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7 biggest economic challenges ahead

Updated: Jul 29, 2023


Ibrahim Athif Shakoor

The nation and its people, in the very near future, will make choices that will shape the economic terrain, and therefore determine the quality of our shared future.

Winds and currents prevalent in today’s environment, will define the direction of our future. Given the forces that have shaped state policy for more than 2 decades now, much will need to change, if indeed we are to arrive at safer, more secure shores that will offer sanctuary today and safe harbor for the generations to come.

After more than 2 decades as a student of the local economy, I have here, attempted to compile a list of 7 critical challenges that need to be overcome, if we are to face the future with greater equanimity.

A peculiar personal outlook, amplified by an academic grounding, have resulted in my thoughts being funneled through a particular set of lenses that tend to stress the economic above other perspectives. While some of these are not typical mainstream economic issues, I do believe that they carry an economic hue, if you will.

7 biggest economic challenges ahead

1. State expenses not being reflective of state revenue

Personal expenses, and those of our family, we are all aware, will be limited by personal income. At the corporate level too, each and every entrepreneur is fully aware that business can be expanded only in relation to returns.

While we are all aware of such limitations in our personal and corporate life, when it comes to the state, for too long, we have been taught to think that services from the state need not take into consideration the income that it receives.

At the state level the only difference in spending limits lie in its power to print money. However, this power of the state to recourse to print money is a double-edged sword.

The ability to monetize, in our import dependent economy with few economic avenues, is promptly accompanied by the risk of inflation and the associated threat of currency devaluation.

2. The belief that goods and services from the state are free

‘No free lunch’ is not just an economic truism but an essential life principle. Everything has a price and a cost need to be paid.

We have, over decades, trained our citizens in an ignoble version of ‘ask and you shall receive’, without

informing them of the associated costs of state services. We have, apparently quite successfully, kept our populace ignorant to the fact that ultimately it is they, the citizens, who shall pay for the services that they demand. That, unless we desire a more debt-ridden economy, taxes will have to rise to match services being rendered.

Politicians need to inform the citizens of this reality. But ultimately, it is the citizens who need to wise up to the guile of the charlatans, and start to be more enquiring, if you will. To start asking the awkward question regarding means, when conjurors start manifesting additional projects and subsidies out of thin air. Inquire as to which expenses would be curtailed to offer substance to their illusions. How much more tax would be required to color their pipe dreams?

Unless and until the day the public demands the same stringent measure of ‘no free lunch’ concept from our public officials, our economic future would surely slip further into the doldrums.

3. The loss of scarce natural resources to the whims and fancies of any current government

The landscape of our natural resources will arise out of our marine environment, and that fact is not likely to change. The fishery industry buttressed our economy until the tourism industry exerted their dominance from around the 1990s.

Let us acknowledge the unyielding and ever-increasing threat of global climate change. Let us also admit to the urgent need to explore our marine resources in a more sustainable manner. Yet, still, fishery resources are mostly renewable. Fish caught by one dhoni, does not prevent the next to reap a harvest. Landings of this year does not determine the harvest of the next.

However, assets used for the tourism industry; our islands and lagoons are, in a manner of speaking, exclusionary in their nature. A piece of land for the development of a resort is allocated to a single investor. The next investor has to be allocated a different piece of land, or in our present context, a lagoon to reclaim and develop.

Not only are such pieces of land, excluded from other investors, they are barred to locals too. Fishermen are prevented from exploring the marine wealth of the reefs for bait and reef fishery. Locals are not allowed to enjoy the lagoons for an outing with their family.

As we celebrate 50 years of tourism development, the pot is becoming empty and the state have had to recourse to allocating virgin lagoons for development. These properties are also gifted for 50 years with the possibility of a 99 year extension.

Meanwhile, peak investor appetite have peaked and locals are expressing their dissatisfaction of the reality of weakened employment opportunities. Island councils are today protesting the usual practice of governments to allocate land to investors without seeking the view of the people from the very atoll. More and more locals are becoming vociferous about the wholesale auctions their limited natural wealth.

As the number of available islands and lagoons dwindle by day, it has also to be recognized these are the very assets from which, our next generation, and their offsprings, will have to earn their keep too. While all governments have been disposing off these rare and limited natural resources without the consent of this generation, it is also the inheritance of our next generations too, that we are auctioning off without any qualms or by-your-leave.

4. The widening wealth-gap

It’s a peculiarity of the capitalist mode of production for wealth to accumulate to the capitalist class with profitable firms, quite naturally growing bigger and mightier. This is a recognized fact for more than 150 years now and remedies to lessen the tendency, like anti-monopolistic laws, progressive taxes, have been in common parlay.

Consequence to the fact that our natural assets are extremely limited and that governments are auctioning them off, without the consent of this generation or the next, it is important to recognize that it is the current investors who are at a fast pace, taking over the control of the few remaining natural assets of the country.

It is easier, by many magnitudes, for those who own resorts to complete the financial and regulatory requirements for the next. And the next. The wealth gap is widening, at an increasing rate and in the absence of enforcement of anti-monopolistic laws and a very low threshold of progressive tax, the wealth gap will widen into the future.

