Business bill under review after government raises “socio-economic” concerns

Parliament’s Economic Affairs Committee has this week begun a review of the Business Registration Bill returned to the People’s Majlis by President Dr Mohamed Waheed Hassan, after it was originally approved in April.

The President’s Office told Minivan News that the bill, initially proposed under the previous government, had been returned over fears about the impacts it could have on the country’s economy at the present time.

Official government figures indicated that inflation had risen to an annual rate of 16.53 percent in April. Earlier in the year, the Finance Committee estimated that the current budget deficit would reach 27 percent of GDP, or  Rf9.1 billion (US$590 million).

The government meanwhile announced this week that it had already been issued with a Rf300million (US$19.5 million) government loan from the Bank of Maldives (BML), despite questions being raised over whether the deal needed Majlis approval.

The government had previously asked for parliamentary approval for the budget support loan in place of an existing $65 million (Rf1 billion) loan that had been approved for the 2012 budget.  The President’s Office claimed the funding, devised as part of a “mop up” operation, would help “reduce the circular flow of rufiya in the economy” adding it would not exacerbate the current national spending shortfall.

While unfamiliar with the latest amendments being proposed to the Business Registration Bill, a former Economic Development Minister who served under the previous government claimed the legislation had originally been devised in an attempt to simplify the registration of foreign investors.

However, President’s Office Spokesperson Abbas Adil Riza said that the bill was deemed by the present government to represent the implementation of a new tax regime in the country – a decision he suggested was unreasonable considering the current economic climate.

“At a time where as I’m sure you are aware, the economy is beginning to improve, the president and the cabinet has agreed that the time is simply not right to introduce new taxes,” he said.

According to local newspaper Haveeru, President Waheed’s concerns regarding the bill were said to include “Article 3 (e)”, which relates to services provided for islands beyond the capital of Male’. The report said that the nature of these services was believed to be unclear in the original drafting of the bill.

The president was also reported to have raised an issue with a perceived failure in the bill to specify a “process” required for the registration of a foreign branch of a company in the Maldives. The government therefore requested the removal of “Article 5 (b)” as well as a number of amendments relating to the registration of a branch of a foreign company in the Maldives, raising concern over a lack of specifics related to the use of the term “foreigners”.

When questioned by Minivan News, Abbas did not specify the exact nature of the potential “legal and socio-economic ramifications” that had concerned the government about the Business Registration Bill.

The bill was one of three pieces of legislation related to economic reform returned to parliament for revision last month on the basis of issues raised by Attorney General Azima Shukoor.

The exact nature of these concerns was not detailed by the President’s Office at the time, while the attorney general was also not responding to calls today about the nature of the government’s decision to return the bill.

Finance Minister Abdulla Jihad meanwhile forwarded Minivan News to the Ministry of Economic Development concerning an enquiry on the Business Registration Bill.  Economic Development Minister Ahmed Mohamed was not responding to calls.

Reform package

Although unfamiliar with the latest proposals for amendments to the Business Registration Bill, Mahmoud Razee, Economic Development Minister under the previous government, said the legislation was original proposed as part of a wider economic reform package championed by Nasheed’s administration.

The reforms, introduced under the previous government, were further revised following consultations with the International Monetary Fund (IMF) over how to strengthen and stabilise the economy.

These policies included introducing a general Goods and Services Tax (GST); raising import duties on pork, tobacco, alcohol and plastic products; raising the Tourism Goods and Services Tax (T-GST) to 6 percent; and reducing import duties on certain products.

Razee stressed that registration bill was intended specifically to provide a “clearer means” for facilitating foreign investment within the Maldives’ business sector.

“We were trying to make it easier to register foreign shareholders here,” he said.

Taking the retail sector as an example, Razee said that the retail sector was quite “restrictive” in terms of encouraging foreign investment.


Independent MP proposes amendment to “defend” local businesses from airport developer

Kulhudhuffushi-South Independent MP Mohamed Nasheed has proposed an amendment to the Business Registration Bill in a bid to reserve airport shops and services for local ownership.

India infrastructure giant GMR currently claims exclusive rights to certain duty free items to be sold at Ibrahim Nasir International Airport (INIA), he said.

“My view is that GMR’s role has shifted from management to ownership,” Nasheed told Minivan News. “This is all about excessive and detrimental penetration into the local economy.”

A parliamentary committee is reviewing the bill and its proposed amendment.

In response to inquiries from Minivan News, GMR issued the following statement: “As part of the concessionaire we follow the terms and conditions of the agreement between the government of the Maldives and us and expect the government too to abide by it.

“The concessionaire agreement grants and specifies entitlement to directly or concession out retail activities at INIA.”

GMR is currently leasing Ibrahim Nasir International Airport (INIA) for a 25-year development project. Upon assuming management of the airport earlier this year, all airport shop contracts were set to expire on December 31, 2011 as per an earlier agreement with Maldives Airline Company Limited (MACL), with the exception of Spice Island.

The Economic Ministry today announced that GMR Male’ Retail has been registered in the Maldives. It is one of two locally-registered businesses under the corporation’s name.

Nasheed said his proposal refers to “duty free, customs clearance, cargo clearance, and the management of bonded warehouses,” industries which he believes can safely be trusted to Maldivian ownership.

“I have always objected to divesting ownership of Maldivian businesses with foreign investors when the business is within the local capacity and competency,” he explained.

“I respect that there are some areas of business and industry in which the Maldives has neither capacity nor competency. But the enterprises covered in my proposal have traditionally been local affairs. There is no reason to exclude them now simply as perks for foreign investors.”

