Tag: blackstone

Government offers ‘corporate resident visas’ for foreign investors

The government has introduced corporate residence visas for foreign entrepreneurs who have invested more than US$50 million in the Maldives.

The new corporate resident Maldives scheme “aims to provide foreign investors in the Maldives with privileged and fast-track services,” according to the economic development ministry.

“My government will accord hospitality to all foreign investors who come here. We will accord safety and satisfaction to all of the foreign investors who are here. We would like foreign investors to feel like friends among friends, Maldivians among Maldivians,” said president Abdulla Yameen at a ceremony last night.

The government is seeking “to attract net worth high value investments” to the Maldives, he added.

The corporate resident visa holders will belong to “a privileged, elitist club,” Yameen said. Card holders will have permanent residency and will not have to wait in queues at immigration.

President Yameen handed out entitlement certificates under the scheme to the Bahrain Telecommunications Company (Batelco), Housing Development Finance Corporation, Seaplane Holdings, Mauritius Commercial Bank, and Hitachi.

Yameen said foreign investments are essential for the government to realise its ambition of “transforming the economy” through diversification and ‘mega projects.’

“This is the only way we believe third world countries, small countries like Maldives, can prosper and transform our economy,” Yameen said in his remarks in English.

The opposition has previously criticised the lack of significant foreign investments despite assurances from the government following the passage of its flagship special economic zones legislation in August last year.

The main opposition Maldivian Democratic Party recently alleged corruption in a deal with Dubai Ports World to develop a commercial port and free trade zone near Malé.

The opposition also contends that the previous administration’s abrupt termination of a contract with Indian company GMR to develop the international airport has irreparably damaged investor confidence. The Indian infrastructure giant is seeking US$803 million as compensation.

“New horizons”

Maldivians at first looked at foreign investments with “suspicion,” Yameen said, but “those days are long past gone.”

“We are looking at foreign investments as part and parcel of our economic development. We welcome foreign investments as partners in our developmental work,” he said.

Yameen said “the most important, most successful, thriving businesses flourishing across the Maldivian economy belong to foreign investors, either joint venture investors or 100 percent foreign investors.”

“There are no strings attached to foreign investments in the Maldives. Foreign investments can come in 100 percent foreign or it could be a collaborative effort with joint venture Maldivian partners,” he said.

“Foreign investors have naturally permeated into the Maldivian economy, that is why today we open our doors with gracious welcome to all the foreign investors.”

The government has invited foreign investors to consider “challenging and attractive investment opportunities” such as the iHavan transhipment port project.

Referring to the Hulhumalé bridge project, Yameen said the reclaimed island “is going to be an ample, resource-bound area for investors, be it housing or be it infrastructure provision.”

The government is also “looking at a brand new international airport that is capable of handling around seven million passengers” and exploring “new horizons of economic development.”

“Maldivian youth aspirations are tremendous. They are enormous. It is from housing to jobs and also to improving their wellbeing. The only way to do this is to attract our doors to all foreign investments who want to invest in major, major investments here,” he said.

The US$300 or US$400 million bridge project is “enormous” for the Maldives with its per capita income of about US$7,000, Yameen said.

“What it entails is not only growth, what it entails is assurance of jobs for Maldivian youth,” he said.

The government is committed to improving the livelihoods of the people, “no matter what you hear on the roads of Malé.”

Yameen also appealed to government staff to be “hospitable, speedy and efficient in delivery of service.”

Service provision should be “seamless,” he continued, “so no hiccups, no nonsense, that is the only way the so-called one-stop shop is going to work.”

Economic returns in the Maldives is “as good as any you can have,” he said, noting that investments in tourism can be recovered in four or five years.

The Maldives is also “a low tax country” with a comparatively low business profit tax, he said.

“This is a safe place for investments, this is safer than the safest place elsewhere on the earth,” Yameen said.

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“Worst fears” over Blackstone seaplane buyout now a reality, warns hotel group

Several multinational hospitality groups have alleged that the decision to sell the Maldives’ two main seaplane operators to US-based private equity fund Blackstone is having a “significant” negative impact on industry profitability – potentially compromising local jobs.

Blackstone announced back in February this year that it had purchased a controlling stake in both the Maldives’ seaplane operators, Trans Maldivian Airways (TMA) and Maldivian Air Taxi (MAT) for an undisclosed sum. Since the merger, the company has been operating under the TMA brand.

Major resort groups – speaking on condition of anonymity – have alleged that a number of properties were losing money on a monthly basis as a result of being reliant on services provided by the now-consolidated national seaplane operator.

“Worst fears”

In a letter addressed to the Secretary General of the Maldives Association of Tourism Industry (MATI) – obtained this week by Minivan News – one of the largest multinational companies operating in the country expressed concern that “our worst fears about the [seaplane] monopoly situation are becoming a reality.”

“You are of course aware that The Blackstone Group’s recent entry into the market has had the effect of eliminating competition and creating a monopoly in the charter seaplane market in the Maldives,” wrote the multinational’s CEO in a letter dated August 5, 2013.

“We were concerned from the outset about the potential disruptions this could cause in the market and have been monitoring the situation closely.”

