Tag: special economic zones (SEZ)

Maldives strategically unprepared for SEZs, argues former Finance Minister Inaz

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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SEZ bill designed to incentivise investment, says Economic Development Minister

The special economic zone (SEZ) bill submitted to parliament last week is designed to incentivise foreign investment with special privileges and tax exemptions, Economic Development Minister Mohamed Saeed has said.

Speaking at a press conference this morning, Saeed said the current administration’s objective was introducing new industries in order to overcome the dependence on the tourism industry, which was vulnerable to external shocks and global events.

The Maldives had to “outperform competitors” by offering incentives so that investors would choose the country over business hubs such as Dubai, Oman, Qatar, Singapore or Hong Kong, Saeed said.

According to the draft SEZ legislation (Dhivehi), investors would be exempted from paying either import duties for capital goods brought in for the development, supervision, and operation of the zone or business profit and withholding taxes.

Moreover, investors in the SEZ will be exempted from paying goods and services tax for a 10-year period.

Additionally, a board of investment – chaired by a minister – established by the law would have the authority to lease land to foreign companies for 66 years while local companies would be able to purchase land.

Saeed said he expects the SEZ bill to become the first piece of legislation to be passed by the 18th People’s Majlis, which began its five-year term last month.

Mega-projects

The Maldives became the number one destination worldwide for “lifestyle holidays” because resorts were developed in the early 1970s as “a kind of special economic zone,” Saeed contended.

While the tourism industry was the main source of foreign currency at the moment, Saeed said the government did not believe that other industries were “alien” or unsuited to the Maldives.

Saeed suggested that the turnover from new industries set up in the SEZs could be two or three times higher than tourism.

“That is because all the large developing economies of the world are near the Maldives. For example, China and India,” he said.

Referring to the government’s ‘iHavan’ transshipment port mega-project, Saeed noted that the Maldives is strategically located astride major sea lanes in the Indian Ocean, through which cargo ships carry US$79 trillion worth of goods from East to West and vice versa annually.

Nine ships an hour travel through these channels, he added.

“Lagoons with the natural depth needed to service those ships is found in this region only in the Maldives,” he said.

While other countries would have to dredge to build ports, Saeed said the Maldives has “wave-free natural ports” that could provide services such as offshore docking facilities throughout the year.

“If turnover from tourism is US$2.5 or US$3 billion [annually], when a shipping industry with offshore docking, bunkering and bulk-breaking facilities is set up in the Maldives – one of the world’s most spacious ports – then consider the benefits. For example, consider the turnover, the GST [goods and services tax] of the turnover, [and other] taxes,” he explained.

The iHavan or Ihavandhippolhu Integrated Development Project involves a transshipment port facility, airport development, a cruise hub, yacht marina, bunkering services, a dock yard, real estate, and conventional tourism developments.

“Freeholds”

The SEZ legislation envisions nine economic zones across the country, including an industrial estate zone, export processing zone, free trade zone, enterprise zone, free port zone, single factory export processing zone, offshore banking unit zone, offshore financial services centre zone, and a high technology park zone.

President Yameen had declared in April that the SEZ bill would become “a landmark law” that would strengthen the country’s foreign investment regime.

“What we would like to confirm for the foreign investors who come to the Maldives is that foreign investors should feel that Maldives is your second home here,” Yameen said at a function in Hulhumalé.

The SEZs would be “likened to cities in Dubai or the Emirates” and “the [business] environment we have in Singapore.”

The new law would enable investors to have “freeholds” in the country and allow investors “to engage in really, really long gestative projects,” Yameen said.

“We are embarking on an era of growth,” he said.

Moreover, addressing participants of the Maldives Investor Forum in April, Yameen had said his administration was “cognisant of the needs of our investors and the requirements to strengthen and redefine the legal and regulatory environment governing foreign investments.”

“To address investment climate and to facilitate mega investments with attractive incentive packages, a Special Economic Zone Bill will be tabled in the parliament soon. Additionally, the Foreign Investment Act and Companies Act are being revised to cater the ever increasing needs of the modern foreign investors,” he said.

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Government submits bill on special economic zones

A bill on establishing special economic zones (SEZ) to attract foreign investment has been submitted to parliament on behalf of the government by Progressive Party of Maldives (PPM) MP Ahmed Nihan.

The SEZ bill becomes the first piece of legislation to be proposed by President Abdulla Yameen’s administration to the 18th People’s Majlis, the newly-elected PPM parliamentary group leader tweeted on Thursday (June 5).

Speaking to reporters prior to departing to China on Wednesday night (June 4) to attend the Kunming Trade Fair, Economic Minister Mohamed Saeed explained that special economic zones would be established in the north, south and other “strategic locations.”

The SEZ bill is intended to expand the economy and could “bring an end to the dependence on tourism,” he said.

In addition to ports and light industries, Saeed said financial services and bunkering facilities would be made available at the zones.

“So the result of this would be the introduction of different industries to the Maldivian economy in addition to tourism,” he said, adding that the new enterprises could be more lucrative and beneficial than tourism.

Referring to the impact on the Maldives from the 2004 tsunami and the spread of the SARS virus, Saeed stressed the importance of diversification, as the Maldivian economy was vulnerable to external shocks due to the extreme dependence on the tourism industry.

He noted that economic development and job creation was the key focus of President Yameen’s election campaign.

The government conducted “a wide research” in drafting the bill, Saeed continued, and studied the practices of countries such as Dubai, South Korea, Mauritius, Cyprus, China, and Singapore.

The bill would “completely ensure investor protection,” he asserted.

Business-friendly laws were essential for attracting investors for mega-projects planned by the government, Saeed noted, such as the ‘iHavan’ transhipment port project.

The minister also expressed confidence that parliament would pass the bill without delay.

Vice President Dr Mohamed Jameel Ahmed meanwhile observed that the ruling party had a clear majority in parliament with a team of young MPs committed to the government’s economic agenda.

“Freeholds”

President Yameen had declared in April that the SEZ bill would become “a landmark law” that would strengthen the country’s foreign investment regime.

“What we would like to confirm for the foreign investors who come to the Maldives is that foreign investors should feel that Maldives is your second home here,” Yameen had said at a function in Hulhumale’.

The special economic zones would be “likened to cities in Dubai or the Emirates” and “the [business] environment we have in Singapore.”

The new law would enable investors to have “freeholds” in the country and allow investors “to engage in really, really long gestative projects,” Yameen said.

“We are embarking on an era of growth,” he said.

Other economic bills in the government’s legislative agenda include bills on foreign investment, insurance, consumer protection, corporate social responsibility and small claims as well as amendments to the Maldives Monetary Authority Act and the Pensions Act.

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