Symposium on Decoding Maldives Foreign Investment and Arbitration Law Regime: Cowrie, Coir and Commercial Diplomacy of Dhivehi Rajje

M Sornarajah has argued that in the 18th and 19th centuries, investment was mainly made in the context of colonial expansion. However, as opposed to British colonial expansion in South Asia, the British did not invest in Maldives to expand the colony. Instead, Maldives was made a British Protectorate, as I explain below, to protect existing British traders and to maintain British hegemony in the region against other Europeans. Situated in the Indian Ocean, the Maldives has always sought the attention of foreign travellers and traders. The most noted traveller among all was Ibn Batuta who spent considerable time in Maldives and worked as Qadi (judge). H.C.P. Bell wrote that being situated in direct route of Malacca to China, Maldives invited the attention of Arab traders who established their trading emporia as early as 8thcentury. 

The early export trade of the Maldives consisted of cowries, coir, coconut, and ambergris. Cowries have been so valuable for Maldives economy that Al-Bairuni called Maldives, a cowry islands. From Indian sub-continent, cowries were exported to Middle East, East Africa and West Africa. Maldivian cowries were also used as coin in several parts of the world and became one of the greatest sources of early trade with foreigners.  Later, Yamani traders used cowrie for ballast in their ships. Later, European traders also began using cowrie for ballast. In the mid-sixteen century Maldives became a vassal of Portugal. Dutch replaced Portuguese in 17th century. In 1796 Maldives came under the rule of British East India Company (BEIC) when the Dutch were expelled from Ceylon (SILVA, 2016). 

Unlike Indian landowners, the landowners on the Islands did not pay any revenue, but in lieu, the government monopolised the coir business requiring the whole of the product be brought to India – where it was paid a fixed price, somewhat below the market price. Despite its long history of trade with foreigners, it was only during 1800s that foreign traders began to conduct business in specific market locations or shops in Male. In the following years, several foreign traders, most of whom were British subjects, such as Bohras and Parsis from India, were permitted to establish warehouses and shops within Male. 

The island nation became a British protectorate officially in 1887 by virtue of Exchange of Letters.  The reason cited was heightened rioting, in which the properties of shops and warehouses of foreign traders were destroyed. The British realised that Maldives may enter into agreements with other European powers and become disastrous for their business. Therefore, they concluded the formal protection agreement with the Sultan of Maldives. In the years followed by the protection agreements foreign traders continued to grow in Male`, resulting in complete dependence of Maldivian economy on foreign traders. Unlike other countries under British protection, the Maldives was never administered directly by the British. Thus, it also resulted in country not inheriting the colonial institutions that were part of the British government in other countries (Naeem at 36).

Post-independence, Maldives’ engagement with the international community can largely be defined as one that was in tourism and environmental diplomacy. During its early years of independence, Maldives was exclusively dependent on Sri Lanka in almost every aspect of its economic life. Maldives’ mission in Colombo was the centre of commercial diplomacy, i.e., foreign relations, food security and foreign investment of the Government of Maldives. This dependent relationship ended in the 1970s when Sri Lanka nationalised the Maldives National Trading Corporation in Colombo, a major source of foreign earning for Maldives. In the following years, Maldives introduced a tourism industry, against the advice from a team of UNDP’s experts who concluded that tourism would not succeed in the country “due to lack of facilities and infrastructure” (Naeem at 33).  In 2007, Abdulla Shahid, Foreign Minister of Maldives, prepared first strategic plan to recalibrate diplomatic affairs by integrating commercial diplomacy into Foreign Ministry and overseas missions. The success Maldives overseas missions in bringing huge investments are examples of how Small Island States should prioritise their economic and political need in a multilateral world. 

Currently, Maldives provides an attractive package of incentives to investors that include, among others, lack of income, corporate, or property taxes; flexible labour regulations; no restrictions on profit repatriation. However, most of these arise currently because of inadequate legislative and regulatory measures on issues such as taxation, arbitration, investment, environment, and labour market (Naeem at 47). However, keeping in view the foreign investments and lack of legal framework to settle disputes, in 2019,  Maldives signed the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1959) and UN Convention on International Settlement Agreements Resulting from Mediation (2018). Forthcoming posts in the Symposium expand on this further.

Mohd. Imran is Lecturer, Faculty of Shariah and Law, Villa College, Maldives.