The CEO added that, with discussions ongoing over securing a seaplane charter contract for its resort properties in the country, the company was particularly concerned at several contractual points being “forced” onto the group by TMA.

According to the letter, these concerns include:

  • A significant increase in prices from previous seaplane contracts
  • A reduction in services and benefits being offered to hospitality groups
  • An exclusivity clause forbidding any deals between the company and other seaplane operators
  • A “contractual link” to use landplane operations it alleges are set to be launched by TMA
  • Minimum contract term of three years for seaplane operations

“As you can see, the terms being forced upon hotel owners are highly anti-competitive and will have a significant negative impact on the market. We are being forced to accept unfavourable terms and TMA is trying to lock itself into a monopoly position by insisting on long-term exclusive contracts,” the multinational hospitality group’s CEO continued in his letter to MATI.

“Ultimately, these costs will be passed on to tourists, which will make the Maldives an even more expensive tourist destination and ultimately deter tourists from visiting , this will cost Maldivian jobs and damage the industry and economy.”

“Sensitive issue”

A senior official for another major multinational hotel group using TMA’s services said it had been experiencing a number of problems in recent months related to transporting clients by seaplane – describing the matter as a “sensitive issue”.

As well as general concerns about service costs, which it said were now “quite high”, the resort source claimed they had also noted issues with TMA cancelling flights without providing prior notification to the resort or its passengers.

In some cases, the resort official alleged that the resort had been given no choice but to provide customers with free meals and even additional nights stay on their property as a result of what it said were last minute cancellations by TMA.

“Although we have had no complaints from guests themselves, this has become quite expensive for the resort,” added the resort official. “I speak with many other resorts and many have said they are losing money monthly by having to provide these transfers [by seaplane].”

The source also noted what they believed was a decline in service in recent months, personally finding travelling with TMA a comparatively “unpleasant experience”.

“Right now, there is no competition as it is only TMA offering services,” the source said.

Domestic alternatives

Meanwhile, the general manger of a resort based in the north of the country, which is currently in negotiations with TMA to renew its contract, also raised concerns over the recent services being provided to guests since the takeover by Blackstone.

“We are not the only resort I know of who believes the services are not as good. There are less flights and more island hopping,” the source claimed.

The manager said that with the recent inauguration of a domestic airport in the country, the resort’s own reliance on TMA was no longer as strong, though they added that many guests preferred the opportunity to travel the country by seaplane where possible.

Despite the preference of many tourists to fly by seaplane, the general manager said that tour operators were now opting to use domestic air travel for customers travelling to the resort as “standard”.

“We are expecting more clients to travel by domestic flights, although some would rather pay to upgrade and fly by seaplane,” added the general manager.

Minivan News was awaiting responses from TMA, Blackstone, MATI Seceretary General Ahmed Nazeer, and Tourism Minister Ahmed Adheeb at time of press.

Investment climate

Speaking this week during a live question and answer session ahead of the upcoming election on September 7, President Dr Mohamed Waheed took full credit for securing Blackstone’s purchase of the country’s seaplane operators.

He cited the deal as an indication of the health of foreign investment under his administration, amidst criticism over his government’s termination of two high-profile foreign investment contracts, including a US$511 million valued agreement with India-based GMR to develop and manage Ibrahim Nasir International Airport (INIA).

“It is ridiculous to claim we are not getting foreign investments now. They are very eagerly coming, even more now. One example of a great investor that I brought in recently is Blackstone,” President Waheed said during the televised event.

Attorney General Azima Shukoor last month accused the previous government of failing to conduct sufficient research before signing several major foreign investment projects that have since been terminated by the present administration.

Speaking at the time of the sale back in February, former Minister of Economic Development Mahmood Razee, also former Minister of Civil Aviation, noted that the purchase of a controlling stake in the only two seaplane operators by a single company had effectively monopolised the market.

“This is a very exclusive market, and critical to the tourism industry. Even though both MAT and TMA operate the same aircraft, they have not previously been willing to cooperate,” Razee said, explaining that the Maldives did not have anti-monopoly laws which may have otherwise obstructed the sale.

Previously, resort managers could approach both companies seeking the better price for seaplane services, upon which they were reliant for the vast majority of their guest arrivals: “Now there is no effective competition, as the major shareholder is one and the same,” Razee said at the time.

He acknowledged that “in an ideal world” prices could come down, as the two companies have been operating identical aircraft but duplicating maintenance and other services.

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Comment: FDI and strategic security concerns

Blackstone Group, the US-based MNC with multifarious investment interests across the world, has bought majority shares in the only two Maldivian air-taxi companies, together owning a fleet of close to 50 sea-planes, for an undisclosed sum.

Coming within weeks of the government throwing out Indian infrastructure group GMR  from the airport construction-concession contract, questions need to be answered on issues relating to FDI and strategic security considerations.

The government can take pride that FDI has not dried up after the ‘GMR row’. Nor have perceptions of political instability in the country upset foreign investors into staying away. Together, they could ease pressures on future governments, too, in an election year, and presidential aspirants can now promise the moon both to the foreign investor and to their own local population.

