Maldives Partnership Forum 25 th - 26 th June 2006, Bandos Island Resort, Maldives Investment climate & opportunities for investment in the Maldives

Structure of the presentation Introduction Key economic challenges Possible options Investment policy & environment Proposed changes to the foreign investment policy Major infrastructure investments-an update Conclusion

Presentation Theme “The economy has grown at very impressive rates over the last 20 years, but we face considerable challenges to sustain such growth into the future”

Key challenges facing the Maldives Tsunami reconstruction & its fiscal implications –Record budget deficit in 2005 –Funding Gap Graduation to MIC status –Reduced ability to attract ODA & concessional loans –Loss of preferential trade arrangements i.e. E.U’s Everything But Arms (EBA) Initiative Lack of investment finance –Unavailability of capital on reasonable terms for non- tourism investments

Key challenges facing the Maldives (contd.) Limitation of current infrastructure vs. proposed growth path –Proposed tourism expansion and its implications on the demand for international and domestic airport services International airport highly congested at peak times even at present Tourist arrivals expected to grow at least by 8% per annum reaching 1 million by 2015 International airport & the regional airports needs major upgrades and expansion to cater to expected increase in demand from increased bed capacity and to service resorts in outer atolls

Key challenges facing the Maldives (contd.) Limitations in current infrastructure vs. proposed growth path –Projected economic growth & its implication on port demand Port throughput growing faster than GDP Current port already operating above its intended capacity Unacceptable turnaround times for ships at present Limited container handling space leading to storage of containers in Hulhumale

Current foreign investment (FI) policy & environment Governance –FI are governed by Law on Foreign Investments (Law No: 25/79) Openness –Most open in S. Asia (Investment Climate Assessment, World Bank) –All sectors except the following are open for FI –retail and wholesale trade –construction –fishery investments Entry Procedure –Tourism FI to be registered at the MOTCA under 25/79 –All non-tourism FI to be registered at FISB under 25/79 –All FI proposals appraised by the FI Board

Current foreign investment (FI) policy & environment (contd.) Taxes –No corporate tax –Nominal royalty charged from FI Incentives –100% foreign ownership welcomed –Free repatriation of profits or earnings –No foreign exchange restrictions –Freedom to employ expatriate labour

Proposed changes to the foreign investment policy Further liberalization of the investment regime is under consideration and the following are being considered through public-private consultation –All sectors to be opened up, provided 51% owned by locals –100% FI to be allowed for large capital investments –Automatic approval for FI –Streamlining the royalty regime to remove current inconsistencies –Tax holiday for investments based outside greater Male region to foster regional development –Tax holidays and import duty exemptions for investments targeting export markets to strengthen competitiveness of exports

Updates on major foreign investment in infrastructure… Port Projects: –Government signed an MOU with a prospective foreign investor to establish a port city with extensive trans- shipment facilities. Detailed feasibility study expected 6 months from now. Total investment in phase 1 estimated at US$ 430 million and at full scope the estimated investment is US$1.2 billion –Relocation and expansion of Male Commercial Port Other large investments –Establishment of a National Airline –Bridge connecting Male with Hulhule Island (airport island)

Conclusion Need to move fast with major infrastructure investments to foster economic growth under the proposed growth path including the expansion of tourism, further liberalization of fishery and the opening up of foreign investments in general Liberalization of FI expected to boost capital inflows and off-set the expected decline in ODA due to the graduation of Maldives to MIC status in 2011