5. The expanding and deepening role of expatriates in our economy

Expatriates in the workforce are essential cogs in the wheel of commerce and industry. That is a fact that need to be recognized upfront. They account for the majority of employment in the tourism and construction industries. Their expanding role in the primary industries of fishery and agriculture is officially sanctioned today. They energize the wheel of commerce and offer municipal services. It is officially recognized that expatriates are the actual investors of many commercial enterprises, both big and small. From teachers, nurses, and accountants, the professionals in our economy too, are also mostly expatriates.

Additionally, many thousands of informal transactions; from repair of the home kitchen to movement of cargo to a ferry boat and more, are totally veiled from the tax authorities and are not recorded in any manner.

It is also unto their care that we leave our elderly and our young as we look to earn and thrive. It is they who nurse our elderly and our infants at home and nourish and care for them as we seek gainful employment and to contribute to GDP numbers.

While they are such a critical cog in our economy and our daily life, remittances borne out of their earnings hit our meagre foreign currency earnings too. Since 2016, when banks started imposing a remittance fee of 3%, official remittances have actually decreased while the total expat labour pool has increased. Meaning that unofficial ‘hawala’ networks are now being used to remit their earnings and state authorities are gazing at the crystal ball to get a bearing.

Of additional concern is that Census 2022 figures starkly revealed that there is an excess of expatriate males in our resident population in the 20–40-year age category: the working population. The excess of expat males in the working age group is of additional further concern in that the resident expatriate are here to work, while the local numbers consist of all males in the reference age group, regardless of their employment status, or inclination to actually be gainfully employed.

6. Reverse de-centralization and its implications

In 2014, the United Nations Fund for Population Activities (UNFPA) in collaboration with the National Bureau of Statistics released ‘The Maldives Population Projections 2014-2054’. Accompanying as it were the 2014 census figures, the study projected the national population and their disbursement over a 40-year period.

This projection by the appropriate professionals estimated that given the dynamics of the population migration current in 2014, that by 2054 the total population would be 518,972. However, 68% of that population was projected to live in Male’ with most atolls experiencing negative growth in their population in the period. While the total population of V atoll would shrink to 543 because of outward migration, only 7 atolls and Male’ would have net growth in this projection.

After the projections were published in 2014, the inward movement have been further boosted by the Hiyaa Flat project and similar other projects in 2018, that would result in moving more than 100,000 people to Hulhumale. The present government had added insult to injury by announcing for more than 5,000 plots of land and 4,000 apartment units in the greater Male’ area, most of which in fact need to be reclaimed.

The issue of centralization of population into the greater Male’, ipso facto, will not only be accompanied by decimation of the population of the atolls. It will also, quite naturally centralize all political power into the Male’ area. Therefore, over time close to 70% of state resources will be allocated to this area, where 70% of the population will reside and where, therefore, all political power will be concentrated.

7. The refusal to seek a balance between progress and environmental considerations

It is important to state up front that development projects, especially large-scale infrastructure projects, will, by its very nature, have associated environmental costs. The requirement to balance development needs with environmental concerns have gained additional prominence as we live through this age of record temperatures, wildfires, tornadoes, mud slides and other associated natural disasters. Even though not officially acknowledged, we are indeed living in the age of Anthropocene, as appropriately named by Stoermer back in 1980.

The mandate of today, therefore, for all citizens of this earth, is to minimize environmental negatives and in fact totally give up some non-essential projects if they are known to damage the environment in any considerable form.

This issue gains additional strength because Maldives is an island nation formed of a fragile eco-system. We have also been in the vanguard of raising awareness of environmental related issues for more than 2 decades.

While we have become adept in the art of playing the victim card in order to attract ‘guilt tinged’ offerings from the wealthy, our actions back home do not translate to match our crocodile tears. To the contrary, we are, making abrupt announcements accompanied by quick implementation of projects requiring large scale reclamation in several areas of the country simultaneously. We are doing this, without in fact demonstrating the urgency with which they are being implemented or without seeking the consent of the citizens, the fabric of whose life will be forever made poorer by these devastations.

They are in quick succession being undertaken in several atolls. The people of Addu have not had any say of the massively environmentally detrimental reclamation of their reefs and lagoons to create additional land, just now. The people of Male’ have not been asked, in any manner or form, whether they require additional land to be created out of the destruction of the Giraavaru lagoon, especially when the project is being funded by auctioning two lagoons in some other atolls. And that is, of course in addition to the 40 pristine lagoons that have been titled to tourism investors and more promised in return for real estate, airport and other associated projects.

This is of course not a traditional economic issue. Much of traditional economics will speak of the advantage of population consolidation, resulting in advantages of scale, instead of the unmitigated environmental loss accompanying such projects. But, even while I’m personally unable to, today’s environmental economists can demonstrate the net economic damage that will accompany the destruction of so much of our fragile reefs and lagoons for the whims and fancies of any government.

Postscript Reflections

The attempt to limit the economic challenges to a list of 7, was always going to be tricky, and perhaps I was drawn to the magic number.

Reflections since then, and because of a few selected people who had reached out, I am aware that a few more challenges may need to be identified.

The most conspicuous absence is the issue of negative economic loss arising out of rampant corruption. I would like here to commit to definitely publishing about the issue of corruption in the near future, and indeed address more issues, if the need is identified.

I thank all those who have reached out to comment, criticize, and offer support.

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