Yes, larger issues, settled decades ago, may need to be re-addressed if the ‘GMR kind’ of problem does not end up showing up without notice on a later date.

There is a major difference between the GMR contract and the current Blackstone deal. The Male’ airport and the company were/are state property, whereas the two sea-plane companies are privately-owned, to the extent they stand on separate legs.

Yet when the issue of ‘national security’ and other national concerns were flagged in the GMR case, the same would apply to an overseas ‘monopoly’ having a near-free access to Maldivian air space as any other state-owned airliner.

Strategic assets and national assets

Procedural issues were cited in cancelling the GMR contract, yet the question of handing over the nation’s sole international airport to an ‘outsider’ was also flagged almost from the day the deal was proposed to be signed. The question remains if it was time for Maldivian government to frame laws and rules to monitor and clear FDI in ‘strategic sectors’, and define in the process, what these ‘strategic sectors’ could well be.

Or, will eternal uncertainty about the prospective nature of retrospective investment contracts become the order of the day, with near-arbitrary decisions taken at whim, causing concern all around?

For now, the controversial and equally-rushed Finance Act amendment of 2010, compelling the government to seek parliamentary approval for altering the nature of ‘national assets’ may require re-visiting.

Like the GMR contract, the Blackstone deal was a done deed the day they were signed by the parties concerned. Yet there is no knowing if a future dispensation in Male and/or a newly-elected parliament, if not the present one, will impose new conditions on private sector national players for inducting foreign investments and investors into their existing and prospective ventures.

The irony of the argument based on ‘national assets’ in the case of the GMR remain. The new definition and consequent distinction was made full 30 years after the Maldivian government of the day encouraged FDI in the resort tourism sector in a very big way. It is this that has changed the face of Maldives from being a small and far-away island community living in a past of compulsive contentment into a vibrant nation that has become the desired destination of the global community as a tourism centre and investment-attraction.

As is known, the resort companies, with foreign equity participation and an excessive number of overseas staff at all levels, have been in possession of isolated islets for developing idyllic resorts – most of whose guests are foreigners, too.

The Ibrahim Nasir International Airport (INIA) in the national capital of Male, too, has been brimming with foreign-registered aircraft in their dozens and foreign tourists in their thousands, for years now. There has been next-to-nil security-checks in these islands, barring an occasional clash between the owners and the employees, or in times of accidental death in the adjoining seas.

Against this, the airport that was leased out to the GMR group was brimming with personnel of the Maldivian security agencies, including the MNDF, MPS, Customs and others. Yet, the question of ‘national assets’ was not posed against the resort islands at inception, or posted against them, when the phraseology was included to impose parliament’s will on policy-making.

The American MNC’s concept and confidence in the nebulous run-up to the twin elections for the presidency and parliament in the next 15 months, all in the midst of the tentative nature of the political stability in the nation, is thus noteworthy.

Geo-strategic perceptions

Post-Cold War, the global perception of geo-strategic concerns in the Maldives has undergone a sea-change. ‘FDI’ in Maldives has acquired a new dimension than at a time when the nation was inviting in the tourism sector. It has come to such a pass that FDI in the utilities sector, like desalination and power-supply, have come to be viewed with suspicion from within and anxieties from the outside.

It is thus that the western perception of India’s strategic concerns for the Maldives has revolved around the ‘China factor’ flowing from the ‘String of Pearls’ theory, an American academic construct.

What should add to the national discourse at the time is the emerging scenario of the Maldives becoming an oil-producing country. At least two presidential aspirants, and both former Finance Ministers, have begun talking about exploring oil extraction prospects if elected President. Abdulla Yameen of the Progressive Party of Maldives (PPM) and Gasim Ibrahim of the Jumhooree Party (JP) are otherwise credited with pragmatism in politics and political administration as in the businesses that they run.

Gasim has since recalled how as a losing candidate in the 2008 presidential polls, he had flagged the issue. He has since pooh-poohed Umar Naseer, a contender for PPM nomination for the presidential polls along with Yameen, that oil exploration could affect on the tourism sector, the mainstay of Maldivian economy at present. Yameen has pointed out how in the past oil exploration could not be taken up for want of adequate technology, which is now available.

In these times of ever-increasing fuel costs impacting on national economies the world over, the ‘strategic importance’ of any oil-find has greater significance for post-Cold War Maldives than is acknowledged. An infant democracy, still experimenting with the respective rights and powers of its constitutional institutions, the Maldives will soon be called upon to define, and decide upon, the nature and definitions of ‘strategic assets’ before moving on to the next stage of declaring what the nation intends getting out of them, and is willing to give in, too.

After all, oil exploration, like air-taxiing and airport-development, involves big-time FDI, relative to the Maldives’ aspirations and requirements. If one were to acknowledge that the Maldives cannot fund such ambitious projects without external funding, technology and skilled labour, then identifying sectors and partners assumes as much significance as electing a domestic government, entrusted with that very task.

The writer is a Senior Fellow at the Observer Research Foundation

All comment pieces are the sole view of the author and do not reflect the editorial policy of Minivan News. If you would like to write an opinion piece, please send proposals to [email protected]

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