The Maldives is strategically unprepared for the negative consequences of creating special economic zones (SEZs), former Finance Minister Ahmed Inaz has warned.
In an opinion piece published on newspaper Haveeru last week, Inaz argued that SEZs could worsen income inequality, deprive local councils of sources of revenue, and lead to a large influx of foreign labour.
“If [the government] wants to create special economic zones, it should prioritise solving problems in the judiciary that the entire country is concerned about as well as the budget deficit,” he wrote.
Policies concerning the SEZs should be formulated with a long term plan that looks ahead 10 to 20 years into the future, Inaz advised.
Investor confidence should be secured, he continued, for which laws needed to be reviewed through political dialogue.
Speaking at a forum on SEZs last week, Maldives Monetary Authority Governor Dr Azeema Adam also cautioned that political consensus was necessary for SEZs to be successful and stressed the importance of a long term strategic plan.
President Abdulla Yameen ratified the SEZ Act on September 1, which he has said would “transform” the economy through diversification, whilst relaxed regulations and tax concessions were necessary to attract foreign investors and launch ‘mega projects’ to mitigate the reliance on the tourism industry.
Inaz meanwhile predicted that a population of foreign workers many times the size of the local population would be created with the development of SEZs.
“Problems (social, political and economic) as well as opportunities that could arise as a result of the [expatriate] population should be weighed academically and discussed and debated,” he advised.
Inaz served as finance minister during the administration of former President Mohamed Nasheed and oversaw the enactment of tax reforms in 2011.
After leaving the Maldivian Democratic Party in February 2012, Inaz told Minivan News he would “always remain independent and serving the national interest.”
Consequences of SEZs
Unlike China and other East Asian countries where SEZs were created about 50 years ago, Inaz observed that the Maldives has never been a “closed economy.”
A large and cheap labour force and rich natural resources contributed to China’s economic success, he noted.
However, he added, social scientists believe that industrial development came at the cost of social cohesion.
Moreover, large multinational companies exert undue influence over decision-making in China and other East Asian nations, Inaz suggested.
While a free market economic policy has always been pursued in the Maldives, “with the designation of separate economic zones, other regions of the Maldives would be closed economically,” Inaz wrote.
Inaz argued that policies enacted in China to integrate its economy with a globalised world were unsuited to the Maldives.
In addition to establishing infrastructure such as airports, utilities and transport networks, Inaz observed that China trained skilled workers such as engineers, accountants, and lawyers years in advance.
“The question is whether there are nearly enough Maldivians with good work ethics who would be inexpensive (compared to neighbouring countries)?” he asked.
Social and economic problems created as a result of not regulating migrant workers during the past 15 years could increase manifold with SEZs, Inaz warned.
If Maldivians were unprepared for new jobs, Inaz predicted that wages could also be adversely affected in the domestic job market.
Inequality
One of the biggest challenges facing the Maldives was income inequality and the small size of the middle class, Inaz continued, which was most evident in the regional disparities between the capital and outer atolls.
Inaz stressed that empowering local councils to generate income by utilising land and lagoons was necessary to reduce disparities.
While social security benefits reduces the income gap, Inaz warned of the negative impact on government revenue of tax exemptions for investors in SEZs.
China and Singapore created SEZs after putting the state’s fiscal affairs on a sustainable footing, he noted.
The value of the Maldivian currency deteriorated as a result of persistent budget deficits since 2004, Inaz observed, which forced the state to print money to finance deficit spending.
Consequently, the interest rate on treasury bills was now nine percent, he noted, which restricts opportunities for local businesses to partner with foreign investors in the SEZs.
“It would be unwise to establish [SEZs] without easing the burden placed on Maldivian businesses by the budget deficit and T-bill rates,” he advised.
If SEZs are created with the fiscal status quo unchanged, Inaz suggested that the government would lose sources of revenue from taxes and lease rent.
The government’s position in negotiations with potential investors would also be weak, he contended.
Inaz further argued that successive governments had been unable to improve provision of services due to a weak system of governance.
“With this reality and serious challenges, what high ground would we climb for safety from the big waves formed by opening up the whole country through a special economic zones law?” he asked.
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We will see the results of this in 20 years time. It won't look good. Most people will indeed have a worse quality of life.
But no one seems to be listening to the voices of reason. Indeed Maldives has always been an open economy. How else could we have had the current tourism industry.
SEZs are trying to solve the wrong problem. Raising national productivity first may be a smarter idea and reducing wastage of resources of human & material capital.
There are 1001 reasons for doing some thing and another 1001 reasons for not doing anything.
Some reason why things should not be done inlude, 1. a possible tsunami, 2. falling of a meteor, 3. emergence of ebola, 4. ISIS win in next election and simply the comming of day of judgement among the other 996 reasons
SEZ will be 1000 times better than having so called Guest Houses" on small inhabited Islands. Social problems will be millions times more by allowing to rent rooms to sleep those backpackers .
SEZ is not going to be only the form of doing business in Maldives and what we are doing today will continue to do and it will also get expanded. This mean our economic growth will continue as it is now.
SEZ only going to add more to the current economy and i don't understand why then the creation of SEZ will worsen the income in inequality ?
It could have a very negative impact if Gov, would abolish all trade activities and transfer the existing industries and business into SEZ ? I don't think that is the case here.
Gov. is trying to attract additional investors and specially to diversify the economy into multiple industries and reduce the dependency on Tourism
Probably Adeeb knows the waiting queue of Mega investors for the SEZ bill get passed in the Maldivian Parliament. So don’t be pessimistic , there are Chinese investors ready to come to Maldives with billions to invest to develop airports, ports , bridges, reclamation , and then training and educational facilities to create work force and then there will be Intel, Johnson &Johnson, Toyota, Prada and Gucci, Kellogg’s, Kraft and you name it, to setup their plants for manufacturing. To us it is bit too much of a fantasy. But Tourism is something no one can beat Maldives and you will never have shortage of crazy travelers, it seems focusing on Tourism is the most optimal foresight, however, Maldivian are delusional people and always think that Maldives is a country with land, culture and civilized people. Probably a back packer with few dollars can help Maldivian society then a multimillion dollar investor. This lone backpacker will be far more civilized then those beetle nut munching bearded or veiled semi cultured fish folks , hobo druggies and roaming hooligans. Mostly those back packers are, young educated kids who travel for adventure, research and education.
@Hero: Maybe it hasn't occurred to you that we don't want dynamite fishers, toxic waste dumpers, heroin peddlers, child abuse film dealers and money launderers setting up shop and lining your pockets with money.
hope Inaz is not coming back to politics
@Minivan. We had tourists being drag and were taken to show Thimarafushi as a big investors by Nasheed . We have seen some Italian villager were taken to Faafu as investors in educational universities .
All these hoax were created by Nasheed. We heard Nasheed saying that on his visit to Italy will attract 50,000 tourists and his visit to India will bring 100,000 tourists from India.
But people like you have been clapping your hands and feeds saying what a good leader and how intelligent your spiritual leader was ?
But we knew and know that it is was not possible at all. Bringing tourist are not something similar going to fish market to buy fishes and its much more harder and it require a long term investment .
I think the only potential investors under this SEZ would be Bangladeshi laborers, they will start fishing, farming, and the potential customers would be Malu Dhivehin. They will graduate from running Kadda,to great Malu Dhivein standard investors
Sez in maldives laughable idea,the country hardly has a inch of land,so where are they going to build this sez,unless investors are prepared to create artificial islands near the main shipping gateway ports in maldives at huge costs which negates the profitability of sez