Nasheed pointed out that many Maldivian businesses grew up around and depend on airport operations. Maldivian Island Aviation has allegedly lost business since the transfer of management, while the group running the Commercially Important Persons (CIP) lounge is now defunct.

In November of this year, GMR announced its intention to take control of cargo handling services starting in 2012. The move has allegedly forced Maldivian businesses Freight Forwarding Services and Bonito Group to lay off several employees.

In recent news, the Alpha MVKB duty-free shop at the airport was forcibly vacated by GMR and Customs officials eight months after GMR’s original notice. Rulings from the Civil and High courts upheld GMR’s right to terminate the shop’s contract, however company CEO Ibrahim ‘MVK’ Shafeeq has launched a protest under the slogan ‘Go GMR Go!’

“I understand the contractual obligation on the government’s part, and I respect the bidding process and the business competition that comes with it,” Nasheed reflected. “The airport is a gateway for tourism, but GMR’s excessively favorable terms are excessively disadvantageous to Maldivians.”

The Maldivian government signed a 25-year contract with GMR on 28 June 2010.

Under the contract the Maldivian government receives:

  • A sum of US$78 million as advance payment which is to be deducted from the profit due to government.
  • 1% of the Gross Revenue in the first four years (2010-2014) and 10% of the Gross Revenue from the general business in the remaining years.
  • 15% of the Gross Fuel Sales in the first four years and 27% of the Gross Fuel Sales in the remaining years.
  • GMR is also to invest US$375 million over a period of 25 years in construction of the new terminal.

Nasheed claimed that the government saw the GMR deal as an income generating source to solve income problems at the time. “But the deal wasn’t revised over the years,” and GMR has meanwhile made significant profits from jet fuel sale.

“GMR gets its fuel from State Trading Organisation (STO). STO rates have remained the same over the past year, however GMR’s rates have been raised twice.” He added that landing and airline fees have increased, and voiced concern that the price hike would deter business.

Meanwhile, GMR has recently opened a 30-office Airline Offices Complex, and several airlines including Ethihad and Hainan have lately begun services to Male’.

The Business Registration bill reserves certain areas of business for local owners. Nasheed said his proposal aims to enlarge that domain by two to three commodities.

“I intend to use my role as a parliamentarian to propose this amendment,” he said. “It’s just an initial step for the proposal, and I’m not sure whether it will survive the whole process. But I’m hopeful and I feel good about having done it.”


Government inviting foreigners to usurp Maldivian businesses, claims MP Muttalib

A business registration bill proposed by the government as part of its economic reform package is “a deceptive ploy” to “open up the country to foreigners”, warns MP Ibrahim Muttalib.

During today’s parliamentary debate, the Jumhooree Party (JP) MP argued that provisions in the legislation allowing foreign businesses to establish branches in the Maldives and requiring at least US$1 million as capital “proves that this bill was drafted to allow foreigners to easily do business in the Maldives.”

“Under this law, a person with US$1 million would be able to easily register a business in this country,” he explained. “Considering the state of the Maldivian people, there won’t be any businessman who has US$1 million at hand. [Foreign businesses] will be able to conduct wholesale business and sell day-to-day necessities.”

Muttalib added that local businesses that trade in footwear and garments “would not have US$1 million, except for a very few people.”

He urged MPs to consider the consequence of foreign businesses entering the footwear, garment and wholesale industry: “What is being done today is part of a neighbouring country’s efforts to open up this country for its citizens,” he said.

“The Indian government proposed opening up the service industry, tourism, travel agencies, construction, health industry, social security, financial industry, maritime travel, air travel and airplane repair under a SAFTA [South Asian Free Trade Association] agreement,” he claimed. “But because all our local industries opposed it the government has decided to do it under a law.”

While the bill specified businesses that could not be conducted by expatriates – such as fisheries, agriculture and selling commodities out of a private residence – all other kinds of businesses were “opened to foreigners” under the proposed law.

“Honourable Speaker, I do not want to live in this country as a third-class citizen,” he said.

Foreign businesses understood that a relatively small amount of capital was enough to “easily bribe officials” and secure investments such as uninhabited islands, Muttalib claimed.

According to the draft legislation, the purpose of the bill is to ensure that businesses, partnerships and cooperative societies operating in the Maldives are registered; specify what kind of businesses must be registered along with procedures for registration; and oblige businesses to submit information to the Registrar of Businesses.

MP Abdulla Mausoom of the Dhivehi Rayyithunge Party (DRP) meanwhile expressed concern that allowing foreign businesses to establish branches in the Maldives could pose challenges to local industries.

Mausoom argued that the US$1 million stipulated as a minimum capital investment for foreign businesses was too low: “All around us, whether it’s India, Celyon [Sri Lanka], Singapore, Malaysia or Africa, are looking at the Maldives; [because] their countries are saturated they are ready to do business in Maldives.

“If we open up too easily like this, [foreign] businesses will pose serious challenges to our small businesses,” he said, suggesting more restrictions to protect local industries.

MP “Reeko” Moosa Manik, acting chairperson of the ruling Maldivian Democratic Party (MDP), noted that there were numerous unregistered businesses operating in the Maldives by foreign parties.

“In the woods in some islands, especially [Laamu Atoll], there’s even an immigration department,” he said, adding that he has learned of work visas approved for ten people under the name of one person. “There’s no particular business done by these people, in sum they’re involved in all business.”