Maldives: Investing

FDI in Figures

According to UNCTAD's 2021 World Investment Report, FDI flows to the Maldives declined sharply to USD 348 million in 2020 from USD 956 million in 2019 (-63.6%), due to the global health and economic crisis triggered by the Covid-19 pandemic. Despite this, the Maldives is the third largest recipient of FDI among small island developing states. The FDI stock has grown to USD 5.6 billion in 2020. Tourism attracts most of the FDI, followed by the transport and telecom sectors. India is the largest investor in the country.

Traditionally, the country has had an open and liberal, economical environment. Foreign companies are now allowed to own land, but ambiguous foreign investment laws deter investors. Property rights are generally weak; most land is owned by the government and then leased to private owners or developers. Although legally independent, the judiciary is subject to influence amid numerous allegations of judicial impropriety and abuse of power. Government screens foreign investment, and state-owned enterprises distort the economy. Costly credit and limited access to financial services impede the development of a vibrant private sector. However, the business climate deteriorated significantly after the country experienced political instability in 2012: the government's reported violations of civil and political rights, the radicalisation of young Muslims and the risk of a decrease in tourism are significant obstacles to FDI. As a result, in recent years the Maldives lost several spots in the Doing Business ranking published by the World Bank.

According to the last 2020 Doing Business report, the country ranks 147th out of 190 countries in 2020, eight places down compared to the previous edition. The COVID-19 pandemic puts Small island developing economies in dire straits. A small and narrow economic base, high degree of openness and significant dependence on few large developed countries make small island economies extremely vulnerable to global economic shocks. These economies are often at the receiving end of global crises, as they are highly dependent on external flows—trade, remittances and external capital and borrowing—compared to other groups of developing countries (United Nations, 2021). The collapse in tourist arrivals not only directly affects income and employment in airlines, ground transport and hotels, but also adversely affects the rest of the economy, including agriculture and construction. Falling tourism, and subsequently, reducing tax revenues, will exacerbate fiscal balances of many small island economies and also reduce the flow of foreign direct investment (FDI), as the tourism sector is typically the largest recipient of FDI. Foreign investments in Maldives have primarily involved resort management, but also include telecommunications, accounting, banking, insurance, air transport, real estate, courier services, and some manufacturing. Tourism will likely continue to drive the economy, however, following the COVID-19 outbreak, the government plans to introduce measures to diversify the economy, with a focus on the fisheries and agricultural sectors.

Increasing FDI in strategic development areas is one of the key pledges of the government, but in the long-term, the Maldives Foreign Direct Investment is projected to trend around -300.00 USD Million in 2022, according to our econometric models (Trading Economics, 2022). For a gobal overview on the Maldives' FDI 2021 context, access this article of the Maldives Financial Review (2021) as well as the Invest Maldives website.

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Latest Update: February 2023