease of doing business, promoting investment and trade facilitation. As a service-based economy, Maldives has undergone substantive transformative reforms, with new legislations, regulations and frameworks to enable foreign direct investment with the goal of promoting economic and social development.

 

The EIF's support has been crucial for Maldives' development, particularly as there is a limited donor presence in the country. The EIF is supporting the implementation of trade, investment, transport and employment sector activities, the strengthening of private sector collaboration and encouraging of bilateral trade cooperation in the region. The EIF support has been recognized by the Presidential Council contributing to high-level decision‑making and has been incorporated into different line Ministries.

 

A dynamic EIF National Implementation Unit (NIU) team is in place supporting the Ministry of Economic Development (MED) to formulate, implement and report on progress of the annual action plans related to investment, trade, employment and transport. The NIU has also provided technical support to draft five key chapters of the National Development Strategy, compiled by the Ministry of Finance and Treasury and covering areas relating to trade, investments, small- and medium‑enterprise development, reliable transport and labour, employment and migration.

 

The NIU has also been the Secretariat for the National Anti-Human Trafficking Steering Committee meetings and has convened inter-sectoral technical committee meetings to monitor the implementation of the Anti-Human Trafficking National Action Plan. With the formulation of the National Job Creation Strategy supported by the International Labour Organization, the NIU has assisted the Government in formulating a national‑level consultative mechanism involving public and private sector organizations to support the implementation of the Strategy. Training has also been provided to the Maldives Inland Revenue Authority through the recruitment of a tax consultant to strengthen its in-house capacity to manage and administer complex tax audit cases.

 

To support regional integration, the NIU is providing technical assistance to facilitate and launch the Free Trade Agreement with China and providing information to public and private stakeholders and negotiation teams to prepare Maldives' position papers for the negotiation rounds. This bilateral cooperation paved the way for mobilizing financing for key strategic projects, including the Malé Airport and the Hulhulé-Malé Bridge. Maldives has also joined a number of regional initiatives to ensure access to financing for the trade sector, including the South Asian Sub-regional Co-operation, the Asian Infrastructure Investment Bank and the Chinese Maritime Silk Road Initiative.

 

In line with the Government's attempts to direct trade sector resource mobilization away from aid and towards investment, the NIU has been focusing on mobilizing financing for strategic investment projects. In this vein, the NIU supports the MED as a "one-stop" point for the registration of all entities engaging in business in Maldives. In particular, the NIU has supported Invest Maldives, the Government investment promotion arm housed in the MED, which is entrusted with promoting foreign investments to the country, with a dedicated website, www.investmaldives.org. The NIU team has also contributed to the development of a Maldives Doing Business Guide and Invest Maldives Magazine, which have been widely disseminated at the Maldives Investment Forum and to visiting business, donor and consular delegations.

 

The NIU has also been entrusted with support to the management of investment project proposals received under the Special Economic Zones regime, which is the Government's development initiative to create infrastructure and facilities, such as ports, airports, warehousing and export processing zones to foster export‑oriented manufacturing and service industries. Through these engagements, funding of US$735,000 was mobilized by the MED from the private sector for the Maldives Investment Forum and Expo Maldives to promote locally made products and services.

 

The EIF programme has also assisted the Government's efforts to lead the trade facilitation agenda in Maldives, with the NIU team helping to convene the Business Council and National Trade Facilitation Committee (TFC) meetings. The NIU team has assisted the TFC to implement the recommendations of the World Bank Doing Business Reform Memorandum. Building on this, local expertise has also been recruited through the EIF institutional capacity‑building project to work with the Transport Authority to strengthen the maritime regulations and to develop bylaws to facilitate the registration of foreign‑owned vessels under the Maldivian flag. Substantive work has also been carried out to establish an open ship registry and strengthen Maldives' attractiveness for luxury vessels registration.

 

In order to improve trade performance, promote growth, increase revenues and reduce income inequality, Maldives has also engaged in simplifying border procedures through an EIF-funded trade facilitation project. The project seeks to build up the capacity of trade facilitation institutions by focusing on customs modernization with a full migration to ASYCUDA (Automated System for Customs Data) World and strengthening of the regulatory capacity of the Civil Aviation Authority to implement a robust economic regulatory framework and engage the private sector in the management of airport infrastructure. The project has led to a 50% reduction in the processing time of customs documents (from up to two days to less than 24 hours); and an overall reduction in customs handling time by 60% to 70%. The project also aims to achieve the following targets: an upgrade of the goods clearance system to ASYCUDA World; an improvement of customs processes and procedures relating to risk management, valuation and post-clearance supported by a diagnostic report on customs processes and procedures; effective controls to combat fraud and to protect legitimate trade through modern custom procedures; an upgrade of border clearance systems; and the strengthening of the Civil Aviation Authority's functions.

 

To date, over 200 Customs Service officials have been trained and equipped with the capacity to manage the newly introduced systems beyond the project phase. Assessments and recommendations provided by the expert teams from the World Custom Organization (WCO) and UNCTAD have also provided the Maldives Customs Services with broad guidance on how the reform activities should be carried out in the areas of valuation, risk management, post‑clearance audit and upgrading ASYCUDA ++ to ASYCUDA World as a goods clearance system.

 

Substantive consultations were also carried out with stakeholders (port operators, freight forwarders, shipping agents, etc.) to integrate manifest processing procedures into the ASYCUDA platform. Currently, work to upgrade communications infrastructure in line with ASYCUDA World is ongoing, and the migration to ASYCUDA World is expected to be completed by mid-2016.

 

As part of efforts to establish a paperless trading environment, authorities are working towards the development of a single window for trade facilitation. Collaboration with Asian Development Bank/WCO, the United Nations Economic and Social Commission for Asia and the Pacific and United Nations Commission on International Trade Law in the area of single window has helped push the Government's reform agenda on trade facilitation. To increase wider stakeholder support and initiate work on harmonizing various IT systems in support of introducing a National Single Window, the ASYCUDA World and the National Single Window Project were shared with the National Center for Information Technology and other concerned agencies.

 

In the aviation sector, stakeholder consultation processes to finalize the Economic Regulatory Framework were completed, and the regulations were finalized in July 2015. As part of a capacity‑building programme to sensitize stakeholders on the newly drafted Economic Regulatory Framework, 22 public and private sector participants in the aviation sector were trained in areas, including Airport Strategic Management and the International Air Transport Association's Policies on Economic Regulations & Airport Competition.

 

Against a backdrop of climate change vulnerability, alongside big gaps in financing, technology, transport and logistics; and limited export promotion services, the trade agenda in Maldives has taken a big step forward. The EIF will continue to support capacity, infrastructure and institutional development, which will facilitate market linkages, trade facilitation, industrial development and diversification activities.